The stone age didn’t end due to a lack of stones, and the oil age will end long before the “world runs out of oil”. This quote, often attributed to Saudi Oil Minister Shiekh Yamani, highlights a vital and frequently misunderstood fact about the oil industry. Oil supplies are not going to run out, but oil will eventually be replaced by cheaper, cleaner, and more efficient energy sources. This misunderstanding has led many analysts to predict the death of the oil industry. The Paris Agreement has set a global goal to control climate change and reduce the temperature of the earth. That goal will not be achievable until the world shifts from fossil fuels to clean and renewable energy. These ambitious targets are sure to accelerate the global energy transition away from fossil fuels, but it remains unclear just how long that transition will take.
On his very first day in office, President Biden canceled the Keystone XL Pipeline. China has vowed to be carbon neutral by 2060 and recently launched the world’s largest carbon trading market. Meanwhile, both Japan and the European Union have promised to eliminate carbon emissions by 2050 and the European Union aims to be carbon neutral by 2050. The Biden administration has promised to set aside $2 trillion for decarbonization and plans to rejoin the Paris Agreement. All of these commitments are certainly impressive in theory, but in reality, they are going to run into two major problems. The first is achieving the adoption of renewable energy at an incredibly unrealistic speed, the second is ensuring that the system that we are transitioning to does what it needs to do. It is important to note that we do not currently have many of the technologies that we will need if we are to reduce carbon emissions by the levels set out in the Paris Climate Agreement.
In most energy transition plans, Carbon, Capture, and Storage (CCS) systems are one of the key technologies that will help curb CO2 emissions by capturing carbon from the environment and storing it in subsea facilities. However, as of 2020, only 26 facilities were working globally, capturing 40 million tons of carbon dioxide. Meanwhile, in 2019 the world emitted more than 35 billion tons of carbon. Closing that gap requires serious technological breakthroughs, which may be why Elon Musk is offering $100 million to the best carbon capture technology in his new competition.
Another challenge to this transition is the sheer size and influence of the oil and gas industry. The oil and gas industry has a gargantuan infrastructure, and an elaborate network of pipelines, wells, and other facilities. This is the infrastructure that our current energy grids are based upon. According to Czech-Canadian scientist and policy analyst Vaclav Smil, the U.S. would have to dedicate 25–50 percent of its landmass to solar, wind, and biofuels if it hopes to satiate U.S. energy consumption with renewables. Such a drastic change will come up against plenty of resistance from the oil and gas industry and will take significant time and investment.
The next big problem with the energy transition is the inherent limitations of renewable energy sources. One of these is power density, i.e. amount of power per unit volume, denominated as Watt per square mile (W/m2). The power density of an energy system running on fossil fuels is “two to three orders of magnitude” above that of a wind or hydro-generation system according to Smil. Closely related to this concept is the element of spatial constraints. Renewable energy systems, due to their low power density, require vast swathes of land. An MIT study predicts that 33,000 square kilometers of land would be required in order to power U.S. electricity demand with solar energy. Similarly, it would require using half of the UK landmass for wind turbines if the country were to use wind for all its energy needs.
While the ambitious pledges from various international bodies and governments would suggest the energy transition is near, the gap between theory and reality here is vast. Fossil fuels supplied 84 percent of global energy needs in 2020, which is a worrying number for those eager to reduce CO2 emissions. According to Climate Action Network., the EU will need to increase its use of renewables by 50 percent by 2030 and 100 percent by 2040 in order to adhere to the Paris Agreement’s climate goals.
Source: Our World In Data
But it isn’t all doom and gloom for energy transition proponents. The focus on Environmental, Social, and Governance (ESG) investing is influencing how private companies act. BlackRock, the largest asset manager on earth with over $7 trillion under management, has stressed that companies need to take climate change seriously. These moves in the private sector could significantly accelerate the energy transition.
While optimism has helped to galvanize support for a global energy transition, a degree of realism is necessary as well. It will likely be decades before a full global energy transition can take place, and in the meantime, the most effective way to reduce emissions would be to control consumption. This is a process that faces financial, technological, and social hurdles, and predicting how long it will take is a near-impossible task. The energy transition may have begun, but there is a very long way to go before fossil fuel dominance is truly challenged.
By Osama Rizvi for Oilprice.com
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