Across the advanced economies, the politics of net zero are colliding with reality, yet most politicians seem oblivious to the dynamics at play.
The inconvenient truth is that the clean energy transition is not unfolding as foretold. Three decades and trillions of dollars in subsidies later, wind and solar still represent single-digit percentages of global energy demand, which continues to grow. Demand for hydrocarbons, meanwhile, remains at over 80 per cent of the total. Exxon and Chevron recently invested a combined US$110 billion in long-term U.S. oil and gas development, driving home the reality that liquid hydrocarbons will be as indispensable post-2050 as they are today.
Across the Indo-Pacific, home to 75 per cent of the world’s population and 60 per cent of its manufacturing, coal use is growing, not shrinking. In the rich West, supposedly indispensable additions to transmission infrastructure and other key components of large-scale electrification remain political pipedreams — as illustrated by the International Energy Agency’s improbable call for 80 million kilometres of new/upgraded wiring globally by 2040, enough to wrap around the globe 2,000 times and requiring US$600 billion in annual investments by 2030. Back here on Earth, the reality is that across Europe all-important grid connections are routinely caught up in years-long waitlists, while in North America permitting legislation makes building interstate/interprovincial power-sharing infrastructure virtually impossible.
Our governments holding forth sanctimoniously about imagined climate-driven severe weather events while imposing large-scale use of wind and solar is insanity with serious consequences — among them, rolling-blackouts across the U.S. and Europe, with mounting loss of life. British Columbia’s NDP government’s anticipated five-year 400 MW/year generation program, the equivalent of two large utility plants, is to be produced solely by intermittent renewables, which is physically impossible.
As early as 2018, key industry executives warned that the renewables sector risked an Enron-style collapse because of its insatiable subsidy-dependence. That unwinding is now happening across the wind, solar and EV industries, and it’s driven by dynamics unlikely to be reversed.
As demand falters, skyrocketing costs are outstripping even massive subsidies. When investors see this, the market cap of key companies craters. SolarEdge Technologies, a bellwether, is down 70 per cent. Investco’s renewables fund is off 40 per cent, while Canadian Solar’s proposed major investment in the U.S. is clearly in jeopardy.
Unmanageable costs and permitting quagmires have triggered the cancellation of wind-power projects on both sides of the Atlantic, causing investors and banks to retreat. Faced with crippling technical problems, growing warranty exposure and companies like Shell walking away from multi-billion-dollar projects, industry leaders Orsted, Vestas and Siemens Gamesa are in structural financial crisis, their shares down by 30 to 60 per cent. Siemens Energy’s recent request for a $16-billion bailout prompted BP’s head of renewable energy to say the industry was “broken.”
EVs have always been net zero’s sentinel technology. Politically styled as virtuous, revolutionizing trendsetters, they are in fact, and ironically, the very embodiment of the clean energy narrative’s magical thinking, wrapping potent negative externalities in a sleek shell. But politicians neglected to check with mainstream buyers, who in growing numbers are deciding these expensive marvels are not for them, while the affluent early adopters who have carried the industry near saturation. A surprising number of original buyers are signalling their next vehicle will be gas-powered. Markets for used EVs are in freefall, confirming the growing disenchantment.
With influential analysts belatedly realizing Tesla is an overvalued car company, not a technology miracle, its stock has dropped 25 per cent. Other EV start-ups face impossible refinancing odds. VW is closing down an entire production line. Ford is pulling back $12 billion in EV investments and Honda and GM are cancelling a $5-billion EV co-development program. These are all unmistakable market signals.
Detroit has effectively decided that, even with all the subsidies the Biden administration is providing, it can’t afford to both build EVs and pay its new settlement with the UAW. Tesla shelving its Mexican expansion will in turn likely prompt ever-cautious Toyota to reconsider a proposed $8-billion U.S. investment.
Here at home these developments lay bare the Trudeau government’s decision to lavish money on battery factories in vote-rich Ontario and Quebec for the stunning incompetence and breathtaking policy hubris it is.
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What we are witnessing are not bumps in the road to an inevitable clean energy transition but evidence of socio-economic realities unravelling the politics of net zero — including the fiction that we must urgently and radically re-engineer our societies to stop a supposed climate catastrophe that in fact isn’t.
Henry Geraedts worked in venture capital internationally. His PhD is in international political economy, with an interest in strategic aspects of energy and technology.
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