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The race is on to create a new world of energy

June 20, 2009

We stand at the early dawn of a new energy future. It will be powered by alternative energy and cleaner fossil fuels. If governments adopt the right rules and incentives, by the middle of this century renewable sources will provide nearly 30 per cent of the world’s energy. Society will be on the road toward sustainable mobility. The world’s highways will rumble and whir with vehicles powered by all manner of energy: petrol, diesel (yes, still there), electricity, biofuels, natural gas and hydrogen.

In the years ahead, conventional diesel and petrol cars will go increasingly far on every litre of fuel. Biofuels will account for up to 10 per cent of liquid transport fuel in the next few decades. Our Shell scenario-makers think that by 2020 up to 15 per cent of new cars worldwide could be hybrid electrics, such as Toyota’s Prius, some of them capable of plugging in to recharge their batteries. After 2030, fuel cell vehicles powered by hydrogen will be a small but growing part of the fleet. By 2050, more than a billion extra vehicles are expected on the world’s roads, more than double today’s total.

Greater variety of fuel choices will be a boon for consumers. Different fuels will be stronger in different regions. In South America, biofuels will likely predominate. In Brazil, ethanol from sugar cane already supplies more than 40 per cent of demand for petrol. China, meanwhile, plans to expand production and use of hybrid and electric vehicles, tapping its vast coal deposits to generate power.

As more vehicles go electric, the environmental footprint of the world’s power generators will become even more important. Wind, solar and hydropower will account for 30 per cent of electricity generation by 2030, up from about 18 per cent today. Many new coal-fired power plants are expected to capture CO2 emissions and store it safely underground, rather than pump it into the atmosphere. Plants increasingly will turn coal into a gas, rather than burn it. They will then burn the gas to generate power, or use it as raw material for a variety of chemical products, while CO2 will be captured and stored. Such integrated plants will begin to resemble refineries. Likewise, refineries can gasify heavy oils — and use the gas to produce hydrogen — and generate heat and electricity — while capturing and storing the CO2.

Indeed, fossil fuels, coal, oil and natural gas, will continue to provide more than half the world’s energy in 2050, building a long bridge to an era when alternatives can take over. A growing population and higher standards of living for billions of people in the developing world will mean that we need all available sources of energy to keep the world’s economies humming. So, while the world races to build up alternative fuels, it must also find new sources of fossil fuels, including unconventional ones, such as oil sands. And we must accelerate efforts to make fossil fuels cleaner, by reducing the CO2 emitted in their production and use.

None of this will be easy, or cheap. Industry and government regulations must change on a huge scale and at an unprecedented pace. According to the International Energy Agency, by 2030 we will need to invest $5.5 trillion merely in renewable energy. That’s like buying more than 18,000 Boeing 747 jumbo jets at $300 million apiece (only about 14,000 have been built since its introduction in 1970). Billions more must go into upgrading electricity transmission networks to handle increased demand and the on-and-off power generated by wind and solar.

Much of this money will come from private companies, but governments will need to continue using tax credits and other incentives to encourage the growth of renewables. They are still small relative to the world’s overall energy needs. Including hydropower, renewables account for about 7 per cent of global energy. Wind today supplies about 1 per cent, with approximately 70,000 turbines. Biofuels, thanks partly to billions of dollars in government subsidies, now also supply about 1 per cent.

To judge from society’s experience with nuclear power and other technologies, new energy sources take at least 25 years to reach significant scale. To illustrate the challenge, in the case of wind the world will need another 1-1.5 million turbines covering an area nearly the size of France in order to reach 10 per cent of the electricity generated by 2030. That means expanding today’s worldwide turbine production of about 15,000 a year to just under 100,000 a year by 2030.

Energy companies are already preparing for the future, increasing production of natural gas, the cleanest fossil fuel, investing in renewables, such as sustainable biofuels, and researching ways to capture CO2 and store it safely underground. But the enormity of the challenge means that government should do its part to encourage society’s shift to a new energy system. For instance, new technologies with great promise to reduce CO2 emissions will require initial government support to achieve quickly the scale necessary to have real impact.

One critical step is to put a price on greenhouse gas emissions — doing so in all leading countries, not merely a few. I prefer a system that caps emissions and allows companies to trade emission allowances, as Europe’s already does. Cap-and-trade systems should encourage a relatively steady CO2 price, which will have the strongest influence on energy consumers’ behaviour and on the efficiency designed into factories, homes and offices. It will also harness the ingenuity of industry and channel investment to the most efficient emission reductions.

While energy policy can drive technology, it may ultimately raise costs and be politically unpopular. As society and political leaders face difficult choices, they should remember that failure to act now could force us into more painful choices down the road.

Influencing consumer behaviour may prove toughest of all. While technology will give society greater energy choices, it remains unclear whether people are willing to become better users of energy.

Despite the massive hurdles, the push to create a new energy system will benefit us all. It will reverse the rapid rise in the greenhouse gas emissions responsible for global warming. It will provide new business opportunities for companies and entrepreneurs. It will create well-paid jobs in a thriving new industry. Competition among energy sources will drive innovation, keep energy affordable and increase global energy security. The race is on.

• Jeroen van der Veer is the departing chief executive of Royal Dutch Shell


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