06-23 -- Supply AND Demand? Scenarios for decarbonizing
Decarbonization is the fundamental challenge of our time. For more than two centuries, fossil fuels have fired the global economy. With that unprecedented power came unprecedented global impacts, and climate scientists estimate that we have 7 years to cut global carbon emissions in half if we hope to see less than catastrophic global warming. People have proposed endless solutions to reach that goal - from electric cars to replanting the Amazon to shutting down oil extraction. There is really only one consensus - this is going to take all hands on deck, not just one approach. With this in mind, Chris Kennedy and colleagues decided to investigate the economic optimization of such an all-in approach. They point out, asynchronous decarbonization of supply and demand could result in far less than optimal outcomes for individuals and the economy - in other words, it takes infrastructure to bring gasoline from the well to the gas pump. It also takes infrastructure to get electricity from the plant (or panel) to the plug. So as the vehicle fleet electrifies, how will supply-side infrastructure respond, and what are the implications for the economy and the environment?
Kennedy et al. use scenario analysis to identify the key drivers of environmental and economic performance in decarbonization pathways. They found a few key things:
To optimize the infrastructure pathway, it is necessary to rapidly transform the entire vehicle fleet over a period of 4-5 years. This is far more aggressive than current scenarios that suggest all new cars be electric by 2025 or 2030 (but don't call for ICE retirement en masse), but the authors find that these "new car" plans result in substantial new investment in oil infrastructure - infrastructure that goes on to be retired before the end of its useful life as oil demand falls.
Depreciation rates for electricity infrastructure vary considerably. For example, it is almost certain that some new petroleum pipelines will become stranded assests in anything but the most aggressive decarbonization scenarios - since they depreciate so slowly, they will long outlive gas-powered transportation, even though they're required to meet demand in the short term. These depreciation rates must be considered as decarbonization pathways are considered, since stranded infrastructure will represent significant carbon and cash inefficiencies.
Wind and solar infrastructure depreciates slower than gas infrastructure - in other words, wind and solar investment is likely to peak during scaling-up, and the overall rate of investment in the system is likely to be lower after the transition occurs. The depreciation rate of oil infrastructure can provide a guide for the rate of this investment, since allowing old infrastructure to go offline alone is enough to reach most IPCC targets for emissions reduction. In other words - invest in renewables now, invest in renewables heavily, and we are much less likely to be burdened with energy costs for the foreseeable future.
Decarbonization requires an all-in approach. And an all-in approach requires us to think seriously about both the economic and environmental implications of infrastructure investments today and tomorrow. More to the point, it requires us to plan these investments in conjunction with broader demand-side action. Kennedy et al. trace the conclusions from this line of thinking, arguing that infrastructure investment must be a key consideration in broader policy planning for a sustainable future. There's a lot more to learn from this interesting paper, including broader implications of depreciation-based mitigation and adaptation planning. Highly recommend everyone take a look at it.
Kennedy, C. A., Sers, M., & Westphal, M. I. (n.d.). Avoiding investment in fossil fuel assets. Journal of Industrial Ecology, n/a(n/a). https://doi.org/10.1111/jiec.13401