Sunday, January 31, 2021

A Tale of Two Visions


Two significant headlines last week in the Washington Post caught my eye because they indicate diametrically opposed visions of the future:

“As Biden vows monumental action on climate change, a fight with the fossil fuel industry has only begun.”

“General Motors to eliminate gasoline and diesel light-duty cars and SUVs by 2035.”

It’s hard to discuss the implications of these headlines without looking at the numbers, but it’s what you have to do to understand what’s going on.

The oil industry is pissed off because the Biden Administration froze petroleum exploration leasing on federal lands and waters. I think it’s much ado about nothing, because the industry is not using 53% of the onshore and 77% of the offshore leases they already hold. Not only that, but the oil industry shunned the first auction of oil and gas development leases along the coastal plain of the Alaska National Wildlife refuge. Only half the parcels were sold, most to the State of Alaska.

Consider also that oil companies comprised 28% of the U.S. stock market in 1980, but a tenth of that now, according to the Post. Investors are always looking at future return on investment and it’s clear they think the oil industry’s future is grim.

So, what’s with GM? In the 2000s, they experimented with electric cars, but ended up buying them back and destroying all but two. Now they want to throw $27 billion by 2025 in electric vehicle (EV) manufacturing and battery production, with a goal of converting 40% of their entire line of cars, vans, SUVs, and light trucks to electric by 2026 and 100% by 2035.

GM is actually a new comer here, according to the Post article. Ford is spending $11.5 billion on EVs such as the Mustang Mach E by 2022. VW will build 70 different models of EVs by 2031.

GM’s decision is hardly altruistic. The Post noted that the California economy, the fifth largest in the world, is going to prohibit sales of gasoline-engine cars by 2036. England will do so by 2030. Biden’s plans to electrify the Federal fleet of light vehicles is another incentive. The worldwide market for EVs is expected to go from 5 million today to 140 million by the end of the decade. EV sales increased during 2020, even as auto sales overall took a huge beating.

The other thing to note is that the cost of alternative energy, EV, and battery technology is declining at a rapid rate as the technology advances and commercial production scales up. The lifetime cost of EV ownership is on par or even cheaper than gasoline-powered vehicles.

You may ask why we should go electric if most of our electric power is generated by gas, coal and oil. Aren’t we just shifting the carbon pollution elsewhere? Good questions, but consider these trends:

First, The U.S. Energy Information Administration (EIA) projects that 39.7 gigawatts of wind and solar will “account for most new U.S. electricity generating capacity in 2021” while 9.1 gigawatts of “nuclear and coal will account for [the] majority of U.S. generating capacity retirements in 2021.” The EIA expects renewables to outpace natural gas by 2050.

Second, grid-scale wind and solar now account for 8.7% of U.S. power generation, up from about 0.16% in 2000. A new study indicates that they could provide 70% by 2035, especially, as is projected, the cost of grid scale energy storage continues to decline.

Bottom line - as EVs replace conventional vehicles, they will be recharged by an increasing amount of alternative energy.

The switch to EVs will not happen overnight. I expect it will take over a decade. It cannot come soon enough.

Whether you accept it or not, we are now in a climate crisis. The rate of global temperature rise, ice sheet melting, sea level rise, as well as the frequency of heat waves and wildfires are accelerating faster than projected even a few years ago. There were 22 “billion-dollar” weather-related disasters in the US alone in 2020, compared to 6 in 2010, 4 in 2000, and 3 in 1990 (numbers inflation adjusted). All these trends go under the heading of “wrong direction.”

Both the fossil fuel and auto industries see the writing on the wall. One is fighting a rear-guard action to hang on to the past and the other has decided to look towards the future.

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