Sustainability & CSR

Falling short on climate action

06 July, 2022

Renewable energy targets are being missed and climate action policy reversals in response to the war in Ukraine could have lasting implications

By Duncan Levine


The past few weeks have witnessed a number of setbacks in the fight to address climate change. Just today, members of the European Parliament approved a law designating gas and nuclear as sustainable energy sources, as part of a system that was intended to influence direct investment in clean energy. Critics say the law discredits EU efforts to establish itself as a global leader on climate policy. Since nuclear energy emits no emissions (although it produces radioactive waste), there is an argument to be made that it is green and compatible with greenhouse gas reduction goals. However, it is a huge stretch to call natural gas sustainable, even though it produces lower emissions than coal.


Then, last week in the United States, the US supreme court sided with Republican-led states to rule against the Environmental Protection Agency’s power to limit pollution and carbon emissions. Analysts say the ruling will, in effect, stymie the federal government’s ability to tackle the climate crisis and deal a heavy setback to President Joe Biden’s climate action agenda.


And in late June, at this year’s summit held in Schloss Elmau, G7 leaders agreed that their countries would continue to offer finance for the exploration of fossil fuel reserves. This was contrary to expert advice from the International Energy Agency (IEA), which warned that no new fossil fuel exploration and development could take place from this year onwards if we are to limit global warming to 1.5 degrees Celsius (°C) above pre-industrial levels.


The IEA stance was in line with scientific advice and with the resolutions made at the UN Cop26 climate summit last November in Glasgow. It also echoed a warning made in a report released in April this year by the Intergovernmental Panel on Climate Change (IPCC) that emissions must peak by 2025 in order to keep global warming well below the 2°C limit set by the Paris Agreement. The IPCC report warned that the window for limiting global warming to relatively safe levels is rapidly closing. To have a 50% chance of avoiding more than 1.5°C of warming throughout the 21st century, global carbon emissions will have to reach net zero (where no more carbon is released into the atmosphere than is removed) in the early 2050s. To have a 50% chance of keeping warming below 2°C, global carbon emissions must reach net-zero by the early 2070s. In both cases, emissions of all greenhouse gases must peak by 2025.


According to the report, pursuing 1.5°C means that global use of coal must decline by 95% by 2050. Oil use must drop by 60% and gas by 45% over the same period. The decreases needed to limit warming below 2°C are not much lower. Under all these scenarios, there is no room for new fossil-fuel projects and most existing ones will have to be phased out. The IPCC report also outlines the ways in which agriculture, travel and most other industries will have to be transformed as well as how individuals might be encouraged to change their behaviour.


However, the war in Ukraine has thrown a giant spanner in the works. It has left countries like Germany with a gas supply crunch and caused international prices for both oil and gas to soar. G7 countries want to exploit fossil fuel resources in other countries, particularly the developing world, to ease that supply shortage and bring down prices. Developing countries are also welcoming the chance to earn income from new projects. But, given the length of time it takes to develop new fossil fuel projects, they will end up causing high carbon dioxide emissions for years to come, long after the consequences of the war in Ukraine have passed.


This is clearly a case of backsliding. G7 energy ministers had previously agreed to stop taxpayer-funded fossil fuel financing overseas by the end of 2022. But, at the insistence of German chancellor Olaf Scholz, this commitment was reversed.


Scholtz's calculation is no doubt driven by energy security and political considerations given Germany's heavy reliance on natural gas, the bulk of which now comes from Russia. If Russia turns off the gas taps completely, as Vladimir Putin has threatened, the consequences could be severe, especially if no contingencies are in place by the winter of 2022, when demand for gas for heating is the highest. The situation is being exacerbated by Germany's decision, made in response to Japan's Fukushima disaster, to shut down all of its nuclear power stations. As renewables have not been able to fill the gap, the country has already increased the use of coal-fired electricity in response.


While the political motivations are clear and there is no easy fix to the sudden loss of Russian gas, environmental campaigners have slammed Germany's reversal saying that investing in new gas infrastructure is not a viable strategy to reduce Russian fossil fuel imports since these projects take years to build and do not support energy security in the long run. In contrast, they stressed that renewable energy and energy efficiency solutions can be deployed faster, better serve development and energy access needs, and do not come with the stranded assets and financial stability risks of fossil fuels.


