To reduce the world’s use of hydrocarbons, we need to use ... more hydrocarbons
The term“energy transition,” meaning to replace hydrocarbons, comes from a 1977 speech by President Jimmy Carter. He framed the “energy challenge” as the “moral equivalent of war” and “the greatest challenge that our country will face during our lifetime.” The urgency was motivated by the belief the world was running out of oil and natural gas.
Of course, in our time the “energy transition” rhetoric is directed at replacing a now abundant supply of those hydrocarbons to reduce carbon dioxide emissions.
Ineffective alternatives
After a near half-century of transition policies and massive government spending, oil, gas, and coal supply 82% of global energy. Since Y2k, we’ve seen over $5 trillion of global spending on wind and solar and similar efforts to avoid hydrocarbons. That reduced hydrocarbons’ share of world energy by just 2%. The quantity of hydrocarbons consumed globally has increased by an amount equal to adding six Saudi Arabia’s worth of oil output.
Those two decades of spending have led to solar and wind supplying just under 4% of world energy. For context: Burning wood still supplies 10%. And now, the global population is far bigger, and billions more people aspire to the lifestyle of even the least fortunate in the wealthy West.
Fortunately, because costs of wind, solar, and battery technologies are far lower than two decades back, those sources can now more significantly complement hydrocarbons. However, a pivotal reality is found in the nature and location of the critical upstream industries that make them possible.
Fabricating wind, solar and battery hardware entails a radical increase in the use of a range of minerals from copper and nickel to aluminum and graphite, and rare earths such as neodymium. The increases range from 700% to 4,000% more minerals per unit of energy production.
The spending to meet the wind, solar and EVs mandates will require an astonishing, unprecedented increase in output from the old-school industries of mining and mineral refining. The transition will require hundreds of billions of dollars invested in hundreds of massive new mines, somewhere.
Yet, both existing and planned world mining capacity won’t come close, by factors for two- to ten-fold, to meeting the demands if the “transition” is in fact pursued.
In the meantime, China produces over 60% of the world’s aluminum, refines over half of the world’s copper (the keystone metal of electrification), 90% of rare earths, 60% of refined lithium, 80% of graphite (used in all lithium batteries), and 50% to 90% of the specialty chemicals and polymer parts used to build lithium batteries, and over 80% of silicon solar modules. That dominance will not be easily or quickly altered.
All China’s advantages
Legislation requires domestic sourcing of energy minerals. However, the Biden administration has canceled domestic mining permits and launched multifront regulatory rule changes that will make U.S. mining more difficult and more expensive. They’ve also bent the elastic language in the domestic-sourcing legislation to qualify foreign suppliers of energy minerals, including Chinese, and thus make them recipients of U.S. taxpayer subsidies.
Since minerals industries are energy intensive (global mining accounts for about 40% of all industrial energy use), China has a profound advantage in producing them because of its low-cost electric grid. That advantage comes from burning cheap coal that fuels two-thirds of power production there. It’s an advantage that won’t erode any time soon: China is building coal plants at the rate of roughly one a week and will for close to a decade.
The U.S. Inflation Reduction Act will spend some $2 trillion to try to reduce CO2 emissions by about 1 gigaton a year (assuming it’s fully deployed and various elastic assumptions are true). A lot of that spending will end up directly and indirectly purchasing China’s products. Meanwhile, just the additional coal plants being built in China will lead to an additional 2 gigatons of CO2 emitted per year. Seems like a bad trade.
While energy transitionists vilify natural gas and vigorously oppose expansion of U.S. exports of LNG (liquified natural gas), the U.S. already saw a 1 gigaton per year reduction in emissions over the past decade, without massive subsidies or imports. That happened because the domestic shale revolution collapsed the cost of natural gas, making it cheaper than coal.
There are more sensible options than “energy transition” to reduce U.S. carbon dioxide emissions. Rather than subsidize U.S. assembly of batteries using imported materials, encourage domestic production of pipelines and ports to export more LNG. That would yield far greater emissions reductions per dollar spent, since it would help nations now planning to burn more coal to use LNG instead.
It would also benefit domestic industries and the balance of trade, as well as yield non-trivial geopolitical benefits.
Better options
Other options would be more consonant with reality and far more cost effective than those driven by IRA subsidies. These would include a more sensible and expansive posture towards nuclear energy, the pursuit of improved combustion efficiency in all uses of hydrocarbons, and engaging serious efforts to resolve the barriers to expanding domestic mining and refining.
The “energy transition” rhetoric is, however, still trumping reality.