An assessment of the dynamics accelerating the global sprint away from fossil fuels in the wake of Putin’s War
With his barbaric war on Ukraine, Vladimir Putin has set in motion every outcome he dreaded, including shaking up global energy markets. Now, energy security is at the forefront of the minds of national and regional policymakers, investors, businesses, and consumers alike. It’s now time to act with speed, agility, coordination, and a broadened and integrated vision to create a prosperous, climate-safe and energy-secure world.
Russia is the world’s largest exporter of oil, gas, and total fossil fuels. In 2020, Russia supplied nearly twice Saudi Arabia’s fossil fuel exports (which are just oil, while Russia adds gas and coal), or 15 percent of international energy trade. Now Russia is being cut out of markets, creating a classic supply-side shock. High fossil fuel prices make them lose out to renewables earlier and more broadly, while long-neglected energy security reinforces climate and public-health imperatives to galvanize political change. As Europe finds new solutions to reduce its fuel dependency, the Global South too can leapfrog to cheap, stable, and domestic renewable energy. Rising energy efficiency and quicker renewable growth will put the peak of world fossil fuel demand behind us. Policymakers should speed the shift to efficiency and renewables and resist the siren song of a return to the fossil fuels that had lost their rationale even before Putin’s War, and that are now losing any remnants even faster.
This external shock has pushed the future of fossil fuels into a new direction, illustrated by the conceptual chart below. Rather than coasting gently into a slow decline, fossil fuel demand now faces the prospect of prompt, rapid, and sustained decline, driven by three imperatives no longer at odds but now fully aligned: security, climate (and health), and economics. The energy trilemma has been solved by the synergistic pairing of efficiency with renewables.
The Structural Shift Before the Shock
Even before the shocks of COVID and Putin’s War, the energy system was set to transition from fossil fuels to renewables, driven by the past decade’s technology and political shifts. Renewable electricity costs fell by up to 90 percent, and even in 2020 beat fossil-fueled power in over 90 percent of the world, so renewables are expected to continue providing around 95 percent of the world’s new generating capacity. Countries with 90 percent of global GDP have already targeted net-zero carbon. Meanwhile, energy efficiency eases renewables’ substitution task by slowing, stalling, or reversing growth in energy use while delivered services continue to expand and improve; and electrification, especially of automobiles, keeps outrunning forecasts.
Since 2010, in country after country and sector after sector, new energy solutions became cheaper than fossil fuels, driving renewables’ exponential growth, so in each area fossil fuel demand peaked and began to decline. OECD fossil fuel demand peaked in 2006, world coal demand peaked in 2014, fueled car demand peaked in 2017. Solar and wind have been growing exponentially at 20 percent per year for the past decade, driven by increasing returns to volume: as Thomas Friedman says, “the more we buy, the cheaper it gets, so we buy more, so it gets cheaper.”
However, this transition has up to now been relatively slow, broadly resisted by the entrenched forces of fossil-fuel incumbency and inertia. An extraordinary lack of urgency is visible everywhere: drivers in Portsmouth blocked a major European interconnector because it would cause temporary traffic jams, and offshore wind turbines around the world were held back for years because they might be visible from shore on a fine day. United States and foreign incumbents and their powerful allies — many influenced with a small part of fossil fuels’ $1–$2 trillion in annual rents — developed sophisticated ways to frustrate and postpone change, praying like St. Augustine, “O Lord, make me fossil-free, but not yet.”
Nevertheless, many analysts were expecting exponential renewable growth plus continued efficiency gains to make fossil fuel demand peak in this decade. Respected analysts like DNV thought the pandemic shock advanced the peak of fossil fuel demand to 2019, but were still expecting fossil fuel demand to coast along a bumpy plateau for another 5–10 more years. Then came Putin’s War.
Supply Shock Drives Tipping Points
Russia’s 11 percent share (2019) of global fossil fuel production is 10 percent of global primary energy use, but provides a fifth of Europe’s total energy, and far more for some EU members. Now Europe won’t keep funding Putin’s War with $400 million a day in hard currency for gas, nor many buyers with $700 million a day for oil, nor will many others buy those fuels and other commodities, traders accept them, ports admit them, nor dockers unload them. Russia will therefore struggle to sell its fossil fuels, with its supply routes to the West under threat and unable to shift fully or quickly to the East.
