The Pandemic Depression
The Global Economy Will Never Be the Same
For 30 years, diplomats and policymakers have called for decisive action on climate change—and for 30 years, the climate crisis has grown worse. There are a multitude of reasons for this failure. The benefits of climate action lie mostly in the future, they are diffuse and hard to pin down, and they will accrue above all to poor populations that do not have much of a voice in politics, whether in those countries that emit most of the world’s warming pollution or at the global level. The costs of climate action, on the other hand, are evident here and now, and they fall on well-organized interest groups with real political power. In a multipolar world without a responsible hegemon, any collective effort is difficult to organize. And the profound uncertainty about what lies ahead makes it hard to move decisively.
These political hurdles are formidable. The good news is that technological progress can make it much easier to clear them by driving down the costs of action. In the decades to come, innovation could make severe cuts in emissions, also known as “deep decarbonization,” achievable at reasonable costs. That will mean reshaping about ten sectors in the global economy—including electric power, transportation, and parts of agriculture—by reinforcing positive change where it is already happening and investing heavily wherever it isn’t.
In a few sectors, especially electric power, a major transformation is already underway, and low-emission technologies are quickly becoming more widespread, at least in China, India, and most Western countries. The right policy interventions in wind, solar, and nuclear power, among other technologies, could soon make countries’ power grids far less dependent on conventional fossil fuels and radically reduce emissions in the process.
Technological progress in clean electricity has already set off a virtuous circle, with each new innovation creating more political will to do even more. Replicating this symbiosis of technology and politics in other sectors is essential. In most other high-emission industries, however, deep decarbonization has been much slower to arrive. In sectors such as transportation, steel, cement, and plastics, companies will continue to resist profound change unless they are convinced that decarbonization represents not only costs and risks for investors but also an opportunity to increase value and revenue. Only a handful have grasped the need for action and begun to test zero-emission technologies at the appropriate scale. Unless governments and businesses come together now to change that—not simply with bold-sounding international agreements and marginal tweaks such as mild carbon taxes but also with a comprehensive industrial policy—there will be little hope of reaching net-zero emissions before it’s too late.
From today’s vantage point, no single domain offers greater opportunities for deep decarbonization than electric power. The use of electricity does not increase or reduce emissions in itself; electricity delivers energy that may or may not be clean depending on how it was generated. An electric car, for instance, doesn’t do much good against global warming if all the electricity comes from conventional coal plants. Still, electrifying the economy—in other words, designing more processes to run on electricity rather than the direct combustion of fuels—is essential. This is because, compared with trying to reduce emissions in millions of places where they might occur, it is far easier and more efficient to reduce emissions at a modest number of power plants before distributing the clean electricity by wire. Today, Western economies convert about 30 percent of their energy into electric power. If they want to get serious about decarbonization, that fraction will need to double or more.
No single domain offers greater opportunities for decarbonization than electric power.
Getting there will require progress on two fronts. The first is the electrification of tasks that use vast amounts of energy but still rely on fossil fuels, such as transportation and heating. Overall, transportation accounts for 27 percent of global energy use, and nearly all of it relies on oil. The car industry has had some success in changing this: the latest electric vehicles rival high-end conventional cars in performance and cost, and electric cars now make up around eight percent of new sales in California (although only 1.3 percent nationwide) and nearly 56 percent in Norway, where the government offers massive subsidies to buyers. With improved batteries, heavier-duty vehicles, including buses and trucks, could soon follow. In fact, China already fields a fleet of over 420,000 electric buses. By contrast, aviation—which makes up only two percent of global emissions but is growing rapidly and creates condensation trails in the sky that double its warming effect—presents a tougher challenge. A modern battery can store only two percent of the energy contained in a comparable weight of jet fuel, meaning that any electric airplane would need to carry an extremely heavy load in batteries to travel any reasonable distance. Even in the best-case scenario, commercial electric aviation at significant scale is likely decades away, at least for long-haul flights. Long-distance shipping also faces challenges so daunting that electrification is unlikely to be the best route. And in each of these areas, electrification is all the more difficult because it requires not only changing the conveyances but also building new charging infrastructures.
