Fossil fuels are finite, but it will take a very long time before they become the fossils of the world’s energy system. Innovation will change that system, not through revolution, but through evolution argues the CEO of Shell.
Perhaps you have noticed that hydrogen-fuelled vehicles are slowly becoming a reality. Honda plans to begin leasing a new fuel cell-powered sedan next year. And Shell recently opened two new hydrogen-refuelling stations, one in Shanghai and the other in White Plains, New York.
This is heartening news, but we must not let it lull us into believing we can quickly overcome society’s looming energy challenges, including the necessary reduction of GHG emissions. Even a “game-changing” technology like hydrogen fuel cells will not decrease the world’s use of fossil fuels anytime soon. For the next 30 to 50 years, most of the hydrogen to power these zero-emission vehicles will be produced from coal and natural gas because it is cheaper and more convenient than producing hydrogen through, say, solar-powered electrolysis of water. What is more, the global demand for energy is rising so fast that the growth of renewables such as wind and solar, while impressive, has trouble keeping up. Although it may seem counter-intuitive, by most estimates fossil fuels will still make up three-quarters or more of the world’s primary energy mix in 2030, due mainly to rapid economic growth and high demand for energy in developing countries. Only then will renewables really be making inroads as a proportion of the total energy mix.
Indeed, society needs a reality check about our energy future. Contrary to what many people hope and expect, alternative energy is not the silver bullet that solves all the world’s energy and environmental problems, at least not yet. History provides a clue: just as the rise of oil and natural gas did not cause the world to stop using coal, so the rise of renewables will not make us stop using fossil energy. In fact, the world uses more coal today than ever before. In other words, given accelerating demand, we will need all the energy we can get. Don’t get me wrong; green electricity and cleaner transport fuels are attractive growth prospects, and Shell is active in large-scale wind farms and thin-fi lm solar technology. We are also developing technologies that will allow us to produce clean biofuels from plant residue and non-food biomass.
But the shining prospects offered by clean energy technology should not cause us to take our eyes off the immediate challenge of reducing GHG emissions. By the time many alternative energy technologies will have matured, GHG concentrations in the atmosphere may have risen to levels scientists consider irresponsible. So now is the time to pursue innovative ways to reduce emissions of the CO2 that is inevitably produced throughout the fossil fuels chain. When thinking about innovation, it is easy to be mesmerized by images of the latest laptops and mobile phones. And it is true that, in the world of consumer electronics, new inventions can radically alter people’s lives in just a few years.
So why isn’t a similar development taking place in the energy sector?
One reason is scale. In the energy sector, we make multi-billion investments for projects that are meant to last for decades. If vehicle fl eets take 10 years to be replaced and aircraft normally remain in service for 30 years, then it is easy to see why power plants, refi neries and other large facilities often last half a century or more. Compare that with a company that produces mobile phones: it has only 18 months to plan and design a product with a lifetime of 18 months. By that time the next product must be in the pipeline.
Another advantage enjoyed by the consumer electronics industry is that cool new products have early adopters who accelerate the ride down the cost curve, thus partly fi nancing the demonstration phase for new technologies. In the energy sector, this innovation driver plays less of a role. There are few early adopters for new energy technologies, except perhaps for solar panels. Bringing down the cost for zero-emission power plants with CCS is far more diffi cult than for the next generation of mobile phones. Despite the rising concern about CO2 emissions, it is not clear who will foot the bill for the large demonstration projects that need to be built to drive CCS technology forward. Finally, a new consumer product, even if it is expensive, can out-compete other products by offering users new possibilities that did not exist before. By contrast, clean energy technologies do not offer end-consumers similar new possibilities. Whether our electricity is produced using coal, natural gas, subsidized palm oil or subsidized wind energy, when we switch on the light at home, the electricity is the same. What does change is the way in which the energy is produced.
For the energy sector the main challenges are to fi nd ways of funding demonstration projects and to make new technologies attractive to end users. Different sectors will need different approaches. In the industrial sector, governments should promote CCS. They should include CCS in emissions trading systems and offer credits for every tonne of CO2 avoided using this technology. In the transport sector, governments should independently target fuel suppliers, vehicle manufacturers and drivers. Measures could include fuel standards, vehicle effi ciency targets and road-use programmes like the London congestion charge. In the commercial and residential construction sector, governments should introduce robust energy performance standards for buildings and appliances.
In the meantime, cleaner fossil fuels are a vital step on the road towards a low-carbon future, a step we cannot afford to miss.