A third gas pipeline to China is planned to open around 2025 — a long drought in Gazprom’s cashflow. Its extra 10 billion cubic meters per year (bcm/y) of gas would fetch the price China offers, not the price Russia wants. The new link would free up Chinese LNG imports for other markets and would displace coal, a climate boon only if very little methane escapes — though not as beneficial as efficiency or renewables.
When the world’s biggest fuel exporter is suddenly unlinked from major markets, the global energy system rings like a bell. Diverse effects of the supply shock are likely to outlast Putin’s War. This supply shock — and its anticipation even if it turns out to be milder than feared — creates two clear tipping points in economics and politics:
- Economics — price tipping points brought forward.
Renewable costs enjoy learning curves, which means that they fall over time, crossing one fossil fuel threshold after another. Costlier fossil fuel brings forward all those price tipping points. It makes renewables beat coal and gas today in nearly all world power markets. The rapidly dwindling extra initial cost of electric over oil-fueled vehicles is repaid far faster, and electric vehicles (EVs) win on lifecycle cost in most use cases. Green ammonia made from solar and wind power was expected to compete with fossil-fueled brown ammonia only at the end of this decade; Bloomberg New Energy Finance (BNEF) now argues it’s cheaper today.
- Politics — security beats global warming as a driver of change.
The supply shock forces through political change in the same way that the 1970s oil shocks forced the world to curb oil demand growth. The pressure to change has been redoubled at a time when the resistance to change has been severely compromised. Heat pumps are the new instruments of security and resilience; solar panels and wind turbines liberate us from energy dependence; interconnectors save us from tyranny. As many have pointed out, change requires many detailed political actions, and these are now likely to happen faster. Expect faster permitting of solar and wind farms, wider time-of-use pricing, reduction of the huge subsidies to fossil fuels, and smarter regulatory structures.
The confluence of economic and political tipping points will accelerate renewable deployment. Necessity is the mother of invention, and new solutions will be found. And in turn, as the Oxford INET model shows, faster growth means lower costs driving faster growth. High fossil fuel prices should also speed more-efficient energy use and durable policies to support it.
Fossil fuel advocates promote the fantasy that high prices will increase fossil fuel supply and kill the energy transition. In fact, prudent investors won’t bet on prolonged high prices to pay for massive, but generally slow, investments that take decades to pay off — least of all in the actual competitive landscape. Cheaper renewables were beating fossil fuels well before this price shock and will do so even more at high fossil fuel prices — which will also curtail demand, just as for any other product. Fossil fuel shares are of course performing well at present, but that reflects the supply shock; it doesn’t presage a new ramp in fossil fuel demand.
Europe Emerges to Lead the Shift
In 2019, the EU is responsible for 9 percent of global fossil fuel demand and none of the growth. EU fossil fuel demand peaked in 2006, and has since fallen by 27 percent. However, Europe depends on fossil fuel imports for 60 percent of its total energy. One-third of those imports come from Russia, or 13 EJ (equivalent to more than 2 billion barrels of oil) in 2019. Since 2010, European primary energy demand has been falling at around 1 percent per year while solar and wind grew at 12 percent per year, squeezing fossil fuels from both sides.
Before Putin’s War, Europe had sought to cut its fossil-fuel demand mainly to protect the climate, through policies and targets like Fit for 55. Despite prudence and profitability, those plans faced considerable internal opposition from a range of actors. Thus, Nordsteam 2 was built even after Russian bullying made clear the security risks of depending ever more on Russian gas.
Putin’s War changed all that. German policy shifted more in ten days than in the previous ten years. The German government swiftly brought forward its net-zero target for the electricity sector by a decade to 2035. The German utility E.ON and Fortescue Future Industries overnight created a partnership for the delivery of up to 5 million tons per year of green hydrogen from Australia to Germany. On March 8, 2022, the European Commission published an initial plan to cut Russian fossil fuels completely out of the European energy system well before 2030 — tightened two days later to 2027 — and, remarkably, to cut imported Russian gas by two-thirds in 2022. Meanwhile, in case Russian gas were cut off, the IEA published an emergency plan to show how Europe could cope, then another for an oil emergency — in effect, testing how Europe could not need oil and gas more than Putin needs their revenues (45 percent of Russia’s federal budget in January 2022).
