TwentyTwenty, Episode VII: End of the Oil Age – Tipping Points

Check out the seventh episode of our podcast series, TwentyTwenty; Your Podcast for (Un)Precedented Time, here! Find us also on Spotify, Apple Podcasts and Google Podcasts.

Elizabeth Dykstra-McCarthy We may be as weary of coronavirus updates as we are of the new and shocking climate change stories filling our news cycles. 2020 was marked by unprecedented wildfires in Australia, the American West coast, and the Russian Arctic. The last year has seen terrifying degrees of inaction and simultaneously the strengthening of climate undertakings. The former was presided over by a sitting president in the White House who appointed a climate-denier to head the National Climate Assessment in November and drove a slew of environmental deregulation. Yet hope can be found in the commitments of international, national, and subnational governments alongside a panoply of private sector carbon reduction targets. There is reason for both optimism and outrage, in the words of Christiana Figueres, the former Executive Secretary of the UN Framework Convention on Climate Change. Yet, with the apocalyptic air of 2020 still clouding our vision, our failure to prevent this show-stopping global emergency that was COVID-19 seems but the canary in the coal mine for the climate crisis. It might feel to any casual observer, as though the last 12 months ushered in an unprecedented degree of calamity, rolling in one after another. Yet, as any good scenario planner might tell you, calamity begets calamity, nothing shows that more clearly than 2020’s COVID induced oil crash.

The pandemic and its lockdowns, the oil crisis, the ensuing economic fallout from both, and political frustration and instability around the world are not isolated events. They’ve catalysed and accelerated one another. Industry lockdowns and travel restrictions threatened the price of oil. The oil crisis was a result of fears around the commodity’s price as well as the dynamics of OPEC and the US jockeying for space in and authority over the oil market. Oil prices had already been teetering due to greater investment in renewables and decreasing reliance on fossil fuels. Tensions had been bubbling under the surface, and the COVID-19 crisis turned up the heat. That has influenced investors’ long-term profitability calculations, pushing many to take greater consideration of the social, health and environmental implications of their investments.

Rachel Kyte So I think we were very close to tipping points and understanding the need to sort of commit to a zero carbon or low carbon future before the pandemic hit. But when it did, and you’re dealing with prices, oil and gas prices, where they are a whole phalanx of planned fossil fuel infrastructure deals become completely an economic, they were teetering on the edge of being uneconomic anyway. But now that that’s disappeared, and so investors Look at that, and I think no.

EDM: To speak with us today not about the looming  dangers of the climate crisis, but about what we can learn from the COVID crisis. And how to apply that to strengthening our climate response is Rachel Kate. Kate served as a special representative of the UN Secretary General and CEO of Sustainable Energy for All. She was previously the World Bank Group Vice President and Special Envoy for climate change, and is currently the Dean of the Fletcher School of Law and Diplomacy.  

RK: So the message is, in this moment of absolute crisis, if we can just look short term and medium term, we don’t have to dogleg we don’t have to do things that are harmful now, and based on the old fossil fuel economy, and then pivot, we can actually make the right kind of recovery investments now. And it will put us in a better place for the future. 

EDM: Of course, with total COVID death worldwide surpassing 2 million, with economies still shuttered, and with a light at the end of the tunnel that seems to lengthen with every passing month, it seems understandable that climate issues have taken a back seat. After all, a catastrophe a decade away will always feel less pressing than the catastrophe today. Yet, in many ways, this is the perfect moment to capitalize on the systemic adjustments to our institutions, our economies and our society.

RK: Take don’t want to be putting public money into the past, right, you’ve got to put public money into the future. And so in a number of developed economies, we’re looking at, you know, enormous recovery packages. And that money cannot go into things which are going to be compromised, and things which aren’t going to produce a return and are the past. So that money has to go into the infrastructure, the training, the new jobs, the incentives for renewable energy infrastructure.

EDM: And this isn’t always going to look as clear cut as the climate agenda, pumping money into climate solutions. Building back better is a holistic approach combining carbon cutting priorities with infrastructure employment. 

