Doubling Down On Green Energy 'Economically Dangerous' With Targets Impossible To Meet: Keynote

 Published: Daily Oil Bulletin
Writer: Maurice Smith

The green energy transition was not sustainable prior to Russia’s invasion of Ukraine that has roiled global energy markets, and it’s even more untenable with the doubling down on the transition announced by many countries as a solution to the energy crisis, according to a senior fellow at the Manhattan Institute for Policy Research, Inc.

In a keynote at the 2022 Scotiabank CAPP Energy Symposium titled The Energy Transition – A Reality Check in the Post-Ukraine World, Mark Mills said as a consequence of the war, “the world has rediscovered energy dependencies and the importance of hydrocarbons — oil, gas and coal.”

“The interesting question in many respects is whether or not this will be some kind of great reset in energy matters, or whether it's an acceleration, as many of you already know, that the proponents of the energy transition want, an acceleration of that ostensible transition,” he told the symposium.

The Manhattan Institute describes itself as a “leading free-market think tank,” with a mission to develop and disseminate new ideas that foster greater economic choice and individual responsibility.

Mills said the war brought questions related to de-linking from dependency on Russian oil and gas. While some, like Tesla boss Elon Musk, called for “the need to increase oil and gas output immediately,” the EU issued a different view, “that the quicker we switch to renewables, the quicker we will become less dependent on Russia.”

With that proposition, “you get sort of a twofer: you get a lower dependence on Russian oil and gas, and we get to accelerate the, quote, energy transition.”

The challenge is, the transition simply can’t happen fast enough, according to Mills. The Western world has spent at least $5 trillion over the last 20 years and has produced “a state of affairs where wind and solar combined are a few per cent of world's energy supply,” he estimates.

While significant, representing a small share of a very big pie, “it's only reduced the world's dependencies on hydrocarbons from 86 per cent in the year 2000 to 84 per cent, where we are today,” he said. “This does not look like an accelerating transition. It looks like something that's important in terms of economic markets and demands, but it's nothing that resembles a rapid transition.”

And as it stands today, “none of the signatories of the Paris Accord are doing what they promised. So the stated policies are not being followed.”

Moreover, doubling down on green energy aspirations will only exacerbate the problems already experienced in sourcing the products and inputs that make the transition possible.

Shortage of minerals, mines

“Is the physical quantity of minerals needed to produce the green energy machines going to be available in the timeframes that are imagined and hoped for? Well, I think the answer is no. I think, in fact, it's pretty clear it's impossible to meet the goals. And I don't mean this from an aspirational [perspective], or do we need to do it, or should we do it, or even what it would cost, but whether or not the world is planning to, about to, or could in fact produce the quantity of minerals needed,” said Mills.

Several organizations have looked at the call on minerals to build the needed energy machines, the electric vehicles, batteries, photovoltaic arrays and wind turbines, he said. “What's important to know is the quantity of minerals that need to be mined to produce the machinery to generate the same quantity of delivered energy or work to society, the same mile driving, the same power of heating, that's the key.”

And the quantity of minerals required for the same unit of power provided by fossil fuels would be orders of magnitude higher, he estimates. “This brings us straight into the cost of [the] mineral challenge,” he said, “given the demands associated with not the double down [scenario] but the stated policies.”

The added demand growth that the double-down plan would create for the world’s minerals “is truly unprecedented. We're talking about an increase in the demand for minerals overall from 700 per cent to 4,000 per cent more than is produced today, for all purposes.”

Mills pointed to copper and lithium as examples. “One will need dozens of mines more like the world's biggest [copper] mine just to meet the demands before we double down for copper, and there is no evidence that anywhere in the world is the amount of capital or the work underway to create such mines.”

On lithium, to meet the Paris Accord targets, “the world would need at least 20 more mines each the size of the world's biggest lithium mine. These are mines all of which cost in a sort of $5-$10 billion per mine range to build and on average take [according to the IEA] 16 years to go from inception to operation.”

The situation is similar for other materials like nickel and aluminum, he said. “The world can certainly spend the half trillion dollars — it's possible. But there's no evidence anywhere in the world again that governments are planning to accelerate permitting — in fact the opposite is happening in most places — and nor is there any evidence that amount of capital is being made or deployed.

“And even were it to be, and even if we cut in half the average time to get new mines in place everywhere, we still wouldn't have enough mines in place by 2030 to meet the demands for nickel and copper and lithium and all the rest of the materials by the time the world is ostensibly going to consume all those materials…. In fact, the mere act of trying to do it, the mere act of doubling down, will be profoundly inflationary, because it will move the energy sector from being a minor user of common commodity minerals to be the primary user.”

Already, many commodities are experiencing multi-year price highs and set to continue to climb for several years, dampening the declines seen in renewables and battery costs through the past decade. “Last year, the sort of vaunted long run decrease in the cost of lithium batteries ended. The average cost in 2021 went down only about six per cent and it's going to go up this year.”

Mills also suggests oil demand won’t be as reduced as much as many analysts predict. “What happens to the oil markets if EV optimists are right and we get lots more electric cars? We are going to have lots more electric cars, and I hope we do, but it won't really change the dynamics of the world needing lots of hydrocarbons. If you do the arithmetic, and the world goes from today's 12 or 14 million EVs to several hundred million EVs on the road, it displaces about eight per cent of the world's oil consumption. Meaningful, but not an existential threat to oil, nor is it anything resembling a, quote, transition.”

Geopolitics of energy transition

The pursuit of the double-down strategy will also change geopolitics and supply chain dependencies and risks, not just for the mining but also for the sourcing of refined products, he said. “Much more important than just who's mining the minerals is who's converting them into useful form — the refining and the processing. Here, it shouldn't be a surprise, but it is to many people, that the utterly and overwhelmingly dominant refiner and processor of key energy transition minerals is China.

“China's perfectly fine to trade with, from an economic and structural perspective, but when we talk about supply chain dependencies, both in terms of economic risks and geopolitical risks, it can't be ignored. And the United States, which is a big player in this, is profoundly import-dependent for minerals. In fact it imports 100 per cent of 17 key minerals. So shifting the world, double downing from oil and gas to green energy, will have a profound and hard to predict, but high risk shift in geopolitical and supply chain dependencies.”

The real conundrum, Mills added, “is that we've done three things simultaneously which are economically dangerous. We're doubling down on the pursuit of green energy, which is mineral intensive, which will be inflationary in minerals, which will impact all manner of things that are fabricated from inflated mineral prices. We have provided headwinds to make it difficult to produce oil and gas and export it to the world out of North America, which will constrain supply.

“And thirdly, we haven't seen the world yet recover to full pre-lockdown energy demand,” he said. “U.S. annual road miles collapsed from lockdowns and aren't back to normal yet — they will go back to normal. Global tourist arrivals, which is air travel, haven't begun to recover yet. And of course, that will cause a restoration of very significant quantities of oil demand on the margin.”

Mills ended on a positive note, predicting robust economic growth ahead brought on by the cloud. “I really want to leave you with this sense of that, when we get back to normal … economically speaking, I think we're in for far greater economic growth globally than over the last decade … because of the underlying technology revolution that's now roiling, which is centred around the cloud.

“It is a non-energy revolution in the sense that I'm not talking about changing energy supply, but profound change in energy demand, not just to power the cloud but because of the economic, if you like, knock off effects of improving productivity, which always increases wealth, and wealth always increases energy consumption. Canada will be at the centre of this along with a partner in the United States, but boy, it's going to be a rocky fight politically to see how we meet all these demands.”