The World is Changing

Renewable energies: The world is changing

In 1798 Thomas Malthus, easily the most disliked economist of all time, and the man responsible for Economics having been branded as ‘the dismal science’ for the next two centuries, posited that resource constraints in agriculture set limits, albeit unknown, to the potential for population growth. In time, however, human ingenuity and technological progress proved him wrong.
Nonetheless, if one fast forwards 200 years, to present times, somewhat similar arguments are again being made by some. The main thrust of these centre on two impending risks for modern societies. The first of these is the trend towards the depletion of what are currently some of the main (finite) sources of energy for the world´s population, especially oil.
In second place we have the extremely negative environmental impact which current trends in economic development will have should business continue as “usual”.

Making things worse, both of the above factors, when combined, could yet have a very negative impact on the world´s food supply, something which is more directly linked to Malthus´ original arguments and which would have a disproportionate impact on the world´s poorest.
Likewise, the fact that the greatest reserves of energy resources are increasingly located outside the OECD, (oil in the Middle East, natural gas in the Russian Federation and coal in the People´s Republic of China) makes some observers feel rather uneasy as regards the future geopolitics of Energy. For the sake of simplicity, however, we will concentrate on the first two of these risks.

The good news is that there are experts who believe that Mr.Malthus may be proved wrong yet again, especially as regards the first of those risks. In no small part this will be thanks to renewable energies (mainly solar, but also wind, biomass and geothermal). Although these technologies are still in their infancy they are expected to play a key role when looking out to the very long term, towards the middle of the century. Solar energy, for example, is expected to contribute towards 10.8% of the world´s energy needs by 2050, according to the International Energy Agency (IEA). 

The bad news is that the current situation is very serious and leaves little margin for error. In particular, experts agree that complacency poses the greatest danger. In this regard, one need only look at the intractable debate as regards fuel efficiency standards in the United States at present or the unwillingness of governments in many emerging nations to allow fuel prices to rise. Similarly, the recent reduction in ‘feed-in tariffs’ for solar energy in several European countries (Germany, Italy and Spain) has vexed many watchers. Yet perhaps the most worrisome turn of events, recently, regards the backlash seen against nuclear energy in two of the world´s largest economies, Germany and Japan, as a result of the tragedy at Fukushima.

Until that tragedy took place nuclear energy was seen as having the brightest prospects, as a sort of ‘intermediate’ technology until the potential of solar power was fully harnessed, along with the implementation of greater conservation measures (stringent fuel efficiency standards), lower ‘energy intensity’ in GDP in ‘emerging’ economies such as China, new technologies to lower the reliance of transportation on oil (through a greater use of gas, hybrid and electric powered vehicles for example) and continued heavy investment in fossil fuel.  Nuclear energy currently provides 5% of the world’s primary energy production, while oil accounts for 33%, natural gas for 24%, coal for 30%, hydroelectric another 6.5% and renewable energy approximately 1.3%.

Now there are those (although that view is not unanimous) who believe that it will be natural gas liquids, mainly from shale deposits, that will have to fill the breach left by nuclear until renewable energies come of age, along with a greater use of hydroelectricity. In any case, it is worth pointing out that those greater resources are a direct result of the application of new exploration technologies. While there is considerable uncertainty regarding the size of those deposits, they are thought to be prevalent around the globe and under one of the scenarios included in a recent IEA report, titled “Golden Age of Gas”, global production of natural gas from conventional and non-conventional sources could increase by more than 50% by 2035. And what are the implications for the climate? That appears to be rather more questionable.   

In any case, at present fully 40% of Germany´s energy needs are met by either nuclear or renewable energy (25% by nuclear). This shows what is already achievable when authorities and the public support sustainable energy policies. Likewise, and at the EU level, the share of renewable energies used in the generation of electric power has risen to 6% from 1.5% towards the beginning of the last decade, according to British Petroleum´s June 2011 Statistical Review.

More important even is the growing importance that Chinese and American authorities are now placing on renewable energies. China, for its part, has assigned strategic importance to its strategy for renewable energies, particularly nuclear energy. Precisely in this regard, in recent remarks US Commerce Secretary Steven Chu described news of China´s gargantuan efforts in the field of renewable energies (including nuclear) as a “Sputnik moment”, recalling the date of the 4th of October of 1957, when it dawned on the United States´ leadership that the Soviet Union of Nikita Khrushchev had won the race to launch the first artificial satellite into earth orbit.

More specifically, and as regards the depletion of some of the world´s main energy sources, the main scientific theorem which describes this risk is known as Hubert´s peak, or ‘Peak Oil’. It posits that, after reaching a peak, oil production begins to diminish as quickly as it rose. Although estimates of the date for ‘peak oil’ vary considerably (Association for the Study of Peak Oil (ASPO): 2010, Oxford University: 2014, International Energy Agency (IEA): 2030, Cambridge Research Associates: 2035), it does seem quite possible that the ‘cusp’ of production could be close at hand; perhaps even as soon as the latter half of this decade, if not sooner.

Nonetheless, some of the more pessimistic estimates often refer only to ‘conventional oil’, or easily extractable reserves. As well, some studies point to the possibility that rates of decline in production levels could be lower than those observed in the rise of production. In fact, a recent study by Goldman Sachs posits that US ‘oil’ production could recover to almost 11m barrels a day by 2017, becoming again the world´s largest producer. Again, however, we must insist that those estimates seem to rest largely on how one defines ‘oil’, not to mention that new sources can be far more expensive.

Conversely, it is now a well documented fact that oil production in the United Kingdom and Norway ‘peaked’ in 1999 and 2001 (and in 1971 in the US), something that was not lost on financial markets throughout this past decade, although it was not as widely appreciated at the time as it should have been.

Not to be lost sigh of either is the speed at which demand is growing. Thus, in 2010 the world´s primary energy consumption grew by 5.6%, its fastest pace since 1973, as estimated by British Petroleum. Demand from emerging markets led the way.

As for climate change, perhaps the most authoritative study is the Stern review on the economics of climate change, published in 2006 by Her Majesty´s Treasury. The study´s results show that, depending on which scenario plays out, the overall costs and risks of climate change will be equivalent to losing between 5% and 20% of world GDP each year. If action where begun to be taken now, however, then the necessary investment would be a far more manageable 1% of global GDP per year.

For all of the above reasons, it should be abundantly clear that renewable energies will be called on to play a very important role in energy policies worldwide and progress has certainly begun to be made, but it is not at all clear if quickly enough or, ironically, as the recent debate surrounding nuclear energy seems to show, if it is sustainable. In any case, the race is now well and truly on.