Net Carbon Zero – is this the only way?

Blain’s Morning Porridge – June 3 2021:  Net Carbon Zero – is this the only way?

“Global Energy has to change. Completely. ”

This morning. The International Energy Authority (IEA) is grabbing all the climate change headlines with its demands for Carbon Zero by 2050 and increased spending on renewable energy. The IEA now represents the consensus – the received wisdom. How achievable are their targets? Or will economic reality and rising costs of climate abatement result in something very different? It’s easy to demand neutrality – but will be frighteningly difficult to achieve.

Apologies for lack of porridge y’day. I was taken out by the most dread disease of the 21^st Century – allergic hay-fever! Don’t know what triggered it, but it hit hard.. Streaming eyes, thumping headache, runny-nose and unstoppable sneezing. I self-medicated with too-many anti-histamine tablets, adding sleepy and brain-fog to the fervid mix wrecking my day. This morning I’ve a hacking cough and sore throat. I spent y’day trying to sleep it off on my boat, figuring I’d be better being on the water to keep me away from whatever the trigger was. However, my chum, the research quack, tells me the most likely cause was a combination of hot weather and marine pollution – the haze from dirty shipping fuels.. It gets bad when the temp rises and we have a blocking high, like presently!

Back in the Real World.

Yesterday’s duvet day means I’ve not had a chance to listen to what’s been going in markets, but I have been able to think about the reaction and noise around the International Energy Authority’s recent reports on Net Zero by 2050 and World Energy Investments 2021. Both are fascinating… and deeply troublesome.

The Global Net Zero target by 2050 was never going to be easy – but, it shows how opinion has shifted 180 degrees over the last decades. We’ve gone from “prove fossil fuels do harm”, to “prove we shouldn’t shut them down”. IEA is calling for a complete transformation of how we produce, transport and consume energy. It reads much like Al Gore’s Inconvenient Truth a few years ago.

The Saudi Oil Minister’s comment on the Net Zero report was to brand it a “LaLaLand sequel”. Well, he would, wouldn’t he….

As a climate change believer I should be delighted. Yet… I’ve never been a supporter of fashionable consensus, especially when that consensus has been achieved in the rarefied confines of an international talking-shop NGO. Two things worry me – how in touch with reality the report is in the face of growth and real economics, and just what will be the real costs of all that money directed into the climate change sector?

Some folk suspect the IEA is playing a double-bluff; releasing a report so shocking and unachievable that it confirms the impracticability of getting there. Others unkindly wonder if they own shares in wind farms….

For all the noise their recent reports have generated, I didn’t read much about the economic dislocation that could be caused by constraining oil supply and exploration in terms of oil prices – which would be bound to rise, and how the price of energy will soar if we don’t achieve the goals set out. Growth depends on Energy – making it scarce will be playing with fire – or, more accurately, the lack of it!

The IEA recommends we cut oil consumption by 8% per annum, meaning no new oil or gas projects should be developed, and definitely no new coal mines. (It was as anti-oil as you could make it, and launched the same week Oil majors received a number of shocks in the board room and courts – see Militant ESG in Oil will trigger consequences elsewhere.) It calls for renewable spending to rise from US$2 trillion to US$5 trillion immediately to raise renewables to 66% of energy by 2050.

Why my scepticism? All this is happening at a time when the global economy is racing into pandemic recovery. How do you balance growth, recovery and the climate change imperative? The IEA predicts the global economy will double by 2050, but will consume 8% less energy, occurring over a time period when effectively 3 billion people will be added to the global power grid – a 2 bln rise in population and 785 million without current access to power.

The report puts a hefty reliance on new tech in terms of batteries, hydrogen, biofuels and air-capture of Co2 to get us there. These are still – largely – imperfected tech. A full switch to EVs – demand for lithium will rise “40-fold”, says the report! Meanwhile, building Co2 and energy efficiency will have to increase by 95%. We will have to travel less, eat less meat and all the rest….

Meanwhile, the Second IEA report on World Energy Investment in 2021 scopes how investors are looking at funding fuel, energy and energy infrastructure in response to the demands and pledges from governments and the private sectors to address climate change. The agenda already colours investment. Speak to any infrastructure investment fund CEOs and they will reject anything fossil linked out of hand. (I had that short, sharp and depressing discussion on a deal with a very good chum y’day – I know, and he knew, the deal makes sense.. but its chances of being funded? “Come back to me when Hell freezes over…”)

The IEA report sees a 10% year on year increase in global energy investments – largely into renewables. 70% of global spending will go into – essentially – solar and wind. I have doubts. I reckon the maths behind the costings, efficiency and maintainability of wind-power are exaggerated, and have been massaged by governments who see miles and miles of sea-ward windfarms as proof they are doing something. The fact these wind farms are inefficient, with serious maintenance costs ignored, gets buried. Solar also worries me. I recently tried to instal solar power panels on our rebuilt house, but after meeting some of the salesman trying to foist their deals on me… no way.

While the climate change protestors rant at the developed west to clean up its act – its these 3 billion people not currently in the global power grid, (but who will be by 2050), we should be thinking about. It’s growth nations like Vietnam that are still building coal powered energy assets – not just China and India. How to persuade them to build fields of solar farms instead, when the most effective way to raise their economies is via coal?

Wind farms, solar power and nuclear are only part of a decarbonised future. My own favourite power source would be tidal energy – but I keep being told that’s more expensive and difficult, even though it is 100% reliable in terms of natural generation.

Issues like capacitance (the storage of energy), batteries, smart grids, EV changing grids are immediate first level issues. While everyone loves hydrogen, it’s not a tomorrow solution. Problems of how to replace Jet-fuel and marine fuels with new carbon neutral fuels are equally problematic from an economic perspective. New tech like air-extraction of Co2 or new hydrogen steel production and such are still years away for widespread adoption.

There are solutions out there. The question is how practical they are. Many of new tech ideas tend be solutions in search of a problem….. For those that do solve decarbonisation, you still need to consider if they make economic sense and are they commercially achievable? How would you incentive their adoption?

My chum, the smartest man in Renewable Energy Research, Rob West of Thunder Said Energy, has been looking closely at Biofuels, one of the many touted solutions to CO2 Net Zero. The US produces 1Mbpd of ethanol, tying up 30M acres of land accounting for 40% of the US corn crop. He notes that twice as much carbon could be abated (ie sequestered) by simply reforesting the same land with trees…

Producing Jet fuel from ethanol and biogases is possible, but is enormously expensive – about 3 times the cost of using conventional av-gas. Again, you would sequester more CO2 by simply planting the land with trees – the natural solution. Electro-fuels that use renewable power, recovered CO2 and water are a fascinating tech, but to get one unit of Electro-fuel requires at least 3 units of renewable power to create. It’s a no-brainer that that’s not a solution.

The bottom line is – the road to carbon neutrality is going to be tough. “Monumental” say IEA. But the world is a practical place. Economics tends to trump ideals in the long-run. I wonder if we need a more joined-up, considered approach to it..

Out of time and back to the day job….

Bill Blain, Shard Capital

(No Five Things to read this morning – out of time)