Those genteel climate fundamentalists at the Financial Times are reacting to the announcements of production cuts by OPEC+ with some suggestions for the U.S. and its Western allies.
The lesson for the US and western allies is that their partners in the Gulf are not reliable when it comes to energy, and Opec is determined to maximise revenues from an asset for which demand must eventually be slashed by western-led efforts to combat climate change. It sees no obligation in the meantime to provide energy security cheaply to its customers.
Some of us are old enough to remember 1973 and 1979. If it has taken half a century to realize that our “partners” in the Gulf are not reliable, well . . .
The reality, however, is that we have long understood that neither these countries nor their associates are reliable suppliers, which is why the U.S.’s reestablishing its energy independence in the last decade was widely understood to be such a big deal. Thanks to ill-timed and reckless climate policies (which are unlikely to have much of an impact on the climate), that advantage is now being thrown away, with consequences that we are already beginning to see.
What’s more, given the climate policies being pursued in the West (if in not many other places), it makes sense for OPEC+ to attempt to maximize now its revenues from clients who say that they do not want to be clients over the longer term.
Theoretically, the danger to OPEC+ is that keeping the oil price high (or trying to) will accelerate the move away from oil as an energy source. Indeed, history does suggest that it will lead to greater energy efficiency. Markets respond to incentives.
Whether higher oil prices will speed up direct decarbonization is less clear. If voters are paying attention, the current energy crunch may well operate as a warning to them about where the current reckless “race to net zero” is going to end up. Somehow, I don’t think that stagflation on steroids (deindustrialization, greenflation, and high unemployment) is going to be a vote winner. When voters come to terms with what decarbonization means in practice rather than rhetoric, that will be good news for OPEC+. And so too will the unavoidable fact that the further build-out of renewables will take time, and, in the absence of better energy-storage technologies, fossil fuels will, even then, be needed to provide the backup that renewables require: The sun doesn’t always shine, and the wind doesn’t always blow. Nuclear energy, of course, could provide a reliable alternative, but, even if the fears associated with it can be overcome (and in many countries that moment is a long way away), the construction of nuclear-power stations takes years (the same is true even of the quicker-to-build small modular reactors).
But back to the Financial Times:
Western consumer nations have few short-term, supply-side, answers other than investing in further fossil fuel production that would run counter to their climate aims. The long-term answer to all the multiple energy and climate problems they now face is the same: to make real efforts, which have so far barely begun, to reduce oil demand — and to speed up the dash to sustainable, green sources.
It’s at this point in the argument that I wearily turn once again to the words of Blackadder’s First World War General Melchett:
If nothing else works, a total pig-headed unwillingness to look facts in the face will see us through.
Policy rooted in realism is almost always a matter of trade-offs. If the only real solution to the West’s current energy problems (including their geopolitical dimension) is “investing in further fossil fuel production”, then that is what the West should do, even if (horrors!) it runs counter to the “climate aims” of its ruling class. The alternatives, from the political and economic turmoil that will accompany the current climate agenda to the immense leverage it hands to Russia, the Saudis, and all the rest, are a price not worth paying.
And there is less of a conflict between investment in fossil fuels and climate policy than the FT would have us believe. By 2019, oil consumption per $1,000 of global GDP had fallen by 56 percent from peak oil intensity in 1973. There is no particular reason why that trend cannot continue. There is also no reason why expanded investment in fossil fuels cannot be geared toward natural gas (the EU is trying to encourage just that) rather than to its “dirtier” alternatives. Equally, investment in greater resilience (such as flood defenses for low-lying coastal cities), a positive use of funds regardless of what climate change might lead to, can proceed at the same time, as can investment in renewables. In the latter case, however, more of the money should be spent on making them ready for prime time, primarily by redirecting more of the capital invested toward better storage technology. All that those setting policy have to do is abstain from discouraging investment in fossil fuels.
But that seems too much to ask.
And that leads us back to General Melchett.