An in-depth look at the challenges for net-zero energy transition

Evan C.Y. Ng examines the broader system challenges for net-zero energy transition and the economic, financial, and market factors associated with these.

Reaching net zero emissions by 2050 is necessary to meet the Paris Agreement’s targets, so that catastrophic climate disasters can be avoided. This means that the energy system must be decarbonized deeply – fossil fuels which represent 81.2% of the current global energy need to be substituted with progressively cleaner energy vectors as much as possible, while negative emission technologies like carbon capture, utilization and storage will likely be required to offset emissions associated with remaining usage of carbon-intensive fuels.

Despite the falling costs of modern renewables over the past decade, the necessary energy transition is still occurring slower than what is required to meet the Paris Agreement’s targets. One key challenge hindering the net zero transition lies in the economically illogical action of subsidizing fossil fuel consumptions in many countries, which prevents renewables from competing with carbon-intensive sources on a level playing field. To put the scale of these subsidies into perspective, post-tax fossil fuel subsidies amounted to approximately 17 times the global renewable energy investment in 2015.

Persistent fossil fuel subsidies also manifest substantial economic inefficiencies and encourage excessive energy usage. An analysis comparing the subsidy and consumption of fossil fuels in 50 energyproducing economies identified an almost linear relationship between the two. Fossil fuel subsidies in these economies have created social and infrastructural lock-ins leading to persisting inefficient practices. Reforming fossil fuel subsidies is urgently necessary, as subsidies disrupt market functions of accurate price signaling to inform future technology choices, potentially risking additional carbon lock-in which negatively impacts progress towards a net zero energy system.

The negative environmental and social consequences associated with fossil fuel consumption are also not sufficiently considered. Only around 16% of global annual emissions are currently covered by either carbon taxes or emissions trading schemes and most carbon prices currently in place are less than US$25/tonne: a level well below the social cost of carbon emissions. This economic inefficiency not only creates unnecessary loss of social welfare, but also prevents consumers from realizing the real costs of their consumption. Emissions must be priced appropriately to correct distorted markets, enabling economic decision-making aligned with net zero ambitions.

In power sectors where energy generation infrastructures typically have a long lifespans of at least 25 to 30 years, achieving Paris’ net zero targets means that no new fossil fuel power plants should be built from now on. However, without internalizing pollution costs to provide clear price signals reflecting Paris’ commitments, a marginal investor who focuses solely on monetary cost will naturally prioritize cheaper fossil fuel incumbents, exacerbating costly stranded asset problems. For example, premature retirement of planned and constructed fossil fuel power plants to meet 2050 net zero targets will cost Latin

America and the Caribbean at least US$37 – 90 billion. Therefore, if the distorted market continues allowing carbon-intensive energy infrastructure to be constructed, greater costs would be required to meet Paris’ targets.

However, both fossil fuel subsidy removal and carbon pricing may burden consumers with rising fossil fuel prices, potentially leading to socioeconomic challenges that affect political stability if mishandled. For instance, research that studied the association between fuel subsidies and fuel riots worldwide and found that 41 countries had at least one riot related to fuel price increases between 2005 and 2018, which may explain why politicians are typically reluctant to remove subsidies despite understanding their inefficiencies. However, the presence of pro-climate silent majorities in many societies could manifest a potential sensitive intervention point – a few “radical” social movements towards energy sustainability can effectively trigger political mobilization, allowing a shift in the underlying socioeconomic regime that enables rapid transitions away from existing overreliance on underpriced fossil fuels.

To enable a smooth transition, correcting market distortions via increasing fossil fuel prices can be coupled with price reductions of alternative energy sources, minimizing the risk of social unrest caused by sudden surges in living expenses. As such, carbon tax revenues and savings achieved from fossil fuel subsidy removals can be recycled to subsidize renewable energy deployment, bridging existing financial gaps. A case study on switching subsidies from fossil fuels to rooftop solar deployment in the European Union found that this can effectively increase emissions abatement by around 20% as uncontrolled subsidy removal would likely result in investments diverted towards natural gas instead of renewables.

Earmarking carbon and subsidy reform revenues for specific purposes, like renewable energy investments, exhibits greater transparency and would generally be more socially acceptable than incorporating them into general government budgets. Nevertheless, the effectiveness of this approach is contingent on consumers’ trust towards their governments – in areas with high political distrust, a lump-sum targeted cash transfer to politically important groups, such as fossil fuel industry workers

“Fossil fuel subsidies amounted to approximately 17 times the global renewable energy investment in 2015.”

impacted by energy transitions, would likely ensure greater success. Policymakers can then introduce parallel policies to support these targeted consumers in

reinvesting revenues towards low-carbon technologies.

