See the latest issue of Briefings at newsstands or read in our new format here.
By: Simon Constable
Energy policy has gotten weird lately. Coal, the dirtiest fossil fuel, came back after an apparent near-death experience. In 2021, delegates at the COP26 climate summit demanded we ditch using coal, followed by less-toxic natural gas. But a year later, long-term green energy proponent Germany increased its use of coal- generated electricity by 13 percent.
Meanwhile, Britan’s government banned natural gas fracking and approved the first new mine in decades. The US isn’t immune, either. The Biden administration’s proposal to eliminate natural gas stoves would mean using electricity, 22 percent of which is coal-generated. The question is, what next? A long tricky slog, experts say.
The root of the matter is the cost of switching to cleaner, greener sources of energy, experts say. “Everyone wants to be green until the bill comes due,” says Peter McNally, global sector lead at Third Bridge, a New York-based investment researcher. The bill did come due, but only partially because of the invasion of Ukraine by energy-rich Russia.
Natural gas and crude oil prices rallied before the war, then soared temporarily. But coal remained cheap. “That’s why we are where we are,” McNally says. In other words, the energy costs matter enough to switch back to dirty fuel.
Still, the route to green energy is tough to traverse, says Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. “There’s ideally where you want to go, and then there’s how to get there, to overcome the obstacles,” he says. And there are more than a few hurdles to straddle.
While some politicians have been vocal in favor of cleaner energy, we likely should only rely on a few to help move things forward. “Politicians painted themselves into a corner,” says Stewart Glickman, energy equity analyst at CFRA in New Jersey. On the one hand, previous harsh political rhetoric against fossil fuels means some lawmakers can’t feasibly do a U-turn. But they also don’t want to push too hard because an instant switch to greener energy will almost certainly mean higher heating costs. After all, the green energy ecosystem is far from complete. In other words, no elected official wants to heap more bills on their voters. “These green principles have become too expensive,” Glickman says.
In the same vein, utilities get caught in a tough space. “Offshore wind power is turning into a big mess,” McNally says. While electricity producers once seemed interested in wind power in the ocean, they are increasingly jittery about the cost of building the infrastructure, which the US lacks. Plus, company leaders worry that completing the necessary work will take longer than promised. These companies owe it to their customers to keep electricity bills low, and their shareholders want to see profits grow.
Likewise, big energy companies are in a bind. Drilling more natural gas now will undoubtedly help reduce prices. But gas drillers only want to invest if they’ll make a profit over the long term. Suppose the government threatens to ban natural gas use imminently. Why establish a new well in the Permian basin? They won’t.
However, there’s some good news. Europe is softening its once-hardline stance against fossil fuels, McNally says. The bloc now realizes that while natural gas isn’t perfect, it could be a temporary bridge in transitioning the world to entirely clean energy. It also helps that there’s a massive gas find in the eastern Mediterranean near Israel, which is accessible to Europe.
Other developed countries will likely follow also. While that movement will help the transition, don’t expect a speedy journey. “If you are lucky, maybe 20 years,” Glickman says. “I say probably longer.”
Constable, a former Wall Street Journal TV anchor, is a fellow at John Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise.