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Replacing Fossil Fuels Must Be About Physics and Economics, Not Politics – David Yager


By David Yager

When it comes to climate change, the new mission for mankind is “net zero by 2050”. It is easy to say, hard to forget, highly symbolic, morally powerful, and far enough into the future that everyone who commits to it today will be spared having to report about how much progress they made yesterday.

This increasingly popular master plan to protect the world involves switching the entire global energy complex from coal, oil and natural gas to almost anything else.

This will be the largest, most expensive, complex and likely unattainable undertaking in human history.

Protecting the world from climate disaster used to be confined to environmentalists, scientists, university students and left-wing politicians. The net zero by 2050 pledge has now been endorsed by governments, oil companies, banks, manufacturers, pension plans and just about everybody else who communicates with the public.

There are two meanings. They are not the same.

Scientifically, it means no net carbon emissions from human activity in just 29 years. Think about that. Everything humans do including breathing releases carbon dioxide.

Politically, it means “I care”. Knowing how to do it is secondary to pledging that it must be done.

Achieving this massive reduction in emissions is ultimately a capital, engineering and hardware challenge, not just a spiritual goal. The pledge is far ahead of a practical plan to do it. Most make the commitment without knowing how it will be achieved.

Into this knowledge vacuum the International Energy Agency (IEA) recently released Net Zero by 2050 – A Roadmap for the Global Energy Sector, which is a path to achieving NZE.

And the IEA thankfully abbreviated net zero by 2050 to NZE, Net Zero Emissions.

To start, the IEA asserts that the world should immediately quit developing new supplies of coal, oil and natural gas. Because if NZE is to be more than a slogan, the end of fossil fuels starts now.

While not stated this way, perhaps this is strategic because it will drive  current energy prices so high that the alternatives will become more affordable by comparison.

This caught everyone’s attention, particularly in western Canada.

By 2050, the IEA calls for three-quarters of the world’s oil production to be replaced, and over two-thirds of the natural gas. As market demand shrinks and supply vastly exceeds demand, higher cost producers will be doomed. The IEA writes, “supplies (for both) become increasingly concentrated in a small number of low‐cost producers.” OPEC’s production share rises significantly.

The IEA was founded in the 1970s in response to the world oil crisis. It has spent most of the past 47 years analyzing world energy supplies, consumption, sources and trends to ensure affordable energy was always available. It is funded by 30 of the world’s wealthiest developed countries.

But the IEA reflects the needs of its stakeholders, so in recent years it has increasingly advocated for climate change policies as they have emerged. With so many countries making pledges to slash emissions after signing the 2015 Paris reductions accord, the IEA prepared a report on what governments could do to succeed.

The IEA is careful to disclose it has written “a” plan, not “the” plan. There are lot of variables, and it will require global cooperation. Which is impossible.

But if nothing else, it is certainly something to think about.

The IEA’s NZE press release reads, “World’s first comprehensive energy roadmap shows government actions to rapidly boost clean energy and reduce fossil fuel use can create millions of jobs, lift economic growth and keep net zero in reach.”

Sounds good so far. It is the next 222 pages that really matter.

The roadmap “…sets out a cost-effective and economically productive pathway, resulting in a clean, dynamic and resilient energy economy dominated by renewables like wind and solar instead of fossil fuels.”

Carbon based energy has powered the industrial revolution since the invention of the steam engine in the 17th century. It started with wood then moved to coal, oil and natural gas. Thanks to cheap and abundant fossil fuels, population, prosperity, energy consumption and greenhouse gas emissions have grown simultaneously. This is has accelerated in the past 50 years.

The IEA’s roadmap sees most growth continuing. By 2050 the population will rise by two billion — another 25 per cent from 7.8 billion to 9.8 billion — and GDP will increase by a whopping 72 per cent. But total energy consumption will fall by eight per cent.

How do you do that? And change the energy source and consumption? The only way growth can decouple itself from energy demand is if current consumers use much less, both people and industry.

At present about 800 million people don’t even have electricity. The IEA figures that by 2030 everyone will enjoy that. But if total energy consumption is to decline while the population grows, all people have energy, and GDP continues to rise, massive adjustments will be required.

