Andrew Steer: We must de-risk the energy transition for developing nations

In 2020, Amazon founder Jeff Bezos committed $10bn to create the Bezos Earth Fund, to help address the pressing issues of climate change.

And, since then, the fund’s chief executive, Andrew Steer — who joined from the World Resources Institute, following a stint as the World Bank’s special envoy for climate change — has focused its efforts on funding energy transition.

At the COP 27 conference in Egypt, last November, Steer, alongside John Kerry, the US special presidential envoy for climate, and the philanthropic Rockefeller Foundation, announced plans for an Energy Transition Accelerator (ETA) programme, to bring private capital to clean energy transition projects in emerging and developing economies.

It’s aim was to do this by verifying the greenhouse gas emission reductions from transition projects, which participating jurisdictions would be able to issue as marketable carbon credits. Under the still to be developed proposal, these credits might then be purchased by companies to achieve their net zero emission targets, creating a predictable finance stream to de-risk costly transition investment.

In March, Steer joined the FT’s climate editor, Emiliya Mychasuk, at the FT Climate Capital Live event, to give an update on the ETA’s progress.

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Emiliya Mychasuk: Tell me, Andrew, on the second anniversary of the Bezos Earth Fund, how you’re feeling about the world.

Andrew Steer: Well, I’m feeling about the world the same way you are. We are in very worrying times. But we have to understand the nature of tipping points.

We have to understand that, if the price of electrolysers [to produce hydrogen from water] stays where it is, we won’t we won’t be able to develop much green hydrogen. But, actually, we know how to drive the price down. And we have to get out of this notion of: ‘there’s only 1 per cent of whatever; therefore it will take a thousand years to get up to 100 per cent.’

We need to know that there are hockey sticks [graphs showing a dramatic uptick] out there, where suddenly there is a tipping point. 

We need to be in the business of anticipating those and recognising that we actually need a cascade of tipping points.

So the job of a philanthropist is to try to identify the 50 transitions that are needed this decade, and ask how close each of them are to that positive tipping point. Where are the barriers? And what do we have to do, as philanthropists? We have to have philanthropic resources and convening power. And we have to figure out where those barriers are, to remove them — so that we can make change irresistible and unstoppable.

EM: I think the last time I saw you was in Sharm el-Sheikh, at COP 27, where you were on the stage embodying the kind of collaboration and convening power you’re talking about, with John Kerry and representatives of the Rockefeller Foundation and of the global south. Can you explain what the intention of the Energy Transition Accelerator is? And what the Eta is on the ETA (that’s my little joke).

AS: Well, the idea [of the ETA] is about carbon markets — voluntary carbon markets. Isn’t it remarkable how little voluntary carbon market money goes into the energy transition in the developing and emerging world, while a lot is starting to go into the nature agenda? So the question was: how can we drive the financial packages that are required, given that there is simply not enough money in official coffers, and that, without subsidised money, private money won’t come in?

The idea was: let’s see if we can really accelerate the voluntary carbon market to help the kind of transitions that are going on in the so-called JETPs: ‘Just Energy Transition Partnerships’. You go to South Africa, where I think $8.5bn was promised; you go to Indonesia, where $20bn was promised and, two weeks ago, I went and spent a week in Hanoi, where $15bn was promised to the Vietnamese government. That is mainly private sector money — and that private sector money says: we need some de-risking, or we need some subsidisation.

Then you talk to the governments and they actually don’t have much money available for that. So [that is where] philanthropy can come in. We wanted to see whether we could play a helpful role in injecting grant resources. That’s really what the ETA is all about.

EM: To delve a bit more practically into the notion, and the idea that countries will issue carbon credits against assets or against an energy transition, can you explain a little bit how that might work?

AS: There needs to be a jurisdictional approach on the energy agenda. We can’t be closing one coal plant when another one opens. So governments clearly need to play a pretty central role. One of the beauties of the JETP process is that governments are committed and the private sector is sitting on the sidelines potentially, very keen to come in.

Take the Vietnam example. Demand for electricity is rising by 8 per cent every year — that’s a huge amount of extra electricity to generate. They know how to do it, because they’ve been building coal power plants and gas power plants for a long time. And they do it very, very well. But, if they want to switch [from coal and gas power plants], to stop building them — apart from the ones currently under construction — they have said ‘we need some financial help’. They will need to invest very heavily, for example, in offshore wind.

Now, it takes a while to get good at that. So the costs actually are quite high. And the risks are quite high. So that’s why you need some kind of deal whereby the carbon market money would come in together with a government subsidisation, which is relatively limited, together with philanthropic money. That money can actually help de-risk private investment in a very good way.

