The invisible hand of Adam Smith punched the world in the nose
It seems like just the other day that the wrath of the world was coming down on oil sands and coal.
To protect the atmosphere, Canada has been reducing coal-fired power generation for years. It started in Ontario, then moved to Alberta. Saskatchewan is next. New Brunswick is supposed to stop by 2030, but that province claims it can’t be done.
Global coal consumption is rising again because it meets the cost and availability requirement created by energy shortages and rising prices. On Dec. 16, the International Energy Agency reported, “The world’s coal consumption is set to reach a new high in 2022 as the energy crisis shakes markets.”
For energy, the biggest single change in 2022 is the remarkable shift in public attitudes toward fossil fuels.
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The global energy complex is under assault by Russia’s invasion of Ukraine, the exposed shortcomings of wind and solar, years of underinvestment in fossil fuels, and rising inflation and interest rates.
But for the past 10 years, there has been an all-out crusade against fossil fuels. Oil company CEOs were branded climate criminals, and it was morally reprehensible to own fossil fuel company shares or loan money to oil, gas or coal producers. Elections were won in Canada, the U.S. and Europe on pledges to replace fossil fuels.
No cost was too great, because the cost of doing nothing, thus permitting unchecked climate damage, was greater.
What happened? How did the channel change so rapidly? Why, after years of public and political attacks on the source of over 80 per cent of the world’s primary energy, has affordable energy on demand now become more important than where it comes from?
Price, the most fundamental driver of economics and human behaviour.
The November 2022 global survey from public opinion research firm IPSOS titled What Worries The World tells the story.
IPSOS explains, “This 29-country Global Advisor survey was conducted … among 20,466 adults aged 18 to 74 in Canada, Israel, Malaysia, South Africa, Turkey and the United States, 20 to74 in Indonesia and Thailand, and 16 to 74 in all 21 other countries.”
IPSOS charts the top six issues for the past two years. Poverty, crime, unemployment and corruption have always been important and consistently ranked among the top five.
In November 2020, inflation only registered among eight per cent of respondents. Two years later, it is 42 per cent. Coronavirus and the unemployment that accompanied the lockdowns were the top two issues in 2020. The others remain in a consistent range.
Two years ago was the peak of the “oil is dead” mantra, when many bright ideas for a fossil fuel-free future were concocted. In a post-pandemic world, multiple voices claimed we must Build Back Better, ensure a Resilient Recovery, engineer the Great Reset.
The plan was to use government policy and borrowed money to create jobs through the large-scale replacement of fossil fuels.
Coined the “energy transition,” it was achievable and inevitable thanks to incredible advances in renewable energy cost and supply. Canada – the world’s fifth largest combined oil and gas producer – could lead the charge with minimal disruption thanks to a new federally-funded retraining program for displaced oil workers. This was called a Just Transition.
What happened?
The invisible hand of Adam Smith punched the world in the nose.
The only part of the demise of fossil fuels that was successful was reduced supply. As the economy recovered, consumers learned the hard way that low-carbon energy sources were terribly oversold in terms of reliability, and demand for fossil fuels outstripped supply.
Prices for fossil fuels rose at the same time that inflation and interest rates reduced disposal income.
As demand grew, fossil fuel shortages were reflected in the price. When Russia – one of the world’s largest oil, gas and coal suppliers – invaded Ukraine, the gravity of the situation escalated immediately.
The IPSOS survey dramatically illustrates that the world’s first concern as 2022 ended was the rising cost of everything.
We’ve been told repeatedly that continued fossil fuel consumption will cause serious climate disruptions. No expense today will exceed the cost of future damages.
However, the more pressing issue today is still being alive in 2050 because of the rising cost of everything, including energy. Worrying about what the temperature, storm intensity or chemical composition of the atmosphere may be in 28 years has become an unaffordable luxury.
So fossil fuels are once again what they have always been – reliable and affordable sources of energy.
Happy New Year.
David Yager is an oilfield service executive, oil and gas writer, and energy policy analyst. He is the author of From Miracle to Menace – Alberta, A Carbon Story.
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