Should My Next Car Be An EV?

There are many factors involved in a person’s decision in buying any particular car. But foremost is the type of car that best suits the buyer’s needs. The reason why SUV’s are now the most popular passenger car is that they suit most people’s needs of easy access, the perceived safety of a higher riding height and the room inside which can be used for transporting several kids or transporting stuff that needs the cavernous area that opens up with the rear seats down.

While emotion is also an important driving factor, this is usually where auto makers provide several levels of features with corresponding higher prices (and higher margins). So even though emotion may impact what you ultimately spend, it is utility that is the overriding concern.

The concept of utility also extends to how often the car needs to be refuelled, how far it can travel and most of all, how much it costs to run and maintain. The interesting thing about all of the factors influencing the purchasing decision is that the highest cost of owning a car, depreciation, is probably at the bottom of the list of people’s concerns. This is often a case of people not knowing what this cost is or simply that they conclude that there is nothing they can do about it. But more on this later because depreciation will become a major purchasing factor sooner than many think.

So how do these factors apply to the new wave of electric cars coming onto the market? And more to the point, how do electric cars (and here we are focussing on battery electric vehicles or BEV’s – not hybrid electric cars) compare to their internal combustion (ICE) counterparts?

The legacy automakers who are slow to electrify (read Toyota) together with ICE adherents are already filling the airwaves with negative stories about EV’s. From issues about their limited range, batteries catching fire, their high price and the uncertainty about what technology (BEV’s, hydrogen vehicles or hybrids) will prevail, are all designed to muddy the waters. Their goal is to cultivate a perception of risk when a purchasing decision to go with an EV. So let’s briefly deal with each of these issues first:

Limited range – current battery technology limits the current range of most EV’s to between 300-500 km on average. This issue is compounded by the form of battery chemistry currently being used in most EV’s where the recommendation is to charge the battery between 20-80% of its capacity. But the average person only drives 25 km per day and rarely more than 250 km, so range is not an issue for everyday use of a passenger car. Battery technology is also advancing rapidly and operating ranges will most likely test the 1,000 km range by the end of this decade. But focusing on the present and,  especially if you are replacing your second car, range should not be a major factor given that you can top up your battery overnight at your own home and always have several hundreds of kilometres available to you at the start of each day. Already, newer batteries which can operate between 0-100% of their capacity are also starting to adopted by the major EV manufacturers.

Battery Fires – there had been much publicity about the GM’s Bolt battery fires in the US over the past year. Defective batteries supplied by LG Chem were the source of the problem and a major recall is underway to replace the batteries. However, no-one wants to take safety risks especially with “new” technology and the auto industry always needs to reinforce the safety integrity of their cars. But to put this particular issue in perspective, in 2020 there were around 200,000 car fires in the US in ICE vehicles and only 52 in EV’s (interestingly there were 16,000 fires in hybrids). While this is not an argument for taking risks with EV’s, already there has been a shift in battery chemistry to Lithium Iron Phosphate (or LFP) which has significant fire protection above the Lithium Nickel Cobalt Manganese (NCM) battery chemistry used in most EV’s to date and particularly by LG Chem in the batteries supplied to GM. LFP batteries have been subjected to heat, piercing and crash testing with no issues around catching fire. It is significant that the largest EV maker in the world, Tesla, is already shifting to the use of LFP batteries.

High Price – there is no doubt that EV prices are anywhere from 20%-50% higher than their equivalent ICE counterparts. This is not surprising particularly when retailers are adding significant margins to EV prices given the supply shortage that most EV’s are experiencing when compared to the demand. This is a simple matter of timing in the market evolution given that the cost of manufacturing an EV has reached the cost of making an ICE vehicle (principally because of the lowering of battery costs). As more competition reaches the market, EV’s will continue to come down in price and most probably will undercut the cost of ICE vehicles as the shift to EV’s removes the economies of scale that ICE manufacturing currently has. So, if an EV is somewhere between price parity and parity +10%, the economics of choosing an EV for your next vehicle has probably passed the tipping point given the much lower cost of running an EV car together with government incentives.

Technology Uncertainty – the only real technology uncertainty for EV’s is around the battery technology employed in the car that you are considering buying. Battery technology is moving fast and what you buy today will be seen as old technology in 5 years’ time. The saving grace however, is that your old battery will be still be working in many years’ time and will also have a resale market if you want to upgrade to the newest technology. BYD’s blade battery (LFP) has a 500,000 km warranty which is probably well more than the life of the car. On the other hand, any suggestion that alternatives technologies such as hydrogen powered cars can compete in the passenger vehicle market has long been disproven and Toyota’s lobbying of the Japanese Government to support hydrogen is more about keeping out the competition in the Japanese car market than anything else. So, if someone wants to sell you a Toyota Mirai for a cheap price, run for the hills.

I indicated that depreciation would become a major factor in choosing your new car in the near future. While most people accept that their new car will be worth less than 50% of its initial purchase price in 3-4 years’ time, what if that percentage was only 10% – or even zero? How could that be possible? Think about a Nokia mobile phone and its value 4-5 years after the introduction of the Smart phone in 2008. Not only could you not give away your Nokia to a friend or family member, but Nokia which was once the largest manufacturer of phones in the world, was almost bankrupted (they still exist today but as a provider of centralised computer phone systems). EV’s are a similar disruptive technology as the Smart phone and the time it takes for EV’s to force the resale price of ICE vehicles down to scrap value only is not a matter of “ïf” but “when.”

The apparent slow take up of EV’s around the world has led many to think that it will take 20-30 years or even longer before ICE vehicles are replaced by EV’s. However, one only has to look at the early adopters in Europe and the plans of governments and car makers to make the switch to EV’s. The momentum is building quicker than anyone realised and that a Smart phone-like market shift could occur within a few short years. Legacy auto makers from GM to VW are planning on phasing out ICE vehicles by 2035 (and a few are already reviewing this timeframe). Governments around the world are mandating the exit of ICE vehicles for environmental reasons in a similar timeframe. Countries such as Norway are leading the way already on how quickly the uptake of EV’s can occur and China is fast becoming the EV manufacturing centre of the world and a major market as we speak.

In fact by 2025, 40% of the new car sales in the OECD countries are likely to be EV’s. This is much quicker than most commentators believe but we are dealing with a disruptive technology that is fast coming down in price as production capacity ramps up. This point is when the decision to purchase an EV over an ICE vehicle will become almost a given for most people.

Source: International Energy Agency for 2020 data and Carven Consulting for forecast to 2025  

Even the oil refining industry can see the writing on the wall. Given that 45% of its output is made up of petrol and diesel, the market of which is now in potential jeopardy, the industry needs to consider how to respond to such a threat. In 2019, in response to a survey about the perceived impact of EV’s on their industry, 24% said that they were not all that concerned – because they expected to be out of the industry by the time that the impact of EV’s would really be felt. Those same companies must now be reassessing their exit strategies given that the past 2 years have seen major movements in the shift to EV’s which is being led by Chinese manufacturers who are starting to shift their attention to the rest of the world market.

And China is the key to understanding what is likely to happen in the development of the EV industry and how it will shake up the auto industry around the world. China is the biggest emitter of carbon di oxide in the world and not only sees the moral imperative of reducing their emissions but also how to make money out of that process. China is already the largest solar panel and battery manufacturer in the world and intends to become the largest auto maker. They have been producing cars for GM, BMW, VW and Volvo for more than 20 years and have developed the expertise for making high quality cars at very reasonable prices along the way.

Companies such as BYD, Xpeng, Nio and Geely are starting to ramp up their international sales and many new models are hitting the market in 2022. Not only will these models have the quality, features and styling required to break into western markets, but they will be priced to ensure that new car buyers think twice when considering whether they will buy an EV or ICE vehicle.

Based on where EV’s have come technically and the competition and pricing that results, if you are considering buying a new car in the next 2 years, your choice of an EV over an ICE vehicle will be a smart decision. With lower running costs, the ability and convenience to top up your car’s fuel supply in your home and a chance to reduce each person’s carbon footprint, the decision to go electric will quickly become the norm. No-one wants their ICE trade-in to become next to worthless, so simple economics will become a major factor in quickening the transition to EV’s.

