economic incentives for the energy transition interview with Benjamin Garlock episode 66. Welcome to the My energy 2050 podcast we speak to the people building a clean energy system by 2050. I'm your host, Michael LaBelle. This week we speak with Benjamin Garlock, head of Economics and Policy assessment at the EqualLogic Institute. If you'd like wide ranging interviews about the policy challenges of navigating the current energy crisis in Europe, this episode is for you, Benjamin, and I cover everything from the EU emission trading system, the dominance of electricity for transport, and the for I traction project, if you ever worked on an EU horizons project, you understand about the need to get the word out about it. And this is what we're doing. It's a great project. It stands for innovation, investment, infrastructure, and sector integration. These are, of course, but buzzwords. But we get into an in depth discussion on the investments and infrastructure side of the project. Some of the key issues we address are the price of ETs, the emission trading scheme here in the EU, and whether politician should should be playing with it to reduce overall energy costs. We also talked about how electrification of cars has actually won the day. And why shifting away from fossil fuels is simply more profitable. Renewables have simply one. I think probably people argue about that. But let me just say, This is my podcast. And maybe we'll take it as a given here. Anyways, the takeaway, since Benjamin is an environmental economist, is there's no going back for both the institutional structures that incentivize investments into renewables, and the technology we have today, which is getting us to a zero carbon energy system by 2050. And I just have a few notes. Before you enjoy the episode. I've been kind of thinking about how to reframe the podcast, how to get the word out about it. But I was just thinking, why you need to listen to the My energy 2050 podcast, not because we have world leading experts on the energy transition like Benjamin today, but because each episode is equivalent to consuming 10 journal articles, one book and 500 charts on how to implement the energy transition. You ever see any kind of charts out there about Yeah, we need to do this. And that, you know, a lot of times, not all the time. But we'll just say some of those charts are definitely based on interviews with people. For me being a qualitative, I would say researcher, an economic political geographer, it's about understanding what people think about topics. And here this is the purpose of this podcast really, is to deliver you information and really insight into the energy transition that you can't get from other places. And just a quick read or quick overview, but by actually going out and talking to people, all of us can really learn about the energy transition and how it's being implemented in real time. On today, basically right within I do an interview, and within the week, or within a few weeks, each episode comes out. So this is really cutting edge stuff, and key people were talking about here. And I just want to say that there's it's all guaranteed actually that how much information is in each episode fits into 10 journal articles, one book and 500 charts and you get it all in less than 60 minutes. So it's also great for when you're on the go driving or attending a boring conference, right? Just put a little earbud in your ear, and go ahead and pay attention to the podcast, rather than to the speaker. Okay, a final note. This interview was done for my current role as an open society University Network Senior Fellow at Chatham House, the Royal Institute of International Affairs, the funding, I took a trip to Berlin, I did it by train, I just want to say that the funding has been graciously provided to produce the podcast until the end of 2022. Now the intent of my energy 2050 podcasts kind of just summarize that but I always say this on each episode is to spread the knowledge about how the energy system can assist our transition towards a greener future. The content of each episode is great for teaching research and identifying how you, you know, how do you fit in really, how do you fit into this energy transition? So always a challenge for me when I wake up each day. That sounds kind of odd. But yeah, if you write about this, you do this work every day. You're always thinking about how do you fit in? Anyways, usually I don't fit in. This is why I do a podcast. Okay, now for this week's episode. I'm here today with Benjamin Garlock, Senior fellow, the head of the Economics and Policy assessment at the ecological Institute. Benjamin Welcome to the My Energy 2050 podcast.
It's great to be here.
Thank you. Thank you. Thank you for setting aside the time, and we're in the EqualLogic headquarters here. So this is where everything happens. And I was just wondering if you could tell me first, introduce yourself. Because how, from your biography, I see that you're quite interested in environmental economics and economics and ETs, for example, you have experience in how did you get into this field? And why do you find it interesting?
Yeah, sure. So happy to. Yes. So Benjamin Gala, I'm, I'm an environmental economist here at ecologic Institute and have been for quite a few years now. I took a stint a little over a decade ago and worked for the German emissions trading authority for for two years, but then came back to ecologic. And that's also at that moment when I sort of pivoted into into carbon pricing. And that's been kind of the main topic of my work for the last, I would say, 1415 years now, at this point, not the only topic of my work, but sort of all the all my work revolves pretty much around the question of how do you sort of change economic structures and incentives to accelerate the transition that we need towards cleaner energies and towards decarbonisation. So it's trying to think of economic approaches as a tool for transforming the economy and and how that works. Now, a big chunk of the work indeed, does revolve around carbon pricing, and its various shapes and sizes, so very much around the idea of emissions trading, the European emission trading system, but also been involved in sort of advising on other cap and trade systems in other countries. But then we also sort of look at taxation and add removal of invalid and harmful subsidies, however, that's sort of a lesser takes takes less prominence in our work. And in the area of carbon pricing, one of the things I've been doing and particularly enjoy doing as well is in the area of capacity building for carbon pricing. So trying to, you know, help and advise professionals from other countries how to how to set up cap and trade systems, basically, in their in their national context. One other thing that we may want to sort of discuss a little bit more deeply. Today is, I'm also coordinating a European research project, rising euro project called for attraction. And that is, it's actually not only about carbon pricing, it's much broader than that. It does look at this, the, the broad question is, in a sense, what would need to happen if you if you shift, shift gears in you climate policy, going from incremental and optimizing types of policy approaches that, arguably we've we've seen happening in Europe in the past, what happens or needs to happen if you shift gears and sort of go into a more transformative mode, where just lots more change needs to happen in lots of sectors at the same time, and a very short time present with with high degrees of uncertainty? How can we actually achieve that? And how can we govern that at the European level? So that's one of the research questions that is now keeping me basically busy at this point in time.
Excellent. And so would you say then how things have progressed over time was, it was done much more through an economic incentive like ETS? And then now you're looking at and maybe the whole space has shifted much more to a policy led approach?