RK: You need to be taking the public money that you’re going to be using in order to keep unemployment up, to create new jobs, to transition these communities, to different jobs into different employment pathways. That money is going to have to be spent, better spend it creatively now, rather than having to spend money to prop up an industry that is absolutely not economic and is never going to come back into an economic positive situation, and then have to spend the money, a second tranche of money in a year or in two years or wherever on the transition that these communities have to go through is not easy. But I think you’re trying to pretend that these industries are coming back, it is not helpful to the people who are right in the middle of it. 

This has become a race to the top, particularly United States where the discussion is sort of we’re going to protect these 50,000 jobs in the coal sector, forgetting that there’s about half a million jobs in the renewable energy sector, and that that number could only increase, there is a real positive opportunity for the US economy. And the more we get into the exciting future that could come then the better it will be.  

EDM: We have known for a while that much of this public investment in the fossil fuel industry is damaging, particularly fossil fuel subsidies, but we haven’t had the political will or leverage to do anything about it. With a year like 2020, just behind us, we have both the opportunity and the impetus to change. But what does change look like? When it comes time to crack open the national wallet, where should we be putting our money to deliver the greatest long-term return?

RK: And when you’ve just come through a respiratory crisis, you want to be investing in things which are about clean air, as well as things which are not going to give you a poor return

EDM: Multiple studies have been released in 2020 and 2021, highlighting the links between air pollution, respiratory diseases and increased mortality in COVID-19 patients.

RK: But we’ve seen some very significant new projects coming along. What’s really interesting, however, is that in the crisis, people are doubling down on the need for clean energy. And so the investment community is continuing to move towards clean and green. And you’ve seen no, no hesitation and no slowing down of investor interest in renewable energy. In fact, you’re seeing more, and that would indicate that I think that’s where everybody believes the future is.

EDM: Positive advancements in renewable energy have come alongside a turbulent time for the fossil fuel industry.

 RK: The prices of oil and gas stocks continue to be highly compromised. And you’ve started to see the oil and gas sector continue to make really advanced leadership commitments. We’re not talking about how to be less energy intensive. Now we’re actually talking about how to get out of oil and gas. 

EDM: Not only the big oil and gas supermajors – it’s the bankers too. Investors are turning more towards environmental, social and corporate governance investing, ESG as it’s known, as drivers of future growth.  

RK: there’s this extraordinary sort of herding now going on into high performing stocks from an ESG perspective. HSBC this week put out an analysis that they thought that as highly rated ESG stocks have done much better through the pandemic than others. But you’re also seeing, you know, this sort of incredible move of investment away from fossil fuel stocks, a 22,000% increase in six years of the level of assets under management that are now with a clear policy of not being able to be invested in, in fossil fuels. 

EDM: And where the bankers go, the politicians follow. In January of 2020, Larry Fink, the CEO of BlackRock wrote that the climate crisis would fundamentally reshape finance. As the year progressed, he hasn’t been proven wrong.

RK: So I was talking to the head of sustainable investment and one of the major global banks this week, and he said to me, it feels like COVID has sped up the energy transition in people’s minds by a decade. We are having conversations now. We are discussing things in the way that I didn’t think would happen for another seven or eight years.

EDM: That doesn’t mean that every oil and gas company is pivoting; there are still significant concerns about planned coal, oil and gas projects from Louisiana to Iran. 

RK: There’s definitely going to be losers in markets. And that in some cases, they’re going to have to be, you know, rescued.

EDM: This is what is known as a bad asset, or stranded asset. 

RK: So you’re going to have a lot of carbon intensive assets, which sit in the economy and in some cases, they you know, you’re going to have public processes for managing them out

EDM: Companies, banks, governments. This is being widely touted as the moment for broad-based change across all sectors, an opportunity provided by a complete societal reset. 

RK: So there was a moment when you know, emissions came all the way down immediately right after the lockdown in March, and then they’ve sort of crept back up again, as they call numbers have been turned on. And you’ve seen governments struggling around the world to get their economies back to work. And emissions have risen with that.  

