CLIMATE CHANGE, BUSINESS, AND INVESTING FOR THE FUTURE
Thank you very much for that warm welcome.
Warm welcomes are a good thing. But a warming planet is not.
We are all familiar with the many studies about manmade climate change. We know that global warming poses a terrible threat to our infrastructure, our food and water, our national security, our prosperity, our way of life. We also know that we can slow climate change through robust and sustained international action to reduce the worldwide use of fossil fuels.
Current levels of carbon emissions cannot continue without catastrophic consequences for humanity and the planet. The fossil fuel-based model of development is fundamentally incompatible with environmental limits. It is unsustainable.
This means that a radical transformation of our energy economy is inevitable. Because when something absolutely cannot continue…it won’t!
So the question is not whether humanity will move away from fossil fuels. We will. The question is whether we will move away from fossil fuels soon enough.
Will we move away from fossil fuels before or after the costs have become oppressively high?
Will we move away from fossil fuels before or after it is too late to prevent irreversible damage to our economies and our environment?
I am cautiously optimistic that we can get this right. After too much delay and too much denial for too long, we finally are seeing hope of real progress to address the climate crisis.
We are seeing progress at the political level. We are seeing progress at the technological level.
And we are seeing progress in the private sector, as entrepreneurs and businesses – supported by intelligent public policies -- are finding great opportunities in efficiency and in cleaner technologies.
Recent technological breakthroughs and rapidly falling costs in areas like solar energy and batteries are creating a new energy paradigm -- and business leaders increasingly are seeing and seizing new opportunities.
Europeans have led the way, of course, in wind and solar energy, in large part because of aggressive efforts by governments like Germany’s. Italian alternative energy has grown rapidly, and right here in Spain we have some of the most dynamic and forward-looking solar companies in the world.
And now, largely thanks to the demand for solar that came from Germany and Europe, the cost of solar panels has dropped sharply – and other regions have started really amping up their efforts.
The recent growth of solar is very impressive.
The US will complete its one millionth solar installation in 2015, following a 36 percent increase in solar PV installations over the last year.
The US has installed more solar in the past 2 years than in the previous 38 years – combined!
And the reason for this growth is the sharp drop in the costs of solar panels, which has brought costs down close to grid parity. In some markets, solar is already at or below cost parity with grid-generated electricity. In the last 18 months, US utilities signed 4 GW of power purchase agreements at prices competitive with, and in some cases below, natural gas.
Last year, utility-scale wind and solar power accounted for almost half of new electricity generation capacity in the U.S. Eleven of the 50 states now generate more than 10 percent of their electricity from solar, wind, and geothermal power, and three states exceed 20 percent.
The Chinese and Japanese solar markets also are growing rapidly, and now make up 50 percent of the world photovoltaic market. China is on track to meet its target of 35 GW of installed solar this year, and Japan’s feed-in tariff is spurring strong growth, which the Japan Photovoltaic Energy Association predicts may reach 100 GW by 2030.
India plans to grow its 2 GW of installed solar capacity to 20 GW. And remote solar and microgrids are bringing electricity to millions in sub-Sahara Africa, where only 30% of people have access to electric power.
As the solar industry grows, it is also producing jobs and investment opportunities not just in installation but also in maintenance of existing capacity.
Investors don’t want just to build solar. They also want to operate it.
They care about long-term financial and technical performance, and this is creating a new market for asset management services to optimize physical plant, to maintain contracts, and to manage on-going costs and financials, such as insurance.
Those businesses that embrace new energy technologies first will enjoy powerful competitive advantages. A few years from now we will see that those businesses that invested today in low-carbon and no-carbon technologies were smart. They will be the great companies of the future, because they invested for the future.
Those who instead chose to put their heads in the sand and cling to the old carbon-intensive technologies will lose competitive advantages. They will be the companies of the past.
Political leaders increasingly are aware of both the risks of inaction and the opportunities of action. And in much of the world they are moving in the right direction.