Unless you are wanting to 4-Wheel drive in the outback or tow a caravan around Australia, the logical choice is to go electric now. And those 4-Wheel drive and caravan enthusiasts? They have about another 5 years before their diesel-powered SUV will also be made redundant.

Why the Oil Industry should fear Electric Vehicles

While passenger cars and road freight make up only 1/8th of the world’s carbon emissions, a collection of factors have come together to provide the move to electric vehicles with a momentum that now appears unstoppable. The oil industry’s heavy reliance on this market sector means that not only will legacy car manufacturers be disrupted but with them, a whole energy industry will need to re-evaluate the value of staying in the business.

Over the past 200 years, the world economy has been through three revolutions – the industrial revolution, the technological revolution and now, the more recent clean energy revolution which started in earnest about 10 years ago.

All three revolutions have had and will have fundamental implications for the world economy and society. However, the clean energy revolution has a major difference. It has been driven primarily by governments, concerned about the climate changing impacts of CO2 emissions from the burning of fossil fuels. While the two previous revolutions have largely been driven by private risk capital being directed into producing products for human consumption, the green energy revolution is essentially a government led strategy to conserve the earth for longer term human habitation.

While governments are usually clumsy and inefficient when trying to direct economic development, in the absence of any market mechanism to put a price on carbon to efficiently direct capital into the best and lower cost solutions, governments have had to fall back on their old policy tools – regulatory restrictions and subsidies. However haphazard these tools often are, in a wider sense these can play the part of a shadow price of carbon if intelligently calculated and have a reasonable outcome of directing capital into the desired areas.

The gathering global momentum by governments to come together and force a move away from fossil fuels is almost unprecedented but no less powerful. The COVID-delayed meeting in Glasgow in November of this year succeeded in further committing economies around the world to take the next significant steps towards reducing carbon. This building momentum has in no doubt been given a further boost with the re-entry of the USA into the Paris Agreement and with the joint US/China statement on cooperating to escalate their efforts in moving away from fossil fuels. Already industry advisers are recommending that any company working in the fossil fuel industry either directly or indirectly, should be wary of the future and be wise to develop medium term plans to either exit the business or develop a strategy to join the new industries developing around the core of the clean energy revolution.

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The global drive to reduce carbon emissions will focus on three main areas. Electricity generation, industry, agriculture and transport with the latter making up about 16% of total global carbon emissions.

As energy and heat use make up over 73% of these emissions, it is not surprising that the electricity generation sector will remain the primary focus of the shift to clean energy sources with massive investments in wind, solar and storage continuing to ramp up exponentially. Agriculture (18%) is a special case given that this sector has a significant ability to create carbon offsets in the normal course of their business. So why does the road transport sector, which  makes up about 12% of carbon emissions, attract so much focus by governments as part of their emission reduction strategies?

There are three main reasons for this. Firstly, any emission reductions process will pick the low hanging fruit first. It is already clear that the transport sector has a viable technology to replace Internal Combustion Engines (ICE’s) in the form of Electric Vehicles (EV’s) and the investments required to complete the transition is manageable over the next 10-20 years. Secondly, the transport sector is a huge contributor to air pollution in cities where apart from carbon dioxide emissions, cars and trucks are responsible for other pollutants such as carbon monoxide as sulfur dioxide, nitrous oxides, cancer causing particulates and other pollutants. As cities are where the vast majority of voters are, governments cannot ignore this or be seen as supporting the transport industry over the health of the population. Thirdly, just like the move from horse drawn power to ICE’s, the move to EV’s presents an opportunity to create new industries and sustainable jobs. One only has to look at China, the largest car market in the world, to see the business opportunity that the transition to EV’s presents and their current drive to be a world leader in this area, just as they have been with solar panels.

But despite the support governments around the world are giving to the take up of EV’s, so far the market has been slow to warm to the idea of driving a car that may run out of energy before it gets them home. While new car sales in Norway is currently 70% EV’s, other developed countries such as the US has a take up of only 2% of new car sales. Even in China where the government is clearly supportive of the move away from ICE’s sales to EV’s, so far in 2021 only represented 7% of sales.

Source: International Energy Agnecy

Clearly, the future potential of the EV market is being held back by the cost of new vehicles, their range, the lack of recharging infrastructure and the as yet uncertain application of this technology to the freight industry. However, despite these barriers, government action is likely to lower these obstacles by mandating targets that the industry will need to meet. The UK and other European governments have banned the sale of new ICE’s by 2030 and even hybrids by 2035. the new German Government wants 15 million EV’s to be on its roads by 2030. The Biden administration has announced a sales target of 50% EV’s also by 2030. Other regulatory measures include tightening emissions from ICE’s and requiring vehicle manufacturers to meet total emission targets across their range of models sold. What this suggests is that governments are increasingly willing to force the transition, confident that they, together with industry is fully capable of overcoming the perceived disadvantages of the EV technology in the medium term.

And there is no more important factor in the potential success of the EV technology than the battery. For those who think that the penetration of EV cars into the automotive market will be held back by the current Lithium-Ion battery technology and cost, think again. The technology around Lithium-Ion batteries is still in its infancy (15 years ago, the use of Lithium-Ion batteries was limited to some phones and laptops) and significant improvements in this technology alone is likely to continue for some time. With improvements in the energy density and charging times being implemented as we speak, technical breakthroughs in such alternatives as Lithium Sulfur, Solid State, Graphene Tube and Aluminium Ion batteries are now on the foreseeable horizon. We are starting to see the fruits of massive investments in research and development of the ultimate replacements of the current Lithium-Ion battery. These alternatives will be capable of delivering extended range beyond 1000 km, charging times down to single digit minutes and battery life extended to well beyond 1000 cycles (i.e. the so-called million km car).

The future battery technology will not only extinguish the psychological hesitancy of the market to commit to purchasing an EV vehicle, but governments around the world are increasingly confident of starting the formal policy implementation of the transition away from ICE cars. Based on the wider availability of components which make up these new battery developments, governments now believe that they can act safely in the knowledge that the supply constraints of the current Lithium-Ion battery components such as cobalt will not present a security supply issue to the ever important transport sector of their respective economies. Indeed, most countries in the world will view their security as being enhanced by the reduced reliance of their economies on the supply of oil and refined products which history tells us can and will remain a potential source of volatility under most global scenarios going forward.

So, if we are indeed moving to a net zero world by 2050 or 2060 which involves a major shift away from oil as a transport fuel, what is the economic impact of battery-based transport over the next 30 years? Although Australia will most likely be a slow mover to the new transport technology, the impacts on the oil industry will vary little from what is happening overseas. Australia’s only advantage will be to watch what happens rather than trying to anticipate the changes. However, we have already seen the demise of an uncompetitive oil refinery industry in many countries and it did not need a move to cleaner technologies to make this happen.

In all practicality, the die has been set. It is not a matter of whether EV cars, utilities and even trucks will take over the transport industry, but how quickly it will happen. While the global drive to reduce carbon emissions still focuses mainly on the electricity generation and industrial heat sectors, the transition to EV’s in the transport sector will have a significant impact on the oil industry. About 45% of the oil barrel currently goes to the domestic road transport sector and therefore any transition away from ICE’s alone has the potential to have a fundamental impact on the industry overall. If we add other sectors such as power generation and some process heat applications which also have potential to be supplied by clean energy, the impact only becomes starker.

Source: International Energy Agency 2017

But the big question is how quickly the transition away from fossil fuelled vehicles will happen and therefore how long does the industry have to adjust to this change? Currently the take up of electric vehicles across the major car markets (China, USA and Europe) may appear to be small. EV’s currently attract a significant cost premium and consumers’ concerns about range anxiety and recharging rates pose significant barriers to the market embracing the new technology. But with Government incentives currently being offered and new battery manufacturing ramping up exponentially, the cross over of cost between EV’s and ICE’s may be very soon (this cross over is represented by when battery costs get down to $100/kWH). As recently as 2017, the EIA published a forecast of various bodies’ estimated when this crossover would occur with the average being 2025-26. This year however, BYD in China announced that the cost of producing its Lithium Iron Phosphate blade battery (LFP) had reached $93/kWh. The ground is moving quicker than expected.

