How hackers and geopolitics could derail the planned energy transition

This image shows an onshore wind turbine in the Netherlands.

Mischa Keijser | Image Source | Getty Images

Discussions about the energy transition, what it means and whether it’s actually underway at all, have become major talking points in recent years.  

How the transition — which can be seen as a shift away from fossil fuels to a system dominated by renewables — pans out remains to be seen.

It depends on a multitude of factors, from technology and finance to international cooperation. While crucial, all are bedeviled by a great deal of uncertainty and risk.

The above topics were considered in detail during a panel moderated by CNBC’s Dan Murphy at the Atlantic Council’s Global Energy Forum in Dubai on Tuesday.

“At the heart of the energy transition is digitalization,” Leo Simonovich, who is vice president and global head of industrial cyber and digital security at Siemens Energy, said.

“In the energy sector, 2 billion devices are going to be added over the next couple of years,” he said.

“Every one of those devices could be a potential source of vulnerability that could be exploited by bad actors.”

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Expanding on his point, Simonovich explained the potential consequences of the above happening. “In a system that is increasingly connected and digitized, that includes legacy assets in need of digital assets, this could have cascading effects,” he said.

“And what we’re talking about is not just loss of data, what we’re really talking about is a safety issue, one that could bring down major parts of the grid or, as we saw with the Colonial Pipeline attack in the United States, parts of [the] gas network.”

Cybersecurity, Simonovich argued, was important both as “an opportunity to accelerate the energy transition if we can get it right because it builds trust, but also as a major source of risk that we need to address pretty urgently.”

Geopolitics

Alongside cybersecurity, geopolitics will also have a role to play if the planet is to shift to a low-carbon energy system, a point forcefully made by Abdurrahman Khalidi, chief technology officer of GE Gas Power, EMEA.

“It took the world several decades, until 2015, to arrive at almost a consensus in Paris, that global warming is happening and it’s due to greenhouse gases and the commitments started flowing,” Khalidi said. “It took us a lot of debate.”

Khalidi’s mention of Paris refers to the Paris Agreement, which aims to limit global warming “to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels” and was adopted in Dec. 2015.

“For decarbonization to happen — as we saw in COP26 — you need … cooperative and collaborative world governments,” he said. “The risk I see right now [is that] the world is sharply polarized and the world is being divided along ‘with’ and ‘against’.”

Khalidi’s comments come at a time when Russia’s invasion of Ukraine has highlighted just how reliant some economies are on Russian oil and gas.

While the war in Ukraine has created geopolitical tension and division, it has also resulted in a number of initiatives defined by cooperation and shared aims.  

Last week, for example, the U.S. and European Commission issued a statement on energy security in which they announced the creation of a joint task force on the subject.

The parties said the U.S. would “strive to ensure” at least 15 billion cubic meters of extra liquefied natural gas volumes for the EU this year. They added this would be expected to increase in the future.

President Joe Biden said the U.S. and EU would also “work together to take concrete measures to reduce dependence on natural gas — period — and to maximize … the availability and use of renewable energy.”

Investing wisely

Given that fossil fuels play such a major role in modern life, any transition to an energy system and economy centered around renewables and low-carbon technologies will require a vast amount of money.

During Tuesday’s panel, the question of where this cash should be invested was tackled by Kara Mangone, who is global head of climate strategy at Goldman Sachs. Among other things, she stressed the importance of integration and commercial viability.

“Our research estimates that it’s going to take anywhere from 100 to 150 trillion [dollars] in capital, about 3 to 5 trillion a year — just an astronomical amount, we’re nowhere near that today — to deliver on the goals that were set forth in the Paris Agreement,” she said.

Around half of this capital would need to be focused on renewables and technologies that were already at a commercial scale, Mangone explained.

“But the other half, very importantly, will need to go into carbon capture, into hydrogen, into direct air capture, into sustainable aviation fuel, e-fuels — technologies that are not yet being adopted at commercial scale because they have not hit the price point where that can happen for a lot of companies.”

The trillion-dollar figures Mangone refers to are found within a report entitled “Climate Finance Markets and the Real Economy” which was published in late 2020. Goldman Sachs says it joined the Global Financial Markets Association Climate Finance Working Group to help inform the report.

Mangone went on to lay out how goals could be achieved in a commercially viable way.

