Ramez Naam on renewables

A Twitter thread by Ramez Naam

Here's a THREAD about divestment (and why it's driven mostly by economics, not good citizenship), theories of change in climate / energy, and the power of tapping into self-interested economic motivations among corporates, banks, and investers.  Ready? Here we go.

Last year I gave a talk for a sovereign wealth  fund in Asia. In addition to their CEO and leadership team, they were also hosting the CEO and top executives of a bank with hundreds of billions under management - a bank that was, at the time, lending to coal projects. 

This talk, to be clear, was a very big deal by my standards. I frequently talk to groups of CEOs, corporate execs, bankers, and investors. But the money under management in the room was pretty staggering - and I viewed it as a huge opportunity to have an impact.

Before my talk, the CEO of said multi-hundred-billion-dollar bank asked to meet. I told him the thesis of my talk: That building clean energy would soon be cheaper than *operating* existing coal & even gas generation. You can see that argument here. 

The CEO of this bank was visibly agitated upon hearing my argument. "What about these coal projects we're lending billions to now?" he asked. "They're bad loans," I replied. "They're high risk of default. You shouldn't be making them." 

After the CEO conversation, I gave my talk, which made an economic argument for this disruption, based on the learning curves for solar, wind, & storage, & assessments made by utilities (NIPSCO), think tanks (CarbonTracker), & analysts (McKinsey). All of which find the same.

I went home, unsure if I'd made any impact at all. (As is frequently the case, you only find out later.)

1 month to the day later, I read in the news that this bank had announced a no-new-coal-financing policy. 

Later in the year, I was back in Asia, and got to talk briefly to both the bank CEO and their head of sustainability.  The bank CEO grudgingly said "The economic argument in your talk is what we were missing. That decided us."  

The head of sustainability for the bank told me that he'd spent the last several years making a good-corporate-citizen argument for divesting from coal, and it was the economic argument - that coal is now a terrible investment - that actually swayed the CEO. 

There is a lot of energy around divestment these days.  @davidfickling argues - correctly - that equity investment (selling fossil fuel stocks) makes little difference. But cutting off project finance from banks can make a major difference. ( https://bloomberg.com/opinion/articles/2019-11-19/debt-investors-are-cutting-off-financing-for-fossil-fuels )

The place where I disagree slightly from David is that most of the divestment thus far hasn't been driven by moral issues. The heads of fossil fuel funders aren't dumb. They know climate change is real. Divestment is mostly driven by economics. 

The lesson from that is that, if you want to close the spigot of debt financing:1. Keep driving clean energy cheaper. 2. Communicate the future cost trends - based on actual learning rates, not conservative IEA forecasts - to these funders. 

Finally, all of this is admittedly anecdotal. But I've seen it first hand three times: That bank in Asia, one of the largest banks in Africa, and a multi-billion-dollar infrastructure fund that is now starving its fossil fuel investments. That's enough to see a pattern. 

Finally finally, I hope you'll forgive what may sound like bragging. I'm just a messenger. The real credit goes to everyone who's driven down the cost of clean energy, storage, and EVs. My goal here is to share what I've seen work, and to encourage others to give it a shot. 

Even in Oil & Gas, if those companies saw a way to make as much money in renewables & EVs - or truly believed that their current investments were at risk, you'd see their businesses shift quickly to investing in clean energy and EVs,

Three more thoughts :1. This is why I fly. A lot. These talks just have far less impact not there in person. (I pay to remove the carbon emissions from my flights via http://nori.com)2. The same economic argument is now viable with electric vehicles & soon with oil.3. But unfortunately, the economic disruption argument is very distant with industrial emissions & for agriculture / deforestation, absent strong policy in those sectors. 

Economics are on path to disrupt fossil electricity and most oil consumption. But not industry or ag.

My comments:

1. Note that the chart only extends to 2022, the data 2019-2022 are from signed contracts, i.e., are NOT forecasts.  If we pushed it further out, and forecast continuing declines, renewables wouldn't just be at the bottom of the range of fossil fuel costs—they would be below them.  Everywhere.
2. Coal is finished, and gas won't last much longer.  Outside the USA, gas isn't cheaper than coal, though it has the advantage of being cleaner-burning than coal, so when fossil-fuel power stations are shuttered, coal will go first.  If you lend or invest in coal (mines/power stations/transport) you are going to lose your money. 
3. CSP (concentrated solar power) is cheaper than I thought.  I believed that the learning curve with CSP was over, but it doesn't look like it.  Once again, in the chart, that's signed contracts, not projections/forecasts.  Remember that CSP comes with 10 hours of storage, making it very close to baseload.  
4. Yes, it's true than in agriculture, iron & steel, air transport, and sea transport, there are no cost advantages is going fossil-free.  But, there weren't in electricity generation or EVs either.  And the reason these technologies are now cheaper is because they were initially subsidised, while fossil fuel generation was regulated, and this allowed these new technologies to move down the learning curve.  I have no doubt that a carbon tax imposed on these sectors will create similar learning curves and costs will drop.  Also, at the beginning, wind and solar were ten times as expensive as coal, whereas with iron & steel, cement, sea and transport, the new green alternatives are only twice as expensive as the polluting alternatives.