And what about hydrogen you may say? Firstly, the hydrogen industry can only progress if it is green hydrogen. Otherwise, what is the point? Secondly, even green hydrogen is essentially used to generate electricity to drive a hydrogen vehicle anyway via fuel cells. With a supply chain energy efficiency of only 23% compared with a pure EV of greater than 69%, where is the cost advantage that would drive this particular fuel option? Nevertheless, hydrogen may well play a significant role in fixed applications in industry, chemicals, shipping and power generation and storage. But it is difficult to see it competing against the new generation of batteries that are on the horizon for the transport sector. The jury is still out on hydrogen for the heavy vehicle sector however and the cost showdown with new batteries is likely to play out with a decisive conclusion in the near future as Tesla, Nikola and others fight over this market sector from 2022. Whatever the outcome, oil will be the big loser.

It is also revealing what the major industry players are saying about the impact of clean energy in the transport sector and its consequent impact on the oil industry? The World Refiners Association (WFA) in 2019 conducted a survey of its members to assess their levels of concern about the inevitable shift away from ICE’s. 61% said that they were somewhat worried and that they needed to carefully plan ahead. However, they added that the near-term transition timing had been exaggerated, giving them a longer planning horizon than many had thought. Significantly however, 24% said that they were not worried because they planned to exit the industry well before EV’s had any real impact (presumably in the mid to late 2030’s). In the meantime, the industry’s planning will need to consider whether it should endeavour to extract as much rent out of the value of a barrel of oil or reduce margins to extend their market share over the next 20 years. The likely fall out of these decisions will most likely see very volatile fuel pricing leading up to 2030.

Oil companies however have tended to take a more sanguine approach to the changes facing the industry. They tend to take a wider view of oil’s role in the world economy and most oil companies in a survey of the majors’ planning scenarios suggest that the negative impact resulting from the electrification of the transport sector will be somewhat be offset by global demand growth for oil up to 2050. In the US, Exxon Mobile and Koch Industries have been actively trying to stop the roll out of the country wide charging stations that are necessary for the EV market. This strategy may be counter-productive as public opinion concludes that the oil companies are starting to act in ways similar to the tobacco industry. And we all know where that ends.

In May 2021, a class action in the Netherlands resulted in a Dutch court holding Royal Dutch Shell liable for its contributions to climate change, finding the supermajor’s ongoing fossil-fuel operations undermine basic guaranteed human rights. The court ordered the company to act immediately to reduce those harms by slashing its global carbon-dioxide emissions by 45 percent by 2030.The body that brought this action said that Shell was only the first and other suits would be brought against other companies in a ripple effect that suggests the oil industry’s view of the timing of transition may not be within their control. Exxon now is defending a similar action in the US courts.

And that timing has other implications. The transport, power generation and building heat sectors together represent nearly 60% of products from the oil barrel and all these sectors are threatened by clean energy technologies that will dominate this sector of the energy market by 2050. For the refining industry, the immediate implication is what do you do with the light end of the barrel when gasoline and diesel demand is falling rapidly. Most refineries around the world have been configured to largely produce transport fuels and changing the product output will require huge investments in capital equipment that in the end could have very short life spans. In the oil producing sector, the contracting refinery industry may demand more heavy crudes to better match the remaining products markets that they are set up to service. This in turn, is likely to fundamentally change the pricing of the benchmark crudes and which producing countries will lose and which will prosper in this changing oil market environment. The likely losers will be the light crude producers in the middle east, many of which, including Saudi Arabia, are financially strained given their inefficient use of their crude revenues over the past 50 years.

But can the oil industry itself go through a transition of supplying the necessary transition fossil fuels while also embracing the new clean energy that will predominate by the second half of this century? BP is a good example of an oil major that was early to recognise the role that clean energy alternatives would play in the future. It has had several attempts to invest in solar and other renewable businesses but has generally missed the boat, either by being too early or too late to make timely investments. And this is the dilemma for the oil companies. While they have built incredible expertise in finding new sources of oil and gas, driving down the cost of extracting those resources and generally taking significant technical risks in doing so, they are also very conservative companies and loathe to take risks outside of their area of expertise.

New emerging technologies require high risk takers who more often than not fail and go out of business. One should only look at the long list of technology and computer companies that no longer exist today. For an oil company to take a major position in a renewable energy company today is going to be limited to low risk, discrete projects that by their very nature have low investment returns. The real money will be made in the higher risk areas of the industry that oil companies are not currently equipped to venture into.
Further down the supply chain, the implications are no less significant. People involved in the supply of oil-based fuels, retailing of transport fuels, sales of cars and servicing of cars. With the wide distribution of electricity and charging points being planned for parking spaces and other areas not connected to service station, we are likely to see a significant reduction in these outlets across the country. EV’s are now being sold in pop up stores which by-pass the traditional car show room. Electric cars need far less maintenance than ICE’s and motor mechanics will become more electrical mechanics performing fewer services across the car population. Car showrooms already make most of their profit from servicing cars than selling them so a fundamental change to this part of the retail sector will likely take place. Parts suppliers of ICE cars will be decimated as far fewer parts will be required for EV’s. The largest consumable item for EV cars is the tyres which require changing on average every 4 years.

EV’s are also likely to change the world auto manufacturing industry. Without the need for complex internal combustion engine technology, the heavy reliance on computer controls and the Tesla-led mega-casting process for car chassis construction, it is becoming apparent that the current incumbents are suddenly looking at major competition in what will become the dominant sector of the market. The lowering of barriers to entry is already resulting in not only Tesla which is now the most valuable car manufacturer in the world, but a growing list of new Chinese manufacturers. Indeed, EV’s represent a fast track for the Chinese auto market to grow and supply its own market which is already the largest in the world. With China also the world’s major producer of batteries, the writing appears to be on the wall for yet another industry to be dominated by China in the next 20 years. While the US leads the world in EV development, it cannot afford to wrest on its laurels as old-style companies such as Ford and GM could be quickly overrun by foreign competitors unless they invest heavily now to be ready for the tipping point which may come around sooner than they think. Tesla has a 10-year jump on the current incumbents and will be a major player going forward given its innovation in the manufacturing process, looking and acting much like Ford was in the early 20th century. However, history tells us that technical leaps are rarely held by one company for long and it is quite possible that the world’s largest car manufacturer in 2050 does not even exist today.

There is also a feedback loop that EV’s are likely to facilitate in the overall transition of the electricity infrastructure to clean power. EV batteries will generally average 50 kWh of battery capacity which will be available after every trip to plug into home electricity systems to supply houses with power during the night. As the average house uses 4-5 kWh of power after they cannot generate power from their solar panels, this consumption is likely to have little impact on the operation of cars which are used predominately for short city trips. The whole integration of EV’s into the electricity supply grid will be facilitated by companies developing technologies to enable the most efficient usage of the stored electricity in EV batteries and help shape the overall electricity distribution system over the next 20-30 years. This alone will negate the many concerns around whether the electricity supply system is capable of a major uptake of EV’s which has been calculated to equate to a 30% increase in the per capita use of electricity across the residential sector.
Generally, the overall global move to a clean and renewable based economy has become a juggernaut that will not be stopped even though certain players have had some successes in slowing it down. But the status quo is not considered in anyway sustainable and governments will develop policies and regulations for every sector of the economy to contribute to a net zero emissions target by 2050 or even sooner.

Compared to other sectors, the road transport sector is a relatively smaller contributor to global carbon emissions. However, its transition to clean energy is politically powerful and therefore will be a major area of government policy and support over the next 30 years. Oil’s role in this sector will likely gradually change at first but the momentum is likely to build very quickly as the investments in new battery technologies and EV production capacity start to bear fruit from the mid-20’s. The oil industry by necessity will be faced with a future where it is confined to supplying products to those areas of the economy which do not readily have clean alternatives such as petrochemicals. China and the US alone will have the capacity and the will to drive this change and there is every indication that these superpowers will have the incentives to do it, if only to maintain their economic competitiveness with each other. The only bright side of this scenario for the oil industry is that it will still take up to 10 years before the penetration of EV’s into the transport sector has any significant impact.

