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Is this it for coal?

Fossil fuels have had their day, and a carbon crash is coming, writes RenewEconomy sustainability researcher and writer Paul Gilding.

It’s time to call it. Renewables and associated storage, transport and digital technologies are so rapidly disrupting whole industries’ business models they are pushing the fossil fuel industry towards inevitable collapse.

Some of you will struggle with that statement. Most people accept the idea that fossil fuels are all-powerful and it will take many decades to force them out of our economy. Fortunately, the fossil fuel industry suffers the same delusion.

In fact, probably the main benefit of the US shale gas and oil “revolution” is that it’s keeping the fossil fuel industry and its cheer squad distracted while renewables, electric cars and associated technologies build the momentum needed to make their takeover unstoppable — even by the most powerful industry in the world.

How could they miss something so profound? One thing I’ve learnt from decades inside boardrooms is that, by and large, oil, coal and gas companies live in an analytical bubble, deluded about their immortality and firm in their beliefs that “renewables are decades away from competing” and “we are so cheap and dominant the economy depends on us” and “change will come, but not on my watch”.

Their delusion, however, is good news for the world. If the industry really understood what was happening, it would pull out all stops to prevent it. While fossil fuels would ultimately fail, it would cost us decades of lost time — decades we can’t afford if we are to stabilise society and reduce the risk of collapse.

As I argued in my book The Great Disruption, dramatic economic change is not a choice we get to make, but an inevitable result of physical science. This is because business as usual, with results like ever-increasing resource constraint or a global temperature increase of 4 degrees or more, would trigger economic and social collapse. So the only realistic outcomes are such a collapse or an economic transformation that prevents it, with timing the only big unknown. I argued transformation was far more likely and, to my delight, that’s what we see emerging around us today — even faster than I expected.

Although it now frames thinking in this area, the mistake many make is to then extrapolate that risk into a likely global policy response as the main driver of change. The thinking goes that we need a “Pearl Harbour moment” — a physical event that forces a global policy agreement to change. But that’s not how systems change or how our global market society works. Things are far more chaotic and messy — though probably more predictable.

Economics is the best lens through which we can both see the triggers for transformation and are able to measure its progress. When we see the price of solar plunge at extraordinary speed and watch its deployment swing like a wrecking ball through the utility sector, we should acknowledge it’s going to have more impact on the human system response to climate change than the terrifying acceleration of the melting of the Arctic.

And when I say wrecking ball I probably understate it. As this excellent overview from Stephen Lacey at Greentech Media explains, the utility sector now faces a “death spiral”, and it’s likely many of them won’t make it. This is not a theoretical future crisis — growth in renewables is the prime reason the top 20 European utilities have lost $600 billion (no, not a typo!) in value over the past five years. That’s what the financial carbon bubble bursting in a sector looks like — ugly and messy — and there are many more to come.

If you think this utility problem isn’t enough to seriously threaten the overall fossil fuel industry, think again …”

The disruption is worse for old players, because this is not just technology switching. The whole sector is moving to a distributed rather than centralised system, thereby inviting in countless new, nimble competitors into the space. This is fundamental structural change that is going global, as Giles Parkinson from RenewEconomy explains.

If you think this utility problem isn’t enough to seriously threaten the overall fossil fuel industry, think again — this is just one of a number of fronts where they’re being hammered. Long-term expert on oil and energy trends Richard Heinberg explains the oil story well in this podcast, while this excellent overview from Chris Nelder, shows how oil, gas and coal are all under serious pressure. Like Heinberg, Nelder also argues the “soaring cost of producing oil has far outpaced the rise in oil prices”. Nelder also notes that in the US alone, 60 GW of coal power plants are expected to be taken off line by 2016 — double the volume forecast by the US Energy Information Administration less than two years ago. Things are moving very quickly now.

I haven’t mentioned the revolution underway with electric cars, where Tesla is valued at more than half of GM — despite the latter producing 300 times as many cars! Do you think the market knows where that is going? Or the incredible impact of China having to clean up its air or risk economic and social unrest — knowing when China acts the market impacts are world scale.

Or the role of digital technology and dot-com billionaires in driving disruptive change via the move to a distributed energy system — one characterised by rapid innovation and entrepreneurship and the arrival of the “Internet of Things”. It’s in these connections between innovations that the most interesting disruptions are developing. So electric cars become grid storage devices for home renewables, with each car a mini-power station in peak times. I’ll never look at a city car park the same way again.

