4b: Intro to the Energy Transition

The big bets of the energy transition

Misha Velthuis

m.velthuis@uva.nl

Thursday 26 Sept 2024

1. Today
2. Last time: two approaches
3. Adjust supply
- 3.1. Power to gas
- 3.2. e-fuels
4. Adjust demand
- 4.1. Dynamic demand management: manual
- 4.2. Dynamic demand management: automatic
5.
6. The big bets of the energy transition
- 6.1. … and risky bets for those with power
7. Big bet #1: use the market
8. Big bet #2: move away from the market
9.

1. Today

Two responses to double fluctuation

The big bets of the energy transition

2. Last time: two approaches

Adjust supply

Adjust demand

3. Adjust supply

Pumped storage

Batteries

Using EVs as batteries

Power to gas

Synethetic fuels

3.1. Power to gas

3.2. e-fuels

Synthetic fuels, produced by combining hydrogen and carbon dioxide/monoxide.

Hydrogen can be produced with renewable electricity, and carbon dioxide can be captured from air, industrial processes or biomass.

Store energy as electricity → hydrogen → e-fuels? Every step adds costs/ efficiency losses, but brings advantages, mostly in terms of energy density. (Also: e-fuels can be used in existing infrastructure/ ICE). For example: at this point, e-kerosine is the only option for aviation.

Report by TNO about e-fuels: link

Graphs from https://climate.benjames.io/solar-off-grid/

(To be fair: using "excess" (or cheap) electricity to produce e-fuels could be seen as a "supply-side" response (store energy and release when necessary), or a "demand-side" response (use energy when supply is high). It depends on whether we see the e-fuel as a storage of energy or simply as a product of energy (it's both)).

4. Adjust demand

4.1. Dynamic demand management: manual

4.2. Dynamic demand management: automatic

5.

Picking things up
where we left them

5.1. Recap: the story so far …

Solar energy getting burried
(in the carboniferous (image), but
also e.g. in the holocene (peat))

The Dutch find peat close
to their economic centres

Capitalism emerges and pulls us down the cost
landscape that unfolds in front of us

5.2. Recap: steadily heading toward the abyss?

5.3. Lots of talking and no change

5.4. Recap: but something is happening…

5.5. Recap: but somethings is happening …

5.6. … still the challenge is enormous

6. The big bets of the energy transition

Humanity:

What political economical system do we need?

States:

What industry to support? What development to boost?

Companies:

What technology to embrace? What investments to make?

6.1. … and risky bets for those with power

7. Big bet #1: use the market

7.1. Correcting an imperfect market

The market will guide us towards "optimal pollution".

Understanding the graph:

X-axis = emissions (let's say Mt carbon) (to the right = more emissions)
Y-axis = abatement (here: emission reduction) cost (let's say dollars per Mt carbon)

Understanding MAC curve going down:

At E0, it is easy to reduce pollution. Abatement costs are low (low hanging fruits).
As pollution goes down, abatement costs go up.

Understanding the MDC curve going up:

When there is little pollution, a bit of additional pollution is not immediately very harmful.
When there is already way too much of something, adding a bit more is highly damaging.

Where the lines cross: optimal pollution.

A company will reduce pollution until the marginal abatement costs are the same as its own marginal damage costs.

However, other people of course also experiencing damage. So the real MDC curve is higher. So the real optimal pollution is lower.

Market failure.

The government can step in to "internalize the externalities". To "bring back" the damage that others experience, to the actors creating the damage.

Two main ways: a tax or with "cap and trade". Effectively force companies to abate more, so that the market will end up in the social optimum.

7.2. Internalizing externalities

7.3. The government needs to prevent "transition failures"

Internalizing externalities:

Taxing carbon: you fix the price, but don't know how much CO2 will be emitted.
Capping and trading carbon: you fix the quantity that will be emitted, but you don't know the price.

Graph shows price volatility of carbon credits in the EU Emission Trading System.

Economic slowdown can cause oversupply of carbon credits.
Economists: that's the entire idea: when the economy is in rough weather, reduce pressure on companies. When the economy is doing well you can increase the pressure again.

Important: the social cost of carbon (discounted future damage of emitting marginal ton of CO2) is estimated around $1000/tCO2. The IPCC calculated that to reduce emissions to half the 1990 levels in 2023, would require a price of $100/tCO2. The current price in the EU ETS is 65 euro.

