When we think of the climate action polarization, between those who want precipitously to do away with fossil fuels and those in a more reasonable camp, we see two very compelling points of consensus that should unify diverging philosophies and approaches on a difficult conundrum.
Those advocating for doing away with fossil fuels altogether do so with good intentions: to avoid a climate change-driven humanitarian crisis in the future. At the same time, the ironic problem with that approach, pointed out by equally well-intentioned people, is that it has already created an energy crisis that, in turn, is creating a humanitarian crisis.
The Russian angle. Additionally, our precarious situation and energy “insecurity” have been exploited by Russia, with longstanding ramifications on European and global peace and prosperity. This is evident in pre-Ukraine-war Europe, where unreliable alternative energy sources, particularly in the misguided shutdown of German nuclear plants, increased dependency on Russian natural gas. Renewed reliance on coal, with its higher emissions, along with natural gas shortages, pushed energy prices to unaffordable levels, due to blatant and dangerous mismanagement and a renewables-centric planning process. And let us not think we have sidestepped a catastrophe because of one mild winter (so far) in Europe; solving the energy trilemma is a long and protracted battle that will not go away gently.
A unified approach to avoid a crisis. A mistaken view that renewables can replace hydrocarbons has threatened food production and promises to push many millions, who have emerged from poverty in the past several decades, back into poverty. Those who legitimately want to avoid a future humanitarian crisis surely agree that, while doing so, we need to avoid creating one in real time. That should be the key point of consensus to neutralize the desire to kill fossil fuels.
A second possibility for building a unified approach to climate action is emphasizing the realization that every country shares the need to reduce emissions; it is not just a North American and European issue. China and India have cement, steel and chemical factories; Singapore refines oil. Farms everywhere produce significant emissions—as does transportation—and home heating affects everyone around the globe. If supplies of cleaner natural gas and LNG are unavailable, these rapidly developing nations will use cheaper and dirtier coal.
Strong and positive political leadership should focus on these two points of shared interest— avoiding humanitarian crises and the common problem of emissions—to build a unified approach to deal with climate change.
It is reasonable to expect, but not inevitable, that political leaders should realize that while the public’s support (or tacit permission) to pursue climate action is relatively high, it is also extremely vulnerable to a stark 180-degree turn, if people cannot afford to heat and cool their homes, and if the overall cost of living becomes threateningly high, due to unreliable and unaffordable alternative energy sources. We need to do this right, or there is no chance that it will be done at all. Environmentalists should heed that message loud and clear.
CCUS will be a key ingredient. We cannot get to net zero by 2050 without oil and natural gas. It is simply impossible to build that much alternative energy in this timeframe, period. However, we cannot sustain oil and gas usage without CCUS, a proven and viable technology that can help reduce GHGs while providing clean, reliable energy. CCUS is not a subsidy to oil and natural gas, but it is fundamental and critical to achieving net zero by 2050.
A core part of the discussion about increasing the velocity and viability of CCUS technology and execution can be found in the U.S. Inflation Reduction Act and its enhanced U.S. 45Q tax credit. Canada also has CCUS tax policy on the table, but it is nowhere as competitive and effectual as its counterpart bill in Washington, due to a misguided view in Canada that mainly industry should bear the cost of carbon solutions.
While some may think that a $170 carbon tax will sustain a price for carbon that will make Canadian investors commit to CCUS, the political risk that it will be discontinued by some new government means investors will simply take the money to do CCUS projects and create jobs in the US. We will see the same cross-border dynamics play out globally, with investment and opportunity fleeing to the carrot and shying away from the stick.
Cleaner oil and gas output required. Today, to achieve our climate, national security and humanitarian goals, we must use sustained oil and natural gas production from democratic nations, combined with economy-wide, large-scale carbon capture solutions, to reconcile our competing priorities. Cleaner natural gas can displace coal and lower emissions in developing nations, will increase security through closer energy trading relationships with our democratic allies, and will lower energy costs, allowing a global population of 8 billion to thrive. Unfortunately, the current insistence on a binary approach to replacing hydrocarbons with renewables will increase emissions, provide leverage to our adversaries and cause global food shortages.
Institutional investors can begin capital investment into in-the-money government policies while maintaining allocations to the traditional energy industry, as CCUS is incorporated into economy-wide carbon management strategies. Reconciling climate, security and affordability, through a combination of energy and CCUS investment, will allow long-term capital allocation decisions to more properly reflect the underlying reality of the global energy system.
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