Excerpt from long piece that’s worth a read.
“Kingsmill Bond” certainly sounds like a proper name for a City of London financial analyst. He looks the part, too: gray hair expertly trimmed, well-cut suit. He’s lived in Moscow and Hong Kong and worked for Deutsche Bank, the Russian financial firm Troika Dialog, and Citibank. He’s currently “new energy strategist” for a small British think tank called Carbon Tracker, and last fall he published a short paper called “2020 Vision: Why You Should See the Fossil Fuel Peak Coming.” It asks an interesting question: At what point does a new technology cause an existing industry to start losing significant value?
This may turn out to be the most important economic and political question of the first half of this century, and the answer might tell us much about our chances of getting through the climate crisis without completely destroying the planet. Based on earlier technological transitions—horses to cars, sails to steam, land lines to cell phones—it seems possible that the fossil fuel industry may begin to weaken much sooner than you’d think. The British-Venezuelan scholar Carlota Perez has observed that over a period of twenty years, trains made redundant a four-thousand-mile network of canals and dredged rivers across the UK: “The canal builders…fought hard and even finished a couple of major canals in the 1830s, but defeat was inevitable,” as it later was for American railroads (and horses) when they were replaced by trucks and cars.
Major technological transitions often take a while. The Czech-Canadian academic Vaclav Smil has pointed out that although James Watt developed the coal-powered steam engine in 1776, coal supplied less than 5 percent of the planet’s energy until 1840, and it didn’t reach 50 percent until 1900. But the economic effect of those transitions can happen much earlier, Bond writes, as soon as it becomes clear to investors that a new technology is accounting for all the growth in a particular sector.
Over the last decade, there has been a staggering fall in the price of solar and wind power, and of the lithium-ion batteries used to store energy. This has led to rapid expansion of these technologies, even though they are still used much less than fossil fuels: in 2017, for instance, sun and wind produced just 6 percent of the world’s electric supply, but they made up 45 percent of the growth in supply, and the cost of sun and wind power continues to fall by about 20 percent with each doubling of capacity. Bond’s analysis suggests that in the next few years, they will represent all the growth. We will then reach peak use of fossil fuels, not because we’re running out of them but because renewables will have become so cheap that anyone needing a new energy supply will likely turn to solar or wind power.
Bond writes that in the 2020s—probably the early 2020s—the demand for fossil fuels will stop growing. The turning point in such transitions “is typically the moment when the impact is felt in financial markets”—when stock prices tumble and never recover. Who is going to invest in an industry that is clearly destined to shrink? Though we’ll still be using lots of oil, its price should fall if it has to compete with the price of sunshine. Hence the huge investments in pipelines and tankers and undersea exploration will be increasingly unrecoverable. Precisely how long it will take is impossible to predict, but the outcome seems clear.
This transition is already obvious in the coal markets. To understand, for example, why Peabody, the world’s largest private-sector coal-mining company, went from being on Fortune’s list of most admired companies in 2008 to bankrupt in 2016, consider its difficulties in expanding its market. India, until very recently, was expected to provide much of the growth for coal. As late as 2015, its coal use was expected to triple by 2030; the country was resisting global efforts like the Paris Accords to rein in its carbon emissions. But the price of renewable energy began to fall precipitously, and because India suffered from dire air pollution but has inexhaustible supplies of sunlight, its use of solar power started to increase dramatically.