Other examples of so-called "transition failure" mentioned by ABN Amro:

When one sector decarbonizes, another sector can benefit from lower fossil fuel prices.
Vested interests

Graph: link

7.4. Other "transition failures"

Sectoral dependencies in electrification

Under-provision of grid capacity

7.5. Ultimately the (corrected) market knows how

8. Big bet #2: move away from the market

8.1. The market knows best?

Capitalism (and the market) is really good at ensuring that resources are used in the most efficient way. The ensuing cost reductions allow for economic growth.

But how does it distribute the wealth?

"Technology lock-in refers to the situation in which the adoption of alternative technologies is not taking place even with the presence of high economic benefits to the adoption of these new technologies due to existence of obstacles such as vested interests and network effects." link

What are these "high economic benefits"? What are these "vested interests"?

What Altaghlibi from the ABN Amro probably means: a small group of people with an interest in fossil fuel companies resists policies that would benefit many of us (e.g. carbon pricing, carbon phase-out).

If that is a legitimate argument, then why don't we recognize that a small group of people is hoarding enormous amounts of wealth that could provide real "economic benefits" to a lot of people.

As you grow richer, the marginal utility of a euro decreases fast. A large-scale redistribution of wealth would lead to an enormous boost of happiness (reduction of misery).

The market brings efficiency (in a narrow sense: maximal output per input) but not "the best world possible".

8.2. The market knows best …

The people who control this money, for some reason do not appear to expect an end to the usage of fossil fuels.

Remember this quote from Blondeel et al. (2021):

The Agency further notes that from 2021 onwards no new oil and gas fields, and no new coal mines (or extensions of existing ones) can be approved for development to if we are to reach global net-zero emissions by 2050 (IEA, 2021a).

Graph 1

Link to first graph (click here for interactive graph).

Fossil fuel investments are growing again.

Graph 2

Link to second graph.

Market capitalization of fossil fuel companies: shows expectations people with power and money.

See here for an overview of who is investing in fossil fuel assets.

Blondeel, M., Bradshaw, M. J., Bridge, G., & Kuzemko, C. (2021). The geopolitics of energy system transformation: A review. Geography Compass, 15(7), e12580.

8.3. The low hanging fruit …

8.4. The money will protect the money

8.5. The market will not save us

8.6. Escaping from the market?

8.7. Collective control

8.8. More weekend?

8.9. Bypassing capital

8.10. Of course: risky bets #1

The rule book: capitalize on cultural turmoil (often created by capitalism), to protect interests of capitalists.

"De NPO is van het padje af: NPO66. In plaats van eerlijke informatie en ontspanning is het vooral bezig met propaganda. We worden dagelijks getreiterd met klimaatpaniek en diversiteitspropaganda. De financiering wordt dan ook geheel beëindigd."

"The public broadcasting agency has lost it: NPO66 (reference to liberal party). Instead of honest information and entertainment, it loses itself in propaganda. Every day we are being bullied with climate panic and diversity propaganda. We will fully stop all public financing."

"Geen miljardenuitgaven meer aan links-liberaal ideologisch beleid als stikstof en klimaat. Geen open grenzen en onbetaalbare massa-immigratie meer."

"No more billions of spending on left-liberal ideological policy, like nitrogen and climate. No more open borders and unaffordable mass immigration."

4b: Intro to the Energy Transition

The big bets of the energy transition

Misha Velthuis

m.velthuis@uva.nl

Thursday 26 Sept 2024

Table of Contents

1. Today

2. Last time: two approaches

3. Adjust supply

3.1. Power to gas

3.2. e-fuels

4. Adjust demand

4.1. Dynamic demand management: manual

4.2. Dynamic demand management: automatic

5.

Picking things up where we left them

5.1. Recap: the story so far …

5.2. Recap: steadily heading toward the abyss?

5.3. Lots of talking and no change

5.4. Recap: but something is happening…

5.5. Recap: but somethings is happening …

5.6. … still the challenge is enormous

6. The big bets of the energy transition

6.1. … and risky bets for those with power

7. Big bet #1: use the market

7.1. Correcting an imperfect market

7.2. Internalizing externalities

7.3. The government needs to prevent "transition failures"

7.4. Other "transition failures"

7.5. Ultimately the (corrected) market knows how

8. Big bet #2: move away from the market

8.1. The market knows best?

8.2. The market knows best …

8.3. The low hanging fruit …

8.4. The money will protect the money

8.5. The market will not save us

8.6. Escaping from the market?

8.7. Collective control

8.8. More weekend?

8.9. Bypassing capital

8.10. Of course: risky bets #1

8.11. Of course: risky bets #2

8.12. Decentralized control?

8.13. Citizen assemblies?

9.

Large scale change is inevitable

Risky bets are inevitable

Picking things up
where we left them