As 2021 drew to a close, I wanted to share some climate optimism. Climate and energy writer Dave Roberts interviewed carbon market analyst Kingsmill Bond, who is incredibly bullish on the long-term prospects for clean technology and bearish on fossil fuels.
By Ethan Elkind
In fact, Bond believes the world reached peak demand for fossil fuel, including coal, oil and gas, back in 2019, and that even as demand recovers, it won’t go beyond this peak. Meanwhile, clean technologies are plummeting in price and cost of deployment.
It’s worth reading the transcript of the full interview, but some highlights are below.
First, Bond notes that four of the crucial clean technologies (solar PV, wind, batteries, and electrolyzers to convert surplus electricity into hydrogen) are on established learning curves (the amount that their costs drop for every doubling in deployment) at between 16 and 34 percent. In practice, that means these clean technologies are “a) going to get cheaper, b) going to spread globally, and then c) be followed up by these other technologies, also on learning curves, which will then provide us with the energy that we need at much lower cost.
Second, he describes how fossil fuel incumbents are already pretty much on a death spiral. Specifically, Bond cites how legacy automakers were unprepared for the increasing shift toward new electric vehicles over old internal combustion engine (ICE) models.
Bond describes how the automakers then look at the cost curves of the new stuff, and they realize that they are going to have to change. They have to reallocate their capital out of ICE [internal combustion engine] cars and into electric vehicles. Meanwhile, they figure out that they have continuous decline coming for ICE car sales, so suddenly, the ICE factory is a liability, not an asset. Furthermore, as sales of ICE cars start to drop, they have to allocate the same fixed-cost structure over a smaller number of cars, and their cost per unit increases. This is economics 101.
That’s what happens to the old people. What then happens to the new people: Tesla, BYD and the EV makers. As they produce more cars, the costs of the batteries fall because of these learning curves. As costs fall, demand increases, and as demand increases, the new people are taking more market share.They can then go to the second feedback loop, which is the financial markets.
Tesla can go to the financial markets and n raise several billion dollars in an afternoon.It can build a new factory in Berlin, which increases its capacity to build, while at the same time the fossil fuel sector is finding it very difficult to raise capital and is obliged by investors to change strategic direction — as we saw, famously, with Engine No. 1.”
The reason these incumbents struggle to adapt is relatively simple, according to Bond:
The answer is, incumbents, first of all, try and resist change. Then they struggle to put capital into these new technologies, because they’re not sufficiently profitable. You saw lots of examples of the oil center saying that over the last decade: we’re not going to put our money into solar and wind because we can get a 20 percent IRR on oil against a 5 percent IRR on solar. Why would we? The problem, then, is that by the time this stuff does get profitable and starts to eat into their old business, it’s too late, and other people have moved into this area. That’s exactly what’s happening now in the energy system.
Finally, Bond argues that the potential for cheap and abundant clean energy is massive: “If you look at the technical potential of solar and wind, which has been a lot in the last five years, it’s 100 times our global energy demand today.” It’s hard to imagine just how different our world would be if clean energy was essentially cheap and limitless.
This is something to ponder as we enter the new year of 2022, with much work to be done to address climate change.
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