Is this the end of fossil fuels?

The ongoing clean technology revolution will not be enough to save the global economy from serious climate change impacts. Companies must adapt to a new climate of risk, says Dr Charles Donovan, Director of the Centre for Climate Finance and Investment

We’ve always known that someday we would need to go without coal, oil and natural gas, but it was assumed it would be because we ‘ran out’. The idea of a post-fossil fuel society has always had its fans, but for many others it’s an apocalyptic vision. Set to the soundtrack of the disco generation, the movie in most people’s heads about the end of fossil fuels is one of economic and social instability.

While the ecological cost of fossil fuels continues to grow, the economic pains of fossil fuel price shocks have receded. The discovery of huge new deposits, and a plentiful supply of capital, have made fossil fuels cheap again. While the past three decades have seen a rhythmic rise and fall in concern about supplies of our staple forms of energy, an obvious antidote to fossil fuels never seemed to emerge. What’s the point of giving it up if the alternatives are expensive, impractical and unreliable?

It is possible we will leave fossil fuels in the ground because renewable energy technologies simply do the same job, better

The fearful vision of the end of oil has failed to play out – and maybe it never will. Technological innovation has pushed back the date for the exhaustion of fossil fuel resources further than anyone ever thought it could. Drilling has gone deeper and become more sophisticated than we ever could have imagined. The hysterics that accompanied each oil price spike – the most recent being in 2007 – have come and gone. Membership in peak oil clubs and speculative purchases of survivalist cabins deep in the woods have gone with them.

Yet we are again looking at the end of fossil fuels, but for a very different reason. This time, the fossil fuel companies are on the wrong side of an unstoppable march of technological innovation. For the first time in living history, it is possible we will leave fossil fuels in the ground because renewable energy technologies simply do the same job, better.

Since the end of the Second World War, countries poor in natural resources have been held hostage to the import of fossil fuels to power their economies. Geopolitical events have been shaped time and again by the need to maintain abundant supplies and free transit. Fossil fuels have played an enormous role in enabling industrial development, employment and wealth creation. Millions of people have been raised out of dire poverty and famine. Even if we could turn back the clock on the pollution caused by non-renewable resources, it’s doubtful most people would. To turn our back on fossil fuels would be to turn away from some of the greatest advancements in human history.

Renewables are outcompeting fossil fuels on the criteria consumers care about: cost, reliability and safety

Yet we are now seeing a new energy era taking shape. Change is coming to energy markets as a result of three key trends: nationalisation, electrification and decarbonisation. Each has a role in pushing closer to the present day what was once a far-off prospect. Just as the fossil fuel era had a leading actress (oil) backed up by an important supporting cast (coal and natural gas), so too this new era has its star: solar energy. While wind and water technologies will be an important part of our energy mix, the future belongs to harnessing our most abundant source of energy – sunlight – and efficiently converting it into usable energy.

The primary players in the new energy narrative are the entrepreneurs who have tirelessly and against long odds advanced clean energy technologies to the state of maturity they are at today. Equally important are the financiers who have waded into the breach to fund new technologies: investors are now funding nearly half a trillion dollars of new clean energy infrastructure globally each year. The push towards renewables is a story about the renewal of capitalism, away from state-run industries and towards shareholder-benefit corporations.

Even if we could turn back the clock on the pollution caused by non-renewable resources, it’s doubtful most people would

The future will bring a cleaner energy system because renewables are outcompeting fossil fuels on the criteria consumers care about: cost, reliability and safety. In the last century, extraordinary wealth was created by harvesting sunlight stored within the Earth’s crust in the form of solid, liquid and gaseous fuels. In this century, we will return to a direct relationship with the Sun’s energy. Technological advances in photovoltaics, batteries, and electrical grids are proving to be the crucial intermediaries.

The recent successes of companies like Tesla have won over new converts to the clean energy revolution. Yet despite the favourable economics of eliminating fossil fuels from power generation and transport, there are still no easy answers to decarbonisation in large economic sectors such as shipping, air travel and chemicals. Pressure to completely remove fossil fuels from the global economy will grow, but action is not being taken quickly enough to avoid dangerous climate disruption. While businesses can now harness the benefits of renewables, they must also begin to adapt. The physical manifestations of climate change, and regulatory pressures to limit its damages, will only become more evident in the years ahead.

Cheap and smart renewables are now providing energy when we want, how we want, and as close as possible to its original cost (free). And while this spells big trouble for traditional energy providers, the prospect of the end of fossil fuels may be over-sold. We have not solved the human-made problem of global warming and the resulting challenges to the global economy are becoming clearer.  Few companies can afford to ignore the risks and opportunities of this new climate for investing.

Dr Charles Donovan will be talking about the business case for adapting to climate change at the next Imperial Business in the City event on 20 September.