ANYONE WHO EXPERIENCED the oil crises of the ‘70s and ‘80s will remember Sheikh Yamani, Saudi oil minister and leader of the then dominant OPEC cartel in the days when oil was cheap and America hadn’t started exploiting its shale deposits. He is credited with saying that the Stone Age didn’t end because of the lack of stone, and the Oil Age wouldn’t end because of the lack of oil.
You can read many things into that, but it encapsulates an essential truth: in the energy sector, one source is likely to dominate for a particular purpose until something better comes along. ‘Better’ also means at least as economic. So, coal swept away wind and water power, the internal combustion engine replaced horse power, town gas meant the end of candles and coal, and then gas displaced wood for heating. All of these made life better and became ubiquitous as more and more people could afford them.
In the course of time, all this will change. Ultimately, the writing is on the wall for petrol and diesel, not because of the receding mirage of Peak Oil, but because something better will come along. This could be battery power, it could even be hydrogen, but the chances are it will take some form that is not yet even close to commercialisation. But in the meantime change is being forced by the only means available other than market economics: public policy.
The logic is that, since emissions of so-called greenhouse gases (primarily carbon dioxide) are pushing average global temperatures up (to an unknown degree) and such a change could ultimately cause major problems, immediate action has to be taken to reduce emissions. Furthermore, this action has to be taken using the technology currently available, whether or not it is up to the task.
Ignore for the moment the fact that it is global emissions that determine the level of atmospheric carbon dioxide and, with the continued growth in particular of the Chinese and Indian economies, these are still increasing year on year. When they will peak is a moot point (although a recent projection is that global CO2 emissions to peak in 2026), but the later this happens, the greater the cutbacks needed in later years to avoid breaching the limit of a 2°C rise that modellers consider to be the point at which climate change becomes dangerous.
Ignore also the fact that we have not seriously begun to address the enormous problem of how to replace gas as the primary source of energy for heating. All that is being done so far is to reduce the CO2 emissions from electricity generation by moving from coal- to gas-fired power stations (although, in the case of Germany, perverse incentives have pushed up the use of domestic lignite in place of gas) and install increasing numbers of wind turbines and solar panels. At the same time, an ideological antipathy to nuclear power is seeing an accelerated run-down of the sector in Germany and, incredibly, the prospect of France increasing its emissions as it scales back its reliance on safe, cheap and reliable nuclear electricity.
None of this would have happened without government intervention. Free market economics are against it and so, although we talk glibly of ‘public subsidy’, it is the consumer who ultimately pays the price via higher utility bills. Similarly, we are being either encouraged or bullied, depending on your viewpoint, into buying electric or hybrid vehicles to replace pure petrol- or diesel-powered cars. By 2040, we are told we will have no choice. And, if others had their way, the transition would come sooner (Most new cars must be electric by 2030, ministers told).
But such cars are more expensive than their conventional alternatives, even with the ‘public’ (i.e., taxpayer-funded) subsidy available. This means that they will appeal to a certain section of the car-buying public, but only the more prosperous ones, and the subsidy becomes a form of regressive tax rebate. Neither should we forget that a large infrastructural investment is needed to provide charging points; someone ultimately has to pay for this as well.
This whole exercise is, of course, futile unless it achieves significant cuts in emissions. The additional generating capacity has to be low carbon (in a rational world, probably based on nuclear energy) and integrated into the grid in such a way that the electricity supply is stable and reliable. Currently, conventional backup (mainly inefficiently-run gas turbines) is needed to keep the lights on. As more renewable energy capacity is added, the difficulties of integrating it increase and the benefits in terms of emissions cuts decrease.
Despite this, there is a general feeling in the business world that the demise of oil and coal is inevitable. This being so, it is perhaps not surprising to learn that Lloyds of London to divest from coal over climate change. They are following other insurers and organisations including the Church of England in taking this stance. This is partly reputational, but as hard-nosed businessmen, the board no doubt feels that profits can be as good elsewhere with less risk. After all, climate activists continue to preach that fossil fuel reserves could soon become stranded assets with little worth.
Whatever the reasons, pressure is increasing, and not just on coal. We can also read about Big Oil, climate change and the law. In America (naturally), BP, Chevron, ExxonMobil and Royal Dutch Shell are being sued for compensation for damage by superstorm Sandy to New York City in 2012. In California, 21 teenagers have a case against the federal government in the appeals court claiming that it “failed to protect their rights to life, liberty and property by promoting the use of fossil fuels”. And RWE is being sued in Germany by a Peruvian mountain guide because of its supposed contribution to the melting of a glacier, which is threatening his home town.
Change is being driven by government policy and campaigning pressure. So far, the public are not generally complaining about the costs or disruption to their way of life. But all that could change if costs escalate and more changes are forced on people where no benefits are seen. If more focus was to be put on developing new technology, innovation and economics might mean that same public would willingly embrace more cost-effective changes that actually improve their lives.
Martin Livermore writes for the Scientific Alliance, which advocates the use of rational scientific knowledge in the development of public policy. To subscribe to his regular newsletter please use this link.