Economic Policies for Climate Change

The European Central Bank is now making the economic case for decarbonisation. Not as climate policy. As monetary policy. Frank Elderson, ECB board member, argues in the Financial Times that Europe's dependence on imported fossil fuels is a structural threat to price stability (👉 https://lnkd.in/eKWWjKbh). The data is damning: energy price shocks pushed euro area inflation to 10.6% in October 2022. Every geopolitical tremor in the Middle East shows up in European energy bills. And the ECB is caught in an impossible bind: tighten to fight inflation and deepen the slowdown, ease to support growth and entrench inflation. The solution is not better forecasting models or finetuned monetary policy. It is cheaper energy. Spain shows what is possible. Wholesale electricity prices in early 2024 were approximately 40% lower than they would have been had wind and solar generation remained at 2019 levels ( 👉 https://lnkd.in/edXgxh9q). Once the infrastructure is built, the energy itself is virtually free. Volatile global commodity markets simply become less relevant. Elderson is explicit: €660 billion per year in clean energy investment sounds large. But Europe already spends nearly €400 billion annually on fossil fuel imports, money that leaves the continent and buys geopolitical vulnerability. Analysis in the UK shows that for every pound invested in sustainable energy, benefits outweigh costs by a factor of 2.2 to 4.1 ( 👉 https://lnkd.in/emEXVfiw). This is precisely what I argued in my piece for Triodos a few weeks ago: Europe's crisis response has been backwards. We keep treating energy dependence as a shock to manage rather than a structural problem to fix. (👉https://lnkd.in/ehFqA6iY) The ECB cannot decarbonise Europe. What it can do is name the conditions: keep the ETS, mobilise capital toward renewable capacity, strip out fossil fuel subsidies, and stop confusing cheap fossil fuels with affordable energy. If people need help with energy costs, target it: don't suppress the price signal that drives the transition. The cheapest energy is the energy we no longer have to import.

The latest reporting from the Financial Times highlights a point that energy analysts have been making for years: geopolitical shocks consistently strengthen the case for renewables, electrification and storage. Microsoft’s global vice-president for energy notes that oil and gas price spikes linked to the Middle East conflict reinforce the value of wind, solar and batteries in providing price stability. Once installed, renewables offer predictable cost profiles and reduce exposure to volatile global fuel markets. We saw this dynamic after Russia’s invasion of Ukraine. Europe accelerated solar deployment, heat pump uptake increased in several countries, and governments revisited questions of energy security through the lens of diversification and electrification. The underlying issue remains unchanged. Fossil fuels must continuously flow through complex global supply chains. When those flows are disrupted, prices spike and economies are exposed. Renewables, by contrast, are capital intensive upfront but deliver long term domestic supply and insulation from commodity shocks. There are short term risks. Inflation, higher interest rates and supply chain constraints can slow clean energy investment. Some governments may also respond by doubling down on gas infrastructure. The policy challenge is to avoid locking in further structural vulnerability. Energy security and climate policy are not competing objectives. In a world of recurrent geopolitical instability, they are increasingly aligned.

A major report from the International Energy Agency (IEA), out today, shows that the transition to net zero emissions would mean lower energy costs globally than if we continue on our current path. Scaling up clean technologies is good for affordability, as well as for cutting emissions. Read more → https://iea.li/3X2JX90   Today’s energy system is failing to deliver affordable energy for all: many millions of people lack access to clean cooking & electricity. In advanced economies, the poorest households spend up to 25% of their income on home energy bills & transport fuel. Explore the full report → https://iea.li/3wUZMUp   Today’s energy system is also not a stable one. The energy crisis caused by Russia slashing natural gas deliveries to Europe led to consumers around the world paying 20% more on average for energy than in past years. The hardest hit were low-income households already struggling to pay bills.   It's tempting – but wrong – to conclude that clean energy transitions will make energy less affordable. IEA analysis shows clean technologies are already the most affordable options for millions of people, especially over the long term. But high upfront costs remain a key hurdle.   In recent years, more governments have enacted policies to help consumers manage these upfront costs, through instruments like grants or tax breaks. Financial support is growing, but in 2023, it reached not much more than one tenth of the value of subsidies for using fossil fuels.   More needs to be done to unlock the huge levels of investment to build a cleaner, more affordable & secure energy system. This is especially the case in emerging economies where investment is lagging behind: today, 85% of clean energy investment is in advanced economies & China.   As energy transitions advance, "cents per kilowatt hour" may well replace "dollars per barrel" as the benchmark for energy affordability. On a path to 1.5°C, the share of oil in total household energy spending falls from 50% today to 20% in 2035. Electricity’s share jumps to 55%.   We don't need to invent new technologies to move to a cleaner & more affordable energy system. IEA's new report, drawing on proven policies from countries worldwide, shows how governments can help make clean technologies more accessible to all. Read it in full, freely available, on our site → https://iea.li/3wUZMUp   And to learn more, join IEA Chief Energy Economist Tim Gould & me for the LIVE launch event from 10:30 CEST → https://iea.li/3KmAlOF

