The looming age of low-cost global energy

Global supply of energy is on the rise, but major advances in technology will enable the world to use far less energy to achieve the same or better outcomes.

Step back and look at what is really happening to energy supply and demand. Suddenly you can see the real possibility of an extended period of low-cost global energy.

And although they will not want to take credit for it, the extreme Greens have played a role in creating this looming low energy cost world. I set myself the task of writing five pieces inspired by the G20. This is the third (see below for the first two) and it is clearly the most unexpected.

This commentary, like the next two, was inspired by a remarkable video conversation I had with one if the world’s pre-eminent energy future analysts, Dr Roland Busch of Siemens.

We have boosted the supply of energy dramatically without taking into account the fact that major advances in technology would enable the world to use far less energy to achieve the same or better outcomes.

The energy supply increases have been created by a convergence of separate forces. The biggest driver of energy supply was energy subsidisation in China, where the price of power is less than a third of Australia’s and a quarter of the electricity costs of Germany. That’s how China captured world manufacturing. Energy suppliers projected forward, and so we have seen a very big rise in the production of coal, gas and oil.

At the same time, the push for lower carbon and less pollution has seen big rises in Chinese nuclear power, plus wind and solar. And, in the rest of the world, we have seen big rises in energy capacity via low carbon gas, plus wind and solar. (One of the few countries in the world that has really messed this up is Australia, because we exported all our gas and put curbs on the development of new fields for the East Coast domestic market).

Globally, in energy, we are now seeing the typical price falls that come when any commodity is oversupplied. What we have not appreciated is that technology is capable of slashing demand.

Dr Busch explains that about 40 per cent of our energy is used in buildings, and this can be cut by between 20 and 30 per cent with the cost of the new technology being paid back between two to five years. Siemens is, of course, in the energy efficiency business and is illustrating what it can do by slashing energy consumption at the MCG by 20 per cent using these quick payback systems. Almost every office or apartment tower can make a two to five-year payback investment to cut energy usage and costs by between 20 and 30 per cent. The protesters should be attending the annual meetings of property trusts demanding the investment.

And, of course, it underlines the brilliance of the Australian government’s direct action plan, which is designed to encourage this type of investment. Amazingly, many extreme Greens hate direct action.

Meanwhile, similar energy usage reductions are available in traffic management by using the new traffic flow technologies. And we could go on.

Keith Orchison pointed out that the International Energy Agency’s energy efficiency plan is to reduce annual oil demand in 2040 by 22 per cent below “business as usual”, to cut gas consumption by 17 per cent and to cut coal demand by 15 per cent. (Politicians are forgetting a key cog in energy policy, November 17).

It is clear that we now have the technology to achieve those goals in a much shorter time frame -- if we have the will to invest in that technology.

And, of course, if we go hard at such investments it will help achieve G20 growth targets.

So, we now have the real prospect of reducing carbon but not destroying our economies with high-cost energy. But sometime in the future China will need to stop subsidising energy consumption. That will be a huge political problem, which means that it will need to duplicate a version of Australia’s direct action.

Other commentaries in the post G20 series:

Costello’s chance to set the investment record straight; November 19.

The dairy industry must not waste the FTA opportunity; November 18.

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