Besides transportation, the most important electrification frontier is heating—not just in buildings but as part of industrial production, too. All told, heating consumes about half the raw energy that people and firms around the world use. Of that fraction, some 50 percent goes into industrial processes that require very high temperatures, such as the production of cement and steel and the refining of oil (including for plastics). These sectors will continue to rely on on-site fossil fuel combustion for the foreseeable future, since electricity cannot match the temperature and flexibility of direct fuel combustion. Yet in other areas, such as lower-temperature industrial processes and space heating for buildings, electrification is more practical. Heat pumps are a case in point: whereas conventional heaters work by heating up indoor air, heat pumps act like reversible air conditioners, moving heat (or, if necessary, cold) indoors or outdoors—a far more efficient approach.
Electrification, of course, will not on its own reduce emissions by much unless the power grid that generates and distributes the electricity gets cleaner, too. Ironically, some countries have made modest progress on this front even as they have doubled down on fossil fuels. China, for instance, has swapped out aging coal plants with newer, more efficient ones, cutting emission rates in the process. (The country’s most efficient coal plants now emit less carbon dioxide per unit of electricity than comparable U.S. plants.) The United States, for its part, has cut down on its emissions thanks to innovations in horizontal drilling and fracking that have made it economically viable to extract shale gas. In 2005, when this technology first became commercially relevant, coal accounted for half of all the electricity produced in the United States; today, coal’s share is down to one-quarter, with much cleaner and inexpensive natural gas and renewables making up the difference.
In theory, fossil fuels could still become much cleaner, even nearly emission free. This could be possible with the help of so-called carbon capture and storage (CCS) technologies, which capture the carbon dioxide emissions created by industrial processes and pump it safely underground. In practice, investors have remained wary of this approach, but in both the United States and some European countries, recently introduced subsidies are expected to unleash a wave of new CCS projects in the years ahead. One CCS scheme, currently being tested by a group of engineering and energy firms, completely rethinks the design of power plants, efficiently generating electricity from natural gas while capturing nearly all the carbon dioxide produced in the process at little extra cost. In regions where natural gas is cheap and abundant, this technology could be a game changer.
For now, improved fossil fuel technology has amounted to shallow decarbonization: it has reduced emissions enough to slow the rate of climate change—in the United States, emissions from the power sector have dropped by 29 percent since 2005 thanks mainly to the shale gas revolution and growth of renewables—but not enough to stop it. To prevent the world from warming further will require much more focus on technologies that have essentially zero emissions, such as wind, solar, hydroelectric, and nuclear power, in addition to CCS, if it proves commercially scalable. According to the United Nations’ Intergovernmental Panel on Climate Change, these low-carbon technologies would need to generate 80 percent of the world’s electricity by 2050 (up from about one-third today) in order to limit warming to two degrees Celsius above preindustrial levels.
Renewables, in particular, will play a central role. Thanks to decreases in the cost of wind and solar power equipment—and thanks to a mature hydroelectric power industry—renewable energy already accounts for over one-quarter of global electricity production. (Nuclear provides another ten percent.) In the United States, the cost of electricity from large solar farms has tumbled by 90 percent since 2009, and wind energy prices have fallen by nearly 70 percent—and both continue to drop.
Given those plunging costs, the main challenge is no longer to make renewables cheap; it is to integrate them into the power grid without disruptions. To avoid blackouts, a power grid must align supply and demand at all times. Energy output from wind and solar plants, however, varies with the weather, the season, and the daily rise of the sun. The more a power grid relies on renewables, then, the more often the supply will not match the demand. In the extreme, extra power must be dumped—meaning that valuable capital and land were used inefficiently. To be less vulnerable to such shocks, utility companies will need to expand the size of their power grids, so that each can draw on a larger and more diverse array of energy sources. In order to deal with excess supply from renewables—a condition that will become much more frequent as the share of renewables rises—they must also create incentives for users to vary their demand for power more actively and find ways to store surplus electricity on a much larger scale. Today, nearly all bulk storage capacity takes the form of hydroelectric pumps, which store electricity by moving water uphill and recovering about 80 percent of the power when it flows back down. In the years ahead, soaring demand for electric vehicles will drive down the cost of lithium-ion batteries; those batteries could become an affordable way to store energy at the grid level, too. And as the need for storage increases, even cheaper methods may come on the market.
