False Energy Transition: The View from Australia (Nick Cater, Menzies Research Centre)

From MasterResource

By Robert Bradley Jr.

Previous energy transitions adopted energy sources of greater density and efficiency than those they replaced. Those advantages became a natural incentive for their adoption. In the current ‘transition’, the process is reversed unless we are prepared to countenance the mass use of nuclear technology.” – Nick Cater, below

The political “energy transition” has predictably violated comparative energy physics and thus consumer preferences–and best industry practices. A re-look at the failing, impossible “energy transition” was penned by Nick Cater, senior fellow at Menzies Research Centre, Australia. [1] It deserves wide attention, as does his other work at the energy-centric Reality Bites.

As the First Fleet vessels, propelled by wind and muscle, made their way to Australia, the last energy transition was making headway in Europe and the United States. The first commercial steamboat completed a successful trial on the Delaware River in New Jersey on August 20, 1787, heralding the arrival of a more powerful and efficient source of energy.

The ability to turn energy-dense fossil fuel into usable energy would be the key to accelerating economic growth in Australia, which began with European settlement. By the time the colony of New South Wales marked a century of settlement in 1878, steam-powered ocean-going vessels were starting to be constructed from steel. Frederick Wolseley was demonstrating a prototype set of steam-driven mechanical shears. This Australian invention secured Australia’s dominance in the supply of wool to steam-powered woollen mills on the other side of the world.

Preparation was underway for the first export shipment of frozen lamb, a technological breakthrough that would measurably improve British diets and longevity. Australia was joined to Europe by electric telegraph, the first stage in developing electronic communications that would break the tyranny of distance. A massive infrastructure investment project that would supply homes, factories, and civic spaces with electricity on demand was beginning to be contemplated. Tamworth in 1888 would become the first town in Australia to be serviced by an electric grid.

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This potted history of Australia’s industrial and economic progress tells us much about the nature of energy transitions. They don’t happen overnight, nor do they respond to government command. They take place incrementally in fits and starts. Innovation is just the beginning. Engineering and economic viability take decades to accomplish, not days.

The most profound consequences of energy transition can be unexpected. Technological applications for steel, reinforced concrete, and electricity were emerging by the end of 19th century. Still, it is doubtful anyone at the time in low-rise Sydney would have imagined the futuristic streetscapes a century and a quarter later.

The magnitude of the transition to net-zero is seldom acknowledged in public and political debates. There is a scant appreciation of the technical difficulties of decarbonising our energy supply and limited discussion about the costs.

The last transition — from wind, water, biomass and muscle, both human and animal, to fossil fuels — took more than a century to complete. It required constant innovation and an incalculable amount of capital investment. Our current net-zero path requires us to abandon fossil fuels entirely in favour of so-called renewable energy sources, namely wind, solar, biomass and water, in just 26 years.

Previous energy transitions adopted energy sources of greater density and efficiency than those they replaced. Those advantages became a natural incentive for their adoption. In the new “transition,” the process is reversed unless we are prepared to countenance the mass use of nuclear technology.

The last transition gave us more dependable sources of energy independent of weather patterns. Transitioning to a net-zero economy based purely on renewable energy presents the seemingly insurmountable problem of overcoming weather- and solar-dependent variability.

The last transition considerably reduced land demand and lifted the pressure on biodiversity. Vast hectares of woodland ceased to be felled solely to produce energy. A transition to renewable energy will once again make heavy demands on land. One recent study estimated that a transition to net zero-2050 in Australia that only used land-based renewable generation would require 129,179 sq km of land, an area roughly the size of Victoria.

The last energy transition sought greater efficiency by centralising energy production in industrial-scale fossil fuel conversion plants located close to most consumers of energy in cities. The proposed transition to renewables decentralises energy production from a few dozen power stations to cottage-scale roof-top generators and hundreds of small, part-time generators often distant from population centres.

The engineering demands are matched in scale by the economic challenges. The transition from an economy powered by muscle, water, and wind to fossil fuel means the average human has nearly 700 times more useful energy at his or her disposal than their ancestors had at the beginning of the century, according to Vaclav Smil, a Czech-Canadian scientist and energy policy analyst who writes: “An abundance of useful energy underlies and explains all the gains, from better eating to mass-scale travel; from the mechanisation of production and transport to instant electronic communication.”

