Efficiency Fast
Trumpian realpolitik says ‘needs Musk’, but the whole world needs efficiency first and fast.
As I wrote in my book, we are at the edge, not the end, of history. Nor is it the end of the world. Donald Trump is returning to the White House and Elon Musk is tipped to lead the way for a new department of government efficiency. But behind all the rhetoric, there are some real hopes as well as the consensus fears for clean energy, the environment and the climate.
At the risk of being counter-cultural for the sustainability movement, there is a case for a massive opportunity here for America and a call to action for the rest of the world. A realist view is that advocates for a cause, like mitigating climate change, must choose to succeed, or fail. Climate businesses must now choose to succeed.
Success is going to demand efficiency first and fast. It must be based on fundamentals such as competitiveness and productivity. It has to offer better, quicker, cheaper solutions. Products and services will need to reduce costs, improve quality, strengthen resilience and enhance reliability. If it wasn’t ever the case, it will be now. Here’s why.
Inflation Reduction Act: Swimming not sinking
Fears for the flagship Inflation Reduction Act (or ‘scam’ according to Donald Trump) are understandable but also potentially overstated. A lot of the money has, or will be, forced out of the door by the time Donald Trump gets the keys. None of the dozens of attempts to overturn it so far have been successful and now 18 House Republican have urged party leadership to preserve the tax credits that are bringing new jobs to their districts.
Yes, it was a historic market incentive for the clean energy sector by any measure, but in the context of an annual government budget of around US$7 trillion and GDP (and national debt for that matter) of around US$30 trillion, US$0.37 trillion over the coming years was relatively modest in the scheme of things, even in comparison to the US$1.1 trillion on the table, with less fan-fair, from the European Commission for the 2020s.
The upshot is that if projects that don’t offer value for money for the taxpayer, or that are not yet commercially viable, then they will be at risk. Credits for hydrogen and carbon capture projects are popular with oil companies and other core Republican supporters. But expensive and higher risk projects will need to find alternative sources of support.
Electric Vehicles: ‘It’s the [energy] economy, stupid’
To be fair, anyone listening to Donald Trump’s acceptance speech in July would have expected a dismantling of support for electric vehicles if he won power. He would have terminated incentives such as the US$7,500 tax credit for electric vehicle buyers and rescinded Environmental Protection Agency tailpipe emission limits that encourage automakers to produce more EVs.
But if they kept listening until his speech at a rally in Atlanta in August, they may have thought differently: ‘I’m for electric cars. I have to be … because Elon endorsed me very strongly … So I have no choice’.
Tesla stock rose 28% this week since Tuesday’s close, worth up to US$50 billion to Elon Musk. This will further reduce his need to draw a salary or pension for any work he does for the federal government. The market understands that the Trump administration’s policies would advantage Tesla, which is profitable (and growing 17% year on year), compared to traditional carmakers, such as General Motors and Ford, whose electric vehicles are not. Import tariffs on Chinese EV’s will help Tesla, a lot.
But there’s a less obvious and more fundamental story here. Look at Tesla’s ‘Master Plan Part 3’ published in April 2023. The first section sets the scene. Neither with a manifesto for this technology or that, nor electric cars, but with a strategic framing of the energy system that starts with what I call the ‘biggest, dirtiest secret of the energy sector’, which, in the precise language of the Tesla document is as follows: ‘The Current Energy Economy is Wasteful’. It cites The International Energy Agency and the Lawrence Livermore National Laboratory to come to a big conclusion: ‘only 36% of the primary energy supply produces useful work or heat for the economy’. Why? Because fossil fuels are still 80% of the energy system and most of the primary energy is lost through extraction/refining, and transformation losses during electricity generation, plus inefficient end-uses such as internal combustion engine vehicles (which are less than 30% efficient, versus electric cars that are more than 80% efficient) and natural gas furnaces.
Under the bonnet, the call is for innovation and competitive advantage through efficient market dynamics, rather than subsidies. Tesla has claimed its fair share of the haul from government support over the years. Half of its profits in the second quarter of this year came from selling regulatory credits for other car makers to meet emission standards, but this was after it sped past sales caps to for federal tax credits in 2018. Nevada provided over US$330 million in tax breaks as recently as 2023 for Tesla to expand its factories. But Tesla has a track record of laying a two-way highway. It repaid a US$465 million loan it received in 2010 from the US Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Program in 2013, 9 years early. Some say that it’s easier (and even hypocritical) for Tesla to say that it doesn’t need government support when it has been fully charged already. But Musk takes the other side of the argument, advocating for market efficiency over government assistance, where the race should be won on merit through value, performance and demand. Tesla, he contends, would have won anyway.
