The Great Disruption (23 page)

So in summary on this topic, it is clear government has to take action, so they will. That action must result in dramatic reductions in CO
2
emissions, and the science says that must result in the decline of coal and oil, followed soon after by gas. There are no realistic scenarios where this can be achieved if we wait past 2015–2020, unless we decide to go past two degrees of warming. Given that all the world's major governments and most major companies have agreed not to, the logic of the economic risk flows pretty easily.

So if you lose your shirt on your coal and oil investments, don't say you weren't warned!

This is just one example of the market implications of our “near certainties.” Now we move into the great unknowns. Without coal, oil, and gas, we're going to need a whole lot of new technology and infrastructure. This is going to be the mother of all economic booms.

What will be the result of this transformation? Which technologies will succeed and in what time scales? For investors reading this, where's the money going to be made?

Two notes of caution before I give my opinion on these questions.

First, we are now moving firmly into an area of major uncertainty, and we should be comfortable with that. We don't need to know
how
we're going to achieve it because we have a strong history of achieving what we set out to achieve as a society. If we were relying on one technology or even one class of energy generation, I would not be so comfortable asserting this, but we have a plethora of different possibilities for achieving our desired outcome, and we can be certain a number of them will succeed in achieving our objective of CO
2
-free energy supplies across the world at a manageable price.

What technologies we have available certainly matters, and that's why I'm going to cover it here. We need to understand the range of potential ways forward so we can make a broad assessment of the realistic potential. We also need this so policy can be made and investments placed. However—and this is really important going back to my coal company CEO—it is not a question of
how
we will do it that will determine
what
happens to initiate it.

When Great Britain went to war in World War II, do you think they had clarity on all the details of transitioning into a war economy
before
they made the decision to act? Of course they considered it, as we must, but it wasn't a determining issue because there was no choice. Do you think President Roosevelt calculated the United States could win the war by increasing military spending to 37 percent of U.S. GDP and producing a nuclear bomb before he decided to enter the war? Of course not; he just knew they had to succeed and so they would. He had confidence in human ingenuity delivering under pressure, when it's given defined parameters and political support, and so must we.

So the countless analyses that have been done on technology and how we can transition to them are useful and worthwhile, for a whole range of reasons. But they are not what will determine whether we act, Mr. Coal CEO; we will act because we have to.

The second note of caution is on ideology and technology.

People focused on this area become fascinated by the technologies involved in the required energy transformation. Of course, our fascination with technology is not limited to energy and climate change. People love technology and love talking about it. There is nothing inherently risky with this until we turn it into an area of emotional belief. It is still relatively harmless if the issue is Apple vs. Microsoft, Ford vs. GM, or PlayStation vs. Xbox. But it matters a lot when applied to energy technology.

This has become a dangerous and destructive tendency on
all
sides of the climate debate, because it turns technologies into questions of belief, where you are asked to take sides. Are you pro or anti coal, nuclear, solar, and so on? This undermines rational thought. I've had many conversations inside companies where I hear completely ridiculous things from otherwise rational people. Another coal company CEO took me aside one day and told me about all the downsides of wind and why its potential is so exaggerated. He explained that the life cycle CO
2
cost of wind makes it worse for climate change than coal. Only when questions become ideological do science and facts go out the window like that. (In case you're wondering, wind power's full life cycle CO
2
emissions are lower than coal's by about 99 percent!)
1

Both sides are guilty, with some environmentalists being opposed to carbon capture and storage because it would be used to keep the coal industry alive, as though the objective were to kill the coal industry rather than to stop CO
2
emissions.

Nuclear power is the most fascinating in this regard because for decades it has defined an almost religious belief. The broadly defined liberal or left-leaning side of society was avowedly antinuclear, and the broadly defined conservative, pro-market, right-leaning side of society was pro-nuclear. In recent years with this “right-wing” technology being a beneficiary of the focus on the “left-wing” issue of climate change, nuclear power has cut a swath through this ideological divide. Some environmentalists, like James Lovelock and James Hansen, now actively support nuclear power. On the other side, various right-wing ideologues have had to come out in support of action on climate change.

A great example of this was Hugh Morgan, a mining company CEO, archconservative commentator, and unarguably Australia's most effective and powerful climate denier and opponent of action over many decades. (His company, WMC, was a major Australian mining company, and my company consulted to them when they produced an environmental report in the late 1990s.) After he'd left his CEO role, Hugh was still active in the public debate. I heard him do an interview where he argued that he didn't believe in climate change or the need to act. Then he advocated that people should definitely support nuclear power as the best solution to climate change (he was involved in a new nuclear venture). Such bizarre inconsistencies are inevitable when you lose the ability to think rationally by burying yourself in ideology.

There are many arguments against coal and nuclear power and many arguments for caution in taking various renewables to scale. That is not my point. I'm simply advocating a careful, rational discussion about the opportunities open to us and an intelligent debate about the alternatives, in the context that a failure to change will have consequences.

That's why this matters, because it has consequences. Of course we need to have opinions about technology, particularly in business and investment strategy. However, when people
campaign
against technologies, as questions of ideology and belief, then argue we shouldn't invest in them, we act more slowly because uncertainty is sown on our ability to move forward. This makes government less inclined to act.