With every economic revolution, new technologies come along that fundamentally disrupt the existing industries. The pace of this disruption in previous transitions was fairly modest, allowing those employed in the disrupted industries to adjust, retrain or seek employment elsewhere. While the legacy car manufacturers and the oil and gas industry that fuels them may have the remainder of this decade to make the adjustment, once the tipping point is reached, it will be sudden and potentially catastrophic for those that have been slow to move.

What we do have however, is a reasonably clear view of the future. While the exact timing may not be set in stone, the oil industry can now look into that future and see what its own demise looks like.

Home Batteries – Are They Worth It?

Recently, as a reaction to the announcements from various electricity retailers that they were reducing feed-in tariffs (mostly down to 6.7 cents/kWh), there was a 16% spike in enquiries for home battery installations. People with solar systems were obviously angry about having the value of their electricity exports downgraded and thought that it was time to install a home battery as a means of storing their generated power instead of feeding it into the grid. So, has the time arrived for home batteries to finally play an economic part of the average householder’s attempts at electricity self-sufficiency?

The economics of home batteries is quite simple. The “revenue” from the battery can be characterised as the difference between the feed-in tariff and the cost of purchasing electricity from the grid. In other words, if excess power from your solar panels is stored in the battery for later use at night, this offsets the cost of power that would be taken from the grid. Alternatively, if the solar excess is sent to the grid and paid at the feed-in tariff then the value of the battery is the difference between the feed-in tariff and the grid price.

When we divide the cost of the battery installation by the delta of the grid and feed-in tariff (the battery revenue), then we get a simple payback expressed in years. Most solar systems have a payback of about 4 years (or about a 20% rate of return on investment) so we should be looking for a payback of at least 6 years or better to justify the battery investment.

Let’s take a simple example. Fred has a 6.6 kW system that gives him an average generation over the year of 25 kWh per day. His daily consumption is 16 kWh during the daylight hours and 9 kWh during the night, so his average solar generation exactly matches his average consumption. Fred still has a quarterly bill from his retailer because he still must pay for the supply charge from his distributor ($1.00 per day) and the difference between his feed-in volume of 9 kWh during the day and his grid tariff for the 9 kWh he uses at night. The feed-in tariff is 6.7 cents while his night-time grid tariff is 21 cents per kWh. His daily electricity cost is therefore $1.00 + ((21- 6.7) * 9) or $2.29 per day.

Fred is not too happy about the retailer reducing his feed-in tariff from 10 cents to 6.7 cents so he contacts three suppliers of home batteries. He receives the same advice from each that he needs a 10 kWh battery that can deliver his average night time consumption of 9 kWh. He receives 3 quotes for a fully installed battery of 10 kWh- one for $12,000, one for $10,000 and one for $6,000. These quotes are after the state government battery rebate of $4,000.

Fred calculates his preferred battery option based on the $10,000 quote because he wants to go with a Korean brand rather than a Chinese one. He knows that his “revenue” from the battery works out at $1.29 per day on average so his $10,000 investment will take 7,752 days (21.2 years) to reach a simple payback. The warranty on the battery is 8 years so he concludes that, even if he went for the cheaper battery he was quoted (it has a payback of 12.7 years), he is not even close to being satisfied that a battery investment is the way to go.

In fact, because Fred has done the numbers, he realises that even if his retailer did not give him anything for his exported power, his preferred battery option would still take 14.5 years to payback!

It is hard to come up with a scenario that provides an economic case for installing a home battery. We should expect that battery costs will come down with time but that will depend on volumes increasing significantly. The cost of producing a home battery is in the order of $200 per kW whereas the installed cost works out to be about $1,000 per kW. So, with large margins available to battery companies, no-one is showing the mettle to lead the market down the cost curve. And while prices stay so high, very few people will be willing to make such an uneconomic investment.

So, what situation would lead to someone shelling out so much money for a home battery with such little reward? One circumstance is where the chances of power cuts are a common risk. This may be the case in a small number of areas subject to trees falling on power lines or less than robust distribution systems in remote areas. The power cuts in the Dandenongs lasting 3 weeks early in 2021 is a case in point.

However, if one is worried about power cut risks, then a better option may be a back-up generator which can provide enough power to keep the refrigerators going and provide power for the internet and TV to ensure communications keep open. Regardless of the timeframe of the blackout, the petrol powered generator will be available assuming there is fuel supply. Back-up generators capable of running essential appliances in the home (rated 5.8 KVA) will cost you between $1,500-$2,000. While a Lithium-Ion battery will be much more convenient given that it automatically takes up the load, it will only cover 1-2 days of power outage and probably not cover the worst-case scenarios that many people are concerned about. This is particularly true of remote rural areas where the chances of longer-term power cuts are greatest.

The only other scenario that one might consider a home battery is to keep ahead of the curve as far as the transition to renewable power is concerned. Many early adopters may be attracted to the thought of being independent from the grid but again, the economic efficiency of this route is highly questionable. In the medium term, retailers and distribution companies are likely to get together to promote community battery storage. This could take the form of large batteries to back up a small neighbourhood or even install batteries in some houses producing a lot of excess power to be later distributed to other houses in the street at night. Scale is the key to making back-up power supply economic rather than individual householders taking on this high-cost task.

One emerging option however is the ability of the new electric cars that are coming onto the market that have V2L (Vehicle to Load) capability. This essentially means that your car battery, which will have at least a 50 kWh, capacity will be able to power your home either fully or partially. Hyundai’s Ioniq 5 has an output of 3.6 kWh which is enough to run the lighting, refrigerator, TV and other small appliances in the home at any one time. Of course, running air conditioning would require more input but if the battery is used for back-up, why buy a $10,000 home battery when your car brings one for free. As this option becomes more well known the car manufacturers will increase the power output to better match the entire home (SONO Motors already have 11 kWh output in their soon to be released electric car).

The home battery market has few places to go in the transition to renewable energy over the next 20 years and as electricity prices continue to fall overtime, the economics only get worse. The fact that people are currently buying into the idea is probably more to do with the government failing to roll out a vision for how the future electricity system needs to work than anything else. Australia has been asleep when it comes to the evolution of the power system that will take us towards net zero in 2050 and it is about time that both political parties got serious and explain exactly what they intend to do.

In the meantime, when you next think about installing a home battery, don’t call your friendly solar and battery supplier, call your state and federal member of parliament and remind them what you expect from them on a future energy plan for your area.

Gregory Craven

October 2021

Hydrogen – The Clean Energy Fuel?

Opportunity or Scam?

Much is being claimed about how hydrogen should be seen as one of the candidates to help us reach a clean energy future. Many governments and business leaders have been convinced that hydrogen is a very good replacement for oil-based products and Japan, Australia, the US and the Europeans have jumped on the hydrogen bandwagon with gusto. So much so, that Japan sees hydrogen as deserving of a large chunk of its $US 19 billion investment in clean energy technologies and see Australia as a major supplier of renewable based hydrogen.

Currently, about 120 million tonnes of hydrogen is produced worldwide with 30 million tonnes being used in oil refining and 90 million tonnes being used for chemical production. Hydrogen is the primary feedstock for ammonia production which in turn, is largely used in the manufacture of fertilizers. Therefore, hydrogen has been seen as a chemical feedstock rather than an energy source up until now.

But there is a wide range of views on hydrogen’s potential as an energy source. At one extreme, it is simply the oil industry’s way of extending their reach into the clean energy field by utilising much of their existing oil and gas infrastructure to produce, transport and store the fuel. Indeed, Toyota, has long been a fan of hydrogen and have produced a car that feeds hydrogen into a fuel cell to drive their Mirai hybrid electric vehicle. Hydrogen is also seen as the ideal replacement for diesel in heavy road transport and maritime shipping given its energy density. All in all, the oil and gas industry sees hydrogen as a small step from gasoline that keeps their multi trillion dollar investment in oil infrastructure reasonably whole and continues to make them relevant in what could be a radically different energy future.

