https://www.theglobeandmail.com/business/commentary/article-the-energy-status-quo-is-being-upended-how-will-canada-respond/
The energy status quo is being upended – how will Canada respond?
Tom Rand and Mike Andrade
Contributed to The Globe and Mail
Published October 1, 2019
Tom Rand is a managing partner at ArcTern Ventures, which invests in
early stage clean-tech startups. Mike Andrade is CEO of Morgan Solar, a
solar technology company.
With Canadian energy executives and politicians ensnared in endless
regulatory and climate debates, global forces of technological
disruption that respect no borders pose the real threat to Canadian
economic health.
No policy or established incumbent could prevent, or even slow, prior
tech disruptions such as the industrialization of agriculture,
automation of manufacturing or digitization of communications. Global
energy systems are today going through a similarly inevitable and deep
disruption, driven by innovation and steep cost reductions in renewables
and electric vehicles.
While we bicker about pipelines to tidewater and the effects of a tiny
incremental price on carbon, the cost of solar and wind continue to
plummet – driven by the inevitable declining cost curves associated with
all technologies as they scale, from cellphones to drones. Batteries are
doing the same. The threat these technologies pose to the status quo is
based on (largely Western) innovations brought to industrial scale by an
aggressive Chinese state. Neither the pace of innovation nor scale of
production show any signs of slowing. Indeed, the opposite is true.
Fast-forward a decade or two: Clean tech will take down incumbent energy
industries that make the same old assumptions about demand for their
product.
How fast is this happening? Recent analysis by BNP Paribas, titled
Wells, Wires and Wheels, argues that to be competitive as a transport
fuel, oil must be priced between US$9 and US$20 a barrel – today. Every
dollar invested in renewables generates more than five times the motive
energy for our cars and trucks than the same dollar spent on gas or
diesel. It will take time to build an equivalent scale of
infrastructure, of course, since the fossil fuel folks have a
multidecade head start. But as investors make decisions about oil fields
and pipelines that rely on decades of production to return capital, more
and more will give the thumbs down. Maybe the Saudis can compete in that
world, but Canada can’t.
This isn’t a future scenario, but happening right now. Coal died first.
Global investment dropped by three-quarters in just the past three years
and more coal plants came offline than were commissioned in 2018 for the
first time since the Industrial Revolution. Next comes oil. There are
enough electric buses in China alone to offset 350,000 barrels a day of
oil – or a quarter of Britain’s total oil demand. And China is just
getting started. Its planned battery-production capacity is three times
the rest of the world’s combined. And solar energy keeps getting more
efficient, batteries get lighter and more energy dense, wind turbine
blades get lighter and stronger. None of these technological trends can
be reversed.
There are obvious repercussions for Canada. The economic fragility
associated with being the world’s marginal oil producer on cost is
clear. Contrary to pundits eager to vilify climate policy and a lack of
pipelines, Alberta’s oil patch woes are macroeconomic and its heavy oil
is destined to be uncompetitive. This isn’t a matter of us choosing
between clean tech and heavy oil – that choice is being made for us.
More important, we can grab a piece of that growing clean-tech economic
pie. It’s huge – estimated globally to be more than US$3-trillion
annually in a decade. We are a deeply innovative country. We took an
outsized portion of the digital and optical revolutions (however badly
managed at Nortel), and can do the same with clean tech. We’ve got good
horses in this race and partnering with incumbents brings scale,
engineering capacity, capital and market access to those emerging
clean-tech stars. If Canada takes just our pro-rata share of that
market, our clean-tech industry will dwarf our auto sector.
But we have to stop being distracted by the past. Incumbent industries
hold our national narrative on energy in a headlock, defending
yesterday’s success stories – not defining or shaping tomorrow’s. That
dynamic doesn’t serve our long-term national interest. We must reshape
that narrative to anticipate a world dominated by low-cost distributed
energy technologies in just a few decades. Decisions we make today
define our role in that world. What services and equipment will be
needed? How do we leverage existing expertise and technology? What
outsized market share might we take, and how?
What kills incumbent industries is not a lack of innovation, but
inertia. Eastman Kodak invented the very digital camera that killed
them. Exxon held many of the original solar patents, but never derived
any value from them. If you make lots of money doing something, it’s
natural to want to keep doing the same thing. Dominant market players
will try to defend and extend the status quo. That strategy works well –
until it doesn’t. It will take longer for clean tech to disrupt
incumbent energy systems than it took Uber to disrupt taxis or mobile
phones landlines. But change will be faster and more unreasonable than
we think. Let’s talk about it.
=====================================
To subscribe, unsubscribe, turn vacation mode on or off,
or carry out other user-actions for this list, visit
https://www.freelists.org/list/keiths-list
Note: new climate change website is now in pre-launch
Visit https://www.10n10.ca/e/index.shtml