The call to be pragmatic is inherently an instruction to give something up — a view, a demand, an ambition. Yet pragmatism is a bit like pornography: self-defined. Take the high-stakes debate over the energy transition, where both sides claim the mantle of realist.
Enter Daniel Yergin. The Pulitzer-winning author of oil history The Prize: The Epic Quest for Oil, Money & Power, and master of ceremonies at CERAWeek, the world’s pre-eminent energy conference, has just coauthored an essay in Foreign Affairs titled “The Troubled Energy Transition: How to find a pragmatic path forward.”
Yergin’s credentials are impeccable and the title is uncontroversial. The problem arises with the subhead on pragmatism, largely because of what gets left out.
The spirit of Yergin’s essay, coauthored with Lazard Inc chief executive officer Peter Orszag and Atul Arya, chief energy strategist at S&P Global Inc, which organizes CERAWeek, aligns well with this moment of US backsliding on addressing climate change.
However, its professed realism fails to properly account for the costs that involves, both in terms of multiplying disasters like Los Angeles’ recent wildfires and ceding leadership of the energy transition to China.
The central observation is that renewable energy is growing fast, but not yet fast enough to displace fossil fuels, which saw record consumption last year. Priorities such as affordability and security compete with climate change, especially in the energy-hungry developing world. Peak oil and gas demand are further off than people thought and more investment in them is required.
The essay’s thesis that the transition is foundering in the face of complications dovetails with the theme of this year’s CERAWeek, “energy strategies for a complex world,” which began on Monday.
In one sense, the essay reads like a rebuttal to the International Energy Agency’s (IEA) Net Zero Roadmap, published in 2021, which found that getting there by 2050 would mean no investment in new oil and gas projects — much to the industry’s chagrin.
The authors cite the IEA report high up as reflecting an over-optimism that supposedly took hold during the COVID-19 pandemic, mistaking the associated sharp declines in energy demand for evidence that wholesale change would be easy.
However, the IEA’s roadmap was just that: A theoretical scenario. The agency did not demand an end to new investment nor does it claim that simply stopping investment in new oilfields would magically usher in net zero.
Indeed, it declared up front: “Doing so requires nothing short of a total transformation of the energy systems that underpin our economies.”
Alternative reasons for transition optimism in 2021 included a new US president touting the greenest policy platform ever, a doubling of sales of electric vehicles (EV) globally and accelerating solar power deployments.
There are other notable omissions. The piece cites the challenges around mining critical minerals needed for clean technologies, but how is that different from mining coal, and drilling for oil and gas today? At least metals like lithium can be recycled, unlike burned hydrocarbons, and the amounts involved are smaller, too.
Similarly, oil and gas investment is portrayed as insurance against disruptions such as Russia’s war on Ukraine, but surely that same disruption also argues for diversifying away from reliance on traded fuels.
Emerging economies are particularly vulnerable to commodity mercantilism, especially with the US now wielding its resources as a tool for “dominance.”
As Kingsmill Bond of Ember, an energy think tank, points out, excluding the Middle East’s petrostates, the global south hosts 60 percent of humanity, but only 20 percent of fossil fuel production.
However, the biggest missing piece concerns cost. The authors are correct that decarbonization requires lot of upfront investment, citing figures north of US$6 trillion per year and rising to achieve net zero. Twelve zeroes have a way of stupefying the reader, but they should be balanced with the costs of similar magnitude on the other side of the ledger: The trillions spent every year on fossil fuels today plus the trillions accruing in damage if we do not mitigate climate change.
Similarly, the authors rightly point out that calls to forgo fossil fuels in emerging economies can clash with immediate needs and draw justified accusations of richer nations’ hypocrisy. Even so, climate change will likely fall particularly hard on developing economies. “Affordability” has more dimensions than just today’s sticker price.
Attracting the private capital needed for net zero is not likely to happen without sufficiently strong incentives such as carbon pricing, the authors note; again, correctly. Yet later on, they also highlight criticism of the EU’s incoming carbon tariffs on imports as burdensome on businesses and emerging markets.
Here is the EU pricing carbon and trying to protect against being undercut by unpriced emissions elsewhere in what one might call a pragmatic way. Just not pragmatic enough, it seems.
As much as the energy transition’s progress faces real constraints and trade-offs, progress has been made. As Joseph Majkut, a director at the Center for Strategic and International Studies think tank says: “When I started in this field 15 years ago, we talked about global warming of 4 to 5 degrees [Celcius]. Now we look at 2 to 3 as quite achievable. That’s already a victory and our task is to push hard toward 2 [degrees] or below.”
That push is encouraged by rapid declines in clean technology costs and continued scope for efficiencies — a bet on human ingenuity, in other words. While demand for fossil fuels is still rising in aggregate, signs of ongoing transition beneath the headline number abound; from the suppression of US gasoline demand, to rapid gains for EVs in China, to the takeoff of rooftop solar power in Pakistan. The essay’s authors note outflows from US funds specializing in environmental, social and governance in recent years — but fail to point out that energy equity exchange-traded funds have also suffered big outflows.
Meanwhile, the US$2.1 trillion invested in clean tech last year was about double the figure for fossil fuels, according to Bloomberg NEF, and 39 percent of it was spent in China, more than double the US share.
If urgency in the US on transition ebbs, so too does any hope of wresting leadership in a defining industry for the 21st century.
As much as the essay’s authors call for sustained investment in hydrocarbons, they also suggest global oil demand will plateau in the early 2030s, while natural gas will grow well into the 2040s. This is actually quite similar to projections in the IEA’s “Stated Policies Scenario,” the agency’s de facto base case assuming current technology and policy trends — hinting at what might be achieved with more ambitious climate policy.
Policy is, after all, a huge factor here, especially when it comes to the US at this moment.
In responding to climate change, US Secretary of Energy Chris Wright, who spoke at CERAWeek on Monday, appears inclined less to mitigation and more to adaptation.
How much would it cost to shore up the world’s cities, infrastructure and food supply against an increasingly chaotic climate?
I do not know, but I suspect 12 zeroes would be involved. The Foreign Affairs essay does not mention adaptation directly, but its implicit acceptance of higher emissions for longer, and more warming, naturally portends that. Adaptation can, after all, be viewed as a form of pragmatism.
Or, given that other options are available, a form of fatalism.
Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited the Wall Street Journal’s Heard on the Street column and wrote the Financial Times’ Lex column. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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