If you believe the IEA numbers, which we certainly do, we’re going to need to triple investment in renewable and the energy transition to $4.2tn a year. And we can’t be so purist that we have to wait five years before we actually do anything.

EM: Even Jeff Bezos doesn’t have $4tn, does he? You’ve made the case for the ETA very well. But John Kerry put a bit of pressure on you all by saying there’s going to be a pilot project ready by the summer or by COP 28. Can you give us a little clue on that?

AS: We haven’t got to that point. But one of the great values of these COPs is to be ‘decision forcing’ events. They’re useful in that regard. So we have given ourselves this year to set the standards and build the coalitions, both on the supply side and the demand side.

On the supply side, we would need countries to step forward and say, count on us. So we talked to the deputy prime minister of Vietnam two weeks ago, [and asked:] ‘Do you want to be part of this?’ [He said] ‘Yeah, we do.’ Well, in order to do that, we’ve got to have a real business-like approach. We would need, on the supply side, two or three countries that want to do this.

Then, on the demand side, we need a coalition of buyers. It is a little bit analogous to the LEAF Coalition [Lowering Emissions by Accelerating Forest finance, to pay for tropical forest protection]. Amazon and a very significant number of companies have basically said: ‘Well, let’s try it out’. Now, it’s up to $1.5bn. And this is on the green side of the agenda. So they basically go out to bid, and countries can come back and say ‘We’re interested’.

You need some kind of deal whereby the carbon market money would come in together with a government subsidisation . . . together with philanthropic money. That money can actually help de-risk private investment in a very good way

EM: It could be a game-changer. Tell me, what would be the next step for a government that you’ve discussed this with?

AS: We’re going to bring people together to struggle with some of the big questions. [For example] under what conditions would voluntary carbon markets appropriately finance offshore wind? And these are questions of science, but they’re also questions of judgment. So we’re going to sit down and go through those. Then, in the country side, we’ll probably put out a request for interest.

EM: Would that be the point at which major companies might sign up?

AS: Yes, we’re already talking to companies because they — obviously — only want to sign up if there’s a deal in it for them. So they have an interest in what they will be financing. But they also have an interest in [knowing] under what conditions will they legitimately be able to take credit for it?

The whole idea of offsets has changed recently. In the old days, an offset was: I could do [emission reduction] in my own factory on Scope 1 and 2 [emissions categories: direct and indirect], but actually it is cheaper for me to offset [these emissions] somewhere else. That is no longer acceptable. The deal now is: if I’m an honourable company, I need to set a science-based target; I need to have a trajectory for how I’m going to lower my own carbon emissions: Scope 1, 2, and 3 [from the supply chain].

But there will still be carbon emissions for 30, 40 years, so [as a company] I can compensate for those. And then — and this is the controversial part — in some years you will not be on that perfect path, for reasons sometimes beyond your control: you may suddenly see your sales rise, and your emissions rise. Should you be allowed to offset and get credit for that, to bring you back [on to the decarbonisation path]? There are some very, very interesting issues to discuss.

EM: Tell me what sort of companies are prepared to sign up. You’ve mentioned Bank of America being involved in the high-level expert group. So you’ve got the finance sector covered. Are there other major companies, or sectors, that are indicating any interest?

AS: Yes. consumer goods companies, information technology companies, transport companies.

EM: Amazon, for example?

AS: I certainly hope so. I can’t speak for them but they were certainly leaders on the LEAF coalition.

EM: So, primarily, we’ll be talking about power plants in the first instance, as examples of transition.

AS: Yes, and it could include decommissioning existing plants. In a country like South Africa or Indonesia, decommissioning is a pretty important part; including the just transition part.

In all of this, there is deep politics and [there are] deep societal issues associated with the coal industry. And the environmental movement — to our shame — has not paid enough attention to that in the past. Therefore, it is not surprising, sometimes, that we’ve run into political difficulties. So I think this is really very important.

Then you’ve got regional issues as well, relating to the grid. A country like Vietnam, obviously, is long and thin and goes north-south — so, basically, the south is where there’s a lot of renewable energy and the north is where there’s a lot of coal energy, and you need a pretty sophisticated grid to start shifting that.

And when your energy demand is growing by 8 per cent a year, you’d better invest in that grid all the time. They do a fantastically good job, but it’s absolutely creaking at the seams. To add an additional shift — the big transition — puts even more pressure on it.

So this funding potentially could include grid strengthening as well. Because that’s a very, very important part of it.

