Quest for energy pragmatism is not wrong but it can prove dangerous

Your house is burning down. The fire brigade arrives with a high-tech machine which will put out the fire but cost a lot. Instead, you decide to let the fire burn, estimating that about half of your home can be salvaged. You congratulate yourself on your pragmatism. The annual CERAWeek conference in Houston , which took place last week, is a crucial gathering for reading the winds of energy opinion. Just before it, famous energy author Daniel Yergin , who helms the event, co-wrote a lengthy article in Foreign Affairs titled ‘The Troubled Energy Transition’. At CERAWeek itself, chief executive of Saudi Aramco, Amin Nasser , said, “There is more chance of Elvis speaking next than the current plan [of energy transition] working!” And US energy secretary Chris Wright told the gathering, “The Trump administration will treat climate change for what it is, a global physical phenomenon that is a side effect of building the modern world.” Such comments reflect an emerging line of argument from the traditional energy industry. Mr Yergin points out that despite the rapid growth in wind and solar power, the share of fossil fuels in global energy has barely fallen, dropping from 85 per cent in 1990 to 80 per cent today. He observes that past energy transitions have been additions, not replacements. Despite 19th century steamships and railways, coal did not become the biggest global energy source until the start of the 20th century. Oil started flowing from wells in 1859 but did not take top spot until the 1960s. Coal, oil and gas are all at their all-time high of consumption today. So, the various writers and speakers advocate a more measured transition, with traditional fuels not being “demonised and discarded”, as Mr Nasser says, but receiving their full share of investment. Indeed, much climate policy and activism has been misguided and expensive. Germany’s own goal in phasing out nuclear power is one for the bloopers reel. Environmentalists oppose any new oil or gasfields in Europe, without acknowledging this will bring lower energy security and higher emissions from imported fuel. When the oil industry does try to advance climate solutions, such as carbon capture and storage, it is accused of “greenwashing” . “Net-zero” pathways presented by think tanks and international agencies postulate absurdly fast declines in fossil fuel use, that would be economically catastrophic if they ever materialised. And developing countries do need affordable energy and the freedom to determine their own needs. So, this quest for a new energy pragmatism is not wrong. But it is dangerous on three counts. First is the complacency about the damage from climate change. Many economists’ models suggest the cost of unchecked climate change will be minor, a couple of per cent of global economic output, and therefore, not worth spending much money on avoiding. Mr Wright is, unlike many of his administration colleagues, a seasoned professional, knowledgeable about the area he oversees. He espouses such a view. Yet as my colleague at the Columbia Centre on Global Energy Policy, Noah Kaufman, likes to remark, that is similar to going outside, counting all the stars you can see in the sky, and declaring your count a good estimate of the total number of stars in the galaxy. Many economists’ estimates of climate damage rely on comparing the economy of a few places that today are warmer or colder, or on looking how the economy does in years that are a little warmer or colder. Or, they add up damage from easily quantifiable things like the need for extra air-conditioning, sea defences, or deaths from heatstroke. Yet we know that climate change – an additional 2 or 3 degrees celsius of heating around the whole world – will cause widespread disruption, including things we cannot easily quantify. Worse, it may well have effects we do not even know about or cannot predict today, including abrupt shifts in crucial weather patterns, cascading economic and social breakdown, mass migration, takeovers by authoritarian governments and violent conflicts. Downplaying climate damage is a new, softer way of doing nothing about it compared to the cruder, anti-scientific approach of denying it altogether – which still has many adherents. By contrast to the blasé estimates, a recent Cambridge University study finds that the cost of inaction on climate will reach 11 per cent to 27 per cent of cumulative global gross domestic product by 2100. The wealthy think they will be immune to the effects of climate change. They are certainly less vulnerable than the world’s poor. The Cambridge study suggests that Europe would lose 9 per cent of GDP by 2050, the US 10 per cent, but Africa could be hit by 16 per cent and the Middle East would be most damaged, losing 19 per cent of potential economic output. In reality, 2050 is not that far away – well within the working life of a fresh graduate today. The rich and famous who lost houses in the California wildfires in January, including actors Anthony Hopkins and Julia Louis-Dreyfus, or models Tyra Banks and Bella Hadid, abruptly discovered their exposure to a hotter climate. Desirable beachfront property faces the threat of rising seas. And people discontent with environmental and social breakdown will look for targets for their anger, including the wealthy and powerful who did not stop disaster when it was possible. However, investing 1 per cent to 2 per cent of cumulative GDP to end-century in climate solutions would reduce the economic damage to just 2 per cent to 4 per cent. That certainly looks like a pragmatic investment. Second is the idea that moving slower is smart. Oil companies that tried to be climate leaders, such as BP, did not do it well, and have been heavily punished by investors. Yet the direction of travel is clear. Wind and solar now exceed coal generation in the US by a wide and growing margin: 756 terawatt-hours last year, versus 652 TWh from the dethroned King Coal. Abu Dhabi has announced a solar power plant with batteries that will provide 24-hour power at a cost competitive with gas-fired generation. Battery vehicles made up more than 40 per cent of car sales in China last year. Coal enabled Britain to dominate the 19th century and oil the US to lead much of the 20th, long before they numerically overtook older energy sources. China’s solar, wind, batteries and electric cars are now set to do the same for the 21st. Governments cling to legacy technologies at their peril. Third is the idea of the energy industry as a mere passive observer of these trends. The attendees at CERAWeek are many of the most powerful people in the energy business and government. They can bemoan unfair treatment, and continue short-term planning that will be dangerous, even disastrous for humanity later this century. Or, they can map out a new energy and climate path that is truly pragmatic.