On the other hand, hydrogen is seen by many on the environmental side as a potentially interesting contributor to a clean energy future with one major caveat. If it is not green hydrogen, then what is the point? They argue that the oil and gas industry’s promotion of hydrogen is not only self-serving, but also a scam that not only wastes government investment in the area but also ends up increasing the amount of greenhouse gases in the process (both CO2 and methane).

To better understand these opposing arguments, let’s first look at the various ways of producing hydrogen. Although hydrogen is the most abundant element in the universe, it does not like being by itself and instead finds bonds with other elements (i.e. oxygen to make water and carbon to make hydrocarbons). It takes a lot of energy to break these bonds to isolate the hydrogen but we have four ways to make this happen:

  1. Brown Hydrogen – this involves steam reforming to break the hydrogen/carbon bond in coal. This process leads to significant carbon emissions.
  2. Grey Hydrogen – again using steam reforming, this breaks the hydrogen/carbon bond in natural gas. The resulting carbon by-product is released into the atmosphere.
  3. Blue Hydrogen – the same process as Grey Hydrogen but instead of emitting the CO2 emissions into the atmosphere, the CO2 is captured and sequestered in an underground reservoir. There are currently only two Blue Hydrogen plants in the world and one is using CO2 to flush oil and gas from the storage reservoirs as a cost mitigant of the process.
  4. Green Hydrogen – this uses renewable generated electricity to break the hydrogen/oxygen bond in water through an electrolysis process.

Clearly if our objective is to reduce greenhouse gas emissions, any hydrogen production process that involves carbon emissions needs to be questioned. If we consider the supposed best candidate, Blue Hydrogen, Howarth and Jacobsen* of Cornell University have analysed the carbon emissions of the whole Blue Hydrogen process including the fugitive emissions of methane, and concluded that using Blue Hydrogen as a heating fuel, as proposed by Shell and British Gas, results in 20% higher emissions of greenhouse gases compared with using the natural gas directly.

However, some in the oil and gas sector argue that in the short term, the use of Grey or Blue Hydrogen is a means of establishing the necessary infrastructure to bring hydrogen to the market in an efficient way. This then sets up the base demand and the means of delivery that Green Hydrogen can later take advantage of as the economics of its production are further developed and scaled up. Therefore, the argument is that we should wear a short term carbon cost for a long term gain.

To many this sounds a bit like the thinking behind local laws that required a man to walk in front of a petrol driven horseless carriage in the early 1900’s, waving a sign of the danger of such a vehicle. It had nothing to do with safety, it was to protect the status quo of the horse drawn carriage industry. Both in terms of carbon footprint and cost, it is hard to figure how Brown, Grey or Blue hydrogen can be justified when there are seemingly better clean energy alternatives either on the market or currently being developed.

For instance, let’s consider the passenger car market. Toyota’s Mirai uses hydrogen to feed a fuel cell which then produces electricity to drive an electric motor. While the car only produces water through its exhaust, the amount of carbon emitted in the hydrogen production process whether it be brown, grey or blue means we are no better off than fuelling the car with gasoline. Coupled with the cost of the hydrogen at the fuel pump ($US13-15/kg or ~$US 78 to fill the tank – the retail price of hydrogen in California), the cost of driving Toyota’s Mirai confounds any economics much less its environmental footprint. If the Mirai was filled with Green Hydrogen, the fuel pump cost would be approximately double that of grey hydrogen currently available so we may be waiting a long time before the running costs of this particular car move anywhere near the cost of running a battery electric vehicle (BEV).

So how could hydrogen fit into a clean energy future? It all boils down to whether battery technology can meet the needs of moving heavy transport vehicles. We already know that hydrogen will most likely never compete with batteries in the passenger car market regardless of the cost of Green Hydrogen. However, the one advantage that hydrogen does have over batteries is its energy density. As batteries have about a tenth of the energy density per volume than hydrogen, scaling up batteries to move large vehicles (semi-trailers and ships) requires a compounding weight of additional battery capacity to provide the necessary power and range.

Hydrogen may well compete with batteries in very large vehicle such as ships and depending on the performance of new battery models of trucks, could be an attractive alternative for longer route road transport. We will very soon know the answer as the battery powered Tesla truck and the hydrogen powered Nickola Motor Company truck are both ready for market launch sometime this year. The trucking industry, which is acutely cost driven, will then have the opportunity to provide its verdict within the next 2 years.

Hydrogen may also become an effective option for energy storage in the electricity systems of most countries. Tests have already been conducted to demonstrate that a mixture of hydrogen and natural gas can be used to fuel gas turbines which will be required to provide grid stability and as back up for renewable based systems. In other areas where electricity cannot replace fossil fuels such as in raw steel making, cement production and chemical production, hydrogen will almost certainly be an energy candidate as we progress through the clean energy transition of those industries into a net zero world.

So it is a matter of horses for courses when it comes to which energy technology will best meet each energy need. Hydrogen’s role will become better known in the next 10 years as more technological advances are made in both battery technologies and Green hydrogen production. The relative costs of adopting either energy solution will likely evolve with some dead ends but the market will sort this out so long as Governments do not create distortions through ill focused subsidies and other supports and regulations.

Governments are notorious for not being good at picking winners and losers and spreading the research dollars around more judiciously will certainly help. This will mean dumping dead end technologies such as carbon capture and storage which is now seen generally as a white elephant to prop up the fossil fuel industry along with other follies such as Grey and Blue hydrogen. Transition technologies such as Blue Hydrogen may seem like a good idea but they will only probably delay the day when truly green technologies are adopted to meet our more and more aggressive carbon emission targets.

If it can be economically produced, Green Hydrogen could well be a candidate for use in heavy transport and back-up electricity generation. But that is a big “if”. There is no indication that producing Green Hydrogen for as little as $2/kg (being the point at which it becomes economic), will ever happen. Additionally, just to produce the world’s current hydrogen to meet the chemical feedstock demand, it would take the equivalent of all the world’s current renewable electricity production to meet this production level. Producing hydrogen as a fuel will require a staggeringly large amount of renewable energy that probably would be better focused on meeting the increased electricity needs of householders and businesses.

But if there is any scam involved in the promotion of hydrogen as a clean energy alternative, it is in the marriage of carbon capture and storage with the production of Blue hydrogen. CCS has been proven to be uneconomic in all but the most specific circumstances where CO2 emissions are in high enough concentrations to be viably captured. Otherwise, there are no technical indicators on the horizon that will change this situation despite the many proponents still spruiking its potential.

The potentially greater scandal may be pushing one scam on top of the other if Blue hydrogen is used as the Trojan horse. The move to net zero in 2050 cannot be distracted by technical follies that vested interests are pushing, only to misallocate resources away from the best technologies that are either here now or are rapidly emerging.

Gregory Craven

September 2021

Welcome to 2050

What it is like living with Net Zero and how we got here…

Welcome to net zero in 2050! To understand what net zero looks like and what it means for our every day life, it is all about electricity. Now, electricity fuels our home, our cars, our industry and just about anything that can be moved, heated or cooled. Some petroleum products are still used in a small number of industrial processes (i.e. concrete and petrochemicals) but even they are being transitioned to alternative products or alternative fuels. The process of the clean energy revolution is almost complete.

Surprisingly, little has changed for most people and the cost of living has not increased as predicted by the vested interest politicians who fronted the fossil fuel industry back in the 20’s. Although the climate has continued to warm, communities and industry have learned to be more resilient to the impacts. Assisting the developing world to meet net zero is now the most active area of international assistance to complete the job.

So, what did we need to change here in Australia and elsewhere to meet the net zero carbon target and how were these changes implemented over the past 30 years?

The Politics

The clean energy revolution that was the accumulated reaction to climate change was, by necessity, Government driven. Without any market mechanisms to cost the emission of greenhouse gases into the atmosphere, governments around the world finally came to the table in the early 20’s to chart a course for real action – compared with what had been fudged for the previous 15 years despite the Kyoto II protocols. No one wanted to take significant and costly action alone, especially the conservative politicians in Australia where the demise of six prime ministers over a 15-year period was their reward for either trying to do too little or too much with climate policies.

