“Crises reinforce each other.” This opening statement by Svenja Schulze, federal minister of economic cooperation and development for Germany, set the scene for the second day of the Berlin Energy Transition Dialogue (BETD).
Climate change, the Covid-19 pandemic, and the war in Ukraine were introduced time and again as the converging crises that have brought us to a “momentous time in history,” according to David Turk, US deputy secretary of energy. The disruptions to gas, oil and food supplies caused by the Russian invasion of Ukraine have exacerbated existing energy insecurities over supply chain disruptions caused by the Covid-19 pandemic. Those in the global south have felt these effects the most and are again set to be the worst impacted by rising energy and food costs.
Panelists argued that the energy transition can only be achieved by worldwide collaboration – with no one left behind. Massive financial investment is needed to move from “ambition to action,” with the private sector to play a major role.
The final session of the BETD sought to answer a specific question: How will we finance the energy transition? Moderator Dr. Melinda Crane opened by citing the International Renewable Energy Agency’s (IRENA) most recent outlook, which says that “success in bringing down CO2 emissions by 2030 depends on scaling up investment by at least 30% compared to where we are now.”
The panelists agreed that state funding alone will not suffice; private investment is also needed. The discussion then focused on how state funds could be effectively used to leverage private capital investment in renewable energy projects, particularly for smaller projects, which account for nearly half of all renewable energy undertakings.
The discussion centered on the role of the European Commission’s EU taxonomy in removing a major barrier to the flow of capital into renewables – the lack of knowledge of the mechanics of green finance.
Dr. Werner Hoyer, president of the European Investment Bank (EIB), opened the floor. “Our main capital is the trust of the investors,” he said. “That means that we have to be sure that what is labeled green, is green.” He referenced the European Commission’s taxonomy and argued that its basic idea is correct in giving reinsurances to investors. But he was guarded in his support, stating that “it is a great idea as long as it doesn’t develop into a bureaucratic monster.”
The fact that the taxonomy provides companies, investors, and policymakers with definitions for which economic activities may be considered environmentally sustainable within the European framework is in tension with the fact that the energy transition needs full-scale worldwide collaboration. If different definitions are agreed on outside of Europe, we might indeed be facing a bureaucratic nightmare. Interestingly, there was no discussion about how the classification of nuclear energy and gas-fired power plants as sustainable in the taxonomy will be in opposition to the assessment of its own group of experts.
The general agreement seemed to be that we are moving toward more accountability, which is critical in earning the confidence of investors. Prof. Suahasil Nazara, vice minister of finance for Indonesia, noted that his country introduced its own green taxonomy last year, and said that there will “soon there will need to be an international comparison.”
Dr. Rhian-Mari Thomas, CEO of the Green Finance Institute, said the EU taxonomy is needed for accountability for greenwashing. She proceeded to quote Laurence Tubiana, one of the key architects of the Paris Agreement, who wrote last year that “greenwashing is the new climate denial.” To that, Thomas added that “greenwashing is even more dangerous because without proper accountability it is harder to identify.” She acknowledged the intricacies involved in having a taxonomy that is fully and robustly adopted worldwide, but warned that “in the meantime, let’s not use this greenwashing accusation to stamp on the green shoots of progress.”
Thomas also argued that investors themselves have a key role to play in scrutinizing claims made by businesses and ensuring due diligence. They must ensure that all acquisitions are aligned with net-zero targets and that disposables of high carbon assets aren’t simply off-loaded to private markets where there is less scrutiny – a measure that may need more regulatory intervention.
As for the discussion of how state funds can be effectively to maximize private capital investment in renewables, the representatives of the Maldives, Japan, and Indonesia agreed that increased government spending must serve as a catalyst for private investment.
Aminath Shauna, minister of environment, climate change, and technology for the Maldives, said her government is mobilizing funds from the private sector by investing in home solar programs, green distribution networks, and energy storage and management systems.
Naoshi Hirose, Japan’s vice minister for international affairs, mentioned an investment of JPY 2 trillion ($16.3 billion) to assist specific projects in the private sector, and risk-sharing schemes as measures already put in place by the Japanese government.
Finally, Nazara said that Indonesia’s public spending measures involve a reduction of fossil fuel subsides. He pointed out, however, that with the current international oil prices, it is becoming increasingly hard for developing countries like Indonesia to abide by these measures.
“Cooperation” and “partnership” might have been the most used words during the second day of the BETD. All agreed that the energy transition is only possible through international cooperation and it will not be achieved without developing countries, which need significant investment from countries in the global north to end their reliance on fossil fuels.
Patricia Espinosa, Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC), remarked that “climate change affects everyone in the world, but it doesn’t affect everyone the same,” with women in developing countries being particularly affected.
Schulze said that Germany has a 2030 “leave no one behind policy” under which “we need to take women with us,” as well as workers in carbon industries, to achieve a just energy transition.
Green hydrogen, a key topic of the first day of the BETD, was singled out as a symbiotic investment for countries in the global north and south, as the latter has the perfect conditions to satisfy the demand of the former. But as Dr. Robert Habeck, federal minister of economic affairs and climate action for Germany, said on the first day of the BETD, “you cannot steal the wind. The sun belongs to no one.”
The eighth BETD happened at “a dark time for Europe and the world,” said keynote Kwasi Kwarteng, UK Secretary of State for business, energy and industrial strategy. The Russian invasion of Ukraine of course framed much of the discussion, with energy security placed high on the agenda. As Russia is the main supplier of oil and gas to much of Europe and Germany, in particular, many proclaimed a renewed urgency to transform the energy system. A move from fossil fuels to renewables was argued to be “ultimately what will get us behind these three crises,” said Turk.
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