Yes, I mean, of course, carbon pricing is also policy led, it's a type of policy. But it comes from a framework, I think that Israel really sort of optimizing and also encouraging incremental improvements. And so one of the questions that we're also looking at in for attraction is to what extent can actually come pricing also be a transformative tool? Now, economists would say if the price is high enough, then then it can also of course, drive transformation, but it will do so in a in a, in a way that perhaps isn't politically or socially acceptable, because you would need to rely on New Media except very high carbon prices to do the very heavy lifting when it comes to phasing out fossil technologies, etc. So I think at that point, the the political discourse, but also the academic discourse has sort of come around to accepting that relying what I think the days when the discussion was, do we have only a carbon price and nothing else that that discussion? You know, we might have had 10 years ago that that's been sort of settled more or less and I think nobody really advocates for carbon pricing only anymore. But then the discussion is also on whether the carbon price is kind of the the lead or the central the core instrument in the mix or whether Other tools are needed to do the heavy lifting in a sense, and what the role of the carbon price is in that, in that broader context.
Excellent. And maybe maybe I can jump to we had some final questions, we'd bring the final questions up to the beginning here. And maybe that will actually, like, make everything smoother later on. So yeah, because we have the carbon pricing in place, and that has been in place. But now we have the we could say I could say this external change in the in, in the economics of the energy sector, to put it lightly, basically, the Russia's war with Ukraine, which has completely changed the politics, and the infrastructure and how it's used in the EU, and the supply of natural gas, oil everything now. And how has that? And how do you see that? And how are you dealing with it, the high energy prices, compared to where the high energy prices were caused by essentially this mechanism for carbon pricing, but now the high price is caused by other factors.
I mean, at the at the outset, of course, the what we're currently seeing in energy markets is really bad news for carbon pricing, in that it just creates a situation where politically it becomes extremely toxic toxic to think about anything that would add to these further add to these prices. And you could, of course, and the argument has been made that if the prices are where they are already anyway, that by itself gives enough of an incentive to conserve energy and to promote renewables. And that at this point in time, you don't need the the carbon price as much. However, it also if you do, then follow this line of argument and sort of, then either freeze carbon prices or even in sort of reduce the these parts of the incentives. You're also basically going back to this notion of saying, Well, okay, you know, climate policy, and that part of the transformation can wait, and we have sort of other worries right now, politically, very understandable. But it also sets us up for for for difficulties later along the way. So I think that's kind of the the, the one of the worrying trends, I mean, if you look at it, now, we did go into the 2020s, as kind of the decade where lots of things would need to happen at a very short time, so many things in, in setting up the, or changing the energy system, driving towards cleaner energies, diving into sort of fully renewables, promoting energy efficiency, lots of things that were that were also neglected, that didn't happen fast enough in the past, but that would have needed to happen. And that still needs to happen. And if now are basically in the in the current situation that is pushed to the side basically means, you know, it's, no, we're increasing the scale of the problem that we'll need to address in the in the later half of the of the 2020s. This is also I think, one one reason why in terms of sort of looking at the response to the to the energy crisis, and what should be done about it, I would always sort of draws a strong distinction between things that are temporary in nature, and that can be reversed. So, for instance, if it's about keeping coal fired power plants open one or two years longer, or if it's about them producing more often than they would otherwise have. That's not, that's not nice, but emission wise, it will create some additional emissions. But these are at least in the European system under the under the ETS cap. And it doesn't basically involve any structural change as such, necessarily, and that's why I'm tend to be would be a bit more relaxed about that. What I see is really more problematic is the question of, you know, do we see any new investments into new fossil infrastructure, because that will be there. And it will create political and economic problems somewhere down the line. So that we were at a point when we were discussing, starting to discuss what what amount of fossil investment do we actually still need? Or is that are we at the point where we actually stop investing into into fossil infrastructure altogether? So that was the discussion sort of three years ago, and now that is sidelined, and we are seeing big new investments into into natural gas import infrastructure. And that's setting us up for sort of more problems in the in the time ahead. So I think it's important distinction to make between like what is a temporary change and what what basically is a structural change that that is getting us into the sending us into the into the wrong direction.
So when people start talking about Yeah, Germany's going to continue using coal or other countries are going to bring back they're turning back Under coal fired power plants, we have to remember they still have to pay for those emissions then.
Yeah, exactly. And it's sort of still part of the of the of the UTS. Cap, which will decline, which is already declining, and which will decline much more so in the in the next year since I would tend to think I'm it's, it's not, it's not nice to see them running more, I would love to see coal emissions going down quicker than they are. But that's not I wouldn't see that as a, as a major worry right now for the reason that they are Captain, you could say this is what the what the UTS. Cap is there for. So it's more worrying, if you once you start seeing discussions whether that cap should be changed or not in the light of the current situation, whether we should sort of go back on ambition, that that's kind of more worrying, but we're not having we do see sort of some some, some calls from some European countries as well, right now to you know, either pause or freeze the the EU ETS prize or to sort of pause the system as such. That is a much more dangerous discussion, I would say. But otherwise, as long as sort of the the ETS is there, the coal issue is not that much of a concern,
that maybe getting back the money is more about taxing the extra profits than then suspending the ETs to lower the price.
So yes, certainly also, because that's much more important lever, if you look at the numbers, so the the contribution of the of the of the carbon price to the to the current electricity price, for instance, is where it's not negligible. But but it's relatively small in comparison, mostly, what we're seeing right now is driven by by increase in fossil fuel prices, and only to a much smaller extent, by the increasing and relatively high carbon price. And so taking away the the extra, sort of the little extra that comes from the carbon price is not going to do much for in terms of lowering bills, but it would do create enormous political damage, because then it basically signals that it's kind of negotiable. And we can we can sort of, we can use the carbon price when it fits us when all the conditions are right. But otherwise, you know, if it gets heavy, then if it gets tough, then then that's going to be discontinued. And that way, of course, he also undermined the credibility of the of the political instrument, because he's saying, Well, you know, if you if you sort of lobby long and hard enough, we're going to lower the ambition in that part. And that's for everybody who wants to invest into clean technologies. That's, that's a very bad signal. So we've, we've seen this now, so the EU ETS, that covers energy generation in Europe, and and also the industries, that's still relatively fine. But we have seen this in some European countries that have, including Germany, now, that's that's decided to pause the national sort of carbon price, which was supposed to increase every year by an increments of five euro per tonne. And the next step for that has been paused, which does very, very little, in terms of reducing the bills to households. But does a lot in terms of sort of creating exactly that political signal of you know, it will go back to carbon pricing when the conditions are right. And that's just as we go in into into a period where this transformation needs to pick up speed and needs to basically also create some noticeable effect on the ground. That's, that's a tricky signal to send.
