“Global Energy Transition” – Fact or Fiction?

“Energy transition,” said S&P Global in 2020, “refers to the global energy sector’s shift from fossil-based systems of energy production and consumption – including oil, natural gas and coal – to renewable energy sources like wind and solar, as well as lithium-ion batteries.” Today, politicians, CEOs, journalists, “experts,” advocates and others – almost everybody confidently declares not just that this transition is well underway: in the years to come it’ll accelerate. Indeed, it’s allegedly a “megatrend.”

Tellingly, however, nobody cites (never mind presents) comprehensive and rigorous analysis that substantiates the claim that the global economy is “decarbonising.” That’s because the transition is mostly fiction.

Using the latest available data from Eurostat (the European Union’s statistical agency), the Energy Information Agency (part of the U.S. Government’s Department of Energy) and the World Bank, I analyse the consumption of energy in China, the EU, India and the U.S. Collectively, these countries comprise more than half of the world’s total population, almost two-thirds of its greenhouse gas emissions and three-quarters of its GDP. If the energy transition isn’t occurring (at all or sufficiently rapidly) in these countries, then it simply doesn’t matter what others such as Australia do.

My analysis demonstrates that

• In the world’s richest major countries as well as its most populous ones and globally, fossil fuels remain today what they’ve long been: by far the most important source of energy.
• In these countries and around the world, the trend isn’t solar and wind power’s friend: although electricity’s share of total energy usage is rising, particularly in China, it remains small (17% globally in 2021). And as a source of power on a worldwide basis, solar and wind’s contribution remains minor (10%). Indeed, to the extent that decarbonisation has occurred, it owes much more to base-load (hydro-electric and nuclear) than to intermittent (solar and wind) power.
• Just as electricity comprises a minority portion of the total energy mix, households consume just 23-25% of the world’s energy. Intermittent sources of electricity can to some extent decarbonise the household sector, but not most industry, heavy transport and agriculture. Accordingly, just as renewables’ share of global power generation remains insubstantial, their share of global energy usage is inconsequential (4%); moreover, given their inability to power large swathes of agriculture, industry, aviation and heavy transport, their share is likely to remain insignificant.
• In the U.S. in 2021, fossil fuels’ percentage share of total energy consumption soared by the greatest-ever year-on-year amount – to a level not seen in 40 years.

Whether in the world’s biggest and richest economies, its most populous countries or globally, and interpreting these data very charitably, the “energy transition” is advancing glacially from a low base. Interpreting them dispassionately, decarbonisation simply isn’t happening. To assert otherwise, as almost everybody routinely does, ignores or distorts reality – and, as occurred during the Dot Com Bust and GFC, will impose heavy losses upon credulous investors who blindly follow the enthusiastic but misguided herd.

Three Fundamentals and Two Crucial Weaknesses

An even-handed assessment of the “energy transition” must bear in mind three crucial facts. First, all sectors of an economy consume energy; moreover, as economies grow they consume more energy, and as people become wealthier per capita usage of energy rises. From this point of view, modern economies comprise five sectors:

1. Agriculture, fishing & forestry use energy to grow and harvest food and fibre;
2. Households consume the energy that powers the appliances that heat and cool dwellings, cook, cool and freeze food, fuel cars for personal transport, etc.;
3. Mining & industry consume the energy that fuels the mines and factories that produce intermediate and finished goods;
4. Services (including government) power the offices, shops, etc., that house the people and computers that produce myriad services; and
5. Transport via air, rail, road, water, etc., fuels the vehicles that move raw materials, finished goods and groups of people from one place to another.

In the European Union in 2020, according to Eurostat’s latest data, industry consumed more energy (32% of final consumption) than any other sector, followed by transport (26%), households (25%), services (12%) and agriculture, fishing & forestry (3%). (It’s unclear what’s happened to the other two percentage points.)

Time-series data from the Energy Information Agency, which Figure 1 plots, paint a similar picture in the U.S. Although its share has fallen from 47-48% in the 1950s to 32-33% since 2002, the industrial sector (which includes agriculture, fishing and mining) has always been the biggest consumer of energy. The transport sector has always been the second-biggest user, and its share of consumption has risen from the low-20s in the 1950s-1960s to the high-20s since the turn of the century.

