With promising milestones on the horizon for climate change and the development agenda this year, much of the discussion among public and private sector leaders at the World Economic Forum 2015 Annual Meeting focused on the role of energy in transforming our growth model. Four days in Davos lead me to four conclusions on the state of play of climate change and energy:
1- Maturity of renewables
Solar and wind are no longer marginal energy technologies. Investment is increasing, reaching US$312 billion in 2014, up 16% from 2013. Costs are steadily decreasing. The new record was just set a few weeks ago as the Dubai Electricity & Water Authority closed a tender for 100 MW of solar at 5.98 cents per kWh, offered by Saudi conglomerate ACWA. Perhaps even more impressive is the fact that this is part of a larger, planned 1,000 MW solar installation. Storage technology is quickly advancing and integration into the grid is now better understood. The rate of increase in installed solar and wind power has not been linear but, rather, exponential over the last three years and the trend will continue. The drop in oil prices has not had a major effect on renewables. This is not so much because the direct competition is gas and not oil, but because renewables are increasingly valued as a zero cost energy source as compared to permanently volatile fossil fuel prices.
2- A moment of truth for fossil fuels
The drop in oil price is a clarion call for fossil fuel companies as it prices more expensive oil such as tar sands, deepwater and Arctic projects out of the market. The press has reported at least five major oil companies retreating from high cost projects over the past month. The latest victims are several concessions for Arctic exploration which were returned to Greenland last week. The risk of stranded assets is no longer an academic discussion, but a shareholder reality. In addition, some countries that subsidize fossil fuels are taking advantage of the drop in prices to decrease or eliminate subsidies, channeling the budget savings into other social needs. By the time the oil price recovers and finds itself unsubsidized, it will have a hard time competing with decreasing solar and wind prices. Already last year the fossil free stock index known as FFIUS outperformed the S&P 500 by 1.5%. We could be facing a "Kodak moment" in the oil and gas industry, and only those companies that realize the tide is turning will be able to execute an orderly and profitable transition.
3- Corporate leadership
An increasing number of corporations are waking up to both the threat of unbridled climate change as well as to the opportunities afforded by the low-carbon economy. In pursuit of transforming their own company and/or sector, many corporations are redirecting themselves toward low-carbon or zero-carbon operations in the understanding that the transformation is by now inevitable and that first movers have the advantage. Additionally, they want to encourage international policy development. In September of last year, more than 1000 companies and 70 governments called for a price on carbon. In Davos just last week, the B Team announced its initiative for 1000 companies to call for an intergovernmental directional signal of net zero emissions by 2050. Corporations are increasingly leading the charge.
4- The gateway effect
As in other fora, much was discussed in Davos about the relationship between climate change and sustainable development. What is clear is that these are inextricably related. The fact is that unless we are able to address climate change in a timely manner, all development gains will be under constant economic and social threat due to the increasing frequency and intensity of natural disasters that can easily wipe out extended areas of living space, infrastructure and crop lands. From the climate change perspective, this type of vulnerability is in part recognized as the urgent need for resilience. Greenhouse gas mitigation policies and technologies can therefore be seen as the necessary "gateway" to development that is sustainable in the long run. Passing through that gateway is the only way to avoid a self-destructive developmental lock-in, with impacts that go way beyond the technological lock-in we usually consider. What makes passing through the gateway a good investment and not a burden is the fact that most of the measures undertaken to address climate change--renewable energy, energy efficiency, smart agriculture, smart transportation, etc.--contribute not only to greenhouse gas management but are, at the same time, sustainable development contributions toward increased energy, food and water security, as well as toward better public health.
In conclusion: Davos 2015 accelerated the understanding of the economic desirability and the technical ability to meet the climate challenge. The alpine village was intensely cold, but the sun was shining and the mountains shone majestically calling us all to new heights of understanding and effort. I met with CEOs of the leading energy, cement, automotive, air transportation and consumer goods companies. I met with major philanthropists, investors, and multilateral financial institutions. I met with activists, entrepreneurs and think tanks. From all corners I heard increased commitment to action in this critical year and beyond. I left Davos knowing that the future will not be constrained by the past, and that the present is being catalyzed by the promising potential of the future. A good place to be as we journey toward Paris COP21.