The main challenge is no longer to make renewables cheap; it is to integrate them into the power grid without disruptions.
To better integrate renewables, policymakers can also rely on the strategic use of another zero-emission technology: nuclear energy. Although most efficient when running flat out 24 hours a day, nuclear power plants can also operate flexibly to cover the supply gaps from wind and solar power. Some of France’s nuclear reactors, for instance, already cycle from about one-quarter to full power and back again, sometimes twice a day, to compensate for fluctuations in the supply and demand of renewables.
Independent of renewables, nuclear power already contributes massively to cleaner grids. Every year, some 440 operational nuclear reactors account for lower global carbon dioxide emissions of an estimated 1.2 billion metric tons. In the United States, research suggests that keeping most existing nuclear plants open would be far less expensive than many other policy options. In fact, most countries would do well to expand their nuclear power even further to cut back on their emissions. In the West, however, major expansions are not on the horizon: public opposition is strong, and the cost of building new reactors is high, in part because countries have built too few reactors to benefit from the savings that come with repetition and standardization. Yet in other parts of the world—especially China and South Korea, which have more active nuclear power programs—the costs are much lower and public opposition is less pronounced. Moreover, whereas countries once designed and built their own reactors, today many simply import them. That model can create new risks—the sector’s leading exporter today is Russia, a country not renowned for its diligence regarding reactor safety or the security of nuclear materials—but it also has the potential to make commercial nuclear technology available to many countries that could not develop and deploy it safely on their own. Abu Dhabi’s purchase of four gigantic South Korean–built reactors, the first of which is set to start operating next year, shows the promise of this model. The same approach could work for other countries that currently satisfy their large energy needs with fossil fuels, such as Saudi Arabia.
When it comes to the precise technological makeup of a future decarbonized economy, expert opinions diverge. Engineers and economists, for the most part, imagine solutions that bundle several approaches, with both CCS and nuclear power acting as important complements to renewables. Political scientists, on the other hand, tend to see a bigger role for renewables—one of the few areas in energy policy that usually garners support from across the ideological spectrum, including in the United States. Yet even this rather popular solution can prove divisive. Fierce debates rage over where to locate generators such as wind turbines, including among putative environmentalists who support the technology only if they don’t have to look at it. Public opposition to new wind turbines in Norway—even in already industrialized areas—and to offshore wind parks in the eastern United States are harbingers of tough siting fights to come. The same issue arises when it comes to power lines: making the most of renewables requires longer, more numerous power lines that can move renewable power wherever it will be needed, but public opposition can make such grid expansions a bureaucratic nightmare. In California, for example, the most recent big power line designed to move renewable power where it will be useful—in that case, from the sunny desert to San Diego—took a decade to build, even though the technical engineering and construction portion of the project should have consumed no more than two years. China, by contrast, has blown past the efforts of the United States and Europe, with dozens of ultrahigh-voltage lines, most of them built in the last decade, crisscrossing the country.
Political obstacles notwithstanding, expanding the electrification of transportation and heat and the production of low-carbon electricity offers the surest path to a clean economy to date. The latest analysis by the Intergovernmental Panel on Climate Change, for instance, suggests that more pervasive use of clean electricity in the global economy would cover more than half the cuts needed for deep decarbonization. Yet just how big a role electrification will ultimately play is hard to predict—in part because its impact will depend on the future trajectory of rival solutions that are only just beginning to emerge and whose potential is impossible to assess precisely.
