Energy Transition Challenges for the 2020s

In looking back on history we often tend mark time by the decade. In the world of energy, the decade of 1970s is remembered as an era of oil crises and concern that the world’s energy supply was running out. More recently, the decade of the 2010s stands out for the emergence of shale oil and gas, and the growing adoption of renewables.

And now, as we embark upon a new decade, it’s time to consider what key developments in energy the 2020s might bring.

Two experts in the history of energy technology and politics offer their views on key energy trends that are likely to emerge in the decade ahead. The pair takes a particularly close look at how renewable energy might develop in the 2020s, and barriers to growth to watch out for.

Johannes Urpelainen is professor of Energy, Resources and Environment in the School of Advanced International Studies at Johns Hopkins University. Michael Aklin is Associate Professor of Political Science at the University of Pittsburgh. The two have launched a research program at Johns Hopkins, the Initiative for Sustainable Energy Policy, to promote sustainable energy in emerging economies.

Full Transcript

Andy Stone: Welcome to the Energy Policy Now podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone. In looking back on history, we often tend to mark time by the decade. In the world of energy, the decade of the 1970s is remembered as an era of oil crises and concern that the world’s energy supply was running out. More recently, the decade of the 2000-teens stands out for the emergence of shale oil and gas and the growing adoption of renewables. And now, as we embark upon a new decade, it’s time to consider what key developments in energy the 2020s might bring.

On today’s podcast, I’ll be talking about energy’s future with two experts who’ve studied past trends in energy technology, economics and politics, and who will offer their views on where these trends may lead us over the decade to come. We’ll take a particularly close look at how renewable energy might develop and barriers to watch out for. Johannes Urpelainen is Professor of Energy, Resources and Environment at Johns Hopkins University. Michael Aklin is Associate Professor of Political Science at the University of Pittsburgh. The two have launched a research program, the Initiative for Sustainable Energy Policy, to promote sustainable energy in emerging economies. Johannes and Michael, welcome to the podcast.

Johannes Urpelainen: Thanks for having us.

Michael Aklin: Thank you.

Andy: Michael, two years ago, the two of you published a book on the politics of renewable energy that looked back on the trends starting in the 1970s. In the book, you state that energy policy as we think of it today really didn’t become a distinct discipline until the ’70s. What changed during that decade, and what was the aim of U.S. energy policy at that time?

Michael: So to think about what changed in the 1970s, we need to remember where we stood at the time. We had energy systems, including the electrical grid, that had evolved in a somewhat chaotic manner over time, but I’d always respected at the time the principle that what the U.S. needed was affordable and abundant energy. So when you had new energy sources such as nuclear power, these sources were gradually added to the system, as long as they were able to meet these requirements.

And then, as you know, the ’70s happened, and things changed quite radically at the time. There are several reasons for that. One reason for this kind of change in policy and perspective over energy policy was driven by the oil shocks, which questioned whether the U.S. would be able to continue to have access to cheap and plentiful oil. Another thing that happened at the time was a series of nuclear accidents. In the ’70s, you had the Three Mile Island accident. Later on you had Chernobyl happening. And these accidents questioned the safety and reliability of some of these new technologies, like nuclear power. The shocks all took place over a time span of about fifteen years or so, and they radically changed how people thought about the future of their energy system.

We were at the time in a context of people thinking more carefully about the environment, so you had the environmentalist movement that was growing and getting stronger in the U.S., but even more so in countries like Germany. So people started to want more from their energy system than just something that was abundant and cheap. They also wanted something that was, for instance, more respectful of the environment.

And so in our book, which we call Renewables: The Politics of a Global Energy Transition, what we are saying is that these shocks that happened in the 1970s were crucial to kick start a change in how energy policy was designed and the aims it was targeting. That’s when you really can observe a change in what was happening. You see a beginning of investments in research and development in order to find alternatives to what the status quo was at the time. These shocks are really, really crucial, because our energy systems, like the grids, have dependent systems, so they don’t change very quickly.  And so you needed something to motivate these changes. You needed something to push politicians to try to do something else. And that was what voters wanted at that time, in the aftermath of these shocks. These shocks were really the key element to get the ball rolling in a different direction, one that was not only about having as much energy for as little money as possible, but it was about meeting these additional demands by people.

Andy: Well, as you pointed out — the two of you — in the book, this really was a shock in the 1970s. We had the oil shocks in 1973 and again in 1979. And prior to that, again, as you point out, energy was cheap and abundant, so there was really no guiding policy other than just the assumption that it was going to be in good supply. So this obviously changed.