“We cannot pull out financing from … the oil and gas sector, metals and mining, real estate, agriculture — these sectors that are really crucial to transition, that actually need the capital, that need the support to be able to execute on that.”

The above viewpoint follows on from comments made Monday by Anna Shpitsberg, deputy assistant secretary for energy transformation at the U.S. Department of State.

“We have always come out and said [the] oil and gas industry is critical to the transition,” Shpitsberg, who was speaking during a panel moderated by CNBC’s Hadley Gamble, said.  

“They are players in the energy system, they are key players,” she said. “They are the ones that will be pushing abatement options, they’re the ones that will be pushing hydrogen options.”

“And to be quite honest, they’re some of the ones that are putting significant investment into clean energy, including renewables.”

If these “critical stakeholders” were not engaged, Shpitsberg argued that goals relating to methane reduction and efficiency would not be reached.

“The messaging has been oil and gas companies have to be a part of the conversation. But we want them also to be a part of the conversation on the transition.”

Work to be done

Game-changing hydrogen could play a big role in the energy transition

Ships sailing into the port of Rotterdam in February 2022.

Federico Gambarini | Picture Alliance | Getty Images

Concerns related to both the energy transition and energy security have been thrown into sharp relief by Russia’s invasion of Ukraine.

Russia is a major supplier of oil and gas, and over the past few weeks a number of major economies have laid out plans to reduce their reliance on its hydrocarbons.

On Friday, the U.S. and the European Commission issued a statement on energy security in which they announced the creation of a joint task force on the subject. 

The parties said the U.S. would “strive to ensure” at least 15 billion cubic meters of extra liquefied natural gas volumes for the EU this year. They added this would be expected to increase in the future.

Commenting on the agreement, President Joe Biden said the U.S. and EU would also “work together to take concrete measures to reduce dependence on natural gas — period — and to maximize … the availability and use of renewable energy.”

All of the above speaks to the huge task facing governments around the world who say they want to reduce their reliance on fossil fuels, prevent the worst effects of climate change and simultaneously safeguard energy security.

The challenges and opportunities facing the energy sector were addressed on Monday during a panel discussion at the Atlantic Council’s Global Energy Forum in Dubai, United Arab Emirates.

During the panel, which was moderated by CNBC’s Hadley Gamble, the CEO of Italian oil and gas firm Eni sought to highlight the current tensions facing his sector.

Claudio Descalzi said, historically, a wide variety of resources had been harnessed. “We know very well that in the last 200 years, all the different energy vectors [have] … been added,” he said. “So coal, plus oil, plus gas and plus renewables.”

“We never found a source, or energy source, that replaced everything. It’s crazy to think that there is something that can replace everything.”

Others speaking on Monday included Anna Shpitsberg, deputy assistant secretary for energy transformation at the U.S. Department of State.

Shpitsberg said that while the U.S.-EU task force would focus on areas like securing LNG supply, it would also look to provide “some certainty to U.S. producers that will be amping up and surging supply into Europe over the long term and up to 2030.” Permitting and infrastructure would also be areas of focus, she explained.  

It was also important not to compromise the energy transition, she acknowledged, before going on to reference the argument put forward by Eni’s Descalzi.

“To the comments that were made that we cannot rely on one technology, just like we cannot rely too heavily on one supply route, it is the reason that we’re putting so much money into hydrogen.”

Shpitsberg called hydrogen “a game-changing technology that speaks to a variety of other sources … because it can underpin nuclear, it can underpin gas, it can underpin renewables, it can clean a good portion of it and so can CCUS [carbon capture utilization and storage].”

“So for us, it’s making sure that the market has enough signals, it knows the regulatory environment will support the signals for current energy security,” she said.

“But we are sending, also, all the resources we can toward the transition. It’s why we’re putting billions of dollars into hydrogen R&D.”

‘Versatile energy carrier’

Described by the International Energy Agency as a “versatile energy carrier,” hydrogen has a diverse range of applications and can be deployed in sectors such as industry and transport.

It can be produced in a number of ways. One method includes using electrolysis, with an electric current splitting water into oxygen and hydrogen.

If the electricity used in this process comes from a renewable source such as wind or solar then some call it green or renewable hydrogen.

While there is excitement in some quarters about hydrogen’s potential, the vast majority of its generation is currently based on fossil fuels.

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Others speaking on Monday included Majid Jafar, CEO of Crescent Petroleum.

