Insouciant economics

When calling for climate action, it is fundamental that the economics work; money talks. In the past, economics have been a major conflict towards sustainable developments, so what has changed to allow for economically sound climate action?

The profitable investments in fossil fuels made the transition to green alternatives difficult as investors have favoured traditional fossil fuel usage due to high returns over the lower returns of sustainable alternatives. In addition, many global economies were and are supported by their fossil fuels exports and a move away from these commodities threatens to send these countries into recession. It is no secret that fossil fuel companies have in the past and continue to lobby politics against participating or promoting green movements, pretending to withdraw their funding to parties, and locking them in to dirty fuel based growth. In a nutshell, fossil fuel investments boasted high returns with little concern for a shift in consumption patterns as promoted by politics. The role of politics in sustainable development is a topic I will cover in the next few weeks, here I would like to focus on how a lack of supportive policy has lead to unfavourable economics and hence little to no sustainable development in the past. 

In 2012, the top 40 mining companies earned a profit of 13 cents per every US$ spent. However, since 2011, oil prices have dropped drastically as a result of over supply and investment uncertainty giving renewables a market opportunity to compete. 

The 'sunshine state of Florida' is a great case study for this. Despite its name and phenomenal potential for solar power, Florida relies almost entirely on traditional fossil fuel based electricity. This is a result of RN Light, the biggest supply utility in the state, who were able to pass legislation ensuring that people are only able to buy their power from utilities and not independent solar energy suppliers. Lower sales of solar systems keep the prices high, forcing solar businesses to close and make their attractiveness for investment or stock exchange listings marginal. Multiple examples similar to this are seen near (Nevada) and far (South Africa). 

Florida is the third largest electricity consumer in the US, paying 40% higher rates than the US average. In 2015, only 2.3% of the total net electricity generation came from renewables (EIA, 2016)

The largest impact to economies under policy since the beginning of sustainable development however, is owed to the Free Trade Agreement of 1988. Naomi Klein has written an incredible book called This Changes Everything which underpins the effect of this agreement and indeed politics, on sustainable development. In it she states [it] "was never really about trading goods across borders... It was always about using these sweeping deals, as well as a range of other tools, to lock in a global policy framework that provided maximum freedom to multinational corporations to produce their goods as cheaply as possible and sell them with as few regulations as possible — while paying as little in taxes as possible... a process powered by the liberation of unprecedented amounts of fossil fuels". At a time when we had a choice to grow markets (albeit most likely not as quickly) using clean resources with our planet in mind, we chose dirty and we chose capitalism. Worst of all, where progress towards a greener future was made, countries started attacking each other, using the Free Trade Agreement as a weapon to destroy small, local, green initiatives and crushing hope for others that had yet to come. Ontario in Canada is one of the most heartbreaking examples whereby it's Green Energy and Green Economy Act (2009), hailed as "the most comprehensive renewable energy policy entered anywhere around the world (Michael Eckhart, then president of the American Council of Renewable Energy), was sued my Japan and the European Union for discrimination 'against equipment for renewable energy generation facilities produced outside Ontario'. The World Trade Organisation ruled in their favour and the project collapsed.

But less than half a decade on, the world is calling for climate action. In 2000, Sheikh Ahmed Zaki Yamani, former Saudi Arabian oil minister prophesied “The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.” and indeed, 2015 was the first year that the top 40 mining companies declared a net loss. So what has changed in our economics to allow for a renewable opportunity?

A 2015 study concluded that mining activity in the Canadian tar sands adversely affected human health and environmental through deposits of toxic heavy metals

Since 2011 however, the oil price has crashed from US$111.26 to US$48.17 per barrel. This is predominantly due to rampant supply and weak demand over a slowing global economic growth (PwC, 2016). 90 oil and gas companies have filed for bankruptcy since the start of 2015, as oil proves to be unprofitable under US$70 per barrel. Massive debt has been synonymous too. Over and above this, a study from 2010 accurately anticipated the doubling of investment in production and exploration, as well as drilling with outputs only marginally increasing as a result of diminishing reserves overcome by tapping into dirtier more extreme forms of energy (such as the tar sands) in order to maintain reserve replacement-ratios at 100%. With these dilemmas and a push towards clean technologies and climate policy, investment in oil is fading and this has given rise to the opportunity of renewables to make an entry. 

In 2015, renewables made up 19.2% of the global final energy demand with investments by developing countries for new renewable energies exceeding developed countries for the first time in history. This has been aided through cheaper production of renewable energy parts, a push by citizens concerned for their health such as in China and growing political will. Recent research on the impacts of these new renewables however, may undermine the very basis of sustainability on which these technologies are based (more to come on this later). My next blog will endeavour to explain economic barriers to present sustainable developments and their future in a greener world. 

Wind farms have a 'capacity factor' (efficiency) of only 41%, begging the question: are the economics of wind power are sustainable?