But we have not quite turned the political corner yet. There is work to be done. In most countries, the battle against climate change denial and evasion of the problem has been won – people understand the reality and are starting to face up to it with smart, realistic policies. But in several countries, the battle for climate realism is still on. In my country, climate change denial-ism still persists in the Republican Party. And despite the important administrative actions taken by President Obama, the USA is not yet doing all it needs to do. We have seen inadequate progress, and even backsliding in several other countries, such as Australia, Canada, Japan and Russia.
I am a former politician. I understand the pressure that politicians are under by organized interests. But political leaders need to lead. They need to stop hiding behind silly slogans like “I am not a scientist,” and face the reality of climate change. The future will be decarbonized -- and those countries and those companies that take the lead will be the winners of tomorrow.
Business leaders can be very helpful here: If politicians are not moving forward, business leaders need to give them a push. Otherwise, it will be climate related calamities—floods and droughts and hurricanes -- that will force their hands.
Globally, we have a real chance to turn the corner this year, toward a sustainable model of economic growth that benefits the entire world. We must not squander that chance. Time is short.
After decades of painfully slow progress, national leaders are moving us toward what could be -- what I fervently hope will be -- a historic global agreement on carbon this December in Paris.
Responsible, thoughtful leaders have seen the future and they are reaching for it. Presidents Obama and Xi reached an extremely important agreement last year to reduce emissions, and Chancellor Merkel has provided steady and positive leadership for Germany, for Europe and for the world.
This month’s G-7 meeting was encouraging. The commitment of the G-7 nations to de-carbonize the global economy in this century is historic, and the G-7 result augurs well for a successful global accord in Paris. The G-7 and the EU account for nearly a third of global emissions. And their combined climate plans move us closer to the goal that scientist say we must achieve to avoid catastrophic disruption -- holding global warming to 2 degrees Celsius.
That is really significant.
Together with China, the G-7 and EU countries produce the most carbon pollution – and therefore can do the most to reduce it. And these are the countries that largely shape the trajectory and pace of global technological change. Overall, governments of these countries are headed in the direction we want to see -- toward providing the private sector with supportive policy contexts for the development of a new energy economy.
But there is still a lot of work to be done. Despite recent progress, a significant gap remains between what governments are doing and what needs to be done to meet the 2% target. Current policies probably would stabilize emissions through 2030, but that will not be enough to reach our goals. We need to reduce emissions much faster than we are.
Studies suggest that that the commitments made to date by the G-7 and the EU will get us part of the way to the 2°C target – but not all the way. The main trouble is in the shorter-term goals. More rapid emissions reductions than projected over the rest of this decade will be needed to keep down the costs of longer-term goals.
And several countries need to up their game even more. Among the bigger economies, Russia is particularly worrisome. It is a great irony that a country that is already starting to feel the costly destruction of climate change, especially in the artic, is also pursuing an aggressively carbon-intensive revenue model.
Russia is a textbook case of unwise investment in an unsustainable future. Russia has raised taxes on small businesses, while giving huge tax subsidies to fossil fuel industries. This sets Russia up for failure, no matter what else happens in the rest of the world. If the rest of the world does what it needs to do and cuts back drastically on fossil fuel consumption, Russia will lose -- as its exports of oil and gas decline in price, quantity or both. If the rest of the world fails to do what it must, and disruptive climate change takes place, everyone including Russia will lose.
Japan’s efforts to date also are insufficient. Japan intends to use forestry accounting and an overseas crediting mechanism to meet much of its carbon-reduction targets. A great and innovative country like Japan – a nation distinguished by it excellent and inventive companies – can do better. Japan even intends to continue building coal plants. This is a big mistake.
Japan needs to move toward alternative energy and efficiency much more aggressively. Its current plans fall short of what Japan is capable of -- and if not revised they will put Japanese industry at a competitive disadvantage to other countries that are moving toward the technologies of the future more rapidly.
Canada is another rich and technologically-advanced country that is relying on forestry and land-use offsets, rather than actual emissions reductions, to meet climate commitments. And Canada’s desire to expand tar-sands extraction is reckless and incompatible with global warming goals. As another artic country with so much to lose, Canada needs to revise and re-invigorate its commitment to reduce its reliance on fossil fuels and fossil fuel exports.