So on the surface, it might have seemed odd that Elon Musk can welcome Donald Trump’s threats to end electric vehicle subsidies, but it’s perfectly consistent with the position he has articulated for years: ‘if a company has to rely on subsidies, it probably shouldn’t exist in the first place’; ‘get rid of all subsidies’; ‘government should just try and get out of the way’; ‘remove subsidies from all industries’; ‘but also for oil and gas’.
International Agreements: the long road from Paris to Baku and beyond
Donald Trump’s campaign suggested that his administration would seek to exit the ‘unfair’ Paris Agreement on day one. While this will shake negotiators at COP29 in Baku, Azerbaijan, over the coming fortnight, it is unlikely to change the support presented by the Biden administration in the meantime, which will be seeking to make progress on climate finance, emission reduction commitments, technology innovation, adaptation and resilience and international collaboration. Nor would withdrawal be immediate. It involves a formal process and takes a year after notifying the United Nations.
In the meantime, we will be discussing the climate crisis on the doorstep of two global geopolitical crises, which continue to divert a lot of political and financial capital away from the climate debate: the conflicts involving Russia and Iran. Azerbaijan was part of the Soviet Union until 1991 and its capital, Baku, is only 200 kilometres from the Russian border. Baku is also only 320 kilometres from the Iranian border. Donald Trump has claimed that he can settle the Russia-Ukraine war on day one of his presidency. In the meantime, there are signs of his apparatus seeking conclusions to the Israel-Hamas-Hezbollah-Iran conflict even before he takes office, urging Netanyahu to ‘get this over with’. This month, Qatar signalled its intention to expel Hamas leaders. Those praying for peace in both conflicts may be hopeful. But Trump has also promised to increase domestic oil and gas production and ‘drill, baby, drill’, even taking the quest to do so to the Arctic, another geopolitical flashpoint, now heavily militarised and with new navigation routes, ironically, opened by the warming climate in recent years.
In any case, we have the United States for the next two COPs. And while the incoming Trump administration may take an axe to many sacred cows of the climate agenda, such as restrictions on emissions deemed to disadvantage American industry (relative to other high(er) emitting countries), clean power and methane and vehicle emission standards, his team - and presumably Elon Musk – might just seize on one crucial aspect that they could genuinely champion. The COP28 Dubai Agreement called on its 198 signatories to commit to investing in renewable energy, about which Trump has, shall we say, expressed reservations, but also to double the rate of energy efficiency improvements. Donald Trump’s support for stepping up oil, gas and coal production and support for fossil fuels would seriously challenge the hopeful declaration by the UN Climate Change Executive Secretary that the Dubai Agreement was the ‘beginning of the end of the fossil fuel era’. But it might bring about the end of the beginning of the rise of ‘the energy efficiency era’. There may, in fact, be no other choice, on climate, cost or security grounds.
Efficiency First and Fast: getting further and faster with the ‘first fuel’
The world wastes most of its energy. It’s so astonishing, not just for the climate but for the geopolitical implications, that I wrote a book, ‘The Edge’, about it. The Lawrence Livermore National Laboratory (LLNL) in the United States and the UK Department for Energy Security and Net Zero publish data on it annually in extraordinary detail. The Rocky Mountain Institute says that it costs the world US$4.5 trillion annually. The International Energy Agency says that taking action to address this problem could deliver up to half the greenhouse gas emission reductions we need by 2040. And yet nothing like the time and attention, let alone the US$9 trillion, invested in renewables and the grid has been focussed on energy efficiency, the ‘first fuel’, the energy that we don’t use. This is the largest, fastest, cheapest and cleanest source of reductions in greenhouse gas emissions and energy costs, as well as improvements in resilience and energy security.