Hydrogen, in particular, could serve much the same function as electricity does now in carrying energy from producers to users—and it offers crucial advantages. It is easier to store, making it ideal for power systems dependent on ever-fluctuatingsupplies of renewable energy. And it can be burned—without producing any new emissions—to generate the high levels of heat needed in heavy industry, meaning that it could replace on-site fossil fuel combustion in sectors that are hard to electrify. Hydrogen (either in its pure form or mixed with other chemicals) could also serve as liquid fuel to power cars, trucks, ships, and airplanes. A zero-emission economy could integrate the two carriers—electricity and hydrogen—using each depending on its suitability for different sectors.
The technology needed to turn hydrogen into an energy carrier already exists in principle. One option is to break up (or electrolyze) water into its constituent elements, hydrogen and oxygen. The hydrogen could then be stored or transported through the natural gas pipeline networks that already string across all advanced economies. Once it reached its user, it would be burned for heat or used as an input for a variety of chemical processes. So far, this approach is too expensive to be viable on a large scale, but growing investment, especially in Europe, is poised to drive down the cost rapidly. Initial tests, including planned networks of hydrogen pipelines outside Stockholm (for making steel), Port Arthur in Texas (for industrial chemistry), the British city of Leeds (for residential heat), and the Teesside area (for several applications, including power generation) and numerous other ventures, will soon yield more insights into how a real-world hydrogen economy would fare.
CCS is somewhat of a wildcard, too. Some industrial processes produce prodigious and highly concentrated streams of carbon dioxide emissions that should be relatively easy to isolate and capture. The production of cement, which accounts for a whopping four percent of global carbon dioxide emissions, is a good example. But firms operating in global commodity markets, where missteps can be economically disastrous, are hesitant to invest in fledgling systems such as CCS. To change that, state-supported real-world testing is overdue. A nascent Norwegian project to collect carbon dioxide from various industrial sources in several northern European countries and inject it underground may provide some answers.
Another promising area for reducing emissions is agriculture, a field in which advances on the horizon could yield large cuts. More precise control over the diets of animals raised for food—which will probably require more industrial farming and less free grazing—could lead cows, sheep, and other livestock to emit less methane, a warming gas that, pound for pound, is 34 to 86 times as bad as carbon dioxide. (It would also help if people ate less meat.) Meanwhile, a host of changes in crop cultivation—such as altering when rice fields are flooded to strategically determining which engineered crops should be used—could also lower emissions.
Agriculture’s biggest potential contribution, however, lies belowground. Plants that engage in photosynthesis use carbon dioxide from the air to grow. The mass cultivation of crops that are specially bred to grow larger roots—a concept being tested on a small scale right now—along with farming methods that avoid tilling the soil, could store huge amounts of carbon dioxide as underground biomass for several decades or longer.
As the hard reality of climate change has set in, some have begun to dream of technologies that could reverse past emissions, such as “direct air capture” machines, which would pull carbon dioxide from the atmosphere and store it underground. Pilot projects suggest that these options are very costly—in part because it is thermodynamically difficult to take a dilute gas from the atmosphere and compress it into the high concentrations needed for underground storage. But cost reductions are likely, and the more dire the climate crisis becomes, the more such emergency options must be taken seriously.
The ramifications of climate change are proving more disastrous than originally thought, just as politicians are realizing that cutting emissions is harder than anticipated. That leaves a large and growing gap between climate goals, such as the Paris agreement’s target of limiting warming to 1.5–2.0 degrees Celsius above preindustrial levels, and the facts on the ground. The world has already warmed by about 1.1 degrees, and at least another half a degree is probably inevitable, given the downstream effects of today’s emissions, the inertia of the climate system, and the inherent difficulty of reshaping industrial infrastructure.
The defining industrial project of this century will be to leave carbon behind.
To close the gap between aspirations and reality, governments need to grasp that they cannot rely solely on hard-to-enforce international agreements and seductive market-based approaches, such as carbon pricing, that will work only at the margins. The world needs new technology, and that means more R & D—much more—and a lot of practical experience in testing and deploying new technologies and business strategies at scale. To stimulate that progress, governments need to embrace what is often called “industrial policy.” In each major emitting sector, authorities should create public-private partnerships to invest in, test, and deploy possible solutions.