Johannes, in the ’70s, the U.S. actually quickly became a leader in promoting clean energy. What specifically did the U.S. government do at that time?

Johannes: If you look at the U.S. government’s response to the energy crisis — first in 1973, then in 1979 — I would highlight three different measures that had a big impact. The first one was that when the U.S. finally created the Energy Administration, it created a fairly sizeable research and development program for renewable energy. And one of the really interesting case studies we found by working with the energy industry, some of these programs were really able to bring down the cost of solar power from its astronomical level pretty quickly. And this was very important to get some dynamism into the industry which really did not exist at the time.

The second important move was a piece of legislation called PURPA, or Public Utilities Regulation and Policy Act, from 1978. It created an obligation for electric utilities to purchase renewable energy and provided a kind of feeding type that made renewables more effective. California really picked this up and started investing in wind energy. This, then, created demands for this new technology. And as a result, the industry was able to grow. And interestingly enough, California was, for example, a major importer of Danish wind turbine technology at the time.

And then, because of this sustainable response in California, the U.S. really played a critical role in creating demand for renewable energy — not just inside the United States, but also globally.

Andy: Let me ask you about that a little bit further, then. So you just mentioned earlier — we talked about the oil shock from the ’70s — this development in the 1980s with policies pushing the development, particularly in California of wind energy. You’ve also described that there are phases of renewable energy development, again beginning with those shocks, and then moving onto broader support from the population, and then some pushback happens. Can you tell us about the pattern, Johannes — how this has played out in the United States and how it played out in the ’70s and the ’80s?

Johannes: In the initial stage — so if you look at, for example the 1970s — renewable energy is still so expensive that it doesn’t really make a lot of commercial sense. The reason why government has an interest in this technology was because the crisis was such a scary and fundamental shock, that they were open to experimenting and trying new things.

Over time, these policies, these R&D investments, they reduced the cost of renewable energy, and it becomes at least a plausible new source of energy. And because of this, the renewable energy industry starts to grow, and the industry itself then starts demanding additional policy support. Therefore, over time, you have this phenomenon which we called “renewable energy locked in.” Renewable energy really becomes a mainstream part of the energy industry. And so that’s how you go from the 1970s to where we are today.

Andy: Michael, as American involvement in clean energy collapsed in the 1980s, investment in other countries, notably in Germany and Denmark, took off. How are the situations fundamentally different in those countries compared to the United States at that time?

Michael: So the conflict, the pushback that came against renewables there took place in quite a different context. Part of it — the difference in context stems from sheer randomness. For instance, in Germany, you had reunification in the ’90s that took a lot of attention from policy-makers and potential losers from the renewables transition away.

But I think there are actually two really key differences that were instrumental here. One is these countries have, compared to the U.S., quite different political systems. They have a multiparty system, which means that you have more room for new-coming parties to change the status quo. So in Germany, for instance, the Green Party became an influential actor, especially on the left. It entered the German Parliament in the early 1980s. And so these differences in political systems actually gave different types of environments for the renewable energy sector and how sustainable it would become.

The second difference between Germany and Denmark on the one hand, and the U.S. on the other hand, is that both in Germany and Denmark, you observe the creation of coalitions that didn’t happen in the U.S. and were helpful to make these pro-renewable energy policies last over the long term.

To give you a couple of examples: for instance, farmers in Germany were actually often supportive of renewable energy policies, even though they might have been more on the conservative side, and one would have therefore expected them to be perhaps more hostile to these policies. But they were in favor of it because they often had small hydro stations on their land, and therefore were gaining financially from these policies.

And so you had these weird coalitions of conservative farmers who were allied in some cases with Green supporters. And these coalitions helped these policies last over a long period of time. In Denmark, you also see that wind power became a strategic industry, and that again gave it a lot more buy-in from political elites across the spectrum. And that helped these industries benefit from these pro-renewable policies in the 1990s and after.

And I think these are two facets that are not quite there or have a different constellation in the U.S. that explains to some degree why the conflict over renewables turn out differently in the U.S. compared to Europe.

Andy: Also in Germany and Denmark, I imagine, there was not a strong fossil fuel industry to push back, as well.

Michael: Germany has coal reserves, right? So that could have been a key player. In Germany, one thing that happened was that utilities were kind of focusing in the early ’90s on what needed to happen for reunification. And so that took their attention away, and that was perhaps an element of luck in the whole story. But you could have imagined pushback of a single scale, and you actually observe also that when Helmut Kohl was elected, he initially was quite skeptical about renewable energy policies, but again, there was enough buy-in from these different constituencies that it allowed these policies to last.

