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MASSIVE CHALLENGES FOR ENERGY TRANSITION AWAY FROM THE FOSSIL FUELS ABSTRACT World commercial energy, overall, is about 90% based on non-renewable and environmentally damaging fossil fuels - oil, coal and gas. Only about 7.5% is hydropower based, and the 'new renewables', specially fast-growing wind electric power, and emerging solar thermal and photovoltaic account only for another 1.5% of world total commercial energy, in 2008, according to the OECD's IEA (International Energy Agency). Taking the fossil fuels of oil, coal and natural gas it is not well understood that coal and lignite, which have the highest 'carbon footprint' are quite close behind oil, while natural gas is also closing its own gap with coal and oil. Coal and lignite now supply about 28.5% of world commercial energy and demand is growing fast, simply because coal is cheap. In approximate terms and excluding the petrochemicals and coal-based or gas-based chemicals, the weight of energy carbon burnt each year is around 11 Billion tons, roughly 5.5 Bn tons for coal and lignite, 3.3 for oil, and 2.5 for natural gas. About 1.4% of world energy is also supplied by capital intensive nuclear power, using non-renewable uranium, thorium and other rare minerals. As we know, CO2 and other gas emissions from fossil fuel burning and release of unburnt methane (natural gas), probably total about 28 Bn tons annual, by far the biggest anthropogenic sources of climate changing agents. These emissions are vastly higher than all natural tectonic, seismic and geological sources of climate change gas, which likely total less than 0.5 Bn tons annual. Few persons, interest groups, or political parties today still reject the link between fossil fuel burning and climate change – although it has taken at least 16 years since the 1992 Rio conference to arrive at this open acknowledgement. As we also now know, due to the action of ASPO (Association for Study of Peak Oil) chapters in different countries and to independent researchers and analysts, it is oil that is diminishing fastest, and must first be substituted, or the energy demand presently satisfied by oil which must first be eliminated by energy economic restructuring . Concerning climate change, we can note that coal and lignite should first be eliminated, reduced, or made cleaner through CCT and CCS (clean coal, carbon capture, sequestration technology). Natural gas, although strongly favored by current interpretation of the Kyoto Treaty in ratifying countries, is far from innocent in climate change impact, notably due to gas leakage, loss, venting, flaring in production and transport, but more importantly is also close-linked, in geological and industrial terms, with oil. This results in Peak Gas being highly probable within a few years from Peak Oil. The most recent ASPO world conference (ASPO 7, Barcelona, October 2008) clearly set out in numerous technical papers the very strong likelihood that current world total oil production, about 89 Mbd (million barrels/day), including about 1.4 Mbd "well-to-wheel" losses, is the effective peak output that the world will only and briefly sustain. Probably as soon as 2010, world oil production will move off the 'peak oil plateau' and start long-term decline, at an annual average rate of about 4%. World oil export supply or 'offer', for various reasons including increased domestic demand in exporter countries, will likely fall at about 6%pa on an average long-term basis. Substituting oil, then natural gas, presents huge challenges including massive, long-term financial mobilization and global-scale effort to achieve Energy Transition without catastrophic economic impacts, or further geopolitical conflict, specially in the Middle East, central Asia and Africa. When we add the pressing need to quickly develop, and utilise CCT and CCS to reduce impacts from coal and lignite burning worldwide, and the rising problem of world car fleet energy supply, the immense challenge of Energy Transition become clearer, as the current financial mechanisms to achieve this end remain vague, volatile and insubstantial. World effort to develop renewable, and low-carbon energy sources and systems, and restructure the energy economy are currently concentrated in the OECD countries, despite the very large resource potentials in low-latitude countries. As proven with the biofuels (or agrofuels), and now with wind electric power development, specially in Europe, and emerging solar electric power, this new investment sector is hostage to the whims of private market players, and victim to very classic financial 'boom-bust' sequences. This strongly suggests the need for urgent attention to creating automatically funded multilateral frameworks, with adequate planning, regulation, and control, in a truly global and necessarily long-term process. Dimensions of the Problem For evident reasons the subject of world oil export supply, including questions of geopolitical stress and country risk, even the 'clash of civilizations', is usually treated by popular media as not driven by, or linked to the simple and basic process of geological depletion. Quite often world oil reserves are presented as 'equivalent to 40 years supply' which an instant's reflection (not provided by the media) implies that world oil production would stay flat at the present rate for exactly 40 years, then fall to zero in an instant ! In fact, demand will have to adjust to constantly declining total supply, at about 4% annual (around 3.5 Mbd per year loss), and probably considerably faster decline of net export 'offer', on a smaller base of about 51 Mbd for current world total export supply. This context, unless determined and large-scale action is taken, will terminate in permanent supply crisis within at most 5 years and even nearer-term, severe problems regarding oil export supply. The natural gas supply peak is harder to forecast, but it is certain that even with very heavy investment in LNG (liquefied natural gas) tankers and terminals, and pipeline supplies, further increase of world gas supply will be increasingly difficult and costly. Oil and gas currently provide at least 60% - 65% of world commercial energy. Using data from