And maybe it's this specific area here in that maybe I think we can get into some of the areas of the four four I track project. But let me just follow up with that we're essentially in the stage, regardless of the war and the impact on the energy price, where fossil fuels need to be phased out. And in one sense, the price would be higher anyways. And now it's beginning to bite. I mean, maybe now it's bit too extreme. I think most people say it's too extreme now, but because it's really damaging the economies. But on the other hand, this pricing is sending the signal to invest in non fossil fuels and to be both energy have increased energy security, at the same time as becoming much more sustainable. And so finance or
so I would say this is actually kind of the positive story here. And there, it's kind of in the, in the in the in the situation we're living through there is I mean, there's lots of negatives, but there's also some positives. And one of the positive sides is that indeed it is become clear that this you know, there's this notion of the of the energy triangle, three objectives. It's sort of environmental sustainability or clean and GE climate friendly energy, it's affordability. And it is security of supply. And and for a long time, the discourse was always on like, you know, well, you know, renewables are nice, but they only count sort of into one direction for the environment, environmental sustainability dimension, but they are expensive and for security of supply will need sort of strong fossil backup etc. And I think what has become clear now is that the, the renewables can can support on all three fronts, and basically, also energy efficiency can support us and all three fronts. So the whole sort of clean energy transformation is about obviously about environmental benefits. But it also increasingly counts towards lowering energy bills, as we are seeing that fossil energy has become extremely expensive. That's always been a boost to the competitiveness of clean energies, which were already competing in many users many applications beforehand. But even more so now with with the with the, with exploding gas and oil prices. And obviously, they also domestic energies where you don't depend on on foreign suppliers, not not in the same way as you would on a fossil market. So I mean, we've got into sort of longer term visions for importing green hydrogen from other parts of the world. And you're, of course, also creating you import dependencies here. But even there, these can be imported from many parts of the world. So it's not as in the fossil sector, where it's, it's located in, in very few world regions, and many of them having governance challenges. So I think for green hydrogen, the metallic look is which is more positive. But that's also just one part of the whole story. So the bigger part of the story is, is these are mostly domestic energy sources, that you will consult domestically and that are then less dependent on imports. So I think this is kind of one of the positives that this has taken hold
in some of these areas. Maybe we go for shipping and aeroplanes. Let's just go like that. Well, now the cost is higher. And it doesn't seem to be going down lower. But these are traditional, I would say, industries that haven't done too much, or have done some but but the transition has been quite slow. Do you think that now with these higher oil prices and doesn't seem like oil prices are gonna go down? Like there's a bit of a geopolitical battle going on now in the oil market? Do you do you think this is going to prompt these industries to actually not just say, Oh, we're going to have biofuels to fly with or something like this right, or hydrogen to power our ships? But we're going to wait or because it is still quite expensive to make this transition? Do you see that these bigger industries that do actually have a big impact on co2 emissions, implementing the technologies to position away from fossil fuels?
Let me sort of take a different route at this question. There are certain industries, but I think the the, the answer is also becoming clear. This is more I'm thinking more. So some of the traditional heavy industries. So like, if you think of steelmaking for instance, where also there. It is clear that sort of blast furnace steelmaking is not really the thing of the future. And I don't think anybody really wants to still invest into that technology in Europe. And the question is, how do we get the alternatives implemented, so it's direct reduction using hydrogen and then ideally, using green hydrogen to make it entirely low carb and the production process? The tricky thing there is that these industries were in all across Europe, I think, at a point when they were sort of making their plans for how to also manage their own transition into this new into this new technology. So they had and still have their plans to invest. And these transition plans have been under stress basically, under under the current conditions to so many of these companies are now in a just very much challenged by it by the current high energy prices and that calls for also dries up they're the profits that they would otherwise had hoped to invest into into making the transition. So I think but their to the expectation was never that it's sort of something that they would do by themselves. The the idea was always okay, there needs to be some some element of public support, there needs to be some element of de risking to make these investments feasible, through things like like carbon Contracts for Difference. And I think you could then sort of try to positively and say the the case for for public support for these kinds of investments has been made even stronger. And it's now clear that it's probably not going to happen at the scale needed if it isn't for for, for public support. So that's kind of the some of these industries where the solutions are already I think in shipping negotiation, I have to admit, that's sort of stretching the limits of my technological knowledge. But I think they're my impression is it's still much more open as to where what what technologies would it be? And it's also, of course, a matter of principle for flying then more for aviation, then for then for shipping is the question of sort of what what future scenario are we building for? And are we planning for and sort of what's the demand for air travel? When will that be in the future? In the past, we've only sort of seen projections of ever growing amount of travel.
Yeah, okay. So personal personal responsibility, along with government commitments and government assistance for for industry. Maybe we can bring it to Germany for a minute and talk about because the German government's really assisting industry here, I think it's like 200 billion euros that they're promising to help industry I could be totally wrong on, but something like that. Right. So it's a huge amount. And I was just wondering it, because Germany, yeah, relied the most well, we wouldn't say relied the most. But Russian gas was integral to their industrial policy and going forward and going green. And then now yeah, it's just it's not happening. It's not coming anymore. Blowing up the pipelines, you know, it's an easy way to stop the gas. But But now they How is German industry going to adjust to this? And how is the government perceiving their role in helping German industry to adjust? Yeah.
