The Hangover
Demand for fossil fuels will continue to linger, and cause headaches, for some time to come. In the meantime, only true remedies, and patience, offer a sustainable cure.
It’s a familiar feeling at this time of year. Hard to shake off, your head hurts, you feel exhausted, queasy, and longing for the sickness to pass. Such was the feeling for many as the Conference of the Parties (COP) to the UN Framework Convention on Climate Change (UNFCCC) met for the 28th time to discuss the damage to the planet’s health created by decades of bingeing on fossil fuels. But there will be no cold turkey and the hangover is set to linger on. So thoughts must turn to what we can do about it.
‘The report of my death was an exaggeration’, Mark Twain
When traders woke up in London on Thursday, shares of oil majors had finished a nudge higher in New York on Wednesday night, after 198 countries struck a deal dubbed as the historic Dubai consensus at COP28. UN Climate Change Executive Secretary Simon Stiell declared the agreement reached the night before as the ‘beginning of the end’ of the fossil fuel era. But the deal was welcomed by oil majors in its focus on an ‘orderly’ move away from fossil fuels and its acknowledgment of a continued role for ‘transitional’ energy sources such as natural gas.
Conversely, carbon markets hit a 14-month low when news broke that the agreement had dropped reference to the ‘phasing out’ of fossil fuels. The price of carbon in the EU emission trading scheme slumped below Euro 66. Its peak in February 2023 was 50% higher. COP agreements are essentially non-binding for lack of enforcement, but critics accused the Dubai agreement of containing ‘cavernous loopholes’, and carbon market analysts went further still. They bemoaned its language as ‘weak’, pointing to a failure to agree on plans to launch an international carbon market under UN supervision, as had been the hope from Article 6 of the 2015 Paris agreement. The EU reportedly felt that the plans lacked substance on governance, standards, and transparency, while Saudi Arabia and the US wanted them to be more flexible. So, it seems, no deal was deemed better than a bad one.
The, for now, inescapable truth is that fossil fuels still dominate the energy system, with oil, gas and coal representing over 80% of supply. The food system is entirely dependent on fossil fuels, from the natural gas used to make substantially all the world’s fertiliser, to the oil used to transport substantially all food by air, sea, or land from the farm to the fork. Green ammonia, sustainable farming methods and electrified transport may take decades to displace them. The growth of fossil fuels, although slower than renewables, is from a much higher base and continues to overwhelm them. As fast as China builds wind and solar, it adds yet more coal, buys its oil from Iran and gas from Russia. Renewables are yet to displace fossil fuels in other critical areas such as industrial heat. And even in electricity, which only represents some 20% of energy, renewables would have to triple or quadruple from current levels of deployment (and to enable that, the equivalent of the entire global electrical grid, as long as 2000 laps of the Earth, would have to be replaced) before they can get on with the job of displacing fossil fuels in the rest of the system. This will take a lot of time, money, materials, effort, creativity, and not a little patience.
If this is the fossil fuel hangover, then what is the cure, how quickly will it take effect and what should we do in the meantime?
‘The stock market is a device for transferring money from the impatient to the patient’, Warren Buffet
Various hangover remedies have been offered up. Perhaps carbon capture and storage risks being applied as a kind of ‘hair of the dog’ remedy – keep going burning and wasting natural gas (half of which goes in up in smoke as waste heat in centralised plant) and see what happens? Similarly questionable seems making 22% efficient hydrogen for power. Indeed, some US hydrogen industry players were up in arms this week at leaked White House proposals requiring that the subsidies from the Inflation Reduction Act should be reserved only for those projects that could meet high green standards and actually make power for electrolysis from renewables. BloombergNEF has estimated that, unless restrictions are applied, ‘green’ hydrogen production processes could create 75% more emissions than ‘grey’ hydrogen from natural gas.
On the other hand, COP28 did offer up some promising recipes and serious answers. The ‘Oil & Gas Decarbonisation Charter’ saw 50 companies representing a substantial minority (40%) of the market promising to stop routine gas flaring and methane leaks by the end of the decade and to achieve net zero carbon in their operations by 2050. 155 countries supported the Global Methane Pledge to cut methane emissions, some 80 times worse than CO2 over 20 years, by at least 30% by 2030, together with $1 billion in grant funding to make it happen in oil, gas, waste and agriculture.
But it was the final agreement that perhaps delivered the biggest prescription for those seeking a sustainable cure. It calls for ‘Tripling renewable energy capacity globally and doubling the global average annual rate of energy efficiency improvements by 2030’, and ‘Transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science’. No immediate transformation, for sure, but a transition. Not a message for the impatient, but a hangover cure that will take time, and patience, to set in.
The twinning of energy efficiency with renewable energy as the first of the remedies called for in the Dubai agreement was a particularly poignant breakthrough. While the reference to fossil fuels (at all) and the call to action on renewables has absorbed most of the media attention, energy efficiency, the largest, fastest, cheapest and greenest source of greenhouse gas emission reductions, has never achieved this level of prominence at a COP. It may be the unsung hero of the energy system, but it is capable, according to the International Energy Agency, of delivering 50% of carbon emission reductions by 2030 and nothing else is.
That the world wastes most of its energy in the extraction, conversion, generation, transmission and distribution process is not as well known as it should be, despite the evidence presented regularly in energy flow charts by the Lawrence Livermore National Laboratory and published by the Digest of UK Energy Statistics (DUKES), which show the scale of the losses respectively in the US and the UK. This is extremely expensive as well as disastrous for costs, competitiveness, productivity and energy security. So it is not too soon that the UN process has decided to so something about it. Energy efficiency involves doing the same or more with less. This is possible, by using more efficient equipment (like lights, HVAC and motors) at the point of use, by generating energy closer to the point of use (using solar, renewable or recycled heat, cogeneration), and by efficient distribution (e.g. electric vehicle charging). And it pays for itself, or can be financed from cost savings.
My book, ‘The Edge’, describes in detail how addressing the inefficiencies of the energy system is mission critical to any credible and sustainable decarbonisation plans, as well to economic performance and to the mitigation of conflict.
Stock markets have been punishing to clean energy stocks in 2023. Amongst fears of a ‘higher for longer’ interest rate and inflation environment, even profitable companies have seen major corrections as income has been re-rated.
2024 may feel better as the authentic hangover cures start to take effect.
To learn more about investing in the energy efficiency sector, visit: www.sdclgroup.com, or www.seeitplc.com.
For the full story, read ‘The Edge: How competition for resources is pushing the world, and its climate, to the brink - and what we can do about it’. It’s available now at bookshops in the UK and the US. Amazon has a particularly good deal on it for xmas!