What’s next for the clean-energy economy in light of last year’s landmark climate-change deal in Paris?
- By May 01, 2016
“Clean energy just makes sense.”
In his final State of the Union address in January, President Obama asked: “Why would we want to pass up the chance for American businesses to produce and sell the energy of the future?” His statement sounded a clarion call to business leaders, policy makers, and job creators. When it comes to the energy of the 21st century, there are hundreds of billions of dollars and millions of new jobs on the line.
The president’s remarks came on the heels of the landmark Paris Agreement, with 195 countries agreeing to an accord that will cut greenhouse gas emissions on a global scale, and potentially impact global energy markets in dramatic ways. In 2015, more than 150 US businesses signed the American Business Act on Climate Pledge to support the climate agreement in Paris.
“Clean energy just makes sense,” said Michael Polsky, ’87, founder, president, and CEO of clean-energy company Invenergy—one of the pledge signees—and a University of Chicago Board of Trustees member. “It delivers low-priced energy for customers, energy security and diversity for our county, economic development for communities, and environmental benefits. Clean energy is the most important part of the solution to the climate challenges our world faces.”
Robert H. Topel, Isidore Brown and Gladys J. Brown Distinguished Service Professor and codirector of the Energy Policy Institute at the University of Chicago, noted that one potential hurdle to the Paris Agreement is that it isn’t enforceable. “In many countries, including the United States, lots of the political things that need to be done require legislation—and we live in a democracy,” Topel said. “Further, there’s little historical precedent to engage in this level of international cooperation.”
The stakes are high. Even if the deal is adhered to and global greenhouse gas emissions are cut according to the agreed upon amount, experts say that’s still only half of the amount needed to avert an increase in atmospheric temperatures of two degrees Celsius. That is the point at which the world will be locked into rising sea levels and even more dramatic changes to the climate, according a group of leading scientists who published a 2015 report in the journal Science.
But agreements among international governments aren’t the only potential solution to the problem of climate change. Howard Learner, who led a Booth International Roundtable discussion in February titled The 2015 Paris Climate Conference: Implications for the Midwest and Illinois, sees vast business opportunities with the acceleration of clean-energy development.
“We’ll create more jobs, spur economic growth, and reduce carbon pollution,” said Learner, president and executive director of the Environmental Law & Policy Center, an organization that promotes environmental progress and economic development in the Midwest. “There’s an increasing recognition that we should do this on its own merits. Who’s not for more innovation?” Learner said.
Looking beyond the energy battles being waged in courts and Congress, Learner noted the quiet revolution in renewable energy and efficiency technologies that is rapidly transforming the electricity market. “Wind and solar energy, combined with battery storage, advanced lighting, and other improvements, are game changers,” Learner said. “These disruptive technologies will change the electricity system, as wireless technologies reshape the ways we live and work. Moreover, the clean-energy solutions developed and deployed in the United States can be marketed to the developing world to reduce carbon pollution and help solve global climate-change problems.”
Disruptive is right. The US Bureau of Labor Statistics published a report stating that “wind turbine service technician” is the fastest growing occupation in the country. The report, published in 2015, predicts the job market for wind turbine service technicians will grow 108 percent between 2014 and 2024.
“Everyone wants to know what’s the one thing that will solve it all? What’s the magic pill?”
In 2015, Invenergy partnered with companies such as Google and 3M and was the No. 1 provider of renewable energy to nonutility companies in the United States. “A major opportunity in clean energy is the growing number of technology and industrial companies that are turning to renewable energy for the extremely competitive and stable prices offered by wind and solar,” Polsky said.
Current employment data show continuing growth in clean energy. In the United States, hiring under the renewable-energy umbrella (in industries like biomass, geothermal, and solar, among others) reached 724,000 jobs in 2014, up 16 percent from 2013, according to the International Renewable Energy Agency, an intergovernmental organization. On a global scale, IRENA estimates that there were 7.7 million renewable-energy jobs in 2014 (9.2 million if you include hydropower jobs). China leads the global market, with roughly 3.4 million renewable-energy jobs, followed by Brazil, the United States, India, and Germany, according to IRENA.
Despite the growth of the clean-energy economy, fossil fuels remain the largest source of energy consumption globally. According to a 2015 report from REN21, an international nonprofit organization based at the United Nations Environment Programme in Paris, fossil fuels account for 78.3 percent of all energy consumption, while renewable energies account for 19.1 percent. The remaining 2.6 percent of energy consumption in the global marketplace comes from nuclear power.