The European Commission plan ramps up the key tools of greater efficiency, additional renewables, more electrification, and better policy. By 2030, it implies the installation of 900 gigawatts (GW, billion watts) of solar and wind as well as 30 million heat pumps and quadrupled green hydrogen. Policy includes faster permitting of solar and wind, new market structures, and more resiliency. As these plans come to fruition in a continent outraged by Putin’s War, Europe will keep enlarging the boundaries of its energy transition to encompass whatever the solution requires. The original green growth agenda is being rapidly refined in a loop of expanding, self-reinforcing, and trans-ideological ambition.
It is completely feasible to cut Russian fossil fuels out of European supply long before 2030 simply by growing solar and wind and increasing efficiency. In 2020, solar and wind provided 541 TWh of electricity to Europe, enough to displace 5 EJ of fossil fuels. At 15 percent annual growth rates (a little higher than the 2010–2020 13 percent European average), solar and wind would be able to displace an additional 12 EJ/year of fossil fuels. Meanwhile, European energy demand has been falling at 1 percent per year for a decade. Another decade of decline would cut demand by 5 EJ/year.
To give a sense of what is possible, the chart below illustrates how two factors affect EU energy demand: solar and wind power growth rates and change in total energy demand. For example, an annual fall in energy demand of 1.5 percent and annual growth in solar and wind of 15 percent would cut 2030 demand for other energy sources by 19 EJ. Considerably faster displacement can be realistically envisaged. Russian energy supply to Europe in 2019 was 13 EJ — less than the amount displaced in almost all scenarios (Exhibit 3).
Europe’s Lessons for the Rest of the World
Europe uses only 9 percent of global fossil fuel, and that demand is shrinking. Nevertheless, European experience can disproportionately speed the world’s journey off fossil fuels in at least five ways:
- Higher fossil fuel prices.
As Europe seeks to reduce Russian supply and searches the world for alternative sources, prices are rising. For example, Europe’s quest for an extra 50 bcm/y of liquefied natural gas (LNG) means a price war with current buyers, mainly in Asia. Asian users will thus gain the same incentives as Europeans to find cheaper local energy solutions. Solutions are fungible too: efficiency or renewables that save gas or gas-fired electricity in Asia can free more LNG for Europe.
- Technology demonstration effect.
Europe will find solutions that other countries can then adopt, much as Germany, Denmark, and Ireland provided solutions and inspiration for many countries seeking to expand their solar and wind power. While China has more renewables deployed, the penetration levels in many European countries (e.g., Norway for EVs, Denmark for wind, Italy for solar) are much higher, resolving grid integration and other deployment issues sooner and informing others’ emulation later.
- Technology, installation, and integration capacity.
Each expansion of capabilities to speed renewables and efficiency anywhere can serve markets, speed learning and training, save fungible fuels, and drop prices faster everywhere. For example, Europe’s ambition to import 10 million tons of hydrogen per year will accelerate GW-scale renewables and green hydrogen projects outside the EU, but with significant involvement from European companies. This will boost the development of hydrogen and ammonia infrastructure all over the world.
- International support.
Europe is now strongly incentivized to encourage the energy transition in the rest of the world. Policy expertise and capital will be deployed far more aggressively to meet the existential threat. European companies like Iberdrola and Enel, Ørsted and Vestas, Sonnen and SMA, fresh from solving energy problems at home, are already key players in the US and Global South energy transitions.
- Break the narrative that energy transitions are always long.
The latest indications are that Europe can reduce Russian gas imports by a stunning two-thirds this year and cut Russian fossil fuel imports to zero within five years. This breaks mental logjams and counters the fossil fuel industry’s narrative that transitions must be long and slow.
