In today’s issue…
- The environmental equivalent of “coming out of the closet”
- What do critics of the energy get wrong most often?
- Still time to see James Allen’s keynote speech at our Beyond Oil summit
Coming out of the closet is a pretty well-known term these days.
But I was surprised, recently, to see it used in a different context.
Here is the full quote, from an article about a huge push into energy transition projects by commodity trading companies:
Marco Dunand, who built Geneva-based Mercuria into one of the biggest independent oil traders, also said he had been a “closet environmentalist” since university but felt he could now finally “out” himself as one.
Well, I’m waiting for the day when certain colleagues of mine – who know very well who they are – are forced somewhat less graciously into similar adjustments to their outlooks.
The diversity of opinion and research is one of the great things about this company, Southbank Investment Research.
It can also be frustrating though.
I guess it’s odd because, in the modern age of attention grabbing, opinion-shouting, everyone can make a great case for why their thing is a big deal, or different to the others. People who are consumed by the bubble of their own area of expertise always think it more important than it is – so this may be why I’m so surprised that everyone isn’t equally as keen on investing in the energy transition as me.
I definitely feel like there is a gaping chasm between how people who are deeply focused on the energy transition feel about its significance, and how most other people think about it.
But because it’s such a big issue, everyone gets to comment, offering lazy opinions and pointless objections.
Many of these fall into familiar tropes or themes, so today I’m going to offer some energy transition FAQs:
- The straw man arguments
“It’ll take way longer than people think.”
“We’re still going to need oil for ages.”
“Renewables are intermittent, they can never replace 100% of coal and gas.”
“It’s prohibitively expensive, so will never happen”
As you can see, they are all arguing against the famous straw man – i.e. they are fighting an imaginary foe, a shadow of reality.
They are criticising beliefs that we in the energy transition corner do not actually believe, and in fact they reveal a pretty weak understanding of the relevant debates.
No one serious thinks it’s going to happen overnight. Even reaching net zero by 2050 (in three decades) will require a momentous effort and unprecedented investment.
You’ll find few transition analysts or experts suggesting that we will stop using oil completely, or that it won’t involve a long plateau or slow decline.
On renewables and intermittency, while there are some small, impressive studies showing that together they can offer competitive and reliable clean electricity to very high percentages of a system, in general the consensus is that solar and wind will be the key parts of a broader energy mix, including nuclear, some decarbonised natural gas, hydro or geothermal depending on location, and perhaps small bits of other things. And in some niche cases, fossil fuels will be appropriate too! It’s “net zero”, not “zero”.
- The underestimation of the problem arguments
These tend to forget that one of the key reasons we absolutely must transition as quickly and effectively because if we don’t, the global environment will degrade into catastrophe and disaster.
This also takes the form of the very-good-not-perfect error, where people imagine that because they can spot some small problem or challenge in the solutions for the future of energy, that makes the whole energy transition a foolhardy enterprise.
“It’s going to be so expensive.”
“Oil is more energy-efficient than solar or wind.”
“They’re going to need huge quantities of raw materials.”
These are all… true, more or less.
But the people who use these arguments to say that we shouldn’t push forwards or that it won’t happen are making a fatal error.
They are underestimating the fact that if we do nothing, if we cower before the challenge and stick to what we have done for the last hundred years, we will inflict ecological, demographic, physical catastrophes on the planet and its inhabitants.
Wildfires, droughts, floods, resulting conflicts… it’s already getting worse, and given the long, multi-decade lag that greenhouse gas and CO2 emissions have on the atmosphere, they’re going to keep getting worse for a while.
At only a 1 degree temperature rise, we are seeing more extreme weather than in any of our lifetimes, more regularly than ever before.
Well, if we do nothing, we will get to a four degree rise above pre-industrial levels.
As one of our guests in Beyond Oil 3 put it, that’s Armageddon.
- The doesn’t know their stuff arguments
These tend to fall into the old tropes of thinking that the transition is a developed nation luxury that it’s either implausible or unethical to force on to developing nations.
“Electric vehicles aren’t actually any better for the environment than petrol/diesel vehicles.”