Although investing in renewables is often less economical than non-renewable incumbents now, it should be noted that operating a fossil fuel power plant might not be the economically optimal option in the long-run, given that extraction costs of fossil fuels would likely increase as easyto-extract reserves are exhausted. The cost of renewables generally reduces with increasing deployment as they tend to exhibit strong learning-by-doing and learning-by-researching effects. As such, policymakers can accelerate net zero energy transitions by taking advantage of sensitive intervention points – providing subsidies to support renewables deployment can kick-start a self-reinforcing feedback loop capable of further cost reductions. This subsequently enables renewables to become cost competitive relative to incumbents in the medium-to-long term, even when renewable subsidies are absent. Economic, financial, and market challenges must be resolved to enable rapid, widespread deployments of net zero energy technologies.

“Politicians are typically reluctant to remove subsidies despite understanding their inefficiencies.”

Read the full article online at cherwell.org.

Science Snippets

Russia shot the Kosmos

Russia has tested a new anti-satellite missile system by shooting one of its own satellites, an old soviet spy satellite called Kosmos 1408. There has been international outrage as the hit has produced debris that could threaten the ISS and satellites in low-Earth orbit.

New HIV treatments

NICE are approving a new HIV treatment that can treat people with an injection of cabotegravir and rilpivirine every two months to keep their viral load at a safe low level. This will replace the daily oral pill, hopefully lessening the emotional toll and improving the lives of people living with HIV.

Tech Tidbits

Tesla lost the keys The app went out last weekend and locked drivers out of their cars, 500 users reported an error. Elon Musk apologised on Twitter, as usual. The company claims the drivers have other ways to get into their cars, but may not have had them on their person.

Racist healthcare technology The MHRA has found that oximeters overestimate the oxygen levels in blood when measuring people with brown or black skin. This may mean that fewer patients from ethnic minority groups are given oxygen supplies in hospitals, which may be a reason for higher death rates among minority ethnic people.

Money Diaries: End of term edition

This week on Cherwell Money Diaries, a graduate student recounts the trials and successes of living on £20 for two weeks in Oxford.

Monday, November 1st, 9:00am, somewhere in OX1. I wake up from a five-day Halloween bender and find myself sore, at least a week behind on work, and, most importantly, broke. My banking app informs me that I have ten Great British Pounds and seven Pence to my name. I have precisely two weeks until the German government once again transfers valuable taxpayers’ money to my account so I can sustain my extravagant lifestyle of Gail’s cinnamon rolls and straight cigarettes. Which leaves me with the question: how do I stretch £10 over two whole weeks?

Just like George Washington knew back in 1799 that “the best form of defense is a good offense”, I knew that the best way to stop being broke is to make money. In this city, there are many side hustles to choose from. From tutoring private school kids how to get into Oxford PPE to life-modelling for art students and selling Union hacks oregano as marihuana, the options are unlimited. But this time, the solution was much simpler: I had booked a ticket for formal hall at my undergraduate college, and I wasn’t too keen on going anyway, so I sold it to a fresher for a tenner. That’s right, we’re at 20 pounds now – something we can work with!

Arguably, I could’ve tried to make some more emergency cash, but I believed that I had to repent and learn how to be financially responsible. Here is what I learned: 1. Milk what you have: with a Pret coffee subscription, a Union and a Law Society membership (the holy trinity of good value for money), there was surprisingly much free stuff I could get my hands on. None of the coffee items on Pret’s menu are particularly nutritious but if you drink enough, your heart palpitations will make you forget that you were hungry. Burgers and Milkshakes with Kirkland & Ellis for the small price of acting like I’m interested in corporate law? Say no more. 2. Choose your grocery stores wisely: some will say Tesco has the best prices, others will swear by Aldi or Lidl. I’ll let you in on a secret: one way grocery stores make money is by selling some items below market price while making profit on others. So by picking and mixing, I got the best value for my money. Also: know what knock-off brands are worth buying (Aldi’s Crave gives Kellog’s a run for their money, but stay away from the Mini Cheese Bakes!) 3. If it’s batteled, it’s free: I said what I said. This is essentially like taking out an interest-free loan, so I made sure to eat lunch in college as much as I could - I even convinced them to put the small celebratory glass of mulled wine that I had at the end of my two-week journey on my battels account.