Energy Leapfrogging in the Global South
The need to deploy renewables is even more acute in the Global South than in Europe. World Bank data shows that fossil fuel imports cost around 3 percent of European GDP in 2017, but over 5 percent in India and Pakistan, and over 9 percent in Thailand. Four-fifths of the world’s people live in countries that import fossil fuels and would rather not be at the mercy of suppliers. In countries like India, the cost of fossil fuels is a major component of the current account deficit, making price spikes disruptive and painful. In parallel, the extraordinary reception to India’s Shoonya initiative (pollution-free delivery and mobility) reveals a broad-based passion to protect our children from dangerous pollution.
Rather than going through an intermediate fossil-fueled stage of development, far-sighted leaders in the Global South are already leapfrogging directly to renewables. Those are cheaper, cleaner, secure, constant-price, and rich in local jobs and multipliers. Brazil and India can make green ammonia rather than importing it. India and China plan to source almost all their electricity demand growth from solar and wind. China plans to build out its transport systems on electricity, not oil. Morocco plans to end energy import dependence and start exporting electricity to Europe. Chile and Mauritania plan large green hydrogen export industries. And anywhere that’s building infrastructure can leapfrog to same-or-lower-cost superefficient design: it’s far easier to build things right than to fix them later.
This energy leapfrog is already well underway. By 2019, demand peaked for fossil-fueled electricity generation in 99 percent of developed markets and 63 percent of the Global South (excluding China). Oil-fueled auto sales peaked in 2017 both in China as well as globally.
The current price shock, reinforced by European support, is likely to speed these changes. Rather than the old default solution of using fossil fuels, policymakers planning to expand their energy system will be more inclined to base it on domestic renewables and efficiency, backed not just by domestic resources but also by additional European, North American, and Asian capital.
What Next: Faster Renewable Deployment and More Efficiency
It is important to separate the shock’s short-term impact from its long-term consequences. Much current commentary is about the ongoing crisis, and we defer to the work of the International Energy Agency, Rystad, and others on how Europe and the world will cope with constraints on Russian fossil fuel supply. In the short term, the rising effort to shut Russia out of energy markets will mean a scramble for energy and higher fossil fuel prices, simply because Russia is such a big fuel exporter. Many therefore fear a recession, and inevitably global energy demand growth will be weaker — especially demand for fossil fuels as renewables’ share keeps rising, just as it accelerated in the depths of the pandemic while fossil fuels crashed.
However, we focus here on the longer-term consequences over this decade. The period to 2030 is long enough to drive significant energy system changes given policy support. Barriers to change will be cleared, new technologies will scale faster, and old habits will shift. It’s like fixing a leaky roof. You can’t fix it during a downpour, and when the rain stops, it’s tempting to wait. But in this case, dark storm clouds and worrying forecasts — the persistence of a major external threat — can keep driving a swift and decisive response.
The classic example is the oil shocks of the 1970s. They drove a rapid rise in nuclear power (the 1970s equivalent to solar and wind today but far more lavishly subsidized), which peaked a decade later (nuclear was 17.5 percent of global electricity in 1996, falling to ~9.8 percent in 2021), plus a huge increase in overall energy efficiency. Expansions in coal, gas, and renewable generation followed, glutting markets by 1985/86. Demand for oil stagnated in the decade after 1979, and European demand for oil never regained its 1979 level. The graph below compares actual global oil demand (solid) with what it would have been at its 1965–73 growth rate (dashed).
When the oil embargo imposed by the Arab members of the OPEC cartel broke on the world like a thunderclap 49 years ago, OPEC supplied half the world’s oil — a fourth of the unprepared world’s total energy. Six years later, the Iranian revolution jolted prices even more. Yet in just eight years (1977–85), US oil use fell 17 percent while GDP grew 27 percent. Oil imports fell 50 percent. Imports from the Persian Gulf fell 87 percent. America proved able to save oil faster than OPEC could sell less oil, cutting the cartel’s sales by 48 percent and breaking its pricing power for a decade. US oil use per dollar of GDP fell by 35 percent, or 5.2 percent per year. Such a pace could eliminate Europe’s fuel imports from Russia in four years.
