The climate-change relevant question is, how will the continuing compounded advance of technology impact the energy sector?
How do we square this circle? On the one hand, the world has come together to tackle the threat of global warming. More than 150 countries have set out their intended nationally determined contributions (INDCs) towards containing the temperature increase to below 2 degrees Celsius relative to preindustrial levels. India has said, for instance, that it will reduce carbon emissions intensity by 30-35 per cent by 2030, relative to 2005, and that subject to financial and technical support, it will meet 40 per cent of its energy requirements from renewables (solar and wind) by 2040. The aggregate of these contributions is not enough to achieve the temperature objective but there is no denying that these statements of intent represent a solid first step and raise the prospect of a second, larger step and eventual success. Also, it is the first time that the developed and developing countries have read from the same “climate change” script.
On the other hand, the International Energy Agency (IEA) has projected that coal and oil will remain the bulwark of the future global energy system and that China and India will be the drivers of fossil fuel demand. It has estimated that India’s oil demand will increase from 3.6 million barrels per day (mb/d) today to around 10 mb/d by 2040, and that it will be the largest incremental contributor to coal demand in the world .
Paris and the IEA are not mutually consistent. The world cannot move on to a low-carbon trajectory if the projections of the IEA are proved accurate. The question is, how then can one square the imperative of carbon reduction with the circle of a fossil fuel-dominated energy system? Prime Minister Narendra Modi offered a meaningful and constructive suggestion in Paris. In his speech, he called for global “partnership” and “innovation”.
Moore’s law and Ray Kurzweil’s “law of accelerating returns” sit at the nub of the PM’s suggestion. Moore posited that computing power would double every 18-24 months. Kurzweil explained that this is because every technological breakthrough has been built on innovations made in a previous period. They have not been discrete standalone developments. His law posits that this trend will continue into the future. Moore and Kurzweil are essentially forewarning us against convention. They are saying, be prepared for further disruption. Expect more surprises. Do not get straitjacketed by linearity.
Looked at through their lens, the energy sector looks like it is headed towards an interesting crossroads. No one can tell when it will reach this marker, but as and when it does, one road will move it forward linearly in a direction that will sustain the dominance of oil and coal in the energy market. This is the direction the IEA has presumably projected. The other will push it into uncharted territory. The pathway will not be signposted. There will be many twists and turns and no one will quite know the specifics of the destination. But it will lead towards a future in which these two fuels will inexorably lose their preeminence. The leaders in Paris have banked their hopes on this course.
The climate-change relevant question is, how will the continuing compounded advance of technology impact the energy sector? What are the emergent trends? What is the likelihood that these trends will place the world firmly on the pathway towards decarbonisation? The answers are not clear, but one can sketch a scenario of a possible future.
The transportation sector today accounts for 60 per cent of the demand for oil. The balance is consumed by industry (25 per cent), residential and commercial establishments (10 per cent) and electricity (5 per cent). Looking though a linear eyeglass, oil looks like it will retain and indeed increase its monopoly share well into the future. This is because there are no obvious scalable alternatives. Natural gas is a possibility but massive investments in pipelines, etc, have to be made and engines have to be redesigned. Biofuels are also an option, but they compete with agriculture and are not as energy efficient as gasoline. Looking through the Moore and Kurzweil prism, however, one can discern “disruptive” possibilities.
Hybrids and electric vehicles are, for instance, in the market and while they have barely made a dent — only 3,00,000 EVs were sold last year against 82.5 million internal combustion vehicles — the constraining hurdles of cost, battery and storage, and plug-in infrastructure, are not insuperable. Technology will sooner rather than later find a way of crossing these hurdles. And when that happens, the game will change. Similarly, the current owner-operator model for cars is under threat from “smart mobility” and “smart economics”. Google is investing in driverless cars and Uber and others are offering online mobility services. People will not give up cars easily. They like to drive, and cars are a badge of identity and status. But given that cars are an inherently inefficient asset — they are idle for 90 per cent of the time and take up valuable and scarce urban land in parking lots and garages — and Generation Y may well see the economic logic of sharing rather than owning, consumers might downgrade cars to a utilitarian commodity. Amory Lovins has captured these emergent trends acronymically. He says the transportation sector is transiting from “Pigs” (personal, internal combustion, gasoline, steel-dominated vehicles) to “Seals” (shared, electrified, autonomous, lightweight service vehicles).
If on top of these shifts in the transportation model, renewables continue to move down the cost curve and next-generation clean energy technologies like carbon capture and sequestration, cellulosic biofuels (so that there is no competition with agriculture), hydrogen fuel cells and safer nuclear reactors are fast-forwarded from the pilot and demonstration phase to commercial applicability, the hopes of Paris would be within reach.
The larger point is that fossil fuels may remain in the interstices of the energy system, but innovation can ensure they have a cleaner impact than today. The key is global partnership. The circle can be squared if, as the PM suggested, everyone works together in a spirit of equity and “differentiated responsibility”.
This column first appeared in The Financial Express and The Indian Express on December 7, 2015. Like other products of the Brookings Institution India Center, this is intended to contribute to discussion and stimulate debate on important issues. The views are those of the author.
Indian Railways’ business model is based on passengers underpaying and freight overpaying. Already, in financial year 2016-17, coal’s extra freight charge increased the cost of power by about 10 paise per kilowatt on average. For power plants in distant states, which inherently rely on Railways for coal, this number can be three times higher.