The household (residential) sector has always ranked #3, and its share has remained stable since the late-1950s at 21-23%. Finally, the services (commercial) sector’s share has almost doubled, from 9-10% in the 1950s to 18-19% since the turn of the century. (Importantly, the EIA’s figures exclude usage by government, and the U.S. military is a major consumer of energy. Much as its “climate czar,” John Kerry, might wish it, its aircraft aren’t gliders, its warships aren’t wind-powered and its tanks aren’t EVs).

Figure 1: Total Energy Consumption by End-Use Sector, U.S., 1950-2021

My second point is also obvious but equally fundamental: sectors of the economy consume not just different quantities but also varying types of energy. In the EU in 2020, again according to Eurostat, petroleum products such as diesel fuel, heating oil and petrol provided the lion’s share (35%) of the energy consumed in the EU. Electricity (23%) ranked second, just ahead of natural gas and manufactured gases (22%), followed by the direct use (that is, not transformed into electricity) of renewables, e.g., wood, solar thermal, geothermal or biogas for heating spaces or water (12%), “derived heat” (such as “district heating,” whatever they are, 5%) and solid fossil fuels (mostly coal, 3%).

It’s much the same in the U.S., and Figure 2 adds historical context to today’s reality. The biggest change since 1949 has been the collapse of coal’s share – from 40% in 1950 (when it ranked as the biggest contributor) to 11-12% in 2020-2021 (when it tied in position 3-4). Today its share is comparable to renewables’ (which has been steady at 12-13% since 2010). Indeed, renewables’ share has varied little over the past 70 years.

The EIA’s is the most valid, reliable and longest series of data measuring renewable energy of which I’m aware. If the scores and perhaps hundreds of billions of dollars of government subsidies haven’t moved the needle in the U.S. towards renewables, what on earth will? No sensible person can believe that an “energy transition” is underway in that country.

Figure 2: Total Energy Production by Source, U.S., 1949-2021

Gas’ share has waxed and waned. It doubled from 1949 (17%) to 1971 (36%), sagged to 25% in the mid-1980s), stabilised at ca. 27% during the next 15 years and then – largely as a consequence of the “fracking revolution” – rebounded to 36% in 2021. In 1949, gas ranked #3 as a source of energy; today, it ranks #1. Over 60 years, oil’s share halved – and then, over the course of a decade, the shale revolution doubled it. It now ranks #2.

EIA and Eurostat don’t admit it, or even draw attention to it, but the conclusion is inescapable: after decades of increasingly coercive effort and trillions of $ and € of expenditure, the EU’s and U.S.’s economies remain overwhelmingly fossil-fuelled.

In the EU, the sum of the shares of petroleum products, natural and manufactured gases and solid fossil fuels’ shares of total energy usage is 35% + 22% + 3% = 60%. And that’s a very low estimate: it excludes the sources of electricity generation. Renewables’ share, in sharp contrast, is just 12%. In the U.S., fossil fuels’ share in 2021 was 86% (Figure 3). That’s not just a massive year-on-year increase (6.5 percentage points): it’s the biggest increase on record. Furthermore, it’s the biggest share since 1982.

Figure 3: Fossil Fuels’ Share of Total Energy Production, U.S., 1949-2021

It’d be comical if it weren’t so wasteful, expensive and pointless: from the turn of the century to 2000, despite the hundreds of billions of government subsidies, etc., the U.S. economy decarbonised not one iota – and in 2021, for the first time ever, significantly “recarbonised”! Furthermore, the decarbonisation from the 1970s to the turn of the century is attributable to the increased importance of nuclear energy in the mix.

Some enthusiasts of renewables will react to these results with dismay; others will ignore or reject them. A few will emphasise what Eurostat notes: “other renewable sources are included in electricity (e.g., hydro power, wind power or solar photovoltaic).” That’s true. Yet it’s equally true – and Eurostat conveniently overlooks the fact – that fossil fuels such as coal, gas and oil also generate electricity.

