L R AS Published on Tuesday 14 September 2021 - n° 373 - Categories:PV Watch

A look at the climate crisis and the economy

Environmentalists are presenting their contribution to saving the planet and to COP 26, but with no immediate concrete measures. The pandemic has profoundly disrupted economic mechanisms, forcing governments to finance companies and individuals. For their part, companies have reacted by raising their prices. This will not be lost on governments. This increase facilitates the installation of solar power plants.

Summary

Environmentalists are currently presenting their contributions for COP 26. In particular DNVEveryone is setting targets for 2050 to deal with the climate crisis

The pandemic has shaken the economic world, which has reacted by raising prices The pandemic has disrupted economies that have to deal with disrupted supplies, unimaginable price rises and customers who are in turn suffering the crisis

To get out of the crisis, there was no real choiceThe public authorities have given priority to restarting the economic circuits and have postponed climate measures

From now on, inflation will be used to reduce debts! The debt incurred to safeguard companies and jobs will have to be repaid. This is fine, but a good and strong inflation would reduce the burden of repayment in terms of purchasing power. The State could only be a winner!

Climate protection will be achieved through economic mechanismsFor years, the recommendations to "save the planet" have given nothing but words. The costs and economic solutions will force everyone to change their behaviour

One of these mechanisms is the increase in energy pricesThe government has been pushing for several quarters to sign energy purchase contracts that provide electricity at half price!

.

The text

The environmentalists are currently presenting their contributions for COP 26. In particular DNV

In the run-up to COP 26 in Glasgow at the beginning of November, "contributions", proposals or "perspectives" are flourishing from environmentalists, all of whom are calling for tougher economic conditions to meet the Kyoto targets.They are all calling for tougher economic conditions to meet the 2015 Paris Agreement, which sets global warming at between 1.5°C and 2°C by 2100.

This week, the Norwegian consulting firm DNV presents its vision a few weeks after the IPCC presentation, which once again alarmed about the climate crisis. Of course, DNV believes that the world is not moving fast enough to avoid a catastrophe. It advocates what everyone wants, an increase in solar installations; it says that the installation of panels should be multiplied by 20; and that by 2050, solar electricity should account for 36% of the energy mix. Combined with wind power, DNV recommends achieving 70% wind and solar power by mid-century

These recommendations, which become more peremptory every year, do not mention how this goal could be reached, which is so far away that it will be forgotten by next year and probably much earlier.

DNV regrets that "the pandemic was a lost opportunity," that "the post-covid recovery has been mostly about supporting and that the post-covid recovery has been mostly about supporting and protecting industries that are not climate friendly enough, and that nations have not paid enough attention to transforming existing industries.

This is what we were getting at

The pandemic has shaken the economic world, which has reacted by raising prices

The developed world has barely emerged from the pandemic and is already experiencing all the disruptions caused byThe developed world has barely emerged from the pandemic and we are already experiencing all the disruptions caused by the lockdowns, protective measures, difficulties in the supply of raw materials, panels, semiconductors, and now in the supply of energy. The price increases are not general, but many economic sectors have increased their prices, often significantly. We see this with silicon, and panels, and sea freight. To say that these increases are justified would be a lie. All the business leaders wanted to take advantage of the situation and evoke shortages to pass on price increases.

To get out of the crisis, there was no real choice

Thus, to say, as DNV does, that the opportunity to press the green accelerator was lost is not very credible, because the states preferred to keep what existed, to cut back on the price of food, to reduce the cost of food, and to reduce the cost of energy.to keep what was there, reduce the economic and social disruption, and postpone the changes to a greener economy. It was more prudent, more judicious, more relevant! Why bring companies to transform in the midst of disruption? They would have had to invest in new production processes, while managing price increases, without knowing the choices to be made! Assuming they all wanted to buy electric vehicles, how could they have obtained them immediately, when production capacity is limited or marginal? How could a steel producer have changed its blast furnaces in a short period of time in order to respect ecology and the reduction of CO2 emissions, without having to make a choice?How could a steel producer change its blast furnaces in a short time to respect ecology andCO2 emissions reduction, without having green electricity available, which is only 2% to 3% of French electricity consumption? The imperative for companies in 2020 and even 2021 is to produce enough to meet demand. It is not in the precipitous change of production tools in favour of greener machines or in the ecological adventure. The priority is in the economic survival of the company, of the companies, in the return to normality.

From now on, it is time for inflation to reduce debts!

It is difficult to say that this chaotic period will soon end. On the contrary, it could be at the origin of what every state wants in 2021, a "good inflation" to erase the debts of the Covid period. Indeed, the loans made by the various states to deal with the social consequences of the pandemic will have to be repaid. This is certain. But the lenders will be repaid with devalued euros. And certainly very devalued! How?

Let's take the simple example of a €100 loan taken out in 2020 by a State. If inflation reaches 10% in the year, the purchasing power of the €100 will be €110 in 2021. If the state starts to repay, it will only pay €100, the original debt. If inflation continues at the same rate, in 2022 the same purchasing power requires paying (or coming out of one's pocket) 110 x 1.1, or €121. Any repayment of the original debt reduces the original nominal amount of €100 by €21. And so on. The more inflation there is over many years, the less purchasing power the state repays. To say that there is an interest is obvious

But the emergence of these price increases will launch inflation into the world. It will have been initiated by business and not by the depreciation of money (the money printing press) as was the case in the past. It does not matter. The result is there.

The defence of the climate will be done through economic mechanisms

Should the defence of the climate and the respect of the 2°celsius be put on the back burner? It is already happening in an unexpected way (with energy)

The economic world is not dictated by assertions, by incantations about the climate, or byCO2 production. It may be dictated by government decisions, but the task of business leaders is to produce at the lowest possible cost in compliance with legislation. If standards make production in one country too expensive or too restrictive, other regions do not have the same constraints. They will set up their production units elsewhere, hence the emigration of factories from France and the scarcity of national industry over the last thirty years. This is partly due to costs, partly due to the multiple standards (social protection, CO2 emissions, labour costs, taxation of profits, etc.) to comply with. France is therefore losing jobs and wealth.

The ecological mutation will occur naturally and spontaneously. But how? By economic constraints, by the scarcity of raw materials, by the rise in the cost of components, by the various difficulties encountered.

One of these mechanisms is the rise in energy prices

This constraint is highlighted this week, but it has been at work for several quarters. It is the rising cost of electricity. What does this have to do with climate protection? It provides a change in perception for business leaders when the cost of energy is fundamental to their operating costs.

For reasons that are not yet fully understood, the price of gas, which had fallen to €5 per MWh in the second quarter of 2020, has jumped to €30 (a historic level).However, the gas shortage linked to the cost of freight, and the fall in prices fifteen months ago, which encouraged people to stop extracting gas, will increase during the coming winter because European stocks are empty. If we add the price of carbon, the price of electricity from gas is close to €100/MWh. The wholesale market price of electricity has followed: In Spain and Portugal, the price of electricity reached €143/MWh on four days ten days ago. In Germany, the average in August was 83 € per MWh. Gas and electricity prices are expected to remain high in the coming months.

What does this mean for photovoltaics and the climate? Any business owner is currently looking for alternative solutions. He has heard about the fixed price energy purchase contracts (around 55 € per MWh in Italy, maybe as much in France and Germany). He is going to look for these by contacting developers. So the higher the energy price, the more PPAs there will be! The more solar panels there will be!

On the one hand, there are the incantations and the chatter. On the other hand, there are the facts that change the situation. Which is better?

Subscribe to the newsletter "Le Fil de l'Actu"...