RK: it reveals that it is a systems issue,

EDM: A systems issue, not one of individual responsibility. This year, with most of us barely leaving our homes, total global carbon emissions will have dropped 7%. This sounds positive, and it certainly is, but it barely scratches the surface of the sustained drop in emissions we would need for the subsequent decades. This drop, according to the global carbon project was from early April, when daily global fossil co2 emissions were around 17% below average 2019 levels, billions of citizens effectively locked into their homes, and a colossal societal change  seems as though it ought to reduce emissions a touch more, if nothing else hammers home the truth that climate change is not a matter of individual responsibility. But systemic change, it seems like it should.

RK: What it revealed is that we need a systemic approach to climate change, we need a global approach to climate change. And that it is possible that that there is an extraordinary opportunity to do it. Now because we’re going to be spending a lot of money we don’t have as it were on recovery, we have seen that some of the things which are dangerous to the planet and to our health. This is the moment when we could speed up their demise and put in place things which will do better for people and do better for the planet.

EDM: Well, let’s say you’re convinced; let’s not pump more money into fossil fuels because even the people holding the purse strings are moving away from that. What next? What should we prioritise in a renewable energy transition?

RK: So to emphasize the first thing is to not do stupid things. The second thing then is where do you get the sweetest return. So first of all, there are enormous jobs and enormous opportunity for income and growth and for getting onto a different emissions trajectory from actually investing in energy efficiency. So first and foremost buildings and the deep refurbishment of our building stock. Second after that the IAEA and the IMF recommend really focusing on improvements of the grid, so that the grid is able to absorb as much renewable energy as possible. And then extending renewable energy options. And that could be solar home systems, micro grids, mini grids, and grid connected renewables, it’s all of the above. And then you get into efficiency in transportation, and really accelerating the shift to clean transportation, and that, that’s not just electric vehicles, in terms of cars, it’s also trucks and buses. And it’s also then the infrastructure that goes with that, so that you can actually recharge much more easily than you can in some places. And then after that, you get into efficiency, and the jobs that will come from efficiency in manufacturing efficiency and textiles and things like that. And then you’re beginning to do some a next generation of research and development into the technologies that will be a very big part of the clean energy future, but which are not close at hand at the moment. 

I think you’re gonna see well, the end of the internal combustion engine, I think has already been heralded

EDM: The internal combustion engine gone, the literal fire power behind the Industrial Revolution, which freed men from the shackles of manual labor. That’s no small boast. And whilst it may not be in the ground, yet, it certainly has one foot in the grave. In September of 2020, California announced that it plans to phase out the sales of conventional new cars by 2035, in favor of zero emission vehicles that run on electricity. Nor will it be alone. The CEO of Volvo Cars has since commented that by 2035, there will be a serious discussion about banning the internal combustion engine, and not just in California. Whether or not legislation is needed, the auto industry can see where this balance is tipping. Gas and diesel cars will still be putting the rubber to the road for the next few decades. But the end is in sight. 

RK: And so I think it’s going to be very interesting to see where electric vehicles, electric planes, electric ships, electric trucks, hydrogen trucks, hydrogen fuel cell. It’s being used and other things is very exciting. It’ll be interesting to see where the nuclear industry goes. And there are some major players putting very big bets on thorium on smaller, you know, almost like backpack sized nuclear devices. So I think that that will depend upon the social norms and a number of different countries around safety. But it will also depends on the amount of r&d that is spent on it, and the extent to which public resources can be spent on the regulations and the governance around that.

RK: And that, in particular, the one that people are very excited about is green hydrogen, you see green hydrogen as part of the European Green Deal. And now part of European green recovery. You see green hydrogen in the UK, sea green hydrogen, Japan, Australia, but also Chile making a big bet on green hydrogen, there’s things we can do now. And then there’s planning for the things that will come on stream and in the next five to 10 years as well. 

EDM: Hydrogen fuel is a option the scientific community has known about for a while but have only just been able to make clean, green hydrogen recently. Hydrogen – like electricity – is an energy carrier created from another substance, but that substance can vary. Grey hydrogen is made from the burning of fossil fuels; if the production of hydrogen is powered by renewable energy, its only waste product is water. This is green hydrogen, and thats the recent breakthrough. But if this all seems too theoretical, a bit too science fiction, let’s talk to someone directly involved in a green hydrogen roll out. 

