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The Size and Vulnerability of the Fossil Fuel System Disruption

Image credit: Harvard Business Review

If there is one report you have to read in the absolute disruption we are undergoing in the Energy Transition, it is one just released by Carbon Tracker entitled “Decline and Fall: The Size & Vulnerability of the Fossil Fuel System.

It stops you in your track at the enormity of the changes that will occur in the Energy System in the coming years. What we are witnessing today is only the tip of the Energy Transition iceberg.

Firstly, we must recognize the assets involved are huge, and as the energy transition continues in its switch from fossil fuels to renewables, the entire energy system gets increasingly disrupted.

Secondly, the implications investors and policymakers can lead to a choice between financial instability or begin to have a very clear, orderly phasing down of assets than trying to prop up unstainable assets. How are we going to manage such a transition to keep it fulfilling the energy need expected, all of the time?

To get the total picture provided in this report I have taken Carbon Trackers Executive Summary and reproduced it here with full acknowledgment this is their work, and all my intention here is to present their story.

The Carbon tracker executive summary tells the story unfolding and the full report you can download here gives the validation and thinking behind it.

Please read this, it presents a massive transition.

Executive Summary of “Decline and Fall: The Size and Vulnerability of the Fossil Fuel Systems” by https://carbontracker.org

The entire energy system is being disrupted by the move to the cheaper renewables from existing fossil fuels

Just grasp the magnitude of disruption this switch away from fossil fuels to renewables and what assets are under threat from this report.

“The three main assets are the 900bn tonnes of coal, oil, and gas, valued by the World Bank at $39tn; supply infrastructure of $10tn and demand infrastructure (electricity, transport, and heavy industry) of $22tn; and financial markets with $18tn of equity (a quarter of the total), $8tn of traded bonds (half the total) and up to four times as much in unlisted debt.”

Of course, you can argue this is Carbon Trackers opinion as a team of financial specialists making climate risk real in today’s markets. Others will see it or argue it differently.

The existing Fossil Fuel lobby is a powerful one that has many supporters. It is like the climate debate there are so many “vested interests” but we are in need of facing some clear realities.

A short background to the existing energy system

The existing energy system is responsible for really high carbon emissions and releases of other harmful greenhouse gases. Our planet is getting warmer as a consequence. This need for as deep decarbonization is essential and an urgent move to low carbon or even net-zero energy system.

Carbon dioxide emissions represent three-quarters of greenhouse gas emissions, two-thirds of the remainder is methane, with energy-related Co2 (combustion of fossil fuels) and industrial process emissions making up over 80% of Co2 emissions and the remainder coming from land use, land-use change and forestry (LULUCF).

Our challenge is can we change from fossil fuels as the main sources of energy in hard-to-abate sectors?

Almost 45 percent of industry’s CO2 emissions result from the manufacturing of cement (3 GtonCO2), steel (2.9 Gton CO2), ammonia (0.5 Gton CO2), and ethylene (0.2 Gton CO2). In these four production processes, about 45 percent of CO2 emissions come from feedstocks, which are the raw materials that companies process into industrial products (for example, limestone in cement production and natural gas in ammonia production).

Feedstocks are really hard-to-abate by a change in fuels, they will require a more innovative approach to changes in the process. Fossil fuels generate high-temperature heat where some processes need to achieve 700 degree C to even over 1,600 degree C. The design of the system and the industrial processes are highly integrated and due to considerable investments have long lifetimes, perhaps up to 50 years. All of these hard-to-abate sectors are also commodity products and traded globally. The willingness to pay more or to change is a difficult one, it is not external financial considerations alone.

Another 35 percent of CO2 emissions come from burning fuel to generate high-temperature heat. The remaining 20 percent of CO2 emissions are the result of other energy requirements: either the onsite burning of fossil fuels to produce medium- or low-temperature heat and other uses on the industrial site (about 13 percent) or to drive machine  (about 7 percent) (Source McKinsey)

Will external pressure bring about the required changes?

