A World in Energy Transition: Part 1

Impact Reflection | April 8, 2022

Early this week, a UN panel of climate scientists released a new report on global progress towards slowing emissions and limiting planetary heating to 1.5 degrees Celsius. Despite pledges to reduce emissions from governments and corporations, and despite an accelerating trend toward renewable energy investments, global greenhouse gas emissions in 2019 reached a new all-time high. Russia’s invasion of Ukraine and the consequent rush to find a replacement supply of fossil fuels has complicated the path toward renewable energy, and also provides a picture of why it is so hard to move away from fossil fuels.
 
Renewable sources now provide over 12% of US energy production, up from 9% in 2000. Despite this relative progress, a +34% increase in overall energy production and consumption during the same time period meant that fossil fuel production has increased as well. While remaining steady at approximately 80% of US energy production, fossil fuel generation on an absolute basis has increased by more than +30% to 75 quadrillion BTU currently. That represents about 18% of the energy produced globally, which is also about 80% generated from fossil fuels. The relative progress of renewables has provided a positive storyline, but the UN climate report clearly paints a picture that shows our current efforts are insufficient. The bottom line is that continued economic growth that depends on fossil fuels at current rates will hamstring our ability to slow or stop global warming.
 
The development of fossil fuels over the past two centuries has led to significant progress in production and standards of living. Negative impacts to our shared climate mean that new approaches and solutions will be needed going forward. This period of energy transition is likely to be marked by disruption and rapid change – both in climate events and financial markets – and will require significant expansion of current efforts and funding by governments and corporations to reduce our global fossil fuel dependency.

While fossil fuels have been used in some form for more than a thousand years, it was only during the Industrial Revolution that they radically accelerated processes of production and of transportation. These developments have both figuratively and literally accelerated economic activity – and human activity. Human production was “mechanized” with this new source of energy, and production increased dramatically in the early 20^th century. The combination of economic progress and fossil fuels has driven a spiral of ever-increasing consumption that is still continuing.
 
Expanded production steadily improved the quality of life for those living in industrialized areas. Factories, farms, vehicles, and appliances: mechanization made possible a higher standard of living. More recently the onset of personal computers, phones, and high-speed internet have improved communication and productivity even further, while simultaneously multiplying demand for electricity as people want to power their modern amenities. This is at the core of why it is so difficult to switch away from fossil fuel consumption – it has powered real benefits to quality of life.
 
The United States was a model for this in the early 20th century, and now developing countries around the globe are trying to replicate that progress for their citizens – and in turn, are dramatically increasing their demand for energy and fuel sources. In the US and around the world, there is a causal link between electrification of the home and longer life expectancies.¹ Additionally, access to electric power instead of kerosene is linked to improved educational and health outcomes. This is important because there remain over 3 billion “energy-poor” people, concentrated in Africa, who lack reliable access to electricity. Progress toward electrification won’t be hindered by existing fossil fuel infrastructure like it is in the United States, but still, the development of renewable energy sources won’t be simple. Early efforts to use solar and run-of-the-river hydro for electrification efforts are not yet cheap enough to fit into household budgets. Government resources are also insufficient, so progress there depends on independent power producers, as well as external aid.²

When we see the proliferation of rooftop solar on homes and the mass adoption of electric vehicles – especially here in the Bay Area – it is easy to assume that more significant progress has been made. These highly visible displays of progress in the energy transition mask the real bottleneck: industrial production and commercial transportation.
 
Approximately 80% of industrial power needs in the US are currently met by fossil fuels, including coal, oil, and natural gas. For transportation, it’s over 90%, most of which comes from oil. One example is industrial steel production, which is essential to countless aspects of modern life, but also accounts for as much as 9% of direct emissions from fossil fuels, more than all the world’s cars and planes combined.³ There are efforts underway to replace coking coal, a key input to steel manufacturing, with hydrogen. When hydrogen is used instead of coke to remove the oxygen from iron ore, the by-product is water rather than carbon dioxide. And if hydrogen is produced using renewable sources, it can be a steady source of green energy. Looking to the future of renewables, policymakers and regulators around the world are creating incentives for the development of hydrogen power, which could revolutionize fuel-intensive sectors such as heavy industry and transportation.⁴
 
With new solutions, also comes new challenges. In the transportation sector, all eyes have been focused on electric vehicle technology. One concern with large-scale electric car production is the environmentally destructive mining operations that are needed to provide materials for batteries, which can offset some of the environmental benefit of moving away from fossil fuels. Another underlying assumption is that we can continue driving as much as we want – as long as it is electric. This isn’t quite true, at least until all electricity is generated by renewable sources. In this transition period, deliberately reducing consumption will be among the most powerful tools that allow renewable energy generation to catch up to growing global demand.

Lasting systemic change rarely happens quickly, but rather through the slow adoption of new technology and shifting expectations by consumers and producers. The challenge laid out by the most recent UN climate report is that we don’t have the luxury of waiting and creating deliberate and paced change. The data shows a far more urgent need for transformation.
 
At the personal level, directional choices for reducing or improving the efficiency of energy usage are a good start. These incremental changes happen at home by being more energy conscious, exploring solar panels to power energy-efficient appliances, or opting toward a more local, less car-intensive lifestyle. The aggregate impact of these incremental personal changes will be a key part of the broader solution.
 
At the industrial and policy level, more radical change is needed. Our article next week on this will discuss the financing required to get us to a different energy reality, and what the investment landscape for that looks like. Changing the landscape of global energy usage will create both disruption and opportunity, and hopefully it will also lead to a more sustainable next chapter of economic progress.

Resources

¹ Daisy Dunne, “Fossil Fuel Use Not Closely Linked to Longer Life Expectancy,” Resilience, April 2, 2020. (Originally published in Carbon Brief.)

² Sandor Szabo et al, “Mapping of affordability levels for photovoltaic-based electricity generation in the solar belt of sub-Saharan Africa, East Asia and South Asia,” Nature.com, February 5, 2021.

³ The green edge of steel: Cutting through carbon. June 2021. White & Case

⁴ A range of tactics is needed to achieve a lower-carbon world. March 2022. White & Case