Susan Shannon: So we are actively looking to develop an integrated green hydrogen hub in Rotterdam. So that requires quite a number of pieces, you really have to develop demand in sync with supplies, you’ve got to create you know the markets and of course, that’s not just us creating them. There’s a huge focus on this from European governments through the Green Deal, but it involves a number of things. So developing our various offshore wind projects in the Dutch North Sea, and we have been quite public around our aspirations there. And then building industrial scale electrolyzers in the Rotterdam area, and then you need on the demand side, a number of outlets to sell that green hydrogen. So you need to have stations which can provide the green hydrogen to transport initially as part of our pan-European hydrogen retail station. So that is an example of trying to create a green hydrogen hub. 

 EDM: That was Susan Shannon, Vice President of government relations policy and international organizations at Royal Dutch Shell, one of the world’s oil supermajors and the fifth largest company in the world, a company which has dominated the petroleum industry for over a century. Yet this year, they have announced a commitment to become a net zero carbon company by 2050, and have been powering up their renewables as they strategise around what appears to be the decline of the oil age. Shell is keenly aware of the way the world is turning the appetite for cleaner energy, and the potential profits and losses of different scenarios; what Susan Shannon is describing here is the creation of a hydrogen hub from electricity generation in offshore wind, the development of hydrogen fuel through industrial processes and then some means of getting that fuel powering our cars. No small feat.  

SS: On a very practical side, if you’re going to push green hydrogen, you need to have, for example, cars or trucks that have engines that can take is you need to have places where people can refuel. So, Shell recently launched one of the first hydrogen refueling stations in the Netherlands, because all well and good to have the product are well and good to the engines. If you can’t refill them, then that, that doesn’t help. And in order to really get there, there needs to be a lot of policies, which treats green hydrogen in a way that incentivizes the production of green hydrogen. And then like any technologies in the early stages, there needs to be additional support be that in the rd stages, or where you often find technologies falling down is not so much in the r&d stage, but as they really try to scale to a commercial stage. And we saw a lot of focus on getting renewable to scale over the last two decades in some of these countries. So the same needs to happen for the technologies that are emerging today.

RK: So I think we haven’t seen the end of, at all, of the innovation in the energy sector. But what I would like to see is the deployment of a lot of the technologies that we already have much faster. If you talk to the CEOs of truck companies who talk to the CEOs of car companies of shipping of the building industry of the people who are involved in energy efficiency. You know, we have technologies today that could vastly improve energy efficiency that can vastly improve access to energy around the world. And we’re not deploying them fast enough. We do have to sort of work with what we’ve already got while we invent the things that we don’t have yet. 

EDM: Hold fire until science can save us. Well, we’re not entirely in the hands of the scientists alone. Everything that Rachel Kyte has just described stresses how important the government’s role will be in accelerating the renewable energy transition, and that the private sector, particularly in the afterglow of the COVID-19 crisis, is starting to seriously consider the benefits of greater long-term efficiency and stability brought through by renewables. And that is the message loud and clear from Shell as well; they need the supporting legislation from governments to nurture these budding industries and pave the way for their entry into the big wide world. So, whether they are driven by calculations of profit maximization, concern for the climate, or both, many in the private sector recognize what the future holds if dramatic action is not taken on climate issues. The finance sector, driven by a boom in ESG investing, is pivoting heavily towards investment in renewables. And as we heard from Susan Shannon, some of the most transformative action is being taken by corporations on the frontlines of climate change, oil and gas companies, those who at least theoretically stand to lose the most from climate action. How might they adapt to this changing financial and environmental landscape, if at all? Might they fight greater regulation? Or will they see these changes as inevitable and push to diversify their revenue streams?  

 SS: We have indeed committed to being a netzero, energy company by 2050. So there’s probably three parts to that, first of all, we will reduce the emissions from the manufacturer of a product to net zero by 2050. Or sooner. So what does that mean? Because I understand, you know, there’s a lot of jargon in this world. It is the emissions from our chimney stacks, essentially from the actual assets that we have on the ground. Secondly, it is about ensuring and reducing the net carbon footprint, the intensity of the products we sell by 30% by 2035 and 65% by 2050.. And thirdly, working with our customers to help them reduce their emissions. 