sources such as the IEA and UN IPCC (UN climate change expert panel) on the institutional side, and Clean Edge, Lehman Bros, McKinsey & Co, Thomson-Reuters, and others, on the venture capital side, we can very approximately sketch the amount of oil and oil-equivalent natural gas that may be necessary to wholly substitute with non-fossil energy by 2025-2030. These very variable estimates and forecasts are all controlled by 4 main variables: expected rates of economic growth; social and economic structure; technology development, costs; and actual rates of oil and gas depletion and falling export 'offer'. Because these variables are more than somewhat flexible, final target amounts for non-fossil energy supply needed in 2025-2030 are likewise variable. Taking the above into account, we can cite current European Commission effort to obtain political engagement in the EU-27 for the "climate energy package", also known as "20/20/20 by 2020", or 20% renewables in the final energy mix, 20% reduction in CO2 emissions, and 20% reduction in fossil energy demand per unit GDP by the year 2020. This drive for non-fossil energy development in Europe, which is meeting considerable political resistance is proposed as uniquely due to concern over climate change. However, in the real world we must take account of the much shorter timeframe for oil and gas depletion – not 20 or 50 years, but 2 to 5 years before Peak Oil and Peak Gas. Due to this, estimates for oil and gas substitution needs, and their costs are necessarily very large. Estimated Substitution and Investment finance needs Above-cited sources, in various publications through 2006-2008 to date indicate that worldwide development of non-fossil low carbon energy supply, after quite large fossil energy demand elimination in the national economies of global energy users in the period 2009-2030 (close to 20 years, only) may need to total about 25 Million barrels per day, oil equivalent. Costing this firstly encounters the difficulty of integrating the myriad of decisions that will be made, at all levels from final users to government deciders, concerning energy saving versus energy supply substitution but also and importantly depends on technology costs and new technology development. One avenue for making estimates for total costs is to compare this approximate total new supply need, with recent performance in the oil and gas industry. This in fact produces extreme, difficultly manageable financing requirement forecasts. Recent performance (2006-2007) for world oil and gas investment spending by private corporations outside the NOC (national oil companies) of OPEC states and Russia's "state influenced" oil and gas companies, total about 400 Billion USD/year. Net total supply increments due to this spending were less than about 2.1 Mbd oil equivalent (about 1.1 Mbd oil, and 1 Mbdoe gas). Performance in substituting 25 Mbdoe of oil and gas energy supply by 2030, at these rates, would imply a spending need of well over 300 Bn USD per year, but would be much less if net capacity additions per unit spending by OPEC NOCs and Russia were utilised as a base for forecasting. It would also be lower if the decisional split of supply substitution / energy saving was further tilted in favor of the second. Needs versus Means Here we can note that IEA forecasts in December 2008 suggest that entry to what the IMF calls the likely most severe global economic recession for 63 years will produce total oil saving of only about 50 000 barrels/day ( 0.05 Mbd) in 2008 against 2007, but the demand slump will then radically intensify, in 2009. In other words, energy economic restructuring is not achieved by recession, but needs conscious, long-term intervention, with adequate planning and investment financing to that end. The above approximate estimates of potential costs for substituting a total of about 25 Mbdoe of oil and gas energy by 2030 completely ignore another key problem, quite apart from implied investment needs, and how they can be mobilized and controlled to effectively develop large amounts of non-fossil energy on a worldwide basis, that is not only in the OECD countries, in a very short period of historical time. This is the problem of energy supply types and final user needs. As a simple example, wind electricity is a rather poor substitute for petrochemicals, but can be an excellent substitute for car motor fuels – using electric vehicles able to store intermittent supply of this renewable energy, which can easily be projected as capable of being structured and collectivised. In this case, large wind (or solar electric) 'car charging parks' would be developed, the vehicle batteries serving as storage of intermittently supplied renewable energy, which present major cost and infrastructure problems for solely integrating wind-source electrical energy in national and international constant supply electric power grids. Another and convergent, recognized method for using more electricity in transport will be to favor rail and fixed bed transport systems, with attendant quite high, sometimes very high capital costs, and technology problems for energy substitution relative to current fossil energy-based road, rail and air transport. The question of supply intermittence is very surely critical for the renewables, with strong impacts on costs when treated on a constant-kiloWatt or barrel oil equivalent, permanently available basis. These problems are, however, not completely impossible to resolve, when we take account of even current, as well as emerging technology, and the major potentials for reducing costs as we increase our dependence on renewable and low carbon energy through cutting energy needs by energy economic restructuring. This last element of course implies major economic and social, and even cultural changes, and is therefore often under-appreciated. When we consider the apparently simple question of static versus mobile forms of energy utilisation, for example electric power stations versus world transport and agriculture, we find important routes for more quickly developing and utilising low carbon and renewable energy. Accepting that coal and lignite are the dirtiest fossil fuels with the highest CO2 and other greenhouse