Breaking the bottleneck

July 12, 2023
Bottleneck ahoy!

In the U.S., Europe, Australia and the UK, the “forgotten giant of decarbonization and net zero”, grid infrastructures, have become a major obstacle to the rollout of renewable energy projects. Renewable energy developers are faced with connection queues of up to 15 years, large backlogs and high withdrawal rates. Only 21% of the projects and 14% of capacity seeking connection from 2000-2017 reached commercial operation. An estimated 80mn kilometers of new grid – surpassing the entire global grid today – will be needed to respond to demands by 2050. Despite the bottleneck ahead, clean energy demands are surging, partly due to net-zero pledges, new investment opportunities, and a growing appetite for transforming the energy system, largely due to state-led initiatives relying on market mechanisms. Hopeful about these initiatives, analysts recently celebrated the return of industrial policy (did it ever leave?) and economist Dani Rodrik gladly welcomed “productivism” – a new model of growth focused on good quality jobs, appropriate technology, and support for local supply chains. Yet from an environmental point of view, critics remain skeptical of whether subsidies and tax incentives can create sufficient impetus for private businesses to meaningfully redirect investment to where it is actually needed for decarbonization.

No guarantees

Consider the Inflation Reduction Act (IRA), signed in August 2022 by U.S. president Joe Biden. The act allocates $369bn to spending and uncapped tax incentives: the IRA makes the largest climate and energy investment in American history. The IRA is designed to state-direct the scaling of private investment in green sectors. But can market coordination alone lead America’s decarbonization? The investments needed to decarbonize our systems are fundamentally asynchronous with expenditure cycles, profitability margins, and capital depreciations. Asset-manager-led investments might not be able to coordinate the transition without first succumbing to profit imperatives and liquidity preferences, taking us back to the structural underinvestment we’re stuck at today.

Burning questions
  • Is an industrial policy approach suitable for today’s macroeconomic environment?
  • What sort of public institutions could be designed to foster decarbonization?
  • How could the IRA’s domestic content requirements impact Chinese-U.S. relations?
  • Albeit with reasonable judgement, the EU has framed America’s industrial policy approach as a zero-sum competition towards building green industrial capacity. Should green transitions be bound by nation-state strategies? Or could we see grids being built beyond borders?
  • What type of entity/coordination mechanism would be necessary for the transition to happen on a global level, and not just in the rich global north? Multilateral development banks? Non-profits

About the author(s)

With a background in Philosophy, Politics and Economics and a Master’s in History, Martine Dirkzwager Wu is intrigued by researching what the new conditions for the Humanities are in the age of the Anthropocene. In trying to understand a fundamentally unintelligible world, her thought process aims to be as critical as creative. She celebrates an era of post-truth in which knowledge can be traced through academic, but also natural and artistic networks.

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