The war in Ukraine provides an additional unwanted setback to the energy transition, which was already proceeding too slowly. Case in point, in its 2022 report, the Global Wind Energy Council (GWEC) noted that the capacity build out of wind energy is already falling behind schedule. Despite two years of enormous capacity expansion (of over 90GWs per year were added in 2020 and 2021), the current rate of wind energy growth is simply not rapid enough to allow the world to reach its Paris Agreement targets or a net zero by 2050 goal.


The other danger is that authorities in other countries will view G7 actions as justification for reneging on their own fossil fuel reduction commitments. If the largest economy in the EU, the world's foremost advocate and implementer of climate action, can backtrack on its promises, why shouldn't they? The unfortunate repercussion is that the EU's Fit for 55 package, all of its energy and climate action directives, initiatives and calls for the world to take action to address climate change start to look hypocritical when its three largest member states (France and Italy are also members of the G7 club), are deviating from their agreed-upon plans.


Here in Taiwan, while the government has committed to reach net zero by 2050, it is already behind its own implementation schedule. The government set a goal in mid-2016 of phasing out nuclear power and reaching an electricity mix of 50% natural gas, 30% coal and 20% renewables by 2025, from about 14% nuclear, 45% coal, 31% natural gas, 4.5% oil-fired and 5% renewables in 2015. In 2021, however, the Ministry of Economic Affairs (MOEA) lowered the target for renewables to 15%, and the MOEA minister said recently that the 20% goal would likely not be achieved until 2027. Meanwhile, the expansion of natural gas capacity, which is cleaner than coal, is proceeding slower than planned, partly due to delays in building the required storage capacity.


The National Development Council (NDC) published Taiwan's Path to Net Zero Emissions in 2050 on 30 March 2022 and the cabinet has drafted the Climate Change Response Act. The review process of the act has already begun but, regardless of legal obligations once the relevant legislation has been enacted, reaching net zero will be especially challenging given Taiwan's current dependence on imported fossil fuels, the slow pace of adding renewable energy capacity and energy storage, as well as decarbonising manufacturing, transportation, and the building sector.


Based on the roadmap's targets, 60-70% of Taiwan's electricity needs in 2050 should be met by renewables, with another 9-12% from hydrogen and 20-27% from fossil fuels with carbon capture, utilisation and storage (CCUS) capabilities. (The capacity figures listed in the plan are between 40GW and 80GW of solar and 40-55GW of wind capacity by 2050, but this far exceeds interim targets previously announced, indicating that the bulk of renewable capacity is anticipated to be added after 2035, leaving the difficult capacity expansion work for the future.) The NDC has suggested that Taiwan could actually get close to 80% of its electricity from renewables by 2050 through solar, wind and other power generating methods, but settled on a 60-70% target because of Taiwan's geographical limitations and current pace of deployment of renewables.


The roadmap also comes with a financial commitment to spend NT$900 billion over the next eight years to set a foundation to reach the 2050 goal. Of that, NT$210.7 billion will go to renewables and hydrogen energy, NT$207.8 billion will be put into the electricity grid and energy storage, and another NT$168.3 billion will go to the promotion of electric transportation. In addition, NT$128 billion would be spent on incentives to reduce power consumption and replace old equipment, including inefficient factory and office air conditioning systems, outdated transformers and motors. According to the NDC, state-run enterprises would contribute NT$440 billion of this and the undertaking might induce an additional NT$4 trillion of private investment.


While this is clearly a step in the right direction, Greenpeace Taiwan has criticized the spending as being only about a third of the roughly NT$300 billion a year South Korea is investing in its energy transition and has said the government was seriously underestimating the costs of pursuing carbon neutral goals. It also noted that about half of Taiwan's pledged investment will come from Taiwan's state-run enterprises, including utility Taiwan Power Company (Taipower) and oil refiner CPC Corporation, both of which have faced financial difficulties in recent years, leading to questions as to where their funds would come from. On account of higher international oil, gas and coal prices, Taipower has posted accumulated net losses of over NT$100 billion, including NT$67.2 billion in the first five months of 2022 alone while CPC Corporation has racked up accumulated losses of NT$84.3 billion over the past two years. Starting from 1 July, Taipower raised the price of electricity for heavy users by an average of 15%. However, it is estimated that this will only apply to around 22,000 companies while most other users will pay the same rates as before. Given the fact that coal prices are up over 170% year-to-date, while oil and gas prices have both risen more than 40%, the best such a modest rate hike can hope to achieve is to help to reduce the level of future losses at Taipower.