EDM: In practice, what does that mean helping your customers to reduce their emissions?

 SS: So what we’re trying to say is, look, we all need to work together not only to focus on the supply side, or the demand side, so we can, you know, sell our products but it is of course, the burning of our products that causes the emissions. So what we are saying is, we want to take a strong role in looking at the emissions of our products all the way from when we produce them to when our customers use them.

EDM: And the first thing to understand is where there are easy wins. And when more work is needed.

SS: One way that I find helpful to break it down is to look at the uses of oil and hydrocarbons and the sectors that they go into. And you can already see a transition in some of those sectors. Some of those sectors are what we often call in the industry easier or harder to abate. 

EDM: In sectors like power generation – such as for buildings and electricity generally – we have solutions ready to go at a price tag we’re willing to pay. There is a clear pathway to making our power systems very green. 

 SS: If on the other hand, you take the aviation sector, there are today a very limited if any range of alternatives, which can fuel airplanes. So sectors like that we need to work much harder to find those alternatives. And therefore, in the coming period of time, there is a continued role for oil in those kinds of sectors.  

EDM: So yes, the end of the oil age is a touch dramatic, we won’t be seeing the exit of oil from the world economy for decades to come. But it does suggest that its dominance over the world markets and politics is fading. We’ve already talked about green hydrogen and how that is revolutionising everything on wheels and wings. Another breakthrough is carbon capture, utilisation, and storage, CCUS, the process of capturing carbon dioxide and storing it so that it isn’t released into the atmosphere.

 SS: So a good example is a project called northern lights in Norway, which really aims at its heart to collect CO2 from a number of sources across Europe.

EDM: Much like a communal rubbish landfill, except for carbon dioxide. There are two types of CCUS. One captures carbon dioxide directly from the air, like the Norwegian Northern Lights project, and the other captures carbon dioxide as it’s produced in-factory, such as during industrial processes.

SS: We do have a project, I actually visited myself in Canada, it’s called Quest Project, and it captures about a million tonnes of CO2 a year. So the technology is there, it exists. And actually, when you go to see it, I certainly had in my head, a picture of lots of wires and pipes, but actually there is just a small pipe coming out of a refinery and into the ground.

EDM: And this is incredible, truly the cutting edge of carbon cutting technology. Yet over reliance on carbon capture and storage feels like a moral hazard. It doesn’t really matter how much carbon we emit, we can continue business as usual, and these nifty little plants will suck our carbon emissions out of the air. Job done. But the two large scale CCUS power projects operational today, with 20 currently in development, have a combined capture capacity of over 50 megatons of carbon per year. That’s great. But to meet the 2030 sustainability targets, this would need to be 310 megatons, or more than six times its projected capacity. Carbon capture and storage is critical, but the magnitude of scale is mammoth. We may not have the financial resources, and experts fear that was we likely don’t have the time

SS: Though in our own projections and scenarios. All right, how Europe gets to net zero emissions by 2050. You would need a huge scale up in CCS. So something in the region of two CCS plants a month between 2025 and 2050. So there needs to be a huge scale up everywhere. And CCUS is no exception. 

EDM: That’s 24 CCUS plants a year for 25 years. A little punchy you might say. This seems to be the same lesson we learned from 2020 – science might be able to save us but unless we can provide the infrastructure to deliver these scientific solutions, we’re not really going anywhere.

SS: The technologies are there. One of the main drivers around CCUS is indeed the carbon price because there is a natural point at which it makes sense to install CCUS rather than to buy the allowances.  

EDM: This is where government comes in; if you bring in a carbon price (like the European Trading System), companies who burn carbon into the atmosphere have to pay for allowances in order to do so. What Susan Shannon is saying is that at a certain point, it becomes more economically advantageous for carbon-guzzling industries to build in CCUS plants than it does for them to pay for these allowances. Bingo. This is where the public and private can work together to really bring about the systemic change Rachel Kyte was describing. Take gas for example. 