The IEA called the Hormuz closure the worst energy crisis in history, worse than the 1970s oil shocks and worse than Ukraine. About 84% of the crude oil and 83% of the LNG passing through that strait goes to Asia, with China, India, Japan and South Korea accounting for 75% of the oil. When the strait closed in late February, those supply lines went with it. Carbon Brief tracked at least 60 countries announcing nearly 200 emergency measures in the weeks that followed. The Philippines declared a national emergency. Sri Lanka moved to a four-day working week. South Korea postponed coal plant decommissioning. Indonesia, Japan and India began spending billions on fuel subsidies just to keep people's lights on. But the countries that had already built domestic renewable capacity were in a structurally different position. Pakistan's rooftop solar boom, roughly 41 GW installed since 2023, had already insulated much of its grid from imported gas. India's solar growth actually offset its drop in fossil fuel generation in the first month after the closure, according to Centre for Research on Energy and Clean Air (CREA). That capacity did not need a shipping lane to function. Now the response is accelerating everywhere. 🇮🇩 Indonesia published its roadmap to replace 5,200 diesel plants with solar and battery storage, with the IEEFA putting the cost gap plainly: diesel costs $0.29 to $0.65 per kWh while solar plus storage costs $0.08 to $0.20. 🇵🇭 The Philippines confirmed its seventh Green Energy Auction with mandatory battery storage. 🇨🇳 Chinese solar exports hit record levels in March, with Ember reporting that 50 countries set new records for Chinese panel imports that month. 🇰🇷 South Korea's energy minister called the crisis "a significant turning point" and committed to 100 GW of renewables by 2030. 🇹🇷 Turkey pledged $80 billion in renewables by 2035. 🇻🇳 Vietnam is phasing out coal from new infrastructure after 2030. 🇹🇭 Thailand is diversifying away from LNG toward domestic renewables. 🇸🇬 Singapore's energy experts called the crisis a "wake up call" to accelerate green energy imports. As CREA's lead analyst put it, global fossil fuel power generation actually fell in the first month after Hormuz, with the gap filled by solar and wind rather than coal. This is why the Wavemaker Impact portfolio is concentrated across South East Asia and India. Our companies are deploying solar, storage, efficient cooling and productive use equipment in the markets where the economics and the security logic now point in the same direction, selling into demand that the oil crisis made urgent. Renewable energy is no longer just the cheapest energy source. It is now the most secure and controllable energy system a country can build. Every kilowatt-hour you generate at home is one that no blockade, no war and no price shock can take away from you.

🔥 Climate risks are no longer abstract—they’re disrupting businesses, communities, and economies right now. The World Economic Forum’s 2024 report, "The Cost of Inaction: A CEO Guide to Navigating Climate Risk", delivers a sobering message: ignoring climate risks isn’t just irresponsible—it’s economically devastating. 🌡️ Key insights from the report: 💥 Climate-related disasters have caused $3.6 trillion in damages since 2000, exposing critical vulnerabilities in supply chains and infrastructure. 📉 Physical risks could put 5-25% of EBITDA at risk for some sectors by 2050 under a 3°C warming trajectory. 💸 Transition risks, like carbon pricing and changing regulations, could impact 50% of EBITDA in energy-intensive industries by 2030. 🌱 Every $1 invested in climate adaptation yields $2-$19 in avoided costs, while green markets are projected to grow from $5 trillion in 2024 to $14 trillion by 2030. 💡 My reflections: 🔄 Resilience isn’t enough anymore. Too often, we focus on simply "weathering the storm" of climate risk. But true leadership is about rebuilding something better—rethinking markets, redesigning business models, and creating solutions that lead entire industries forward. 🌍 Supply chain fragility is the Achilles’ heel of the global economy. A single extreme weather event can cascade across operations, grinding everything to a halt. Climate-resilient supply chains can’t just be about survival—they must be radically adaptive, decentralized, and built to thrive under disruption. 📊 Climate risk is fundamentally redefining the concept of value. Businesses stuck chasing quarterly earnings are missing the bigger picture. In a world of rising costs and irreversible climate impacts, long-term value will belong to those who embed sustainability, resilience, and equity into their strategies. The time for cautious, incremental steps has passed. How are we using this moment to transform the way we work, innovate, and lead? #ClimateAction #Sustainability #Resilience #Leadership #Innovation