The breakthrough came in late 2021 in Glasgow when all of the OECD countries plus 110 developing nations committed to net zero 2050. These commitments meant setting interim targets for 2035 which were significantly in excess of each country’s former targets and included specific policies around reducing emissions from coal and petroleum in the energy and transport sectors. Aid packages for developing nations were also put in place in recognition that most countries in the world could not afford the capital for the transition technologies required to meaningfully reduce their carbon emissions.

Australia stopped being the international climate laggard and became one of its climate leaders as a result of it adopting the net zero by 2050 commitment. This was a big step for Australia at the time because it was the largest exporter in the world for both coal and LNG as well as exporting 70% of its agricultural production which also had a heavy carbon footprint.

While governments were held responsible for setting the policy frameworks and financing many of the changes required around the implementation of technological change, the largest shift came from the average person on the street. Governments realised that people’s concerns around climate change could no longer be ignored and globally, a huge political shift came about when the vested interests in the fossil fuel industries took a back seat to the general public’s needs on the issue. People wanted action even if it meant some extra cost and loss of some jobs. Afterall, their children’s long-term welfare was at stake.

The Average Householder

For the average Australian and for most people in the developed world, net zero really has not impacted their day to day lives in any meaningful way. While many technologies were employed to achieve the necessary emissions targets, these were largely in the background or ignored overtime by younger generations as just the way things are.

For those living in the temperate zones who used to heat their house and their hot water with natural gas, it is now all done with electricity. Natural gas was last piped to residential properties in 2035. The heat pumps that replaced gas are reciprocating air conditioners that are 30% more efficient than the reverse cycle units available in the 2020’s. Hot water is heated through heat exchangers on the roof and boosted by the heat pump before being piped into the house. For those living in the tropics, air conditioning to cool houses was always the norm and is used even more now that humidity has increased with global warming. Overall, it is understandable that electricity consumption has increased significantly.

Residential electricity demand is generally met by each individual household’s solar system. The Victorian and NSW governments introduced mandatory 8 kW systems to be installed in all new homes and renovations in 2025. Electricity is encouraged to be used when the solar panels are generating at their peak, so hot water systems, dishwashing and clothes washing are usually done with timers in the middle of the day. As weather extremes have become more frequent, the greater use of electricity for air conditioning coupled with the charging of each household’s electric cars, the average electricity consumption across the country has increased by 40% from around 25 kWh per day in 2020 to 35 kWh per day now. The solar panels that provide this power as well as for storage are a combination of silicon and perovskite which now have conversion efficiencies of 35% on average compared to around 20% in 2021.

At night, power is supplied by battery back ups that include people’s own cars that operate in reverse and supply electricity into the house, small curb side battery farms for localised distribution and grid scale electricity storage systems. Blackouts are a thing of the past given that much less reliance is placed on transmission and distribution systems to transmit electricity over long distances to get to the home.

So apart from the battery electric vehicle (BEV) parked in the garage, very little has changed for the average householder and virtually no change to their quality of life or cost of living. While certain products such as concrete and steel alternatives are more expensive, other costs such as electricity bills have reduced now that residential electricity prices have gone from 22 cents per kWh in 2021 to 12 cents per kWh in 2050. Together with the lower cost of purchasing electric cars and their significantly lower operating costs, the average householder is now $3-5,000 per annum better off.

Small inconveniences such as lighting up the BBQ or wok cooking is still provided by LPG which is the only fossil fuel now allowed in residential areas. Some people still talk in nostalgic terms about the virtues of gas cook tops but most have been converted to the benefits of induction cooking. Of course, the younger generation know as much about cooking with gas as they do about a car that needed to be driven to a dirty service station to put an evil smelling fluid in it that then proceeded to belch cancer causing smoke every time they started it up.

The New Electricity Infrastructure

In 2021, around 60% of the world’s electricity was supplied by fossil fuelled generators and most of this was coal fired. Power generation accounted for 48% of greenhouse emissions in Australia in 2020 so retiring the remaining coal fired power stations was an obvious focus for emissions reductions. In 2050, a few coal fired power stations still operate in developing countries but the last coal fired power station in Australia was decommissioned in 2042 and the last in the developed world ceased operation in China in 2048. 85% of the developed world’s electricity is now generated by renewables with the remaining being provided by nuclear.

The key to employing high levels of renewables was the development of electricity storage systems both on a grid scale and a distribution scale. Several large storage system types have been employed using molten metal, molten salt and liquid air. These grid scale systems have lower energy intensity than chemical batteries which installed in the early 20’s by companies such as Tesla. However, given their locations, the new storage systems do not have to be constrained by their aerial footprint. Several coal fired power stations were also converted to storage systems where the boilers were replaced by graphite contained aluminium which is heated up during the day to then produce steam to drive the old turbines during the night (the last coal fired power station in Australia to be retired was Kogan Creek in Queensland and this was also converted to a storage generation site). The re-use of old power stations had the advantage of utilising the existing transmission systems that had been set up under the old coal fired centralised systems of last century.

Other grid scale systems are located on other parts of the high voltage transmission system such as near solar and wind farms as well as within the existing substations dotted around the metropolitan areas. These substation storage systems have taken up space once occupied by extensive switch yards that have a smaller function given the localised distribution storage systems that now handle the bulk of the distributed electricity. The low cost of these storage systems have helped keep electricity prices down to their lowest levels in 75 years. The most expensive part of the storage system is the so-called Snowy 2.0 which proved to be an expensive lesson in how adopting old technologies to solve 21st century problems can be an expensive exercise.

At the residential level, battery storage predominates with the local distribution companies installing small batteries inside some people’s garages as well as curb side battery units to supply the remaining load such as apartment complexes. The distribution companies alone operate the complex of batteries on their systems to ensure the system is balanced and supply is ensured to all points of the distribution system. In the 20’s, some people installed their own batteries despite these never being economic but now people see the benefits of the much lower cost of a centralised distributed battery system.

Commercial buildings have for a long time generated their own solar based electricity given their large roof top spaces. The introduction of perovskite layers into the windows of office towers and apartment buildings has significantly added to the daytime generation of electricity in large and multi-story buildings. Large battery storage has now been incorporated into the basements of all new buildings for night time usage. Overall however, the commercial office sector is a relatively small user of electricity given that more than half of the office worker population works from home and online shopping represents more than 80% of all sales.

Most industry has always been predominantly electric driven so the transition to even more electricity based processes was a smooth evolution. The main areas of difficulty were in concrete production, raw steel and petrochemicals. Green forms of concrete have been in development for many years now and cross laminated wood as an alternative construction material is used for most multi story buildings below 30 stories. Green steel and recycled steel now predominates although its general level of usage is much lower than in the past as substitutes such as aluminium and engineered wooden products have taken a large part of its previous market share. But it is in the petrochemical area which produce ammonia-based products where the transition has proved the most difficult. These processes have instead bought carbon offsets to continue operating and the offset revenue is used in further research into the development of green alternatives.

The Transport Sector

Australia reached 100% electric cars in 2036 across not only passenger vehicles but also heavy freight given the ongoing progress made with battery technology. The further development of Lithium Iron Phosphate (LFP) and later, Lithium Sulfur (LS) battery chemistry made the combination of lower cost cars and driving range an irresistible combination when compared to the polluting ICE cars. The tipping point had its roots in 2021 when LFP batteries were produced for below the theoretical breakeven point ($US 100/kWh) when it came to comparing the cost of producing an ICE car and a BEV. Once production output was ramped up to meet demand, a wholesale move to electric cars started in 2025. The Australian government did not mandate the phasing out of ICE cars, the market did it for them.

The heavy vehicle market, which is purely operationally cost driven, quickly shed the option of hydrogen fuel cells when it was clear that hydrogen would never get close to the running costs of pure battery vehicles. Hydrogen however, did find niche markets such as heavy duty machinery that needed to be operated continuously over long periods of time in operations that could afford the dedicated fuelling systems required to keep the hydrogen supply available on a continuous basis.

