Published in Nikkei Asia 15/1/2021
“Over 80% of the world’s people have never been in an airplane. ‘Flight shaming’ may be a social mode in Sweden, population 10 million, but China, population 1.5 billion, is building eight new airports a year.”
That quotation is typical of the tough-minded, realistic approach that Daniel Yergin adopts in “The New Map: Energy, Climate and the Clash of Nations”. The book appears with perfect timing. President Joe Biden has pledged to take the United States into the Paris agreement on climate change and is expected to put green investment schemes at the centre of his economic recovery programme.
The EU had already committed itself to a zero net carbon economy by 2050, as has Boris Johnson’s UK government. Japanese Prime Minister Yoshihide Suga followed suit in late December. The governments of the wealthiest countries in the world are now solidly aligned with the green agenda. What could possibly go wrong?
Quite a lot, in Yergin’s view. To hit the target, these countries (GDP per head of $40,000-$60,000) would need to see their per head emissions fall to the same level as India’s (GDP per head of $2,000). These are tremendously ambitious goals.
Japan has followed the UK in proposing to ban sales of standard ICE (internal combustion engine) automobiles, by the mid-2030s in Japan’s case. In an unusually blunt response, Akio Toyoda, CEO of Toyota, stated that such a restriction risked driving car manufacturing out of Japan while doing nothing for emissions. Indeed, unless the grid itself is de-carbonized, electrification of the car fleet will achieve little.
Akio Toyoda recreates the Lexus “champagne” ad.
Change in the U.S., with its high level of vehicle ownership, is far more challenging. The fleet of 280 million vehicles is currently 99% ICE-powered. One fifth is over 16 years old, a proportion that has been rising steadily due to quality improvements. Without a game-changing policy intervention, many ICE vehicles bought this decade will still be in service in the 2040s.
Any such intervention would incur immense costs at the very time the economic wounds of the Covid-19 crisis need to be healed. Is Joe Biden ready to raise fuel taxes to European levels and offer more subsidies to the usually wealthy buyers of battery-powered cars? If he does, America’s 3.5 million truck drivers are unlikely to be amused.
British Prime Minister Harold Wilson once declared that a week was a long time in politics. From the perspective of today’s politicians, 2050 probably seems like the far future. But in terms of a full-scale energy transition, the creation of the necessary infrastructure, the safety testing, delivery and commercialization of new technologies, it is just around the corner.
Daniel Yergin is an insider’s insider. Pullitzer prize winner, trustee of the Brookings Institute, board member of the Council of Foreign Relations, member of the U.S. Secretary of Energy Advisory Board under the past four presidents – he knows the issues inside out, and most of the major players too. His reputation is based on his intimate knowledge of the oil and gas industry and analysis of the geopolitics of energy.
Most of “The New Map” is a lively description of recent events. It features a colourful cast of characters that includes Vladimir Putin, Xi Jinping, Saudi leader Mohammed bin Salman, Uber’s Travis Kalanick, Tesla’s J.B. Strauber, shale oil pioneer Harold Hamm and Malcolm McLean, the man who invented the shipping container, thereby ushering in an era of explosive growth in world trade.
It is the last two chapters that are the most important and most controversial. Yergin’s main scenario is that the global fleet of planes will double over the next thirty years; that oil consumption will hardly fall at all in absolute terms, although its share of total energy consumption will decline significantly; that the number of ICE-powered vehicles will be more or less unchanged, although over half of the new cars sold in the world will be EVs.
“Oil will maintain a pre-eminent position as a global commodity, still the primary fuel that makes the world go around,” he declares. “Some will simply not want to hear that. But it is based on the reality of all the investment already made, lead times for new investment and innovation, supply chains, its central role in transportation, the need for plastics from the building blocks of the modern world to hospital waiting rooms, and the way the physical world is organized.”
Unsurprisingly, Yergin has little time for the radicals, symbolized by teenage activist Greta Thurnberg, who want to ban fossil fuels right away. He quotes the response of David Swensen, legendary head of the Yale endowment, when faced with students’ demands to disinvest from the companies involved. “If we stopped producing fossil fuels today, we would all die…We wouldn’t have food. We wouldn’t have transportation… We wouldn’t have clothes.”
Yergin is no climate change denier, nor does he ignore the disruptive new technologies that are driving down the cost of renewables. He believes the energy transition is real and that breakthrough technologies such as hydrogen power have great potential. What he disagrees about is the timescale. And the basis of his scepticism is the changing power balance in the world, specifically the rise of Asia.
China overtook the U.S. as the world’s largest energy consumer in 2009, and now accounts for 25% of world consumption. Some 85% of that is generated by fossil fuels, overwhelmingly coal. It has been adding three coal-fired plants a month.
Long-term energy security is crucial in the thinking of the Chinese leadership and plays a major part in the rapprochement with Russia. As Yergin observes, “a relationship that was once based on Marx and Lenin is now grounded in oil and gas.” China has made $80 billion of pre-payments to Rosneft, a state-controlled Russian energy company, for oil supplies to be delivered over the next twenty five years. It also financed the now functional 1,865 mile Power of Siberia natural gas pipeline, part of a mega-deal worth $400 billion over 30 years that cements the relationship between the two nations.
China is indeed a leader in EVs, but the need to keep living standards rising– a must for the Chinese Communist Party – suggests that fossil fuels will remain the dominant source of electricity.
India, destined to become the world’s most populous nation by the end of this decade, is at a much earlier stage of development. For a large part of the population – 300 million live on the equivalent of $1.25 a day – energy transition means moving away from pollutant-spewing wood and agricultural and animal waste.
The target is “to usher in a gas-based economy”, in the words of Petroleum Minister Dharmendra Pradhan. Currently, India has 37 cars for every thousand people. China has 160, Brazil 208, the EU 520 and the U.S. 867. In the sub-continent, motorization has barely begun.
In the ASEAN countries, only 10% of households own air conditioning units. According to projections by the International Energy Agency, the number installed will rise sixfold over the next twenty years, driven by high growth in Indonesia.
If the G7 nations still ruled the world, you could colour the year 2050 a deep shade of green. But geopolitical power is flowing to countries that place significantly lower on Maslow’s hierarchy of needs. Until hardcore environmentalists make converts of Narendra Modi, Xi Jinping and the leaders of the emerging world, Daniel Yergin’s highly-informed scepticism seems well justified.