The Opportunity That Isn’t Knocking

Contributed by Robert Lyman © 2018

Robert Lyman is an Ottawa energy policy consultant and former public servant of 27 years. He was a diplomat for 10 years prior to that.

Catherine McKenna, Minister of the Environment and Climate Change, recently said that, if Canada does not impose carbon taxes and proceed with the Liberals climate change plan, it would be missing a “trillion dollar opportunity”. She claimed that there was an enormous global market for non-fossil fuel energy and that accelerating the development and commercialization of Canadian based non-fossil fuel energy services will position industry here to lead in supplying these services internationally. Her implicit thesis was that supplying these renewable energy resources and services will exceed Canada’s current competitive advantages in supplying fossil-fuel-based energy sources.

Well, certainly. I mean, today I had a meeting with my provincial counterpart, and it was really disappointing to see that they don’t have a climate plan. And if you don’t have a climate plan, you don’t have a plan for your economy, because we know that there is a trillion-dollar economic opportunity.  CBC Radio, July 19, 2018  

Full Transcript

To use the official parlance of government in Ottawa, the Minister is misinformed. The purpose of this paper is, as briefly but effectively as possible, to demonstrate why.

Renewable Energy Does Not Dominate Global Energy Markets

To understand what is happening in global energy markets, let us first recall the dominant trends over the past fifty years.

According to the British Petroleum Statistical Review of World Energy published in 2017, global energy consumption has doubled since 1971, rising from 4,661 million tonnes of oil equivalent (Mtoes) in 1971 to 9,425 Mtoes in 2014. This growth was almost constant, with only three relatively brief periods (1973-75, 1980-84, and 2007-09), corresponding to recessions, when growth stalled. The global energy mix changed considerably over the period, with the share of oil declining from about 48% of the global total in 1974 to 34% by 2016; nonetheless, oil continues to be the largest sources of energy in the world. The share held by coal has gone up and down around 30% over the period but has remained in second place among fuels, and now stands at 28%. Natural gas’s share has steadily increased, despite the fact that until recently there was only limited transportation of gas in liquid form by tanker. Gas now holds about 25% of global demand. Hydroelectricity has held its share in the range of 6% to 8%. Nuclear energy rose from next to nothing to about 7% but recently has declined to 5%. Renewables, as represented mainly by wind and solar energy, have risen from next to nothing before 2000 to about 3% in 2016. In short, after half a century of evolution in global energy markets, fossil fuels continue to constitute 87% of global energy needs.

The Pattern of Energy Consumption by Countries and Regions

Renewable energy does not dominate energy use in any single geographic area or country. Table 1, drawn from data in the BP Statistical Review of World Energy 2017, shows this.

TABLE 1

               Energy Consumption by Leading Regions and Countries, 2016 

This table shows three things that are not generally known or highlighted in the media:

• China is already by far the world’s largest energy consumer, with 34% higher consumption than the United States;
• With the exception of the European Union and Latin America, all the major regions of the world rely on fossil fuels for more than 85% of their energy consumption. Europe and Latin America rely disproportionately on nuclear and/or hydroelectricity
• Europe, and Europe alone, has made a significant commitment to renewables, and there it supplies only 8% of consumption after trillions of dollars in investment.

Minister McKenna may be mesmerized by developments in Europe, but Europe is not the world. In fact, the European Union represents only 12% of the world energy consumption, and virtually all the growth is occurring elsewhere.

Renewable Energy Will Not Dominate Global Energy Use for the Foreseeable Future

Proponents of renewable energy point to recent capital investment in it as evidence that its use will grow rapidly in future. This, they say, contrasts with the recent decline in oil and gas investment due to lower commodity prices from 2014 to 2016. According to Bloomberg Energy Finance, an optimistic source of news about renewable energy, global new investment in renewable energy rose from $181.4 billion in 2008 to $279.8 billion in 2017. In fact, while investment rose dramatically in the period 2002 to 2010, it followed a volatile pattern, rising sharply some years and falling in others, and has been close to $280 billion per annum for the past eight years. See Table 2:

TABLE 2

            Global New Investment in Renewable Energy 2008-2017 ($Billion)

Source: Bloomberg Energy Finance: Global Trends in Renewable Energy Investment 2018

To place this in context, according to the International Energy Agency report entitled World Energy Investment 2017, total worldwide energy investment was around $1.7 trillion in 2016, of which investment in upstream oil and gas represented about $700 billion (after falling 40% from 2014). In other words, even at depressed levels, global investment in upstream oil and gas far exceeds that in renewables.

The most authoritative sources of analysis and projections of global energy supply and demand base their work on extensive studies of trends in population and economic growth, technology innovation and commercialization, and other macro-economic factors. These include the International Energy Agency (IEA), the United States Energy Information Administration (EIA), EXXON/Mobil and British Petroleum (BP).

I will use BP’s projections for two reasons. First, of all the major forecasters, BP is the most willing to share the results of its analysis and data for free and in a form that allows clear comparisons of past and present trends. Second, BP’s projections to 2035 are the most “favourable” to renewables.

The following graphs show the future trends in comparison to the previously described past trends.

In summary:

• Total energy demand will continue to rise significantly throughout the period to 2035.
• Oil, coal and natural gas will continue to dominate the energy mix
• The share held by renewables will grow but by 2035 will still only reach 10% of global energy demand; this will be almost entirely in the electricity generation sector.

To repeat, this is the most favourable outlook for renewables in any of the authoritative energy forecasting organizations. All the others show renewables holding a smaller share of global demand in 2035. No authority projects renewables to constitute even 20% of global energy demand, let alone 100%, in the period to 2050.

