Climate change and energy: understanding, understanding, understanding!

Jean-Marc Jancovici / President , The Shift Project & Co-founder, Carbone 4 / 2015-12-02

A few weeks ahead of the Paris Climate Summit (COP21), we had an opportunity to talk with Jean-Marc Jancovici, a graduate from Ecole Polytechnique and one of the most widely acknowledged climate and energy specialists in France, about climate change and the energy transition.

Source: Jean-Marc Jancovici

Mr. Jancovici demonstrated the causal relation between energy (particularly fossil energy) production and GDP growth, which industries and policy makers always avoid mentioning, and even perceive in the wrong way.

He is glad to see that it is rapidly gaining momentum in the economic world in Europe, as it removes coal and adopts new technologies for reducing CO2 emissions. However, he believes that globally, the comprehensive political vision and overall awareness are still far from enough to address the issue of climate change and energy saving. Unless people are given an accurate picture of the risks and threats, they will never act to tackle the problem together.

Mr. Jancovici developed a carbon accounting system, which has now become standard in France, as well as green financial products bringing private and public interests closer in the face of the issues raised.

(For more about his work, please visit theshiftproject.org or carbone4.com)

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SJTU ParisTech Review: How serious is the energy shortage situation that Europe is facing today?           

The energy supply of Europe today comes 1/3 from oil, 1/4 from gas, 20% from coal, and the rest from nuclear and renewables. Oil production in the world plateaued in 2005, meaning that production of international oil—including shell oil and sand oil—has remained constant since 2005. The sharp rise in shell oil in the U.S. offset the decline experienced elsewhere.

Source: Jean-Marc Jancovici

But that consistent oil production is set against a growing number of consumers. Domestic consumption by Middle East countries is increasing, leaving less for the historical oil importers, who also have to compete with the emerging demand coming from so-called emerging countries today.

Unlike oil, 2/3 of which is consumed globally across the border between production and consumption, gas is a regional energy. 60% of European gas production comes from NorSea, which peaked in 2005 and is now declining. We have to import liquefied gas from remote parts of Russia and the Middle East where we are also competing with countries ready to pay higher prices, such as Japan and China. On top of that, Europe is the most reluctant to import from Russia.

Then comes the coal supply, which is also declining. Only 15% of the coal produced in the world crosses borders. So in a sense, it’s the most domestic energy of all fossil fuels. Coal production peaked in Europe long ago. The reserves are largely depleted.

I should add that hydro potential in Europe has been largely exhausted as well. It is not possible to add new dams in the Alps or the Scandinavian mountains. Nuclear power in Europe is now slowing down more than growing. Renewable remains a tiny fraction of the energy supply and I doubt it will one day represent the bulk of it.

Thus, all the energy supply in Europe is declining; most OECD countries are going through the same phenomenon. And the boom of shell oil and gas has not prevented the U.S. from having a declining energy supply since 2006.

But why has this shortage of supply not been reflected through the price of energy?

Looking at a long data set, you’ll realize that there is no historical elasticity with the price of oil. When calculating the price in constant dollars, you will come up with a surprising conclusion: there is no relation between volumes and price of oil in the long run. If 10 billion barrels of oil suddenly disappeared from the supply, the next day you will see a sharp rise in the price. However, it won’t last for long because it will then destroy part of the GDP and eventually the price will go down. There have been a number of times in the past when the oil supply declined along with the price decreasing.

It seems you are not optimistic about renewable energies either.

I’m pessimistic because of physics. Renewables are not new. Humanity has been using the sun for very long time to dry things, using the wind to propel boats and windmills, using biomass (particularly wood) to cook and heat, all long before the discovery of fossils fuels. We decided to use fossil fuels instead of these renewable energies, why? Because in physical terms, the fossil fuels are much more efficient to utilize, carry and store; especially oil, which is the king of energy. It is very dense in terms of energy content. That’s why oil has dominated the transportation system.

Since they are dense, fossil fuels cost nothing to extract from the environment. You will never create energy from nothing, but only extract what’s already there. Concentrated by a complicated natural process, fossil fuels are easy to extract, store and use. But when it comes to intermittent resources, such as the wind and solar energy that people are talking about today, you have to build very large devices to collect and store it. There is a very basic joke saying, “You don’t want to be able to turn on the light only when there is sun.”

If we want to be serious about climate change, all the coal power plants should be replaced; it is an option to choose CCS or nuclear plants. Replacing all the coal fire power plants (about 2000 gigawatts) with renewable energy? We will be dead before we get there.

Can’t we depend on technological progress?

Source: Jean-Marc Jancovici

I am an engineer myself, so I know these people by heart. Engineers have a tendency to believe that technology can solve any problem. It is not true. It can’t violate the laws of physics. Another thing is that technology can not bring some costs to zero. Ultimately, costs depend on physical characteristics. The large decline in costs that we have seen during the last two centuries is actually linked to the increase of the energy input into the system. With less and less energy, all costs will rise and productivity will go down, and technique can do nothing to address that.

The prospects are desperate when looking at the supply side, but is there anything that the consumers can do to help?

A lot. When we talk about energy savings, there are three categories. The first is to promote energy efficiency. That is, with the same building and same number of inhabitants living with the same temperature inside, with all services staying the same, consuming less energy. That is energy efficiency. Generally, people love energy efficiency because it doesn’t deprive them of any services, and it enables industry and society to go on as before using less energy.