This must surely be one of the first orders of business for the new Trump-Musk ‘DOGE’, or department of government efficiency. Government spending in the United States typically represents between a quarter and a third of GDP. (In European countries, it represents about half). In the United States, the Department of Defence and federal government buildings are a big part of the country’s overall energy use. Add back hospitals, universities, transport and the government emerges as the largest energy consumer in most countries. And yet most energy is wasted. Only some 20% of the Inflation Reduction Act was aimed at addressing this problem. The latest LLNL numbers released last month are a reminder of the massive scale involved. Two thirds of energy is ’rejected’, mostly as waste heat because of centralised generation and combustion in transport. Oil, gas and coal in the United States still represent around 82% of all primary energy supply and 65% of electricity generation. The numbers for renewables are 9% and 10% respectively and wind and solar are 3% and 6%. Electricity use is only around 17% of energy consumption, a similar picture to the UK, and is mostly used in commercial and residential, far less in industry and negligibly in transport. While Elon Musk will no doubt be eyeing fleet electrification as an opportunity for road transport, he might also revisit the rail sector. Unlike Europe, it is overwhelmingly diesel. Also unlike Europe, it is largely privately owned, but perhaps this is even an opportunity for a public-private-partnership?
But if efficiency is an imperative and an opportunity in the United States, it is just as much, if not more so, in Europe. While the United States is a supplier, Europe is a consumer. Over the last decade, the United States has emerged as the world’s largest energy economy and a net exporter. It is resource rich, particularly with oil and gas, which still dominate the global energy supply. To all intents and purposes, it has become energy independent and has replaced Russia as a critical energy supplier to Europe in the wake of the Russia-Ukraine war.
The UK and Europe, on the other hand, aspire to energy independence. But they are not. They have relatively scarce energy resources and are net energy importers. European import dependency is up from 55% in 2014 to 63% now. UK imports ¾ of its energy and the number is going up not down. Compared to the United States, the UK and Europe pay 2-3 times the United States for electricity and up to 5-6 times the United States for natural gas. This has profound implications for productivity and competitiveness.
Russia’s invasion of Ukraine precipitated an immediate energy crisis of availability and prices that crippled parts of the European industrial complex. Rapidly, Europe had to diversify imports after the Ukraine war curtailed the supplies from Russia. But it also betrayed a longer-term problem that goes to the heart of Europe’s economic and political prospects, based on fundamental challenges of competitiveness and productivity.
This problem is already manifest in economic performance. In the last 15 years, the US economy has grown over 80%. In US dollar adjusted terms, Europe by contrast has grown less than 10%. American exports have gone up. European imports from America have gone up more – oil and gas up 50% since 2018 and natural gas up over 300% since 2020.
Physics, on the other hand, works the same in Europe as it does in America. That is why, to cite a European Energy Commissioner after Russia annexed Crimea a decade ago, ‘Every unit of energy we save is 2.5 units we don’t need to import from Russia’. Not 1, but 2.5, because of the huge system losses from centralised energy generation.
Energy efficiency through decentralised generation, bringing energy closer to the point of use (so most of it doesn’t get lost on the way) through on-site renewables, cogeneration and heat recovery, as well as energy demand reduction through upgraded lighting, heating, cooling, systems, motors and controls, can address this problem and dramatically reduce waste, carbon and cost.
Europe has so far largely succeeded in switching from Russian to American gas and other imports, but it needs to seize its own policy mantra of ‘Energy Efficiency First’, and fast, if it is to remain competitive. This might be the only way that Europe can achieve energy security and meet carbon emission reduction targets while keeping costs, and its economy, under control.
The European Union aims to mobilise at least €1 trillion Euros through the Sustainable Europe Investment Plan by 2030. Unlike the Inflation Reduction Act, the money takes some finding and is contained in an array of policy instruments, such as RepowerEU, NextGenerationEU, Invest EU, the Recovery and Resilience Framework, Cohesion Policy Funds, and the Modernisation Fund. So far, it has achieved efficiency of 5.9% in 5 years 2017 to 2022 and is targeting 11.7% by the end of the decade. Public sector is expected to take the lead. But it will have to continue to move, ever further and faster. Aside from the USA, China has been prioritising energy productivity improvements since 2006.
Back in the United States, what might have seemed like an odd and unlikely couple before the election campaign might find, in efficiency, a big lever that the whole world can pull to mitigate climate change in the short term – and possibly the biggest of them all.
Picture credit: ChatGPT 4o
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