Now the United States and much of the world can rerun that play, only more effectively — for oil and gas and coal — because we now have far more powerful ways to save all fossil fuels more cheaply than buying them (even at pre-Putin’s-War prices). The cornerstone of the US 1977–85 response was making new autos 7.6 miles per gallon more efficient. On average, each drove 1 percent fewer miles on 20 percent fewer gallons — 96 percent from smarter design, 4 percent from smaller size. By 1984, the entire light-vehicle fleet got 62 percent better fuel economy while vehicles became lighter, no less peppy, and far safer.
Today, rather than autos that use incrementally less oil, we can buy superior electric vehicles that use none. Last year’s global plug-in 4+-wheeler sales totalled 6.75 million or 8.3 percent of total sales — both doubled in a year — and this year’s forecast is 10 million. Raising EVs’ 2021 sales share from Japan’s 1 percent and America’s 4 percent to China’s 13 percent and Europe’s 17 percent (26 percent in December) — let alone Norway’s 65 percent for battery cars plus 22 percent plug-in hybrids, 6 percent hybrids, and just 8 percent traditional gasoline- or diesel-powered — would save a lot of oil from Russia. Driven by policy, economics, and customer enthusiasm, this automotive transformation is sweeping the world and spreading quickly to trucks and buses. Making all vehicles more efficient can also make electrification easier and save critical materials, charging infrastructure, and electricity.
The 2022 energy shock is about as big as 1973’s, but nearly a half-century of experience with supply disruptions has made the world far better prepared to deal with the interruption of up to Russia’s one-ninth of global fossil-fuel output. Putin’s energy shock is most acutely focused on Europe — a market especially skilled and experienced in displacing fossil fuels for economic and climate reasons — and on natural gas, with its unexpectedly rich menu of savings and substitutions.
Today’s energy shock and the oil shocks of the 1970s differ in four main ways: cost, size, renewable ubiquity, and necessity. These enable renewables and efficiency not only to provide all the growth in energy demand, but also to start pushing fossil fuels out of the energy system.
- Lower cost.
Four key energy technologies — solar, wind, green hydrogen, and batteries — all enjoy steep and durable learning curves that make them already cheaper than fossil fuels in many places and uses, soon essentially all. Nuclear, the new technology of the 1970s, never exhibited a learning curve and failed to establish a durable cost advantage over fossil fuels. Data from the Oxford INET model suggest that nuclear costs in the 1970s were $80 per MWh, rising over time (by 2020, BNEF reckoned $186–$328), while solar and wind costs today are under $50 per MWh and falling. In many unsubsidized markets they’ve already fallen below $30 and even below $20.
In 1973, nuclear power provided 200 TWh of electricity, and was less than 3 percent of global electricity generation, but slowed dramatically after 1990 and by 2021 remained stagnant at 2,777 TWh. In 2022, solar and wind will produce over 3,000 TWh, 11 percent of global electricity. Solar and wind are simply far more advanced along their S-curve of deployment, exploiting modularity, mass production, huge production volume, swift installation, and rapid learning.
Solar and wind are everywhere and can be deployed quickly by ordinary market actors in any country, at any scale. The deployment of these technologies is not exclusively the domain or a few large companies, or advanced economies, but is happening at speed all around the world. Vietnam just installed solar plants, largely rooftop, equivalent to half its dominant coal-fired power plants in one year. Economically available solar and wind resources could supply 100 times global energy demand, and there is no insoluble constraint to their continued massive growth.
The imperative to get to net-zero emissions is the key factor that will prevent a bounce in future fossil fuel demand even after its prices sink again.
As the European example highlights, policymakers have many tools to replace costly fossil fuels. We focus here on the two main ones — solar and wind power deployment, and efficiency gains — and their impressive effects. Such transparently simple examples, shorn of the feedback loops and complexities of opaque energy models, help us think through the wider implications of rapid systemic shocks.
Faster renewable growth
Before the current crisis, the global growth rate of solar and wind had slowed a little from an average of 20 percent per year over the past decade, to 15 percent in 2019 and 2020. We suggest that the shocks identified make this growth rate likely to rise. A rise from 15 percent to 20 percent would yield nearly 130 EJ/year of solar and wind output by the end of this decade.