Andy: Johannes, is clean energy today as dependent on political support, particularly in the U.S., as it has been in the past?

Johannes: I don’t think it’s quite as dependent. Initially it was because renewable energy was clearly much more expensive to generate than conventional coal fired power, for example. It was very important that the government provided its generous subsidies. But today, if we look at the cost of generation itself, in many cases it is actually the cheapest, the most affordable alternative. And as a result of that, renewable energy has gained its own momentum.

Now, if you want to push renewable energy at the pace that we need to meet the goals of the Paris Agreement to limit climate change to below 2 degrees of global warming by 2100, we still need public support of that. That will require significant policy interventions. But overall, I would say that renewable energy has really come a long way. In the energy industry, it’s widely considered a pretty promising and often the best investment in this area.

Andy: So let’s go to where we stand today and looking to the future. Michael, what key challenges for renewable energy development do you see for the 2020s?

Michael: I think the question is really deployment will continue in all likelihood to increase. The question is, what could slow it down? And I think here there are three groups of challenges when we look ahead.

The first one, I would group under technical and economic issues. So when we’re thinking about the cost of utility scale storage or how to deal with issues such as intermittency — that’s going to be one set of challenges. The second set is still going back to surviving or existing still political support for fossil fuel. We have a few examples of these kinds of backlashes in the U.S. Recently there have been discussions about regulations that prevent coal plants from shutting down in states like Indiana. This, however, I think is going to decline — the hostility is going to decline because coal is just going to be not competitive enough.

The bigger challenge, I think, looking ahead is to design energy systems in a way in which the key actors remain financially viable. When you look at the performance of publicly traded utilities, they have often been suffering from the changes that were implemented over the last 20 years. It has created all kinds of issues in terms of funding or investing in maintaining the grids, if we talk about this part of the energy system. And so that has created all kinds of incentives for utilities to also try to slow down the deployment of renewables. And we see that, again, in some of the states in the U.S., where there have for instance been punitive taxes for households that wanted to have solar panels on their rooftops. And this financial viability also affects renewable energy firms because even though they are much less dependent on political support, as Johannes mentioned earlier, they are still affected by political shocks.

I, for instance, have done a study in which I looked at the effect of trade barriers on renewable energy companies’ valuation, and that still had an effect and was able to hurt their profits. So we have a situation in which the renewable energy industry on the private side is doing okay, but it can still be affected by political uncertainty. And political uncertainty, in many key countries, is likely to remain reasonably high, with short-term changes in terms of how this industry is being supported or not. And so that, I think, will create again some potential delays in terms of continuing deployment at a pace that is consistent with what is needed from an environmental standpoint.

Andy: Going back to that comment you made a couple of minutes ago about designing systems so the viability of electric utilities continues, are there any good policy solutions for that at this point? And obviously, as renewables penetrate the system more and distributed renewables take away some of that load from the utilities, it sounds like it’s a major issue.

Michael: Yes, that’s a really tough question because we’re talking about a very complex system. I would note that there have been some thoughts about, for instance, the role that electric vehicles could play, in terms of strengthening demand. And so utilities could possibly benefit here from an increase in demand for electricity coming in the future. So that might be one way to think about what kinds of options these utilities have.

There have been other reports looking at whether utilities could develop other activities, for instance, going back to being more active on grid maintenance. And so here, part of their financial resources would come from government investments. But what this exactly will look like remains, to me at least, an open question.

Andy: To what extent is intermittency going to be a hurdle or renewables in terms of their proliferation? How much of a challenge is that on the system, and how much can it actually slow their growth at this point?

Michael: I think it’s quite clear that intermittency is really the main issue with renewables. If you think about what is the difference between generating electricity from wind or solar, as opposed to coal or natural gas, it’s really that wind and solar are not dispatchable. You cannot decide to put on solar power if the sun is not shining. So I think a lot of these policy challenges that are going to be critical moving forward will be about dealing with the issue of intermittency.

One key policy that I think is essential moving forward is dynamic pricing. You want to be in a situation where the price of the electricity grid is like the other available supply at that time. Because that will allow you to complement renewables with these very flexible sources of supply that you can ramp up and down when renewables are not available. It could, for example, encourage battery storage.

