While the climate change agreement at Kyoto took nearly a decade to achieve binding status for ratifying countries, l’Accord de Paris (nearly) accomplished this feat in a mere 10 months. As Executive goes to print, 61 countries have adopted the Paris Agreement, covering some 48 percent of global carbon dioxide (CO2) emissions, as the one-year anniversary of the agreement nears. The double threshold for the treaty to enter force requires at least 55 signatory countries that produce a combined 55 percent of the world’s emissions – very close but not quite there.
More promising – and a demonstration that the climate change deal agreed to at Paris is different, and gaining momentum moving forward – is that the world’s two biggest economies, the United States and China, also the two biggest emitters of greenhouse gases, agreed to ratify the treaty in front of the world’s other leading economies at September’s China-hosted G20 meeting.
That momentum at the global level has arguably already trickled down. In late August, the Lebanese government decree #3987 ratified the Paris Agreement, agreeing to targeted reductions in carbon emissions that it will have to reach once parliament formalizes the decree into local law. To follow through on its Paris promise will require Lebanon to make major structural changes to many of the services offered by the public sector. More immediately, the different stakeholders will need to improve data collection, and the transparency of that data, to measure emission reductions and quantify the costs of those reductions.
A long time coming
It took more than 20 years to get the world’s biggest carbon emitters to agree to a reduction, with schemes for project finance in developing countries being the biggest hurdle to overcome. The Paris Agreement abandoned earlier ideas of a formal carbon market, whereby big emitters could fund projects in far-flung parts of the world to avoid actual emission reductions at home, and instead put forth the notion of collective responsibility.
Part of the reason that Kyoto fell short was when it came time to talk money. In the Paris Agreement there is no longer a stark distinction between richer and poorer nations. Wealthy economies, like the United States and the European Union, have promised to channel at least $100 billion per year to help developing countries mitigate climate change.
[pullquote]In the Paris Agreement there is no longer a stark distinction between richer and poorer nations[/pullquote]
The annual $100 billion pledge will work to narrow the gap between countries’ ability to invest in emission-reducing technology, like renewables and energy efficient projects. Investment will come from the financial community too. More and more financial institutions are recognizing the threats posed to business by climate change and also its commercial opportunities, the United Nations found ahead of Paris. Before last year’s conference, the United Nations reported that “portfolio decarbonization is on track”, and insisted that “measuring assets’ carbon footprint must become common practice.”
The cash pledged and initiatives by private financiers incentivizes countries to reduce emissions and pushes them to kickstart local investment. The price per ton of emission reduced is most salient to the international donors because to them it doesn’t matter where in the world reductions occur as long as it’s done at competitive costs. To donors the impact of their funding will be the same globally whether a ton of carbon is no longer being emitted in Lebanon or elsewhere. So in this sense the importance of data on how money is being spent – it’s efficacy in other words – and accurate reporting of emission reductions, cannot be underemphasized.
Can solar plug the gap?
When it comes to the solar photovoltaic (PV) megawatts that Lebanon says it has or plans to install, we get one number that seems to be inflated, a rosy projection for 2016 and no information on what those megawatts mean in terms of emissions reduced. If that’s the criteria, then Lebanon is doing a poor job.
Pierre Khoury of the Lebanese Center for Energy Conservation, a public institution under the tutelage of the Ministry of Energy and Water, told Executive in August 2015 that Lebanon would install 15 megawatts of solar by the end of 2015, and in December 2015 wrote in an op-ed for Executive that the country had by the end of 2015 already installed “around 20 megawatts (MW) of solar photovoltaic systems”, while promising to install another 50 megawatts in 2016. He didn’t mention the cost, or the carbon offset.
Those figures are exciting but in reality are inflated, according to a report published by the United Nations Development Programme’s (UNDP) Small Decentralized Renewable Energy Power Generation (DREG) Project that was presented at the annual Beirut Energy Forum late last month. By the end of last year Lebanon had actually installed only 9.45 megawatts. With each passing year, solar technology costs have declined. Last year resulted in $2 million in savings for the operators of PV systems off $15 million invested with operating costs falling as low as $0.06 per kilowatt hour, says the UNDP’s Jil Amine. The estimated emissions savings from all solar PV projects in Lebanon, the UNDP report points out, reached 6,000 tons of CO2 in 2015 at a cost of $87 per ton reduced.
Until recent years the technologies to reduce carbon emissions, like photovoltaic, were too expensive for companies to install and operate – it just didn’t make business sense. For solar power generation those costs are now competitive with traditional power sources such as coal or natural gas powered electricity generation and, for Lebanon, are in the long run much cheaper than diesel powered private generators that have filled the gap in electricity demand that Lebanon’s public utility, Electricite du Liban (EdL), has long failed to provide.
[pullquote]For solar power generation, those costs are now competitive with traditional power sources such as coal or natural gas[/pullquote]
But for electricity generation, at the national level, solar is not reducing carbon emissions because of the large gap in EdL-supplied electricity. The electricity grid needs a major fix and since it is not distributing 24-hour electricity anyway, the cleaner electricity generated by renewables cannot displace more expensive and dirtier electricity produced by private generators that many homes and businesses connect to off grid. The electricity sector demands reform, but, as it stands now, there is simply no will. Without a restructuring, foreign donors will have zero appetite for fixing the grid, and private investors see no upside in pouring money into the bankrupt utility.
