Comment: Electricty across the globe is emitting less carbon

By Liam Denning / Bloomberg Opinion

Here’s an arresting thought: 2022 may have been the year carbon emissions from the global electricity sector peaked for good. Yet the energy technologies that got us there face a growing thicket of restraints just at the wrong moment.

The prospect of an emissions peak is raised in a recent review of global electricity data published by Ember, a United Kingdom-based think tank that advocates for clean energy. This would be an epochal event: Electricity generation is the single biggest source of energy-related carbon dioxide emissions, accounting for 42 percent last year. If transitions are all about replacing one set of technologies with another, that process begins with the older system peaking, then declining.

For all the complexities that involves, the math is straightforward: If global electricity demand rises by X watt-hours and non-emitting generation rises by X+1 watt-hours then, by definition, electricity from carbon-emitting sources like coal and natural gas declined.

Last year, non-fossil fuel sources — including wind, solar, nuclear, hydro and biofuels — met 74 percent of the increase in electricity demand, on Ember’s numbers. The figure is 80 percent for wind and solar alone, reflecting an unusual drop in other non-emitting output, mainly due to French nuclear outages and closures in Germany. All-told, this brought emissions intensity for the global power sector to an all-time low.

With a few basic assumptions, non-emitting generation’s share of the growth in demand could plausibly push past 100 percent this year, meaning electricity from fossil fuels would drop slightly. Assume demand for electricity grows by 2.5 percent, wind and solar output by 18.6 percent and generation from other non-emitting sources by 1.7 percent (these are all 10-year averages through 2022). On that basis, the world would consume an extra 726 terawatt-hours; and non-emitting sources would provide all that and more, with an extra 773 terawatt-hours.

Before you write obituaries for coal and natural gas, remember the adage that some models are useful but all are wrong. Plus, that mooted drop in fossil-fuel generation in 2023 is tiny and we’ve seen such drops before this century, including in 2019 (the other two, 2009 and 2020, had some extenuating circumstances, you may recall). Tweak the assumptions on 2023 to using five-year averages instead, and fossil-fuel generation would increase slightly. (This outcome would see global electricity demand rise a bit faster, at 2.6 percent, while generation from solar and wind and other non-emitting sources would increase at a slower pace, 16.9 percent and 1.3 percent, respectively. The upshot would be an extra 753 terawatt-hours of demand met by 721 terawatt-hours of extra non-emitting generation, leaving a small amount to be picked up by extra fossil-fuel generation.)

Nonetheless, the math is so finely balanced that incumbent generators, after many decades of dominance and assured growth, face a new and more challenging future. The sustained double-digit growth in renewables’ output looks bound to overwhelm the low, linear growth in electricity demand — thereby capping and ultimately reducing fossil-fuel generation’s share — soon, even if not this year. Solar and wind power are by far the biggest reason for that. Last year’s increase in wind and solar generation alone was equivalent to Germany’s entire electricity consumption.

Even just a decade ago, solar and wind power were relatively rare, producing 3 percent of the world’s electricity. Outside of California, spotting rooftop panels in the U.S. was liable to provoke a double-take. Since then, the cost of wind power has fallen by about half; solar by about 80 percent. Together, they now generate 12 percent of the world’s electricity, overtaking nuclear power. What was unfamiliar and cutting-edge has become mainstream; a bit boring, even.

There’s a risk in that for wind and solar power in this moment, however. Their meteoric rise — with output growing more than 100-fold since 2000 — is owed chiefly to a mix of supportive climate policy in multiple jurisdictions and supportive industrial policy, especially in China. The former put a high value on their avoided emissions while the latter ground down their cost.

We are now seeing reversals, or attempted reversals, on both fronts. That may sound strange given that the share of the world’s emissions from nations without a net-zero target has dropped from 70 percent to 9 percent in the space of just three years, according to figures compiled by Bloomberg NEF. In those same three years, however, Russia’s war in Ukraine and a broader fragmentation in trading relationships have arisen to challenge such targets, which were ambitious enough already.

A renewed focus on energy security can work in renewables’ favor since they help to diversify away from imported fossil fuels. But it can also cut the other way, encouraging use and development of domestic fossil fuels and thermal generation sources as an alternative or even just a backup system. Witness China’s plans to build a large number of new coal-fired plants, adding to a coal fleet that already produces more electricity than the entire U.S. grid.

In the U.S., the politics surrounding clean tech have changed dramatically in the past year with the passage of the Inflation Reduction Act, mostly for the better in terms of encouraging more demand. Yet the IRA’s heavy domestic content elements, coming in the context of deteriorating relations with China, mean at least some of the extra subsidies will go on meeting the higher costs of disrupted supply chains. Congress’s recent vote trying to force the White House to reimpose sanctions on solar panels from several countries in Asia will almost certainly be vetoed by the president. But the wider protectionist tendencies that threaten to reverse the cost declines underpinning the boom in solar and wind power, at least for some years, remain. They are integral to the president’s own plans, even if they exist in tension.

That is in part because, at the other extreme, many Republican legislators have adopted an instinctive hostility to clean energy, no matter how beneficial it might be to their own districts. Texas has emerged as a champion of sorts, with state senators seemingly ready to crush its own booming renewables sector — and a swath of landowners — just to prove … something. Irrational as that is, it dovetails to some degree with growing opposition to utility-scale renewable energy projects by some local communities in the U.S. and Europe. In a way, that’s another sign of success: All energy projects ruffle someone’s feathers as they dot more of the landscape. It’s a problem, nonetheless.

We have a habit in the U.S. of burdening our energy markets with oblique objectives, be it the various social surcharges layered into Californian utility bills or attempts to boost one type of politically-favored energy over another (thanks again, Texas.) I don’t count emissions-related charges or subsidies here because, however imperfect they may be, they address an externality intrinsic to the energy system. Still, using energy policy to achieve geopolitical or labor goals (or just to scratch some inflamed ideological itch) inherently risks distorting or derailing the energy goals.

Solar and wind power have achieved a great deal so far and may be on the cusp of forcing the first big peak in emissions. Yet to maintain momentum, policy must remain supportive rather than distracting or constraining. The public good they engender — lower emissions — remains too nebulously valued in much of the world to assume they have achieved escape velocity. Moreover, overcoming their limitations of variability means fostering further enormous advancements in the related killer apps of energy storage and sophisticated demand management. These also need targeted, single-minded policy support and electricity market reform to flourish fully.

Wind and solar power’s graduation from the exotic to the humdrum is to be celebrated. For any technology, boring is good. Boring means it is so safe, reliable and affordable that we don’t really have to worry about it. Just don’t let that breed complacency.

Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’s Lex column.