The recent Group of Seven (G7) ministerial meeting in Berlin came up with two landmark agreements that, on the surface, look like more of the same, but are actually game-changers in the race towards renewable energy.
The first agreement, which goes into effect at the end of this year, bans the financing of coal and other fossil fuel projects and is remarkable for two reasons: there is an actual deadline, and it involves the shift of US$33 billion of much needed financing away from fossil fuel projects towards clean energy development.
As the ban on financing only applies to overseas fossil fuel projects financed by the G7 members, it is likely to have minimal impact on China and India in Asia, the two biggest users and developers of coal power plants, both of which have a lot of domestic capital to continue financing such projects needed to feed their local energy requirements. However, for other Asian countries that still rely heavily on foreign financing for their energy needs the deadline may be too soon.
Nevertheless, the massive US$33 billion outlay can definitely fast-track development of renewable energy sources, especially in developing countries that need them most.
The second – and more important – agreement that came out of the meeting is the phasing out of the use of coal in the power grids and electricity sectors of G7 member countries, namely Canada, France, Germany, Italy, Japan, the UK and US. But what’s remarkable about this agreement is that although there is no deadline, unlike in the first agreement, it has a more nuanced approach.
The reason there is no deadline is because there were two hold-outs – the US and Japan. While Canada, France, Germany, Italy and the UK were agreeable to a 2030 deadline, the US and Japan were pushing for an extension to 2035. This means these two countries need five more years to be able to phase out coal from their respective power sectors.
Based on past experience, what would normally happen in such cases is that the whole group would have accommodated the request for the extension and the deadline would be set for 2035. This time, however, what happened was that no deadline was set, but the language of the agreement clearly states that it is a priority for each member to phase out coal from the power grid.
Reading between the lines, if this were a poker game, Canada, France, Germany, Italy and UK are showing each other their cards, collectively upping the ante by charging full steam ahead towards getting rid of coal as soon as possible – possibly targeting 2030 – thereby challenging the US and Japan to act faster, to match the five members’ bet if they want to stay in the game and hold their seats at the G7 climate-action table.
In Asia, the pressure on US and Japan from the other G7 members to phase out coal from their energy grids is likely to up the pressure on China, India and other Asian countries to do likewise. After all, if the US and Japan can be pressured into phasing out coal, it’s likely that Asia could be as well.
The pressure will come from the fact that the more the laggards fall behind, the more they will lose out in terms of overall competitiveness to the countries and players who are already shifting ahead towards renewable energy. In other words, they have to ante up or lose out.
Also, the G7 agreements come in the wake of reports that the UK is producing so much electricity from wind that the National Grid has requested that turbine operators slow their power production. In the race towards renewable energy, this is certainly a good problem to have.
In any case, the commitment to get coal out of the electricity and energy sectors is good news. It’s also a signal that there is a strong consensus that the shift from fossil fuels to clean energy is now happening at a much faster pace, and the world is no longer willing to wait for the laggards to catch up.