The world needs to transform tens of trillions of dollars in energy infrastructure by midcentury to decarbonize the global economy and move away from fossil fuels, and a good portion of the existing assets can be repurposed to carry or accommodate low-carbon energy.

“How do we reconcile any new capital investments in energy infrastructure that need to be aligned with net-zero [emissions] with the reality that today’s energy system is very far from that, as energy shortages across Europe and Asia are reminding us acutely?” Jason Bordoff, director of Columbia University’s Center on Global Energy Policy, asked during a webinar the center hosted Monday.

Even if all the necessary solar panels and wind turbines were installed tomorrow, it would still not be enough to achieve net zero because there are very significant parts of the economy that cannot be easily or affordably electrified with current or even short-term future technology, said Maarten Wetselaar, director for integrated gas, renewables and energy solutions at Royal Dutch Shell.

“Think about the production of steel and cement or petrochemicals where you need a molecule to start with, but also to be transported by planes and ships and heavy trucks,” Wetselaar said. “Certainly advanced biofuels and hydrogen will be playing a crucial role in those sectors in the future, but they’re not sufficiently available yet. It will take time to scale up their production to become a meaningful part of the energy mix.”

Clockwise from top left: Jason Bordoff, CGEP; Maarten Wetselaar, Royal Dutch Shell; Melanie Kenderdine, Energy Futures Initiative; Maria Elena Drew, T. Rowe Price; and Demetrios Papathanasiou, World Bank | CGEP

Bordoff asked him to respond to the skepticism — which he suspected some viewers had — that there’s some degree of “greenwashing going on when we hear people in the energy sector” talk about needing to keep investing in pipelines and to take time in transitioning away from fossil fuels.

If society in the coming decade puts all the money available to be invested into creating clean energy, there’s likely to be a deficit of energy required for consumption, Wetselaar said.

“We need to thread the needle of producing just enough of today’s energy so the world can continue to turn,” Wetselaar said. “You can’t stop investing in oil and gas, because it will decline 5% per year, and the world is not ready with alternatives because the size of the global energy system is just so large it will take more time than that.”

Natural gas is going to be a very important transition fuel, said Maria Elena Drew, director of research at T. Rowe Price. “If we think about a just transition, it’s pretty critical that we have natural gas; otherwise it’s going to be tough to keep the lights on; it’s going to be tough for politicians to stay in office and to put policies in place for the energy transition.”

Costly Coal

The developing world accounts for about 93% of the capital invested in coal-fired power generation, which risks being stranded. So, to eliminate all the emissions from today’s roughly 2,100 GW of coal units by 2040 requires closing one plant a day, said Demetrios Papathanasiou, director of the World Bank’s Energy and Extractives Global Practice.

“Of course, China and India are among the major countries where these figures are very important,” Papathanasiou said. The value of these stranded assets in terms of GDP ranges between 2 and 10% of GDP, “very high numbers” amid a global pandemic, he said.

“There’s still about $15 trillion in assets and bonds that are earning a negative return. … Even my home country Greece, which is notorious for its difficulties on the macro side, [managed] a few months back for short-term debt to get a negative interest rate,” Papathanasiou said. “That shows that we live in a very special time; we have enormous financial needs, and there are significant unprecedented events that are taking place in financial markets.”

For coal plants in India and China, the land that surrounds a plant has very significant value, Papathanasiou said. “There is even significant value in the scrap metal if you decide to take everything down and sell it off as scrap.”

An unidentified participant asked whether an aggressive carbon price would enable needed changes to infrastructure.

“One of the challenges we’ve seen as investors, and one of the easiest things for regulators to do, is to drive more sustainable finance,” Drew said. “Seeing more action from regulators would help because, if you think we’re moving to a net-zero world, we as investors are going to anticipate that in our investments, but if the regulation isn’t coming, we’re going to end up being wrong.”

The electrification of everything and its contribution to deep decarbonization depends on how you’re generating your electricity, said Melanie Kenderdine of Energy Futures Initiative. In the Pacific region of the U.S., the Energy Information Administration now considers hydropower as a non-dispatchable energy resource because of drought. “Electrification is a good policy if you’re not then running your home heating on coal,” she said.