Are we returning to the 1970s, as several commentators have recently claimed? There are surprising similarities.
The humiliating withdrawal from Afghanistan echoes the U.S. defeat in Vietnam. Prices are rising even as economic growth is stalling. Back then, the rising economic power challenging American superiority was Japan; now it’s China.
On closer examination, most of these analogies turn out to be superficial. But there is one where the parallels are striking, and that should worry the Biden administration greatly. We are headed for a global energy crisis.
Gasoline prices in the United States are up more than 50 percent in the past year. Natural gas prices in Europe have risen a staggering amount, nearly 500 percent, over the same period. In Asia, Bloomberg News reports that power companies are buying liquefied natural gas at record prices to try to lock in supply. In Europe, a mass producer of fertilizer was already forced to temporarily shut down two U.K. plants due to high energy costs, and there are fears that other industries will follow. The U.S. Energy Information Administration has put out a report warning Americans that they are likely to pay significantly more to stay warm this winter, especially if temperatures drop substantially.
Why is this happening? The simplest explanation is that the demand for energy is currently exceeding supply, which makes prices rise. The reasons for this mismatch are many — including extreme and unpredictable weather, as well as bad government decisions about storage, reserves and transmission lines — but there is one common cause. Much of the world has stopped investing in fossil fuels (for good reasons), which has led to less supply of them. But we do not have sufficient green energy to replace fossil fuels today. We will, but not today.
The numbers make this plain. In 2019, over 80 percent of global energy consumption was provided by the three main fossil fuels: oil, coal and natural gas. Wind was just over 2 percent of power consumption, and solar just over 1 percent. It would require a 2,500 percent increase in production and deployment to have wind and solar fully replace fossil fuels, which is not going to happen in the next few years. What we need is a transition strategy. Without it, every time there is a shock to the system — bad weather, poor storage — we will face an energy crisis.
Modern societies cannot run without steady access to energy, so when these shocks are felt, governments do whatever it takes to keep the electricity flowing. Look at Germany, which has over decades built an extraordinary supply of renewables, but in the first half of 2021, 56 percent of its electricity came from the very sources it is trying to eliminate (like coal, gas and nuclear). Coal alone rose from 21 percent to 27 percent of German electricity production.
The contradictions of Western energy strategy are becoming almost absurd. Confronted with high gasoline prices, the Biden administration is pleading with OPEC to increase production. In other words, the United States is discouraging its own oil and gas producers from increasing production while urging Arab countries to “drill, baby, drill.” Europeans are hoping Russian President Vladimir Putin will pump more natural gas to their countries even while they discourage gas production at home.
A serious energy strategy would recognize that the most important task is to reduce carbon emissions fast. In the short term, the simplest way to do this is to move from coal to natural gas, which cuts carbon emissions almost by half. In fact, most of the reduction in the United States’ carbon dioxide emissions between 2005 and 2019 was because of the switch from coal to gas, with coal being the biggest producer of carbon dioxide emissions of the three main fossil fuels.
But there is even lower-hanging fruit. The journal Environmental Research Letters did a study of more than 29,000 fossil-fuel power plants worldwide and found that just 5 percent of them were responsible for 73 percent of global emissions from electricity. We could easily pay to convert those roughly 1,400 plants and reap a huge windfall in the reduction of carbon emissions. And the International Energy Agency estimates that over 70 percent of the methane leakage from oil and gas production can be stopped by using existing technologies.
The goal — in not just the long term, but medium term — must be to power the world with renewables. There is a lot of good news on this front. Solar and wind costs have come down dramatically and are competitive with fossil fuels. They are now easier to deploy than ever before. Storage, once the great problem with these intermittent sources, is being solved as batteries become more powerful and other storage solutions are gaining ground. We still need much larger investments in research and development in this area, but we are making real progress.
In the meantime, we still need to cut emissions today while keeping energy flowing. If not, we will face more energy shocks, which could easily develop into a backlash against green policies. And then the Democrat in the White House, Joe Biden, will begin to look a lot like his predecessor from the 1970s Jimmy Carter.