Again, Jafar made the case for gas’ importance in the years ahead, calling it “a fundamental enabler of renewables” because it backed up their intermittent supply. It was also, he claimed, “the path to future technologies like hydrogen.”

Monday’s panel bookends a month in which the International Energy Agency reported that 2021 saw energy-related carbon dioxide emissions rise to their highest level in history. The IEA found energy-related global CO2 emissions increased by 6% in 2021 to reach a record high of 36.3 billion metric tons.

In its analysis, the world’s leading energy authority pinpointed coal use as being the main driver behind the growth. It said coal was responsible for more than 40% of overall growth in worldwide CO2 emissions last year, hitting a record of 15.3 billion metric tons.

“CO2 emissions from natural gas rebounded well above their 2019 levels to 7.5 billion tonnes,” the IEA said, adding that CO2 emissions from oil came in at 10.7 billion metric tons.

How the fossil fuel industry is pushing plastics on the world

We’re in the midst of an energy transition. Renewable power and electric vehicles are getting cheaper, the grid is getting greener, and oil and gas companies are getting nervous.

That’s why the fossil fuel giants are looking towards petrochemicals, and plastics in particular, as their next major growth market.

“Plastics is the Plan B for the fossil fuel industry,” said Judith Enck, Founder and President of the nonprofit advocacy group Beyond Plastics.

Plastics, which are made from fossil fuels, are set to drive nearly half of oil demand growth by midcentury, according to the International Energy Agency. That outpaces even hard-to-decarbonize sectors like aviation and shipping.

“Every company who is currently engaged in producing plastic, if you look at their capital budgets for the next two to three years, they’re all talking about expansion plans,” said Ramesh Ramachandran, CEO of No Plastic Waste, an initiative from the Mindaroo Foundation that’s working to create a market-based approach to a circular plastics economy.

Yet much of the developed world is already awash in plastics. So fossil fuel and petrochemical companies are relying on emerging economies in Asia and Africa to drive growth.

Plastic floods the developing world

Alan Gelder of Wood Mackenzie forecasts that every year through 2050, there will be 10 million metric tons of growth in the market for petrochemicals, which are used to make plastics and other products. He says much of that will be shipped overseas.

“We’re not expecting demand growth in the U.S., but it could be where the places where facilities get built to satisfy global demand growth.”

A sanitary worker deals with an influx of plastic bottles at a recycling center in Serbia

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Alongside Middle Eastern oil giants like Qatar, Saudi Arabia and the UAE, the United States is a leading producer and exporter of plastic feedstocks and polymers. Asia in general, and China specifically, are the largest importers of these plastic building blocks.

But Enck doubts consumers actually want more plastic “So what is driving this, is just this glut of fracked gas and the fossil fuel industry teaming up with the chemical industry to just crank out more and more plastic.”

Indeed, an Ipsos survey of over 19,000 adults found that 71% of consumers worldwide want to ban single-use plastics.

As unpopular as they may be today, however, plastics became ubiquitous for a reason.

“Petrochemicals are fantastically good at what they do in terms of lightweight flexibility, durability, versatility,” Gelder said. And thanks in part to fossil fuel subsidies, they’re also generally the cheapest option available.

The problem is that most plastic ends up languishing in landfills, or as litter on the land or sea. Only 9% of all plastic ever made has been recycled, because generally, making virgin plastic is the cheapest option.

China used to profitably recycle much of the world’s plastic, but stopped accepting plastic waste imports in 2018, since much of it was too contaminated to be repurposed. So now, that waste is being diverted to poorer nations that don’t have the infrastructure to process or recycle it. 

Africa saw a fourfold increase in plastic waste imports in 2019, the year after China closed its doors. Plastic also flooded into India, Malaysia, Thailand, Indonesia, and Vietnam, which have since implemented their own import restrictions. But the U.S. is still sending its waste there anyway.

Harmful effects

Signs protesting the construction of a Formosa Plastics petrochemical facility in St. James Parish, Louisiana

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“I found out it was the plants that was poisoning us, making us sick and with cancer, mostly cancer,” Lavigne said. “And then I found out that when they come in here, they don’t hire anybody from Saint James.”

In 2018 she founded Rise St. James, with the goal of stopping the petrochemical expansion. The organization successfully halted construction of a $1.25 billion plastics plant by Wanhua Chemical, and is currently fighting to prevent Formosa Plastics from building a plant in the 5th district, where Lavigne lives. However, it looks like that project will proceed. 