Bigger efficiency gains
The world is replete with opportunities to wring more work from our energy. Less than one-third of primary energy ends up as useful energy. Power plants lose two-fifths to two-thirds of their fuel energy to make electricity that’s then mostly wasted. Three-fourths of US electricity could be saved at a tenth the cost of buying it. Leading countries have energy efficiency several times higher than laggards. And as a Cambridge University team found, “85 percent of [2005 world] energy demand could be practically avoided using current knowledge and available technologies.”
Today’s standard recipes and menus for efficiency are often outdated. Most models assume that greater efficiency costs more, but redesigning buildings, vehicles, equipment, and factories as whole systems can often save severalfold more energy than commonly assumed, and at lower cost.
For example, such “integrative design” can save about twice as much motor-system energy as standard recipes, at severalfold lower cost. Moreover, half that motor power turns pumps and fans that can become 80–90+ percent smaller (and, approximately, cheaper) if we cut by 80–90+ percent the friction they must overcome, simply by making their pipes and ducts fat, short, and straight rather than skinny, long, and crooked. If everyone did that, it could save a fifth of the world’s electricity, repaying its cost in less than a year in old, or instantly in new, installations. But that’s not yet in any standard engineering textbook, government study, industry forecast, or climate model. Why not? Because it’s not a technology but a design method, and few experts yet see design as a way to make savings big quickly — perhaps spread just by seeing a pipe-layout image on social media.
Even traditional methods can work fairly quickly: routine German and British efficiency gains in 2010–15 were saving by 2015 the annual equivalent of 30 percent of Europe’s gas imports from Russia. Savings accelerate when policy rewards “out with the bad” as much as “in with the good” — such as “cash for clunkers” to scrap the least-efficient vehicles. Moreover, disadvantaged people who most need efficiency can get it quicker — for example, by financing low-income households’ purchase of EVs to replace inefficient, costly-to-fuel-and-fix old gasoline autos, especially in areas ill-served by public transit. Running cost could be fourfold lower, and total cost comparable or lower, but with a new ability to get to work reliably. This could close (as of ~2002) the US Black-White employment-rate differential by 45 percent and the Latinx-White differential by 17 percent, while offering automakers a new million-car-a-year market.
Climate leader Bill McKibben suggests rapid scaleup of heat-pump production. (That’s vastly simpler than Detroit’s switch in six months from making four million cars a year to making the tanks, trucks, and planes that won World War II.) Organizing installation and training more installers before next winter might be simplified by focusing first on fewer, bigger heat pumps in apartment and commercial buildings, especially in colder climates. And to avoid turning a gas problem into an electricity problem, the new heat pumps must have top performance.
Today’s most efficient air-to-air heat pumps produce heat about three times as efficiently as a good furnace and work well down to –35˚C (–31˚F), so even in the coldest weather, they needn’t default to grid-straining resistance heating. Being bidirectional, they can replace air conditioners too, and heat domestic water as a free by-product. Geothermal heat pumps cost more to install but can yield as much as 17 units of heat per unit of electricity and shrug off record heat or cold. Europe’s 17 million heat pumps serve only 6 percent of homes and added only 2 million units last year, so just doubling that modest installation rate could save an extra 2 bcm/y in year one. In round numbers, each million heat pumps can save 1 bcm/y of gas.
Of course, first improving airtightness and insulation can shrink the heat pump and its capital and operating costs. The Dutch Energiesprong or “Energy leapfrog” initiative has industrialized an essentially self-financing process for fitting a customized tea-cozy around and a superinsulated solar roof atop your chilly old house, and efficiently electrifying all its appliances, so it produces as least as much annual energy as it uses. It can be installed in as quickly as a single day while you’re at work. Comfort, health, building life, and value rise; your utility bill disappears; and in its place you pay off the improvement’s cost at a steady rate over 30 years, then own it and pay nothing. This innovation, now starting to spread from Western Europe to the United States, could be urgently scaled — especially for the vast post-war social housing stocks now needing major renovation and burning copious Russian gas. Saving the most gas soonest often means starting with the least efficient buildings whose occupants most need to save gas and money. Serving them first could improve economics, health, and equity.
