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Mar 21, 2014

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

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25 thoughts on “Is this it for coal?

  1. Mark Duffett

    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

    sorry, also meant to include

    …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

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

  4. Dogs breakfast

    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

    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

    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.)

    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


    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

    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

    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

    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?