The other thing that I think will be very helpful in dealing with intermittency is going to be investing in transmission. In a large system like the United States or India or China, there are always going to be some places where the sun is shining or the wind is blowing. Well, not always, but most of the time there are some places where these resources are available. So if you have a very robust transmission system, you can take advantage of that to supply electricity where it is needed, across the entire system. And I think these are really going to be the key issues that policy-makers, regulators, and investors need to deal with.

Andy: Let me ask you this — looking forward to the 2020s, what shocks to the system might we expect, or possibly what could happen that would further propel the development of new energy technologies — akin to what happened in the 1970s, but obviously a half a century on? Johannes?

Johannes: I would say that the most important thing would be if there’s some kind of a technological breakthrough or rapid progress in battery storage, because that would really address the intermittency issue. We’ve already seen in some places like Hawaii, and recently in India, cases where the cheapest supply solution in a certain location has been a combination of solar and battery storage. And if you can get to that point more wisely, then that can really result in rapid growth of renewables, because your biggest problem disappears.

At the same time, there are also, of course, these downsides. For example, we know that renewable energy requires these different materials. Batteries require lithium and so on. Whether there is some kind of a geopolitical conflict that makes it harder for these companies to get access to these resources, we’re only now starting to grapple with the geopolitical renewables, and that could become a significant political issue in the future.

Andy: Taking that political issue just a step further, the United States, obviously over the last decade or two, has been really a hotbed of opposition to energy transition. Do you think we’re going to see this opposition and this polarization continue in the 2020s, or will we see a significant break? It’s interesting to note, just today online I was reading about new initiatives from the Republican Party, in terms of negative emissions technology, and then I think we’re going to see some other energy initiatives coming from that party. But what do you expect for the 2020s?

Johannes: I think if there’s anything that Michael and I have learned from writing this book, it’s that this is not going to be easy. There are going to be lots of challenges. It’s going to be quite a significant conflict. And we are not going to solve this easily on a purely technical basis. It’s going to be very political. But at the same time, I am optimistic in the long run because renewable energy is a very good way of generating energy. And as we make progress on technology regulation and policy, I think the advantage that renewables have is only going to grow.

We already know that younger Republicans are more concerned about climate change, more open to new energy solutions than older Republicans are. And overall, renewable energy is actually not as polarized as many other topics in the United States. So it seems to me that we are moving in the right direction, but because of the political system and the high level of overall polarization, it is going to be difficult, and it is going to be a painful process.

Andy: Michael, let me ask you this. Time is very much of the essence in meeting the climate goals set out in the Paris Climate Agreement. What impact do you think this time pressure — and it’s becoming more apparent, it seems, every day — what impact will this time pressure have on energy policy in this country in the 2020s?

Michael: So my sense is that to be able to answer this question, we need to think about who would be reactive or sensitive to that time pressure. For a long time, the answer in the U.S. was not that many people, right? The constituency that really cared strongly enough about climate change to be aggressively demanding from their elected officials to do something tended to be very small. Even among Democrats, climate change was often officially an issue that ranked highly, but in practice, there were few voters that were really willing to push for aggressive change here.

So the question is, is that changing? To some degree, it looks like that is changing a little bit. We see that it has now become a more salient topic in the current presidential election on the Democratic side. So increasing the pressure here may have an effect indirectly by helping candidates and possibly future elected officials to spend more political capital on implementing the kinds of policies that are needed for further deployment.

On the other hand, I would also say that the U.S. is characterized by having a lot of what we call “veto players,” that is actors whose support is needed for things to change. And I’m not sure how sensitive these actors will be to the kind of pressure or the timeline imposed by the needed action in terms of climate policy. So my sense overall and on balance is that the time pressure coming from the Paris Agreement might not be the most effective way to focus people’s minds on energy policy.

Andy: Johannes, let me ask you this. Debate in this country seems to be rising over the future role of natural gas, and the locking in of this resource — meaning as we get more pipelines, gas pipelines, gas generation facilities for electric power — once that infrastructure is in, it gets a little bit more difficult not to use it in the future. Does history give us any guide on how this issue of lock-in of a certain resource may play out, and do you expect that natural gas will become very much a permanent resource in the United States?

Johannes: That’s a really important question. For a long time, we’ve thought of natural gas as kind of a transition fuel, a “bridge fuel,” as some people call it. Increasingly you now have people expressing concern because we need to decarbonize paths, natural gas might be a bridge to nowhere.