That brings me to my third fundamental point: by whatever means of generation, electricity comprises a steadily rising – but still a minority – share of the world’s and almost all countries’ use of energy.

Using data from ourworldindata.org, which collates data collected by the United Nations and World Bank, Figure 4 plots electricity’s share of total energy consumption since 1985 in two high-income countries or groups of countries (the EU and U.S.), two key – given their large populations and rapid development, etc. – middle-income nations (China and India), and the world as a whole. In each of these major blocs other than China, electricity’s share has grown steadily, from approximately 12-13% in 1985 to 16% in 2021. In China it’s zoomed 2.75-fold from 7% in 1985 to almost 20% in 2021.

Figure 4: Electricity’s Share of Total Energy Consumption, the EU, Key Countries and Worldwide, 1985-2021

From these preliminary points emerge two fundamental – and, I suspect, collectively insuperable – problems for advocates of decarbonisation, the energy transition and the like: they put virtually all of their eggs into the (a) “electricity” and (b) “household” baskets.

In particular, they typically talk as if the generation of power from sun and wind, and the replacement of passenger vehicles by EVs, will decarbonise the entire economy.

Yet even if solar and wind generated 100% of the world’s electricity and completely powered all households – possibilities which, given current and prospective technology, not to mention the astronomical cost, are utterly fanciful – they’d decarbonise no more than one-quarter of today’s energy. What about the other 75%?

It’s possible – to some extent – to decarbonise the electricity, household (including personal transport) and services sectors. But they’re the low-hanging fruit; far tougher are vast swathes of industry, as well as air and sea transport and agriculture, which collectively consume three-quarters or more of the world’s energy.

Fossil Fuels and Intermittent Energy as Sources of Electricity

Electricity comprised 12% of the world’s consumption of energy in 1985; by 2021, its share increased to 17%. From what sources of energy has electricity been generated, and what are its sources today? Figure 5, which plots data from ourworldindata.org, answers these questions. It’s true that renewables’ share of global power generation has grown steadily this century. It’s also true their share now stands just below 30%. In this sense, some “decarbonisation” has occurred.

Crucially, however, in 2000 hydro-electric generation contributed virtually all of the “renewable” share. Today, it continues to provide the bulk. That’s because solar and wind generate just 10% of the total. Most importantly, today fossil fuels continue to generate the most by far (62%) of the world’s electricity – a share which hasn’t changed materially since the mid-1980s. In this crucial sense, globally there’s been no “energy transition.”

Figure 5: Global Consumption of Electricity, by Source, 1985-2021

If the decarbonisation of power generation is occurring anywhere, it should be occurring in the EU. No other part of the world has been more self-righteous about intentions (as opposed to outcomes), and it’s probably true (detailed figures aren’t readily available) that nowhere else has spent more money to pursue these intentions. And through the imposition of “carbon tariffs,” etc., no other part of the world has been as thuggish about imposing its climate edicts upon others.

At first glance, Figure 6 will excite the advocates of the energy transition – and particularly of solar and wind power. First, since 1985 fossil fuels’ share of power generation has mostly fallen, and since the ca. 2005 its decline has accelerated. In 1985, fossil fuels generated 55% of the EU’s electricity; in 2021, they generated 38%. Moreover, since the early-2000s renewables’ share hasn’t just risen: in 2020 it was slightly higher than fossil fuels’ share. But a closer examination should extinguish advocates’ enthusiasm:

Figure 6: Consumption of Electricity, EU (ex-UK), by Source, 1985-2021

1. Throughout this period, nuclear power has generated a substantial portion of the EU’s electricity: its share increased from 28% in 1985 to 33% during much of the 1990s; since then, it’s ebbed to 27%.
2. “Total renewables” includes hydro-electric power, which intermittents’ zealots disdain or despise, and whose contribution has been a constant 12-15%.
3. “Total renewables” also includes a couple of percentage points of bio-mass (not shown) – which to a significant extent comprises trees harvested in the southern U.S. using fossil-fuelled equipment and transported to Europe in fossil-fuelled vessels. So yes: power generation in the EU has to some extent decarbonised – yet fossil fuels and nuclear remain indispensable.