This research and report from Carbon Tracker will open up the debate further on how to align the financial system in the transition to a low carbon economy as the catalyst to bringing about change. To make this orderly change or face a series of disruptions unplanned or faced at points of crisis.

“Today we are witnessing the degradation of this one vital ecosystem we are all utterly dependent upon, our planet

This energy transition is genuinely an ecosystem of epic proportions.

For me, the energy transition is the largest transformation we must undertake in decarbonizing the planet for achieving our reduced climate warming.

Paul Hobcraft's picture

Thank Paul for the Post!

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Discussions

Matt Chester's picture
Matt Chester on Sep 9, 2020 10:37 am GMT

Just grasp the magnitude of disruption this switch away from fossil fuels to renewables and what assets are under threat from this report.

“The three main assets are the 900bn tonnes of coal, oil, and gas, valued by the World Bank at $39tn; supply infrastructure of $10tn and demand infrastructure (electricity, transport, and heavy industry) of $22tn; and financial markets with $18tn of equity (a quarter of the total), $8tn of traded bonds (half the total) and up to four times as much in unlisted debt.”

So many of the energy transition conversations can, under the surface, be disseminated down to this. Considering how many communities, how many political & corporate leaders, how many livelihoods are tied directly to these mind-boggling numbers, of course there's going to be a pushback to every clean energy pull. 

While we can look to job training, financial assistance, and other political programs to assist in the communities and families who will come out hurt by the energy transition, what do you do about those entities and individuals who own immensely valuable assets in the system? How can you ever expect them to give up without a fight?

Paul Hobcraft's picture
Paul Hobcraft on Sep 13, 2020 10:50 am GMT

Matt,

I share your concerns, a lot of shift will be involved in the energy transition of this magnitude. The tensions between "old and new" will only surface more but with a Paris Agreement made (with or without the US) has become the real trigger. The cost of change has such a high social cost but also benefit. Energy independence for many, clean air for most. The fight is not so much about holding onto something but recognizing the need for making the change to put us beyond the industrial revolution era, into the next one based on the clean energy revolution.

We are facing more uncertainly and incoherence than ever. Should we call a moratorium on innovation or is it just invention? Can we afford too?

I wrote this about our world, is a "creative destruction one or a destructive creation one"

https://paul4innovating.com/2012/03/01/the-innovating-era-creative-destruction-or-destructive-creation/

I said at the time:

"I think we, as humans, have been reduced down and until we can regain mastery over the complex, needing a structural and societal adjustment or we otherwise will continue to suffer the consequences of “destructive creation.” I think we might start yearning for the good old days of just “creative destruction.” Is technology leading and we are lagging? Can we regain control?

So some commentators have suggested that we have to reawaken our imaginations and really think deeply about our values. Then innovation can perhaps return to being context-specific working in positive enhancing ways to improve society as a whole and not be used for a selected few. All I hope is it will let us ensure we put the emphasis back far more on the “creative” innovation part and not the ‘destructive’ nature we have been moving towards recently."

We are in a very disruptive time Matt and that IS our new normal!

Jim Stack's picture
Jim Stack on Sep 9, 2020 5:25 pm GMT

Great insight Paul, The Oil and gas system leaks from beginning to end. Just as bad it is used in 20% efficient engines that make deadly pollution. Put a carbon tax on that and it's all over.

   Renewables are better, faster to get in and working, very distributed and keep getting better. The new advanced battery storage that is non toxic and long lasting makes it even better. That is also getting better and lower in cost each year with no leaks.  

Paul Hobcraft's picture
Paul Hobcraft on Sep 13, 2020 10:55 am GMT

Where you have a connection you have a leak. Flaring just staggers me that it continues, perhaps even more in this recent period.

The system needs (regretfully) this interim or intermediate step bridging the need for energy today while we work out the replacement system, piece by piece. Twenty to thirty years seems a long period but if we do not have the PROVEN momentum in this next ten years, game over- goodbye world as we can live in it as we know.

Renewables of Wind, Solar, Water and Nuclear all need to be in place, otherwise.........

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