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One of the biggest challenges that humanity faces is how to provide the energy need to lift billions of people out of poverty whilst avoiding catastrophic climate change. We introduced this topic in a recent economic commentary: Natural gas essential for transition to low carbon energy where we focused top-down on the factors driving energy demand and greenhouse gas “emissions”, mainly carbon dioxide (CO2).

We made the statement that “emissions from producing electricity with natural gas are more than 50% lower than from burning coal”. This week we wanted to better support the statement and clearly show that natural gas is by far the cleanest fossil fuel (see chart).

EN Chart

Renewables such as solar panels, hydroelectric dams and wind turbines do not directly emit carbon dioxide when they are producing energy. So, one might think that we can reduce emissions and solve the problem of climate change by switching completely to renewables. Unfortunately, it is not quite that simple and there are a number of issues that need to be addressed.

First, manufacturing, installing, operating and maintaining renewable energy sources indirectly leads to emissions that need to be taken into account. Second, despite rapid progress reducing costs, renewables remain more expensive than fossil fuels in the majority of countries and locations especially when competing with existing infrastructure. Third, intraday load-balancing of the power grid becomes more difficult as the share of electricity produced by renewables increases. Fourth, seasonal load-balancing becomes more important as much more solar power is produced in the summer than in the winter, whereas energy demand for both electricity and heat is highest in the winter in most large economies. Fifth, the utility sectors of most countries are dominated by large companies with ageing fleets of power stations, vested interests and stabilised government lobbying capabilities.

The power sector is heavily regulated in most countries because access to reliable and low-cost electricity is vital to support both domestic economic growth and export competitiveness. The concept of “security of supply” means being able to provide electricity in a wide range of economic, natural and geopolitical scenarios. Four examples spring to mind. First, was Japan’s response to the Fukushima Daiichi nuclear disaster in 2011 when it shut down its other nuclear plants for safety tests and needed to massively increase utilization of gas-fired power stations to maintain security of supply. Second, Germany responded to the Fukushima disaster by phasing out its own nuclear plants despite them not being as risk from tsunamis, which has led to much greater utilisation of aging coal-fired power plants and will likely result in Germany missing its 2020 environment targets. Third, Poland continues to rely on coal-fired power stations for the vast majority of its electricity because it does not want to become dependent on Russian-supplied gas. Fourth, China powered much of its impressive growth over the past decade with coal, but that has led to severe air quality and pollution problems in addition to massively increasing China’s CO2 emissions. China has responded to these problems with a pivot towards gas-fired power stations and renewables. These examples show that governments often place more weight on security of supply than either economic or environmental considerations in their decisions.

Fortunately, greater use of renewables often makes sense from security of supply, economic and environment perspectives. Indeed, there are some frontier cases (e.g. both Germany and California) where the share of renewables is so large that they produce all the electricity needed on a sunny and windy day during the summer. However, they still need fossil fuels to provide power at night and particularly during winter months

Norway, Germany and California are the frontier for renewables because they are both technologically advanced and wealthy. Therefore, we can expect them to continue to make progress on the challenge of increasing the effective share of energy produced by renewables. However, fossil fuels are still required to balance energy demand as a compliment to renewables even in these frontier cases.

Policymakers in all countries can reduce emissions further by supporting the shift from dirty coal to natural gas, which is by far the cleanest fossil fuel. This requires grappling with vested interests in wealthy countries, such as labour unions resisting and delaying coal shut-downs in Germany, and economic challenges for poorer countries, such as India’s plans to power a significant proportion of its economic growth with coal because it is readily available domestically at low economic cost.

 
 

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