SS: So in many places, gas can replace coal. And it has approximately half the CO2 content of that and where gas is replacing coal that is clearly contributing towards the need to reduce emissions. You can also see the pairing of gas with renewables, in which case you manage to address some of the questions around intermittency. So there is a lot of areas where gas clearly has a very strong role going forward. 

EDM: And whilst it is true that gas is a lower carbon per unit energy than coal or oil, that simple fact doesn’t cover some of the most concerning elements of the gas industry. Methane, the prime constituent of natural gas, is a more potent greenhouse gas than carbon dioxide, almost 25 times as much. Methane leakages into the atmosphere during natural gas production are common. Just how common we’re not sure because most companies don’t measure how much methane is leaked during production. This is called methane accounting. And it isn’t very well regulated, because governments aren’t mandating that regulation. 

 SS: In the US. We have been calling for direct regulation of all the minutiae of methane emissions. And we have seen some of the regulations over the last couple of years going in the opposite direction and Shell have made a commitment to keep the methane intensity of our assets below nought point 2% over the next couple of years. One of the really important points about methane is really the reporting the verification and measurement. So there does need to be a very clear understanding and indeed reporting of where that methane is coming from. There’s an initiative called the meeting guiding principles group, which was set up a couple of years ago, and really works to share best practice, not only in detecting and addressing methane, but also in improving the reporting of methane. In one of our big projects in Qatar in 2019, I believe we scanned around 33,000 components to ensure that the methane emissions were being detected and un-repaired.

EDM: You might think that a company like Shell would be anti-regulation, but that hasn’t been the case. When Trump weakened Obama era regulations on methane emissions in early 2020. The oil and gas lobby was split. Exxon Mobil and Shell openly called for the strict regulations to stay in place. Shells president Gretchen Watkins said at the time, the regulation helped the industry develop better, more affordable meeting technology.\

SS: From our perspective, it makes sense to have direct regulation. It gives us the certainty as to what we’re operating to, in the same way that when you set direct regulations for other issues, you get a defined outcome, essentially. 

 EDM: And as the transition energy gas requires a steep investment in infrastructure, pipelines that cross geographic and political borders, for example. The amount of financial human and physical investment into this infrastructure is so significant that within a decade or two, the projects could become unfeasible, making them stranded assets that Rachel Kyte warned us about. Yet, LNG liquefied natural gas is a key component of many states and sectors in the renewable energy transition. 

SS: The pace of the transition is heavily dependent on incentives and government regulations. A lot of the recovery funds and the resilience funds have a very, very strong green agenda to them

EDM: Which brings us full circle – both ends of the spectrum are calling  for governments and companies to use the opportunity provided by the recovery funds to build back better. The COVID-19 crisis has accelerated few trends as quickly as it has the movement towards green energy. Rachel Kyte walked us through the mechanisms of transition – the technologies and initiatives that will yield the strongest environmental and fiscal results. Susan Shannon showed what such investment looks like on the ground, from the perspective of a global oil supermajor. Science can only be denied for so long. Energy Luddites will drag their heels. Regardless, technology always marches on, and we have found and will continue to find cheaper, greener, more efficient ways of existing. Many will advance, but some will be left behind, and those who win must account for them. Jobs in non-renewable fields will be on the line, which will require government financial assistance and investment in job retraining programs to cushion the blow. 

Looking beyond the individual, this historic shift will have still unknown geopolitical ramifications. What happens to the myriad countries such as Saudi Arabia and the neighboring Gulf States, Mexico, Russia, Venezuela, whose state budgets received much if not most of their funding from the petroleum sector, when they no longer hold the keys to the car, or rather the oil to the engine? how might that standings in the global balances of power and influence change? And importantly, what reactions might that provoke? And the renewable industry booms, how might act as possessing critical materials such as China with its dominance of rare earth minerals, adjust their behavior? Tune in next time as we unpack the geopolitical ramifications of the death of the combustion engine with securing America’s future energy founder, President and CEO Robby diamond

This episode was researched, written and produced by Max Klaver and myself, Elizabeth Dykstra. Our sound assistant was Rachel Carp and this was TwentyTwenty – final episode coming up.