Innovation in the electricity industry to jumpstart a clean energy economy?

Essay sponsored by the French Union of Electricity for the student competition Eurelectric 2012 on the topic “Can innovation in the electricity industry jumpstart a clean energy economy? What concrete actions are necessary to drive this change?”. The content of the text engages the sole author’s responsibility and cannot be in any way considered as an official position of the UFE.

According to the World Resources Institute, the electricity and heat sector was in 2005 the biggest emitter of greenhouse gas (GHG), accounting for almost 30% of global emissions. Although this figure ignores the considerable differences that exist between countries in terms of generation methods and efficiency of the whole chain, it nonetheless gives a clear idea of the huge potential that the electricity industry can deliver towards a cleaner economy and, more specifically, towards decarbonization — due to space constraints and the prevailingness of the climate change issue, other sources of pollution will be left aside in the course of this contribution.

On the world scale, the supply side, i.e. electricity generation, could for instance achieve landmark progress by switching from the most polluting sources such as coal to relatively cleaner plants based on natural gas, nuclear power or renewable energy. Peculiarities of the local environment, economic constraints as well as socio-political choices should decide which of these sources of energy is to be given priority regarding R&D, investments in construction or differentiated tariffs — a point which will be further developed when dealing with demand-side measures.

The socio-environmental costs of coal have now been grabbed by its major users like China. At the same time, several large oil-producing countries have understood the ineffectiveness of burning their “black gold” in order to generate electricity while they could sell it for a higher price and build with this money more efficient power stations. Consequently, both groups of countries have undertaken to phase out ageing plants and to progressively replace them with more modern installations. It is unsure however whether, in a context of fast economic growth and increasing demand for energy, these efforts will be sufficient to actually reverse the trend of GHG emissions.

This is why the European Union, which often boasts to be the world leader in the fight against climate change, should put in place an appropriate set of incentives and disincentives in order to be certain the environmental objectives will not be neglected. These measures could include, among other things, a border adjustment mechanism which will contribute to create a level playing field between EU and non-EU industries and to avoid carbon leakage. Carbon outsourcing has indeed already offset most GHG emission reductions in developed countries by substituting local production, subject to diverse forms of environmental taxation, with imports. As a result, not only targets for global GHG emissions have become largely missed, but the EU has lost an important part of its industrial base.

To be accepted however, such a policy needs to be perceived as exemplary. Therefore, the EU should give up double standards and complete this externally-oriented action with an overhaul of its Emission Trading Scheme (ETS), a mechanism that has so far been relatively unsuccessful in cutting GHG emissions when considering consumption in the EU rather than production. The carbon tax proposal should again be put on the table of the European Union so that Member States which still have wide prospects in terms of energy efficiency and GHG emissions reduction, especially in Central Europe, can rely on the proper incentives to do so.

Introducing a carbon tax is expected to act both on the supply and the demand sides. First, final producers and energy consumers will be encouraged to benefit from the possibilities offered by electricity market liberalization in order to pick up the cheapest supplier, thus sending a strong signal to electricity generation companies that they should progressively decarbonize or will become uncompetitive. On the other hand, power consumers will seek to green their own behaviour, in particular through new energy efficiency technologies.

Here again, engagement of the electricity industry is essential since they hold very important keys to unlock further gains on the demand side. The popularization of smart meters and storage instruments, combined with a more dynamic pricing system and innovative softwares that could e.g. prioritize electric devices’ orders — light is needed immediately when switched on but washing machines or water heaters can wait until electricity demand on the network is the lowest — should help smoothing demand and avoiding the recourse to backup stations, which often burn GHG-intensive fossil fuels. Information collected by these smart meters would also be precious to identify energy-leaking houses and to provide solutions to this problem. While one could have had the impression that electricity giants were being dismantled, it appears in fact that their scope for action, from power stations to households, has never been so wide. The whole question now is whether they will be up to the challenge.