EM: Vietnam is an example that I might press you on a little bit further. Quite a lot of companies have moved their manufacturing operations from China or from elsewhere in the region to Vietnam recently. And I was just looking at air pollution statistics for 2022: Vietnam has seen an appreciable rise in pollution from precisely this industrialisation that you’re talking about. Some of that has come from international companies that are setting up manufacturing operations there. I wonder if you think governments would be so brave as to make that trade-off and say: ‘Well, if you, Big Tech company from the West Coast, are going to come to our country and place extra demands on our infrastructure, then perhaps you need to take part in this transition programme’.

AS: That’s an excellent point. One of the encouraging things is that many of these companies — especially around Ho Chi Minh City, and now also in Hanoi, where you’ve got some highly sophisticated companies from the West, from India, from China — are already signed up to science-based targets. And, of course, Scope 2 says: ‘I need to have green electrons coming into my factory’.

So, one of the really great things that’s going on in Vietnam is a coalition of new companies that want to invest saying to the government: ‘Look, we need green electrons for our scope to commitments, can you help provide them?’

They’re also investing in their own property, quite a bit. Then, they need to have the right to sell any excess [energy] to the grid, which is not so easy at the moment in Vietnam. So you’ve got this sort of lobby group.

I used to live in Vietnam. I was the World Bank country director there and in my day, our definition of solving a problem was going to see the minister of finance, or the minister of energy, or the prime minister, and saying: ‘We’ve done some analysis and you really want to do that.’ And that sometimes works.

But, actually, you need to think about all of the different arrows of influence. And the private sector which, historically, has sometimes been a negative influence, is now a potentially very powerful one. So, given in any country, you have political power blocks that are associated with different industries and ministries, having one of the things that a country like Vietnam wants the most — which is high-tech investment and rising to middle-income status — [can make your] voice more powerful than the more traditional voices of the advisers, and of the multilateral banks.

EM: What else has the Bezos Earth Fund been focused on in the past year, with the $7bn that was [left] on the balance sheet a year ago?

We’re going to put a billion dollars into conserving nature, a billion dollars into restoring nature, and a billion dollars into reforming the food system

AS: The $3bn commitment [that we initially made from the fund’s $10bn] was at COP26. We said: ‘Look, nature — which has been often neglected by the climate community — is the solution to climate. So we’re going to put a billion dollars into conserving nature, a billion dollars into restoring nature, and a billion dollars into reforming the food system, without which you can’t conserve or restore. Photosynthesis is the most fabulous asset that we have to pull carbon out of the air. So that’s what we’ve been very, very heavily engaged in.

On the industrial side, we’ve been a major financier of the Mission Possible Partnership — thinking about things systemically. We talk about the need for green hydrogen. We talk about the need for green cement, green steel, and green shipping. But, in order to make it work, you need to put the pieces of the jigsaw puzzle together and that’s what the Mission Possible Partnership does.

So, first, figure out all the trajectories: is it possible? Then, you’ve got to bring the potential investors in green hydrogen together with the utilities or the investors in renewable energy, together with the cement plants, then the steel, and then the automobile industry as well. Why? Because green steel maybe costs 50 per cent more, but it only makes an automobile 1 per cent more expensive if you build it. Then you need the mayor, the governor, federal. So the idea is to bring these different pieces of the jigsaw puzzle together and develop these hubs.

Finally, we’re doing a lot on, ‘How do we go to the next stage in corporate accountability?’ At the moment, if you want to measure your greenhouse gases, you can go to Greenhouse Gas Protocol, which has been working with just $2mn a year but there are now thousands of companies that need its help, so we’ve just quintupled the their budget.

Then you have to go to CDP [the Carbon Disclosure Project], to monitor. But their computer systems are just creaking — they’re doing such a good job that they’re victims of their own success. So we’re supporting that. Then we’re supporting SBTi [Science-based Targets initiative], together with the Ikea Foundation, because they have an incredibly important role.

But, on the carbon market side, there’s the Science-Based Targets, the Voluntary Carbon Markets Integrity Initiative, and the Integrity Council for Voluntary Carbon Markets. The problem is that boardrooms, 18 months ago, were impressed by a slide deck that said: ‘We can do it. Let’s go to net zero!’ Now, they’re hearing: ‘What do we have to do? We’ve done all this. It’s so complicated.’ So creating both the reality and the assumption of an efficient system that is not strangling the corporations is something we and others feel quite strongly about.

EM: And are you saving some money for the ETA?

AS: Well, we won’t be in the business of purchasing offsets. We will certainly be in the business of putting our own resources into de-risking and making it possible for everybody. But we need billions of dollars. Because, if the money doesn’t come, you’re going to get into a bad situation where the foreign donors, the western countries, are going to say: ‘Oh, the government didn’t do enough reform’. And the government, in turn, is going to say: ‘We went out on a limb here and you guys never came forward.’

So it’s an example of great leadership and a risk moving forward. That’s why we’ve got to be bolder.