In terms of energy, we are living in an “after-Paris” world. For, in the half-decade since the Paris climate agreement, its impact has only continued to grow. The idea of an energy transition to what is called “net zero carbon” by 2050, which is at the heart of the agreement, is becoming embedded in the strategies of investors and companies and in the policies of governments. There are widespread calls for large green stimuli while interest rates are low. If elected, Joe Biden’s wide-ranging climate plan would put the US on the same path as Britain and European governments.
Yet no one at that Paris conference in 2015 could have imagined that a pandemic would sweep the world in 2020 and impose an economic dark age on people across the globe. What does that mean for mapping the path towards the energy transition?
Even without Covid-19, the energy transition was challenging. “Sprint” is a good word to describe running towards the 2050 target, for three decades is a short time to rebuild the foundations of what was an $87tn world economy before Covid-19 – an economy that relies on fossil fuels for 84% of its energy.
Not that energy transitions are new. But they take time. Energy has been transitioning – evolving – for more than four centuries. Coal was being used in Britain by the 13th and 14th centuries for heating, to replace wood, which was going into short supply as trees were cut down. But it was not until the beginning of the 18th century that a metalworker in Shropshire figured out how to use coal instead of wood to smelt iron. The 19th century may have been the great age of coal and steam, on which was based Britain’s primacy in the world economy; yet it was not until the beginning of the 20th century that coal came to supply half the world’s energy.
But this is a different time, with all the advantages of modern capital and science and technology, along with widespread determination and will-power. But then there is Covid-19.
The most immediate question is what will be its impact on fuel use. Six years of digitalisation have been compressed into six months. For years, there has been talk about the “office of the future”. But now we know: for many, the office of the future will be at home, for at least two or three days a week. The result will be less fuel use. But, at least in the short-term, that will be counterbalanced by people preferring their private car to public transport. A longer-term question is the impact on companies of having people working remotely in terms of cohesion and culture, as well as the creativity that comes from people interacting and meeting up in the canteen.
Yet the big question, beyond changes in behaviour, is the question of money. Underlying much of the planning for the energy transition is large spending by governments. Joe Biden’s climate plan comes with a $2tn price tag. Will governments have the money and the flexibility to spend when they are running up staggering amounts of debt to deal with the immediate crisis? World GDP will have fallen by almost 5% this year. Assuming vaccines are widely available by the middle of next year, GDP will not return to the 2019 level until 2022 or 2023. The economic wounds are likely to be deep and lasting, notably in the failure of small businesses, which do not have savings or easy access to capital, and the widespread loss of jobs.
All of this means that the financial resources that governments can put behind the energy transition will face major constraints. There are likely to be tough choices that can be summed up as “environment ministers, focused on energy transition, versus finance and economic ministers, battling for economic recovery while coping with shortfalls in tax revenues”.
Governments will certainly use their regulatory powers and penalties to push the sprint. Bans on the sale of petrol-powered cars in the 2030s are spreading. They will be aimed at reducing CO2 emissions from autos and light trucks that, together, are responsible for about 11% of CO2 emissions globally. But governments will have to weigh those bans against the impact on jobs and motorists’ receptivity to electric vehicles. That impact will play out over time. In the US, for instance, the average car on the road is almost 12 years old.
And that inevitably points to the real power source for the energy transition -technology. And technology takes time. The modern wind and solar industries are a half-century old, but it is only in the last 10 years that they have really matured and reached scale. Solar costs have plummeted, and the cost of wind power has also gone down a great deal. The 2019 Nobel prize in chemistry went to the inventors of the lithium-ion battery, the power source for today’s electric cars. But the discovery work for which they were honoured was done in the mid-1970s, in an Exxon research facility, and in 1980 in an Oxford laboratory, at a time when it was thought that the world was going to run out of oil. It was not until 2008 that the first Teslas were delivered to customers.
Today’s roadmap for the technologies needed for the energy transition is very broad. The list ranges from batteries and storage of electricity, advanced nuclear reactors, and utilisation of hydrogen, to new building and manufacturing technologies, electric grid modernisation, carbon capture and sequestration of carbon in plants, and further advances in digitalisation. Work is going on in all of these areas, but bringing these from research and pilot projects to marketplace and widespread adoption will take time, commitment and money.
In terms of getting from here to there for the energy transition, technology will be the essential place for governments to spend money. And that will be crucial for speeding up the great sprint that has already begun.
Daniel Yergin is author of The New Map: Energy, Climate, and the Clash of Nations. He is vice-chairman of IHS Markit