The largest automotive manufacturers today are Chinese who supply 50% of the annual 70 million new car sales across the world. These are generally electric car companies who never made internal combustion engines and therefore had no management baggage when it came to totally focussing their business model on the electric car age. It is also no surprise that the largest auto producer in the world today wasn’t even in business in 2021.

In the aviation industry which accounted for 5% of the old world’s use of oil, electric driven propeller planes for short commutes under 500 km are now the norm. Jet aeroplanes still use the equivalent of kerosene which is now supplied by bio fuels. Plant production for these fuels is strictly controlled to ensure that there is no competition with regular agriculture or degradation of rainforest as was the case with palm oil when it was grown on an industrial scale.

The maritime shipping industry has always been the bottom feeder when it comes to utilising fuels to drive its ships. The industry was always driven by the lowest cost form of energy staring with coal, then low grade fuel oil and then diesel. Major international shipping lines are still able to use natural gas (i.e. LNG) when in international waters but must shift to electric drives once they reach port. Shipping is one of the areas where costs have increased significantly which has had some impact on trade, but this has also encouraged more local manufacturers to set up. Major Chinese companies have established manufacturing bases in Australia, especially in the area of battery production which is largely mechanised.

The Winners and the Losers

  • The Losers

Through any economic revolution there will always be winners and losers. Losers are usually the ones whose business models have been disrupted and it is not surprising that the biggest losers were the fossil fuel companies. Firstly, the coal miners who in Australia were the largest exporters in the world in 2021 have stopped all thermal coal mine operations in Australia. Those coal fired power stations that are still operating in the export counties are now getting their coal from local suppliers. There are still two coking coal mines still operating in Australia but as the transition to green steel is almost complete, these mines are already scheduled for closure sometime during this decade.

The oil industry is now operating at 20% of its 2020 capacity with only 19 million barrels being produced on a daily basis. The loss of the freight and passenger vehicle transport sector which made up 45% of the oil barrel left the oil industry reeling. The industry analysts who had convinced their managements that global growth would offset the losses from electric vehicles, had grossly underestimated how quickly the change to BEV’s would occur. In 2021, the Chinese battery producers brought battery costs down to $93/kWh which meant that BEV’s were then cheaper to produce than ICE’s. It took another 4 years for production capacity to meet demand and suddenly the tipping point for the move to BEV’s started in earnest. By 2030, the value of an ICE car had diminished so much that most owners were offloading their now obsolete vehicle for scrap value only. GM, Ford and Toyota all had to be bailed out by their respective governments because they had not moved fast enough to make the change to BEV’s and could not recover fast enough to avoid the trap of a catastrophic cost/revenue imbalance. These iconic brands were eventually merged into the new electric start-ups by private equity. Who would have thought that these once famous car companies would go the way of Nokia and Kodak?

The large oil countries that produced lighter oils that were once preferred to make gasoline and diesel have generally hit hard times. Saudi Arabia was the first to fall as oil prices collapsed in the lead up to 2030 and their once welfare-based economy quickly collapsed leading to the royal family to be overthrown in 2038. Russia which also relied heavily on oil as its primary source of foreign currency is also doing it hard but is gradually transitioning to a broader based economy on the back of its diverse resource base.

Alternative energy sources such as hydrogen was an early casualty. Despite billions being poured into projects to produce so-called blue and green hydrogen as an alternative fuel, it soon became apparent that the proponents of hydrogen never had a business case that would make hydrogen compete either economically or environmentally with battery technologies. 100 million tonnes of hydrogen is still produced to supply the petrochemical industry which has no alternative. The hydrogen is produced partly by electrolysis fuelled by renewables but the vast majority is still from the steam reforming of natural gas. The carbon emissions from this process are offset from carbon credits purchased on the international market set up in 2025.

While it is easy to have little sympathy for certain businesses and corrupt political regimes that did not survive the clean energy revolution, it is harder to dismiss the human tragedy of people who could not make the transition, either by their own intransigence or because they were ill equipped with other skills to find employment elsewhere. It is generally accepted that a full 3% of the workforce permanently lost their jobs in businesses directly or indirectly associated with the fossil fuel business. However, it is also estimated that there were 5% more jobs created through the many new jobs involved in such a fundamental move away from a carbon-based economy to a clean and technologically based economy. Nevertheless, the loss of carbon-based jobs is still being felt in 2050.

  • The Winners

The obvious winners from the full adoption of the clean energy revolution and the successful meeting of the 2050 target are the people. The air is cleaner, people are healthier and food is more nutritious given that it is now more locally sourced.

New businesses are also big winners. Horticultural food production near capital cities is often coupled with solar power production and water purification. IT services ubiquitously service every aspect of our lives from our home office to the management of the electrical system to the network of autonomous vehicles that are the main form of transport around metropolitan areas.

As one of the largest lithium producers in the world, Australia was an initial winner given that lithium remains the most commonly based chemical battery component through the many development iterations that this class of electrical storage went through over the past 30 years. However, 80% of lithium is now sourced through recycling and the remaining lithium producers are the low cost producers in Chile and Russia. Only two lithium operations are currently operating in Australia. However, aluminium and copper are the two most used metals in the new electricity-based economy and Australia has become one of the world’s largest producers of these commodities. Not just because Australia is a major producer of both bauxite and copper ore, but because it has become a solar powerhouse which has some of the cheapest power prices in the world in Western Australia. Aluminium and magnesium are more or less forms of frozen electricity and the combination of mineral resources and solar energy has kept Australia in a significant position of competitive advantage in this area.

Overall however, the biggest winner has been China. The Chinese industrial complex was an early adopter of battery development and electric machinery in general to meet the future needs of the clean energy society. It is now the largest economy in the world and dominates both world manufacturing and research and development. China had its own problems meeting its 2050 commitments but probably because of its more centrally administered government structure, it more easily coped with the policy decisions that were needed to be made in a timely manner, no matter the cost. This unfortunately played further into the hands of the communist party which has maintained its control over the populace because it has continued to deliver outcomes for the people that they value. Of course, this was achieved at the cost of individual freedom which seems to elude every generation of young Chinese who may seek something different.


 The jury is still out and whether the world can avert the worst aspects of climate change. The earth continues to warm and it is predicted that we will not stop that warming from tipping over 2 degrees Celsius above pre industrial levels by the end of this century. While the CO2 concentration has started to level off, the long-term impacts of our emissions over the years will continue to have an impact for decades to come given the residence time that CO2 has in the atmosphere. While we have largely eliminated methane emissions from our industrial processes, natural seepage from the Siberian tundra and shallow ocean hydrates continues to be a threat to our greenhouse reduction efforts.

Whatever the long-term outcome, we can be proud of the international response to climate change and the continued efforts to assist the developing world to make this a global achievement. We got a late start to the challenge because of our entrenched embrace of the fossil fuel industry and what it had done for us in the past, but we continue to hope that it is not too late. After all, the ultimate mark of our humanity is our positive spirit to survive.

Author: Gregory Craven

October 2021

The Politics of Climate in Australia

There exists a political conundrum in Australia that exceeds any other in living memory. While there is a high level of concern among average Australians that climate change is an existential threat, there is a commensurate political reluctance to do anything about it. Surveys show that at least 85% of Australians believe that climate change presents a threat to our future quality of life. However this sentiment has been stubbornly translated into a political resistance to act that has not gone unnoticed by the rest of the developed world which views Australia as one of the weakest climate actors in the world.

And this is not a recent phenomenon. In the late 1990’s, the Howard Government set a target for Australia to generate 10% of its electricity from renewables (aside from hydro) by 2010. Within a short time, this was reduced to 2% much to the chagrin of investors in the nascent wind energy industry. Howard later refused to sign the Kyoto Protocol leaving Australia exposed on the international stage. At the same time, a future prime minister in Tony Abbott supported the concept of putting a price on carbon as a market-led shift to clean energy. In a few short years Abbott won a federal election at least partly on the basis of promising to remove that price. It is arguable that every prime minster in Australia this century has lost their job because of the position that they have taken on climate. Our latest prime minster, Scott Morrison, may well become the latest victim.

