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The End Of Oil Is Nigh
But we are still miles away from saving the planet.
For over a century, there has been one industry which has made more billionaires than any other, the oil industry. Why? You have guaranteed customers, high profit margins and an easily scalable operation. John D Rockefeller used these characteristics to become the wealthiest person in modern history back in the late 1800s, and still today, the list of richest people is potted with oil magnates like Charles Koch. Needless to say, if you wanted to make a life-changing investment, history would suggest that oil is the way to go. But things have recently changed. You see, according to a recent IEA report, back in 2016, investment in clean energy outpaced investment in oil and gas, and last year's investment in solar outpaced investment in the entire oil industry! But why has money started flowing towards clean energy so rapidly? And, is this enough to end oil, and save planet Earth from our climate crimes?
On the face of it, this IEA report is excellent news. They found that if the pace of investment in clean energy carries on its upward trajectory, then “aggregate spending in 2030 on low-emission power, grids and storage, and end-use electrification would exceed the levels required to meet the world’s announced climate pledges.” They also found that for some technologies, such as solar, investment is on a trajectory that is on track for a 1.5 °C stabilization in global average temperatures. In other words, we are on track to save the world!
Or are we? This report also found that investment in fossil fuels is currently double the maximum amount allowed if nations are to meet their stated pledges to reduce emissions. So, even if clean energy does grow to the size that can enable a net-zero world, the fossil fuel industry is set to render this gargantuan effort pointless.
To give you an idea of the scale of the problem here, back in 2021 another report from the IEA found that in order to meet our climate target of only 1.5 degrees Celsius of global warming by 2050, investment in new oil, coal and gas projects would need to end that year. But in 2023, just the oil and gas industry is set to spend $950 billion on new unabated (untapped) oil and gas. That is a 6% increase from 2022.
If you take the geopolitical and economical backdrop into account, this vast investment makes no sense. Let me explain.
There are two reasons for the recent increase in clean energy investment. Russia’s invasion of Ukraine, and the recent advancements in renewable energy.
Russia is one of the world’s biggest oil and gas suppliers, accounting for around 12% of global exports. In particular, they are a major supplier of gas to the EU, making up around 45% of their gas supply before the invasion. However, the Western sanctions on Russia, and Russia’s retaliation against the West’s support of Ukraine, disrupted this supply. As such, many Western nations scrambled to replace the last gas supply with alternative sources, which drove investment into renewables and nuclear energy through the roof.
The main reason that countries looked to replace Russian gas with renewables is because renewable are far more independent. A coal, oil or gas fired power plant needs fuelling for its entire life span, and many Western nations either don’t have enough resource to supply this fuel themselves, or it is too expensive for them to mine/extract them. As such, they need to import these fossil fuels, putting their energy grid at risk of blackmail, as what happened with Russian and the EU. In contrast, a solar farm or wind farm will deliver power for decades with practically no need to import anything, which increases the energy security of the country they power, and helps to give countries back their energy independence.
In this way, renewables have become a key investment for national security for many nations, which has driven investment way up. It also means that investments in the oil industry can undermine national security, particular those that fund international oil projects.
But, renewables are also cheaper and more profitable than fossil fuels! Thanks to continued advancements, economies of scale and some breakthrough developments, the cost of renewables has fallen year-on-year for the past few decades. Thanks to this trend, it now costs less to build new wind or solar farms than it does to build new oil or gas fired power plants. So, the upfront investment is now no longer a problem for renewables. But, as solar and wind don’t need to buy tonnes of fuel, their cost of energy is also far less. The Levelized Cost of Energy (LCOE) of wind and solar are up to $75 per MWh and $96 per MWh, respectively. In contrast, gas power costs up to $221 per MWh and coal costs up to $166 per MWh!
Quite simply, this means that investors are now making more from renewables than oil. This is also backed up by the IEA, who found that returns in renewables have been 367% higher than the oil industry.
The IEA has made it clear, we are addicted to oil. I don’t mean that metaphorically, the definition of addiction is the need to use a substance even if it is harming you. We are on track to replace oil, dramatically increase national security and reach our net-zero targets. All we need to do is scale back oil investment and let the industry fade away, or at the very least, reduce to almost nothing. Instead, we are spending nearly a trillion dollars a year expanding oil and gas. Why? The argument that it is good business and driven by profits no longer stands up to scrutiny.
If we want to meet our targets and avoid the civilization wrecking environmental catastrophe that is climate change, we need to break this addiction in the next few years. Time is running out, we must act now.
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