1/ I have mentioned stranded assets before; however, it is difficult to convey just how much chaos the green transition is going to cause to the world. From a purely technological angle, it is no different from any other "disruption" we've experienced in the past...
https://twitter.com/chigrl/status/1470732036830863364
2/ ... were it not for the fact that oil has been a tool of realpolitik ever since it took over from coal. As I said when talking about stranded assets, it is incorrect to think that we can "transition" from a carbon economy to a renewable economy. It is not a "transition"...
3/... it will be a regime shift. Transition implies some from of smoothness in the function. I do not think there will be any smoothness. The carbon economy only works if the price of energy is very high and energy is scarce. Renewable energy will change the equation.
4/ At present we still rely on ~80% of carbon based energy to power the world. That seems like a lot, but it is dependent on several key factors: 1) continued investment 2) subsidies (implicit or explicit) 3) disregard for the environment. Lets see why these are all problematic.
5/ Oil is only priced as it is because we amortise cost over the lifetime of the investment. That is, built-in to the system, there is an implicit assumption that the exploration of the asset will be done over several decades. This is normally a fair assumption...
6/ ... until we suddenly have all models pointing to assets being worthless on a much shorter time horizon than expected. Lets say you decide to ban petrol cars in 2030. That does not impact oil assets in 2030, it impacts them right now because you need to adjust the demand curve
7/ It in effect tells you that assets that at present appear to be making money are suddenly losing money. It also tells you that spending any money whatsoever in oil (new investments) is a massively losing proposition because renewable assets will recover they cost much sooner.
8/ Subsidies are also another big problem. Oil is much cheaper than it should be because it is in the interest of governments to keep it as cheap as possible; expensive energy means expensive goods so it is normally a trade-off that favours "the economy". However...
9/ Renewable energy was developed with a fraction of the subsidies of carbon based energy forms. That is to to say: whilst people think that parity in cost of renewable versus non-renewable will make it "as attractive", it is not so because renewable energy...
10/ ... was developed with a fraction of the subsidies of carbon-based energy. The cost curve of renewables is an exponential; just look at solar. It may appear to be as cheap as gas or coal, but it is actually already far, far cheaper than them and its getting cheaper _faster_.
11/ Having to rely on virtually no subsidies - though the media will make you think otherwise - may have slowed renewables by a few decades; but, on the flip side, it meant that the resulting solutions are cost-wise in a different order of magnitude when compared to carbon.
12/ Finally the environment. Carbon based energy companies relied mainly on marketing to do their work with regards to the environment. That is to say, they did not spend the R&D budget needed to create actual clean solutions - if that was possible.
13/ They could afford to ignore the environment because the capital flows were still going towards them. Profit margins were healthy, and public opinion didn't care. However, with the recent shift towards green energy, this will mean capital markets will turn against them...
14/... at the worst possible time. Imagine having to pay more for your borrowings, to manage a portfolio of assets soon to be stranded, selling a product that people know is not a good idea and you see the conundrum.
15/ But remember: we still have 80% dependency on carbon; and for every basis point reduction, a massive disproportionate impact will be felt across the carbon industry, increasing the cost of energy *a lot*. And realpolitik amplifies this since countries will lose their leverage
16/ That is to say, the "transition" will be highly non-linear, and will almost certainly lead to crisis of the kind we had in the seventies - but with an effect many orders of magnitude bigger.
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