November 7, 2021 | 5:32 pm
Introspective By Romeo L.
Bernardo
It is not often that we can take solace as a lower middle-income country, as we move a few paces behind the developed world’s progress. However, as I sit back and watch the 2021 global energy crisis unfold, I take comfort in knowing that being behind the curve also means having the opportunity to learn from experiences of those ahead of us.
By all accounts,
the crisis is a product of many converging factors, resulting in a perfect
storm of power shortages and high power prices. In Europe, the closure of coal
and nuclear power plants, an unusually low wind season, drier weather
conditions, high commodity prices due to supply shortages, and a post-COVID
bounce back in economic activity and energy demand seem to all play a role. In
Brazil, their worst drought in over 90 years is drying up reservoirs and
threatening energy supply across the country. In China, coming from a cold winter
drawing down energy stockpiles, heavy rains and floods in mid-year closing down
coal mines, local environmental regulations, and high commodity prices seem to
be the main culprits. On top of that, colder-than-normal weather is now adding
to winter demand as people heat their homes, while ice also wreaks havoc on
grid infrastructure.
Now, is there a
thread that pulls these contributing factors together? And what implications
does it have for our policy decision making in the Philippines, if any? I would
like to focus on the energy policy directions that contributed to the
situation, so that we in the Philippines can learn and we can chart a better
path towards energy security and decarbonization.
I would posit the
view that much of the 2021 energy crisis is a result of the choices that many
countries have made in the process of decarbonizing their energy systems. And
to understand the choices, it is instructive to look at the political climate
and how it is responding to the challenges posed by a rapidly changing Earth
climate.
Politics responds
to social pressure. And with energy, the societal discourse around climate
change has been driven by extreme points of views — the climate deniers on the
right and the climate alarmists on the left. This has resulted in a reductive
discourse that seeds in the uninformed person’s mind that we only have two
choices. Either we don’t believe in climate change and stick to our current
hydrocarbon-based energy system or we do believe in climate change and therefore
must dismantle our current system and invest in electrification and renewables.
This conversation does not appreciate the complexity of the problem and it is
dangerous because it dismisses solutions that we will need that may not fit
neatly into the two boxes at the extremes.
This global
conversation and the political policymaking that responds to it today signal to
markets that we must invest in renewables and very little else. We see
companies in all energy sectors pivot from coal and oil and gas to varying
degrees and under different timelines. On the face of it, this may sound like
good news for those worried about climate change. However, if you also worry
about your ability to earn a living, your ability to support your families, and
our ability as a society to move up the development curve towards a more
prosperous future, we may want to take a step back and consider the cost of
this transition pathway and who should bear it.
Germany provides
for an instructive case study on the costs of a transition that takes a
renewable at-all-cost and at full-speed approach. In 2010, Germany embarked on
a program called Energiewende to decommission their nuclear and coal plants and
build renewables in their place. They did this through a combination of subsidies
and incentives. This has helped them increase the mix of low carbon (renewables
and nuclear power) electricity consumption from around 40% to 56% and to reduce
GHGs (greenhouse gasses) from energy by 22% in a 10-year period. This
transition however has cost them at least 160 billion euros over the last five
years alone and is largely cited as the reason why electricity costs to
households have increased 25% from Euro 0.24/kWh to 0.30/kWh over the last 10
years. Mind you, this is despite Germany being connected to the rest of
the European grid, and thus having the convenient and cheap way of managing
intermittency that characterizes new solar and wind power, e.g., they feed off
the French nuclear power well, et al. when domestic power production is low or demand
is high, and export surplus power when their renewable energy sources produce
too much or demand is low.
Germany and other
first-mover markets have subsidized the rest of the world for a portion of the
technology costs of the transition. We can expect it to be less expensive
moving forward. However, we should look at how the math adds up and ask the
question, is that the best pathway forward for the Philippines?
Complicating the
matter further is the question “who should bear the costs of the transition?”
Climate equity or justice, which your author will use interchangeably in this
article, is a concept that developed to acknowledge and address the inequities
involved in tackling the climate crisis. It acknowledges that we all have
varying levels of historical responsibility for the current stock of GHGs
globally. It highlights that each community, each country has a different
capacity and potential to mitigate climate change. Lastly, it points out that
each community and country are affected to varying degrees by climate change
and need varying levels of adaptation.
The Philippines
contributes 0.3% of global GHG emissions today (and a lower share of the
historical stock), which is a drop in the proverbial bucket. As a share of the
world population, the Philippines is three times this number. To illustrate
this further, our per capita carbon footprint is 1.98 tons per capita which is
a tiny fraction of that of industrialized countries, with the US emitting 15.52
tons per capita, Germany at 9.44, and China at 7.38.
Arguably, we have
lower potential and capacity to mitigate the crisis, given the current
technical and commercial limitations to access our renewable energy resources,
the relatively low-income levels of our people, our lack of basic R&D
infrastructure, and other factors. A key consideration is intermittency of new
solar and wind. Given the current state of technology and cost of battery
storage, only fossil fuels can provide the Philippine base load capacity needed
to drive industry. Especially required now as we try to recover from this
pandemic — we need secure and affordable power to attract investment and
quality jobs to lift the quarter of our people who are jobless and in absolute
poverty.
Finally, we are
expected to be hard hit by adverse effects of climate change and therefore will
need to invest considerably in adapting to what is a global crisis that we
alone cannot solve.
All of this points
to the conclusion that we should bear considerably less of the cost of the
transition than other countries. To his credit, Finance Secretary Carlos
Dominguez III has recently publicly taken developed countries to task on this
matter. Ultimately, we all share a common goal but our responsibilities will
vary. Let’s learn from the experiences in the developed world and avoid
quick-fix pathways and craft an energy transition with the Filipino people in
mind and that the Filipino people can afford.
Our power
regulators, financial regulators, and other public stewards should be mindful
of the tradeoffs and high stakes in climate-related decisions. We all dislike
coal and other carbon intensive industries, but we should dislike seeing our
people in abject poverty even more.
Romeo L. Bernardo
is GlobalSource Partners Philippine advisor. He served as finance
undersecretary in the administrations of Corazon Aquino and Fidel Ramos. He is
an independent director in a leading local power generation and distribution
company.
romeo.lopez.bernardo@gmail.com
