How is the global energy transition going? Smil, JP Morgan

JP Morgan / Vaclav Smil on state of energy transition. A balanced view of the world on where we are on current energy transition.

How is the global energy transition going? Taken together, the aggregate impact of nuclear, hydroelectric and solar/wind generation reduced global reliance on fossil fuels from ~95% of primary energy in 1975 to ~85% in 2020. In other words, energy transitions take a long time and lots of money. The IEA expects fossil fuel reliance to decline at a more rapid pace now, fueled in part by “Big Oil” companies becoming “Big Energy” companiesand by a faster global EV transition.

In 2021 renewables are for the first time expected to garner more capital spending than upstream oil & gas. This process is influenced by diverging costs of capital: 3%-5% for solar and wind, 10%-15% for natural gas and up to 20% for oil projects.

However, the IEA still projects that 70%-75% of global primary energy consumption may be met via fossil fuels in the year 2040. Why don’t rapid wind and solar price declines translate into faster decarbonization? As we will discuss, renewable energy is still mostly used to generate electricity, and electricity as a share of final energy consumption on a global basis is still just 18%.

In other words, direct use of fossil fuels is still the primary mover in the modern world, as the demise of fossil fuels continues to be prematurely declared by energy futurists. As shown in the last three charts, wind/solar capacity is growing and gains in renewable electricity generation are impressive, but in primary energy terms they are much smaller…”

More in the report here.

Consumer green energy default choice is sticky

“Non-monetary incentives that encourage pro-environmental behaviour can contribute to combating climate change. Here, we investigated the effect of green energy defaults in the household and business sectors. In two large-scale field studies in Switzerland of over 200,000 households and 8,000 enterprises, we found that presenting renewable energy to existing customers as the standard option led to around 80% of the household and business sector customers staying with the green default, and the effects were largely stable over a time span of at least four years. Electricity consumption had only a weak effect on default acceptance. Our data do not indicate moral licensing: accepting the green default did not lead to a disproportionate increase in electricity consumption. Compared with men, women in both the household and business sectors were slightly more likely to accept the green default. Overall, non-monetary incentives can be highly effective in both the household and business sectors.” in nature human behvaiour.

NetZero framework, HSBC engagement

Progress in sustainable investing was quite notable this week. Pretend sustainability - greenwashing - comes about because bad faith actors realise there is a genuine force, demand / trend and want to benefit from it. 

So in some ways it’s a good thing if you support sustainability ideas because it means there’s real substance somewhere.  Let me note two items of substantive progress this week.

First, the IIGCC lead collaboration that has led to a net zero Paris Aligned investment framework. Many asset owners and investors support the framework and it’s a very significant step in harmonising efforts on what netzero for companies might mean. Still much work to do, but worth noting this step. You can view the framework here (my linkedin).

Second, a collaborative investor engagement has led to HSBC aligning its financing commitments to a low carbon world. You can view their letter here (my linkedin).

Mark Carney argues that low carbon growth is possible

Mark Carney, Governor Bank Of England, argued that low carbon economic growth is possible. In further testimony he stresses the importance of transition, policy, transparency and risk management while commenting that intangible growth is still important growth.

De-Growth advocates argue decoupling carbon from economic growth is impossible (or extremely hard). Thus degrowth policies may be needed.

(I tend to not be in the de-growth camp, but do think some consumption eg food waste - is wasteful)

The arguments continue to be intense. There is some agreement that brown—>green transition is important regardless of growth stance. Central scenarios point to 3c warming in 2100. Stronger policy + innovation amplified by markets, corporate and consumer behaviour could bring those scenarios down. Complex tipping points, policy failures could swing other way.

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Check out my £10K grants programme for people looking to make positive impact.

Goldman Sachs: climate change, Cities resilience

The ThinkTank part of Goldman Sachs writes a piece on climate change with a focus in cities.

Cities because as I’ve blogged before that the majority of people now live in cities. They are also a big source of our carbon impact.

They summarise:

Although the timing, scope and magnitude of the consequences of global warming remain uncertain, the potential risks are significant. Attention has focused on the need to reduce greenhouse gas emissions, and far more work will be needed here. Even as this work progresses, however, there will also be a need for adaptation efforts that can help the world withstand the potential effects of climate change.

Climate change could reshape the earth. Negative outcomes that could make adaptation critical in coming years include higher temperatures, more intense storms, melting glaciers, rising sea levels, shifting agricultural patterns, pressure on food and water and new threats to human health.

Cities will be on the frontlines of climate adaptation. Although the need for adaptation is likely to be widespread, we focus here on cities. Because they are home to more than half the world’s population and generate roughly eighty percent of global GDP, cities will find themselves at the epicenter of this challenge. Rapid urbanization in some developing countries will also likely sharpen the focus on cities.

Urban adaptation could drive one of the largest infrastructure build-outs in history. Greater resilience will likely require extensive urban planning, with investments in coastal protections, climate-resilient construction, more robust infrastructure, upgraded water and waste-management systems, energy resilience and stronger communications and transportation systems. Despite the uncertainty around the timing and scale of the impact, it may be prudent for some cities to start investing in adaptation now and to do so in ways that allow for maximum flexibility in the future – without committing to any one specific climate projection.

