A Successful Energy Transition Will Need Oil Demand Destruction

There’s a dark secret about the energy transition that politicians and energy regulators all too frequently shy away from. Unfortunately, unless this issue is dealt with the energy transition may never take place.

The world consumes ever-growing amounts of energy as its total population increases, led by emerging markets that, in addition to strong population growth, are seeing an increase in the average wealth of their citizens. Any increase in wealth leads to more consumption of everything, energy included. And if countries are distracted by climate change discussions and rush into emission targets and renewable capacity, a shortage of energy supply follows.

This is what we are currently witnessing in Europe and Asia. Stringent carbon dioxide emission regulations and a campaign to discourage investment in fossil fuel development in Europe have increased the continent’s heavy dependence on imported energy despite ambitions to increase self-sufficiency in energy by building massive wind and solar power capacity.

Meanwhile, in Asia, economies were getting back on their feet after pandemic-prompted lockdowns and energy consumption surged. Suddenly, there was too much demand and too little gas, coal, and even oil. And while oil supply could be boosted relatively quickly because OPEC+ has been holding back supply, gas and coal have turned out to be trickier because of things like underinvestment and plant closures.

Despite the underinvestment, the cold shoulder of asset managers, the environmentalist protests, and the denunciation of natural gas as a bridge fuel between the fossil fuel era and the post-fossil fuel era, demand for these – demand for energy of any kind as long as it’s reliable – has been on the rise. And this is what needs to change if the Paris Agreement agenda is to be met.

A group of UK researchers put it bluntly last year. In a report calling for not net-zero but absolute zero, they suggested that “We need to switch to using electricity as our only form of energy and if we continue today’s impressive rates of growth in non-emitting generation, we’ll only have to cut our use of energy to 60% of today’s levels.”

An energy consumption cut of “only” 40 percent would be quite a feat. The authors of the above report proposed things like switching to heat pumps and smaller cars among the things people can do to affect this particular change, along with using public transport more and buying more efficient equipment.

Let’s forget for a moment the concept of planned obsolescence, which makes some of the proposals impossible to put into practice, and focus on the whole idea of reducing energy consumption. There is a reason this idea is not among the most popular energy transition topics among those in charge of decision-making. No politician has ever won elections by telling voters to consume less of anything. The reason no politician has done this is that telling people they should consume less of anything causes anxiety and fear, and ultimately loses elections.

Yet as the current situation with energy availability in Europe and Asia shows, unless we somehow kill demand for energy the chances of the energy transition succeeding are slim. Human history is a clear example that, without state intervention, the trend is always towards growing consumption – except during recessions, when we tighten our belts, only to loosen them again as soon as the economy starts looking up.

What’s more, there are already hundreds of millions of people without access to electricity. A lot of transition talk has been focused on getting clean, affordable power to these hundreds of millions of people, and yet little has been done because it is simply unprofitable. And more millions are coming.

There has been a concerted effort on the part of politicians and institutions to present the energy transition as a straightforward no-brainer. We simply replace dirty oil, coal, and gas power plants with solar and wind farms, and voila, we get clean and affordable power. As Britain’s PM Boris Johnson put it, it’s easy to be green. Only it’s not.

Being truly green would require, in addition to massive investments in utility-scale renewable installations and storage, a substantial reduction in energy demand. Whether this would mean giving up cars and dryers in favor of bicycles and natural drying in the sun and wind – and whether this would be enough – is yet unclear.

For now, the idea is to switch to electric cars rather than shun personal transportation as a whole. And there is already opposition to the mandatory phasing out of ICE vehicles in parts of Europe. Remember the yellow vest protests in France? They were ignited by a proposal to increase fuel taxes for environmental purposes. That was perhaps supposed to sap demand for fuel but instead led to quite violent protests.

Energy demand destruction is the only way the energy transition would work. And yet, it is the one thing no one wants to do, not directly, at least, because it could be dangerous. 

Source: https://oilprice.com/Energy/Crude-Oil/A-Successful-Energy-Transition-Will-Need-Oil-Demand-Destruction.html