The harsh reality of the global energy transition

I recently presented at the Las Vegas MoneyShow on the energy transition. I was later interviewed on this topic on the Financial Sense podcast (link). This article highlights the major points made in that presentation and the subsequent interview.

The concept of “energy transition” emerged after the 1973 oil crisis and was widely popularized by President Jimmy Carter. It refers to the global transition from fossil fuels to renewable energy sources, with the aim of reducing greenhouse gas emissions and combating climate change. This transition is driven by government policies, international agreements such as the Paris Agreement, and technological advances in energy storage and efficiency.

The US has previously gone through an energy transition. As coal consumption began to increase beginning in the 1850s, it eventually replaced wood as the primary source of energy for Americans.

In the previous century, the use of oil and natural gas increased steadily. As this happened, coal consumption declined at first, before reviving in the second half of the century. Nuclear power began to grow in the mid-1960s.

It could be argued that there was a partial transition from coal to oil and natural gas during the previous century before coal consumption began to rise again. This pattern has repeated itself this century, as coal consumption is again declining. However, this decline is largely the result of coal being replaced by natural gas at power plants, with the rise of renewable energy making a secondary contribution.

This model shows that there is a transition away from coal, but it is not a general transition from fossil fuels to renewables, which many believe. In fact, global energy demand has consistently grown faster than renewable energy has grown.

The data shows that in nine out of the last ten years, overall energy demand has outstripped the ability of renewables to keep up with that demand. The only exception was in 2020, when the COVID-19 pandemic dramatically affected energy production.

These trends have important implications. If renewable energy does not keep pace with the increase in global energy demand, or even gains substantially, then other energy sources must make up the shortfall. This has meant that fossil fuel growth – and subsequently global carbon dioxide emissions – continues to rise.

Thus, what has happened so far is not the energy transition that some have imagined. Coal consumption is declining, but overall fossil fuel consumption continues to rise. As a result, some have referred to the current situation as an “energy expansion” rather than an “energy transition”.

The reason this is important is that energy policies must reflect hard realities. It is good to adopt policies that encourage and stimulate an energy transition. But if policies that assume an energy transition are put in place – and that transition does not materialize – a future of energy shortages and skyrocketing energy prices can be created.

In conclusion, while the concept of energy transition remains an essential goal in the fight against climate change, the reality is that we are still far from achieving a real shift away from fossil fuels. The data shows that global energy demand continues to outpace renewable energy growth, leading to a growing reliance on fossil fuels and rising carbon emissions.

As such, it is essential that energy policies are grounded in the realities of our current energy landscape. Policy makers must balance the push for renewable energy with the practical needs to maintain a stable and affordable energy supply. Otherwise, we risk facing significant energy shortages and economic disruption for years to come. The transition will require not only ambition, but also pragmatism and careful planning to ensure a sustainable energy future.

By Robert Rapier via rrapier.com

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