To me it seems that a lot of this really depends on whether the intermittency issue for renewables can be controlled. So if renewables and storage can become a competitive solution, then natural gas will, at some point over time, lose some of its efficiency and become less and less important because there’s no obvious case for it, as long as there’s at least some sensitivity to climate change and other issues.

On the other hand, intermittency remains a major issue, as we are unable to supply our needs at different times of the day and the year with renewables, then it’s hard to imagine what the obvious alternative to natural gas would be.

So I think what is going to happen here is that we are going to see less natural gas and more renewables than people would have thought at the peak of the shale gas revolution. But I think there is a strong case to be made that we need to move away from natural gas faster than we thought about five to ten years ago. And because of this, there’s going to be opposition and concern about this lock-in, which you rightly pointed out is significant, given that very large investments have been made in gas pipes, power plants, pipelines, and fracking infrastructure.

Andy: Do you think we’re past the point of no return at this point with natural gas? Quite a lot of investment has been made in recent years.

Johannes: I don’t think there is any way that they would immediately be able to stop using natural gas. But at the same time, there is pressure to reduce the growth and at some point start substituting renewables for natural gas. So I would say there is still quite a bit of uncertainty about the gas scenario in the United States.

Andy: In recent years, U.S. energy policy has sharply diverged from that which we generally see in Europe and in other important energy areas such as in China for energy consumption. What global role might the U.S. play in global energy policy and the energy transition in this coming decade?

Michael: I think even if we set aside — in the worst case scenario in which the U.S. political system is gridlocked and no new policies come up, the U.S. can still play a major role. It remains an incredible source in terms of human capital. It has huge resources, both in the public and private sector that can be spent on research and development and bringing up the kind of innovation that Johannes mentioned earlier, for instance in terms of storage. And it can still mobilize these resources to provide the kind of change that would make a difference across the world.

And beyond this, the U.S. remains a large, large, large market, right? It’s a large market with many rich consumers, and so we can see here again investment-driven changes. For instance, think about Tesla. You can think about the private sector wishing to appeal and to capture a part of this lucrative demand, and so that again could be a role that would be independent, to a large extent, of what the government actually does.

And on this theme, still, also is that the U.S. is still quite energy-hungry, so this opens up opportunities for new ideas. I think we talked about earlier, for instance, using electric cars to store power. And so I think there are these opportunities here that the U.S., with its integrated markets, could really be helpful in terms of moving the target in the 2020s.

Andy: So Johannes, what other trends do you see for the decade?

Johannes: I do think this issue of climate change has really become a major concern. If we look at things that we need to do, we need to start looking beyond the power sector for electricity generation, where renewables are doing so well. So how do we decarbonize industry? How do we stop deforestation? What are we going to do about heating? What are we going to do about buildings? These are all really important issues that we need to tackle, and it’s going to be hard to do at a time when you have this kind of right-wing, populist backlash against parallelism, against globalization. So there’s a lot of basic political conflict that is going to make all of this difficult to address.

Andy: So let me ask you both a final question here. Let’s just imagine for a moment it’s the year 2070, and we’re looking back on history at the decade of the 2020s. How do you think people in the future will look back on this decade, and how will they define it? What will be the overriding theme of the 2020s in terms of energy? Johannes?

Johannes: To me it’s quite clear that we have now reached the point that we really have to take action on climate change. So in 2070, people are going to look back at the year 2020 and the coming decade, and they’re going to ask, “Did the international community, did different governments of people finally start making rapid progress and taking serious actions to reduce the rate of climate change and bring us to want a zero-emissions society?” I think that’s going to be the one thing that people will remember fifty years from now.

Michael: And I would add to this that the evolution of energy systems, historically speaking, has been chaotic, as I mentioned earlier. I see few reasons to think that that’s going to change in the next decade. So I think the answers to what people will be asking when they are looking back to the 2020s is to see a messy answer to the climate issue and how different countries and different regions will deal with it in a very different manner.

Andy: Michael and Johannes, thanks for talking.

Michael: Thank you very much.

Johannes: Thanks for having us.

Andy: Today’s guests have been Michael Aklin, Associate Professor of Political Science at the University of Pittsburgh, and Johannes Urpelainen, Professor of Energy, Resources and Environment at Johns Hopkins University. For more Energy Policy news and insights, subscribe to the Kleinman Center’s Twitter feed @KleinmanEnergy or check out our policy digests and blogs by visiting our website. Our web address is kleinmanenergy.upenn.edu. Thanks for listening to Energy Policy Now, and have a great day.