This is a guest blog by Felicity Tan, Oxford Executive MBA alumna and Director of Global Partnerships for the Global Energy Alliance for People and Planet, drawn from her recent attendance at the Business Schools for Climate Leadership (BS4CL) forum – Who pays for the climate transition?
Energy, emissions and economic growth
The race to net zero is an undeniable force driving much of the action, and debate, in business and politics. From reducing value chain emissions to transitioning from coal to clean, whatever combination of strategies deployed, the science says we must reach net zero by 2050 to avert irreversible climate calamity. Many believe, however, that to get to net zero we face a tradeoff between reducing emissions and growing the global economy. For economies to grow, we need more carbon-intensive energy. Conversely, to reduce emissions, we’ll need to plateau economic growth. Pick your poison.
I had the privilege of being part of the Saïd Business School delegation at the Business Schools for Climate Leadership forum in June and took part in a panel discussion on the energy transition. When I was asked whether economic growth and reducing emissions was possible, especially in emerging markets, my answer was a resounding YES. That the twin challenges of energy poverty and climate change can be addressed together is the founding principle of the Global Energy Alliance for People and Planet (GEAPP), the organisation I work for and helped incubate during my Oxford Executive MBA.
Energy emissions versus economic growth is not a tradeoff to reach net zero. It is the imperative we need to solve.
The emissions trajectory: a tale of two worlds
By most accounts, humanity has made enormous strides toward universal electrification: compared to just 78% in 2000, today more than 90% of the world have access to electricity. But when considering the Modern Energy Minimum Requirement (MEMR) or how much energy an individual requires to make a decent living in the modern economy – calculated today at 1,000kwH per annum – the population of the world’s energy poor rises to a staggering 3.6 billion, or nearly half the planet. That half is disproportionately skewed toward the least developed countries.
When repositioned from an all-too-low 100kwH (the most commonly accepted threshold, which really should be the extreme base rather than a target) to the MEMR, we are suddenly decades behind achieving Sustainable Development Goal (SDG) 7 (clean energy) and SDG8 (sustainable economic growth and productive employment for all). This matters because the evidence is incontrovertible: energy wealth is directly correlated with economic wealth. This is the new ‘global north’ and ‘global south’.
How we dimension the energy poverty problem matters a great deal when it comes to the climate crisis. As emerging markets race to produce the electricity their citizens desperately need, under business-as-usual projections (read: fossil fuels), they would produce 75% of global greenhouse gas emissions by 2050, up from just 8% today. The eerily resonant pre-apocalyptic novel Ministry for the Future captures this dynamic well:
'In dealing with the poverty that still plagued so much of [their] populace, the…government had had to create electricity as fast as they could…as cheaply as they could. Otherwise, outside investors would not invest, because the rate of the return was not high enough. So they had burned coal…like everyone else had up until just a few years before.' [Chapter 6]
(Kim Stanley Robinson’s novel was the inspiration for research by Professors Anette Mikes and Steve New’s on the need to reform capitalism, governance and academia - Our Ministry of the Future; and the formation of the associated network of academics, policy makers and sustainability leaders, with a mission to share climate action research, which was set up by Hertford College - Oxford Ministry of the Future.)
Without financing the renewable energy transition in the energy south now, net zero will be impossible, both as a global aggregate and at the enterprise-level considering Scope 2 and Scope 3 emissions in a company’s value chain. One could argue we could solve for this later, but recall the average lifespan of a coal plant is 46 years.
Meanwhile, as clean energy investments pour into developed countries, the cost of sustainable power for those who already have more than 1000kwH decreases substantially. As my co-panelist Jean-Michel Gauthier of HEC Business School noted, the world’s poorest are left paying for the most expensive energy source: oil and gas. This is how the gap between the energy-haves and the have-nots widens as emissions hold the planet in a chokehold.
Just and enough
Understanding energy poverty simply through the number of have-nots is thus inadequate, in the same way we now know that understanding economic poverty is better served through relative values, or how the gap is widening or closing between rich and poor. Perhaps we need a GINI coefficient for energy poverty that looks not just within countries, but across them, painting a more accurate picture of how energy wealth is unevenly distributed between developed and developing countries. As a proxy, consider that European households consumed nearly 6000kwH per capita in 2021, 6x more than the MEMR.
So how much is enough?
In countries well north of the MEMR, there are rising calls for 'de-growth’ or limiting consumption – and thereby growth – so as to reduce demands on energy and other resources. But what about for countries south of the line? This is where the political tensions lie. A blanket move toward de-growth, which necessitates reducing energy investments in emerging markets, is unjust.
Why should lesser developed countries sacrifice their economic progress because, as the argument goes, developed countries over-indulged.
I would argue that what we need is something along the lines of a balanced growth model that lifts the south above the threshold as quickly as possible. Some call this ‘redistribution’, but I find the notion of ‘rebalancing’ our resource portfolio more apt: solving energy inequality is, to put it in capitalist terms, a global de-risking strategy to hedge against climate calamity for every human on the planet. ‘Enough’ might look like the majority of the world clustering around the top-right quadrant of the scatterplot above. And by some accounts, there is already enough to go around – resources, food, energy. It’s just not going around.
Toward a sufficiently, equitably and sustainably powered world
Against this backdrop, rich-world conundrums such as how the developed world could produce enough clean electricity to meet rising demand from generative AI activities, seem frivolous when farmers in East Africa whose produce is essential to the global food system barely have enough power to irrigate their fields. A more helpful question is how we transform developed-world net zero conundrums into opportunities to resolve the global electricity deficit. Leaving the energy south behind as we race to only solve ‘our’ problems is not only impossible, given how intertwined we are as a global economy, it will also drive up carbon-intensive energy generation, as communities resort to wood-burning, businesses to diesel generators, and governments to oil and gas.
We must do so justly. Communities whose lands and resources are being used to generate clean power to address the developed world’s energy needs should not merely enjoy excess generation as if electrons are scraps from the dinner table: they must at the very least benefit equally from the power produced, if not co-own or even own it (otherwise risking energy colonialism). Energy transition plans should ensure workers can continue to meaningfully participate in the economy and provide for their families. Financing packages should not further indebt already-poor nations. Global politics should also clear the way for the rise of the energy south as powerful economic engines in their own right.
The links and dependencies between achieving net zero and ensuring equal access to energy are clear. Fortunately, the capital, resources and ingenuity to shift from fossil fuel-dependent growth to renewably powered prosperity already exist today, and many efforts are already underway. But we must work together to bring all this to bear. We are running out of time.
Background
At the United Nations Climate Conference, COP26, in Glasgow in November 2021 eight leading European business schools joined together to collaborate in supporting business leaders who will act to address the climate emergency. The founding members of Business Schools for Climate Leadership (BS4CL) are Saïd Business School, Cambridge Judge Business School, HEC Paris, IE Business School, IESE Business School, INSEAD, International Institute for Management Development and London Business School. Collectively, we train more than 55,000 students and executives per year, and are stewards of alumni bodies in excess of 400,000 people.