The cost challenge affects every part of the low carbon sector.

Wind and solar now provide around 17% of global electricity after a decade of rapid growth. But wind and solar can only provide intermittent supplies. Back up (usually from natural gas) is essential, as is new infrastructure – the absence of which is now holding up potential wind and solar projects in many parts of the world, including the North Sea. In Germany alone the required infrastructure is set to cost more than €10 billion.

New nuclear developments have proved much more expensive and harder to build than originally predicted. The next two nuclear plants in the UK – Hinkley Point and Sizewell – are now expected to cost between £38 and 48 billion. Hinkley is years behind schedule and Sizewell has yet to begin construction.

Wind, solar and nuclear only produce electricity. But electricity only meets 20% of final energy needs. The low hanging fruit of electrification has been harvested. The next steps – electric vehicles, home heating systems, industrial energy use – will require major investment over many years. The cost for instance of upgrading the 60 per cent of the UK’s rail network which still runs on diesel is estimated at between £18 billion and £31 billion in 2023 prices.

Green Hydrogen has long been promised, but delivery remains elusive and expensive. The infrastructure is not in place and numerous ambitious projects are being withdrawn or delayed. Even Germany, which has championed green hydrogen, is now facing the need to reset its ambitions in the face of economic reality.            

Carbon capture and storage also requires dedicated infrastructure to transport the carbon and to establish secure burial sites. The European target is to store 50 Mt (megaton) of CO2 by 2030 and 280 Mt by 2040. At the moment just 2.7 Mt is captured and stored, mostly in Norway. Development of the dozens of large-scale plants needed to store the volumes being produced through continued hydrocarbon consumption will require either huge subsidies or a carbon tax or both.

If current policies remain in place, these costs will be added to the amount needed to transform the ways in which we use energy – from new electric vehicles to domestic heat pumps. It is hard to see any government imposing these costs on consumers and businesses at a time when the principal policy concerns are the cost of living and industrial competitiveness.

The resulting loss of credibility around the climate agenda is unsurprising. If current policies are left in place and the cost of energy use continues to rise, climate policy is in danger of being seen as an elitist project promoted by a privileged minority who have the easy ability to pay the bills involved. In Britain Nigel Farage predicts that climate change policy be the next Brexit issue. Promises that in the long-term prices will be lower once the renewable supplies and infrastructure are in place will count for little. For many households and businesses, the long term is the end of the month. In any case the logic of the argument is weak. Oil prices at $60/65 per barrel are lower in real terms than they were in the late 1970s. Despite wars, sanctions and political disruption in many producing countries supplies are plentiful.

The result is that the pace of the energy transition across the developed world is slowing. In Europe both France and Germany are resisting the the establishment of more ambitious emissions reduction targets across the EU. Manfred Weber the head of the centre right EPP in the European Parliament has described the EU’s net zero plans as too ideological and is campaigning to scrap the plan to ban new petrol and diesel cars by 2035. In Britain the cross-party consensus which existed 10 or 20 years ago has broken down.

Climate change of course continues and if anything is accelerating, moving past the 1.5 degree threshold well ahead of the predictions made only 5 years ago. A study published by Imperial College London estimates that some 16,400 people died between June and August this year as a result of the extreme heat wave which swept across Europe.

The only possible answer is to focus all available resources on the search for low cost, low carbon solutions.

Several potentially productive steps in this direction are available.

First, a drive for improved efficiency in the way we produce and use energy. According to one recent authoritative study, as much as two thirds of the world’s current energy production is wasted.

Improving efficiency by just 10 per cent would reduce emissions and simultaneously reduce the cost of energy consumption to end users.

Waste could for instance be much reduced by the development of energy storage technology starting with batteries. The deployment of grid level storage would allow the retention of more of the wind and solar energy currently produced but then lost because it cannot be used in the instant.

Existing technology could also manage use through time – setting differential prices which discourage peak use. That would reduce the need to keep in place large amounts of capacity which goes unused except at times of peak demand.

Regulators across Europe should be pushing businesses to demonstrate annual improvements in efficiency both on the supply side and in the performance of the equipment through which energy is consumed – including computers, white goods, and the systems which control heating and lighting. If the efficiency of motor vehicles, and the quality of petrol can be improved by gradual progressive regulation, so can many other aspects of the existing system.

The next step must be to use lower cost options for key elements of the transition. Small modular nuclear reactors are significantly cheaper than large scale EPR plants such as Hinkley and Sizewell because they can be built more quickly at a reduced borrowing cost.

These steps are necessary but not sufficient. We also need fundamental breakthroughs in science and engineering to deliver a process of transition which is affordable not just in Europe but in emerging economies which are currently the main source of growing emissions.

This is where Europe can play a crucial role. A global deal may be impossible, but coalitions of the willing are not.

Such coalitions could be focused on a limited number of areas where great advances are within reach. The obvious targets include material science, the next generation of batteries, the development of substitutes for the rare earth minerals where the concentration of supply is beginning to be an obstacle to progress, and perhaps even direct air capture of emissions – a concept which at the moment remains prohibitively expensive. In addition, there are the unknown unknowns – areas which are currently beyond imagination – just as AI and the internet were 30 or 40 years ago.

In each case, a coalition of the willing involving the private sector as well as governments could drive the necessary research. History suggests that a combination of targeted advances in known technology and blue skies research can produce answers. Think of radar, or the initial work on nuclear power or the advances made in communications technology over the last century.

In each case the focus of the work should be on achieving a reduction in cost sufficient to make the energy transition a natural shift, driven by basic economics and not dependent on either a moral agenda, or subsidies handed out by governments or on the sudden creation of a global consensus.

To lead and coordinate such work we need an International Energy Institute modelled on the great US National Laboratories and the German technology institutes to draw together support and expertise. If some countries choose not to participate, too bad. Free riders are a common problem, but they should not be allowed to block essential progress. What matters is that real solutions are found.

Of course, we cannot be sure if this approach will work, but by focusing on costs it has a better chance of success than the current policy because it will be aligned with current public concerns. The risk if we fail to reset is that public support will be lost – just when it is most needed.

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By Nick Butler,

Visiting professer at King's College London,
and member of the ONS International Advisory Board.

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