“You can’t force emerging economies to switch away from cheap oil to these expensive alternatives, it’s just not fair.”
“it’ll cost too much per person.”
Well, as you’ll see in full below, renewables are not only cleaner and much less damaging to human health and the environment than coal plants and diesel generators.
But they are also, thanks to incredible efforts from industries and governments, cheaper than them too. So adopting clean green energy has never been cheaper.
On the electric vehicles point, I mention it because it’s become a popular line for hit pieces in newspapers and magazines, some very shadily sponsored by petrol vehicle manufacturers as one former interviewee of mine discovered.
Luckily, Auke Hoekstra, a leading researcher in e-mobility, has taken to writing rebuttal pieces, debunking the lazy science and poor assumptions underlying these sinister hit pieces.
In our Beyond Oil 3 summit that’s currently going on, I interview him live about this, and much much more.
- The people are still building coal
These revolve around emerging markets, especially China.
I wrote something before about coal, you can read it here.
Essentially, coal is responsible for a ludicrous number of deaths form pollution (the most of any energy source by a long way), and it is also the most environmentally damaging.
It’s also now more expensive than renewables.
The cost of solar and wind power, and batteries which can store them for use later, have all fallen dramatically over the last 50 years – in the last decade most of all.
Solar is now the cheapest energy in history, after being auctioned off at one cent per kilowatt hour in Portugal last year.
So it’s already cheaper than 2/3rds of coal plants worldwide, and by 2030 they’ll likely be cheaper than all of them.
And in China, they just cancelled a lot of their planned coal plants (4.5 times as much capacity has been cancelled than entered into construction since 2017).
And many of the ones which do get built will most likely go to waste, as they are undercut by renewables and objected to by inhabitants of some of the most polluted cities on earth.
Finally, the higher the coal price goes, the less competitive it becomes. So it’s a lose-lose.
- “It’s a bubble”
I have written about this before, too.
Firstly, a bubble is firstly a poor choice of word, because it suggests a fleeting nature to proceedings where in five years everyone might have forgotten about silly climate change or those funny wind turbines you used to see.
This is the beginning, not the end. There are going to be many more wind turbines, solar panels and electric vehicles in five years’ time than there are today – that much is abundantly clear.
Fighting climate change is a multi-decade effort: this is why this energy transition can be described as a megatrend – it envelops everything and is going to take half a century, or more.
So firstly, it would be better described as “volatile” and “early stage” than a bubble.
Secondly, if you want to call the top, you have to call the bottom too. And all the people calling it a bubble were nowhere to be seen when it was the time to buy, two or three years ago.
James Allen, however, was that man, encouraging people to buy well before the knockout year in 2020. And if you want to hear from him, now is your chance.
Finally, prices have now pulled back – meaning that the opportunity is even better value than before.
But in time, they will push back higher, becoming a larger and larger part of the investment universe, and the incredibly low cost of wind and solar power unlock de-carbonisation in many sectors, like steel making, textiles, food and agriculture, packaging, cement, construction, aviation… everything!
Anyway, a lot of this reminds me of the faith placed in a single supporting figure or argument regarding coronavirus.
For some people, the existence of a single doctor who had doubts about the vaccine, or the efficacy of lockdowns, somehow outweighed the views of tens of thousands of medical and scientific professionals who are fully behind those things.
It is similar with climate change. One swallow doesn’t make a summer and one single criticism is but a flea zooming about next to an elephant. It might make the elephant flick its ears, and enough fleas might even make it change its course slightly, but it’s never going to stop it.
I know that there is some merit to some of these criticisms. And there are other, much more coherent ones too.
The energy transition is ridiculously complicated, difficult, and uncertain. But the conclusion is not that it won’t happen or that we should give up: it’s that we must redouble our efforts in order to avert global catastrophe.
The social, political and financial will that now drives the transition forwards is doing this, and the direction has never been clearer.
It’s going to pay to be well-informed about this.
Don’t be that person. Make sure you understand the biggest change to our energy system in eighty years.
Sign up to our Beyond Oil Summit, to get the facts, from the very best minds in the energy transition.
Co-editor, Exponential Investor