Paris Agreement: Falling costs for renewables do not automatically lead to increased climate protection in the energy sector

Falling costs for solar panels and wind turbines equals lower CO2 emissions in the energy sector – if this equation is correct, it would a big step towards achieving the Paris climate goals. Many key renewable energy technologies have indeed become much cheaper in the last few years. However, a study of national energy and climate policies in Argentina, Indonesia and Mexico shows that falling costs for renewables do not automatically result in more climate protection.

This is the result of the study “Decreasing costs of renewables - Insights on energy sector planning and climate policy from three country case studies“. Together with the NewClimate Institute, researchers from Fraunhofer ISI examined how declining costs in key technologies affect the countries' Nationally Determined Contributions (NDCs) to climate protection.

The NDCs describe the individual contributions of countries to implementing the Paris Agreement. The countries signing the Paris Agreement committed to defining their own national climate targets in line with the global two-degree temperature goal, and to communicating these internationally. In addition, they agreed to update their self-imposed targets every five years and increase their level of ambition. The first deadline for this expires at the end of this year.

Fossil fuels frequently block the expansion of renewables

In terms of the Paris Agreement, declining costs for renewables could lead the signatory countries to promote renewable energies more strongly and formulate their climate targets more ambitiously in the next scheduled update. However, there are no signs of this taking place according to the study, at least not for Argentina, Indonesia and Mexico. Analyses of the national strategies and planning processes have shown that fossil fuels continue to play a major role here despite falling costs for solar and wind.

Johannes Eckstein, coordinator of the project at Fraunhofer ISI, emphasizes: "Low costs are a good basis for expanding renewable energies. Nevertheless, we find a number of barriers in the countries that are preventing global cost reductions from taking effect locally".

“Financial barriers are often a major obstacle“, says Jose Ordonez from the Business Unit Global Sustainable Energy Transitions at Fraunhofer ISI. “Renewable energy projects are often burdened with higher interest rates than projects based on fossil fuels. This is hindering their implementation in several countries. In addition, many countries have large fossil fuel reserves and fossil fuel lobby groups are frequently successful in blocking the integration of renewable energies“. On top of this, there are often technical and regulatory obstacles as well.

Energy policy largely decoupled from national climate targets

An important conclusion from the results is that national energy policy is largely decoupled from climate policy in the countries examined. In some cases, it even contradicts national climate goals. The countries continue to promote and use fossil fuels on a large scale. This is hindering the decarbonization of the power supply, which forms the basis for a complete decarbonization of the energy sector as a whole.

“While the discussions in many European countries are already focusing on how to create infrastructure for green hydrogen and realize sector-coupling, the dominant topics in several emerging economies concern more fundamental issues of how to integrate renewable energies in the electricity sector“, says Marie-Jeanne Kurdziel from the NewClimate Institute. However, the study's authors believe that the weight of the arguments will shift in favor of renewable energies, as their costs continue to decrease in the long term.

The Fraunhofer Institute for Systems and Innovation Research ISI analyzes the origins and impacts of innovations. We research the short- and long-term developments of innovation processes and the impacts of new technologies and services on society. On this basis, we are able to provide our clients from industry, politics and science with recommendations for action and perspectives for key decisions. Our expertise is founded on our scientific competence as well as an interdisciplinary and systemic research approach.

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