Market abandoning fossil fuels, says Adnan Amin

Global financial markets are abandoning major fossil fuel projects because they are afraid of stranding multibillion-dollar investments, says the head of an intergovernmental renewable energy partnership.

In a wide-ranging interview with National Observer, Adnan Amin, the director general of the International Renewable Energy Agency (IRENA), said that development of major fossil fuel projects such as pipelines will ultimately harm the operators since renewable power is becoming more attractive to consumers and businesses.

And he said that any government that wants to approve or support such a project must "think carefully" about the consequences if it becomes obsolete before the end of its useful life.

"The question the government needs to ask itself is if you are using taxpayer resources to subsidize fossil fuel infrastructure for the future, is that a wise investment given the fact that this may end up as a stranded asset?" he asked.

"I think if we go with the logic of economics, (building a new pipeline) it will harm the (operators of) pipelines in the longer term, because when you invest in a pipeline, it’s a 30 year investment — amortization takes place over decades... So, any decision maker who’s making a decision today on fossil fuel infrastructure which is going to be amortized over two or three decades, needs to think very carefully about whether that’s going to end up as a stranded asset."

IRENA is an intergovernmental organization founded in 2009. It's based in Abu Dhabi in the United Arab Emirates — an oil-producing nation — and has more than 170 member countries dedicated to promoting and supporting the world's transition to clean energy. The United States is an active member of IRENA, but Amin said he was still waiting for Canada to make a decision about joining the agency after a few conversations with federal Natural Resources Minister Jim Carr.

Amin, who has been described as the planet's ambassador for renewable energy, was interviewed Thursday at a downtown Vancouver hotel where he was attending a 'Renewable Cities' conference hosted by Simon Fraser University's Centre for Dialogue.

While Amin questioned the logic in building new pipelines, he said he understood that there were other factors at play in Canada.

"I know that there’s been a lot of discussion around the fact that certain pipeline projects have been approved, which people were expecting that with the new (Trudeau) administration wouldn't happen," he said. "But governments have to deal with real things like jobs, investment and economic growth. So having said that, I still think that the messaging coming out of the (Trudeau) government is positive for low carbon energy."

Amin also praised Vancouver Mayor Gregor Robertson and other municipal leaders who are implementing aggressive policies to reduce or eliminate carbon pollution from transportation and buildings.

"I think those are (delivering) the messages to the market, that, once they accumulate, become real drivers of investment and the direction of the energy transition," he said. "... And we need to support foresighted cities like Vancouver who are taking these measures which are still at the leading edge of what’s happening."

Members of the Trudeau government have notably said that Canada is "back" on the international stage in efforts to fight climate change, through policies that create jobs and protect the environment at the same time. Earlier this week, Environment and Climate Change Minister Catherine McKenna also introduced details of the government's proposal to make polluters pay for carbon emissions.

While noting the Trudeau government is promoting clean energy, Amin underlined findings in a recent IRENA report that Canada lags behind many other countries when it comes to action encouraging renewable energy.

"In Canada, we feel that there is a lot of potential of doing more, but the policy construct of how we’re going to get there is not yet very clear," Amin said.

Carr's office referred questions to his department which told National Observer in an emailed statement that Canada was still reviewing "potential" membership in IRENA to advance its strategy to fight climate change while promoting clean growth and jobs.

In the interview, Amin also said that the U.S. has a vibrant market for renewables, and that he believed U.S. President Donald Trump's administration would support the industry because of the strong business case for clean energy.

"I think the current administration is led by someone who is very much oriented toward business," Amin said. "And if the business case is strong, I see no reason why it shouldn't continue to be strong in the U.S."

Merran Smith, executive director of Clean Energy Canada — a research group housed out of Simon Fraser University — said that Amin's message highlights what has been missing in Canadian debates about the transition to renewable energy.