According to physicist and economist Robert Ayres, economic growth and energy flow are intrinsically linked. “Nothing happens without a flow of energy. Not in the natural world and not in the human world. Thus, it is perfectly true that energy — not money — makes the world go round.”

Yet the economic consequences of pursuing ambitious renewable energy targets seldom enter the debate. Brian Fisher, Australia’s leading energy economist, is one of the few who have attempted to model the economic costs of a forced energy transition. In a 2019 study, he estimated that the cumulative GNP losses of pursuing Labor’s then 45 per cent 2030 target would be between $264 billion and $542 billion, depending on the chosen parameters. A rising energy price would lead to a minimum three per cent reduction in real wages and 167,000 fewer jobs in 2030.

The economic consequences of the government’s current policy are likely to be similar. Scant attention has been paid to the consequences of allocating vast amounts of capital to the net-zero energy transition. Australia’s Energy Minister, Chris Bowen, claims the capital cost of Australia’s energy transition will be $120 billion. Yet a new report commissioned by the Menzies Research Centre found that the Australian Energy Market Operator’s data put the capital cost at $320 billion in terms of net present value (NPV). The MRC’s report concludes that the price will be substantially higher, resulting in higher energy costs for consumers and businesses.

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Australia has taken a leap into the unknown. The scale of investment required to achieve the 82 per cent renewables target is unprecedented. The engineering challenge of incorporating such a large amount of variable renewable energy (VRE) is immense. No country has achieved anything close to such a concentration without a considerable contribution from nuclear, geothermal, or hydro generation.

The sorry history of central planning inspires little confidencethat the top-down, target-driven approach taken by AEMO’s roadmap (its Integrated Systems Plan) will work. The risk of failure is high. The timetable for construction is impossibly tight. The schedule for the withdrawal of base-load coal and gas is not synchronised with the timeline for expanding the capacity of renewables. The target will increase the risk of blackouts, as the National Energy Market (NEM) will only be able to meet reliability objectives with significant investment in storage and other forms of firming capacity.

Experience has taught us that the risk of escalating costs and overruns in renewable energy infrastructure projects is extremely high. A lack of expertise, the use of non-standard technology and design, rent-seeking behaviour, community resistance, and supply and labour shortages mean that projects of this size and complexity carry considerable risk. Bent Flyvbjerg’s Iron Law of Megaprojects applies: ‘Over time, the estimated costs of megaprojects tend to increase, while the benefits tend to decrease.’

The presence of these and other hurdles invite disturbing conclusions. The cost of transition to a net-zero emission economy by 2050 will be substantially higher than the $320 billion estimated by the Australian Energy Market Operator (AEMO).

Capital formation on this scale will be a significant challenge. The opportunity cost of the allocation of capital to the cost of transition will be high. The retail price of energy will continue to rise in the short to medium term as capital costs are absorbed. Without rapid technological developments, costs in other heavy-emitting sectors, such as heavy manufacturing, agriculture and transport, will increase. In an intricately linked, dynamic economy, the effects on employment, taxation, and growth will be substantial.

There are no quick fixes. Nuclear power would be a far better replacement for coal than wind, water and solar. It is denser, cleaner, more efficient, and more reliable than renewables or fossil fuels. It is widely used as a source of affordable and dependable electricity worldwide. It could be used for industrial heating and some forms of transportation. Yet, it is hard to foresee the technological breakthroughs that would enable it to meet all the energy requirements of a modern economy.

The last energy transition occurred organically and took hundreds of years. It was driven by the natural attraction of abandoning old ways of doing things for new ways that were demonstrably better. The energy transition we are currently being asked to undertake is different. It is driven by central planners who expect it to be completed by the middle of this century, which is just 26 years away.

We are being asked to give up tried and tested ways of doing things for unproven technology or technology that does not yet exist. As Alex Epstein has written, it requires a radical departure from how any energy economy has ever worked. A calm assessment of our progress so far must conclude, as does Epstein, that abandoning fossil fuels in the timescale required is virtually impossible. The proposal to replace them with renewable energy alone is totally crackpot.

[1] The Menzies Research Centre is a Liberal think tank promoting the free, just and prosperous society in Australia. More information can be found here.

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This post was published at Quadrant Online as “Leap into the Dark: The Energy-Transition Fantasy” (April 6, 2024). It also appeared at Nick Cater’s site Reality Bites. Full documentation (footnotes) can be found there.