Taiwan's approach to electricity prices is based on economic considerations, unlike countries like Germany, where high prices are justified and used to help fund the transition to clean energy. Only a minority of businesses, such as those who have signed up to RE100, care about where their power comes from, while the majority of businesses and household consumers in Taiwan are concerned primarily about the price and are either not aware or choose to disregard the link between energy use and climate change.


On the question of the projected NT$4 trillion in investment from the private sector, this is not inconceivable based on the substantial investments already made, especially by European investors in Taiwan's burgeoning offshore wind energy sector. However, it is questionable if the levels of foreign investments will be sustainable if authorities do not improve the investment environment, especially with regards to Taiwan's local content requirements and permitting process. With huge interest and growth in wind energy across the world, Taiwan is facing growing competition for foreign investment in the sector and will need to take action on these issues or risk missing out as investors seek better returns elsewhere, including in the Asian region.

In the meantime, Taiwan’s supply demand balance is already being tested. Taiwan's power consumption hit record highs above 39 million kilowatts on three consecutive early afternoons in late June. According to Taipower, the increasing load on the grid was driven primarily by growing business activities, such as the manufacturing of semiconductors, electronic components and basic metals. In addition, hot weather and people working and studying from home due to the Covid-19 pandemic also contributed to the record highs. Another possible factor for peak load demand is the fact that all 3,300 of Taiwan’s schools now have air conditioners (AC) installed in classrooms. This follows the completion in February this year by the Ministry of Education to install more than 181,000 AC units in schools. Now that schools are out for the summer vacation, it remains to be seen if this was a significant factor or not.


According to statistics from Taipower, as of the end of 2021, renewable energy installations in Taiwan had a total capacity of 11.556GW, of which solar power was 7.7GW, hydropower was 2.094GW, wind power was 1.033GW, waste power generation was 631.93MW, biomass power was 91.88MW and geothermal power was 4.5MW. In terms of generation, electricity generated by Taipower rose by 15% from 207,400 gigawatt hours (or 207.4 Terawatt hours, TWh) in 2010 to 238.93TWh in 2020, and by a further 4.1% to 248.8TWh in 2021. While Taipower's website only provides a breakdown of sources for 2020, it reports that 17.43TWh of power was generated by renewables in 2021. This works out to just 7% of the total, while (based on 2020 figures, and assuming that the thermal/nuclear breakdown was similar in 2021), around 80% came from thermal sources (mostly coal and natural gas) and about 12.7% from nuclear power.


The rise in demand last year exceeded estimates by the Bureau of Energy (BOE) that power demand will continue to rise by 2.5% annually through to 2027. If demand continues to increase at 2.5% per annum until 2050 on the back of continued economic growth and the transition to electrification (of transport and industry), it would reach over 509TWh by 2050. Even with the NDC's lower estimate that demand for electricity in Taiwan will increase by 2% per year, it would still reach 442TWh by 2050. That works out to 78% more than in 2021. In short, even based on conservative projections, just to keep up with rising demand will be a challenge, let alone meeting carbon reduction targets by phasing out fossil fuels and replacing them with renewables.


Something is going to have to give. There are only two ways to address the problem: increase capacity or reduce demand. To keep the economy growing and be compatible with net zero goals simultaneously, efforts will be needed to both increase the capacity of zero carbon energy and reduce the use of energy through energy efficiency initiatives. Subsidies and other support for energy efficiency initiatives in industry will need to be stepped up and properly implemented to ensure that they are effective.


In terms of energy production, authorities are placing a lot of effort and hope in offshore wind and solar but current interim renewable capacity targets will need to be raised substantially over the next few years to meet rising demand needs and to start to phase out coal fired power at the same time. And to reach the ambitious targets for 2050 outlined in the NDC's plan will require a more solid financial support structure. State-owned enterprises in their current financial predicament will not be in a position to provide financial support without help from central government coffers.


And while ambitious targets and financial support are crucial, as ECCT members have frequently argued, to attract and sustain continued investment, Taiwan needs an enabling environment for the energy transition, not just for renewable energy but also electric vehicles, hydrogen development and other promising innovative technologies. No amount of ambition in one government agency can offset the red tape imposed by authorities in other agencies. In particular, Taiwan maintains local content requirements that are difficult to meet given the nascent stage of development of Taiwan's wind energy industry players. And the transition to electric vehicles needs government support for the development of charging infrastructure.