So firstly, the 200 billion that you quoted, this is actually includes private households and industry. And I don't think there's any sort of reliable number yet at least haven't seen it and sort of how exactly the split is going to be. But that's kind of the overall volume of relief, basically, that's been announced for for to accommodate higher higher gas prices. And I think also electricity is also part of that. And so going into households into industry? To answer your question, in terms of how is industry supported, I think at the time, it's most more about sort of just keeping industry alive. So in in, there will be some immediate assistance still paid out in the winter, including us to industry, and then as of next year, we expecting to see a cap on a share of the gas consumption. So it's basically the idea that's been put forward and that applies to households into industry is to limit the bid gas price for a certain share of their consumption, but not to the not to the entire consumption. And the important distinction there is that at the margin kind of the last units that the industry is, but also their households consume will see the whole the full, basically marginal price and so that you do preserve an incentive to to reduce emissions or use gas consumption. Now, one thing to be said is that, for industry, we have already seen that they have reduced their gas consumption, because they feel I mean, the contracts are designed in such a way that for households, it takes a while until the the higher wholesale gas price trickles through basically arrives at the individual household level. For industry, they feel the pinch much more immediately. And so therefore, we have seen also quite some price increases for industry and also in response, some some demand reductions. Demand Reduction sounds very nice if it's about sort of increasing efficiency. And that has also happened. But it also involves simply shutting down production units. That can be as a market organized process also can be, I guess, sort of okay, without wreaking havoc on the industry. So we've seen certain energy intensive parts of the production process like ammonia production, where Germany is simply importing a lot of ammonia from from other countries, there is a sort of sufficiently liquid market for that there is sufficient production capacities and other countries, there's sufficient import capacities. So that has been relatively easier. But it's trickier in some other production chains where basically that also leads to disruptions of the of the of the value chains of the production chains. And so in those instances, I think it's more where the the assessment or the existence is sort of targeted at, you know, keeping industries in business. The one thing that we actually have to say we were not we're seeing some of that, but not nearly enough is kind of more forward looking. assistance to make households and also industry use less gas in the future to help them to sort of change their ways. Now the question the problem is this. Lots of these things, there's lots of things that can be done. But but they all can't be done overnight. So, for instance, you know, insulating buildings and shifting from from gasoline gas heating to, to heat pumps, the scope of what you can do with, you know, with little investment in short time is just simply quite limited. And it's basically what we're seeing and seeing now is kind of the consequence of not doing nearly enough on that for the last decades. And we're seeing also that some European countries that have more, were more active in that space. Scandinavian countries, for instance, now are of course less threatened by the gas price increase and feel it less because they have simply taken steps to insulate the home betters electrify eating become less dependent on on fossil gas for for heating.
My next question up to recently as electricity more expensive. And then the push is actually how to make it cheaper, which goes back to really the electricity. When When 20s 1930s When it was about electrification because it had such a benefit to the economy. And now, lowering the price of electricity is actually a big policy impetus from politicians, for the economy for everything. That's kind of a statement, but Is that
Yeah, indeed, that is right, because many of these technologies are competing with fossil based alternatives, right. So if you think electric cars, or also electric trains, compared to cars, or electric cars, compared to combustion engine, cars, heat pumps compared to gas and oil heating, etc, it's always one of the dimension is of course competition on the on the basis of, of lifetime costs of these different technologies. And they are becoming competitive. One crucial factor in that is the cost of electricity. And so therefore, the quicker we can reduce the cost of electricity, the more the sooner these technologies will, will become available. One interesting question is, indeed, is there still, you know, if we move into a predominantly renewables based system? What point is there still for it should electricity then be as cheap as possible? There is still an efficiency issue as well. Right? So so when we talk about, okay, electric cars will be part of the solution. But then there's also the question, what types of electric cars are we interested in visiting there? And there is an argument for for making them sort of as light and as efficient as possible, because then simply the electricity we have will sort of take us further. Let us ever Yeah. And so that would be one reason for saying, you know, perhaps don't just make it as cheap as possible, because efficiency will still be, you know, one thing to worry about. And that. The other thing is that the timing dimension, so electricity will become cheaper. But it will become cheaper, certainly also at certain times. And so there will be times though, when electricity is expensive times of the day or times of the year, when electricity is in much shorter supply. And when we need sort of more, more flexibility. So the question is, what kind of solutions can we see that basically use lots of electricity when it's cheap, but then also our, you know, conserve electricity at those times when it's when it's needed, and valuing that flexibilities takes us back to this question of sort of market design for electricity markets, which is something that current electricity markets don't, but that we need to basically bake into the system, rewarding. The, the flexibility to be shot on and off in terms of consumption. Just one, one thing, and this is sort of looping back to one of the discussions earlier on fit for 55 and sort of pricing. In transport and housing, we talked a little bit about this notion of electrification as one of the one of the routes forward, I think, generally speaking, the the goal of sort of designing this policy mix around a carbon price would always have to be to answer this question of what alternatives do you provide? Do you allow for consumers to and for investors to change their behavior? And just having this I think also where the where this sort of the old way of thinking on let's have the carbon price is the essential or the the one and only the holy grail of climate economics, where that sort of fell short is that if you don't provide alternatives to households, then having a carbon price is really politically difficult, but also economically not not not not super efficient. So the question is always Do people have to households, but also to companies have a way of responding to these higher carbon prices. And the more the more we can enable them to respond to high carbon prices, the better the system function. So it's sort of if you want the elasticity, the price elasticity of demand is what economists would call that discussion would tend to be sort of taken as given this is how consumers respond to higher prices. But I think the point here is that it's not a given is actually something that can also be influenced by policies. And if you if you have policy, that that sort of enabled people to respond to higher fuel prices, by for instance, you know, public transport, cycling infrastructure, but also a wide variety of different cars on the market with different fuel standards, good information, etc, etc. That enables them to take smarter choice to respond to these prices, and that point, it becomes politically more acceptable, but also the system is going to deliver more emission reduction. And that's why I think the kind of conceptual argument is why carbon pricing in itself won't do the job. But it's also about creating these alternatives and providing for alternatives to respond to,
and policies to assist homeowners, so not just punish them, because they're not changing, but actually giving them some assistance, whether that's even just technical assistance or financial assistance, to actually move away from fossil fuels.
