When subsidies are not on the level

Adnan Amin, the director general of the International Renewable Energy Agency, talks to The National about the global economy and how subsidies for fossil fuels are hurting solar.

Adnan Amin, the head of Irena, says it is important the issue of government subsidies is addressed to create a more even playing field. Rich-Joseph Facun / The National
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Half a trillion dollars is the yearly bill governments are paying to support fossil fuels through subsidies and tax breaks, according to a study by the Organisation for Economic Co-operation and Development (OECD). That is a challenge for the UN's youngest agency, which promotes the adoption of renewables from its headquarters in Abu Dhabi and a research centre inaugurated this week in Bonn, Germany.

Adnan Amin, the director general of the International Renewable Energy Agency (Irena), spoke to The National about the world's economic troubles and how to advance clean technology from a base in the world's fourth-biggest oil exporter.

Are the high oil prices we've seen this year good for renewables?

Everybody talks about the end of cheap oil. We're getting to the point where oil is not a resource that we're going to see priced in the way that it has been in the past.

The real issue is part of a broader global economic picture. We have a global economy that is suffering serious dislocation right now. We have serious disequilibrium in many mature economies. Part of the driver of economic growth is energy, and oil has been part of that equation. With the high prices that we see for oil twinned with the massive subsidies that are going on for oil and coal, we see a kind of market distortion that is preventing the optimal allocation of resources.

Do renewables also need government subsidies?

I think that in the beginning it's necessary. The difference between renewables and hydrocarbons is that when people cost energy investments based on hydrocarbons, they just look at the plant. But the real cost of operating that plant is going to be the cost of fuel over time. With renewable energy projects, the entire capital cost comes at the time of installation because there's no fuel cost on the line.

The fact is, however, that subsidies for renewable energy are dwarfed - absolutely dwarfed - by subsidies to fossil fuels and to nuclear. It is a completely uneven playing field with regard to subsidies. I think it's urgent to address subsidies to correct market distortions. We need to bear in mind with renewables that there are broader global regional and national benefits.

Abu Dhabi is said to have tremendous potential for solar - why aren't we seeing more of it?

Abu Dhabi is a very specific environment, because it's an oil-producing country, and hydrocarbon consumption is very heavily subsidised domestically. So in a highly subsidised environment like that, solar [technology] is uneconomical. In other countries it's almost at price parity with oil.

What is needed to push solar forward?

Places where there is the highest potential for solar are also countries that happen to be in the developing world. Many developing countries lack the kind of knowledge resources they need. They lack the kind of access to technology and information that they need. They lack the institutional structures that they need to usher in this kind of transition, and they lack the kind of trained manpower.

Large-scale uptake of solar is going to be driven by private investment, it's not going to be driven by the government. So the whole issue is: can these governments create enabling environments that are sufficiently attractive and secure for investment to really begin to up-scale solar? That hasn't happened yet, and part of our mission is to help this transition.

Despite all the economic uncertainties that we're seeing out there, there are large concentrations of finance capital looking for outlets. If you see the amount of investment going into some of these emerging countries, it's quite stunning. That capital is looking for venues that provide good return, but provide some level of security for the investment. The secret is how do we get all these ingredients right, and if we do, then it's only a matter of time before we see huge escalation.

Does Irena support carbon capture and storage (CCS)?

While CCS I think is necessary for climate change abatement, essentially its character is dealing with a waste disposal problem - if you allow me to put it like that - rather than a life-cycle issue.

I think the real challenge is how do we get carbon out of the atmosphere through changing our energy system, rather than trying to capture carbon and store it. That may be good in the short term, but we need longer-term approaches to this.

Is renewable energy all that environmentally friendly, given the materials, land and energy that are required to manufacture and install devices such as wind turbines?

Any industrial activity has its environmental consequences. Everything does. It's not going to be created out of the smoke. There has to be energy expended, there have to be raw materials gathered, there has to be mining that takes place for materials and so on.

What we can say is that there is a tremendous amount of exaggeration about the environmental impact of the renewables industry. That's particularly the case with respect to wind. There's a sense that these huge wind farms are going to take over everything. It's a huge overstatement of that problem. I visited some of the plants. I personally feel there's a relatively small footprint involved in the manufacture and distribution.

If you take solar, solar installations are usually in areas of very high solar irradiation, which also happen to be quite arid. It's not as if they're displacing agricultural land. And we're increasingly seeing innovative ideas on the placement for solar installations - for example in reservoirs or dams where not only do they not take up any land, but they also prevent evaporation of water from the dam.

It would be naive to say that there's no environmental effect at all. What I can say is that the negative impact has been overstated. I don't think it's as bad as has been stated by some commentators especially from some industries. But what I can say is that the overall environmental benefit of renewable energy far outweighs its environmental consequences.

How do you see Irena's relationship with the private sector?

It's going to be the private sector that provides the technology, and it's going to be the private sector that provides finance and investment. The role of government is going to be ensuring that the right frameworks are in place both for accountability as well as to provide an enabling framework for this to happen.

We have to create new ways of bringing the private sector to the table with governments almost in an equal way in Irena. It is very clear the private sector knows what it needs. It is in government really where the lag is.

What is Irena doing to get governments to give up fossil-fuel subsidies?

Well, we're not lobbyists. What we do is we make it clear what in our opinion is the impact of fossil-fuel subsidies, both in terms of misallocation of resources for optimal economic performance, but also from the distortion of the development of a rational clean energy system for the future.

Clearly the elimination of subsidies will have, in the short term, economic casualties. But over time, I think if you have the correct price and market signals in place without the distortions that the subsidies bring to it, you will have the development of an energy system that's really responding to the right conditions.

You're here in Abu Dhabi, and Abu Dhabi has thrown its support behind Irena. Do you think they'll come to support that view?

Listen - for an oil producer that heavily subsidises its domestic production, it makes more sense for them to export their oil than to use it domestically. I see an absolutely compelling case for investment in renewable energy in Abu Dhabi, because it would be cheaper than oil consumption in Abu Dhabi because consumption is so heavily subsidised. You're forgoing the income that you'd be getting from that.

The Abu Dhabi Government is very smart strategically about the future economic rationale, and I think they see the situation quite clearly in terms of where the fossil-fuel economy for the future is going, which is why they're doing all this investment in Masdar City, in renewable energy, in the World Future Energy Summit - I don't think that's a coincidence.