Doug Sheridan says…
Left unanswered is whether governments are supposed to do that by reducing supply, reducing demand or both
Doug Sheridan says…
Mario Loyola writes in the WSJ, after two weeks of negotiation, COP28 UAE delegates agreed last week to “transition away” from fossil fuels. Left unanswered is whether governments are supposed to do that by reducing supply, reducing demand or both. A lot rides on the answer, but neither would affect the climate much.
In the demand-side scenario, technology saves the day with cost-competitive renewables. In the IEA's its “Net Zero Emissions” scenario, oil demand drops faster than supply this decade, pushing oil prices below $30 a barrel soon after 2030, which corresponds to $1/gal. Yet even with fossil-fuel prices near historic highs, effective renewable substitutes are nowhere near cost-competitive. They’d have to get cheaper still to compete with $30-a-barrel oil.
In the supply-side approach, gov'ts would slash oil production or impose rationing, hoping to make fossil fuels so expensive that renewables are the only option. This is the darker vision of “Stop Oil” and Greta Thunberg.
But as long as renewable substitutes aren’t immediately available and oil and gas remain necessary, a small reduction in supply causes prices to soar. That means windfall profits for energy companies, scarcity for everyone else, and electoral danger for the governments responsible.
While the stop-oil view was popular at Dubai, there were enough adults in the room to keep the conference from committing to it. Saudi Energy Minister Abdulaziz bin Salman dared countries to try to choke off the oil supply, “Let them do that themselves. And we will see how much they can deliver.”
Poor countries are clear-eyed about the danger of energy poverty. “We are not going to compromise with the availability of power for growth,” said India’s minister for power, RK Singh. China has more coal plants under construction than are in operation in the US.
The Biden admin’s answer to this conundrum is to defer political consequences via the regulatory state. The EPA has proposed all coal and natural-gas plants shut down or adopt unproven zero-carbon technologies by 2038. Another EPA proposal would require 62% of all cars sold in America to be fully electric by 2032.
Assuming they survive court challenges and future admins, they would impose soaring prices and reduced mobility on Americans. They would have almost no impact on global temps unless other countries, including China and India, also commit to energy poverty.
Our Take: The phase-out fossil-fuel movement is a trap that the oil and gas industry should avoid at all costs. It has nothing to gain from taking responsibility for what would surely lead to global chaos. It also has nothing to apologize for in providing the world with the energy it freely consumes. If others want to a turn away from hydrocarbons, it should be they—not the oil and gas industry—that force the change on the public... and they who are held accountable for the grim results.