There’s some good news for the planet amid the coronavirus pandemic. With the global economy stalled, energy forecasters believe that demand for oil won’t return to 2019 levels until at least 2022. Energy futurists have a more confident prediction: Oil demand is never coming back.
There will still be ups and downs, of course. Yet it is indisputable that the hydrocarbon business has entered a period of decline. Despite all the maneuvering for continued subsidies by the coal and shale fracking industries, there is no escaping the red ink as major oil companies pull back from new investments and controversial coal projects are mothballed. Cleaner energy is becoming cheaper all the time, and it has become fashionable for major corporations to assert their environmental bona fides, at least on paper. Exxon’s share price over the past six months is just one indication of this new world order.
But the decline in emissions is not happening nearly fast enough. To avoid the worst effects of climate change, the world’s top climate scientists say we must halve greenhouse gas emissions within the next 10 years, and achieve net zero emissions by around midcentury. As it stands now, the world is on track for 3-4 degrees of warming by the end of the century, triggering a series of cataclysmic “tipping points” in the process.
The incoming Biden administration has promised to be science driven, bringing back Obama era plans to require every federal agency to address climate resilience and strengthen the EPA’s mandate to enforce regulations. That would be a good start, but it’s still nowhere near what is required to transform the U.S. economy.
The solution is not mere accounting level schemes, but aggressive decarbonization of all major industries.
The solution is not mere accounting level schemes such as cap-and-trade, but aggressive decarbonization of all major industries, from energy and agriculture to transportation, construction, and manufacturing. The less oil we consume, the larger the supply that remains. Our only hope is to attack the demand side of the equation.
It won’t be easy. If society is to make a meaningful attempt to reduce its environmental footprint, we must begin with a total accounting of how energy is used at every step of our supply chain: not just the energy required for combustion or electricity, but also the energy costs of extraction, processing, transportation, and disposal of everything that we utilize, consume, wear, eat, and discard. The hard truth is that the bulk of global greenhouse gas emissions cannot be attributed to a single sector.
Instead of instinctively pointing the finger at the usual suspects, we should look around us to see how embedded carbon is with nearly every component of modern society. Take cement for example. It is estimated that the cement industry accounts for 8% of the planet’s anthropogenic CO2 emissions. Eight percent. From cement. Looking at it another way, cement contributes more to global CO2 emissions than most countries.
Shipping is another often overlooked sector, even though it represents the very arteries of global trade. Maritime freight and cargo represent somewhere between 2.2% and 3.1% of total global emissions—on par with global aviation. Since most of what we buy was actually made somewhere else, it is clearly an irresponsible analysis that leaves the costs of moving items in bulk across the world’s oceans out of the cost of goods.
These energy costs may be accounted for on the balance sheets of manufacturers and transporters, but they become invisible when they are passed along to consumers. As a result, we have no idea what energy really costs when we fill our gas tank or pay the monthly utility bill, let alone when we buy a hamburger. Imagine a world in which restaurants disclosed carbon emissions just as some menus list calories.
Of course, consumer behavior is just one facet of the climate problem. The more powerful lever exists on the investment side, where venture capitalists and portfolio managers steer trillions of dollars in economic activity. There has been some progress in this realm, as more and more funds consider Environmental, Social, and Governance (ESG) factors in their screening criteria. But ESG is of limited utility without a rigorous methodology for tracking energy flows across supply chains, from individual components through finished products.
A more promising framework, called Life Cycle Analysis (LCA), provides a more comprehensive accounting of the full end-to-end resource consumption involved in the production and delivery of goods and services. Talk of the “circular economy” is gaining ground in boardrooms and communities, and its achievement rests on the principles of LCA. Neither trillion-dollar asset managers seeking ESG-rated investments nor cities pursuing a more circular economy are immune from the full accounting of sustainability. We can no longer isolate “energy companies”—we are all energy companies now.
Michael Ferrari is managing partner at Atlas Research Innovations and a senior fellow at the Wharton School. Parag Khanna is founder and managing partner of FutureMap and author of numerous books, including Connectography.