In terms of red tape, in a previous article we noted how Taiwan has great potential in both offshore and onshore wind but progress is being stifled by the onerous permitting process. In recent months there has even been talk of the Environmental Protection Administration (EPA) changing Environmental Impact Assessment (EIA) regulations to extend the area subject to the EIA from the current 250 metres from the proposed turbine location to 500 metres. Given Taiwan's densely populated and overbuilt environment, this would make just about every onshore wind turbine site close to buildings or other structures, which could increase the length of time of EIAs from an already lengthy 4-5 years to 7-8 years, which would severely slow down development at a time when there is a shortage of renewable energy capacity. Proposed changes like these to make the process even more difficult are hard to comprehend given that they are incompatible with the objectives to increase renewable energy capacity. Authorities would do well, therefore, to scrap the new proposal, and instead, further loosen EIA and permitting restrictions and local content requirements.


In addition, given that renewable energy is intermittent, Taiwan will need energy storage capacity to be employed for use when the sun isn't shining, or the wind is not blowing. According to the Bureau of Standards Metrology and Inspections (BSMI), as part of the government's energy transition plans, it has set a target of installing at least 1.5GW of energy storage capacity by 2025. The plan includes formulating or revising existing national standards for energy storage in line with international standards and establishing a verification system for energy storage products. Taipower, for example, plans to build 160MW of battery energy storage at its own sites and purchase 840MW of energy storage auxiliary services. This is a good start, but much more will be needed as the portion of renewables connected to the grid rises.


Besides adding renewables and storage, the government is also hoping that new technological breakthroughs will help it to meet its net zero goals. Carbon Capture Utilisation and Storage (CCUS) and hydrogen are two of the most touted solutions. The concept of CCUS is attractive because it would allow the continued burning of fossil fuels (and capturing the emissions) while green hydrogen would create a clean substitute for fossil fuels to power vehicles, factories, power stations and even homes. While both of these technologies have potential, they will remain expensive to implement at least until they reach sufficient capacity for economies of scale to be realised and perhaps even beyond that. For green hydrogen, for example, besides having to build capacity to generate hydrogen from renewable energy (electrolysers to split water into hydrogen and oxygen), storing and transporting liquid hydrogen will require building new infrastructure. CCUS projects meanwhile, besides having to demonstrate proof of concept, will have to provide reasonable safeguards that once the carbon is captured it won't somehow escape into the atmosphere later.


Some other innovative energy transition ideas are being explored. Enel X, for example has partnered with local electric scooter maker, Gogoro, in a pilot project to support the integration of more renewable power on electricity grids utilising Enel X's Virtual Power Plant (VPP) platform and Gogoro Network's 2,280 battery swapping stations and platform, which reportedly has a capacity of 1.3GWh. Enel X's VPP is able to automatically adjust its networks' power use – including Gogoro's GoStations – to help protect the grid and maintain stable electricity supply. This would also earn income for Gogoro from power supplied to Taipower. Similar models could be employed by businesses with their own renewable energy and storage capacity that can be supplied to the grid when it is under stress while also meeting ESG goals and earning revenue from supplying power to the grid. Authorities and Taipower could help by offering incentives and upgrading grid systems to facilitate such schemes.


Of course, it is hoped that even better and more viable technological solutions for energy storage will be invented and developed. Besides lithium-ion batteries, which face supply constraints and are competing with electric vehicles, there have been some exciting new pilot projects testing out new large-scale storage options. For example, Energy Dome, an Italian start-up, is trialling its “CO2 batteries”, which store gas under high pressure when electricity is plentiful and when electricity is needed the stored gas will be run through a turbine to generate power. Another company, Energy Dome uses electricity when it is plentiful to lift solid blocks high into the air with cranes and, when power is needed, lowers them down with a pulley that acts like a generator. There may of course be other even better zero carbon solutions for energy generation, storage, vehicles and other activities to emerge in the future. Some may even be invented and developed in Taiwan.


But for now, Taiwan could do a lot better than it currently is by just deploying existing technologies and solutions. It would be disappointing if local authorities followed the G7 example by rolling back energy transition goals. If the risk of damage to its reputation from reneging on climate action commitments is not enough to dissuade them, a much more compelling reason to stay the course is to safeguard Taiwan's energy security. Arguably, the most important lesson for Taiwan from the war in Ukraine is that it is folly to rely on imports to meet energy needs. Taiwan's ultimate goal should therefore be to achieve a high degree of energy security. And to do this, there is no alternative to the mass deployment of renewable energy and storage.

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