And massive they are. Behavioral changes are essential, resulting in individual energy consumption declining significantly among those accustomed to unlimited quantities at low cost. Air travel for business and leisure will remain at 2019 levels. Long distance holidays by air are flagged as conspicuous consumption. By 2030, 60 per cent of all new cars manufactured will be electric and by 2035 new ICE vehicles will be gone, probably because they will be made illegal.

Short haul air travel will be replaced by more high-speed electric trains. Car ownership will fall from 55% to 30%. Without personal transportation people will be expected to use public transit, walk or rideshare. To save energy your home will be colder in the winter and warmer in the summer.

Thirty years of climate disaster warnings have failed to materially reduce energy consumption. So the policy tools are higher costs or lower disposable income.  Canada and much of the western world are on a clear path for both. Carbon taxes where they exist will rise, and there is no possible way to service the public debt post-COVID – plus continued borrowing as recommended by the IEA – without increasing taxes.

Politically, we’ll see how that goes. So far, the energy transition hasn’t really hit people’s after-tax income. But the forced adoption of renewables at almost any cost in Ontario, California, the UK, Europe and other jurisdiction have demonstrated that support for abandoning fossil fuels declines sharply when consumers start having to pay for it.

Because the cost is enormous.

The IEA publishes lots of numbers. Big numbers. From 2016 to 2020, the world spent about $2 trillion each year on all forms of energy supply and delivery. This is to keep up with population growth, make energy available to more people, replace supplies, and maintain existing infrastructure.

Over the next 10 years this will rise to $3.5 trillion annually. From 2030 to 2040 the figure jumps to $4.7 trillion per year. In the homestretch to 2050, annual spending levels off at $4.5 trillion. The total spending between now and 2050 is $129 trillion, $69 trillion more than 30 years at recent investment levels.

The IEA’s economic pitch is more promotional and political than its historic communications, framing NZE as a great opportunity. “An unparalleled clean energy investment boom (that) lifts global economic growth” which will ensure “significant economic benefits as the world emerges from the COVID-19 crisis. The jump in private and government spending creates millions of jobs.”

But why is the cost so high? We’re told repeatedly that the cost of wind at solar at the source is going straight down.

What the moral supporters of NZE overlook is the cost of replacing everything from the source to the final consuming appliance or application. And the addition of massive amounts of electricity storage for when the wind isn’t blowing, and the sun isn’t shining.

The IEA roadmap doesn’t just bring energy to those without it, or to keep up with population growth. The largest single cost is replacing existing energy infrastructure through a massive expansion of the electricity grid.

America’ Energy Information Administration (EIA) has a marvelous graphic of how the US energy complex works: sources of primary energy on the left, end-users on the right.

Net Zero By 2050 – So Much Easier Said Than Done - David Yager

 

Note the numbers. Total energy generation is 92.9 quadrillion Btu equivalent. Total consumption is 69.7 quadrillion Btu equivalent, or 75%. The missing 25%, or 23.2 quadrillion Btu equivalent, is “electrical system energy losses”.

That’s why fossil fuels have been so popular for so long. They are plentiful, powerful and efficient. Based on the foregoing, NZE calls for the world to switch to a much less efficient energy from creation to consumption. While the source of energy – wind or solar – may be free, nothing else is.

For end-use, industrial “includes facilities and equipment used for manufacturing, agriculture, mining, and construction.” Notable products are fertilizer, petrochemicals and plastics. Oil and gas supply 74% of the inputs.

Transportation includes everything that moves anything not propelled by people or animals. This is currently 94% powered by oil and gas.

Residential end-use is housing, both heat and air conditioning.

Commercial is non-residential structures and “includes offices, malls, stores, schools, hospitals, hotels, warehouses, restaurants, and places of worship and public assembly.”

Under the IEA plan, most existing fossil fuel assets will become worthless as they are rendered obsolete. Millions of oil jobs will be lost, as will billions in government producing royalties and fuel tax revenues.

Wind and solar will replace coal and gas-fueled power plants. Wells, batteries, compressors, pipelines, refineries and gas stations will be replaced by panels, turbines, power lines and new grids. Based on current costs and profit margins with renewables, there will be no where near the equivalent taxes that fossil fuels have long provided countries and governments with funds to support public services.