But the needle has not moved much in the last decade when it comes to global consumption of renewable energy and fossil fuels. Between 2006 and 2015, REN21 data show a decline of less than one percent in fossil fuel consumption, while consumption of renewables also barely increased during that time period. This raises the question: If global economies continue to add jobs in the clean-energy sector, why haven’t our consumption habits changed at a higher rate?
“Even if the share of renewables grew in the United States, China, and India, other growing economies are fossil-fuel intensive relative to the developed world,” Topel said. “So the effects are evidently largely offsetting.”
Learner pointed out that energy market policy drives the market, and that technological innovations can change the world. “It doesn’t matter whether the carbon pollution comes from Indiana, India, or Indonesia,” he said. “Those heated gasses affect the global climate in the same devastating way.” To him, the Paris Agreement means an acceleration of clean-energy development, including solar energy panels, wind-power turbines, electric cars, and more energy-efficient buildings. “We’re in this together,” he said. “Either we solve this globally, or we hang globally.”
Jason R. Blumberg, adjunct assistant professor of entrepreneurship and CEO and managing director of Energy Foundry, which invests venture capital in promising energy start-ups, said pledges like the Paris Agreement aren’t always the most impactful approach. “What is impactful is the focus on the technologies we can employ, R&D we can develop, and business models we can promote to solve problems,” he said.
When it comes to curbing carbon emissions, global governments, advocacy groups, and economists often argue in favor of passing a carbon tax. “But politically there’s resistance to taking such a huge part of the economy and taxing it how it would have to be done,” Topel said.
In contrast, Blumberg, who teaches the Energy and CleanTech Lab, a Booth energy and clean-tech class, believes we should focus on new technologies that accomplish more with less—because people have not shown they’ll support big changes in their standard of living to achieve these goals.
“Everyone wants to know what’s the one thing that will solve it all? What’s the magic pill?” he said. “It’s a lot of little things, and those things need to come together to produce a big outcome. In my class, and at my day job, we figure out what technologies can make the world better.”
“Having a climate pledge is like telling everyone in the world to go on a diet, and people often don’t stick to diets,” Blumberg added. “But if you give them a better option, like walking on a lakefront trail, people do it and can lose some weight.” When it comes to creating change, “you have to create solutions that people actually want to implement.”
Nine years before the Paris Agreement, the conversation surrounding climate change and the potential benefits of clean energy revolved largely around an Oscar-winning film. Using data, science, and a little humor, An Inconvenient Truth argued that climate change was no longer a political issue, but rather a moral one. The film, which won the Academy Award for Best Documentary Feature, was originally met with both acceptance and cynicism. It’s generally come to be considered the turning point in the debate about the issue.
“The word ‘conspicuous consumption’ came up in the film—how much you can own and consume,” said Jake Zahniser-Word, a Full-Time student. “Now, I think ‘conspicuous conservation’ is the thing—showing off how green you are and how efficient you are at managing yourself.”
Before coming to Booth, Zahniser-Word worked for Boston-based Charles River Associates, where he helped create strategies for New York City to decrease its carbon emissions by 80 to 95 percent through energy efficiencies and renewable energy. As a research analyst in Washington, DC, for the Brattle Group, he evaluated opportunities for investments in energy efficiency, distributed solar, and cogeneration. Most recently, he was a commercial associate summer intern for the Duke Energy Corporation.
Zahniser-Word has served as a co-chair of the Energy Group, and he took Blumberg’s Energy and CleanTech Lab class. Getting involved with clean tech at Booth was an obvious path for Zahniser-Word—something he traces back to his childhood. “In middle school, I made a rudimentary solar thermal device to harness the power of the sun to heat up other sources,” he said. “Figuring out the best way to use the resources we have that aren’t depleting seemed like such a no-brainer thing to do."
“Work lies ahead at the country level for the Paris deal to be effective.”
Marcelo Lando, ’10, developed his interest in renewable energy as a student at Booth. “Before, my knowledge of renewable energy was zero, and I would have mistaken a microwave oven for a solar panel,” he said. “I made the most of Booth’s flexibility and took a class in the department of Geophysical Sciences called Energy: Science, Technology, and Human Usage.” Active in the Chicago Booth Energy Network, a newly created student group at Booth, Lando is now a founding partner at Argentina’s Eternum Energy and works on private equity investments related to solar photovoltaic power plants.