Exactly, exactly. And that's still relatively easier in transport where you, you do have often enough different options. Of course, there's also settings where people are simply, you know, limited in their choices, and the in the car, the combustion engine car is the only one for those solutions. But at the end of the day, this is only, that only applies to a very small part of sort of households. It's very big in the political discussion, but at the end of the day, it doesn't in terms of total numbers, it's not sort of we wrote about, the really trickier thing is in heating, we're just simply for household, your options are way more limited. And you only really have an n a window of changing sort of every, every decade or so or every two decades, sort of at the point when you move houses or when you do major retrofits major upgrades, where you have to install a new heating system. So in that way, and after that, you know, when you taken that decision, then for the next 1020 years, you don't really have too many options left. And that's I think, indeed, where then public policy and all these support programs, you know, support for for heat pumps are also announcing phase out dates for fossil fuel heating systems where these can help.
Okay, and then maybe we should shift a little bit to the fore I tried, it's because actually, I think it underlines underlies many of the issues that we've been talking about and the policies and where things are going. My so my first question is, and I know that there's a lot of creativity coming up with project names. But what what is the four I stand for? Explain that and then then we'll get into what the project is about, I think
it's happy to do so. So with with for attraction, we did set ourselves the challenge of thinking through what what would transformative climate governance for the EU look like? What would it entail. And then one of the things we sort of decided on earlier on is, let's try and not do this through a sectoral lens this time, so let's not talk through the energy transition, or the electricity transition to the heat transition to the transport to the, you know, buildings and food and agricultural transition. I think there's fantastic work happening in all these spaces. But we thought, okay, let's try and see if we can get a different angle at this. And this is why we ended up with this with these four eyes as kind of cross cutting challenges. And they just kind of structure and define our work in this in this project. So it's the innovation challenge. How do we get to the right local innovation? But also how do we sort of roll them out at scale? So what are the enabling conditions for new solutions to not only be invented in some lab, but actually to be brought to market maturity quickly enough and to be rolled out in the at the scale and at the pace that's needed? The second one is the investment challenge. So obviously, the rebuilding our economy to be a clean, renewable based economy is going to involve massive investments in private homes, in infrastructure, in business, etc. And the question is, how do we mobilize the funds that are needed for that, but also how do we sort of channel and shift the funding that currently still goes also into fossil value chains? How do we sort of manage that that shift, shifting the investment from the, from the fossil to the renewable side from the from the, from the dirty to the clean energies? And what will that do basically also to the to the, to the financial system what what's new governance structures are needed in the financial system. So that's the the investment I'm the third one is infrastructure and the infrastructure challenge being one that basically, you know, when we're talking about different new innovative solutions that could have a role to play. One crucial question is, is there going to be an infrastructure to support them. And, you know, electric vehicles being sort of one obvious example, if you can support electric vehicles all you want, but if you don't have charging infrastructure in place, then it will not be feasible strategy or green hydrogen is similar. You know, it's an interesting application, in which if you talk about sort of decarbonizing certain certain applications, for instance, in industry, but the financial and commercial viability of these solutions depends a lot on whether you can actually get the the hydrogen or the green hydrogen to the plant at reasonable cost. And that is also an infrastructure question. So, you have the question also of, sort of, how do you transition infrastructure? Right. And right now, we have, Europe is full of fossil based infrastructure. And the question is, not all of that will will be needed anymore. So it's about repurposing, rebuilding, but also dismantling some of that infrastructure? How do you sort of organize that process? And it's about overlapping infrastructures. So we talked about, you know, electrification will have a role to play. And so therefore, electricity grids will also have a role to play. But then there may also be instances where different infrastructures are, are competing with each other. So just to give you one example, so you know, the Denmark to the north of Germany has fantastic wind capacities, and there are not far from the point on end scenarios will say, eventually, they will sort of reach this point where they have an overabundance of wind energy domestically that they can sensibly use in Denmark. And then the question is, what do they do with that excess electricity? Do they sort of sell it as electricity to Germany and to to the Netherlands and to Poland, to their kind of southern neighbors in the region. For that to happen, obviously, would need transmission infrastructure for electricity. But the alternative could also be okay, perhaps they also went invest into using that electricity to produce, for instance, green hydrogen, and then instead ship that green hydrogen to other parts of Europe or to send it through a pipeline. So here, we have one question where where sort of infrastructure really determines which political choices or political choice determine what infrastructure we need, but also a coordination problem, because that's sort of something that it's not only sort of, it's not only a Danish decision, it's basically a decision that eventually, of course, Denmark, and Germany and Netherlands would agree on some some kind of outcome for themselves. So that's the infrastructure dimension. And the last one is the integration of the fourth is about integration. And this sort of goes back to indeed, also these these very questions of how do you align decision making happening in different sectors. So with the with a transformation, we are seeing a change that is faster than we've seen in the past, that is more profound and sort of deeper than it's been in the past. But it's also broader because it is happening in different sectors at the same time. So we see basically, an energy transition, a mobility, transition, a an industrial transformation. All these things happening in parallel, and needing to be coordinated in some degree, infrastructure was kind of an obvious example. But there's also other other sort of ways of keeping that interlinked. And the question is, how do you make for that kind of integrated governance, where in the past policy approaches were mostly about, you know, what's, what's the strategy in Sector a, what's the standard strategy and set up? So how do we align that that's kind of what we what we set out for integration. And as you might have already noticed, then these different eyes are perhaps interesting challenges to look at. But then of the, at the meta level, they are also interrelated. So the infrastructure challenge is, in his own way, also an investment question of you know, who pays for that infrastructure? Is it better public public funded? Or is it privately funded? Who is taking on what share with the risk and how do you sort of compensate for for stranded assets and infrastructure is very much a financial investment question. Innovation is fine, but doesn't happen without infrastructure. So the innovation and the infrastructure dimension also, of course, are interrelated. And obviously integration is sort of a challenge that cuts across all these so in themselves, they're also Um, they're also sort of interrelated challenges. Now, that's basically the logic of these four eyes. And this is kind of the the, the, at the, at the abstract level, kind of the experiment we're doing with this with this research project to see if it can give us new new insights to thinking about European climate policies is a bit of sort of explaining what the project is all about what it's doing, it did set out with the with sort of first a stock taking and backward looking components. Right now, we are conducting numerous case studies, at the European level, for examples where countries have taken steps towards transformative policies, these are being conducted by different partners all across Europe, we have also looked at sort of some international experiences, to see where we could find examples of transformation happening. And we are, we've just sort of launched basically the first the second half of the project, which then will be sort of more forward looking, which is more about exploring. Okay, so given all this, how could and how should you climate policy evolve? Basically, with it with a sort of Horizon, after 2030. So if you want it's about we talked about fit for 55 Already fit perfect vibes kind of the current the hottest game in town in Brussels, the current proposal on the table for changes to the setup of EU climate policy in the, in the next years to take effect, basically, until 2030. We're taking basically we asking the question, okay, what comes after that package? What's kind of the the next one that might follow it?