"The narrative in Canada is pretty stuck on the oil and gas economy and that the transition to renewable energy and to electricity to power cars and industry is going to be a slow transition," Smith said in a separate interview. "Whereas, Mr. Amin and the facts are showing that this transition is happening far faster than people expected."

Smith, who also spoke with Amin on stage at the "Renewable Cities" conference, noted that Canada has many companies that could benefit from growth in renewable energy, including in the mining sector.

"So Canadians need to understand that clean energy is the energy of the future and we actually have great opportunities to benefit from that with jobs and business development," she said. "Canada needs to focus on the opportunities."

Here's is an edited transcript of National Observer's interview with Adnan Amin:

What did IRENA mean when it said in a report last March that Canada and U.S. had rather conservative policy ambitions?

When you look around the world, you see a number of countries that have more ambitious renewable energy targets in place (and they) have policy frameworks that are much more enabling and have clear energy policy type of structures that are incentivizing different types of approaches to renewables. And in the U.S. and in Canada, it’s still very unclear. Under the Obama administration, they had an energy policy which was technology neutral, but which was open to everything. So there was no real sense of direction about whether they were incentivizing a low carbon energy future and how they were going to do it.

There was legislation around it, but there was no clear policy framework.

And I think it’s somewhat similar to the situation in Canada…

But the upside of this is that you have a very vibrant ecosystem of innovation and investment that’s happening in North America. In the U.S., that’s one of the fastest moving markets for renewable, last year. Some of the more iconic investments in wind and solar generation were in the United States.

In Canada, we feel that there is a lot of potential of doing more, but the policy construct of how we’re going to get there is not yet very clear.

Some people in Canada have criticized the current government here for saying the right things about renewable energy without backing it up with concrete policies. Do you think that’s fair criticism?

I think you have to understand that in a country that has achieved a level of prosperity from hydrocarbons, the transition to a low carbon future has some important economic repercussions. But (we’re) beginning to have good messaging from the (Trudeau) government, so I think that’s a very positive thing. How that is executed is really the issue and how you make a transition from a set of inherited decisions concerning investment in infrastructure in hydrocarbons to a more clean energy focus is going to be a very difficult transition.

And I know that there’s been a lot of discussion around the fact that certain pipeline projects have been approved, which people were expecting that with the new administration wouldn't happen. But governments have to deal with real things like jobs, investment and economic growth. So having said that, I still think that the messaging coming out of the government is positive for low carbon energy. I think what we really need to understand much more are what are the concrete pathways through which that can be achieved. We believe that the renewable energy part of the energy mix is not highlighted as much as it should be. Canada is very fortunate to have very low cost, very efficient hydro(electric) system. Hydro can be the backbone of the clean energy system for the future. Your electricity is already very clean. But the challenge in the future is what’s going to happen with energy in the end-use sectors and (whether) Canada has a very comprehensive approach to what the future of electricity is going to be. Because moving to a renewable energy future means moving to a future where electricity becomes the dominant form of energy and that we are innovative in what the modes of transmission and utilization of that clean energy is going to be.

One of recommendations from the federal government's National Energy Board modernization panel last week was to improve federal expertise on the transmission of electricity as pipelines become less important. Do you think this would be a step in the right direction?

Absolutely. I think that’s a very positive message because when you look around the world, we’re finding that in more and more countries, the economic case for renewable energy is very compelling. I met recently the minister of energy of India, Piyush Goyal, with whom we’ve had a long discussion about coal and powering India. He always had the position that his primary responsibility was to provide power to poor people in India and to Indian consumers and industry and that he needed to find the cheapest alternative to do that. And if coal was cheap, he was going to use it.

What we were telling him at the time was that the trajectory of cost reduction for renewables is what we’re seeing around the world and that he really should be thinking about the future in renewable terms.

