I’ve just finished editing seven hours of interviews with net zero experts, including James Cooper of Diggers and Drillers. So, you’ll have to forgive me for being a bit myopic about my topic.
The good news is that I learned quite a lot about net zero’s impact on us, even after writing a book about the topic in the six months before the interviews.
More on the book and the interviews in the coming weeks. Today, let’s focus on what I learned from my guests.
The first lesson is that the inherent complexity of the topic makes it easy to reach any conclusion you’d like. For example, when comparing the cost of energy from a variety of sources, the conclusion is entirely determined by what is included in the calculation. There is simply no fair way to compare the various energy sources if you ask me.
This is partly because of the second thing I learned. While we currently use fuel to feed our energy demand, the transition to renewables is a transition to ‘solids’, for want of a better term. Instead of using up fuels like coal, gas and oil, renewable energy uses up commodities like steel, copper, cobalt, lithium and many more.
This completely mucks up the comparison between fossil fuel energy and renewables. This is because the key cost of running a coal or gas power plant is the fuel input, which is a recurring variable cost. The key cost of renewables is the initial construction and sourcing of materials needed, after which the power is theoretically free.
But how do you compare the cost of building something to the ongoing cost of fuelling something? By having to make so many assumptions that your assumptions end up defining the analysis.
Each different type of energy also has its contingent costs. Renewable energy needs power storage because of intermittency. There simply isn’t any form of storage that’s viable, scalable and cost-effective for an economy, even if we could find enough resources to build it. So how do you compare a renewables system to a fossil fuel system?
Ironically, countries with high renewables levels currently use a fossil fuel grid as renewable energy’s backup. Which adds vast costs of having to keep it ready. That’s why places with high levels of renewables have high power costs. They need two grids, one of which is only called on sometimes.
We source a lot of fossil fuels from places with a lot of geopolitical risks. An interruption of supply completely shuts down energy markets, which wouldn’t be true of renewables because windmills would keep on turning and solar panels keep on burnin’.
There are many other reasons why, but the point is that it’s nigh impossible to compare the various systems fairly. Their features are just so different. Nuclear really throws a wrench into this because its fuel, uranium, and is a very small part of the cost of a nuclear plant. Meanwhile, ridiculous overregulation and unnecessarily tight safety standards are the major part of costs. But those costs are entirely arbitrary. Comparing nuclear costs depend entirely on how it is executed by governments.
Another big lesson, which came largely from Diggers and Drillers’ James Cooper, is that the world has cut investment in fossil fuel energy and mining over net zero constraints without having the replacements ready. We are in for energy crises and commodity shortages that’ll take many years to fix. That’s how long it takes to get mines and wells up and running.
This is now baked in.
The UK’s Nigel Farage, an expert in spotting gaps between what people want and what politicians are giving them, reckons that a sudden shift in net zero is imminent amongst the population as the realities kick in.
Energy bloggers extraordinaire Doomberg explained why: you can’t transition to a less dense form of energy without sacrificing living standards.
If we constrain ourselves to net zero, that has consequences for our day-to-day lives which are not going to be acceptable to voters. They won’t stand for it.
This political shift has already begun. Especially in the UK, where the Government has legally committed itself to net zero in a way that allows environmental groups to challenge decisions in court if they are inconsistent with net zero.
Airport runways, for example, are not consistent with net zero laws. In fact, not much economic development is…and so the people who want it will begin to feel the impact.
And if you think the Western citizens of developed countries won’t accept this, just wait till you see what the developing countries will do.
As Doomberg pointed out, when Germany found itself without Russian gas, it soaked up supply from the rest of the world. But this left other countries without. They couldn’t compete with Germany on the market for gas because they were poor, and Germany was willing to pay ridiculous prices. What should’ve been energy shortages in Germany because of a bad German energy policy became an unaffordable bill for Germans. Meanwhile, Pakistanis got left out in the cold.
Now the Pakistani Government will have noticed that the Germans went back to burning coal, and even mining it!
What do you think the developing world will conclude and do when they see all this? Do you think they’ll position their economies for Californian and German-style energy systems, with ridiculously high prices? Or will they go with what the Germans had to turn to when their systems failed?
A lesson I learned from Mark Mills and Simon Michaux, who have studied the resource challenges which net zero poses, is that net zero isn’t viable for the simple reason that we can’t mine the number of resources needed. There just isn’t the metal…at viable prices.
Consider what this means for the cost of living generally, given that everything in the world around us comes out of a mine to some extent, directly or indirectly. If we make a pitch for net zero and this forces up commodity prices, we could end up with an inflationary shock.
But here’s what I learned from one of the interviews which terrified me. If you accept that net zero is a constraint that we must meet in order to save the planet, then this justifies reaching it with any means necessary. Saving the planet is, after all, a good excuse.
Combine this with the political backlash against net zero because of the impact on living standards and you have a terrifying set of possible outcomes…energy poverty, a dystopian government in the name of saving the planet, or we are going to run the great carbon experiment and see what happens if we continue to pollute…
While society doesn’t really face any optimal choices here, investors face a long list of them. Each of the implications above has huge investment opportunities tied to them. Especially the resources angle.
And so, you’ll be hearing more about all of this in the coming months.
Regards,
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Nickolai Hubble,
Editor, The Daily Reckoning Australia Weekend