The German Experience shows that Renewable Energy is a Bad Investment for Western Economies

No country has spent more on wind and solar energy generation as a proportion of its total spending than Germany. In 2012, over 7000 megawatts of new solar power capacity were added. However, in that year, the boom ended abruptly as new laws on feed-in-tariffs were enacted in order to keep the solar energy supply from becoming so high that it would pose serious problems in balancing the variations between electricity demand and intermittent electricity supply. In 2017, only 600 megawatts were added. That’s a 90% drop in five years.

The drop in investment was the direct result of cutbacks in consumer subsidies. Feed-in-tariff rates fell from 49.2 euro-cents (about 56 cents Canadian) per kilowatt-hour in 2007 to 12.7 euro-cents (about 18 cents Canadian) in 2016. While 19.5 billion euros (CDN $27.3 billion) were invested in solar energy system in 2010, only 1.58 billion euros (CDN $2.2 billion) were invested in 2016.

The Germans, like Minister McKenna, thought solar would be a boom for the economy. Instead, the number of jobs in the solar industry went on a roller coaster, rising from 38,600 in 2007 to 110,900 in 2011 and then dropping to 31,600 in 2015. 80,000 people who thought renewables offered a bright green future instead lost their jobs.

There are many other disadvantages of wind and solar energy. I described the financial ones in my previous article entitled, “Renewable and Conventional Energy Generation – Comparing the Costs”. I described the adverse net effects of renewable energy on employment (i.e. due to the higher costs imposed on industry) in my previous article entitled, “Green Jobs – Rhetoric or Reality?”

COP21 is not working

Minister McKenna’s belief that the world economy is changing to a decarbonized one is based, in part, on her support for the Agreement reach a the 21^st Conference of the Parties to the Convention on Climate Change in Paris in December, 2015 (COP21). Yet, there are already three significant nails in the coffin of that agreement.

The first was hammered on the day the agreement was reached, in its provisions governing the actions that the participating governments would take to reduce greenhouse gas emissions. The agreement contains very few binding legal requirements, there are no formulas for determining what each country’s obligations are, and there are no penalties for non-compliance. Rather, it represents a best-efforts political agreement to keep the level of global GHG emissions below that which, in theory, might produce a two degree Celsius increase in average global temperatures. So, no one knows how much emissions would have to be reduced, and the countries did not agree on individual targets.

The COP21 agreement reaffirmed a previous international commitment that countries with more financial resources (identified as the Annex II countries) must provide payments to a Green Climate Fund to assist developing countries in implementing the Convention. The Green Climate Fund will be scaled up to U.S. $100 billion per year by 2020. Each developed country must submit biennial reports on its strategies for doing this. Sometime before 2025, the Parties will set a new collective goal above the U.S. $100 billion a year level.

The developing countries made clear during the negotiations that their actions to reduce emissions would be contingent on the Annex II countries meeting their commitments to Green Climate Fund. At COP23, held in Bonn in November 2017, the parties announced the establishment of a number of multilateral funding mechanisms. It was clear, however, that Annex II countries are nowhere close to making contributions of the size required to meet the $100 billion per year commitment. (Canada’s proportional share of that goal would be over $3 billion per year.) Therefore, it is only a matter of a few years before the developing countries drop all pretenses of following their emission reduction plans. As over 90% of the global emissions growth is occurring in the developing countries, the COP21 goals cannot possibly be met.

The second nail has been driven by global energy consumption and greenhouse gas emission trends. In 1990, according to the U.S. Carbon Dioxide Information Analysis Center, global emissions were 22.3 gigatonnes (Gt) of carbon dioxide equivalent. In 2014, emissions were 36.1 Gt. In other words, emissions grew by 62% over the 24-year period. Almost all of this growth occurred in the less developed countries, and especially in Asia.

The same point can be illustrated using BP data to show global trends in terms of billion tonnes of oil equivalent (Gtoe). In 1990, global fossil fuel use was 7 Gtoe. It rose to 8 Gtoe in 2000, 10 Gtoe in 2010 and reached 11.4 Gtoe in 2015. In 25 of the 26 years from 1990 to 2016, humanity burned more fossil fuels than the year before. The fossil fuel share of global energy use in 1990 was 88%. In 2015, after two and a half decades of repeated governmental agreements to reduce emissions and trillions of dollars in expenditure on renewable energy and “conservation” programs, the fossil fuel share declined to 86%. It is declining at the rate of one per cent per decade.

The third nail was the decision by the Trump Administration in the United States to withdraw from the COP21 Agreement. That decision removed the second largest emitter, and arguably the largest single source of funding for programs that seek to aid emissions reduction in the developing countries. Equally important, it signaled that the United States was not prepared to impose the handicap of expensive emission reduction measures on its industry and general economy, and thereby raised the importance of trade and competitiveness considerations for all other developed countries.

There may be many who, because of their personal dislike for President Trump, will see the U.S. lack of enthusiasm for the COP21 agreement as a temporary situation that will change with the U.S. electoral cycle. The polls suggest otherwise. The Gallop organization conducted a poll in July 2018 in which it asked respondents to identify the biggest problem currently facing the United States. Immigration topped the list with 22% of the respondents mentioning it. “Environment/Pollution” was mentioned by two per cent. Not one respondent mentioned “climate change”. While public opinion changes over time, this does not suggest that any future U.S. Administration will have a strong political incentive to support large-scale and expensive emissions reductions.

Conclusion

Global markets for energy will continue for the foreseeable future to be dominated by oil, natural gas and coal, not renewable energy. The market for renewable energy has grown because of immense investments subsidized or imposed by governments. As the failure of the COP21 agreement becomes clearer and public opposition grows, the incentive for such expenditures should decline. Renewable energy represents an opportunity that isn’t knocking.

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