The policy could accelerate clean energy. They can also slow it down.

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In the global transition to low-emission fuels, politics is a big part of both the solution and the problem.

Decarbonization is shaping up to be the next industrial revolution – a massive shift that will cause some industries to decline and others to rise, creating both risks and opportunities for investors. Even though renewables are now often cheaper than burning fossil fuels, the time pressure imposed by global warming means that politics will be instrumental in making it happen.

The mess of these policies is once again coming to the fore as US lawmakers try to revive some of the clean energy initiatives included in President Biden’s failed Build Back Better bill.

Annual investment in physical assets will need to increase by $3.5 trillion to $9.2 trillion a year to decarbonize the global economy, according to estimates from consultancy McKinsey. Only a fraction of this sum will come from public sources, but the incentives, targets and regulations set by politicians strongly affect private investment, risks and returns.

Money is a sticking point in global climate change negotiations. As economists warn that limiting global warming to 1.5 degrees Celsius will cost many more billions than expected, the WSJ examines how the funds could be spent and who would pay. Illustration: Preston Jessee/WSJ

In the absence of a global carbon price – a political non-starter – well-designed national energy plans can be powerful ways to accelerate the transition by coordinating action and reducing investment risk. To reach the shared goal of net zero emissions by 2050, change must be at least twice as fast as when the world went from coal to oil in the last century.

However, elected leaders are encouraged to prioritize short-term partisan thinking and local issues. This is the opposite of the kind of coherent and interconnected planning needed.

Britain’s latest energy security plan, published last month, is a useful example. It contained much-needed initiatives to streamline offshore wind farm approvals and accelerate investments in energy efficiency. However, it has also focused too much on shiny new infrastructure projects to be built many years from now, while avoiding more contentious solutions that could be delivered much sooner.

There were headline-grabbing ambitions for up to eight new nuclear power stations, as well as funding for small nuclear reactors by British business icon Rolls Royce.

These will take years or even decades to begin producing power, if they occur at all. Britain’s new nuclear power stations have been a political hot potato for years.

Britain is also aiming to become the “Saudi Arabia of wind power” and is strengthening incentives for offshore turbines, including streamlining planning and permits, which is the main gripe of many developers. However, the plan did not include any significant incentive for onshore wind. Onshore wind turbines are relatively cheap and quick to build, but often face local opposition. The system could be simplified, but would inevitably imply limiting citizens’ right to object, a political strategy that is rarely a winning one.

In the US, where the energy transition is a much more partisan issue than in the UK, the politics are arguably even tougher. The upcoming midterm elections weigh heavily on the timing, content and approach of reviving one of the clean energy incentives in the failed Build Back Better bill. Even the name is verboten.

There are political ambitions to promote domestic production of solar panels, but they will take years to bear fruit. Meanwhile, a U.S. Commerce Department investigation threatening retroactive anti-dumping tariffs on solar panels made in Cambodia, Malaysia, Thailand and Vietnam has led to order delays and cancellations. It threatens projects and, ultimately, local installation jobs, causing the “rapid degeneration of America’s solar industry,” according to the Solar Energy Industries Association.

Yet there are signs of progress in other areas. One of the main bottlenecks is the approval of transmission lines: a record 1,400 gigawatts of total generation and storage capacity are currently seeking to be interconnected to the grid, more than the current American generation capacity of 1,200 gigawatts, according to a new paper from Berkeley Lab. The Federal Energy Regulatory Commission is currently working on a series of proposed rule changes to streamline transmission line approval processes.

“You can think of the grid as the interstate highway for electrons,” says former FERC chairman Norman Bay of Wilkie Farr & Gallagher. “Imagine what the national highway system would look like if the federal government had not taken the initiative in 1956 to plan it, obtain rights of way and cover the costs.”

President Eisenhower’s Federal-Aid Highway Act of 1956 was not universally popular, but it was quite successful in providing a national highway system. Such a drastic national act seems unlikely in the current political climate, but more mundane actions by officials at FERC and elsewhere could benefit from flying under the radar. Key areas of power transmission that depend on it, such as transmission lines, may not be a bad place for investors.

Write to Rochelle Toplensky at [email protected]

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