Good. And then with this, actually, let's just recap the four eyes. So it's innovation, infrastructure, and investment, investment, and integration and integration. Okay, so we have our four eyes. And then with this, you're you're working with stakeholders as well. I mean, you have your your consortium partners, which universities and think tanks, yes. And then you also have some heart like, businesses that you're working with? And can you name those? Who are those that? I guess it is?
It's actually sort of, we do have a few industry partners as well. But it's more because the the project in itself is sort of is more policy focused. And so our main stakeholders tend to be sort of in the policy realm. So we do have, you know, at the European level, at the sort of European Commission, DG climate and in DG energy involved in our activities, and including sort of as advisory board members, but also in sort of our stakeholder engagement activities, which just two weeks ago, implemented a policy lab process, which was about going through Brussels, and then in a sort of co creative passion of inviting stakeholders, from political institutions from the Commission, but also from industry associations from civil society, from academia to kind of the Brussels climate policy bubble, if you want, yes, inviting them to sort of spend a day with us on sort of mapping out what could be possibly policy avenues for for you climate policy going forward. And that was exactly also in the spirit of okay, well, let's, let's not worry about sort of Pitfall 55. Let's consider that as basically as given. And let's think about how, what could the next step after that look like?
I mean, I don't want to, like, reveal your findings or anything. But how, because since we talked about a lot about the current crisis, energy crisis, and this completely has changed how the policy discussion evolved, you know, one could imagine that the prices would be so high that this transition energy transition would be accelerated so quickly, because the economics are certainly there like today, a past couple of months. And how was it for you the maybe just the conversation in this workshop, or however you want to describe the forum that you had? How was the conversation now, compared to maybe pre pre crisis? There's some key issues that came up, or how was the thinking changed?
I think on the on the positive side, one could say that. At least it hasn't been derailed, which also, I think, is a conceivable scenario, that under the impression of the current energy prices, that you would have had much stronger voice. I mean, you do have these calls for like, let's sort of rethink our climate ambition. And now is not the time to sort of to worry about that. You have new people sort of openly dismissing that, but But of course, I mean, you know, transforming to climate neutrality was never uncontested. And those people that didn't agree with the idea, of course, would now use the these arguments to push against that. But I think interestingly, at the end, of course, we weren't we were sort of assembling more the climate professionals in Brussels. But there, there's been little we haven't seen at the European level sort of a strong push back against the the sort of the carbonization, which I think also has to do with the fact that it's become obvious that this is the direction of travel also, for instance, for for industry and private business. Right. So they are ready to, or they are embracing the challenge and sort of rising up to it. And the question is not, there's not really any plausible alternative scenario to keep investing into high fossil assets. I think that that ship has sailed pretty much. Yeah. So I think that on a positive note, but then in other ways, of course, the discussion has become much, much more nuanced. So one thing that, for instance, is really sort of front and center in all discussions is the question of social compensation, social acceptance of these policy measures. And that's also why sort of carbon pricing has a very difficult stand right now. Because it is working through by changing prices at this current time when price already up at the at the current levels is a very difficult proposition. But
I want to interrupt, because now it's so interesting, because it's about you think about homeowners or households will phrase it like that households. And that before, yeah, we should kind of help them out, we should help them on this trajectory. But it was more like to go green to become more sustainable to reduce their energy. Yes. But now, it's imperative because it's about reducing their energy bills, the energy costs, actually, yeah, and helping them. And do you, how does this How will this play out? I guess, in the policy realm,
yeah. So I think the challenge is recognized, it's more about the question of how do you organize in the most efficient way this process? How do you sort of get accepted support to those people that are the those households that really need it, and the in the most targeted way, one thing that I think, is not universally applied, but is has some Canadian, something that we would also also qualify for is, when you do that, do it in such a way that you don't undermine the incentives you're trying to provide, right? So so keep the the incentive intact, to reduce emissions and to reduce energy consumption while also assisting households that sounds like like contradiction in terms, but essentially, it's about, what you want to do is you want to reduce the cost of energy, but you don't want to reduce the price of energy. So you want to reduce the household bills. So what households end up paying in the end, but you want to keep the the price per unit intact. And one way of doing that is simply sort of returning some of the money and on a lump sum basis per household. That's kind of the ideal situation tricky to implement in practice, because you need the infrastructure to do that. But that's, of course, the ideal solution. If you can basically say, every household or per capita, you get a certain amount paid back. But then you also have to accept the fact that the price of the unit of fuel you're consuming goes up. So that's kind of the ideal solution. There's also other other channels. So one thing that I've gone back to the discussion earlier about providing alternatives is anything that that can help to reduce vulnerability makes a lot of sense. And here one, one challenge is how to set up programs in such a way that they benefit the most vulnerable households first. So IE those that live in currently in very poorly insulated homes, or also that are economically most disadvantages. And the tricky thing here is that in the past, I think, when we think about sort of retrofits and heating exchange programs, typically these will be set up as sort of government programs where you can apply for a certain or certain grant and then start investing. And that's all nice and well, if you have sort of, if you're a home owner and you have money left over to invest and you know how to sort of where to go for the to apply for these funds, then that's all fine. But if you're a tenant and you perhaps don't speak the language well, or you don't have any, any money left over, these things don't help you so that the challenge here is really finding solutions that also work. For those hog households that really sort of need the assistance most, if that's working with homeowners associations, or sort of building associations, is one step forward, but also finding ways of sort of translating the messages in such a way that they arrive in different targeted households instead of finding different ways of getting that out across not shutting a website somewhere. But really sort of having having locally trained people from the rain neighbors that could go out and provide advice at a very much peer to peer level. These are also things to think about is it is certainly not an easy task to address. But it's not necessarily one to loop back, I think, to the policy discussion, the place where some of these elements are sort of based in the European discussion this week for which 55 is the notion of the social climate fund, which is one element of this, which basically also captures this notion of let's let's take part of the revenue from carbon pricing and return that to, to those households mostly need to assist them directly through monetary compensation also to provide assistance in reducing emissions.