The 5th district is 91% Black.

“One time they wanted to build a plant in the white district and a parish council voted it down. They said no,” Lavigne said. But when similar plants were proposed in the 5th district, she said they were approved.

Overall, climate-focused think tank Carbon Tracker estimates that the externalities of plastics production are between $800 to $1,400 per metric ton of plastic produced, a cost that includes CO2 emissions, air pollution, waste management, and ocean cleanup efforts.

An uncertain future

Yet even as producers prepare for growth, there are many signs that plastics alone cannot save the fossil fuel industry.

For one, the EU Directive on Single-Use Plastics recently took effect in Europe, and it intends to greatly reduce the amount of virgin plastic produced.

It mandates that, by 2025, all beverage bottles made of PET plastic must contain at least 25% recycled content, bans a wide variety of single-use products, and implements an extended producer responsibility scheme that makes plastics producers cover the cost of waste management and cleanup.

Ramachandran expects that this will lead to worldwide changes in the way plastic packaging is made.

“I think within a year, maximum two, in Europe, you’re surely going to see mandatory recycled content in all packaging. And once that happens, it’s going to be like the California mileage standards. It’s very unlikely people are going to have one package for Europe and another package for other parts of the world. So I think it would surely accelerate and spread everywhere else.”

Maine and Oregon also recently introduced EPR laws that make plastics producers pay for recycling programs, and other states, including California and New York, want to follow suit.

Corporations too are showing signs of change. Ahead of the UN Environment Assembly conference, more than 70 companies called for a global pact to cut plastics production and decouple it from fossil fuels. Signatories included AMCOR, one of the world’s largest plastic packaging manufacturers, and major brands like Unilever, Walmart, Pepsi and Coke.

“I don’t expect ExxonMobil or Dow DuPont to change. I do expect the big brands that are buying all of this plastic packaging to change fast,” Enck said.

Finally, plastics are simply a much smaller market segment than oil and gas. Petrochemicals comprised just 13% of ExxonMobil’s revenue in 2020, and 6.5% of Shell’s 2020 revenue.

“So if you say, all of a sudden we stop driving gasoline-fueled passenger cars and we try and divert all of that material to petrochemicals, then you just arguably swamp the petrochemical market and reduce its attractiveness and profitability,” Gelder explained.

Basically, the plastics industry is too small to keeping oil and gas companies afloat, even if demand does continue to grow.

So while plastics benefit from the immense power of the fossil fuel lobby, the scale of the petrochemical industry, combined with legislative and corporate efforts to curb new plastic production, means that the oil and gas industry’s bet on plastics might not pan out they way they hope.

Watch the video to learn more.

Air conditioning and climate change: Start-ups trying to help

This June was the hottest in American history. The 116-degree heat melted power cables in Portland, Oregon, and smashed previous temperature records. Seattle recorded an all-time high of 108 degrees, as did the Canadian province of British Columbia, at a whopping 121 degrees.

As the world warms, more people are installing air conditioning. Global energy demand for cooling has more than tripled since 1990 and could more than double between now and 2040 without stricter efficiency standards.

But air conditioning itself is a major contributor to global warming. Altogether, building operations that include heating, cooling and lighting account for 28% of the world’s total greenhouse gas emissions. That’s more than the entire global transportation sector.

But SkyCool, Gradient and a number of other companies are working on the problem. They’re trying to apply new technologies to the traditionally inflexible heating and cooling industry, finance the upfront costs, communicate the value to property owners and make sure it’s all done equitably. 

Watch the video to learn more.

Global fossil fuel use accelerating and set to get even worse

Electricity pylons are seen in front of the cooling towers of the coal-fired power station of German energy giant RWE in Weisweiler, western Germany, on January 26, 2021.

INA FASSBENDER | AFP | Getty Images

LONDON — The world’s dependency on fossil fuels is likely to get even worse in the coming decades, exacerbating the risk of a climate catastrophe as world leaders and CEOs repeatedly tout their commitment to the so-called “energy transition.”

Policymakers are under intensifying pressure to deliver on promises made as part of the Paris Agreement ahead of this year’s COP26, due to be held in Glasgow, Scotland in early November.

