Business & Finance
Brought to you by: Monaco Life
One of the most resounding messages to have come out of the Clean Equity forum in Monaco last week is that now is the time to be part of the energy transition; to jump on board the EU Commission’s ambition to be a global leader in sustainability and to take advantage of the enormous opportunities this provides for entrepreneurs and investors.
In their panel discussion attended by Monaco Life, Covington Partner Sebastian Vos and Senior Of Counsel Gary Guzy discussed EU and US decarbonisation strategies, how important this presidential election is in positioning America within the energy transition, how the European Union is moving ahead in leaps and bounds, and how companies can profit in the process.
This is an edited version of that discussion.
What are the most significant US and EU policy changes that are on the near-term horizon that will drive decarbonization of carbon intensive sectors of the economy?
Sebastian Vos: The EU Commission tends to operate on a five-year plan so the European Green deal will be their main focus for the next five years, but the aims are much more long term.
The EU Commission announced last month that they want to raise their climate ambition to a 55% reduction in EU greenhouse gases by 2030 compared to 1990 levels. To reach that goal they will focus on, essentially, renewable energy, how various energy systems work together, emissions trading, carbon border tax, environmental financing, how environmental disclosure rules are enforced, and straight funding for a variety of projects.
In fact, funding of €750 billion is to be part of the NextGenerationEU package and one of the most important parts of that will be the Recovery and Resilience Facility (RRF), giving authority to the EU Commission and to the Member States to direct funds in order to support projects.
In terms of decarbonization specifically for energy intensive sectors, there have been seven flagship areas that the EU Commission has identified – two of which are worth flagging. The first is what the commission calls Power Up, which focusses on future-proof clean technology and the acceleration of the development of renewables, particularly hydrogen. The second is called Recharge and Refuel, which has a lot to do with transport, refuelling stations for electric vehicles and extending public transport where possible. So, the EU-wide ambition is to build by 2025 one-third of the three million charging points needed in 2030 and half of the 1,000 hydrogen stations needed.
I would say that with all of this, for the companies involved in this forum, now is really the time to get to grips with what the Commission is trying to do. There are a lot of opportunities.
How do policy changes in the United States compare?
Gary Guzy: Well, we will certainly know a lot more in a few weeks.
Firstly, I think a second term in office will allow President Trump to deliver on many steps that he has started. Probably the most prominent example is that soon the US will be able to consummate its withdrawal from the Paris Climate Accord, and the president would also like an opportunity to defend in court his actions to roll back the major carbon reduction initiatives that were undertaken during the Obama administration – including the greenhouse gas limits and fuel switching to the electric power sector, binary standards for motor vehicles that were very ambitious and have been rolled back, and controls over methane leakage from natural gas production. So, we will see a doubling down of the policies of the last four years.
Certainly, that will fuel a further fight between the states led by California and New York who are driving coalitions so they can assert their own greenhouse gas emissions standards and accomplish a clean energy transformation. They make the case that even without US participation at the national level, at the sub-national level the US is still meeting its corresponding obligations.
We expect that a Biden-Harris administration will take a series of sweeping and very robust steps from the very first day in office to fundamentally change the course with the recognition that we are now in the last remaining decade for decisive action to prevent a global climate disaster – an understanding that has really resonated with the former vice president and Senator Harris.
On the international front, there is likely to be a very concerted push to re-establish US climate diplomacy with a signature effort to re-enter the Paris Climate Accord and perhaps host an early climate summit.
Domestically, I would expect that the major climate regulatory rollbacks will be ended, that the administration will take steps to move to a net-zero electric generation system by 2035, to have a robust embrace similar to what Sebastian outlined for the EU with electric cars and trucks, much tougher emission standards, and careful regulation of natural gas as a bridge fuel.
Since the potential Biden-Harris administration is thinking about this transformation as very much part and parcel of its economic recovery plans, known as Building Back Better, we also expect that there will be tens of billions of dollars of significant and creative investment that will be designed to spur new technology to overcome the obstacles, including an advanced research programme. That will generally facilitate regular deployment of renewables, offshore wind, green hydrogen, invest in energy efficiency for buildings both for commercial and residential, and have hundreds of billions of dollars in new clean infrastructure investments, including transit, a revived rail system, and a focus on climate resilience.
The detailed Biden-Harris energy and infrastructure campaign plan calls for investing $2 trillion in the US during the course of the first Biden term, and much of this investment will be designed to address the health and economic equality issues that have come to the fore during the pandemic and recent racial protests in the US, with the explicit commitment that 40% of this investment will benefit frontline communities.
Funding for much of this depends on an aligned and cooperative Congress, but as the current administration has demonstrated, it is certainly possible to accomplish significant policy changes without having full control of the US congress.
Given the significant investment opportunities contemplated in both the EU and the US, what are the best leverage points for businesses and investors to influence the contours of these pending policy changes?