And you're going to develop some scenarios for this for the project.
So in fire infections, so that's actually one of the one of the downsides, if you want for these kinds of research projects, when we set up the project was basically designed in 2019 20, around that time. And at the time, the I mean, the social question was already on the rising on the agenda, but it didn't make its way into the into the basically the terms of reference for this project. And this is why we are having a little bit of a blind spot with China trying to sort of weave in the social dimension wherever we can. But this is why basically now it wouldn't be a fight infection project. If we designed it now, it would be at least a five if the fifth, the first one would be about inclusiveness or about equity aspects. So now we have to basically see how we can weave the question into into into our work, we are addressing it in other projects, obviously. And it is, I think, the central question in lots of the policy debates. Perhaps just one other thing to bring up? Going back to this question of sort of what how is the how has the discussion changed, and what what is the current I would like in the in the in the current period, one thing that is somewhat worrying is the is the sort of the investment dimension here, particularly the financial dimension, the fact that we are moving back into a macroeconomic environment with rising interest rates, we actually were in a very nice space in Europe, we had sort of zero or negative interest rates in many European countries for public debt for quite some time. And this is, I think, one of the really big missed opportunities that we didn't use that a lot more aggressively to fund investments into into low carbon infrastructure, which we know we will be needing anyway. And we know it will only, you know, it will require some amount, some degree of public support. And we are now moving into a world where we see sort of rising interest rates. Now all of these investments we're talking about pretty much all of these investments we're talking about for for cleaner technologies involve an element of upfront cost and reduced cost later, right. So the initial investment is going to be higher. That's the case for renewables, that's the case for many energy efficiency you pay now and then you have a benefit later in terms of reduced energy bills. But there of course, interest rate is sort of the one crucial determinant to determine, you know, how feasible that investment is. And of course, with with a six or 7% interest rate, not saying we will get it but you know, if we go into that, that makes a whole lot of these investments less attractive than with a with a zero or 1% interest rate. Yes. And so this is I think 111 is a challenge. We haven't really sort of thought that entirely through to the to the end, but we would see that as a big challenge in the investment space to accommodate for that.
Okay. Okay. Especially in Eastern Europe, the interest rates even higher there. Yeah. So we will talk about Hungary 13%, at least, but by the by the other countries as well. Yeah. So okay. And for the I just want to begin maybe wrapping up here then before I introduce this for I track, but it's for I traction project, is what do you what is the law? There's always different deliverables at the end, but But what was kind of the overall emphasis that should come out at the end of it?
Yeah. So one of the four outputs, I mean, obviously, it's sort of, yeah, I should do justice to all the partners doing great work and all these different worlds. And as these projects are set up, there's tons of work packages, tasks, and great research being produced in different corners. sort of the of the project, we now have basically the sort of one thing that's just hot off the press. It's kind of the insights from the International case studies, the National case studies are coming up. And we'll walls provide interesting study cases for power transmission work. But one thing that I'm really very much looking forward to, I mentioned this sort of this Policy Lab process that has resulted in in these different policy avenues. And we'll apply a bit more scrutiny to those going forward to try and get a better understanding of what are the risks and benefits of following a certain paradigm of policy. So if you play sort of more than market based, if you follow the market base route and work through prices and market base elements, what are the benefits and risks of that, and how compatible how politically feasible is that, versus some of the other alternatives that we that we sketched there, to getting to a more nuanced understanding of these parodic medic instrument combinations. And when we've done a bit more scrutiny of that, then sort of one of the concluding pieces of work will be to try and bring that back to K, what does it mean for you climate governance? And what is a sort of transformation ready climate governance, and that's in a way kind of, then will be the task of answering the big question that we've set ourselves with this project, based on the insights that we're that we're gathered, trying to come up with, with ideas for a un EU climate governance, governance, as in sort of the total collection of all these different climate policies, but also the systems how decisions are made in Europe? What what decisions are? Where do we need more? Where do we see benefit and more centralization, greater centralization, but also perhaps in decentralization, so which things are better left to the member state level? What role for for sort of, you know, watchdog mechanisms like like climate councils or sort of climate laws to to sort of give it more structure for this whole process? So in terms of also, understanding where we are, do we need to be rigid in making making, drawing sort of solid lines as to this direction of travel? But also, where do you have to allow for flexibility? And obviously, you always need a bit of both. But then the question is, where do you find the sweet spot between allowing sufficient flexibility to account for surprises, but also giving enough rigidity so that the reduction of travel is clear for all private households, investors, policymakers, etc?