Already businesses in the US can get battery systems from Coda Energy to even out grid power use and avoid peak pricing. With software monitoring the grid to know the highest value time to respond, it can be installed at zero cost, then paid for by sharing the savings with the battery company. And the solar industry is at last in boom times, with the HSBC’s Global Solar index up 65% last year and already up 23% in 2014.

And all this brings increasing recognition by investors that the carbon bubble and stranded assets are serious financial risks, which in turn reinforces the growing power of NGO campaigns against coal and coal seam gas along with their fossil fuel divestment campaign. Then of course there is the role of climate policy, which, given the threat to civilisation, seems like it might gain traction at some point!

So, as I see it, the game is up for fossil fuels. Their decline is well underway, and it won’t be a gentle one. When that occurs, we may find that those forecasts by myself and others like Tony Seba from Stanford University, that the oil, coal and gas companies will be all but obsolete by 2030, might turn out to be conservative after all. Interesting times indeed.

*The is an abridged version of a story that appeared on RenewEconomy

25
  • 1
    Mark Duffett
    Posted Friday, 21 March 2014 at 2:01 pm | Permalink

    Renewables taking over, are they? Let’s see how things are going in the country trying harder than any other to make it happen: Germany.

    (spoilers: emissions up, new brown coal plants under construction, most expensive consumer electricity in Europe)

    The excoriation of Nelder’s piece by Robert Wilson is also worth reading.

  • 2
    Mark Duffett
    Posted Friday, 21 March 2014 at 2:23 pm | Permalink

    sorry, also meant to include theenergycollective.com/robertwilson190/339191/renewables-growth-ignoring-whole-equation

    …we are not remotely close to seeing renewables replace fossil fuels. There is still close to an order of magnitude difference between new fossil fuels being added to the global energy system and that coming from wind and solar.

  • 3
    graybul
    Posted Friday, 21 March 2014 at 4:23 pm | Permalink

    Interesting . . when will Banks stop stumping up financing for failing fossil fuel entities?

  • 4
    Dogs breakfast
    Posted Friday, 21 March 2014 at 4:53 pm | Permalink

    It’s true, it is inevitable, and hopefully basic economics gets us there rather than catastrophic consequences of global change.

    Nothing could be more appropriate than everyone who invests in ‘old’ energy losing all their dough. Perhaps some of that money might make its way to the next generation, an accidental inter-generational equity finder.

    But the luddites will hold on to the bitter end.

    Mr Duffett, is your money in ‘old’ energy?

  • 5
    Tim nash
    Posted Friday, 21 March 2014 at 6:11 pm | Permalink

    People didn’t think the automobile would displace the horse and carriage. This is a similar situation, it will just become economic suicide to keep going forward with coal. I predict that solar panels will become so cheap that the idea that we used to pay for electricity will become laughable.

  • 6
    Tyger Tyger
    Posted Friday, 21 March 2014 at 8:50 pm | Permalink

    Tim Nash @5. Well said. Until Henry Ford developed the production line and introduced the Model T in 1908, automobiles were considered a novelty, a rich man’s toy.

    Mark Duffett @1 & 2. Where to begin?

    This article: do you have any substantive criticism of Gilding’s argument? Do you dispute the points he makes about the decline in value of European utilities, Tesla’s market valuation, the use of battery systems to even out grid power, the increase in HSBC’s solar index, etc.? Because simply throwing out that quote beginning, “we are not remotely close to seeing renewables replace fossil fuels” is a pretty lame refutation, particularly in light of potential tipping points such as Tesla’s planned $4-5bn investment in a lithium-ion battery factory with the aim of reducing battery prices by 30% in three years and halving them by 2020 (The Guardian, 9/3/14); potential improvements in flow batteries; or using renewables to hydrolyse water, producing hydrogen for fuel cells.
    So many of the arguments against renewables rest on the point that we can’t always get power when we need it and storage systems are too expensive and inefficient to overcome that problem. Said arguments could be irrelevant sooner than you think.

