As the Paris climate conference draws ever nearer, and with it the prospect of a global agreement that all countries will cut greenhouse gas emissions, Europe can look on its contribution to the fight against climate change with pride.
But having fostered the fledgling renewable energy sectors of wind and solar power, and created the world’s first emissions trading scheme, it now looks as if Europe is ceding its leadership on environmental matters to Asia, a United Nations report says.
China was the world’s leading market for renewable power in 2014, the $83.3 billion invested there being 33% higher than in 2013. Japan was in third place, India was in the top 10 and more than $1 billion was also invested in Indonesia, according to a report for the United Nations Environment Program. All saw double digit growth in investment. Europe was still a major destination for investment in clean energy, attracting $57.5 billion, but the market grew by less than 1%.
Meanwhile, as carbon prices on the EU ETS (emissions trading system) languish far below the level that would incentivize low-carbon investment, China has launched seven regional pilot carbon markets that will be scaled up to national level next year and Korea has introduced its own market.
And while governments in Europe, from Bulgaria to Spain, scramble to cut support payments to renewable energy projects–most recently in the UK–India has increased its solar power target for 2022 from 20GW to 100GW.
Out of Desperation
“There are some very ambitious and impressive initiatives coming out of Asia. If you just look at that, you can make the case for Asia being ahead of Europe,” says Linda Eling-Lee, global head of research for MSCI’s ESG research group. “But actually, I think that many of the things that Asian countries are doing, they are doing out of desperation to solve domestic concerns rather than out of any desire for global leadership.”
For example, China has another cap and trade initiative that has received much less attention than its carbon trading scheme–for water. “It is very inspiring and pioneering, but it is motivated by monumental problems that Europe just doesn’t have. The government says that 60% of China’s groundwater is polluted,” Eling-Lee says.
India sees renewable energy as its chance to achieve energy security, “possibly having the same transformational impact that shale gas has played in the American energy landscape,” according to Rana Kapoor, CEO of YES Bank.
India has few oil and gas reserves, and while it has the fifth-largest coal reserves, it has been importing coal because of delays in developing new mines. “The government has positioned renewable energy as one of its cornerstone strategies–with a clear path to encourage domestic manufacturing of renewable energy equipment,” he adds.
The government hopes to build a domestic manufacturing sector less for environmental reasons and more as a way to build skills, create jobs and to expand access to electricity.
There is a clamor for action in Asia because there are deep-rooted problems that need urgent attention. In Europe, by contrast, “there was much more public support for environmental leadership in the absence of an acute environmental emergency,” says Eling-Lee.
The EU and European governments set the pace by saying “there may be knock-on effects in terms of higher energy prices but we just have to do this”, adds Paul Dickinson, executive chairman at CDP, the environmental group that collects information on companies’ GHG emissions on behalf of investors.
Much of Europe’s activity was driven by EU targets that called for a 20% reduction in emissions, 20% of energy to come from renewable energy and a 20% improvement in energy efficiency, all by 2020.
Expensive and Uncertain
The policy was underpinned by three pillars–climate change, affordability and energy security–says Richard Slark, director of renewables at Poyry Management Consulting. “Initially the agenda was mainly driven by security of supply issues and concern about being dependent on fossil fuel supplies that were looking expensive and uncertain.
“The economic crisis in Europe has seen European policy makers focus much more on affordability than the environment or security of supply. However you look at it, there are challenging times ahead for European markets,” he adds.
But Robert Readhead, a member of the renewable energy capital team at property consultancy JLL, says that “while other countries are looking to make big strides in terms of renewables deployment, Europe is still a global leader in terms of taking action on wider sustainability and environmental issues. This can be seen in its push of further decarbonization targets for 2030.”
What has changed is that Europe is now less inclined to go it alone and take on binding targets that could put it at an economic disadvantage, while at the same time “governments in many countries realize that tackling climate change is an inevitable requirement and don’t want to miss out,” says Dickinson.
In the run-up to Paris, as different countries publish their climate commitments, “there is a public competition to demonstrate how well countries can deliver what needs to be done. There is healthy competition to own the green agenda, where before, people were looking not to damage economic growth.”
And this could be a situation where everyone wins. “It is good for the world that other regions are stepping up,” Readhead says. “This will give European companies an opportunity to export their capabilities and apply them in other markets, further improving the quality of installations and deployment rates in those markets.”