Sebastian: Now is a great time to engage. We have moved from that first phase of a ‘big picture’ into the technical level, and I think that this is where a lot of useful work can be done both at the European Union level, primarily the EU Commission, but also at the Member State level, as a lot of funding comes from the Member States.
Gary: I think there will be enhanced expectations on reporting carbon emissions, on sustainability practices, even on carbon intensive investments, and that focus will really grow in the continued absence of US action to address climate if the president is re-elected.
If the election outcome changes things, then businesses should recognise that it will take some time for the transition teams to take their skeleton crews, turn them into landing teams at the agencies, and really get that transition planning into gear.
But then there are terrific opportunities to set a trajectory for the first 100 days of action by the new administration, even the very first day of the signing of executive actions. There will be an opportunity to participate in formulating more sweeping legislative proposals, and given the range of interest in these actions, in our experience, it is often best accomplished through coalitions of like-minded companies, because it helps to amplify their perspective.
I also wouldn’t diminish the importance of partnerships with NGOs, because they can help verify and sell the benefits of proposed actions to really enhance the prominence of proposals being made.
And lastly, given the focus on addressing the issues of equity and inclusion that the new administration is committed to, the more policies and proposed actions that can help frontline communities and communities of colour, whether those be health-based or economic-based outcomes, I think there is more likely to be a real eagerness to embrace those kinds of projects.
What are some of the new technologies that would need to be adopted widely to achieve EU and US decarbonization goals, and how would those policies that we have discussed incentivize adoption of those technologies?
Sebastian: There are five areas that are top of mind in Europe at the moment where the EU Commission and governments are working to encourage technologies in a variety of ways through funding and committing state aids, etc.
In July, the Commission released a Hydrogen Strategy for a climate neutral Europe, with the aim to install at least 60GW of renewable hydrogen electrolysers by 2024 and 40GW by 2030. There is a corporation that has been set up within Europe, the Clean Hydrogen Alliance, which is being looked at as a recipient of subsidies from different Member States.
The European Battery Alliance was launched in 2017 with the aim of putting sustainable batteries at the core of the strategy for a sustainable Europe and to decarbonize batteries in the value chain. They have already been approved to receive €3.2 billion in state aid in order to support those efforts.
This is where NextGenerationEU funding is important. The Renovation Wave initiative is used to support these efforts and is based on the fact that currently across the EU, an estimated 70% of building stock is inefficient, while around 85% of the buildings that are being built right now are likely to be around for the coming decades. So, there is a lot of inefficiency there and it is a major contributor to greenhouse gas emissions.
In June, the EU Investment Bank provided around €175 million in loans for windfarms in Austria and Spain, and we can assume there is more to come.
Energy system integration
This refers to the efficient transportation of energy. For example, a lot of the wind energy in Germany is created in the north, whereas industry tends to be located in the middle or south, so they need to make sure they are transporting that in an efficient way.
Gary: I fully agree that those areas are likely to be priorities if there is a change in US administration, and with $2 trillion available, there is an appetite for any area. Agriculture is also a strong focus, transportation, energy production, power generation, and incentives to remove obstacles.
I think there are other areas where there is likely to be a push.
Electric charging infrastructure
Vice President Biden is backing 500,000 new chargers to facilitate the transition and really focus on building US manufacturing leadership of electric vehicles to boost jobs.
Enhanced energy storage
Recognition of the importance of enhanced transmission to facilitate grid modernisation and resilience.
Negative emissions technology
Recognising technologies like carbon capture and removal, as well as tax incentives to facilitate those, given the real challenge of meeting the net zero emissions goals.
Would you like to include any final thoughts on decarbonization policies and what we can expect in Brussels, Washington, and other capitals?
Gary: Fasten your seatbelts. The next few weeks and months will be an interesting demonstration of US democracy and the degree to which we really want to be a global leader in finding solutions to these global challenges. We are very much poised for some breath-taking action on climate and clean energy policy that will be at the core of the new administration if there is a change, that those would very much support the kinds of business activities that you in Monaco are pursuing, that would help to align the US with the EU trends that Sebastian has been talking about, and I think create an enormous range of opportunities.
Sebastian: Definitely keep an eye on Brussels but don’t forget the other capitals. Members States are responsible for energy mix, and there is a lot of funding that is being made available at EU level, so you want to make sure you are well connected at the EU level as well to “surf the regulatory wave”.
The EU is actively financially supporting companies that they think are going to be able to push this energy transition agenda forward, so they are picking winners. That is good news if you are one of the companies chosen, if not, it makes the battle harder for you. So, try and be a part of the process, because it will help you and it will help us. And I think a lot of these winning technologies are going to be very profitable.
Top photo: Sebastian Vos, Covington Partner Sebastian Vos, by Monaco Life
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