Yet, even as politicians and business leaders publicly acknowledge the necessity of transitioning to a low-carbon society, hopes of limiting global warming — and meeting a crucial global target — are quickly deteriorating.

Almost 200 countries ratified the Paris climate accord at COP21, agreeing to pursue efforts to limit the planet’s temperature increase to 1.5 degrees Celsius above pre-industrial levels. It remains a key focus ahead of COP26, although some climate scientists now believe that hitting this target is already “virtually impossible.”

If we want to mitigate the worst impacts, it’s going to take a deliberate focus on reducing fossil fuels emissions to near zero — and even then we’ll need to look for ways to further remove greenhouse gases from the atmosphere.

Colm Sweeney

Assistant deputy director of the Global Monitoring Laboratory

The Intergovernmental Panel on Climate Change has estimated that human-caused warming as a result of past and ongoing emissions is adding roughly 0.2 degrees Celsius to global average temperatures every decade. And, if this continues, the IPCC has forecast that warming is likely to hit 1.5 degrees Celsius between 2030 and 2052.

To keep it below this level, climate scientists have called for a 45% reduction in carbon dioxide emissions by 2030 compared to 2010 levels, before reaching net zero around 2050.

“It is absolutely the case that the transition is moving too slowly from the climate perspective, but what is important to recognize is that it is primarily a matter of political will and economic choices,” Carroll Muffett, chief executive at the non-profit Center for International Environmental Law, told CNBC via telephone.

U.K. Prime Minister Boris Johnson chairs a session of the UN Security Council on climate and security at the Foreign, Commonwealth and Development Office on February 23, 2021 in London, England. The U.K. holds the security council’s rotating presidency and is the host nation of this year’s COP26 UN climate summit in Glasgow.

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“It is not a matter of the absence of the technology or the inability to do it. If you actually look at what are the cheaper sources of the energy supply right now, it is not really even a matter of economics. It is much more about embedded power structures and continued support of dying industry,” he added.

One of the “very best examples” of this disconnect, Muffett said, is that some governments and companies’ net-zero strategies depend on increasing fossil fuel use “for decades to come.” These policies typically “rely heavily on unproven and potentially very hazardous carbon removal strategies to make that carbon dioxide magically disappear.”

“We are seeing that in the U.S., particularly in the context of proposed massive investment in carbon capture and storage,” Muffett added.

‘A bumpy ride’

At present, Earth’s carbon dioxide levels are higher than at any time in the past 3.6 million years, according to research from the National Oceanic and Atmospheric Administration.

The findings, published last week, found that levels of CO2 and methane — the two most important greenhouse gases — continued their “unrelenting rise” last year despite a sharp economic slowdown caused by the coronavirus pandemic.

“Human activity is driving climate change,” said Colm Sweeney of NOAA’s Global Monitoring Laboratory. “If we want to mitigate the worst impacts, it’s going to take a deliberate focus on reducing fossil fuels emissions to near zero — and even then we’ll need to look for ways to further remove greenhouse gases from the atmosphere.”

The burning of fossil fuels such as oil, gas and coal releases large amounts of carbon dioxide into the air. Greenhouse gases trap heat in our atmosphere, causing global warming. The IPCC has found that emissions from fossil fuels and industry are the dominant cause of global heating, accounting for 89% of global CO2 emissions in 2018.

The U.S. Energy Information Administration has said it expects global carbon dioxide emissions from energy-related sources to continue to grow in the coming decades.

In 2019, the EIA projected that global energy-related CO2 emissions would rise 0.6% per year between 2018 through to 2050, with China set to retain its position as the world’s single largest emitter of energy-related CO2 throughout this period.

A person walks past a coal fired power plant in Jiayuguan, Gansu province, China, on Thursday, April 1, 2021.

Qilai Shen | Bloomberg | Getty Images

Clark Williams-Derry, energy finance analyst at IEEFA, a non-profit organization, described the so-called “energy transition” as “the process of shifting a 19th-century energy system into the 21st century.”

“There is a transition underway, but is it fast enough to prevent the worst ravages of climate change? Is it fast enough to relieve air quality concerns in developing world cities?” Williams-Derry said, citing dangerous levels of air pollution in countries such as India, China, Bangladesh and Vietnam, among others.

“We are anchored down by a legacy of choices, technologies and local economies that want to keep us back,” he continued. “It’s going to be a bumpy ride.”

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