The reality of energy transition: Reducing oil use to meet climate targets is tougher than cutting supply

NEW YORK/LONDON, June 25 (Reuters) – Governments around the world have been slow to take uncomfortable decisions to persuade consumers to cut energy consumption to help achieve climate targets, often because consumers are not ready to pay up or compromise their lifestyles.

Researchers, policy makers and energy executives told a Reuters Energy Transition conference this week that while energy companies were under pressure to accelerate measures to reduce emissions, governments have barely addressed reducing demand for the fossil fuels that warm the planet.

A growing population in Asia and booming consumerism in industrialised nations make most climate targets very difficult, if not impossible to achieve.

Just this month, Swiss voters rejected environmental proposals by governments to help the country cut carbon emissions, including measures to raise a surcharge on car fuel and impose a levy on flight tickets. read more

The International Energy Agency, the steward of energy policies in industrialised nations, last month said the world should not develop new oil and gas fields to achieve net zero targets by 2050.

But its head Fatih Birol said this week net zero targets were a pipe dream without global consumption patterns changing.

“We see a widening gap between rhetoric and what is happening in real life,” he said. So many governments are coming with net zero targets by 2050 and the same year CO2 emissions are growing and it will be the second largest increase in history”.

“Consumer behavior needs to change as a result of government steps,” he said. Emissions are rising sharply in 2021 after falling steeply in 2020 as a result of global lockdowns to slow the spread of coronavirus.

In France, according to Birol, the government is taking some very early steps to discourage short-distance travel by plane.

At the same time, in Britain the government is busy brainstorming how to revive a holiday season to save the airline and tourism industries. [ID:]

Birol said the IEA has over 400 milestones of what needs to happen to achieve net zero targets by 2050 and 95% of those milestones should be driven by changes demand not supply.

Many of those targets – such as banning internal combustion engines car sold by 2030 or 50% of aviation fuels coming from non fossil fuels by 2040 – are still wishful thinking as there is no industry-wide, country-wide or global policy approach to making those targets happen.

POLITICALLY UNCOMFORTABLE DECISIONS

The International Monetary Fund has repeatedly criticised developing nations for wasting hundreds of billions of dollars on subsidising cheap diesel and gasoline for the poor.

But even in the United States, which consumes a quarter of world’s gasoline, prices are just halve of those in Britain because of low taxes. The government of U.S. President Joe Biden has made no signal it would change that.

Instead, Biden is proposing sweeping policy efforts to quickly electrify the nation’s vehicle fleet, as well as clean up the power industry that would charge them. But none of those goals will become reality without an act of Congress, an outcome that is far from certain given the country’s deep-seated political divisions.

“The transport sector may prove to be the hardest one of all to decarbonized, and not for technological reasons, but really for political reasons, economic reasons, business model reasons and societal acceptance reasons,” said Kelly Sims Gallagher, professor of energy and environmental policy at The Fletcher School.

“How do you convince people to buy an electric vehicle? There really isn’t a lot on the market that a lower income family can buy… It really is going to require governments to make politically uncomfortable decisions”.

A Reuters/Ipsos poll this month showed that Americans were skeptical about new electric car and truck models, expressing concerns about the potential costs and inconveniences of owning such vehicles.

Sims Gallagher says the policies that would work to incentivize EVs are politically challenging – such as imposing a fee on high emissions vehicles and rebate on low emissions vehicles.

Another challenge is a clean grid and many industrialised countries have old grids that need reconstruction.

Rodolfo Lacy, director at the Organisation for Economic Co-operation and Development, estimates that more than $500 billion is being given by governments on fuel subsidies globally every year in one form or another.

“We need to start to think about phasing out infrastructure and technologies that we do not need for the future,” he said.

Besides direct fuel burn, the jury is still out if the world can afford to continue shipping huge amount of goods daily to deliver computer equipment from China to Europe or south American fruit out of season to the United States.

Asia’s rising population will encourage further energy consumption and those people too aspire to have their standards of living improve.

The heads of oil majors such as BP (BP.L), ENI (ENI.MI) and Equinor (EQNR.OL), who took part in the Energy Transition conference made it clear – oil and gas prices were poised to rise as producers reduce their output of fossil fuels under pressure from investors while demand keeps rising.

“I don’t sit here saying we have to wait for society… If the supply side moves too early and society doesn’t move, we’ll have a mismatch,” said BP CEO Bernard Looney.