It’s rare that an ad stops you on your commute, but something I saw at Bank station today did just that.  Greenly | Certified B Corp has taken over the London Underground and reframed The Economist as The Ecologist to say something I have spent over a decade advising on:  “Weather is small talk”   “Climate is strategy”   “Profit is the proof” I've spent years trying to bridge two worlds that should never have been separated: finance and ecology. The data always said they belonged together, but language kept pulling them apart. The numbers don't leave room for debate:  ⚠️ Climate policy uncertainty operates like a supply shock: a 50% rise cuts GDP by 0.5%, investment by nearly 2%  💶 Companies with credible net-zero plans trade at a 12% premium on average (MSCI, 2023)  🌡️ Physical climate risk is already priced into sovereign debt by the IMF The companies that built auditable carbon trajectories early aren't managing a cost. They're sitting on a competitive advantage. In financing conversations, procurement, and investor relations. This isn't a COP-side event. It's a financial capital and Greenly is saying loudly, without hedging that environmental intelligence and economic intelligence are the same thing. We just kept them in separate rooms for too long. Greenly didn't just launch a campaign. They closed a gap that's cost us years. #climatefinance #climaterisk #sustainablefinance #climatestrategy 

👉 Are we using the wrong tools to assess climate risk? A new expert-led assessment, drawing on the judgment of 60+ climate scientists, says that #climatechange introduces forms of risk that exceed the design assumptions of existing economic and financial frameworks. Here’s what that means in practice ⬇️ 🔹 Climate damages are structural, they reshape economies: where people live, what can be produced, how infrastructure functions, and which regions remain viable. 🔹 Extremes drive real-world risk: what actually destabilises societies and markets are heatwaves, floods, droughts, grid failures, food shocks. It’s the tails of the distribution that matter. 🔹 GDP misses mortality, inequality, displacement, ecosystem loss, and can even rise after disasters due to reconstruction. This creates a dangerous illusion of resilience. 🔹 Repeated shocks erode recovery capacity and propagate across supply chains, finance, migration, and geopolitics. 🔹 Beyond ~2°C, uncertainty widens sharply. Confidence in precise damage estimates falls even as consequences grow. 🔹 Tipping points expose the limits of economic modelling: At higher warming levels, model outputs can appear precise while resting on assumptions that no longer hold. At the same time, many models also underestimate positive tipping points in clean energy and innovation. The goal is to build resilience under deep uncertainty. For treasuries, central banks, regulators, and long-horizon investors, this means recalibrating governance toward: ➡️ precaution ➡️ robustness ➡️ transparency Because avoiding irreversible outcomes is always cheaper than trying to price them after the fact. read the report "Recalibrating Climate Risk" here 👇 https://lnkd.in/dx8wmRZ4 Green Futures Solutions (University of Exeter) Carbon Tracker @aurora trust

German regulator Bundesnetzagentur publishes plans for new electricity grid fee system (#AgNes). Overview table below. Few things stand out: 1. BNetzA distinguishes between grid fees with a financing motivation (where distortions are to be avoided) and fees with an explicit incentive motivation (intended to incentivise system-friendly investment or dispatch decisions). 2a: No big changes for household consumers. No dynamic fees, but a mark-up of 70-90% of the base charge for prosumers to reflect their grid use. 2b: For larger consumers a switch to the Luxembourg model: a charge for ordered capacity and 2 energy-based fees, a lower one for consumption until ordered capacity limit, and a higher one (200-350%) for any consumption beyond. 3: Entry fees for generation & storage will be introduced (capacity based), but levels will be significantly lower than initially discussed. In our Frontier Economics report for RWE, where my colleagues Jens Perner, Patrick Peichert and Dr. Fabian Tenhagen explained why entry charges are to be taken with caution, we assumed €29/kW/a. BNetzA has now trimmed this down to €4-7/kW/a, i.e. ~10 times lower than consumer charges. A good move! 4: Future new storages will need to pay grid fees. But based on connected capacity and on entry fees for generation, so comparably low. Most importantly, existing storage and those who get online before Aug 2029 (and with FiD before early 2027), will continue to be exempted (#Vertrauenschutz). 5: Electrolysers pay special capacity fees if the produce renewable or low-carbon hydrogen. Otherwise they fall under the consumer model. 6: Dynamic grid fees are postponed. They will be further investigated. BNetzA expects to introduce time-varying (15min) and locally differentiated energy-based (€ct/kWh) fees for generators & storage (and possibly an opt-in for consumers) between 2030 and 2035. Also applying to existing assets, so no Vertrauensschutz here. ⁉️ Lots of open question remain. For example did BNetzA announce to work on the framework for Flexible Connection Agreements (FCA) and connection cost contribution (BKZ) in 2027. More interesting discussions ahead!