And then, okay, it's almost the last question, they just
might just want one thing. I don't want to sort of get lost there. Is this question of how do you make this also work in accounting for political turbulence is that we are seeing we will continue to see in Europe. So I think it's this is one thing, that's important to stress that it would be easy enough to think about all this in terms of assuming we have, you know, blue sky thinking we have fantastic political institutions, and they would certainly be able to come up with with great policies and implement them, but the world is not like that. So we are constrained, there is sort of an effective constraint is sort of how rational policy processes are. And we we will be expecting to see further shocks and developments sort of EU governments stirred up we see positive and negative outcomes, right. So right now we do see the forces sort of also drawing on Europe and different anti European sentiment growing in parts of Europe. But we also see basically, that European countries have come together, faced with a with an external threat. And I think that sort of underlines the value of cooperation and the need for cooperation. So there's kind of always sort of positive or negative. But this is also one thing that in when when thinking about European climate governance, because we want to sort of come up with with analysis and results and recommendations that also take that these very real life constraints into into account.
Yeah, actually, that was that was part of my question was was Yeah, taking into account the current crisis and how things have developed politically? How, yeah, these these scenarios, because because it is available on your on the project website, these national assessment of the national policies that you have. And my question was, was the team or those that the researchers that that reviewed those, were they able to take into account the current political or political and economic environment? Or were they assessing this under like, pre war conditions, basically? Yeah,
yeah. I mean, what we've done, what we've published so far, is mostly really just an assessment of what would need to happen and it's not kind of in that way, not Not a not assessment of actual policies being implemented, but more like so if you take 1.5 degrees serious. And if you take sort of indigenous transformation series, what does it tell us about the European climate goals? Finding sort of the the work that Catalytics, the colleagues have done the finding that we actually even fit perfectly fine. Even the 55% reduction target, by the end of the decade, which you consider is ambitious is not ambitious enough, if we take a 1.5 degree target series, it also sort of breaks down I think quite nicely what that would entail into sort of energy supply changes across European countries. So the the phase out of fossil fossil fuels, this is I think, one thing where indeed, the the analysis has been overtaken by reality, because the modeling still is huge, you know, first get out of coal, and then a few years later get out of gas. And that might well, in the current situation, be sort of reversed order that we were seeing gas being privatized, and coal staying on for somewhat longer. But in essence, I think that's, and that has, of course, profound implications for force of how the immediate policies are designed, but the doesn't change the overall picture in the sense of okay, we need to get out of both of these. And we need to get into renewables. Very, very quickly.
Okay, the very last question, because you brought it up. But for me, it's almost the most interesting one, but I think we have to save it for another day is this joint action by the EU as a whole? Because now we're in this crisis situation. And you said, it's impressive how the countries have come together. I was wondering, could you expand on that more? I'm like, because there's always been so much tension in in creating these policies and the policy frameworks within the EU to make this energy transition. But 2030 goals 2050 goals. And now, yeah, there's a greater with the limitation of gas imports. There's this is for you, let me let me phrase this as a question for you is that do you perceive that there is a greater European unity in the area of energy policy?
There are signs there that again, sort of positive and negative, but I think overall, more positive than negative I, when I was growing to sort of a greater sense of unity, I think it's just in the last half year, we've seen the value of having strong and unified Europe and of also having having sort of, in a European solidarity. So I think if that's not going to take care of sort of secession ideas, like Brexit, forever and ever, but for the time being, I think it's sort of it's send a strong signal that there is a value to be part of this community of countries and also to sort of system support each other in terms of doing this kind of solidarity. That isn't, it certainly is far from perfect as well, there's many instances where I would have hoped for more, more coordination. So I think certainly also in terms of crisis, we are seeing a lot of this thinking of their own electorate and their own country, their own system first and not enough coordination, also an energy on energy issues. We've seen that discussion popping up again, also in the context of relief measures where it's about, you know, sort of if Germany decides to effectively subsidize its gas, what does it mean for the entire gas market? And for for sort of costs going up? Then we know what does it do to markets and other European countries? We haven't, we had sort of, I think, important interesting ideas about common purchasing of gas by European countries. So rather than because now, of course, Europe is in a European countries are in tough space, they need to essentially find new suppliers on short notice to get natural gas from and the way that it's worked out was mostly that okay, then, you know, on Monday, the German Minister of economics flies to Dubai, or flies to the Gulf countries and sort of makes a deal. And then on Wednesday, is the French minister and the Spanish Minister arrives on Friday or something like this. And then obviously, that way, you're sort of iron weaken negotiating position, because you're sort of divided. And so the, the idea is, should there be a common European purchasing for guests to use the combined market power that Europe can have that was discussed hasn't really materialized and is still one of the in that space? I think one of the areas where where greater coordination would be would be certainly desirable. I would also see this we talked about infrastructure development, I think there too, we are seeing more of that happening. So but not nearly enough in terms of then also aligning infrastructure. But for the time being, I mean things like, for instance, the what's working relatively well is also agreement on using each other's infrastructure for gas supply now, right, so, so saying this is from a German perspective that Germany is chose not to invest as much as other European countries into into LNG import capacities now is reliant on LNG capacities in neighboring countries. But that is working relatively well. Another area of sort of solidarity is if you want also, you could say the French nuclear situation, well, you know, French, the part of what's driving the problem is the electricity market is not only Russia, but it's also the fact that more than half the French nuclear fleet is down is not producing. And that needs to be made up with with increased production in European neighbor countries. That is creating frictions and problems, but it's not resulting in massive political divisions over that. So I think there's many elements where sort of that that cooperation is actually happening and is happening in a not always perfect way, but in a robust way, I would say, yeah,
a robust way. Alright, Benjamin, thank you very much. Thank you for setting aside the time and thank you for talking about everything from ETS to yeah, this energy transition and the for attraction project as well. Thank you.
It's been a great pleasure, and indeed have to continue the discussion.
Thank you for joining us for this episode, reproduce the my energy 2015 podcast to learn about cutting edge research and the people building our clean energy system. If you enjoy this episode, or any episode, please share it. And remember, each episode is equivalent to consuming 10 journal articles one book and 500 charts and how to implement the energy transition. And you get it all in less usually than 60 minutes for each podcast guarantee. I can actually say no other podcast makes this guarantee. The more we spread our message of the ease of an energy transition, the faster we can make the transition. You can follow us on LinkedIn where we are most active on the My energy 2050 page or on Twitter and Facebook. I'm your host Michael LaBelle. Thank you for listening to this week's episode.
