The future feels green

BP, the oil company, once rebranded itself “beyond petroleum”. That was a , of course, but beyond petroleum — or rather beyond fossil fuels — is indeed the direction pointed to by the latest feast of energy data known as BP’s annual statistical review of world energy.

The review was last week and contains a trove of interesting information as it does every year. A useful overview is provided in a , the BP chief economist (whose thinking on is also thought-provoking).

Granted, the most striking short-term finding is the strong supply expansion in oil and natural gas, which more than outweighed (in energy-equivalent terms) a sharp fall in coal. The oil and gas growth is caused by the shale revolution as well as the response to it by traditional producers: Saudi Arabia has opted to maintain its market share rather than push prices up by cutting oil production; and Dale suggests that Russia is doing the same in natural gas. Abundant supply is not going away — today the International Energy Agency forecasts continued .

But look beyond fossil fuels for the most intriguing trends. One is that the energy intensity of the world economy — the amount of energy it takes to produce one dollar’s worth of income — keeps falling, at a rate of about 2 per cent.

What this means is that even without any change in the relative shares of fossil-based and fossil-free sources in the world’s energy mix, we could have 2 per cent annual economic growth without increasing carbon emissions from energy use. Of course that is not enough to address climate change and we need more economic growth than that. It is nonetheless a stunning number, which refutes the claim by some environmentalists that permanent economic growth is fundamentally incompatible with finite physical resources.

Second, there is a change in the energy mix. Oil and natural gas are substituting rapidly for coal, whose share in global energy consumption is the lowest in a decade.

And third, renewables are growing fast — wind power expanded by 17 per cent in 2015 and solar twice as fast. These are stunning rates, and are of course linked to the equally stunning falls in the costs of renewable power generation, which .

But Dale points out that these growth rates are similar to what other energy sources — including oil, hydro and nuclear — experienced when they burst on to the scene. Yet it took oil 40 years to go from a 1 per cent to a 10 per cent share of world primary energy. Others plateaued. Even if the current pace of cost improvement continues, Dale estimates, wind and solar “renewable power within primary energy barely reaches 8 per cent in 20 years’ time”.

But there are good reasons why we could be more optimistic — and have the wherewithal to make a more optimistic scenario come true. One is that the field is currently tilted against renewables. The International Monetary Fund puts the implicit subsidies for fossil fuels (when they are priced below their true economic costs) at , or one-fifteenth of global economic output. The current political momentum is towards removing these implicit subsidies, which should increase non-fossil fuel demand even without falling unit costs.

Second, the adoption of wind and solar is challenged by problems of intermittent (in the case of wind) and cyclical generation (in the case of solar). If the mismatch between when renewables create power and when power is most needed could be alleviated, then one should expect greater demand for them for any given cost level (on top of continued reduction in generation costs). And that is precisely what seems likely given progress in storage technology. A team of MIT experts has just published research demonstrating that it is becoming for renewable power.

All this suggests that there is scope for policy interventions that could dramatically affect renewables adoption. One is straightforward subsidy for research and development in energy storage, whose progress would involve making generation more profitable and eventually (and sooner than otherwise) sustainable without generation subsidy. Another is regulatory and infrastructural: with better and larger spot power markets and smarter electricity grids, installing storage capacity will come closer to commercial profitability on its own.

With a bit of intelligent policy, in other words, doing well and doing good .

Other readables

• The Greek central bank governor argues that his country has fulfilled the terms the eurozone set for granting debt relief and that it’s now on their promise.
• The limits on which EU citizens may receive child benefit.
• Angus writes on our responsibilities not just to the poorest in the world, but to .
• The in the US, writes Nicholas Kristof.

Numbers news

• The German government’s 10-year borrowing costs for the first time.

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