By Paolo von Schirach —
WASHINGTON – Notwithstanding solemn pledges issued by many governments, no country that really matters is taking the fight against climate change seriously. Headline grabbing global agreements detailing ambitious emission reduction goals mean almost nothing, as they are purely voluntary, and therefore non verifiable, and certainly not enforceable.
Policy-makers will not act
Do not expect more on this front. The truth is that all policy-makers live under the constraints and pressures of urgent matters that require immediate attention. Catastrophic climate change scenarios regarding what will materialize in our world years or even decades from now do not motivate anybody in a position of responsibility to engage –today– in serious and very costly policy changes.
Innovation will deliver results
That said, there is hope when it comes to drastically reducing dangerous emissions. And hope rests on coming up with cost-effective technological innovation. Man made global warming leading to climate change is largely due to the continuing use of dirty emission producing technologies and industrial processes, most of them developed quite a long time ago. The reason why we keep using them, with only some improvements here and there, is because any currently available alternatives would be far too expensive. However, innovation may change all this. Human ingenuity should not be discounted.
Tesla leading on new battery technologies
Take Tesla, for example. Under Elon Musk, its controversial founder, Tesla dared to think of commercially viable electric vehicles (EVs) many, many years ago, when nobody –literally nobody– in the automotive business believed that this might be possible.
Well, fast forward to today and we see how tiny Tesla has become an EVs sector leader. True, the jury is still out on Tesla’s long term commercial viability. However, a relentless effort to improve its battery technology and therefore reduce cost structure and increase both vehicle performance and company profitability may indicate that this maverick EV company may not just survive but actually lead a boom in EVs production.
We know that the main obstacle on the way to mass produced, affordable electric cars is relatively unsophisticated battery technology. While there has been progress, the batteries used to power most EVs are still expensive, very heavy, and not very efficient compared to the traditional internal combustion engines running on oil derived gasoline.
A game changer
Tesla, however, (and many others innovators around the world working on the same or similar issues), seem to have made very significant progress in improving battery performance on all fronts: life of the battery, cost and weight of the battery, amount of energy stored in the battery, and therefore distance that can be covered with a single charge, and shorter recharging time. Many of these battery technology breakthroughs have just been announced by Tesla, and it remains to be seen how the actual vehicles sold to real customers will perform. Still, assuming that most of what Tesla announced is true or close to becoming true, then we are getting to, or very close to a tipping point when it comes to the mass adoption of electric vehicles.
Cheap, high performance electric vehicles will generate mass markets
It is no secret that so far electric vehicles have had only limited appeal. They are still regarded by most consumers as too expensive. They are fancy gadgets for the rich who can afford to pay extra money for a high-tech car, so that they can brag about being green and cool.
Most budget conscious people considering buying a new car look at the price and then the operating cost of the car (mostly fuel) over the time in which they will use it. For these reasons, an expensive EV coming with the additional problems of limited range, limited numbers of charging stations and a long recharging time does not look appealing.
But a new generation of Tesla vehicles powered by a super efficient, low cost, lower weight, high performance battery that will essentially last for ever, would be a true game changer. It would signal a new era for EVs: from experimentation and tinkering to mass production based on proven superior technology and lower prices.
End of gasoline
When this happens, high performance and cheaper EVs will inevitably displace gasoline powered traditional cars. Assuming that these battery technology breakthroughs will work as expected, we can reasonably conclude that EVs will begin to dominate the global auto industry in just a few years. This will be the beginning of the end for traditional cars. And this will also be the end for many refiners currently producing the rivers of gasoline necessary to power hundreds of millions of traditional cars. Further upstream, the virtual end of gasoline will also mean significantly lower demand for crude oil.
Oil will survive, at least for a while
Of course, we do know that even if it all happens as planned regarding a new generation of batteries, with Tesla and many others inundating the global automotive market with affordable, state of the art, super efficient EVs, it will take years before the world automotive fleet will become totally electric. In the meantime, there will be still demand for gasoline and therefore oil.
The oil industry will survive. Let’s not forget that beyond gasoline oil is also used to make diesel fuel for trucks and other heavy vehicles, and powering ships’ engines, not to mention jet fuel, heating oil, and plastics, and what not. Therefore we can expect that there will still be an oil industry ten or even twenty years from now, (unless other technological disruptions will introduce alternatives to other oil-derived products). However, it will be a smaller, streamlined oil industry; and it will be dominated by the low cost producers, (think Saudi Arabia). In a world market characterized by lower and declining demand for oil, only those who can be and stay profitable with oil at $ 10 per barrel or less will be able to survive.
The end of shale?
This being the case, the future of the recently reborn US oil industry appears very uncertain at best. The economic sustainability of the US shale revolution, itself the fruit of American technological ingenuity, was and is predicated on fairly high oil prices. While the cost of fracking operations has come down significantly in the last few years, fracking is still a fairly expensive activity. It is hard to believe that companies struggling in 2019 to stay alive, let alone do well, with oil at around $ 50 per barrel or less, will be able to survive when crude will go down to $15 or less, on account of soft global demand.
Innovation spill over
Improved battery technologies will also transfer to other applications, such as efficient storage for electricity produced by renewable sources such as wind and solar, something that will most likely increase their appeal and marketability vis-a-vis traditional fossil fuel based electric power generation. Overtime, expect fewer (if any) coal fired power plants, and eventually fewer natural gas power plants that are now necessary given intermittent generation from renewables.
You see where we are going here. We are looking at the real possibility of cascading positive effects, affecting different sectors, all born out of technological innovation spurred by the goal of getting a better battery for Tesla’s EVs. And this is the magic of innovation. It spreads. Tesla was not born out of the need to address a well defined market need. True enough, American drivers were routinely complaining about the high cost of gasoline. But all they wanted was cheaper gas. They had not articulated this complaint into a demand for an alternative to the traditional car powered by an internal combustion engine.
And here is the beauty of innovative minds. Elon Musk launched into an industrial adventure that most analysts dismissed as silly, and therefore destined to failure. But now Tesla, the company he created, despite all its challenges, may be on the verge of deploying another generation of technological innovation that is likely to transform the EV sector, and consequently the entire automotive industry in the US and worldwide.
We need more than new batteries
Back to global warming, it is clear that even radical transformations in the automotive sector leading to sharply lower demand for gasoline and therefore crude oil will not be enough to cause dramatic emissions reductions. More innovation will be needed to radically transform industrial processes, from cement production to petrochemical plants and more, that currently produce harmful emissions.
Green and profitable can go together
However, the Tesla relentless quest for better and more efficient car batteries is a good illustration that it is possible to pursue at the same time profits, a more efficient propulsion technology, and drastically reduced greenhouse emissions. It is not true that trying to be green is a luxury that is simply not practical nor affordable for most industries.
Tesla’s innovation efforts may be driven in part by the desire to produce a perfectly green car. But we should keep in mind that Tesla is a business, not a charity. Ultimately Tesla has to serve its shareholders. They want to see a return on their investments. And this means more cars sold at a profit. By pursuing better batteries that will increase performance while reducing cost, the company is strengthening its competitiveness vis-a-vis conventional vehicles, with the hope that millions of consumers will prefer affordable EVs, not because they are green, but because they are better value for money.
By the same token, assuming that some new industrial technologies will be able to eliminate emissions and increase productivity and profits at the same time, you will have classic win-win propositions in which being green is also good for business.
A long shot, but the only one we have
While this innovation driven approach may be a long shot, this is the only practical way to cut down emissions, stay profitable, and avoid the dire effects of global warming. International agreements that cannot be enforced produce short-lived feel good moments, and not much else. Innovation will be the game changer.
Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC.