Choosing An Energy Deficit

blue planetEnergy analyst and author Richard Heinberg published a sobering piece on energy transition and climate change last week, and he hits upon a theme that I’ve been addressing in my recent work on coal. Titled, Trying to Save the World, Heinberg writes about the energy deficit one would be choosing to enter, as part of carbon reduction:

Reducing carbon emissions essentially means using less coal, oil, and gas (since carbon capture and sequestration is arguably unrealistic on any substantial scale, other than by reforestation and regenerative agricultural practices). Since “clean” sources of energy probably can’t be scaled up to replace fossil fuels entirely, this means the world will have less energy to go around. (It will no doubt soon have less to go around in any case, because fossil fuels are non-renewable and depleting, and we’ve probably already passed the peak of world oil production—but don’t get me started on that.)

Historically, there has been a very close correlation between energy consumption growth and economic growth, so with less energy available it may not be possible to continue growing the global economy in customary ways. Almost nobody in the climate community wants to talk about that, because the very suggestion that strong, effective climate policies will have a significant economic cost makes such policies far less palatable to folks on Main Street, and certainly to politicians.

Yes, precisely. I have warned in my presentation Coal World that unless we start using oil to build Alternative Energy infrastructure, the world will continue on its pathway of energy impoverishment (as the cost of all energy inputs continues to rise) and we will soon enough reach a point where transition to Alternative Energy infrastructure becomes prohibitive. The result would be a world turning back to the cheapest energy it can find–and that is coal. If economies and political bodies seems either reluctant or clueless now about using oil to build out new power generation, then 150.00 dollar oil will not function as the inducement that many presume.

The harsh reality is that, whether one chooses an accelerated energy transition to Alternative Energy either because of climate change, or peak oil, it will mean that economies and countries will have to make a discretionary choice now, in order to be successful in the future. The scale of the problem is that large. And the choice would be to use less energy now, or use more expensive energy now, in order to conduct a 25 year energy transition. Historically, people are just not inclined naturally to take short term pain. Groups of people are especially ill-equipped to make such grand decisions.

We can think of funding energy transition, therefore, as being analogous to funding one’s retirement. However, in addition to saving or devoting capital, economies would have to save or devote energy as well to the cause. Simply put, to any trajectory of future oil consumption used in the normal course of the global economy,  we would have to add in a new, enormous consumer of oil: the energy transition infrastructure buildout. And that would place extra price pressure on oil, and thus lead as back to the political and economic intractability problem. Adding further pressure to the challenge is that in any energy transition to Alternative Energy one is choosing to give up either cheaper or higher power-density sources of energy to then latch on to more expensive sources of power generation. Again, not a pathway normally chosen by short-term, profit-maximizing economies.

I actually argue that wind and solar power generation offer tremendous returns–but more on the back end of their lifespans. They are perfectly opposite to coal, therefore, in their full-cycle economics–especially when taking into account all obvious externalities. Coal is cheap and ready to go in the short-term, but long-term exacts high costs in terms of health and infrastructure maintenance. Solar, on the other hand, requires large up front capital and promises to pay off only later with wonderfully accretive low(er) maintenance costs. Our challenge remains one of human psychology, and our disabling bias for the present. More generally, I wish that those who deign to offer up rosy prospects for energy transition and discretionary carbon reduction evidenced the same mastery of oil, coal, and energy history as revealed in the collected works of Richard Heinberg.

-Gregor

Further Reading: My Working Model: Oil to Solar.

  • Eric

    Gregor, I'm curious about your views on nuclear power plants.

  • http://www.worldofwallstreet.us/ Douglas M Dillon

    Great blog. Please keep posting. Its hard for me to stay up to speed on the energy sector (in which I am not currently invested), but your posts always have a depth that I haven't found elsewhere.

  • gregor.us

    Thanks so much. Very kind of you.

    Best,

    G

  • gregor.us

    Shorthand version: I am no longer positive on the prospect of Nuclear Power 2.0 (a new generation of nuclear) because I think the energy and capital payback economics have no shifted in favor of utility grade solar. i.e., you spend X amount of money to build utility grade solar, and not only does it start generating energy faster, but maintenance costs and original construction costs (also as a function of time) are superior now imo, to nuclear.

    G

  • Craig Burton

    I am quite sure we will make the wrong choice and provide yet another demonstration of the tragedy of the commons. My concern is how will I explain this to my kids.

  • chriscook

    Excellent as usual. As you say….

    However, in addition to saving or devoting capital, economies would have to save or devote energy as well to the cause.

    I believe that it is only the monetisation through 'unitisation' of the energy value of carbon which will permit this, and this is in fact achievable in a way that anyone who understands Frequent Flyer miles will appreciate.

    I outlined a new approach to the Global Gas Market along these lines in Rotterdam the other day.

    In Glasgow recently I focused on electricity and Energy Pools

  • cougar_w

    The problem is acute and made worse by the ongoing denial about oil depletion. I think we can pretty much assume that the needed restructuring will NOT happen while there is any oil left to burn for BAU since the simple existence of any amount of fuel at the pump at nearly any price point will simply negate out of hand any bid to build an alternative infrastructure. Simply, out of hand.

    Which then means that we'll be using coal to this end. But we'll also be using coal to finally provide the electrical power needed for conventional mass transit after the automobile is no longer viable. Well that's a LOT of coal, and given the timeline for that (say 15 years hence) we're going to be banging on the door of some very nasty environmental, political and economic demons created by AGW and energy policy failure. Very nasty indeed. Probably lethal.

    All points to: No action when it might have mattered, late action in the very teeth of disaster, no action possible on energy policy because of the vastly more lethal global issues that would result, and a generalized global collapse on the heels of widespread paralysis.

    I mean, how many ways can we cut this? In a fully realistic assessment, “too little too late” is baked into the cake.

    cougar

  • http://www.fineandrareguitars.com brucebanister

    People just don't get it, don't believe it and don't want to hear it. Nice blog, I read everything. Thanks.

  • http://economic-undertow.blogspot.com steve_from_virginia

    We need to start an energy bank. Some percentage of energy production capacity would be set aside for investment in renewables. Clever investments would generate excellent returns. The concept is to kick ER farther down the supply- consumption food chain from oil field OEI.

    I observe that prime movers tend to be discrete.There is no direct mechanism for oil production to directly 'finance' solar electricity, for example. There are too many gatekeepers between them. The primary gate keeper is government subsidy which amounts to a large and permanent barrier to entry against energy innovators.. What I'm brainstorming is to privatize the gatekeeper role and attach profit to the ER of the secondary prime mover.

    The current gatekeeper role itself would remain in changed form. Royalties currently paid to government would instead be 'banked' and used for energy investment. The ROI would be stakes in the future cash flows of the energy produced by the investment. The government isn't efficient at allocating investment, witness the ethanol fiasco, the Colorado oil shale fiasco, the nuclear waste repository fiasco, the 'smart grid' fiasco, etc, etc, etc.The loss of royalty income to government would be balanced by the decreased need to extend subsidies.

    Watching government and Wall Street pas de deux over the past couple of decades suggests that cronyism and corruption is the main reason for inaction on the energy front.

    Of course the best form of alt energy is conservation. Having a conservation payback other than an anemic tax credit or amortized fuel 'savings' over the lifetime of Noah would be a gigantic step forward. Letting people get rich by not consuming would save energy and probably save the economy – which is choking on a long running energy shortage that is manifesting itself in credit.

    Let's start a bank Gregor you and me we can make a killing!

  • johnRDC

    Problem: It appears that when large solar installations are being considered, local folks balk. “Not in my backyard.”

    At least this seems to be what is happening in the U.S.

    Question: where can these marvelously efficient giant installations be located? Palm Beach? Palm Springs? Beverley Hills?

  • johnRDC

    One more thing:

    Due to control of oil fields by various nations, and the consequent lack of transparency, no one knows what the amount of reserves is. Further, there is rampant mismanagement of these nationalized—or partially-nationalized—fields.

    Is your thinking that the situation is hopeless due to the fun and games of oil producers, and that the transition is necessary as a result? Or, is it that if an accurate inventory of oil reserves were conducted, there would still be a need for the transition to begin?

    I'm just wary of claims that solar/wind solutions are going to offer anything but band aids, and can only work with massive public subsidies.

  • johnRDC

    Problem: It appears that when large solar installations are being considered, local folks balk. “Not in my backyard.”

    At least this seems to be what is happening in the U.S.

    Question: where can these marvelously efficient giant installations be located? Palm Beach? Palm Springs? Beverley Hills?

  • johnRDC

    One more thing:

    Due to control of oil fields by various nations, and the consequent lack of transparency, no one knows what the amount of reserves is. Further, there is rampant mismanagement of these nationalized—or partially-nationalized—fields.

    Is your thinking that the situation is hopeless due to the fun and games of oil producers, and that the transition is necessary as a result? Or, is it that if an accurate inventory of oil reserves were conducted, there would still be a need for the transition to begin?

    I'm just wary of claims that solar/wind solutions are going to offer anything but band aids, and can only work with massive public subsidies.