I have long believed that we will not "Save the planet" solely by replacing light bulbs and driving a Prius. In November 2015, about a month before the Paris COP21 meeting, I attended a conference at Columbia University in which Prof. Jeffrey Sachs spoke on the implications of the carbon budget proposed by the IPCC. The carbon budget[i] is the cumulative amount of carbon dioxide that can be released into the Earth's atmosphere while plausibly maintaining global warming below the 2°C limit. The climate community estimates the carbon budget at approximately one trillion tons. It further estimates that we have already spent half of that and at the present course and speed we will spend the remainder by 2050. In his talks Prof. Sachs discusses the challenge of ensuring that, if we wish to limit ourselves to this budget, then substantial fractions - up to 80% - of the remaining reserves of coal, oil, and gas will have to remain in the ground[ii], [iii], [iv]. The alternatives would be massive deployment in the next thirty to forty years of Carbon Capture and Sequestration, which has so far proved disappointing, or of Geo-engineering, which is unproven and appears risky. Even at today's depressed prices for coal, oil, and gas, that means abandoning unrealised assets worth some tens of trillions of USD. It is of course highly improbable that the companies and stockholders - indeed anyone - owning these stranded assets would simply walk away from them, even for such a good reason. So how are we to square this particular circle?
As recently as ten years ago, when oil sold in the region of USD 80 per barrel, the energy industry was wont to talk about "peak oil". That is, the idea that all economically viable reserves had been discovered and hence oil production would inevitably decline, posing a major threat to the global economy. There was even speculation among the oil producers that their financial interests might be better served by leaving these reserves in the ground and waiting until such elevated prices were reached.
Today the benchmark price of West Texas Intermediate oil is falling through USD 30 per barrel and talk of "peak oil" is long forgotten, indeed there is now talk of "peak demand". Energy prices have fallen for two main reasons: 1) new extraction techniques, notably fracking, have enabled vast reserves of oil and gas to be extracted, flooding the market and 2) global economic growth has slowed strongly since 2008, notably in China, so that energy demand, while still expanding (slowly), is well below the projections on which energy companies had based their investments in exploration and production capacity ten to thirty years ago. The re-entry of Iran into global oil markets after sanctions are removed only adds to this tale of woe.
These prices are well below production costs for a large fraction of the producers. Some producers, notably Saudi Aramco, are maintaining or even expanding their production in the face of declining prices and a weak market. Upstream profits have declined strongly and some producers lose money on every barrel sold[v]. This is a game of "deep pockets" with the intention of thinning the field of competitors that cannot afford such financial challenges. These competitors will have no choice but to shutdown their production as global oil storage is filled to the brim, even with idled oil tankers being rented for storage. They are likely to be bought out at bargain prices by the major oil companies. New well drilling is slowing with thousands of drilling rigs being idled. Likewise exploration for new reserves in increasingly remote and hostile environments is being cut back, viz. Royal Dutch Shell's decision to suspend exploration in the Arctic.
So even at today's low prices, the slowly growing global economy cannot make use of current production capacity. In many industries one would simply turn off some fraction of the current capacity until demand eventually rises again. But oil wells are not like water wells, where the pump can be switched on and off at will. Shutting down an oil or gas well or a coal mine safely is itself in many cases a technically difficult and expensive exercise; some producers would prefer simply to keep producing. Re-starting production also poses technical and safety challenges and the resumed production is usually lower than before.
Then there is the demand side of this story. While the desirability of reducing the consumption of fossil fuels is loosely recognized by many consumers, we cannot expect that the developed world will simply give up its dependence on energy. Over many millennia, the history of our civilisation shows the continual growth of our dependence on forms of energy beyond our own bodies, including slavery, animals, water, wind, and various kinds of fire. There is no historical example of us abandoning any form of energy, except when a better one becomes available. Even then, earlier forms are never quite abandoned, but rather a transition - a switch - occurs to a new form that leaves a long tail behind. These switches are propelled by social, financial, economic, and political forces: the closely related availability of coal and its use in steam power lead to the 18th century industrial revolution, the internal combustion energy brought revolutions in the speed, flexibility, accessibility, and capacity of various forms of transportation, and the generation and distribution of electricity enabled homes and workplaces to leverage multiple, distant sources of energy and provided a platform for immense innovation.
Each of these transitions required not only the development of new machines to exploit the new source of energy, but also the invention or the conversion of plant and processes for its consumption. Hence such transitions have previously required several decades. A key advantage today is that a large fraction of our consumption is already in the form of electricity. While we may change how electric power is produced, we will not need to change the distribution and consumption infrastructure, although some adaptation will be required. Indeed, new ways of using electricity, such as plug-in electric vehicles, further advance this advantage. We might hope that a switch from fossil fuels to renewal able sources could be achieved in a small number of decades.
So the question we face in the coming decades is: what forces could lead to a switch from fossil fuels to renewable forms of energy as the primary basis of the global economy? While there is much thinking and talking about how to influence the speed of this change in the near-term, in this article I am asking: what are the possible trajectories to its completion within the short time available to us?
The Paris COP21 meeting was viewed as successful in getting governments to commit to the goal of limiting climate change to the 2°C. While that gives us a warm, fuzzy feeling, it is also acknowledged that the pledges they made on reductions in carbon dioxide emissions fall well short of what is required. The climate change community has long sought to achieve this goal by motivating governments to wave their magic wands. But after observing more than twenty years of dithering by governments, I am inclined to think that a) it may too late for carbon taxes or carbon credits to solve this problem (by themselves) and b) it is actually beyond the power of governments to solve it. The industry based on fossil fuels is a global energy system in which fuel is extracted in one part of the world, consumed in another part to manufacture products that are then consumed in other parts of the world. This global energy system is intimately connected to the global economic system, which was estimated in 2014 to be worth about USD 78 trillion[vi]. In a given year even the largest governments have only marginal impact on these systems.