“Renewables make more sense than anything else. We’ve been developing the benefits of going renewable on the macroeconomic scale, primarily because of the $2 billion in [subsidies to EdL for] fuel costs – so imagine investing that money in renewables in one year. You can’t integrate [renewable-generated electricity] into the grid because it is weak, so you need to invest in the grid first and no one wants to invest in a bankrupt utility. And that’s where we are; a sort of chicken and egg thing,” says the Ministry of Environment’s climate change lead, Vahakn Kabakian. With no net-metering scheme (a billing mechanism crediting renewable energy providers for feeding electricity into the public grid) private financiers will resist funding large-scale renewables.
To kickstart a local market the central bank last year promised up to $1 billion for productive sectors of the Lebanese economy, including sustainable energy: that is, renewables plus energy efficiency features found in green buildings. Khoury had forecasted in last December’s op-ed that between 2011 and 2015 “the overall direct investments in renewable energy, energy efficiency and green buildings in Lebanon exceeded $450 million.” But neither the government nor the central bank has been forthcoming in saying where exactly this money went and what effect, in terms of the reduction price per ton of emission, it’s had toward Lebanon’s climate change targets.
Lebanese businesses have the option of getting subsidized loans to finance renewables and energy efficiency projects through low interest rate loans distributed by commercial banks – a funding mechanism known as the National Energy Efficiency and Renewable Energy Action (NEEREA). The money comes from a portion of reserves that commercial banks are already required to hold with the central bank for issues of liquidity.
Khoury wrote in the op-ed that “NEEREA alone has financed more than $350 million worth of investments in sustainable energy projects between 2012 and 2015.” The UNDP report also highlighted the important role that the funding mechanism has played in spurring renewable and energy efficiency projects, noting investment’s “exponential growth starting in 2012-2013 and carrying forward.”
Some businesses are finding the cost savings of solar rooftop installations so attractive that they’re willing to forego the subsidized financing to avoid the lengthy application process. The evidence however is anecdotal and the central bank, which presumably compiles data on NEEREA loans, has not agreed to hand over this data to Executive or even grant an interview on the subject. Nevertheless anecdotes that factory-owners are foregoing the subsidized money is both a promising sign for local momentum and an indication that solar, at least, is saving money for some Lebanese businesses in energy intensive sectors, like manufacturing. For those businesses the cost of supplementary electricity supply via pollution belching diesel generators is now more expensive (sometimes as high as $0.30 per kilowatt hour) than solar energy over a 20-year period.
A need for investment data
Of the more than $350 million that NEEREA is said to have channeled into renewables and energy efficiency between 2012 and 2015, solar photovoltaic (the installed megawatts that the government was inflating) reached only $30.5 million cumulatively since 2010, according to the UNDP report. In large part, the small amount of money put toward solar may be due to the legal obstacles blocking its scalability and because of the political and financial risks in reforming the electricity sector. Then again, the limited use of NEEREA funding for solar may suggest that energy efficiency projects are crowding out more worthy emission reduction investments, surely a microeconomic point at this stage but a question worth asking.
The liquidity reserves freed up for commercial banks to use for NEEREA-qualifying projects are loaned at attractive rates, less than one percent interest, so for banks the incentive to fund small solar projects may be less appetizing than for larger-scale energy efficient green buildings. Rather than dealing with a bunch of smaller loans for photovoltaic installations, the banks might eye higher profits by loaning out larger sums of money to real estate developers promising home and office buyers smart features that reduce a building’s carbon footprint.
[pullquote]“Most green buildings are expensive luxury developments, so who is benefiting? In terms of money, the developer.”[/pullquote]
Green buildings they certainly are when meeting standards of construction, but Lebanon has no building code that is environmentally-specific so developers are not really accountable to what they might call “green” benchmarks (The Daily Star reported in September that the government is preparing green building standards). As one conference attendee reasoned to Executive on the sidelines of last month’s energy forum: “Most green buildings are expensive luxury developments, so who is benefiting? In terms of money, the developer. They’re not reducing their costs because they have a low interest loan of $10 million. If you want to throw around money to say you’re supporting green building construction, obviously the banks are doing that. But when it comes to CO2 reduction, who is checking?”
A boom in green building in the short-to-medium term might be too much of a good thing because of the market absorption capacity for those buildings. But with no clear economic indicators on the energy saving potential of green buildings and value potential, it might mean Lebanon has oversupply coupled with uncertain demand. It might also mean that more worthwhile projects are being crowded out from accessing subsidized financing – but this can’t be verified as the data is not available.
The positive effect may still be considerable because testing the green building proposition helps people understand that green buildings have a benefit, just one that has yet to be quantified. In this sense, there are three elements to the business equation: job creation, capacity building in the future oriented market and actual savings in terms of making energy efficiency translate into business efficiency. For the first two, indications are that this is viable but on the third we still need to get the actual quantification to measure the efficacy of spending on energy efficiency and green buildings to put a dollar figure on emission reduction. The lack of data begs the question: is it really green?