Peak Fossil Fuel Use is Near: Global Warming Optimism?

One of the most prolific writers on environmental issues related to global warming is Bill McKibben.  His typical efforts will involve telling readers how bad things are and how much worse they are going to get.  It was a bit startling to encounter a piece he wrote recently for the New York Review of Books because it contained what one might dare call a bit of optimism.  It was titled A Future Without Fossil Fuels?.  In it, McKibben reviews two recent reports. 

The first was 2020 Vision: Why You Should See the Fossil Fuel Peak Coming by Kingsmill Bond.  In it, Bond predicts that within the next decade, perhaps in the next few years, consumption of fossil fuels will begin to decrease.  The driving factor is the ever-falling cost of renewable sources from solar and wind power.  McKibben provides this background.

“Over the last decade, there has been a staggering fall in the price of solar and wind power, and of the lithium-ion batteries used to store energy. This has led to rapid expansion of these technologies, even though they are still used much less than fossil fuels: in 2017, for instance, sun and wind produced just 6 percent of the world’s electric supply, but they made up 45 percent of the growth in supply, and the cost of sun and wind power continues to fall by about 20 percent with each doubling of capacity. Bond’s analysis suggests that in the next few years, they will represent all the growth. We will then reach peak use of fossil fuels, not because we’re running out of them but because renewables will have become so cheap that anyone needing a new energy supply will likely turn to solar or wind power.”

Even though reaching peak usage implies there will continue to be significant utilization of fossil fuels, Bond suggests that industrial dynamics and the herd mentality of investors may interpret that event as a time to move from the old technology to the newer ones.  The transition away from fossil fuels could become much more rapid than one might expect.

“The turning point in such transitions ‘is typically the moment when the impact is felt in financial markets’—when stock prices tumble and never recover. Who is going to invest in an industry that is clearly destined to shrink? Though we’ll still be using lots of oil, its price should fall if it has to compete with the price of sunshine. Hence the huge investments in pipelines and tankers and undersea exploration will be increasingly unrecoverable. Precisely how long it will take is impossible to predict, but the outcome seems clear.”

The coal industry is the first to suffer from this ongoing power transition.  Clearly coal use was losing to cheaper natural gas and renewables in the US, but it was hoped that increased usage in other countries would support demand.  However, that has not happened.  Consider the dynamics of the power industry in India, once expected to be a major importer of US coal.

“This transition is already obvious in the coal markets. To understand, for example, why Peabody, the world’s largest private-sector coal-mining company, went from being on Fortune’s list of most admired companies in 2008 to bankrupt in 2016, consider its difficulties in expanding its market. India, until very recently, was expected to provide much of the growth for coal. As late as 2015, its coal use was expected to triple by 2030…”

But India decided to go down another path.  The cost of wind and solar power fell dramatically in 2017 to $35 to $40 per megawatt hour.  With Indian coal, power costs $60 a megawatt hour.  That price goes up to $70 with imported coal. 

“No wonder that over the first nine months of 2018, India installed forty times more capacity for renewable than for coal-fired power.”

Other countries are making similar decisions—including the US.  In spite of Trump’s promises, coal plant shutdowns are increasing not decreasing. 

Natural gas seems to be experiencing a similar transformation.  Although fracking has provided large amounts of fuel and driven the price down, the cost is no longer so low that it can’t be beat by renewables.

“While fracking has produced high volumes of natural gas—especially in the US, where it was pioneered—wells tend to dry out quickly, and despite enormous investment, the International Energy Agency estimates that between 2010 and 2014 the shale industry operated with negative cash flows of more than $200 billion.”

“Even ‘cheap’ natural gas is now starting to look expensive compared to the combination of sun, wind, and batteries. In an essay for Vox, the energy reporter David Roberts listed all the natural gas plants—many of them designed to provide quick bursts of ‘peaking power’ on heavy demand days—whose planned construction has been canceled in recent months, as utilities and banks began to figure out that over the projected forty-year life of a new plant, there was a good chance it would become an uncompetitive ‘stranded asset’ producing pointlessly expensive electricity. The chief executive of one US solar company said in January, ‘I can beat a gas peaker anywhere in the country today with a solar-plus-storage power plant. Who in their right mind today would build a new gas peaker? We are a factor of two cheaper’.”