So, when I last met him, it was just a few days after the last auction of utility scale solar PV (photovoltaic) in India, which came in at US$0.04/kwh. That puts solar PV competitive with coal. So I said to him, 'is this going to make a difference?'. And he said 'yes.' So, they’re very excited about it and you’re seeing that in more and more countries. The latest, lowest cost project was in Abu Dhabi recently which was below US$0.03/kWh. And we’re seeing this in Latin America, in Africa, in Asia, these are the costs that are coming in. And I think that’s going to make it a renewable future but we have to come to terms with what system we’re going to use for transmission of that energy and for the utilization of that energy. And that’s where regulation, financing and investment really has to come.

Can the approval of a pipeline project, whether it’s Donald Trump approving Keystone XL, or the pipelines that were approved here in Canada (Kinder Morgan and Enbridge), does it harm development or the emergence of renewables, when the government decides to approve a project like that?

I think if we go with the logic of economics, it will harm the pipelines in the longer term, because when you invest in a pipeline, it’s a 30 year investment — amortization takes place over decades. What we had been discussing in the decarbonization report, which we prepared in the G20 framework, is the fact that we’re seeing the prospect for more and more stranded assets in coal power generation, but also in fixed infrastructure like pipelines. So any decision maker who’s making a decision today on fossil fuel infrastructure which is going to be amortized over two or three decades, needs to think very carefully about whether that’s going to end up as a stranded asset.

Do you think this is why pipeline companies are calling out for financing and haven't been able to make final investment decisions on major projects? Is this the market speaking about the risks or the prospects for success?

Absolutely. We’re seeing more and more big investors, institutional capital becoming very risk averse on fossil fuel infrastructure. So I think that in terms of private capital that will come into this, it’s becoming more constrained space for fossil fuel infrastructure. The question the government needs to ask itself is if you are using taxpayer resources to subsidize fossil fuel infrastructure for the future, is that a wise investment given the fact that this may end up as a stranded asset?

Can you talk about how the Trump administration's new policies might affect the emergence of renewables?

What we’ve seen so far is that the renewables market in the U.S. was very vibrant last year. That was driven by the fact that the tax credits for renewables were extended for five years by the previous administration. So that’s the main impetus. You’re finding that renewables are cost-competitive in the grid in several states, including major Republican-dominated states. Somebody was telling me recently that they were listening to (Trump administration Energy Secretary) Rick Perry talking about energy and he kept talking about what great things they had done with wind energy in Texas. So I think that the U.S. at the base is very rational in economic terms, when they make investments. So I think that given the cost equation we’re seeing for renewables today, the business case for renewables is still strong in the U.S. I think the current administration is led by someone who is very much oriented toward business. And if the business case is strong, I see no reason why it shouldn't continue to be strong in the U.S.

What’s your message at this conference?

The first message is, being in Vancouver, which has taken such a leadership role under Mayor (Gregory) Robertson on the clean energy transition is that urban and regional actors are becoming more and more important in determining the direction of the energy transition. So when cities like Vancouver or much bigger cities than Vancouver, start to incentivize investments in clean energy, start to demand the procurement of renewable energy in their operations, start to create regulated frameworks for mobility that becomes cleaner for electric transportation, for energy efficiency in buildings, that starts to send messages to the market. And I think those are delivering messages to the market, that, once they accumulate, become real drivers of investment and the direction of the energy transition... And we need to support foresighted cities like Vancouver who are taking these measures which are still at the leading edge of what’s happening.

And Canada is not that different from others. Although Canada has not been so active in the international space in the last years, the fact is the issues that you are dealing with are very similar to issues that many other countries are dealing with. But I sense enthusiasm and energy for sustainability in Canada which is very encouraging. So I’m very happy to be here for that reason.

Are you meeting with anyone from the federal government in Canada during this trip?

No. We’re still waiting for Canada to join the agency. I’ve met Jim Carr a few times. I’ve had wonderful conversations with him. I think he’s an important leader in this space. He gave me some encouraging signals. I’m hoping that he’ll come through on those.

Editor's note: This article was updated at 4 p.m. PT with new comments from Merran Smith, executive director of Clean Energy Canada.