The details will vary by sector, but the common thread is that governments must directly support fledgling technologies. That means tax credits, direct grants, and promises to procure pioneering green products even if they are more expensive than their conventional alternatives. These steps will ensure that new low-emission products in sectors such as cement, steel, electricity, plastics, and zero-carbon liquid fuels can find lucrative markets. The need for such government intervention is hard to overstate. Producing steel without emissions, for example, could initially be twice as expensive as producing it in the traditional way—a penalty that no company operating in a global, competitive commodity market will accept unless it has direct support in developing the necessary technology, reliable markets through government procurement, and trade protections against dirtier competitors.
For now, no major government is taking these steps at a reasonable scale. The much-touted Green New Deal in the United States is still weak on specifics, and the more concrete it becomes, the harder it may be to form a supportive political coalition around it. Its counterpart, the European Green Deal, is further along yet also faces political challenges and administrative hurdles. If these schemes focus on making critical industries carbon free and provide lots of room for experimentation and learning, they could prove effectual. If they become “Christmas-tree proposals,” with ornaments for every industrial and social cause imaginable, then they may collapse under the weight of their cost and poor focus.
A bigger supply of new fundamental ideas for decarbonization is essential. On the first day of the 2015 Paris climate conference, a group of 24 governments, along with the eu and the billionaire philanthropist Bill Gates, pledged to double their spending on clean energy R & D. So far, the group’s self-reported data show that it is at 55 percent of its goal; independent and more credible assessments suggest that the actual increase is only half of that. Mission Innovation, as the collective is known, has also set up working groups on solutions such as CCS and hydrogen, but those groups have little capacity to develop and implement a collective research agenda. What is needed instead are smaller, more focused groups of high-powered backers. Powerful governments have a part to play, but not an exclusive one, considering that some (such as the United States today) are unreliable and therefore less important than subnational actors, such as California, or even wealthy philanthropists.
Initiatives such as Mission Innovation are essential because markets for clean technology are global. Three decades ago, when diplomatic efforts to combat climate change began, most innovation in heavy industry, including in the energy sector, came from a small number of Western countries. No longer. When it comes to electric buses and scooters, China is king, with India taking some baby steps. For electric cars, U.S., Japanese, and European manufacturers are in the lead technologically, but Chinese firms have larger volumes of sales. Innovation in ultrahigh-voltage power lines is coming particularly from engineering firms based in Europe and Asia. The explosion in China of low-cost production of solar photovoltaics was initially geared to supply the highly subsidized German market.
Given this geographic breadth, nationalist trade policies that limit cross-border exchange and investment could easily gum up the works. In particular, the United States should reform its approach to foreign investment in sensitive technologies. Instead of the current review policy—an opaque process managed by the Committee on Foreign Investment in the United States—regulators should follow the “small yard, high fence” rule proposed by former U.S. Defense Secretary Robert Gates: identify a short list of technologies that are truly sensitive and protect the United States’ advantage in those areas while opening the doors to the power of globalization for all others.
The great technological transformation of the nineteenth century was to harness the power of fossil fuels for industrial growth. The twentieth century rode the wave of innovation that followed and, inadvertently, put the planet on track for massive warming. The defining industrial project of this century will be to leave carbon behind. As governments and firms embark on this enterprise, they should prepare for the long haul. It took cars some 30 years, starting in 1900, to completely replace horses on American roadways—and horses and cars could use the same roads. History has shown that transformations affecting entire infrastructures, as are needed today, take even longer.
Even immediate investment by a cluster of motivated countries, organizations, and billionaires, in other words, cannot transform the industrial system overnight. Yelling louder will not change that. Setting bold goals can help, but new technological facts on the ground—sped along by active industrial policy and international cooperation—are what will transform the politics and make deep decarbonization a reality. Change will be slower than advocates and scientists would like. But it will accelerate if the leaders most willing to act on climate change stop moralizing and start seeing deep decarbonization as a matter of industrial engineering.