So what is it about climate and energy policy in Australia that makes it such a toxic subject? A subject so rent with potential downsides that politicians are prepared to take the risk of adopting such a contrary stance to the general population. Why is it that an issue that has way more support than the gay marriage plebiscite, is one that also languishes in a half-hearted set of policies that are both confusing and quite frankly, anti-business?

Part of that answer is that climate action by definition, is a political process. Unlike the industrial and technology revolutions of the past 200 years that were driven by market forces directing capital into those areas of consumer demand, the clean energy revolution is Government driven as a response to the threat of the Earth becoming uninhabitable in 100 years. While high levels of Government planning and investment may be tolerated in times of war and other crises, climate change to date has struggled to meet the trust test that first must be passed. Instead, the power of the vested interests in fossil fuels have mobilised to make Government action seem like an anti-business, employment reducing threat with questionable scientific analysis to back it up. One is reminded of the tobacco companies of the 60’s and 70’s to see the tactics being employed.

The standard anti-action rhetoric usually goes like this. Australia produces 1.3% of the world’s carbon emissions and regardless of how much we do, it is going to have a negligible impact. So, why should Australia destroy its economy to just make itself feel good on the international stage? Moreover, unless China is the prime mover and does the heavy lifting, nothing significant can be achieved anyway.

It is certainly true that nothing effective can be done without China being fully on board. However, Australia is not the minnow that the conservative forces would have you believe. While Australia is the 14th largest carbon emitter in the world, if we add our coal, LNG and agricultural exports into the equation, we are the 3rd largest emitter and producer of carbon-based products. Whether Australia likes it or not, we are a major player that many countries still look to for both moral and economic leadership in matters that affect the world. To pretend otherwise is to both ignore the physical reality of our emissions as well as the damage that is already being done to Australia’s reputation as a fair player.

And China, being the largest emitter in the world that will also continue to increase its emissions until 2030, has begun to step up. They have already committed to reach net zero emissions by 2060 and world pressure is likely to be brought to bear to bring them into line with the rest of the world’s 2050 ambition. If Australia remains on the sidelines as we now are, the build-up of world pressure to bring China into a leadership role will be made all the harder.

Like many conundrums, truth is often found by following the money. Currently, Australia is the largest coal and liquefied natural gas (LNG) exporter in the world. Indeed, these two commodities alone make up 25% of Australia’s almost $A 500 billion of annual exports. Australia also exports 70% of its food production and the bulk of its semi refined minerals such as alumina. Overall, Australia’s exports are carbon heavy and are therefore vulnerable to trade restraints such as carbon border taxes that the EU is already talking about introducing. On the other hand, the economic might of Australia’s exporters cannot be underestimated and their influence on the current Coalition Government’s climate stance is clearly evident.

And this stance is highlighted by the influence of the National Party which has shifted its weight squarely behind the fossil fuel industry and some argue, at the cost of their traditional backers in the agricultural sector. One only has to look at the 2019 federal election where the “miracle win” was delivered by the Nationals, principally in Queensland’s coal centres. With the return of Barnaby Joyce as the National’s leader and Deputy Prime Minister, the National’s anti-climate action rhetoric has ramped up with the northern Queensland senator Matt Canavan, outwardly defying the Liberals attempts to look more moderate. He instead continually plays to his constituency in the coal regions of Queensland, falsely claiming that coal fired power generation will bring cheap electricity and with it, more jobs for Queensland. Never an opportunity passes when he reminds people that he is willing to get his face dirty with coal dust to protect their long term economic interests.

While the Nationals continue to differentiate themselves from the latte sipping intellectuals in Sydney and Melbourne, the Coalition Government is desperately trying to play two sides of the street. While they have indicated their willingness to help the development of new industries such as hydrogen, they continue to pour most of their investment into fossil fuel based measures such as carbon capture and storage ($4 billion) and propping up two domestic oil refineries ($2.4 billion). In the meantime, the committee set up to recommend a post COVID economic recovery was stacked with oil executives who produced an unsurprising plan based on increasing the supply of natural gas. They even gave $3.6 million to an inexperienced company to conduct a feasibility study for a coal fired power station at Collinsville in northern Queensland. A ten-minute back of the envelope analysis would have shown the folly of such a project. Meanwhile, insufficient government support is being given to universities in Melbourne and Brisbane which are developing world leading new battery technologies that could solve the energy storage problem that a clean energy revolution will demand.

The Coalition’s strategy is to formulate policies around trying to keep the exports receipts from carbon exports flowing while making noises about addressing climate change in an economically responsible way. Barnaby Joyce is more forthright in telling the nation that he will not support net zero by 2050 until the planned actions are properly costed and the economic impact properly assessed. He neglects to mention however, that he is the Government and he as Deputy Prime Minister is in a powerful position to demand such an analysis. Of course, he will not call for this because the absence of such analysis will enable him and his Queensland colleagues to continue to make outrageous claims about the cost to Australia of pursuing significant emission control policies.

And the focus on the cost side of the equation further enhances the National’s position. By highlighting the costs of restructuring the economy away from fossil fuels both in terms of capital investment and the loss of jobs, keeps the conversation in the negative. The cost of doing nothing however is something they do not, or cannot acknowledge. Indeed, many of the adverse climate outcomes will be rejected by the Nationals anyway as unscientifically proven regardless of the evidence that is mounting around the world. But what is hard to understand about the National’s posturing, is the looming cost to our farmers and ultimately the fossil industry itself of carbon border taxes that will be targeted against freeloaders such as Australia. It is no wonder then that the Australian Farmers federation and many of the energy company and miners have embraced the “net zero by 2050” target in recognition of these threats.
So where are we likely to go from here? With November’s world climate council meeting in Glasgow a short time away, Scott Morrison is under building pressure to take some meaningful forward commitments to that meeting so that Australia is no longer seen as sitting on the side lines of climate action.

He is therefore positioning himself to do a deal with Joyce that presents a compromise between the two parties’ positions while not scaring away the punters in the lead up to the next election. That compromise is likely to include certain exemptions for the agricultural sector and a commitment that fossil fuel exports remain untouched. Some form of statement on the development of new coal mines that fudges their future environmental approval will also be hashed out. However it may come out, the PM’s army of PR consultants will have worked the compromised position as a breakthrough that only strong leadership can produce.

And this political messaging will be facilitated by the Newscorp who have recently come out as supporting climate action after years of promoting anti-climate positions by giving voice to many conservative commentators such as Andrew Bolt and others. While editors in the Murdoch stable will continue to claim that they are free to continue to air both sides of the issue, they know that Rupert has made a fundamental shift in his position and will not do anything to upset him. Such is the unspoken direction of the Murdoch press.

Meanwhile, the other side of politics has retreated to maintain a small target strategy for as long as possible in the lead up to the federal election. Burnt by what were considered aggressive climate positions in the past when the electorate was probably not ready for change, the Labor Party is probably now being too careful so they cannot be painted as the enemy of major Australian industries. It is quite possible however, that they have again misread the electorate and may well be seen as not aggressive enough. Such is the mood swing of an Australia where the ravages of the recent fires and drought still haunt people who once thought that we had more time to act.

The politics of climate in Australia over the past 20 years have produced mostly negative outcomes for both Australia’s standing in the world and the economic advantages that could have been captured by leveraging Australia’s natural advantages in a clean energy revolution. While China ramps up their new energy industries to lead the world in such areas as solar energy and electric cars, Australia is still caught arguing over whether it should move on from our unsustainable old world industries. Again, Donald Horne’s Lucky Country probably best describes the malaise. Australia, with all of its boundless natural resources, will probably muddle through and succeed to some degree despite our breathtakingly mediocre political leaders.

One thing is for certain however. Australia will miss many of the opportunities to excel in the clean energy revolution just as we have missed opportunities in the past. But don’t fret. We will continue make money as the world’s mine and ship our resources to other countries so that they can add value to them (and then sell them back to us). Such is the Lucky Country.