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Energy Transition Advocates Get A Reality Check

This week, the Intergovernmental Panel on Climate Change released a new report. Unsurprisingly alarming, the report aimed to turn up the heat on governments, the business world, and every one of us to do more about the energy transition. Decarbonization, the report said, had to move faster and more dramatically. Yet that wasn't the only document that made the headlines this week. Shell also released a report in which it detailed two different scenarios for the future to 2050. In those scenarios, the supermajor's analysts pitted energy security against the energy transition - something the IPCC reports have never done. 

The choice between energy security and decarbonization is not one that tends to attract a lot of attention. It is a sensitive topic because it exposes the shortcomings of low-carbon energy. Yet, as Europe found out last year, it may be wise to discuss this topic before we splash $110 trillion on the energy transition.

In one of its scenarios, dubbed Archipelagos, Shell paints a familiar picture of the world of the future, at least politically. With a focus on energy security rather than decarbonization, the Archipelagos scenario describes a world similar to 19th-century Europe, where spheres of interest shift and nations ally with a view to energy security and resilience.

In that scenario, emission reductions and the Paris Agreement take a back seat, but work continues on deploying low-carbon energy technology. It simply progresses at a much slower pace.

Related: EU Still In Deadlock Over ICE Emissions Policy

The IPCC would probably be quick to point out that this scenario is effectively a doomsday scenario because nothing should take priority over emission reduction and the race to net zero. However, it is much easier to make computer models of future global temperatures and sound the alarm about them than find the money and the raw materials necessary to effect the transition at the pace that the IPCC wants it.

The raw materials problem of the transition has been garnering more and more attention from the media and, with it, from various stakeholders. The United States came up with the idea of friend-shoring to source these raw materials because it has no mine capacity to meet all of its projected demand from local supply. The EU plans to set up a Critical Raw Material Club, which effectively amounts to a buyers' cartel, but this time for metals and minerals.

The chances of success of either of these approaches are yet to become clear, but in the meantime, another thing is becoming clear: the transition bill will be even bigger than previously expected.

The sum total of transition investments has always been in the trillion-dollar territory, but the latest estimate from a climate think tank pegs the annual spend necessary to hit net zero by 2050 at $3.5 trillion. That's a more than threefold increase on last year's record investment in wind, solar, and other decarbonization efforts, which for the first time topped $1 trillion. Unfortunately, that record investment-some of its actual spent, the rest in commitments-brought us nowhere near either net zero or energy security.

In Shell's second scenario, however, these investments will work their miracle, with the indispensable help of everyone deciding to work for the common goal of cutting emissions and achieving what the company referred to long-term energy security.

In this scenario, governments, citizens, and businesses team up to bring those emissions down and deploy as much low-carbon energy capacity as possible, notably driven by energy security concerns. Energy security has indeed been one of the strongest arguments in favor of wind and solar-the energy produced locally is better than imported energy. 

That leaves the reliability and affordability issue, which decision-makers appear determined to tackle with excess capacity-for reliability-and with massive investments and subsidies-to solve the affordability problem. Because much as climate think tanks and activists like to repeat that wind and solar are the cheapest form of energy available, the wind and solar industries themselves appear to disagree.

"We are walking when we should be sprinting," the chairman of the Intergovernmental Panel on Climate Change, Hoesung Lee, said at the release of the body's latest report.

There are "no big fundamental barriers to the energy transition," said the deputy director of that climate think tank that produced the report estimating the cost of said transition.

Based on these statements and the documents behind them, the transition seems like a no-brainer, however you look at it. Except if you look at it from an energy security perspective. Or a financial one. Because if there were no big fundamental barriers to decarbonization, such as reliability issues or affordability challenges, the transition would be happening everywhere, organically, without the need for such strong government support. This is what happens with successful, beneficial technology.

Which of the two scenarios that Shell has developed for the future remains to be seen. For now, the Archipelago scenario seems more realistic, not least because it does not rely on as many assumptions as the Sky 2050 scenario, such as a global ban on ICE cars by 2040.

So do all the scenarios of transition advocates. They are all based on a series of assumptions, some of them dangerously far-fetched, such as the assumption that there will be enough metals for EVs to take over roads. And assumptions are risky allies. Although sometimes grounded in reality, most of the transition assumptions appear to be grounded in wishes rather than facts. And wishes do not make reality or bring energy security into spontaneous existence.

By Irina Slav for Oilprice.com

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Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More