Oil is mainly used in transportation and has been thought relatively immune to progress in renewable energy.  While analysts—and most consumers—are skeptical about the future of electric vehicles, Tesla, with all its ups and downs, has demonstrated the feasibility of an electric car fleet that can be produced with much smaller capital investment than one with internal combustion engines.  China is the biggest car market in the world, and it is heavily committed to going electric.  Car manufacturers the world over are moving aggressively to get on the bandwagon before it is too late.  Cars driven by power produced from renewable energy—what more could an environmentalist hope for?

“Oil was believed to be better protected than coal and gas from competition because cars have long needed liquid fuel to run. But electric cars are becoming affordable for more and more consumers. In 2017 only three million out of a worldwide total of 800 million cars were electric, but they accounted for 22 percent of the growth in global car sales. The world’s leading car companies have become convinced that electric vehicles will account for all the growth in demand by the early 2020s. That’s why, by January 2018, they had committed $90 billion to developing electric vehicles—and why, by 2017, Tesla was worth more than GM or Ford. And for every Tesla that rolls off the assembly line, Chinese manufacturers are producing five electric cars. Auto analysts are already warning consumers to think twice before buying a gas-powered car, since its resale value may fall dramatically over just the next three years.”

The fossil fuel companies, particularly the oil companies, still talk big and claim ever more resources to burn in the future, but ever more people are beginning to question what that future will bring.

“In 2015 Mark Carney, the governor of the Bank of England, began issuing strident warnings about stranded fossil fuel assets, urging the banks he regulated to begin taking close account of their exposure. He gave a memorable speech on the trading floor of Lloyds of London, pointing out that if countries made serious efforts to meet climate targets, vast amounts of money spent on oil wells, pipelines, coal mines, and tankers would be written off. He had to issue the warnings, he said, because the normal time horizon for financiers was too short. ‘Once climate change becomes a defining issue for financial stability, it may already be too late,’ he said, noting that ‘the exposure of UK investors, including insurance companies, to these shifts is potentially huge.’ He urged them to start preparing for a lower-carbon world. Companies, he said, should ‘disclose not only what they are emitting today, but how they plan their transition to the net-zero world of the future’.”

“Carney’s warning—which reverberated out from the financial center of London—seems to have spurred a reevaluation of fossil fuel exposure by many big financial institutions. ‘The major banks are now addressing this risk, whereas three years ago they were asleep to it,’ Buckley said. ‘Now in Australia all our banks have climate policy, where they didn’t three years ago. We didn’t even have data.’ A report in late February from the Institute for Energy Economics and Financial Analysis showed that since 2013 a hundred major banks had restricted coal lending or gotten out of the business altogether.”

The second report discussed by McKibben was produced by the Global Commission on the Geopolitics of Energy Transformation.  It was titled A New World: The Geopolitics of the Energy Transformation.  Most countries are net importers of their needed fossil fuels, but almost all countries have significant supplies of sun and wind.  The benefits of utilizing local renewable sources of power would be enormous.  McKibben provides this assessment.

“’A New World,’ the January report on the geopolitics of energy transformation from the International Renewable Energy Agency (IRENA), is one of the most hopeful documents I’ve read in a long time: it points out that for the 80 percent of the world’s population that lives in countries that are net importers of fossil fuels, the transition to renewable energy means the end of a crushing import burden. ‘The long-term consequences of a switch to renewables are very positive,’ said Bond, who helped write the report. ‘Fossil fuels are produced by a small number of companies and countries and the benefits flow to a small number of people. With solar and wind you get a lot more local jobs, a lot more local investment. You get a whole new geopolitics’.”

“Take India, the poorest large nation on earth. It imports 80 percent of its oil and 40 percent of its gas, along with much of its coal. Currently that costs the country $240 billion a year; if, as its leaders hope, its economy grows 7 percent annually, that figure would double in a decade—which is economically unsustainable. ‘Renewables also offer developing economies an opportunity to leapfrog, not only fossil fuels, but, to some extent, the need for a centralized electricity grid,’ the IRENA report concludes.”

McKibben ends with an apt conclusion.

“Imagine a world in which the tortured politics of the Middle East weren’t magnified in importance by the value of the hydrocarbons beneath its sands. And imagine a world in which the greatest driver of climate change—the unrelenting political power of the fossil-fuel industry—had begun to shrink. The question, of course, is whether we can reach that new world in time.”