Some Challenges for theEnergy Transition
Rennes School of Business Summit
October 2023
Ted Loch-Temzelides
Rice University, USAPlan• Aspects of economic growth and climatechange• Good news and some challenges forrenewables• Failure of climate policies• Fossil fuel likely to be with us a while longer• A historical anecdote21. Economic Growth andClimate3

2,000 Years of Economic History in One Chart

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Energy Demand Hand-in-Hand with Economic Growth5What Fuels Growth• Historically fossil fuel sources– Exhaustible– Externalities• GHG and Climate Change• Local Pollution and Public Health• Geopolitical dependence
6Fossil Fuel Scarcity• Fossil fuels are exhaustible• Does this matter?
• The “Peak Oil” Theory78The Moving “Parity Target”
for Renewables

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"Peak Oil“ Supply Proved Wrong10

“Unconventional” Resources• Shale, vast coal resources, off-shore, deep
water, off-shore shale, … methane hydrates– “The stone-age did not end because we runout of stones”• “Peak demand” looks more likely than“peak supply”• Need incentives to keep much of thisresource in the ground– “Good citizenship” example not enough11

2. Energy Poverty

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Energy Poverty• About 1.3B people live in energypoverty• More if we consider energy insecurity• Mainly in the global south–Sub-Saharan Africa, Asia

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Some Consequences• Water purification• Food, medicine storage• Health and education• Life expectancy• …
• People in energy poverty keen to use
cheapest available energy source153. Other Challenges

16The Good News

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Experience Curves: Solar

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Some Less Good News…

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Intermittency

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Need for Storage: the “Duck Curve”

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4. The Rise of Fossil-Fuel Demandin Asia

25• Climate change related to stock of GHG– Non-local in time or space• Largest past emitters not as relevant forfuture flows• Looks likely that fossil fuel will be used
for decades to come to fuel Asian growth

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Transportation28

• At least coal is going away…

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• At least coal is going away…
• Is it though?

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• In 2022:

Coal Consumption• 6.3% increase in world coal consumption• 8.9% increase in coal consumption in Asia
– 8.8% increase in coal consumption in China– 8.3% increase in coal consumption in India– 52% increase in coal consumption in Indonesia• 2.3% increase in coal consumption in Europe– 3.5% increase in coal consumption in Germany• 6.6% decline in coal consumption in the US• 3/4 s of world’s lignite consumption took place in Asia (54% in32China)

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• US now a major LNG exporter toEurope36

• US now a major LNG exporter toEurope• Who else is Europe importingfrom?

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Europe• Nuclear in France• Moving away from nuclear in Germany– Used more coal as a result• GB to delay climate targets:– “Climate goals have imposed unacceptable costs onordinary people”• EU buying less long-term LNG that it might need
– Betting on mild winter o/w will compete with Asia inspot markets• Europe too small (and too clean) to make adifference405. Climate Policies

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Pigouvian Taxation• Need to internalize the externality• Impose tax = marginal (current and future)
damage from emissions• Most countries still subsidize fossil fuel use• Why?

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Pigouvian Taxation• Need to internalize the externality• Impose tax = Marginal (current and future)
damage from emissions• Most countries still subsidize fossil fuel use• Why?

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6. A Historical Anecdote:“Technology to the Rescue”

44• The Great Environmental Crisis of…

45• The Great Environmental Crisis of 189446

• The Great Environmental Crisis of 1894

• “In 50 years, every street in London will be buried
under 9 feet (2.75m) of manure” – The Times47• The Great Environmental Crisis of 1894

• “In 50 years, every street in London will be buried
under 9 feet (2.75m) of manure” – The Times• Technological innovation: shift happens48

• The Great Environmental Crisis of 1894

• “In 50 years, every street in London will be buried
under 9 feet (2.75m) of manure” – The Times• Technological innovation: shift happens• Automobiles (internal combustion) saved the day!
– Steam vs. internal combustion engines (also electric)49

Current Technology Frontiers• Various energy storage technologies• Fusion (always 20 years away)• Geoengineering•…

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7. Some Takeaways51• Absent global climate policies, fossil fuellikely to be with us for a while– Asia a main driver of current and future
demand• Demand driven by economics– Decline in coal use in developed countries
lowers its price, redistributing demand todeveloping countries52• Governments not great at picking winners– See diesel cars in Europe…

• Global carbon price would internalize
externality and allow technologies to compete
on equal footing• Has proved extremely hard to implement– Tax is a dirty word (regressivity)– Coordination across countries difficult• The world needs to do better!
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Thank you!

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