What Will the Brexit Mean for Europe’s Clean Energy Future?

Published: Fri 17 Jun 2016
A blog entry by Haresh Patel

Contributed by:

Haresh Patel
CEO
Mercatus Inc.

Haresh Patel's Blog

With the United Kingdom’s referendum gone to vote, the decision to “Brexit” has come at a critical time. The UK’s debate to leave the European Union is heavily rooted in history, with popular consensus at about an even split. While issues such as immigration, economics and institutional reform at the heart of the desire to reform, there is uncertainty around what separation could mean for the UK’s clean energy future. However, at a pivotal time where decarbonization is on the forefront of the world’s agenda, making the Brexit could deter the EU from meeting its emission goals.

 

The UK is not alone in their strife. With global-scale issues such as unemployment, immigration and wage inequality at their peak, more politicians are blaming globalization for their own country’s problems, and adopting more isolationist philosophies. This protectionist attitude has been seen more commonly in candidates, presidents and prime ministers elected last year. While the urge to, “build walls,” and cancel trade agreements in order to protect their labor force and economies is tempting, to pull out today is a major step backwards.

 

Today, the interconnection of global economies through technology and the Internet has truly flattened the world, with nations relying on each other for investment capital, trade, resources and namely, fuel. This theory by Thomas Friedman, NY Times columnist and Pulitzer Prize winning author of The World is Flat, largely holds that no two countries who are part of a businesses’ supply chain or dependent on each other for trade will ever go to war with each other. Unity is not only essential for the economic prosperity of nations, but for maintaining peace (avoiding World War III) and achieving larger global initiatives, such as reducing carbon emissions and reversing global warming.

 

In his commencement speech to NYU’s Stern School of Business, General Electric’s CEO, Jeffrey Immelt, acknowledged that while globalization has helped economies become more efficient and competitive, “we are entering a volatile global economy, the most uncertain I have ever seen. This is a world that needs better leaders, with new skill sets. The playbook from the past won’t cut it today.” So to sustain growth in a non-globalized world, businesses will require a “local capability inside a global footprint,” as the one size fits all approach is no longer sustainable. In an example, he explained how GE’s 400+ global factory count allows for tremendous flexibility. “We used to have one site to make locomotives; now we have multiple global sites that give us market access. A localization strategy can’t be shut down by protectionist policies,” said Immelt. With the full ramifications of the UK leaving the EU still yet to be determined, any new protectionist policy could jeopardize companies’ like GE’s ability to successfully operate in the UK, as well as deter much needed investment capital.

 

At a time where the world needs to take action against global warming, unity is critical. For the first time ever, we saw real global alignment at COP21 in Paris this year, where all the world’s major leaders came together and pledged to reduce carbon emissions. This landmark event was perhaps the peak of of global cooperation, but whose agreement could be threatened by a Brexit. With the UK deciding to separate from the EU, other nations may be motivated to follow suit, thus accelerating a domino effect of faltering global cooperation. If this happens, the chances of the European Union meeting its carbon emissions goal could be seriously deterred.

 

However, it takes two to tango. While Great Britain’s leadership on climate issues strengthens the EU, the British need their continental partners just as much in helping to slow its own backtracking into domestic low-carbon policies, which include support for renewables and zero carbon homes. Currently the UK is on track to meet the EU’s decarbonization goal, with 20% of their energy coming from renewables, and steadily increasing with offshore wind and community solar. In short, if the EU loses such an important player, collaboration weakens, and our chances of beating global warming through technology are lessened.

 

Overall, mounting global problems require global solutions, which can only be realized through sustained global cooperation. With over USD $12 trillion being poured into the renewable energy industry, advanced technology is certainly able to meet the world’s growing need for energy. Investor Jeremy Grantham spoke at length about this at the recent Fortune Magazine’s Brainstorm E Conference. This increasing need to support clean energy is why Mercatus continues its mission in enabling the flow of low cost capital into renewable energy projects by democratizing money. By digitizing the investment cycle of renewable assets, Mercatus helps power producers reduce deal friction and gain competitive advantage through digital productivity. With de-globalization on the horizon, the digitization of assets (an improvement Immelt himself credits GE’s success) will continue to facilitate global productivity, and forge progress ahead on the path to clean energy.