It will also be expensive at the consumer level. For many, the switch from hydrocarbons to electricity will require a new furnace, hot water heater, insulation and car. Or a much smaller dwelling.

The economics of the IEA plan ignores the fundamental difference between a capital expense and maintenance expense. Capital is investment in future growth, income or prosperity. Maintenance is keeping existing capital assets functioning.

Take a road for example. A new transportation artery is a catalyst for the construction of new homes and businesses and increases productivity by reducing travel time and transportation costs. It creates jobs and future income streams.

But imagine replacing a functioning road with another that goes to the same place. This is maintenance, not wealth creation. It also creates employment, but not net new jobs, taxation or prosperity.

Or the plumbing in your house. Building a new house with the essential plumbing is a valuable capital asset and source of savings for many. Residential housing construction is the biggest private sector business in Canada. And you can get a mortgage to pay for it.

Replacing the plumbing is a maintenance expense that for many requires the cancellation or delay of buying something else. No 25-year financing plans are available for fixing faulty or deteriorated water and sewage pipes.

All of the IEA’s spending and activity to replace the fossil fuel production, distribution and consumption complex will indeed create jobs, but not necessarily wealth. Bringing energy to those that don’t have it results in opportunity and prosperity. Using capital to replace the source of energy and the devices that consume it does not create the same economic benefit because it already exists.

The primary purpose of energy creation since the beginning of time has been to help society grow and prosper. NZE is different because it is in large part a giant repair job.

How to finance this successfully on a global scale while sustaining population and GDP growth – and without bankrupting governments and taxpayers – remains incomprehensible to this writer.

The physics of replacing powerful fossil fuels with renewable energy are daunting. Numerous energy experts have calculated that the number of windmills, solar arrays and batteries required to replace fossil fuels on a world scale is staggering. Huge amounts of metals for electrical conductor wires and rare minerals for motors, generators and batteries will have to be found, mined and processed. The battery storage required to keep the power on when wind and solar aren’t generating power is off the charts.

But the most stunning and overlooked qualification of the IEA roadmap reads, “…almost half the reductions will come from technologies that are currently at the demonstration or prototype phase.” These include aircraft fuel from biomass, the broad commercial adoption of hydrogen, and economical carbon capture.

Key elements of the IEA roadmap are aspirational, not commercial.

Complicating things enormously is that the larger oil producers like Russia and OPEC have ridiculed the IEA’s plan and publicly declared they will have no part of it. OPEC members have called the IEA report “la-la land” and “dangerous”. They figure that initiatives like this, plus the ESG phenomenon which is discouraging western producers from replacing reserves, is a sure path to $200 oil. This will have a devastating impact on the world’s economy.

Emerging economies in Africa and Asia have stated that their primary goals are economic and human advancements, not what the GHG content of the atmosphere may or may not be in thirty years.

Reducing emissions is critical. The climate change ship has sailed. Having the attention of the western world’s largest energy producers – the ones that anti-oil crusaders want to get rid of – is probably the best and most unrecognized positive development emissions reductions has ever enjoyed. They are technology-driven energy producers and distributors, not campaigning politicians or crusading environmentalists.

But we cannot forget that energy is critical for human existence. Abandoning fossil fuels today for alternatives that don’t yet exist carries great risk to fundamentals like food, health care, heat and heavy transportation. It would be a highly regrettable outcome if the price of oil skyrocketed and crippled the world economy because the mantra of NZE overwhelmed economics, physics and common sense.

If the people of the world really want this to happen, the execution of NZE must move from moral to mechanical – from political to practical – and become the property of energy experts, not pundits.

Then it might work.

David Yager is an oil service executive, energy policy analyst, oil writer and author of From Miracle to Menace – Alberta, A Carbon Story. More at www.miracletomenace.ca

Portions of this article were published by the Canadian Broadcasting Corporation with the permission of the author on June 5, 2021, under the title Net Zero by 2050 – So Easy to Say, So Hard To Do.  Is one size smaller type possible?

 



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