Figure 7: Percentages Share of Total Consumption of Electricity, China, by Source, 1985-2021

What about the world’s most populous nations? As people become richer their demand for energy rises; what’s happening and will occur in these countries therefore matters more than in high-income countries. Figure 7 shows that modest decarbonisation has occurred in China. From 1985 until 2010, fossil fuels provided roughly 80% and hydro-electric sources 20% of its power; during the past decade, fossil fuels’ share has ebbed to 66% and renewables’ share has grown to 29% (solar and wind 11.5% but hydro 17.5%).

In India, however, no energy transition is afoot (Figure 8). Fossil fuels’ share of power usage in that country has risen from 70% in 1985 to 78% today; renewable share has sagged somewhat (from 28% in 1985 to 19% today); and solar and wind currently generate less than 8% of electricity.

Figure 8: Percentages Share of Total Consumption of Electricity, India, by Source, 1985-2021

Fossil Fuels and Intermittent Energy as Sources of Total Energy

Electricity comprises less than 20% of energy consumed globally. What about the other 80+%? From what sources has energy as a whole been produced, and what are its sources today?

As with electricity, so with energy as a whole: renewables’ share has grown steadily during this century, but in 2021 remained just 13.5% (Figure 9). Of this total, hydro provides 6.7%; wind’s and solar’s share is just 4.0%. In this crucial sense, little “decarbonisation” has occurred globally.

Figure 9: Global Consumption of Total Energy, by Source, 1965-2021

Apparently few people know it, and few of those who do want to admit it: EU has been decarbonising since the late-1970s – but solar and wind power have played a smaller role in that transition than nuclear power (Figure 10).

Figure 10: Consumptions of Total Energy, by Source, EU (ex-UK), 1965-2021

From 1965 to 1975, the countries that presently comprise the EU derived more than 90% of their total energy from fossil fuels. By 1990, that share sagged to 80% because nuclear’s contribution rose from 1.5% in 1975 to 12% in 1990. During the 1990s, both contributions remained stable. Not until ca. 2005 did fossil fuels’ share resume its fall; in 2021, it was 70%. It fell because renewables’ share rose (to 18.5% in 2021); but in 2021, solar and wind’s contribution was 8.5% – more than hydro’s (5.5%) but less than nuclear’s (11%). In other words, nuclear has done more than solar and wind to decarbonise the EU’s consumption of energy.

Today, fossil fuels remain the EU’s most important source of energy by far. Only when hydro-power is bundled with solar and wind do renewables take a distant second place. When they’re unbundled, nuclear becomes the EU’s second most important source of energy, and solar and wind take the bronze medal. By that standard, assertions about “energy transition” in the EU are greatly overblown.

Figure 11 quantifies the very modest decarbonisation that’s occurred in China. Over the past decade, fossil fuels’ share of energy has receded from 92% to 83%. Renewables’ share, which was stagnant until 2012, has risen from 6% to 15%; and of this latter percentage, solar and wind’s contribution has risen from 0% a decade ago to 5.7% in 2021.

In China, as elsewhere, “decarbonisation” has had more to do with the rise of hydro power than solar and wind power.

Figure 11: Consumption of Total Energy, by Source, China, 1965-2021

But in India, no energy transition is underway (Figure 12). Fossil fuels have provided a virtually unchanged share of energy (90% in both 1985 and 2021); so too total renewable (9-10% in both years). And solar and wind’s contribution, although it’s rising, remains relatively insignificant (3.6% in 2021).

Figure 12: Consumption of Total Energy, by Source, India, 1965-2021

Conclusion and Implications

Arguably, the “global energy transition” simply isn’t happening; certainly, it’s not occurring nearly as rapidly as “experts” routinely assert – and want you to believe. That’s because economically and technically it’s unviable (for details, see The factual case for fossil fuels, 12 December) and morally it’s untenable (see Why fossil fuels are ethical and their opponents aren’t, 19 December). For these reasons, its rapid upward trajectory is hardly inevitable; indeed, it’s unlikely. Zealots’ gross overconfidence about the “energy transition” – which in many quarters has become arrogant coercion – is merely the latest episode in a long story of financial euphoria that eventually ends badly (for details, see How we’ve prepared for the next bust, 22 November).

