Both the European Union and the United States are firmly on the path to a net-zero economy. This much has been made clear by officials from both sides of the Atlantic despite the EU’s hunt for more gas and the Biden administration’s calls for more oil production.
Yet before net-zero is achieved—if it is ever achieved—both the EU and the US will need more fossil fuels, including coal. And this means that despite calls for more renewables from both governments and the renewable energy industry, despite the active demonization of the fossil fuel industry, investments in more oil, gas, and coal production are likely to rise—at least in the short term.
A recent report from Reclaim Finance, an anti-fossil fuel campaign organization, for instance, named and shamed asset managers investing in oil, gas, and coal. According to the report, 30 of the world’s leading asset managers had $82 billion invested in companies developing new coal supply, and $468 billion in 12 major oil and gas companies.
“Is the asset management industry changing its investment practices in line with climate science, reducing investments in coal, oil, or gas expansion? Unfortunately, the answer is an emphatic ‘no,’” said one of Reclaim Finance’s campaigners, Lara Cuvelier.
“Let’s be clear: drilling a new oil well or opening a new coal mine is not a normal thing to do in a widespread climate catastrophe,” the campaigner added.
Related: EU In Talks With Alternative Suppliers As It Considers A Russian Oil Ban
Unfortunately for Reclaim Finance and all other climate campaigners, drilling a new oil well or opening a new coal mine is the normal thing to do when demand for energy exceeds the available supply. And this is exactly what companies are doing in some parts of the world where climate campaigning is not such a force to be reckoned with. Even in Europe, some countries are reconsidering their climate plans, notably the UK and Germany.
The UK earlier this year reconsidered its intention to gradually suspend all oil and gas drilling in the North Sea amid an energy crunch that began last autumn, caused the price of energy to soar, and pushed millions of households into energy poverty. The change of stance from the government naturally caused protests from environmentalists.
In Germany, plans to gradually move toward a 100-percent net-zero energy system were revisited in light of potential gas shortages amid the war in Ukraine. The German government’s response to that potential danger was to plan on speedily building several import terminals for liquefied natural gas to replace Russian gas. The biggest economy in Europe and the EU, in other words, is replacing one source of fossil fuels with another, rather than replacing fossil fuels with renewables.
In the United States, a similar shift is underway. Despite the decidedly green, pro-transition agenda with which President Joe Biden came into power, now that same president is calling on all oil producers willing to lend an ear to pump more because retail fuel prices are high and there are elections to be won—or lost—in November.
The administration in the face of the president himself, the Energy Secretary, and the White House Press Secretary has repeatedly said that the transition agenda and the current calls for more oil production are not at odds because the latter is just a temporary measure until, presumably, renewables come into their own. Temporary or not, greater production will require greater investment.
“We need fossil energy as part of this transition. This is a long transition. This is not overnight,” said Keo Lukefahr, the head of energy derivatives and renewables trading at Motiva, as quoted by Bloomberg.
Not only is the transition not going to happen overnight, but it will also take a lot of effort. And investments. Last month, for instance, a CRU analyst warned the mining industry needed to invest some $100 billion in new copper mines if it was to avoid a supply deficit that could reach 4.7 million tons by 2030. All other transition metals and minerals are in potentially short supply based on demand projections.
The situation at the moment is this: the world needs more energy than it is getting. People, for the most part, do not really care where their electricity comes from as long as it is there. And they tend to become rather unhappy when the prices of everything rise because fuels used to transport goods from one place to another are so expensive because the oil supply is tight.
It is obvious that nobody, not even the most renewable-happy EU member, can build enough wind and solar farms to eliminate the need for additional oil and gas supplies. Investment in oil and gas production, therefore, will increase despite the grim warnings of climate campaigners.
Some argue that the increase will only be needed for the medium term, but energy companies tend to plan ahead for long periods of time. If there is no point in making such a long-term commitment to additional production, they will probably not make it. If they have made this commitment, maybe they expect that demand for fossil fuels will remain steady for more than the next three or four years.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
- Libya May Reach Full Oil Production Within Days
- Can Lebanon Repair Its Failing Energy Sector?
- Is Global Oil Production Growing Fast Enough?
Fossil fuels are here to stay throughout the 21st century and probably far beyond. The reason is that renewables on their own are unable now or ever to satisfy global demand for electricity because of their intermittent nature.
Therefore, the notion of net-zero emissions is a fantasy. It will never happen now or ever for the simple reason that even a partial energy transition can’t succeed without huge contributions of natural gas and to a lesser degree coal and nuclear energy. Moreover, a total global energy transition is another fantasy.
That is why the Intergovernmental Panel on Climate Change (IPCC) and other organizations involved with the environment should come clean and admit as a first step that fossil fuels are here to stay well into the future or until an alternative as versatile and practicable as oil is discovered or developed. As renewables’ share in global electricity generation increases, coal and natural gas use will be reduced correspondingly. This, in my opinion, is the right approach to dealing with climate change problems rather threatening the world all the time with existential threats and problems that may or may not happen.
For countries of the world economics and energy security will always take precedence over environmental concerns and pledges.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London