The second category is what I call sobriety—consent to waive part of your services in order to rein in energy consumption. I use the same car, but brilliant engineers managed to lower the consumption of gasoline. That is efficiency. But I agree to drive a car that is half as large and runs much slower so that I can save fuel. That is sobriety.

The third category of saving is poverty. Poverty is exactly the same as sobriety, only in sobriety I choose it. In poverty I don’t make the choice, but the process is the same: consume less and save more.

People love the first category, and it is on the shoulders of engineers to save the world. The end consumer doesn’t have to be concerned with the issue. Politicians love efficiency for exactly the same reason, because they are not annoyed by the electors. NGOs love sobriety, but it’s not in the genes of most consumers, and politically it is difficult to trigger.

The easiest to trigger is poverty through raising prices, such as imposing taxes, tradable quotas, or regulations. For example, you could forbid all cars that consume more than 2 liters of gasoline per 100 kilometers from being sold in China. It is very efficient, but of course it is poverty because it is mandated that people consume less. If engineers manage to make a car weighing 1.5 tons consume only 2 liters per 100 kilometers, that’s perfect! But again, it is against physics—the kinetic energy of a moving car is half its mass times the square of the speed. So such a regulation means people will only be able to buy cars that weigh half a ton!

If you wish, you can regulate plenty of things; for example, ask large companies to provide employees with a shuttle bus. But people won’t necessarily accept unless there is a shared fear that if they don’t accept, the results will be worse. A good example is war. In war time, people accept constraints and go to fight in order to avoid the risk of being invaded and even killed. That means you can’t trigger savings of the correct order of magnitude if you don’t have a correct picture of the risk.

Could the sharing economy be a game changer in this regard?

The sharing economy is sobriety. You let strangers come in your house or car to earn a little bit of money, or you share rooms or cars instead of owning them in order to save some money. That’s all sobriety. It is surprising to me that the sharing economy is emerging quickly today. I don’t know if it is a pure coincidence that the sharing economy has sped up since the financial crisis, but it leads to collective saving and thus becomes part of the solution.

But there is no single element that is the entire solution by itself. Political vision, which I use not only as a grand word, is crucial in addressing the issue of climate change and energy saving, no matter which country or region it is. Since fossil energy has allowed all that we have in the industrial world, changing the way of using it is going to have consequences on all aspects of our life that require a comprehensive vision. That’s politics.

It seems that we don’t lack vision, but rather, action by industrial stakeholders.

It is rapidly gaining momentum in the economic world of Europe. Only a few months ago, six top oil firms in Europe—BG Group, BP, Eni, Royal Dutch Shell, Statoil and Total—called for a rise in the carbon price. They are not mad.

First, as oil production declines while per capita expense rises sharply, they want coal to be out of their business and gas to be there. But in Europe today, it is much cheaper to produce coal than gas. The only way to replace coal with gas in electricity production is to raise the price of CO2 emissions. The other reason is that the oil firms would like to see carbon sequestration. Engineering technology to sequester CO2 is similar to extracting oil and gas, which these companies have mastered. That’s why they would like to see CCS develop and have a higher carbon price.

Interestingly, it’s not only energy companies. Transportation operators like Keolis also favor a higher price for fuels, as it will mean more people in their buses. There is also an emerging sensibility in insurance sectors, particularly reinsurers, who are serious about climate change, and thus pushing hardest. But they’re not mainstream so far.

The ones lagging behind are banks. They believe it has nothing to do with them. But everybody will be affected, as it is something systematic. Actually, the halt in the rise of oil production in 2005 hit them very badly, because afterwards we experienced the financial crisis. GDP depends on the volume of energy, not the price.

What we don’t have though is the understanding that not mitigating climate change will have consequences that will cost us a lot of money.

How about political efforts we’ve seen so far?

Even people in the business sector who understand the association between energy and the economy would not state the link. They think it leads to the same result if we have constraints on energy consumption: the price will increase and harm their business.

So policies have in fact always avoided constraints on energy. When you look at the U.S., the effort today to replace coal with gas has nothing to do with any kind of federal plan, but only because it is easier to extract gas from the U.S. underground now. The boom of shell gas has led to a collapse in the gas price, so lots of plants covert from coal to gas. It is an economic move; Obama took advantage of a shift that he didn’t trigger. He tried to push a law in his first mandate but failed. In the long run, we’ll also see the day that the gas boom is over.

Europe is facing fossil fuel shortages, so CO2 emissions are decreasing. But actually, we did nothing to accomplish that. We are just changing for reasons we didn’t decide. I don’t think politicians have paid more attention elsewhere.

The devil is in the details. If you don’t take time to look thoroughly at each political plan, and each practical situation, it is very difficult to say that one plan is better than the other, or vice versa.

I remember a few years ago the Chinese government decided to close 6% of the most polluting plants. I said to my colleagues that if the French government decided that 6% of the most polluting plants would be out of business, it would start a revolution! I don’t know whether it actually happened in China, but still, in France you would not even see such a plan.

I hope that most governments will understand as soon as possible that in the long run, it’s in their own self-interests to decrease foil fuels and replace them with something else. To do so, we should start with options that are the least expensive and not the most expensive in capital.