Behavioral change is a cheap and quick adjunct to efficiency. Europe’s 244 million residential buildings have a winter thermostat setting averaging at least 22˚C or 72˚F. Reducing that by just 1°C (1.8°F) saves a whopping 10 bcm of European gas per year — 6 percent of the 2021 Russia-to-Europe gas flow. Europeans could stay cozy with several times that setback just by wearing warmer indoor clothing.
Global primary energy demand in the decade to 2020 grew by 1 percent per year. In a world of 2.6 percent GDP growth, that implies annual energy efficiency gains around 1.6 percent. Imagine that efficiency gains can speed up by just one percentage point to 2.6 percent per year. Then primary energy demand would stop growing, though useful energy (not burdened by losses in the upstream energy system) and its services (multiplied by more-efficient use) would keep growing. A 1 percentage point speedup in global efficiency gains would reduce global energy demand in 2030 from 630 EJ to 580 EJ. Because renewables keep growing, all these losses in energy demand will be borne by fossil fuels, tipped into irreversible decline.
Five percentage points’ faster annual renewable growth and 1 percentage point’s higher annual efficiency gains will make the fossil-fuel plateau far shorter and steeper than expected before Putin’s War. Peak fossil-fuel supply is clearly behind us, in 2019. And the plateau of fossil-fuel demand will be shorter than we thought before. We illustrated this in Exhibit 1, showing expected fossil fuel demand under three scenarios: no pandemic, pandemic but no war, and both disruptions. Putin’s War has a far more powerful long-term impact than COVID in undermining the foundation of his power.
As peak supply comes more apparent, we should expect feedback loops of change to kick in. As markets foresee peak demand, they will redeploy new capital even faster from fossil fuels to renewables, efficiency, EVs, and other electrification. That in turn speeds up change. If future demand for fossil fuels is certain to be lower than demand today, it makes little sense to invest in producing more of what we’ll need less of. Better for shareholders if producers return the money as dividends or reinvest it in the technologies of the future before competitors do, and before it’s too late. This choice doesn’t depend on discount rates or imponderables; it’s baked into today’s technological realities. Already, solar and wind developers pay 3–5 percent per year for capital, oil drillers often 15–20 percent, because capital markets perceive strongly divergent risks.
What should policymakers do and not do?
The International Energy Agency and others have detailed short-term solutions to fuel and power Europe without undue disruption. These will rapidly evolve, but of necessity, will be pragmatic, sometimes rough-and-ready, and sometimes unpopular or suboptimal. However, adaptive tactics should not be confused with durable strategies. Longer lists of what to do have also been set out by organizations like the Energy Transitions Commission and the UK’s Climate Change Committee. Others are under development in many places. We highlight here a small number of actions necessary to take, and also some to avoid.
- Change policy to deploy renewables quicker. There is plenty of capital, space, and developer capacity. What’s needed now is smarter policies to drive change, bust barriers, and get out of the way. Policymakers need to create coherent national energy strategies, override incumbents’ resistance, empower diverse actors, build out renewable infrastructure and modern grids to support it reliably, and sweep away dense rules that needlessly slow renewable deployment. Fortunately, a new type of transmission wire (disclosure: Lovins advises its maker) can carry severalfold more power on existing towers or corridors, often obviating long waits to authorize new rights-of-way otherwise needed to fix grid bottlenecks to renewable growth.
- Change policy to make efficiency gains deeper, cheaper, and faster. Set out targets, ratchet required efficiency levels, tax inefficiency, and turn obstacles into business opportunities. Emphasize design, equity, synergy, and scrapping inefficient old devices.
- Stop fossil fuel subsidies, now totaling about $640 billion/year. They only entrench fossil fuel demand, benefiting mainly the rich — including Putin.
- Build up green hydrogen. It will grow far faster than expected even months ago: today’s manyfold higher gas prices make it often competitive today. Two major European power-grid operators have shown how an all-renewably powered European grid will need only a week or two worth of “green molecules” for backup through cloudy and calm periods — not months or seasons as previously claimed. This is similar for the United States. This will free up most of the green hydrogen for heavy industries like steel and cement, which account for 15 percent of global CO2 emissions. At least half those materials can meanwhile be saved by elegantly frugal structural design and new business models, and half the rest by properly specifying and installing concrete. Such energy-intensive basic materials can clean up surprisingly quickly because lower demand makes it quicker, cheaper, and easier to convert their production to efficient and clean.
