The energy transition is on track. The train has left the station with an ambitious goal in mind, but economic reality means that the train is not running as fast as a TGV (Train à Grande Vitesse). We see more and more see a discrepancy between ambition and reality. Let’s call this discrepancy the energy transition paradox. On one hand we see that global energy demand is growing due to a rise in living standards. On the other hand we see that, due to climate policy and the aim to reduce global carbon emissions, pressure is building to reduce consumption. There is more and more friction, and this might actually be a good thing.
This energy transition paradox is seen at all levels. On a local level, the municipalities of Amsterdam and Haarlemmermeer both called a temporary halt to the building of datacentres in the region. The risk of disruptions from an overloading of the electricity grid is an important reason. The rapid rise in the number of datacentres can be explained by the favourable business climate. However, growth has now slowed. It is clear that more data is being processed due to growing digitalisation, and as a result, demand for electricity is rising. The Amsterdam region is crucial for the international connectivity of data. However, the move to halt the building of datacentres is fuelling uncertainty over future investments by international companies. Investment might shift to other locations or be delayed.
“A local carbon tax for the industry is hard to explain”
On a national level we also see increased frictions. The Minister of Economic Affairs and Climate wants Dutch industry to become more sustainable. The Dutch business climate used to be attractive for industry, and minister Wiebes announced the availability of subsidies – worth up to half a billion in 2030 – to tempt companies to stay and make their investments here. At the same time, the announced local carbon tax is hard to explain to board members and could make future investments within the Netherlands less likely. For many of the larger players within Dutch industry the managing board is located outside the country. When making investment decisions, these board members have to take the international playing field into account. While competing on the international track, it might look like they are riding the local intercity train.
Finally, we see the same trends on the international level. There is increased pressure on investments in exploration and production of oil and gas while global demand for both commodities is rising. The International Air Transport Association (IATA) expects for instance a doubling of the number of flights globally by 2036.
“Pressure creates diamonds. Fire refines gold”
It is not the first time that I have called for more guidance from policy makers. And the energy paradox may be helpful here. After all, pressure creates diamonds and fire refines gold. However, too much pressure may lead to structural damage and too much fire may lead to overheating. Too often we see that the sense of urgency with local policy makers results in rushed and inefficient decision-making. Therefore I tend to call for more action on a national level. With the presentation of the Dutch Climate Agreement, it seems that the government has taken back control of the energy transition. As a result, tensions seems to have eased after a period of polarised debate. The track is clear for an acceleration.
More recently, an even bigger opportunity has presented itself. During her speech to the European Parliament, the new President-elect of the European Commission Ursula Von der Leyen tried to give extra weight to her candidacy by promising a ‘green deal’. The goal of this deal is to make Europe the first climate neutral continent in 2050. As a result, carbon emissions would drop not by 40%, but by 50-55% in 2030. Further, carbon emission should be priced in such a way that it leads to a change of consumer behaviour. A lot of words and ambition, but we will not save the planet with ambition alone.
“We should catch the international train”
I found the promise of action the most positive aspect of her speech. Von der Leyen promised to step up investments and to implement a European carbon border tax. This would maintain a level playing field for European companies. This international train, or TGV, is the one we should catch! If these promises materialise it could create a framework for local and national politicians to facilitate the energy transition within Europe. It can also serve as a springboard to accelerate the energy transition regionally, while keeping an eye on international developments.
Centralising the (guidance of) climate policy in Brussels makes it easier to build on each country’s strengths, for instance in the field of geographical, technical and economic possibilities. International cooperation can lead to more efficient and cheaper solutions. It is also possible that the more ambitious European targets will lead to better cooperation and more efficient integration of energy policies at a national and local level. It is about time we said goodbye to the energy transition paradox, and to strive for an unified European climate policy. Hopefully the ‘hunt for the reduction of tons of carbon emissions’ by Minister Wiebes will run parallel with a similar ambition for Von der Leyen.
This column has been published earlier in Dutch on Energiepodium.nl