Australia is another advanced country that needs to revise its commitments and its policies. Like Canada and Japan, Australia is relying largely on offsets, and is not on track for real emissions reductions. This is particularly unfortunate, because Australia had been on track until 2014, when the government repealed core elements of the Clean Energy Future Plan. Australia can and must do better.
I would like to say something about the contribution that India can make to reaching global climate goals. In the past year, we have seen India modify its hardline position on climate change, in which it had put the entire onus on the developed world. We should all applaud the Indian government’s recent re-think, and the international community must work with India to ensure that the second most populous country in the world is part of a workable global framework to stop manmade climate change.
Clearly, we face two competing and equally-compelling imperatives when we look at India’s unique situation – a country of well over a billion souls trying to pull itself out of poverty at the same time as an impending climate crisis is upon us. On the one hand, if India were to develop along the same carbon-intensive path that today’s rich countries took, it would destroy all hope of stopping a climate crisis. That is unacceptable – and poor countries like India would suffer the most from such a calamity. On the other hand, it is neither morally nor politically sustainable to deny India a path out of poverty.
It seems to me that the way out of this dilemma is to work with India to create a long-term path to sustainable, low-carbon economy. In the short run, the focus must be on carbon intensity-reduction goals, rather than on emission-reduction targets, and developed countries must support India’s alternative energy and efficiency efforts. Large Indian corporations and affluent people should be held to global emission mitigation standards immediately, and as India develops, it must “graduate,” as China already has, and be held to similar global standards.
This is the only way forward, I believe, and it can be done.
Two developing countries have emerged as leaders in the global de-carbonization effort, and should be applauded and emulated. Costa Rica has committed to reach carbon-neutrality by 2021, so long as it gets external financial support. Rich countries should provide that support. Because if Costa Rica succeeds in reaching this ambitious goal, it could be an example for other developing countries.
Bhutan is even more impressive. This heavily-forested nation is already carbon-neutral, and the government has committed itself to protecting its forests to ensure that emissions attendant to development will not exceed carbon sequestration from forests. The government has taken a number of steps to preserve forests and to reduce fuel wood consumption, and to develop sustainable rural electrification based upon hydro and other non-carbon sources.
This small developing nation’s commitment to doing its part should be an inspiration to us all.
I said before that I was cautiously optimistic that the international community can do what it needs to do this December in Paris, and in the years ahead. My optimism is not just constitutional -- I actually am a pretty grumpy guy. It is based rather upon my experiences in seeing supportive public policy work to promote sustainable energy. As US Energy Secretary and as Governor of New Mexico I saw many examples of good policy creating great opportunities for private companies to do the right thing.
Let me give you just one example of how smart policy can spur innovation and economic growth in the private sector. As Governor of New Mexico, I put together a package of policies to make New Mexico the “Clean Energy State.” One policy was a Renewable Portfolio Standard that required our state utilities to produce 20% of their energy from renewable energy by 2020. With specific statutory requirements supported by tax and renewable energy credits, we nurtured a nascent industry, and moved the state away from fossil fuels.
Today, New Mexico is home to a burgeoning, profitable, dynamic solar industry, with thousands of businesses and homes across the state switching to solar energy through rooftop solar systems installed by dozens of new small businesses. Consumers are saving money with rooftop solar hot water and photovoltaics -- and they are selling excess energy back to the grid, helping the utility to reach its renewable energy standard.
Businesses are making money and creating jobs. Lots of them.
This solar industry, combined with growing wind power generation in New Mexico, is moving the state away from fossil fuels and toward a brighter economic future.
I know that what worked for us in New Mexico, can work around the world.
I see it working in Germany, in China, in India. I see it right here in Spain.
With smart, supportive policies from governments committed to de-carbonization, the private sector will do its part.
I know you will. Because businesses live in the real world. They don’t run from reality. They embrace it. They work with it. They look to the future. And they build it.
Thanks so much, my friends.