    Germany: You conflate two quite separate issues: the role of renewables in the energy mix; and whether the Germans are right in closing down nuclear power stations.
    On the first front, between 2000-2011, electricity from renewable sources in Germany rose from 6.8 to 20.5% of total electrical consumption while, according to the U.S. Dept of Energy, per capita production of CO2 dropped 22.4% between 1990-2008.
    As to the nuclear question, it’s a vexed issue to say the least, but it’s nonsensical to run it as an either/or debate. There is no silver bullet and it makes no sense to take anything off the table because you happen to favour one solution over another. All clean energy options need to be seen as part of the mix, not to mention energy-use reduction through geoexchange heating/cooling, far tougher building regulations, public vs private transport and the list goes on.
    Personally, it doesn’t make much sense to me to see a country shutting down relatively safe, well-run nuclear power stations in the current circumstances, but then I’ve never lived through a Chernobyl; the Germans have.
    (Anyone interested in BOTH sides of the German “Energiewende” story can check out the link below, from where I obtained the figures quoted above.)

    http://www.dissentmagazine.org/article/green-energy-bust-in-germany

    Finally, Robert Wilson: just one word he uses in his “excoriation” of Nelder sees him hoist with his own petard: “Subsidies”. Can anyone name two industries - other than “defence” - that have been more subsidised in modern history than resources and nuclear energy? I know where I’d rather see my tax dollars go.

  • 7
    JohnB
    Posted Friday, 21 March 2014 at 10:11 pm | Permalink

    @Dog’s.

    Duffett watchers know that what Mark does well and consistently is to focus on the facts. Opinions are cheap. Intentional offense giving is worthless.

    If wind and solar were, indeed, capable of wiping coal power stations from the face of the earth, I expect that MD would rejoice in that fact and work to hasten the day.

  • 8
    Tyger Tyger
    Posted Saturday, 22 March 2014 at 12:52 am | Permalink

    You honestly believe that, JohnB @7? I must say I’m fairly new to Crikey but the few comments I’ve seen from Mark are one-sided and “focus on the facts” somewhat selectively. I respectfully suggest you read all the links provided in this article, as I’ve just done, and compare the carefully referenced arguments presented therein with Mark’s one-track ripostes.

  • 9
    AR
    Posted Saturday, 22 March 2014 at 8:19 am | Permalink

    Dire Duffer - an old man with all his financial eggs in the dirty basket of a dying technology, praying that nukes will be his golden egg but that goose has long flown.

  • 10
    Mark Duffett
    Posted Saturday, 22 March 2014 at 10:30 am | Permalink

    I second Tyger Tyger’s invitation, particularly since my posts generally contain more references than just about any others. But bear in mind not all facts carry equal weight. Quantities that describe the big picture (the only one that counts for the climate) trump anecdotes, price crashes in flooded subsidised markets or fantastic growth rates off minuscule bases. On that score, then, what part of ‘still close to an order of magnitude difference between new fossil fuels and that coming from wind and solar’ is incorrect?

  • 11
    Tyger Tyger
    Posted Saturday, 22 March 2014 at 1:02 pm | Permalink

    Mark Duffett @10. Where did I say it was wrong? I said it was a lame refutation of Gilding’s argument, with which you fail to engage. And it is.
    Instead of engaging with that argument you pursue the horse-and-cart vs automobile line and make disingenuous, misleading statements insisting it is the failure of renewables rather than the closing down of nuclear power stations that is causing problems with the “Energiewende” program.
    You also fail to engage with much of what I said. In particular, it’s hilarious how you bang on yet again about “subsidised markets” without addressing the issue of subsidies to the resources and nuclear energy industries.
    You’re a cherry-picker with a barrow to push and the cherry-picked, fit-for-purpose references you’ve cited that I’ve seen do little more than underline that fact.

  • 12
    MJPC
    Posted Saturday, 22 March 2014 at 6:42 pm | Permalink

    The stone age did not end because they ran out of stone, so it will be with the carbon age. I just watched a TV doco on a large bridge being built over the water near Mumbai built to withthand 120kph winds; Cyclone Haiyan had 10 minute sustained winds of 270 kmh!
    The revolution in energy is already happening despite neighsayers on this forum saying renewables won’t work. It isn’t only wind and solar, it’s also refitting existing systems/buildings with more efficient systems which spells less profits for the carbon energy suppliers.
    http://www.rmi.org/.
    Also, Citizen Abott is already changing his tune regarding the carbon tax removal lowering prises. Listen to his comments to the students of Newtown Performing Arts HS, no mention of lowering prices with elimintation of carbon tax, only that prices will continue to rise; “from the mouth of babes”.

