“Energy Transition” – Reality Versus Rhetoric

Authored by Mark Mills via RealClear Wire,

This essay is based on testimony delivered November 29, 2023, before the Congressional Subcommittee on Environment, Manufacturing and Critical Materials, House Committee on Energy and Commerce.

It is often useful to contrast rhetoric with reality. The phrase, an “energy transition,” the goal to replace hydrocarbons, has origins that trace back to a 1977 speech by President Jimmy Carter. It was an “address to the nation” that commandeered national media, as is the convention on occasions when presidents seek to deliver momentous news. That address became known, infamously, as the “MEOW” speech because of President Carter framing the “energy challenge” as the “moral equivalent of war.” We find a lot of familiar rhetorical turns of phrase in that speech, not least the urgent need for a putative “energy transition” as being “the greatest challenge that our country will face during our lifetime,” and the need to “act quickly” in order to “have a decent world for our children and our grandchildren.” Back then, the urgency was motivated by the belief the world was running out of oil and natural gas.

Of course, in our time the “energy transition” rhetoric is directed at replacing a now over-abundant supply of those hydrocarbons, specifically in service of reducing carbon dioxide emissions. The latter is the latest “greatest challenge” facing humanity. Meanwhile, after a near half-century of transition policies and massive government spending since the MEOW speech, the reality today is that oil, gas, and coal today supply 82% of global energy.

To put that reality into a more recent context, since Y2k we’ve seen over $5 trillion of global spending on wind and solar and similar efforts to avoid hydrocarbons. That did reduce hydrocarbons’ share of world energy, but by just two percentage points. And the quantity, not share, of hydrocarbons consumed globally has increased by an amount equal, in energy-equivalent terms, to adding six Saudi Arabia’s worth of oil output. Those two decades of spending has led to solar and wind combined supplying just under 4% of world energy. For context: burning wood still supplies 10%.

But energy transitionists now claim this time is different. There are differences. The global population is far bigger wherein billions more people now aspire to the lifestyles of even the least fortunate in the wealthy West. Fortunately, because costs of wind, solar, and battery technologies are far lower than two decades back, those sources can now more significantly complement hydrocarbons. However, a pivotal reality is found in the nature and location of critical upstream industries that make the complementary energy sources possible.

Because of unavoidable, underlying physics, fabricating wind, solar and battery hardware entails a radical increase in the use of a range of minerals from copper and nickel to aluminum and graphite, and rare earths such as neodymium. The increases range from 700% to 4,000% more minerals per unit of energy production. While this reality still surprises many, for the cognoscenti, it is no longer news that the spending and mandates directed at wind, solar and EVs will require an astonishing, unprecedented increase in output from the old-school industries of mining and mineral refining. But that reality is also greeted by hollow rhetoric. Transitionists claim that subsidies and mandates will stimulate the market to meet the unprecedented volume and velocity of those demand increases. As the IEA has pointed out, the transition will require hundreds of billions of dollars invested in hundreds of massive new mines, somewhere.

Yet, every sober analysis of mining realities points to two facts. First, both existing and planned world mining capacity won’t come close, by factors for two- to ten-fold, to meeting the scale of minerals demands that will arise if the “transition” is in fact pursued. Second, in the meantime, China is the world’s biggest producer of most of the relevant energy minerals and has a global market share at least triple the U.S. share of hydrocarbons. (The U.S. is the world’s biggest hydrocarbon producer.) China produces over 60% of the world’s aluminum, refines over half of the world’s copper (the keystone metal of electrification), 90% of rare earths, 60% of refined lithium, 80% of graphite (used in all lithium batteries), and 50% to 90% of the specialty chemicals and polymer parts used to build lithium batteries, and over 80% of silicon solar modules. That dominance will not be easily or quickly altered.

The legislative rhetoric “requiring” domestic sourcing of energy minerals also rings hollow, as does political bragging about the repurposing of the Defense Production Act to dribble ‘mere’ millions of dollars at potential U.S. mines. Those eagerly publicized actions stand in contrast to the Administration’s canceling of domestic mining permits and launching multi-front regulatory rule changes that will make U.S. mining more difficult and more expensive, while simultaneously bending the elastic language in the domestic-sourcing legislation to qualify foreign, including Chinese suppliers of energy minerals and thus recipients of U.S. taxpayer subsidies.

There’s one more reality in service of x-raying the rhetoric. All of the transition efforts are, again, directed at cutting CO2 global emissions. Since minerals industries are energy intensive (global mining accounts for about 40% of all industrial energy use), China has a profound advantage in producing them because of its low-cost electric grid. That advantage comes from burning cheap coal that fuels two-thirds of power production there. It’s an advantage that won’t erode any time soon: China is building far more coal plants yet, at the rate of roughly one a week and will for close to a decade.

The U.S. Inflation Reduction Act will spend some $2 trillion to try and reduce CO2 emissions by about 1 gigaton a year (assuming fully deployed, and various elastic assumptions are true). A lot of that spending will end up directly and indirectly purchasing China’s products. Meanwhile, just the additional coal plants being built in China will lead to an additional 2 gigatons of CO2 emitted per year. Seems like a bad trade.

And, while energy transitionists vilify natural gas and vigorously oppose expansion of U.S. exports of LNG (liquified natural gas), the U.S. already saw a 1 gigaton per year reduction in emissions over the past decade, without massive subsidies or imports. That happened because of the domestic shale revolution that collapsed the cost of natural gas making it cheaper than coal.

If policymakers are determined to further reduce U.S. carbon dioxide emissions, there are some more sensible options than a rhetorical genuflection to an energy transition.

Rather than subsidize U.S. assembly of batteries using imported materials, instead encourage—subsidize if political compromise demands as much—domestic production of pipelines and ports to export more LNG. That would yield far greater emissions reductions per dollar spent since it would facilitate other nations now planning to burn more coal to instead import LNG. It would also benefit domestic industries, and the balance of trade, as well as yield non-trivial geopolitical benefits.  A start down that path would be to legislate a change in the mission of the Department of Energy office that now regulates permissions to export LNG. It should be repurposed as an office of export assistance, just as there is such an office and mission in the Department of Agriculture for grain exports.

There are other options that would be more consonant with reality rather than rhetoric, and that would be far more cost effective than those driven by IRA subsidies. These would include a more sensible and expansive posture towards nuclear energy, the pursuit of improved combustion efficiency in all uses of hydrocarbons, and engaging serious efforts to resolve the barriers to expanding domestic mining and refining.

Thus far, however, rhetoric is still trumping reality.

Mark P. Mills is a senior fellow at the Manhattan Institute and a faculty fellow at Northwestern University’s McCormick School of Engineering and Applied Science. He is also a strategic partner with Montrose Lane (an energy-tech venture fund). Previously, Mills cofounded Digital Power Capital, a boutique venture fund, and was chairman and CTO of ICx Technologies, helping take it public in 2007. Mills is author of the book The Cloud Revolution: How the Convergence of New Technologies Will Unleash the Next Economic Boom and a Roaring 2020s (Encounter Books, 2021), and host of the new podcast The Last Optimist.