Implication #1: Politicians Will Repudiate Their Solemn Vows

My conclusion is hardly iconoclastic; it’s also understated. Adam Creighton (“Net-Zero Target Is Pure Fantasy,” The Australian, 9 June 2022) concluded: the effort “put into … (energy transitions and) emissions targets are a waste; they are simply not going to be met.” In Investors beware: “Cheap” renewables are very expensive (14 June 2022), I quoted Vaclav Smil, the author of How the World Really Works: a Scientist’s Guide to Our Past, Present, and Future (Viking, 2022):

Complete decarbonisation of the global economy by 2050 is now conceivable only at the cost of unthinkable global economic retreat or as a result of extraordinarily rapid transformations relying on near-miraculous technical advances.

And in “Mission Impossible” (The Weekend Australian, 4-5 February 2023) Greg Sheridan concludes:

Net zero hasn’t got a snowflake’s chance in hell. It’s a fraudulent concept. It’s not real. It requires an heroic leap of faith, magical thinking ... The world is not going to decarbonise on anything like the scale Western policy makers now claim ... Yet (the energy transition is) at the centre of Australian national policy.

In Australia, federal and state governments’ “climate” policies are unattainable. Even if they were, which they aren’t, their cost will be astronomical. And even if they were achievable and affordable, which they aren’t, they won’t affect the world’s climate one iota. Not merely do they comprehensively fail a cost-benefit analysis; they’re a disaster in the making. The implication is obvious. As I wrote on 14 June 2022,

Once the public recognises that “climate action” is a bigger threat to their well-being than climate change, renewables’ popularity will tumble. The “sustainable energy” lobby is a powerful vested interest, but politicians ignore the public – and particularly its hip pocket – at their peril. Accordingly, as renewables’ popularity tanks, politicians will obfuscate, weaken and eventually abandon their pious and pompous promises of “climate action.”

Implication #2: If You Trust Politicians and “Experts” You’ll Suffer Grievously

“As the enduring antidote to … bull-market baloney,” wrote Jason Zweig in the revised (2009) edition of Benjamin Graham’s The Intelligent Investor, “Graham urges the intelligent investor to ask some simple, sceptical questions.” Today, the simplest yet most fundamental questions include: is the global energy transition actually happening? Will it unfold as its advocates and “experts” (over)confidently claim to foresee?

If you dispassionately analyse valid and reliable data, your answer to the first question must be “hardly at all.” And for anybody who possesses even a passing acquaintance to financial fads and manias, the answer to the second question is “obviously not.”

The trouble is that very few investors analyse data and draw their own conclusions. Instead, most blindly trust the consensus of “experts” – which often ignores, misinterprets and denies logic and evidence, and succumbs to emotions (particularly overconfidence).

“The investor,” Graham warned, “can scarcely take seriously the innumerable predictions which appear almost daily ... Yet in many cases he pays attention to them and even acts upon them. Why? Because he has been persuaded that it is important for him to form some opinion of the future course of (events), and because he feels that the (consensus forecast of experts) is at least more dependable than his own.”

It’s Graham’s profoundest insight – and, for most investors, his most difficult to practice: “if you have formed a conclusion from the facts and if you know your judgment sound, act on it – even though others may hesitate or differ. (You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.)”

For anybody who’s prepared to defy the consensus, think for himself – and thereby recognise that reality isn’t optional – the “global energy transition” is much more fiction than fact. Accordingly, at some point members of the stampeding crowd will come to their senses, ESG, rare earths, “renewables” and all the rest will disappoint, “experts” will yet again be found wanting – and investors will suffer horrible losses.

And when they do, #20 of Seth Klarman’s investment lessons from the GFC will add insult to their injury: “Almost no one will accept responsibility for his or her role in precipitating a crisis: not leveraged speculators, not wilfully blind leaders of financial institutions, and certainly not regulators, government officials, ratings agencies or politicians.”

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