  • 13
    Mark Duffett
    Posted Sunday, 23 March 2014 at 8:24 am | Permalink

    TT, I’ve always argued we need every tool in the box to address climate change. It’s not an either/or proposition - agree with you 100% on that. It’s only renewables advocates (and by no means all of them) who argue to actively exclude a particular family of technologies. But you do realise that, with resource intensities an order of magnitude or more greater than (say) nuclear, renewables themselves benefit from resource industry subsidies?

    But i reject the criticism of a pattern of cherry picking. References to parameters describing the global energy system are by definition the whole tree.

    This is what I’m talking about: theenergycollective.com/davidhone/357746/living-renewables-distortion-field

    There is no doubt major government intervention is required to effectively mitigate climate change. But it’s got to directed in ways that will definitely get the job done. Parameter setting (think carbon pricing) in preference to winner picking (think RET). If you must insist on picking winners, pick ones that have demonstrated the ability to achieve the decarbonisation task (think France). Not things that rely on ‘potential’ and ‘could’.

  • 14
    Mike Stasse
    Posted Sunday, 23 March 2014 at 10:09 am | Permalink

    Some of you will struggle with that statement.

    You can say that again……. try making renewables without coal.

  • 15
    Aidan Stanger
    Posted Sunday, 23 March 2014 at 1:55 pm | Permalink

    @ Tim Nash #5

    The idea that we will ever not pay for electricity is laughable! No matter how cheap solar panels are, there’s still the cost of installing them, there are still locations where demand exceeds roof area, there’s still the cost of storing electricity for when the sun isn’t shining, and without any incentive to use electricity more efficiently, you can be sure that people will use it less efficiently.

  • 16
    Tyger Tyger
    Posted Monday, 24 March 2014 at 2:45 am | Permalink

    Mark Duffett @12. Agree wholeheartedly on market-based ETS. As for governments picking winners, I think they should pick clean energy over dirty and let the market figure out what mix of clean energy is the best. It follows from that I reject your defence of subsisies to the resources sector.
    To frame it as a response to Mike Stasse @13’s helpful comment, it’s apparent you can’t make renewables - or much of anything for that matter - without burning coal, given that’s how we currently generate most of the electricity we use. It’s hardly a valid point in a debate about making the transition from dirty to clean energy, let alone a defence of continuing subsidies. Change always has to start from where you’re at.
    If you are truly interested in mitigating AGW, why keep throwing good money after bad in backing the inevitable loser? Surely it makes more sense to re-direct those subsidies in the manner Seba suggests (link in article):

    “In India, about $30-40 billion goes to subsidise diesel… If they stop subsidising diesel and put it into solar, they could bring 100 million people a year into solar. If all you do is stop subsidising diesel, you can, in five years, bring solar electricity to 500 million people who are not on the grid today.”

    As for me calling you a cherry-picker with a barrow to push, you continually misrepresent the problems with “Energiewende”, sheeting home all the blame to the subsidising of renewables and defend massive subsidies to the resources sector while rejecting the same for renewables. You also defended gas-fracking in your comment on the Crikey article, “Santos’ open flame: can it snuff out the protests on coal seam gas?” Given problems with escaping methane and the energy-intensive nature of fracking - never mind the myriad other environmental concerns - it’s simply not the clean energy miracle it’s cracked up to be. (Sorry! Couldn’t help myself.)
    I’m not convinced someone as interested in addressing AGW as you claim to be would be holding some of the positions you do.

  • 17
    Phen
    Posted Monday, 24 March 2014 at 12:27 pm | Permalink

    This really is among the silliest articles Crikey has published in recent weeks.

    There’s some cause for optimism, especially with China’s smog-driven enthusiasm for trying to get renewables competitive, but we are a long, long way from this yet.

  • 18
    Scott
    Posted Monday, 24 March 2014 at 3:09 pm | Permalink

    And the solar industry is at last in boom times, with the HSBC’s Global Solar index up 65% last year and already up 23% in 2014.”

    Hah! Solar did have a boom year last year (up 80% on the previous year, according to the true index, Bloombergs and NYSE Global Solar Energy Index. The HSBC solar index listed above isn’t a true index, but is the solar portion of HSBC’s Climate Change index).

    But this is after a truly shocking 2011 and 2012 where the index lost 53% and 22% respectively of it’s value. In fact, if you invested $1 at the beginning of 2009 in the index, you would only have $0.79 left in the kitty at the end of 2013.

    Still unconvinced by Solar’s investment offerings.

  • 19
    Tyger Tyger
    Posted Tuesday, 25 March 2014 at 12:42 am | Permalink

    Hah! That’s probly why he says “at last”, Scott, ya reckon?

  • 20
    Tyger Tyger
    Posted Tuesday, 25 March 2014 at 2:27 am | Permalink

    WHEN WARREN BUFFETT backs an industry, markets worldwide take notice. So when one of Buffet’s companies recently placed a US$1billion order for wind turbines — the largest ever order for a land-based wind energy project — it generated headlines. The greatest living investor in the world pulling out his cheque book has certainly put the spotlight on renewable energy.
    It suggests that Buffett agrees with what a number of analysts have recently highlighted: that the costs to set up renewable energy projects have dropped to the point where it is now competitive with power from fossil fuels.”

    From the ABC’s “Environment” webpage, 13/2/14.

  • 21
    Tyger Tyger
    Posted Tuesday, 25 March 2014 at 2:41 am | Permalink

    From the same article quoted @18:

    According to the International Energy Agency, globally fossil fuel subsidies amounted to US$523 billion in 2011, up almost 30 per cent on 2010 and six times more than subsidies to renewables. A recent study by European based consultancy Solavis, found that if the investments allocated to fossil extraction globally had been allocated to renewables instead (from 1995 onwards), renewable energy cost would be significantly below today’s price of fossil energy, saving US$2,778 billion globally in 2013.”

    In Australia, the cost of renewable energy is falling. In a report released in December, the government’s own Bureau of Resource and Energy Economics found that some renewables, such as on-shore wind, are already cheaper than new-build fossil fuel alternatives. The report also found that by 2030 the most cost effective energy option will be solar.”

    Better include the link as this article tells the story better than I could ever hope to:

    http://www.abc.net.au/environment/articles/2014/02/13/3943348.htm

  • 22
    AR
    Posted Tuesday, 25 March 2014 at 9:33 am | Permalink

    MJPC - they may be horse’s arses but their nay-saying will grow louder as the reality begins to bite.
    After all, Houyhnhnms are high intelligent but have grown to rely on their yahoo servants to flap their ears when the latter deem something is worth noting.

  • 23
    The Pedanticist
    Posted Tuesday, 25 March 2014 at 2:51 pm | Permalink

    While I don’t think that the Carbon Club is finished yet - after all, they are amongst the most cashed up industries in the world and will fight tooth and nail to protect their revenue at whatever environmental cost that may entail, there are bright lights in the darkness, like Sonnerschiff, which should serve as a baseline model for urban development anywhere in the world.

    http://inhabitat.com/sonnenschiff-solar-city-produces-4x-the-energy-it-needs/

  • 24
    Scott
    Posted Tuesday, 25 March 2014 at 5:57 pm | Permalink

    Warren Buffet’s Subsidiary that you are talking about, MidAmerican Energy Holdings, is an energy production company. Yes, it does have some wind power installations, but coal is it’s bread and butter actually. If you look at the annual report, you have the following breakdown of energy capacity for the company

    Coal - 17638 MW
    Natural Gas - 9954 MW
    Wind - 3700MW
    Hydroelectric - 1309 MW
    Nuclear - 1816 MW
    Solar - 588 MW
    GeoThermal - 361 MW

    So out of a grand total of 35416 MW, 10% of capacity is in wind. But 50% is coal.

    Warren Buffet is just using wind in windy areas (particularily in Iowa). He isn’t stupid enough to bet the farm on wind.

  • 25
    Tyger Tyger
    Posted Thursday, 27 March 2014 at 12:45 pm | Permalink

    Scott@24, the point is that Warren Buffet’s increasing investment in renewables lends weight to this article’s thesis that they are becoming a viable challenger to traditional forms of power generation on the only basis that will ultimately make a real difference - economics. Furthermore, that process would clearly accelerate were it not for the market-distorting effect of fossil fuel subsidies - something neither you nor Mark Duffett care to address.
    It’s also interesting to note that just under 22% of the generation capacity of the portfolio you present is from non-fossil fuel sources and a smidgin over half from the dirtiest form of energy of all - coal. I wonder what the mix was 10 years ago? Or will be in 10 more?
    I’m guessing Buffett is aware enough of the improvements in technology, economies of scale and storage systems to know which way the wind is blowing.

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