gas emission per unit delivered energy their substitution at first by CCT and CCS could be a first major global investment programme, with a short-term start. This however would do little or nothing to cut world oil or natural gas demand, or prevent a rather certain and near-term oil shock – that is a massive rebound in prices after the massive losses in Q2 2008. Major corporations such as GE and Vattenfall Europe, and emerging economy actors such as Shenhua Coal undoubtedly 'have the technology' but its cost is currently prohibitive. Retrofitting the world's coal-fired and lignite-fired power plants (currently supplying about 60% of world electricity) with CCT and CCS, where it is feasible, would likely cost as much as 100 to 150 Bn US dollars per year, over 20 years. This does not take account of electricity demand growth which in recent years has been running at close to 6% annual, and over 10% annual in several emerging economies. As already noted, this is nothing to do with, and apart from the depletion determined need to substitute the supply of approximately 25 Mbdoe by 2030. When we include 'clean coal' power, and theoretically assume global electricity demand growth could be trimmed to zero, surely with a 'hump' in the 20-year forecast period, annual approximate investment and spending needs therefore rise to at least 425 Bn USD per year. The types of renewable energy able to be developed and scaled up all tend to lend themselves to static rather than mobile final utilisation, which to some extent conforms with a long-term trend in the world's different energy economies, of a constant growth in the part taken by electricity. As already touched on above, this in turn poses the problem of storage, for essentially intermittent or variable upstream primary energy sources and supply systems. For road and surface transport (for example off-road vehicles in agriculture and mining) we now have a race, by the world's car and vehicle makers, to develop high energy, low cost, environmentally safe batteries, and to later develop a widespread final user infrastructure of battery supply, exchange and recharge. For basic mineral geological, and even astrophysical reasons, the lithium-beryllium and boron group is extremely rare and will pose physical supply problems, as well as high costs, if we considered a target of perhaps 25% of the world's current private car fleet of about 900 million vehicles being substituted by lithium-ion battery 'all electric' cars within 20 years. Boom-bust finance versus Multilateral planning The race to develop near-miraculous batteries, for a hypothetical all-electric world car fleet by about 2040 should not make us forget the boom-bust sequence of 2006-2007, for biofuel and agrofuel powered cars. During this brief and typically frenetic investor stampede, then collapse, massive growth of renewable-based hydrocarbon liquids, substituting gasoline and diesel fuel, were presented as a feasible and economically viable, major new investment opportunity. Popular media, and many large private investment banks, mostly disappeared or bought out, such as Bear Stearns, Lehman Bros, Merrill Lynch, Goldman Sachs, gave enthusiastic media and financial marketing support to this new, supposedly key alternate and renewable energy, or "Cleantech" investor opportunity. The results for many dozens of young hopeful and 'hi tech' companies in this sector, from their IPOs (initial public offerings) on major stock exchanges, to early 2008, were often in the range of 85% to 95% loss of value, and in many cases pure and simple bankruptcy or liquidation. Financial analysts had ignored the basic problem of 'net energy' or energy yield, and for biomass feedstock the problem of competition for land and water supply with already-stretched world food production. The collapse of the biofuels 'asset bubble' very quickly sobered investor appreciation of, and political support to this supposed "alternative". This boom-bust sequence can easily play out, again, with all-electric, or majority-electric hybrid cars when the stumbling block of battery metals and materials supply, and background support infrastructures is better understood. In theory at least, each new car should have one, two or more replacement batteries available in its operating area – if these cars are going to fully substitute the availability of current, fossil fuelled cars. Replacement batteries would be exchanged in filling stations as fast, or faster than the time needed to refill present cars with gasoline or diesel fuel. Finding the lithium needed to do this, as well as the copper, lead, tin and other metals needed, will in fact present vast problems, if more than a tiny percentage of the world's current car fleet is to be replaced. As we know, financial activity is very rarely dissociated from speculation on a very short-term basis, within which leverage and opacity are two basic characteristics. To this, thanks to de-regulation, we can also add lack of oversight, which in 2008 has become very well known even in the most popular media usually concerned only with football, popstars or weather forecasts ! After rather short hesitation, due to the extreme gravity of the present banking sector, financial, and economic crisis – caused by speculation, short-termism and opacity – world political leaderships have by necessity set highly classic Keynesian-type, interventionist rescue packages for the world economy. Expecting that current financial structures and systems, and operating methods can cope with long-term Energy Transition is at best foolish, and at worst disingenuous or cynical. For this reason it is wise to start, very quickly, to consider multilateral frameworks and mechanisms for energy transition. To this end, this author has made numerous proposals. These address the central questions of targeting a quick, but orderly reduction in the oil and gas intensity (average consumption per capita) of the OECD countries, and the worldwide, automatically financed, transparent and regulated development of all alternate and renewable energy sources and systems, using an Energy Levy on multilaterally controlled oil and gas supplies and their pricing.
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