Some experts tie the potential investment and growth opportunities in clean energy to the lack of established brands throughout the various sectors of the market. “There’s probably only one company that can be considered a brand in the energy space: Nest,” said Seyi Fabode, ’10, referring to the home automation company that was acquired by Google for $3.2 billion in 2014.
A utility consultant, partner at Asha Labs in Austin, and author of the e-book Managing Technological Change in the Utility Industry, Fabode works with small businesses including Lagos, Nigeria-based Beacon Power Services—a partnership that brought energy efficiency and solar energy to West Africa. “There are not many other industries where you have just one or two brands, so there’s a brand opportunity,” Fabode said. “You can capture a consumer who is very brand conscious.”
Fabode entered the energy space due to a combination of luck, interest, and opportunity. He grew up in the oil-rich country of Nigeria, where there was little care for the issues of oil reliance and its negative effects. After taking a course about the country’s fading manufacturing opportunities, and how those skills were transferrable to the energy space, “I realized the massive opportunity and impact that could be had by working in that space,” he said. He finished his master’s in manufacturing systems engineering at Warwick University, and then applied those skills to work in the energy sector.
Support from Booth aided the trajectory of NETenergy, a thermal-energy-storage company whose COO is Evening student Mike Pintar. NETenergy won second place in the 2015 Edward L. Kaplan, ’71, New Venture Challenge, which carried a $40,000 prize. The company also won a $250,000 prize from the Wells Fargo Innovation Incubator competition. “Placing second in the New Venture Challenge provided legitimacy to our business idea and opened many doors,” Pintar said. “People are always impressed to hear about our success in the competition, especially knowing that great companies such as GrubHub and Braintree came out of the program.”
The opportunities to launch successful, clean-energy businesses are especially evident in industries that are open to innovation, such as disaster relief. “At LuminAID, we are advocates for use of renewable energy in disaster relief aid work, so we work within very specific instances,” Sreshta said. “The industry is progressive about the things they want people to use in disasters—in place of an eco-generator, for example. It’s a small industry, but it can be a bellwether for the use of clean-energy solutions, since traditional infrastructure is often disabled after disasters.”
Employment projections show strong growth is on the horizon for the clean-energy sector. IRENA predicts annual growth between two and six percent, which will lead to between 13.5 million and 24.4 million renewable-energy jobs globally by 2030.
Lando believes that the industry that will see the most growth is power generation (from renewable sources), but that transportation and real estate will also undergo a transformation as a result of new climate-change policies. “Renewable power generation has been growing in double digits for many years and may grow even faster,” he said. “As solar and wind generation become more important in the electricity generation matrix of each country, energy storage becomes more important to better manage intermittencies in electricity generation and daily variations in consumption patterns.” For example, if a consumer depends on solar energy to power her home, then she needs to be able to store electricity for use during the nighttime hours.
“Work lies ahead at the country level for the Paris deal to be effective,” Lando said. “It will take time, but the deal will be enforced. That will impact the speed at which fossil fuels are replaced by renewable sources, mostly with technology that’s already available.”
Fabode believes thought leaders need to change business models. “In terms of generating power and energy,” he said, “let’s consider models where the user of power might not be paying for it, like insurance. Most of us get insurance through our employer. What about energy being part of that package?”
Topel thinks a first step will be weaning people off fossil fuels—and that will take economic policies. “Either raise the cost of fossil fuels or reduce the cost of alternatives,” he said. “The policy perspective that economists are most fond of is a carbon tax. They don’t call economics the dismal science for nothing.”
Fabode’s optimism resides in the fact that the technology required to generate energy is getting cheaper, that access to renewable energy sources that used to be cost prohibitive is improving, and that there’s new consumer willingness to transition to renewable energy—even if it costs a little more in the short term. He also thinks that data and the digitization of supply, distribution, and consumption will bring down the cost of moving to a clean-energy future. In other words, the future of clean energy lies with innovation.
But more than that, Fabode believes less in the role of government and more in the role of consumers. Agencies creating new policies and governments passing new laws won’t lead to more people using clean energy. To him, real change will require people making their own decisions. “Change will be less about policy requirements or governmental polices,” Fabode said. “It will be about the personal choices we make."