We tend to think the EV transition is being led by rich countries. That is no longer the case. As electric vehicles pass 25% of global new car sales this year, it is emerging markets that are leapfrogging over more advanced economies. A total of 39 countries have now reached an EV sales share above 10%, up from just four countries in 2019. EV adoption is no longer confined to a small club of rich countries – it is rapidly spreading across all markets. And why is this? In many emerging economies, EVs aren't competing against cheap petrol. They're competing against imported fuel, volatile prices and high running costs. Where electricity is domestically produced, often from hydro, and increasingly from solar and wind, the economics can flip very quickly. That’s why adoption is accelerating fastest in countries that import most of their oil, but already have relatively clean and affordable power. ➡️ Ethiopia, for example, has a power system dominated by hydro. To curb oil imports, it banned ICE vehicle imports in 2024, and EVs reached a 60% share of sales that year. ➡️ Nepal followed a similar path. After cutting import duties to reduce oil dependence, EVs reached a remarkable 76% share of new car sales in 2024. ➡️ And in Vietnam, nearly 40% of new car sales this year have been electric, almost all of them BEVs made by local manufacturer VinFast. It doesn't end there. Thailand, Indonesia, Uruguay, Mexico and Brazil are all seeing EV adoption start to take off. And these countries aren't switching to EVs to meet climate targets – they're doing it because it's the lowest-cost economic choice. If cars are being imported anyway, it makes sense to import ones that are cheaper to run and improve local air quality. This transition is now bottom-up as well as top-down. It's spreading not just across countries, but across segments too, from two-wheelers to buses and delivery vans as well as cars. And that's why the momentum is building so quickly. #energy #renewables #energytransition

The way we’ve pursued ‘net zero’ has turned a physics challenge into an ideological battle. IPCC chair Jim Skea reminds us in the Financial Times that net zero “is not a political choice” but an imperative dictated by basic physics. Yet the way we chose to operationalize that imperative turned what should have been a pragmatic systems challenge into a contest over mandates & ideology. Our main approach to achieving net zero has been embedding the atmostpheric imperative into entity-level targets and balance sheets: in countries’ NDCs, companies’ net zero targets and plans, and financial institutions’ alignment and financed-emissions metrics. That design choice was flawed, with enduring consequences. 1.    It was not structured around how decarbonization actually unfolds: through coordinated investment, infrastructure build-out, grid integration, industrial retooling, and logistics redesign. These transformations occur across regions & sectors. They do not emerge from the aggregation of isolated national or corporate pledges. 2.    The outcomes demanded at the entity level were not feasible in practice. Firms operate within carbon-intensive grids and supply chains they do not control. Countries depend on regional energy systems and global trade and logistics networks. As a result, the focus shifted toward meeting methodological targets within defined boundaries, in ways that increasingly diverge from atmospheric realities, rather than reshaping the underlying systems that determine emissions. 3.    When net zero became embedded in financial architecture, supervisors, investors, and banks were implicitly expected to deliver outcomes beyond their mandates, incentives, and tools. Was this risk oversight, or climate policy implemented through capital markets? That tension was predictably political. It was not the physics that became ideological. It was the institutional design. Contrast this with China’s approach: decarbonization has largely been treated as an industrial and infrastructure strategy: expanding transmission, scaling manufacturing, electrifying end uses, deploying storage, modernizing grids. The emphasis is on capacity, security, and competitiveness. These distinct imperatives have been addressed in ways that are reinforcing, managing trade-offs that might surface at their points of intersection. That difference in framing matters. When net zero is treated primarily as a balance-sheet objective, disputes over fiduciary duty, competitiveness, and regulatory overreach are inevitable. When it is treated as coordinated modernization of energy and industrial systems, the discussion shifts to engineering, planning, financeability, and growth. The more we conflate atmospheric science with accounting architecture, the easier it becomes to portray climate action as technocratic imposition rather than as a coherent program of system transformation. Whether it feels ideological or pragmatic depends on how we choose to pursue it.