Factually Accurate and Factually Complete, part two

Sorry folks there is more to think about. I have to acknowledge Dr. Scott Tinker from the Texas Bureau of Economic Geology and the Switch.org organization for the Factually accurate and Factually complete phrase.

1)???? RENEWABLES SUPPLY CHAIN: The wind and sunshine are a gift from nature but we are moving from a period of Big Oil to what some experts call the “Big Dig.” Critical minerals to make Lithium-Ion batteries, wind turbines, solar panels and the rest of the gear will create a real challenge for mining, especially at a global scale. We were once 35% dependent on OPEC in 1973 during the Arab Oil Embargo. With the Chinese lead in mining and processing of critical minerals, we may be 35% (for Nickel), 58% for Lithium, 65% for Cobalt and 71% for Graphite (https://foreignpolicy.com/2023/04/14/us-china-critical-mineral-security-europe-rare-earth-energy-transition/) dependent on China for the green energy transition. Governments are now trying to search for other sources but how long will that take and whose land rights will be have to appropriate to build these mines? Wanting a new mine in the US now, in reality, means another 10-15 years before it starts producing. We may not even have enough mining engineers to go around. ?Also, how will the environment fare and even human rights in some countries (child labor issues with mining artisan cobalt in the Democratic Republic of the Congo) fare with a rush to the Big Dig?

(from McKinsey and Company) “Research has found that shortages of many minerals used in making EV batteries, wind turbines, and other low-emissions technologies could begin before 2030, caused by rapidly growing demand from the transition and the long time it takes to bring new mines on line (five to 15 years, in some cases). The shortages could also have price implications; research estimates that if they are not addressed, the price of nickel, cobalt, and lithium could increase by several hundred percent from 2020 levels in a net-zero scenario over the next decade. Furthermore, the supply of raw materials is often concentrated, creating potential risk from supply chain disruptions. Three countries or fewer account for the extraction of 80 percent or more of several critical minerals. Refining is often even more concentrated. And long approval times can slow deployment; in the United States, the typical electrical power project requesting connection to the grid took an average of five years in 2022.”

2)???? LACK OF MARKET SIGNAL: Despite Environmentalists attempts to get the COP28 participants to "end (or phase out) fossil fuel" some basic economic analysis indicates their efforts are not in line with what at least some of the public wants. The Energy Transition seems to be a “push” initiative rather than a “pull” initiative. ?After several decades of trying to get the message out, not everyone is listening. Changes made this way are still possible just a lot harder. It would be easier if every nation just imposed a “carbon tax” and we could let the market figure out appropriate answers, but this is a tough political message to a world recovering from COVID and inflation. Just ask the French president, or the Nigerian president, what their voters said when they tried to eliminate subsidies on oil and gas prices. The “market message” to use renewables will hit a barrier when the early adopters all have EVs and roof top solar panels. The drive for the early adopter segment of the population is both moral as well as excitement about the cool new technology that Tesla brings. The rest of us will take some more convincing or else top-down mandates (like you can’t buy a gas-powered car after 2035, or you have to install a heat pump in a new building rather than a gas furnace). Is the time value of money analysis or even capitalism the problem?

(McKinsey and Company) “The problem is not just the scale of spending on low-emissions technologies but also what it would fund. Our past research has found that partly because many low-emissions technologies will not be cost competitive by 2030 under current policy frameworks, only 50 percent of the capital spending on those technologies needed by then to eventually achieve net zero could occur without additional societal commitment. Examples of such commitment include new public spending (which may be difficult) and additional policy measures, such as carbon prices.”

3)???? PERFECT AS THE ENEMY OF THE GOOD: What about a hybrid vehicle versus an EV? What about geothermal and even nuclear power (Germany shut down several nukes while losing their Russian pipeline gas and California is considering the same decision with Diablo Canyon)? They are zero-carbon but purist seem to put them down as less than the perfect renewable answer. What about carbon capture and storage solutions? Or methane monitoring for upstream and midstream oil and gas? Yes, there are still engineering and commercialization issues but technology challenges here seem to be described as far-fetched fantasy or thinly veiled excuses to continue to use fossil fuels, while technology and economic solutions for renewables are just around the corner. Not really an objective assessment I worry. It is a “guilty until proven innocent” world for some folks looking for a third way.

(from McKinsey and Company) “During the transition, some legacy industries and natural endowments could lose relevance, affecting jobs and communities. Without robust planning, workers may find it hard to move to new jobs and build new skills. And as many countries adopt assertive industrial policy for climate technologies, they run the risk, if they do not design that policy carefully, of affecting businesses’ incentives to innovate and produce efficiently, hurting productivity. Some lower-cost solutions are “transition” solutions—that is, temporary ones that do not completely eliminate emissions but help reduce them at relatively low cost until alternatives become viable over time. Transition solutions being discussed by decision-makers include shifting from coal to gas to generate electricity, increasing the share of scrap steel used in existing steelmaking processes, and using hybrid heating systems that have both an electric heat pump and a gas furnace to heat homes. Such solutions could offer a pragmatic way forward. They nonetheless will need to be carefully implemented: stakeholders have to make lifetime assessments of their emissions and costs (including the risk of stranded assets) and of the emissions and costs of low-emissions alternatives, to make sure that the transition solutions would truly help reduce emissions, maintain affordability, and not increase long-term costs.”

4)???? ECONOMICS MATTER: The price of sunlight and wind maybe free and the cost of manufacturing and installing wind and solar plants have come down dramatically due to scale benefits but regulated customer electricity prices have not and neither have the investments returns of renewables, especially for offshore wind, are disappointing. Don’t focus on installed capacity but on delivered power, especially in the winter months (the recent Arctic weather as an example). When private capital must do most of the heavy lifting, once public subsidies and philanthropic donations have tried to kick start renewable markets, there must be a return on the risk especially in developing nations. There is a cost for transmission infrastructure and for power storage for intermittent power sources (running a utility power-grid with a large percentage of intermittent power results in the Duck Curve challenge) which is more than just the generation costs. And the higher interest rates over the past couple of years have not helped either.

(from McKinsey and Company) “Furthermore, the transition would rebuild in about three decades efficient systems that took centuries to build, carrying out a massive physical transformation. Consider that most proposed pathways to net zero envision making the power system three times larger than it is now and electrifying many end uses of energy, such as transportation and heating. Yet even though solar power, wind power, and other renewable sources of energy are becoming much more common, the share of primary energy that they produce has risen only slowly, from 8 percent in 2010 to 12 percent in 2021. Finally, the transition would require actions to be taken now in exchange for benefits—in particular, avoided physical damage from climate change—that would mostly appear in future decades. And the costs of those actions, in terms of spending and transformation today, would not be borne evenly by all stakeholders.” For example, when solar and wind power are low—such as at night or on windless days—poorly designed energy systems might not provide regions with enough storage, firming capacity, or other ways to meet demand reliably. Also, the transition will require many physical inputs: materials and manufactured goods, water, land, infrastructure, and labor. If the transition is not well executed, especially in the near term, the supply of those inputs could be insufficient for what is needed, leading to shortages and slowing the growth of new energy systems.”

So, in conclusion, it goes without saying that we have got a lot of work in front of us, not much time, and it is not an easy problem to solve. There are days (actually many of them) when I am not too optimistic either. There is a lot riding on what we do. I cannot find the easy button on this one. The most encouraging news was listening to the young researchers from the podcast interviews. Their energy is one source of encouragement.

Sorry folks, not a fun article to read (or to write). Thanks to McKinsey consultants for all the contextual information.