Subsidies caught in crosswinds – the commitment to COP21

The Paris Agreement, which was signed in December 2015 and will go into effect in 2020, is the most substantive and wide-ranging agreement on curbing carbon emissions in human history. Agreed to by world leaders within the context of the UN Framework Convention on Climate Change, many regard it as a sign that after decades of talk, politicians are finally committing to action to try to reverse the damage done to our rapidly warming planet.

World leaders were triumphant. Laurent Fabius, France’s foreign minister and head of the conference, described it as a “historic turning point” in the fight against global warming, and US President Barack Obama called it “a turning point for the world”. As the meeting drew to an end, leaders huddled together for a congratulatory photograph, keen to get evidence that when the world stood on the brink of environmental oblivion, they were there to tentatively agree to non-binding limits on global carbon emissions.

This is not to say the limits are insignificant. The agreement commits the international community to world temperature increases of no more than 2.0°C above pre-industrial level and pursues efforts to keep it below 1.5°C.

Hurdles to jump

However, there are plenty of hurdles that will have to be jumped before anything is set in stone: the national parliaments of the signatories must ratify the agreement, which will only come into effect with the support of 55 countries that produce 55% of the world’s greenhouse gases. 

What it means for renewable energy, particularly in Europe, is complex. EWEA’s CEO, Giles Dickson, spent much of the run up to the agreement blowing the horn for the industry as rival lobbyists gathered in Paris to discuss the future of the market and get coveted time with decision-makers.

Economic and business sense

“What we did in the run up to COP21 was very simple. It was clear to us that there would be lots of industries and lots of lobbies pushing for an advantageous outcome,” Dickson says. “And we added our voice to that, but what we really focused on was not so much that the world needs to cut CO2 emissions and, therefore, should embrace wind and other renewables; our message, rather, was that wind makes economic and business sense.”

In theory, the Paris Agreement is great for the wind industry: the urgent need for governments to curtail greenhouse gases and cut fossil fuel emissions means that the sector should expect a wave of new investment from the public sector, with politicians eager to save face and meet their carbon commitments in time for 2020.

While Paris spurred massive hopes for a wind power bonanza on the continent, the EU’s leading wind-power-producing nations have been scaling back subsidies for over a year now. In the UK, for example, onshore wind farms have been excluded from state help since 1 April, a move that many saw as echoing the Danish Government’s decision last year to slow down spending on renewables. In January, Germany did the same thing. Every nation from Spain to Poland is scaling back.

It is not hard to understand why. Despite the urgency of climate change and the success of wind power, most EU countries have spent the last few years with other pressing issues to consider: the crisis in the eurozone, the ongoing influx of refugees into Europe from war-torn Syria, and the continued effects of austerity and sluggish growth.

“The EU is economically in a bit of a mess, one way or another,” says Doug Parr, chief scientist at Greenpeace. He is sceptical about the impact of the agreement and wonders whether the 2020 targets will even be met. Parr says that the economic troubles have “really cast doubt over further engagement in what was seen, wrongly, as an expensive form of energy”. He adds: “You’re seeing reversals of that kind of support in Spain, here in the UK and a much more cautious approach in Germany.”

A consequence for the countries having taken leadership roles is that setbacks are normal. Parr argues, however, that many of these decisions have been made for political and ideological reasons with conservative governments across Europe withdrawing funds to appeal to rural and like-minded voters and special interest groups.

Need for consistency

“There was no need for the reversals in those countries to be anything as sharp as they were,” he says. “In Spain, it looked like political ideology, and it certainly is the case here in the UK. There’s no good, rational reason for the reversals that they’ve engaged in. There's no consistency between the application of principles and criteria for where the subsidy needs to fall, and wind has been the sufferer of that consistency and eccentricity.”

This uncertainty, he argues, puts off investors. It is all very well if promises are made by politicians, he says, but commitments need to be safeguarded against changes of government if business is to be sustainable.

Wind power, however, doesn’t get much print space in the Paris Agreement: in all of its 31 pages, renewable energy is only mentioned once. What is really important, and what constitutes the “meat” of the agreement, according to Dickson, are intended nationally determined contributions (INDCs). In advance of the new goals set out in the Paris Agreement, signatories have plotted the steps they intend to take to meet them – and much of the strategy concerns wind energy.

“Renewables are everywhere: in 70 of the INDCs in countries outside of Europe, all of them highlight wind as a key mitigation technology,” Parr says. “Many of the countries have specific gigawatt or megawatt targets for wind.”

India, for example, has committed to producing 60GW of wind by 2022. And others are following suit: China’s committed to 200GW by 2020 and Turkey to 16GW by 2030.

“It’s not just the big emerging economies,” Dickson says. “You have Tunisia pledging 1.8GW of wind by 2030, Mongolia and Bangladesh have 500MW targets.”

Little impact

Where, however, does this leave the EU? Parr says: “I think, in Europe, COP21 has had very little impact. The initial signs aren’t very encouraging, at least in Europe, because they’re thinking it looks like there's no proposal for the EU to increase its level of climate ambition. The EU has got its issues, but they look like they’re going to drop the ball on this.”

As wind power leadership moves away from the EU, under the strain of economic downturn, it seems other countries are taking up the task. Canada’s Prime Minister Justin Trudeau’s met with President Obama during his visit to the US in March. The two leaders share a strong commitment to the Paris Agreement, which suggests the responsibility could be shifting to North America.

“It’s different if you look elsewhere,” says Parr. “Vietnam has decided to change course in its energy policy citing the Paris Agreement; we’ve had Obama and Trudeau shaking hands on a new climate deal. They clearly want to go jointly in the direction of wanting to improve.”

Wind markets in the developing world are catching up too, with emerging economies implementing firm commitments, designing policies in a regulatory framework and devising comprehensive models to finance renewable investments.

“Many of them are at a later stage of the development of their wind industries than the EU,” says Dickson. There’s also the impact of the continued oil price glut on appetites for wind energy investment. When oil used to cost about $100 a barrel, there were plenty of incentives to spend on a cleaner, cheaper subsidy. But these days, with Brent at roughly $40, wind is not the cash cow it might have been. Dickson doesn’t agree, though, and points to statistics that show interest in renewables is at an all-time high.

“The fall in oil prices has been very steep, so deep that it has reminded people of the huge volatility of those prices,” he says. “Compare and contrast that with the steady, one-direction-only reduction of renewables costs. Investors are thinking to themselves, ‘do I want to put my money in these highly volatile markets or do I want to put them into the ever more affordable renewables?’ Increasingly, they’re plumping for the latter.”

Despite the wind industry expressing opposition to the cuts, it is insistent that it will be able to stand alone without help. The new system, which moves away from the traditional tariff scheme towards a market-based approach, is better suited to wind power’s new profitability, says Dickson. “It’s not as simple as a cut to subsidies. It makes economic sense that the financial underpinning should be on a more market-oriented basis. The costs of wind power have fallen significantly onshore and offshore.

A lot to learn

“The principle underpinning the process that we move to market-based schemes is not a principle that we in the wind industry have a major problem with.”

This fall in costs means that the types of support the wind industry is going to need are going to be very different, especially when it comes to onshore, and the focus is more about stabilising revenue rather than being dependent on subsidies.

Whether or not the industry will get this sought-after support is another question. However, if the latest market auction schemes in Spain are anything to go by, there is still a lot for governments to learn.