Opinion: A big race: fossil profits v transition

Most of the profit surge has come from higher demand caused by the decline in Russia’s sales because of the Ukraine war. War profiteering has a long history.

Some fossil companies are scaling back their moves to renewable energy. President Joe Biden attacked the oil companies for profiteering and share buybacks instead of lowering prices at the pump.

Biden got it right when he said we will need oil and gas for some time yet. But it simply cannot be forever. The planet will burn without a transition. Failure to make the transition will cost more than all the energy companies’ profits and more.

Equally, making the transition will cost $100 trillion over 30 years, several hundred times the present annual oil and gas profits.

On a national level, Australia’s experience shows how the allure of short-term profit can stymie the existential task of reducing carbon emissions and pulling carbon out of the atmosphere to get to net zero before the globe heats beyond repair.

This financial year gas exports will yield $A90 billion and coal will yield $A120 billion. The coal yield has quadrupled since 2019. It is because of the war in Ukraine. Any democratic government is going to be challenged by the competing cries from voters for action on climate change and for higher living standards now.

It is difficult to turn your back on $120 billion worth of coal exports. It is equally difficult to explain why it must be done and over what time frame.

Taking much of Russia’s energy exports out of circulation has not caused a massive shift to renewables because the turn-around time is too long. People needing energy now have turned to existing fossil-fuel providers who can ramp up both production and prices rapidly.

And then there are a few poorer countries with oil, gas and coal reserves who ask why should they be prevented from developing in the same way the rich countries have.

Much as many would like a quick and smooth race with the transition to net-zero winning, events since the Russian invasion of Ukraine do not augur well.

A smooth, coordinated, well-managed transition would be hard enough even if there was an overall planner with sovereign power to implement an inter-connected world energy system. But, of course, there is not.

So, jostling for position, profiteering, short-term exploitation, and disruption are likely to continue.

We like to think of history as a gradual long-term progression to a better world but experience shows us that it is littered with severe shocks and set-backs which batter millions of lives: wars, pandemics, natural disasters, and sudden collapses of governments.

On the optimistic side, however, national governments and individuals have immediate incentives to transition to renewables. And the war in Ukraine has increased them.

The European experience has made energy security a major concern. Oil, coal and gas have to be transported continuously. The movement can be stopped at any time causing much pain. With renewables, however, time and transport are less critical. Once the infrastructure is in, dependency on imports falls dramatically. Solar cells, wind turbines, and batteries wear out slowly, and in any event can be stockpiled fairly easily.

Australia is more than 90 per cent dependent on imports for mineral fuels, including oil, much of which is refined overseas. It costs more than $40 billion a year and rising. We only have a few days’ consumption in stockpile in Australia. Our electric fleet is tiny.

Higher fuel costs and dependency make the transition to electric transport an obvious choice for governments, individuals and businesses.

And transport transition with its associated cost saving is improving all the time. For example, just this week, marine battery manufacturer AYK Energy announced it would retrofit Holland Shipyard’s diesel-powered vessel FPS Waal with battery and green hydrogen propulsion to make it a zero-emission vessel that can carry 100 40-cubic-metre containers.

The profits to be gained from the production of renewable technologies are also tempting.

For example, Australia is the world’s largest lithium producer. Exports have jumped to an expected $A14 billion this financial year.

Overall, exports of metals used intensively in low-emission technologies (copper, nickel and lithium) are expected to generate around $33 billion in 2022–23, double what they earned in 2020–21.

Further, some governments are seeing value in higher taxes on fossil corporations that are making windfall profits from the war in Ukraine. These corporations are not paying the true cost of production – mainly the environmental cost which is paid by everyone else. Economists call it an externality. Governments, through the tax system, usually feel justified in making the corporations pay the true cost of production. Australia should do so also.

In all, the war in Ukraine has highlighted what is bound to be a very rocky race. Unless governments can dampen short-term fossil enthusiasm with taxes that can be used to encourage individuals and businesses to take advantage of low-cost zero-emission technologies, the planet may not win it.

This article first appeared in The Canberra Times and other Australian media on 14 February 2023.
www.crispinhull.com.au