“First they ignore you, then they laugh at you, then they fight you, then you win.” Mahatma Gandhi
I recently attended a climate change roundtable at the residence of the US Ambassador to the UK, Matthew Barzun. There was on the one hand much celebration about recent advances in clean technologies such as solar and wind. Yet, also much frustration at the way financial support had been pulled from the growing renewables industry.
The pushback and subsidy cut by the UK government seems to be symptomatic of negative support around the globe, against a backdrop of great successes for the renewables industry. This got me thinking, is it coincidence, and ‘natural policy evolution’ or is this a sign that renewables really are threatening the status quo?
It brought to mind the famous Gandhi quote: “First they ignore you, then they laugh at you, then they fight you, then you win.”
Investors are paying dearly for the inactions of the energy incumbents who have seemingly ignored and laughed off the impact of renewables. In the last five years 26 coal companies have gone bankrupt and US coal equities are down over 76%. Renewables are also having a hugely disruptive impact on the traditional electric utility business model. The equity values of EU utilities have fallen some 40% over the last decade. German energy giant E.On, for example, has decided that the only course forward is to split itself into a “bad bank” (fossil fuel) and “good bank” (clean energy). The Wellcome Trust has reportedly lost £175 million on fossil fuels and the two major US pension funds CalPERS and CalSTRS have apparently lost $5bn on fossil fuel investments.
Now that the clean energy sector is achieving both cost competitiveness and economies of scale, ignorance is no longer an option for energy incumbents. With their business models threatened by disruption their instinct now seems to be to fight the inevitable and vainly hold onto the status quo. Is this the reason for the sudden roll-back in policy support? The energy incumbents still have money and political power whereas the emerging players remain fragmented, have yet to organize and may therefore be vulnerable.
Somewhat ironically, we saw this a little over a century ago when the emergence of the automobile threatened the incumbency of both the powerful steam railways and horse and carriage businesses. They chose to fight. For example they raised fears regarding the safety of automobiles and lobbied for strict safety laws.
Sound familiar? In the UK and some US states this resulted in the so called “red flag” laws. In the UK between 1865 and 1896 if you owned an automobile you had to employ a man (sadly in those less enlightened days it invariably was a man) to walk in front of your car with a red flag to alert pedestrians to the danger. In one US state the lobbying was so successful that the state legislature voted to pass a bill requiring anyone driving an automobile who came across livestock to stop, turn off the vehicle, dismount, dismantle the vehicle, and hide the components behind nearby vegetation until the livestock had passed. Thank-goodness the governor saw sense and vetoed the bill!
Almost none of these incumbents seem to have tried to transform their business models to manufacture automobiles or consider how to provide supportive infrastructure and capitalize on the technological transition. While they still had money and power they chose instead to spend millions developing better steam locomotives and fighting the energy and mobility revolution going on around them. An early example of wasted capex and stranded assets perhaps? They lobbied to delay the inevitable and continue as if the world was not changing. As a result many of these companies have ceased to exist. With hindsight this seems like a bad business decision. However, they likely delayed both the rise of the automobile and the subsequent oil boom by years. Yet once the combustion engine was universally accepted creating a huge new market for the underutilized resource – until the 1901 Texas oil boom, oil was used primarily for lamps and lubrication – there was no turning back.
Are we now seeing the modern day equivalent of the “red flag” laws with regards to the technological transition to clean energy? Are fossil fuel-based energy incumbents (like the steam and horse and carriage industries before them) lobbying around the world to delay progress and tilt the playing field even further in their favour?
In the UK we have seen the big six energy companies lobbying in respect of “capacity markets”, feed in tariffs and to exclude support for community projects. We have also seen a government budget that appears ideologically driven and designed to undercut the rapid advancements in clean energy just as this sector is beginning to really take off. Coincidence?
At the EU level since 2011 and across European Member States it is reported that incumbents are keeping lobbyists busy trying to derail the advance of clean energy, arguing against renewable energy targets and support mechanisms.
In the US President Obama has called out such lobbying by the fossil fuel industry saying that it is not the American way to inhibit technological innovation and advances. And he is right to do so as there is an apparent push back across multiple US states that are seeking to strangle both clean energy and energy freedom with, for example, calls for additional charges for customers who install rooftop solar. Such lobbying is taking place in Arizona, Colorado, Dakota, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Minnesota, Missouri, Montana, Nevada, North Carolina, Ohio, Oregon, Washington, Texas, Utah and Virginia.
Further afield examples of the force of the incumbent lobbying push back can be found in Australia and Japan..
As the automobile finally emerged as a true technological competitor to the railways and horse drawn carriages it was a very fragmented industry. There was yet no Royal Automobile Club, Automobile Association or Motor Manufacturers Association. The fledgling industry was a sitting duck for the push back that came their way. However, over time it became organized. Local enthusiast groups joined forces and slowly but surely the political power shifted.
If things follow their natural course it is inevitable that today’s clean energy and clean tech industry will slowly but surely rise into the ascendency and political power will shift. Yet in the meantime (as we may already be witnessing) the incumbents will use all their political power to delay that day. They will muddy the waters. They may even appear conciliatory and talk about energy transitions. All designed as a smoke screen to delay the energy transformation clean energy will give us. In normal circumstances that would not be a problem.
But the crux of the matter is that we simply cannot afford to delay. Such a delay in the context of climate change and the risk of stranded assets is potentially disastrous. In the best case scenario it means trillions will be wasted on high carbon infrastructure creating stranded assets and destroying value. In the worse case it will in addition condemn us and future generations to catastrophic and irreversible climate change.
In the US we see a renewables and clean tech industry of a comparable size to the US aviation or pharmaceuticals industries. Yet it is reported that renewables and clean tech spend a fraction of what those industries spend on trade associations, public representation and yes lobbying, and much, much, less than the energy incumbents. At times it often appears that the green NGOs are filling the void as the default clean energy trade associations. Arguments for renewables would be considerably more powerful coming from business rather than green NGOs. In conversation with an EU politician in Brussels I was told that for every renewables or clean tech representative who comes to see them to make their case they are approached by eight from the incumbency, Another politicians I spoke with wondered if the new industries might be ‘scared’? I do not believe they are scared. Like any new emerging industry it takes time to become organized and learn the rules of the game.
It is therefore imperative that at this time of greatest vulnerability that the emerging clean energy industry recognizes this threat and organizes accordingly. It is imperative there is a powerful business voice for the industry. Green NGOs do a good job but the center right will take far more notice if the arguments come from business groups. Its many fragmented trade associations must either merge or learn to work together for a common objective. The industry itself must understand the value of ensuring these representative bodies are properly funded and attract the best talent with experience to rival the incumbents. Poach the best from the incumbency if needs be?
If they do not it will certainly not be the end of the industry. The clean energy genie is well and truly out of the bag. Borrowing the words of Gandhi renewables will win in the end but it will take longer, using up precious time and a carbon budget that is quickly running out.
Anthony Hobley, CEO of the Carbon Tracker Initiative