[The Editors' Verdict] Carbon Neutrality and the Gray Rhino

Professor Jeong Dong-wook, Department of Energy Systems Engineering, Chung-Ang University.
Photo by Asia Economy DB

The global cryptocurrency and stock markets have experienced significant declines since the beginning of the new year. It is said that the cause is the United States tightening its monetary policy after signs emerged that the money released during the COVID-19 crisis was fueling inflation. In South Korea, the rise in interest rates is expected to lead to a contraction not only in the stock market but also in asset markets such as real estate. The Federal Reserve, which manages the U.S. money supply, has also declared its intention to eliminate the bubble created by the COVID-era money injection. Nevertheless, countless individual investors have been caught off guard by the stock market crash. An unexpected sudden event like this is called a "Black Swan." The COVID-19 pandemic is an example of this. On the other hand, a situation that is anticipated but still not avoided is called a "Gray Rhino." The approach of a 2-ton rhino can be easily detected by the ground shaking, but the risk is overlooked and no action is taken.

There are also Gray Rhinos in carbon neutrality. The path toward carbon neutrality branches out in many directions. The route varies depending on where and how you start. Some paths may seem faster but are uphill, while others may appear longer but are flat. And on some paths, a Gray Rhino may be waiting. A Gray Rhino is a foreseeable but implicitly overlooked risk. The expansion of renewable energy is a major wave in the energy transition. However, if the anticipated problems hidden beneath this big wave are ignored and the expansion is pushed forward recklessly, the rapid growth of renewable energy could become the Gray Rhino of carbon neutrality. The inherent vulnerability of renewable energy is intermittency. Energy must be available when we need it. Electricity especially so. Just as water flows when you turn on the tap, electricity should be available when you plug in. Therefore, the expansion of renewable energy must be accompanied by controllable power generation facilities that can compensate for intermittency. If we focus solely on expanding renewable energy without such complementary measures, we will encounter the Gray Rhino. The energy crisis in Europe at the end of last year can be seen as an example of this Gray Rhino.

During the winter of 2021, electricity prices in European countries soared. Although there were differences between countries in the European power trading market, electricity prices generally rose from twice to more than four times compared to early 2021. In December last year, most European countries saw prices exceed 550 KRW per kWh, which was four times the electricity price in South Korea during the same period. Several complex factors contributed to this surge in electricity prices. First, as coal-fired power generation was reduced, gas-fired power generation was expanded as backup for renewable energy. However, gas supply was not smooth due to seasonal surges in gas demand and the Ukraine crisis, causing gas prices to skyrocket. Second, unusually low wind speeds in the latter half of last year reduced wind power generation in Europe. Europe relies more on wind power than solar power, accounting for 14% of total energy in 2020 and about 25% in the UK. In the UK, the average wind speed last year was the lowest of the century, causing a 30% decrease in wind power generation. Third, France, a net electricity exporter in the European power market, temporarily shut down four nuclear reactors for emergency maintenance, worsening the already difficult power supply situation.

It is clear that the expansion of renewable energy will increase volatility in power supply, and expanding renewable energy while preparing for this volatility is necessary to avoid unexpected social costs. In that case, nuclear power cannot be ignored as a way to compensate for the intermittency of renewable energy. Continuing gas-fired power generation is not an option for carbon neutrality, and South Korea is already the world's third-largest gas importer, so this should not be further intensified. However, nuclear power must also secure higher reliability to support renewable energy.

Jeong Dong-wook, Professor, Department of Energy Systems Engineering, Chung-Ang University