So with these two notes of caution, where do I think we will go with technology? I certainly believe technology will play a critical role in the way forward. However, I'm not a techno-optimist who believes technology will fix it all. As we covered earlier, climate change is just one issue in sustainability, and there is no way we can address all our challenges with technology and keep growing the economy. This is made even stronger by the rebound effect, where technology drives efficiency and efficiency drives more technology use. This means behavior change and shifts in how we organize our lives will in the end be essential. But technology will be an important enabler.

To avoid the techno-ideology trap, it is helpful to have some criteria to consider technologies against. For energy, mine are simple. They have to deliver close to zero CO
2
emissions, they should be as safe as we can afford, they should be able to be rolled out at scale quickly, and they should be considered in a systems context. The latter means we should consider factors like our quality of life, our geopolitical security, and our future prosperity and economic stability. In other words, remember we are designing a society, not a gadget.

With these criteria in mind, I know I cannot avoid the question “What about nuclear?” so I should cover it first.

I don't see how nuclear can even be a good partial solution given the complications of waste, terrorism, and supply limits. I'm certainly open to being persuaded why I might be wrong, but I haven't been yet. When I'm asked about nuclear power in public forums, which I frequently am, my answer is this: If you're asking me would I rather have nuclear power or climate change, the answer is straightforward. Nuclear power is preferable, but it's the wrong question. The question should be what is the cheapest safe form of available energy that emits zero CO
2
.

If that is the question, I suspect neither coal with carbon capture, for the reasons I outlined earlier, nor nuclear power will give us the answer. But we should let the process unfold and allow the market, which will incorporate the price of risk and public acceptance, find the best solution. I would be delighted if CCS became sufficiently competitive to retrofit every coal plant in the world in a decade, and I would be very happy to hear of a proven way to use nuclear power without radioactive waste, risk of meltdown, or producing materials that were dangerous in the hands of terrorists or rogue states.

However, against the criteria listed above, and on what we know today, renewable energy and geothermal together provide an intrinsically more elegant and intelligent solution to our energy needs than anything else. If we have the opportunity to move to a safe, clean, widely available energy source with zero fuel price and very low geopolitical supply risk, then we should try our best to make it work. Even if it costs more in the short term, surely the benefits of setting ourselves up for a more prosperous, stable society make that effort worthwhile.

Apart from the lack of CO
2
, the extraordinary amount of solar energy arriving on the planet means renewables make intuitive sense. Consider this: Every hour an amount of energy equivalent to what all of humanity uses in a year hits the earth's surface from the sun. Even after allowing for the limits in accessibility and converting this into useful energy, a year's supply arrives every week.
2

Another “annual supply” of energy is available from the wind every month and another one
again
each month from geothermal. Then there is the hydro from rivers and energy in the waves and tides. So there is just
so much
energy available, it is implausible that we cannot access it effectively and at a reasonable price if we put our minds to the task.

Energy has been fundamentally important to humanity's progress throughout history as it is today. This is one of the reasons action on climate change is controversial—because energy supply and availability is so critically integrated into our lives and our economy. That's why recognizing the enormous amount of clean and safe energy we have available to us is such an important mental shift. We think we live in scarcity and as a result often act from a place of fear. The truth is very different. We live on an abundant planet and our future progress is now only constrained by our thinking.

There is further reinforcing logic at a system design level for solar and wind power. The fuel cost for generation is zero and the energy is available all over the planet, meaning all those imports and impacts on balance of payments are gone. This global energy security also largely eliminates a whole range of related geopolitical risks and the resulting military threats and instability, not to mention the enormous costs involved. The savings on offer are tangible and we don't have to look hard to find real numbers. A fascinating peer reviewed study reported in the journal
Foreign Policy
pointed out that keeping aircraft carriers in the Persian Gulf from 1976 to 2007 cost over $7 trillion. This was a direct subsidy as the explicit mission was to secure oil shipments.
3
Such missions will not be required to keep the sun shining or the wind blowing.

Another advantage of renewable energy is having zero fuel cost meaning no price uncertainty once plants are built. This allows business to guarantee their energy price and contract it for decades into the future, greatly reducing the energy price risk for long-term investments for energy-intensive industries. This makes national economies more resilient as well.

This is also interesting at the consumer level—imagine buying a car with a five-year contract to lock in your fuel supply at a given price because the energy provider had in turn locked in their price with a solar power plant.

Another powerful argument at the system level is that everything we've learned about technology indicates renewable energy will get cheaper and cheaper. Unlike fossil fuels, which we know will increase in price because of supply constraints and extraction complexity, renewables will get cheaper as they go to scale and keep doing so for decades to come. They don't leak into the ocean, they don't involve blowing up mountaintops, and there is no risk of peak sun, not for a few billion years, at least!

Of course, there are issues to overcome in going to scale like the supply of some rare metals used, water access, matching supply-and-demand timing, and connecting to the grid. But these are all being worked on today in the real world of the energy market and can be solved. My personal view is that the result will be energy cheaper than today, available in all countries within a few decades. With a war effort dedicated to the task, we can expect that even sooner.

This widely available, steady-price electricity is likely to transform the car industry as well. With electric cars already on the verge of widespread availability, we can expect dramatic change in our cities and our power systems. Having millions of battery-powered cars means that the auto fleet can also become a giant distributed storage system and each car can become a personally owned power utility. So when your car is parked and there is a peak demand for power on a hot day, you can sell the electricity in your car batteries back into the grid at a profit!