In an unprecedented agreement, nearly 200 nations made commitments to reduce greenhouse gasses at last year's Paris climate talks. A new report written by researchers at the University of Chicago and MIT noted the significance of the move -- but it also questioned where we are headed.
Will we ever stop using fossil fuels?
That was the report's title. To answer the question, the report's authors looked at the past and future of energy costs and advancements, concluding that we are not even close to phasing out fossil fuels. Political promises like the ones in Paris are getting stronger. But they're not nearly enough to put us on a path to a fossil-free world.
“There’s been tremendous innovation with low-carbon energy, but what’s often missed is that there’s been tremendous innovation in bringing down the cost in fossil fuel recovery,” said Michael Greenstone, a co-author of the study, economics professor at University of Chicago and director of the school’s Energy Policy Institute.
The path to changing the dynamic involves two essential -- and much discussed -- components.
Strong policy needs to come from the top emitters, particularly the U.S. and China, whose cooperative action would influence the rest of the world. That includes a clear price on carbon. The second action is funding far more research and development in order to bring down the costs of low-carbon technology. (President Obama called for a doubling of America's energy R&D budget in a recent budget proposal.)
Together, those two policies would level the playing field and unlock necessary investment, Greenstone said. Otherwise, as the report models, we cannot create a fossil-free world.
The report looked at what kind of market forces would drive change. One thought is the “supply theory,” in which the world will eventually run out of inexpensive fossil fuels. (Anyone who's followed oil prices lately might be suspicious.)
In the “demand theory," advances in carbon-free energy will accelerate so that they'll be in demand purely based on economics. (This is certainly happening with wind andsolarin the electric sector in some markets.)
They’re both plausible -- and in some cases, already underway -- but not assured.
On the chance that fossil fuels disappear, Greenstone said, “We shouldn’t count on that.”
In looking at oil and natural gas reserve-to-consumption levels from 1980-2014, the report found that at any point, the world has had 50 years of reserves in the ground. Coal has decreased in reserve-to-consumption ratios since 1994, when data collection began. But the dip flattened out in the early 2000s, and has since risen so that there are more reserves at current consumption rates than there are for oil and natural gas.
Adding to the challenge is the continued discovery of oil and gas reserves through innovation in extraction methods. The report highlights two modern-day sources of oil -- tar sands and shale -- which weren’t always labeled as “reserves” and uses Canada as an example of how tar sand use has developed.
In the 1960s, a small-scale facility was producing 10,000 barrels a day. Energy authorities didn’t recognize the growing number of projects as reserves until 1999. When they finally did, that increased Canadian reserves by 130 billion barrels and total world reserves by about 10 percent. Furthermore, it estimated tar sands production in 2014 at more than 2 million barrels a day.
In one example of the “demand theory," the report examined the possibility of electric cars replacing the internal combustion engine. Advances have been made in the technology, but three areas are still lagging: battery cost, charging time and carbon content.
Even with battery costs falling every year, the economics still represent a challenge. The current average cost of lithium-ion batteries is $325 per kilowatt-hour. At this cost, the report concludes that “the price of oil would need to exceed $350 per barrel before the electric vehicle was cheaper to operate.” In 2015, the average price per barrel was $49.
With production of batteries expanding rapidly, however, many experts are bullish on dramatic cost reductions in batteries for cars and the electric grid.
But when discussing these advances, it’s not necessarily accurate to compare the future costs of renewables and batteries to the current costs of carbon-based energies -- because while battery costs might well decrease, the costs of conventional technologies will as well. As the report notes, combustion engines improve their efficiency at a rate of about 2 percent a year.
Some estimates put lithium-ion batteries at $150 per kilowatt-hour over the next decade. The Department of Energy thinks $125 per kilowatt-hour in 2020 is possible. If that happens, oil prices would have to rise to $115 per barrel in order for the electric car to be competitive (although this completely ignores maintenance cost savings for electric cars -- one of the biggest cost savings for the technology). The report authors project that oil prices will be $55 per barrel in 2020. If that’s the case, batteries would have to fall to $64 per kilowatt-hour in order to be directly competitive with gasoline-powered automobiles.
“These basic calculations make it clear that at least for the next decade or two, electric vehicles face an uphill battle. Not only are large continuing decreases in the price of batteries necessary, but oil prices would have to increase by more than financial markets currently predict," concludes the report.
The real takeaway, said Greenstone, is that we need a price on carbon. Without a clear economic signal, the outcome is much less certain. “This is a textbook case for addressing the externalities of CO2 emissions with pricing carbon emissions and funding the basic research that underlies low carbon energy sources,” he said.