Given the scale of the task, urban adaptation will likely need to draw on innovative sources of financing. Even the most economically prosperous cities will likely need to look beyond tax revenues to other sources of funding, including central-government funds, public-private partnerships, institutional investors, insurance and, in developing economies, international financial institutions. “Soft” infrastructure, such as laws, regulations and markets that support financing, will matter too.

Adaptation may raise questions of fairness. Urban adaptation may raise questions of fairness – such as which cities can support adaptation and which cannot, or where limited resources should be directed within cities. This is likely to be true even in the most prosperous cities; the fact that many of the problems could prove to be local and specific could exacerbate this dynamic.

Available at GS here.

My interactive sustainability show here, Thinking Bigly.

Analysis on oil, renewables, mobility and EVs, Mark Lewis.

Analysis on oil, renewables, mobility and EVs.

-Oil has a massive flow-rate advantage, but this is time limited.

-Economic and environmental benefits set to make renewables in tandem with EVs irresistible. T

-The death toll for petrol.

Mark Lewis, former utilities analyst and ex-Carbon Tracker now, head of sustainability for BNP AM writes an analysis on oil, renewable energy and EVs.

“Oil needs long-term break-evens of $10-$20/bbl to remain competitive in mobility.

In this report we introduce the concept of the Energy Return on Capital Invested (EROCI), focusing on the energy return on a $100bn outlay on oil and renewables where the energy is being used specifically to power cars and other light-duty vehicles (LDVs). For a given capital outlay on oil and renewables, how much useful energy at the wheels do we get? Our analysis indicates that for the same capital outlay today, new wind and solar-energy projects in tandem with battery electric vehicles (EVs)* will produce 6x-7x more useful energy at the wheels than will oil at $60/bbl for gasoline-powered LDVs, and 3x-4x more than will oil at $60/bbl for LDVs running on diesel. Accordingly, we calculate that the long-term break-even oil price for gasoline to remain competitive as a source of mobility is $9-$10/bbl, and for diesel $17-19/ bbl.

Oil has a massive flow-rate advantage, but this is time limited.

The oil industry is so massive that the amounts that can be purchased on the spot market can provide very large and effectively instantaneous flows of energy. By contrast, new wind and solar projects deliver their energy over a 25-year operating life. Nonetheless, we think the economics of renewables are impossible for oil to compete with when looked at over the cycle. We calculate that to get the same amount of mobility from gasoline as from new renewables in tandem with EVs over the next 25 years would cost 6.2x-7x more. Indeed, even if we add in the cost of building new network infrastructure to cope with all the new wind and/or solar capacity implied by replacing gasoline with renewables and EVs, the economics of renewables still crush those of oil. Extrapolating total expenditure on gasoline in 2018 for the next 25 years would see $25trn spent on mobility, whereas we estimate the cost of new renewables projects complete with the enhanced network infrastructure required to match the 2018 level of mobility provided by gasoline every year for the next 25 years at only $4.6-$5.2trn.

Economic and environmental benefits set to make renewables in tandem with EVs irresistible. The clear conclusion of our analysis is that if we were building out the global energy system from scratch today, economics alone would dictate that at a minimum the road-transportation infrastructure would be built up around EVs powered by wind- and solar-generated electricity. And that is before we factor in the other advantages of renewables and EVs over oil as a road-transportation fuel, namely the climatechange and clean-air benefits, the public-health benefits that flow from this, the fact that electricity is much easier to transport than oil, and the fact that the price of electricity generated from wind and solar is low and stable over the long term whereas the price of oil is notoriously volatile.

The death toll for petrol. With 36% of demand for crude oil today accounted for by LDVs and other vehicle categories susceptible to electrification, and a further 5% by power generation, the oil industry has never before in its history faced the kind of threat that renewable electricity in tandem with EVs poses to its business model: a competing energy source that (i) has a short-run marginal cost (SRMC) of zero, (ii) is much cleaner environmentally, (iii) is much easier to transport, and (iv) could readily replace up to 40% of global oil demand if it had the necessary scale. We conclude that the economics of oil for gasoline and diesel vehicles versus wind- and solar-powered EVs are now in relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors.”

The 40 page report is here.

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My sustainability performance show: Thinking Bigly.

My travel essay about visiting one of the most remote tribes on Earth in the Indonesian Jungle.

The Climate challenge is 75% outside power: https://www.thendobetter.com/investing/2019/7/12/climate-challenge-outside-power

EV charging sites now outnumber petrol stations

Range anxiety? EV charging sites now outnumber petrol stations | Good Energy / Zap Map
“As of yesterday, 28 May, there are 8,546 charging locations across the UK, hosting a total of 13,688 charging devices. In contrast, as of the end of April, there are currently only 8,400 petrol stations in the UK, a figure which is continuing to decline. “

Based on Zap Map, https://www.zap-map.com/statistics/

Me:The transition in the UK is underway. More EV sites than petrol stations (though there are more individual pumps as each stations has 4 to 12 pumps) according to this study. And I’m not sure if they are all in the right places.

This FT article suggests infrastrucutre still poor: https://www.ft.com/content/dfe71424-7c07-11e9-81d2-f785092ab560

https://www.goodenergy.co.uk/blog/2019/05/29/range-anxiety-ev-charging-sites-now-outnumber-petrol-stations/