Yergin’s Warning: Is the Energy Transition in Trouble?

I am a little late to the party, but I had to spend some time reflecting on Daniel Yergin et al.’s “The Troubled Energy Transition”. One of the benefits of being late is that I could also read Kingsmill Bond et al.’s electrotech critique on Substack.

I found value in both articles. Team Yergin are correct that the investments needed for rapid decarbonization are massive and unlikely to materialize on time. Their basic assumption that emerging countries will always choose short-term economic growth over long-term sustainability is also correct.

But Team Bond also make a number of good points. If the crux of the matter is in emerging countries, then clean technology will play a critical role in the deployment of new capacity. Electric technologies are improving rapidly, widely available in global markets, and a great boost to energy security in countries that do not have fossil fuels.

As usual, the reality is somewhere in the middle. The glass is half empty, half full.

1. The troubled energy transition and its detractors

Team Yergin make a range of arguments. If you do not have access to Foreign Affairs, I recommend Yergin’s LinkedIn post that summarizes the main points:

· The scale of the energy transition challenge is massive, up to 5% of global GDP every year. Achieving such investment at the global level is unlikely.

· Replacing fossil fuels is hard because countries need uninterrupted energy supply.

· Emerging countries prioritize economic growth over all other goals.

· China’s dominant role in mineral processing and clean technology manufacturing is a geopolitical risk.

All four points are valid to an extent, but the first one is the critical one. Countries around the world are drowning in public debt, and their ability to invest in anything is minimal. Aging populations, slowing productivity growth, and populist politics are creating a long-term debt crisis.

In this situation, the energy transition proceeds mostly based on private investment that is largely unrelated to decarbonization (China is the most notable exception to this). That pace will not be fast enough to reach net zero by 2050.

The three other points are less important. Replacing fossil fuels is hard, but solutions are increasingly available and we are learning fast.

Prioritizing economic growth does not mean rejecting clean technology. Quite to the contrary, a government that does not have abundant domestic fossil fuels can improve energy security, reduce imports, and generate economic growth through increasingly affordable energy technology.

China’s dominant role may seem scary to Americans, but for many emerging countries it presents a great opportunity to access clean technology and reduce dependence on fossil fuel imports.

Team Bond’s Substack response focuses largely on the value of what they call “electrotech”. They note that electric technologies, from heat pumps to electric vehicles, are fundamentally more efficient than fossil fuels. They also note that investment in electric technologies, led by China, is surging and will meet most or all energy demand growth in the future.

This argument is correct, but it does not mean that a rapid energy transition is on the horizon. Energy technologies are typically replaced at the end of their lifespan, so even obviously superior electrotech will diffuse through the global economy gradually.

The fact is that electrotech is growing very fast and meeting most of our new energy demand. And while fossil fuel demand could peak in the next five years, again led by China, that is very different from promptly replacing the vast amounts of fossil fuels we use.

2. What the future will look like

Based on the track record so far, we will likely continue to see a half empty, half full glass.

For old school energy folks, Team Yergin’s commentary will resonate. Fossil fuel demand remains far too persistent to enable net zero by 2050 at the global level. Even when fossil fuel demand begins to decrease, it will do so gradually. The global energy system has tremendous inertia, and watching fossil fuel demand decline is like watching paint dry.

For the electrotech enthusiasts, new records in renewable capacity, battery storage, heat pumps, electric vehicles, and other technologies will be impressive. These technologies will continue to grow faster than conventional commentary from the Divided States of Fossil Fuels can comprehend. The global opportunity here is impressive.

If I was still an irresponsible young man and into betting, I would place my money on a scenario where electrotech continues to gain ground, but the gains are not fast enough to decarbonize the global energy system by 2050.