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Consumers are incentivised to use significantly less energy as escalating growth in carbon emissions forces utilities to change their business models.
As highlighted previously, one of the four main certainties about the next ten years is that we will experience key resource constraints. One of the most significant issues here is clearly energy and, with our continued over-dependency on fossil fuels and the increasing global susceptibility to the impacts of climate change, momentum for change is building. However, we are not yet at a stage where either global agreements will take effect or where technological breakthroughs will provide new solutions; nor are there credible alternative pathways on the table for developing economies.
Few now doubt that the earth is warming, nor that human-related emissions are in many ways responsible. Even so, as ever more varied organisations are now declaring, the rise in carbon emissions shows no sign of slowing. The targets of keeping the amount of carbon dioxide in the atmosphere down to 450 ppm (parts per million) and the average global temperature rise below 2°C are increasingly seen as being unrealistic. In many eyes, ‘we have already gone too far’ and the challenge is now to mitigate the damage and deal with the consequences over the next twenty years until new options come on line. The more hopeful ambition of taking actions to hit the preferred 350 ppm target is also disappearing fast.
The failure of Copenhagen to agree a binding agreement on greenhouse gases to which all countries can set their targets demonstrates that more time is needed before governments around the world make the necessary tough decisions to halt the growth in carbon emissions. Although the next decade may well see such an agreement come into force, even the optimists recognise that the timescale for its impact will be more like 2050 than 2020. Globally ambitious targets may be set, but global impact is a long way off.
From a technological perspective, the viable ‘clean solutions’ of nuclear, wind, wave and solar are now all clear to many, but the timescales for action here are also well beyond the ten year horizon. Building and commissioning nuclear power stations takes five to ten years and so, although China and others are now constructing a significant number, it is clear by just looking at which governments are yet to make this decision that any significant global shift to nuclear is a good way off. In addition, although solar, wind and wave are all growing and receiving more investment, the share of the world’s energy needs that can be met from these sources by 2020 is at most 25%.
In terms of the main developing economies and their appetite for energy, the ‘energy ladder’ diagram highlights the challenge. As economies grow, so do their energy consumption levels: hence, as the BRIC countries and others achieve increasing GDP per capita over the next decade, their average energy consumption is also destined to increase. As Leo Roodhart pointed out in the initial perspective on the future of energy, ‘we cannot stop China and India from growing’. Taking all countries’ current projections into account, globally, energy demand is likely to double over the first half of this century and, according to the International Energy Agency’s reference scenario, ‘over the next twenty years, global energy demand will increase around 40%’.
[INSERT “The energy ladder” GRAPH]
Viewing all this together, it is increasingly clear that, on current projections, it will be at least 2050 before any flattening off of carbon emissions will occur. If an average global temperature rise of even 4°C is to be avoided, then ‘an alternative way of thinking is essential’. Action is being called for across many countries and organisations, and in many ways the only option available to us in the next decade is to tackle our thirst for energy. To stand any chance of heading off seemingly inevitable climate change, we all need to halve our annual energy consumption by 2020 – every person and every organisation.
Persuading us to do this is no easy task, but several organisations are starting to make moves in the right direction. In 2010 in Europe, E.ON launched a major campaign focused on ‘helping our customers cut their energy use’. In what, from a business growth perspective, appears counter-intuitive for a company that makes money by selling energy, E.ON is encouraging less demand. Other companies are now planning to follow suit: being seen as one of the organisations trying to proactively do something about the problem is arguably good for the brand and good for market share. Going on in a business-as-usual fashion is no longer seen as viable. Singapore has launched a national 10% energy efficiency challenge and Japan, by many steps the world’s most energy-frugal developed country, is similarly trying to further cut consumption.
However, to have a meaningful impact on emissions, the biggest challenge is to address the world’s largest energy consumers, the US and China. While China is able to exert central control and build new nuclear power stations, in the US, the world’s largest energy consumer, the issue is all about changing consumer behaviour. According to recent McKinsey research, ‘the US economy has the potential to reduce annual non–transportation energy consumption by roughly 23% by 2020, eliminating more than $1.2 trillion in waste – well beyond the $520 billion upfront investment (not including programme costs) that would be required. The reduction in energy use would also result in the abatement of 1.1 gigatons of greenhouse gas emissions annually – the equivalent of taking the entire US fleet of passenger vehicles and light trucks off the roads.’ The problem right now is how to persuade a population used to consuming over twice the energy per capita of most other developed nations to drive less, and in smaller cars, turn the thermostats down in the winter and use less air-conditioning in the summer.
Some experts hope that the Deepwater Horizon blow-out may well be the start of a change in attitude, but, if it is not, many see other catalysts ahead. Looking forward to the next few years, many see a tipping point approaching as more natural disasters like Katrina, increased concerns over energy security and regular brown-outs in major cities become common place. Although most do not see that any government will be willing to act to legislate to, say, quadruple the price of energy to force behaviour change, a number of influential commentators do envisage that “common sense will eventually prevail.” To what extent change will occur by 2020 is clearly an open question, but as many are broadcasting doom and gloom, many others are looking hopeful. As one workshop participant suggested: ‘Do not underestimate the influence of the growing middle classes in India and China to set an alternative path and create a better ambition – one that does not seek to emulate the US.’ The arguments have been made, action is starting to take place and some companies are proactively seeking to change the status quo. Although in no way certain, we can however be increasingly confident that, by 2020, each of us will, by choice or as a consequence of regulation, be using less energy.