Energy is dead! Long live Energy!
05 November 2021 Cop26
CO2 = P x S x E x C. A man who became a billionaire selling software threw that linear equation to solve global warming. P = global population, S = services consumed by this population, E = energy required to power those services and C = CO2 content of this energy. Well, to get CO2 at 0, you need at least P, S, E or C going to 0. There are unequivocally social and moral hazards associated with trying to bring P, S or E to 0. The only variable left here is C, leading to the most important question COP 26 should answer (and it’s not how many tons of CO2 were released by all the private jets that flew to Glasgow): how and when can we bring C to 0?
A handful of scenarios have been made available to understand what is required to get to net-zero (i.e. C to zero): IEA, IPCC, Shell amongst others. All of these net zero scenarios broadly share the same conclusions:
- The future is electric – from 20% of our current energy supply to roughly 50% by 2050, with the vast majority of this growth driven by renewables
- There will be new fuels – renewable fuels (e.g. reused cooking oil), green hydrogen and ammonia, and yes still oil and gas (but CO2 sequestration should be available) and coal would be almost completely out of the equation
- Innovation is desperately needed – the IEA estimates that roughly 50% of the technologies required to bring us to net zero are still in early development.
A close cooperation between governments, finance, energy companies and (activist) consumers is absolutely necessary to push forward this roadmap. This should be the prime objective of COP, shouldn’t it?
The game plan is very straightforward: lower energy demand, and much lower CO2-intensity for the energy produced over the next 30 years. The idea of decoupling economic growth from fossil fuels is already visible, notably in the most advanced economies (e.g. Denmark). However, economically and socially, the lack of energy (blackouts) and/or expensive energy is still considered by most as worse than CO2 emissions. This was the topic of one of our most recent blogs – Could the energy crisis derail our transition to net-zero?
The energy transition will be all but linear, and there will be decisions by governments1, companies, and financial institutions that would fail to promote decarbonisation. But at least, the compass is set:
- We need governments to continue to make bold pledges. Not just about emissions trajectories, but about the future energy mix, which will be the backdrop to the transition, and funnel R&D investments. India is well on track to become one of the top producers of renewable energy, and has promised to produce 450 GW of clean electricity by the end of the decade. That’s the equivalent power of 450 nuclear power plants, and the same as around 1,350 million solar panels.
- We need activist shareholders. Not just divesting from fossil fuels – but pushing for change from the inside. Engine No. 1, a small hedge fund, shocked the investment community when it unseated two board members of Exxon Mobil earlier this year, claiming that years of slowing returns and mounting debt for Exxon have shown that it’s current direction is not sustainable in the long term and that it needs leadership from within the energy industry to help it adapt to the climate crisis
- We need further innovation. It drove down the cost of solar PV electricity falling by 82% over the course of a decade and the cost of electricity from new onshore wind declining by 13% from 2019 to 2020. We hope this week to hear from US Special Envoy on Climate, John Kerry, who is proposing a ‘First Movers Coalition’, designed to facilitate purchase agreements to hard-to-abate sectors like shipping, aviation, cement, steel and trucking, in order to support innovation in low-carbon products. Further innovation will help to achieve the technologies that are needed at costs that are accessible to emerging markets, and money spent on R&D in the right way can support the energy transition in a way which is equitable and even provides a boost for emerging economies.
- We need community engagement. Decentralised energy – which broadly refers to energy created off the mainstream, or national grid – can have many benefits, including reducing the impact of power outages as well as allowing people to gain access to the energy market by owning micro-renewables and selling energy back to the grid. Community owned power is something that’s proven incredibly valuable with renewable projects in Denmark, such as Middelgrunden, where the 50% community owned offshore wind farm helped overcome citizen objections, by providing them with ownership of the project and tangible returns on their investment over time.
Announcements so far this week have shown that governments are starting to recognise that renewables are the future, not just to mitigate climate change and meet NDCs2, but also to ensure that energy remains stable and affordable. However, they are far from ambitious enough to limit global warming to 1.5°C. The IEA’s Announced Pledges Scenario (which shows how emission trends will develop in the scenario that all national net-zero emissions pledges are realised in full and in time), sees a temperature rise of 2.1°C in 2100.
The Stone Age didn’t end for lack of stone. Let’s ensure the oil & gas and the coal age will end long before the world runs out of hydrocarbons (inspired by Sheikh Ahmed Zaki Yamani, former Saudi Oil Minister).
1The controversial Cambo Oil field has even been exempted from ‘climate compatibility’ tests, due to claims that it is an extension of an already licensed project, yet this will be at the front of many people’s minds as the UK presidency demands ‘clear commitments and concrete timetables for change’ from this conference