After what felt like an eternity, two weeks were finally over and while I was glad to be able to spend my money at Turf Tavern again, some of the lessons I learned along the way remained. I’ve now permanently switched to some of the Aldi knockoff brands - they’re simply better - and it turns out that you don’t actually need to eat out every week. My mother will be proud of the two dishes I taught myself to cook (don’t get too excited, they both involve pesto and some form of pasta), and I even learned the one or the other thing about Magic Circle law firms; mainly that I never want to work for one, no matter how many more times I need to stretch £20 over two weeks.

Startup Spotlight: Bringing rocket science into cooking

Hung-Jen Wu speaks to the founder of FIREUP, a new Oxford cookware start-up.

FIREUP is a new Oxford cookware spinout founded by Raghav Agarwal and Professor Thomas Povey at the Department of Engineering Science. It recently launched a Kickstarter campaign to market and drive sales for a Dutch oven, which incorporates a unique design inspired by jet engine technology.

The conception of this idea originated a decade ago with Povey, whose research involved designing cooling systems for jet engines. On one mountaineering trip, Povey struggled to get a pot of water to boil at high altitude. When a conventional pot is placed over a stove, a lot of heat dissipates into the environment after the flame goes around the edges, thereby reducing the cooking efficiency. He and his students spent the next three years prototyping with different pot designs and came up with a cast aluminum saucepan with tapered fins replacing the otherwise smooth cylindrical edge. They called this invention the Flare Pan.

The inclusion of the unique fin design guided the flame around the pan and into the fins, allowing the pan to retain heat more effectively. This enabled the pan to utilize 40% less energy and cook 30% faster than comparable saucepans. This novelty earned Povey’s group a coveted Hawley Award from the Worshipful Company of Engineers for “the most outstanding engineering innovation that delivers demonstrable benefit to the environment”.

In 2019 Raghav Agarwal, a former entrepreneur who launched a cookware manufacturer in India, earned his MBA from Saïd Business School. Whilst at Oxford, Agarwal was chair of the Oxford Entrepreneurship Network and represented the business school on the Oxford Foundry’s Student Advisory Board. Through an Oxford University Innovation (OUI)-sponsored programme, he met Povey and the two hit it off immediately given their mutual interest in cookware and innovation. After exploring different applications, base materials and marketing directions, they decided to launch their new company, FIREUP. Their first product is a 5 litre cast iron Dutch oven which uses the signature tapered fins of the Flare Pan. Raghav cites the versatility of the Dutch oven to saute, sear, fry, braise, roast, and use in the oven as the primary reason for launching with this product. Another factor was the amount of hype that home cooking trends like ‘No-Knead Bread’ received on Instagram during the pandemic. What did they bake their bread in? Not in a pan, but quite often in a Dutch oven. He also cites the lack of innovation in under a century in cast iron cookware, and the potential of a market currently worth $2.8 billion globally to grow to $3.3 billion in the next four years, as the key reasons for his optimism. The total UK cast iron cookware market is worth £1.3 billion. Raghav told Cherwell: “On one hand you have painstakingly expensive French brands, like Le Creuset, that force you to almost sell your house to buy a long-lasting premium product. If you look at the history of these brands, they’re almost 100-200 years old [that only come in] different shapes, sizes, and colors. That’s not innovation.” He added that there are “smaller trendier startups” investing “a lot of marketing dollars to market a product that’s not as premium”. Initial financial support was provided by OUI and FIREUP was built up by a global team during the pandemic. The plan is to produce aesthetic and environmentally friendly cookware primarily for home chefs, finance its production through online pre-orders and sell units directly to customers. FIREUP also stands out amongst OUI spinouts as the first to use Kickstarter as its key funding source. The campaign began on 19 October and as of 18 November, £144,511 has been pledged by 1,276 backers. Due to popular demand, the campaign will continue for the next month on Indiegogo. The FIREUP Dutch oven will be manufactured in Belgium with a nod to the sustainability profile of its predecessor. As Agarwal puts it: “The materials we use are long-lasting and non-toxic. We manufacture in an 80-year old foundry.. [which] is fully compliant with the highest environmental work standards. It pays fair compensation for workers, complies with global safety procedures and environmental standards.” For now, FIREUP is completely focused on launching their Dutch oven but they do have plans to incorporate the heat retaining tapered fin design to additional cookware down the line. Affirming his vision, Raghav said: “We are here for the long term. We want to build a brand that the ultimate customer can believe in.”

Image Credits: FIREUP Cookware Limited