- Build in resilience. By default, renewables’ power electronics should safely serve loads with or without the grid. EVs should charge bidirectionally (as many are starting to). Filling stations should run on solar, not grid power. Gas pipeline compressors, if electrified to cut air pollution, should also remain able to run on their own fuel if grids fail.
- Tighten security, including cybersecurity, because complacency about protecting existing sources risks losing them. Lest accident or malice cause disasters that constrain our options, security precautions at LNG, nuclear, and other hazardous facilities should be tightened drastically and immediately.
- First on the Do-Not-Do list is to avoid long-duration fossil-fuel commitments. Short-term increases of fossil fuel production to make up for current shortfalls of Russian exports make sense. But it is unlikely that, particularly in Europe or the United States, significant increased production can come on stream within the next 1–2 years. The usual chorus of fossil fuel interests has been suggesting that high fuel prices mean that we need more fossil fuels, so we should revive UK fracking or build new LNG capacity. Such solutions generally take too long and risk locking in stranded assets. By the time they’re built, renewable solutions will be even more dramatically cheaper and demand lower, denying the costly new projects the revenues needed to pay for them. Government enthusiasts should not rush in where private investors fear to tread.
- More follies to avoid include crash programs — risky, costly, far too late — for nuclear fission or fusion, Arctic and deep-sea hydrocarbons, and other dubious bets. As President Macron just said, “We need to massively develop renewable energies because it is the only way to meet our immediate electricity needs…” (other than efficient use). Many contrary schemes flow from the bizarre but popular mantra that urgency requires “all of the above.” On the contrary, energy security and climate security require focusing more intently on fast, cheap, sure options — not slow, costly, speculative ones. Only such judiciously targeted investment provides the most solutions per dollar and per year. Backing all options, as US utility-regulation dean Peter Bradford said, is indeed not “picking and backing winners. They don’t need it. We’re picking and backing losers.”
Deep crisis births profound change. We must learn from this savage crisis, the greatest in security in 80 years and in energy in 49, and ensure that fossil fuels can never again be used to destroy our planet, or quite literally fuel a war. Until now, climate perils and economic logic could not by themselves fully overcome incumbents’ blockade and politicians’ hesitancy. Now energy security adds a powerful motivator that could make all the difference. Europe’s experience offers instruction, capability, hope, and inspiration to all nations seeking liberation from fossil fuel dependency. Their ingenuity and tenacity can together join energy security and climate security with each other and with prosperity, equity, health, peace, and perhaps even nonproliferation.
Europe is seizing the moment with formidable resolve. If others join the new energy future of soaring renewable supply, rising energy efficiency, and falling fossil fuel demand, this will indeed become the decisive decade for all.
Kingsmill Bond, senior principal at RMI, is a Cambridge historian, accountant, and CFA. He was for 20 years a financial analyst in London, Hong Kong, and Moscow for major financial institutions, then led strategy at Carbon Tracker.
Amory Lovins, RMI cofounder (chief scientist 2007–19) and chairman emeritus, is a physicist, former Oxford don, and an Adjunct Professor of Civil and Environmental Engineering at Stanford. He has advised firms and governments worldwide for nearly a half-century, and received twelve honorary doctorates and many of the world’s top energy and environmental awards.
Oleksiy Tatarenko, RMI principal leading the Green Hydrogen Catapult, is an economist. He has advised Ukraine’s energy minister and was Shell’s deputy country chair in Ukraine, then leader of Shell’s Energy Transition Program.
Jules Kortenhorst, chief executive officer of RMI, is a recognized leader on global energy issues and climate change. His background spans business, government, entrepreneurial, and nonprofit leadership.
Sam Butler-Sloss, RMI associate, studied economics at Edinburgh, researched at Carbon Tracker, and founded the international student initiative Economists for Future.
© 2021 Rocky Mountain Institute. Published with permission. Originally posted on RMI Outlet.
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