Observations of an ex pat: Too much of a good thing

Too much of a good thing is bad for you. That’s what my mother always told me. Her pronouncement was echoed by my father, teacher, doctor….

That appears to be the case for environmentally-friendly green technology. I mean, how can you go wrong with windmills, solar panels, tidal power and pedal power? They are the good, politically correct thing.

Well, according to a report recently published by Cambridge University, green technology could cost the world economy up to $4 trillion by 2035. This, is of course, grist for the mill of the climate change denial lobby—until you examine the fine print. The cost is the poorly planned transition from non-renewable to renewable energy.

The reasons for the potential problem are manifold: It is costing more and more to extract fossil fuels from the earth; the additional extraction cost requires time and heavy investment; green energy technology also requires investment and time before it can come fully on stream; and the transition between the switch over from fossil fuel to environmentally-friendly energy production will be very expensive.

The countries that will hurt hardest will be the ones who currently benefitting the most from recently increased fossil fuel production—the US, Russia and Canada.

Canada and the US, especially, are now heavily into shale oil production. The US invested $22 billion from private equity sources alone in the US shale oil business in the first three months of 2018. Oil production is this year set to reach a record high of 9.7 million barrels a day. American investment in green energy was about half of the money put into fossil fuels.

According to the International Energy Agency, the world invested around $700bn in oil, gas and coal in 2016. China is leading the way in investment in renewable energy. It is still building coal-fired power stations, but in 2017, according to Bloomberg, it poured $132.6 billion into green energy resources. This was more than twice the investment of the US and EU combined and half the world total invested in renewable energy.

At the moment, relatively high oil prices make fossil fuel look like an attractive place to put your money. When North American shale oil started coming on stream a few years ago, OPEC responded by boosting production which saw prices drop to an average of $40.68 a barrel.  Since then the cartel has teamed up with Russia to cut production which has pushed the price back up to $65.63 a barrel.  Higher world oil prices have increased the profits for the relatively expensive fracking business.

The result, says Cambridge University, is that the world is heading for a “carbon bubble” which could do more damage to the world economy than the 2008 banking crisis.

According to another recent report, up to twenty percent of the world’s power plant capacity could become “stranded assets” as the world economy shifts from non-renewable to renewable energy resources. The Cambridge report adds that further damage could be done to the world economy by the rapid sell off of oil and gas reserves by producing countries eager to dump those industries before they become worthless.

All this depends, of course, on the implementation of the Paris Climate Change Accord. The authors of the Cambridge report say that if it is implemented as currently stands the cost to the world economy will be a mere $1 trillion dollars. But if proposed new policies are set the price will rise to the $4 trillion mark.

The good news is that not all countries will suffer. Some will do well. China’s heavy investment in green technology is expected to pay it major dividends. The EU is also expected to enjoy a relatively easy ride. But, said Prof Jorge Vinuales, the report’s co-author, said: “It is potentially catastrophic for high cost producers” of fossil fuels.

The solution? Well, according to Prof Vinuales, it is simple: Cut investment in fossil fuel production and increase investment in renewables. But to do that would mean abandoning the short-term profits to be made now.

* Tom Arms is a Wandsworth Lib Dem and produces and presents the podcast www.lookaheadnews.com

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One Comment

  • Robin Grayson 9th Jun '18 - 1:00pm

    Excellent post Tom but too agenda driven for my liking. Here are a few contraries…
    “Too much of a good thing is bad for you.” True, but too much of a bad thing is even badder.
    “…windmills, solar panels, tidal power and pedal power…” I think you really meant wind turbines.
    “green technology could cost the world economy up to $4 trillion by 2035.” That’s about $500 per person. It’s a lot, but not when spread over several decades. The issue is about the distribution of wealth.
    “…up to twenty percent of the world’s power plant capacity could become “stranded assets” as the world economy shifts from non-renewable to renewable energy resources”. Not a problem IMO, as the consumer-driven market economy takes this sort of thing in its stride. For example, in the building boom in Manchester, hundreds of sound buildings are being demolished to make way for new more profitable high-rise, and only the best of the inefficient old buildings are kept as listed buildings, just as a selection of nuclear power plants and coal-fired plants will be preserved for posterity. The march of progress demands dumping the dead donkeys of fossil fuels and nuclear, but hey not now, and not everywhere. Energy is not quite a global market, except perhaps for solar.

    “It is costing more and more to extract fossil fuels from the earth”. An urban myth – only true for this or that coal mine or oil well, or this or that coalfield or oilfield: it is not true overall. For example, take a trip to Mongolia like I have to see the billions of tonnes of high-quality coal in superthick seams, now the focus of a ‘coal rush’ of awesome proportions, complete with hundreds of kilometres of new coal railways.

    Doomsday scenarios are good for energising debate, but the transition cost will be absorbed at whatever speed governments and markets dictate, and will also differ on where the coal is, and where the winds blows; and where the wind blows everyone knows – offshore is best, plus the steady winds of Inner Mongolia.

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