But what if some combination of social behaviour, political initiative, and technological development could influence this global system to achieve these goals and leave all of these stranded assets in the ground? Or perhaps more crucially, what if no combination were able to do this? Could a group of people knowledgeable about energy, social behaviours, national and global economics, politics, and technology search the space of possible pathways and determine a) whether one or more such pathways exist and b) how we collectively adopt one or more of them?
One remarkable aspect of the present collapse of oil and coal prices is that they have not produced a broad increase in demandv. Bumper car sales in 2015 might be one indication of consumers taking advantage of these low prices, but in developed countries new cars displace old cars and new cars are (generally) more fuel efficient thanks to regulations such America's CAFE standards. So even this may be a misleading observation. Certainly in new markets new cars drive new demand, but China's growth is slowing and with it the growth of its car market. China is also being forced to confront the severe air pollution from existing vehicles; likewise India. Given the current weak growth of national economies, it may be that consumers prefer to pocket the savings on energy and use them to meet other needs. In recent decades, we see that energy consumption per capita or per unit of GDP has been following a descending staircase. Each spike in energy price drives down individual demand, but it also spurs innovation in energy efficiency. So when prices fall, individual demand rises again, but to a lower peak. As the global middle-class population has expanded, total demand has continued to increase. But what happens when this expansion reaches its limit?
My core hypothesis here is that this energy transition does not require us to exhaust the supplies of coal, oil, and gas. It simply requires us to find pathways to a situation that makes the eventual abandoning of fossil fuel energy inevitable. What might these paths be?
Here is a hypothetical scenario as a strawman from which one might begin to think:
- Over the coming decades, the global economy asymptotically stabilises to low growth as urbanisation completes and as the global population stabilises. Hence resource demand in general stabilises.
- Heavy industries decline in consequence and modern industries that replace them are considerably less energy intensive and their needs can be met primarily by electric power.
- Consumer products and activities continue to become less energy intensive and to focus exclusively on electric power.
- The unsubsidised capital costs (USD/kW) of alternative energy generating plant (solar, wind) fall well below the costs of coal, oil, and gas-based plant. This is probably already true in China and is on the trend lines in western countries.
- The need for buffering[vii] of the power produced by solar, wind, and water systems is met through new materials science that is applied to manufacture storage batteries on a massive scale[viii].
- The operating costs (management, maintenance, end-of-life disposal) of alternative energy plant fall far below the operating costs of coal, oil, and gas-based generating plant.
- The declining demand for fossil fuels results in declining investment in new extraction facilities which in turn leads to declining production. These industries become unattractive for investors. This has already happened for the coal industry. The investors instead move to the global infrastructure for renewable energy.
- The Big Switch occurs.
I do not write this in the spirit of seeking to victimise the fossil fuel industries, without which we would not have many of the amenities of modern life. But I have long believed that there are better uses for these materials than simply burning them. We have a powerful industry here that is set up to extract and distribute worldwide of the order of 10 billion kilograms per day of organic materials. What higher uses can we imagine for these materials that do not result in CO2 and other GHG emissions?
I offer this crazy idea not in the conviction that it has a high probability of success, but rather as a strawman at the beginning of an exploration of how this circle might eventually be squared. Under what circumstances can any of these hypotheses come true? The global impacts of such a switch - apart from reduction in GHG emissions - could be immense. Even supposing that it can be achieved without disrupting the energy supplies on which our global population and economy are heavily dependent, it seems daunting to imagine the transition to a very different global financial model. We need a far deeper understanding of how the global, national, and regional models of the systems of energy, finance, and economics interact than is currently in our grasp. Each of these hypotheses need to be assessed from social, technical, financial, economic, and political perspectives. One could model their possible evolutions and develop Monte Carlos models to estimate likely outcomes.
But it is high time that we began to explore how we can achieve this goal of not burning large fractions of Earth's fossil fuels. Anyone want to play?
[i] Unburnable Carbon 2013, The Carbon Tracker, [Online]. Available 24 January 2016: http://www.carbontracker.org/report/wasted-capital-and-stranded-assets/
[ii] Carey, M., Breaking the Tragedy of the Horizon, Bank of England, [Online]. Available 24 January 2016: http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech844.pdf
[iii] Unburnable Carbon, The Carbon Tracker, [Online]. Available 25January 2016: http://www.carbontracker.org/wp-content/uploads/2014/09/Unburnable-Carbon-Full-rev2-1.pdf
[iv] Stranded Carbon Assets, The Generation Foundation, 30 October 2013 [Online]. Available 25 January 2016: https://www.genfound.org/media/pdf-generation-foundation-stranded-carbon-assets-v1.pdf
[v] The Great Oil Conundrum, The Economist, 23 January 2016, [Online]. Available 26 January 2016: http://www.economist.com/news/briefing/21688919-plunging-prices-have-neither-halted-oil-production-nor-stimulated-surge-global-growth
[vi] GDP at market prices, World Bank [Online). Available 3 February 2016: http://data.worldbank.org/indicator/NY.GDP.MKTP.CD
[vii] When the wind blows, The Economist, 28 November 2015, [Online]. Available 24 January 2016: http://www.economist.com/news/special-report/21678955-renewable-power-good-more-renewable-power-not-always-better-when-wind-blows
[viii] Musk, E. The Giga Factory, Fast Company, [Online]. Available 24 January 2016: http://www.fastcompany.com/3052889/elon-musk-powers-up-inside-teslas-5-billion-gigafactory