What is Energy Transition?

The term energy transition has become an integral part of both energy and policy discussion lexicon. What proves fascinating is how we have become accustomed to hearing this term while potentially disassociating it with the intended meaning of the context it is used. While this could easily be considered semantics, it is still essential to differentiate what is being referred to as this helps gauge the context of the discussion one encounters in business, investment decision-making and even social settings.

In this two part write-up, the aim is to simplify the transition discussions into two main perspectives to allow contextualization when encountering the term “energy transition”. From here, it is possible to then expand on the discursive subcategories and complexities that emanate from where we have seen the world come from and where we can formulate to be where it’s going as best as we can.

The Absolute Primary Energy Consumption Perspective

One way to frame the discussion around the energy transition is to look at historical consumption in primary energy absolute quantities i.e. the nominal quantities from energy sources drawn from nature. Below is graph from Our World in Data with energy consumption by fuel type since 1800 measured in Terawatt Hours (Twh).

For the sake of having a benchmark reference for the quantities of energy referred to in the above picture, we can refer to statistics by the US Energy Information Administration (EIA) regarding electricity usage. According to the EIA, the average American home consumes about 11000 Kilowatt-hours of energy annually (approx. 30 Kilowatt-hours per day). Therefore 1 Twh is the energy consumption of  approx. 91 000 American households for a year. We can therefore estimate that a primary energy consumption of 140 000TWh as shown for 2018 total global energy consumption reflects an equivalent quantity of energy that would power all of America’s 128.6 million households for approx 100 years. This shows us the sheer scale and quantity of energy the world is currently consuming at an annual level.

It is relevant to show this historical consumption by fuel type image because what it reveals visually is that energy consumption has continuously grown in the last 2 centuries in tandem with the growth in human population and human economic activity as shown on images here.

This is something that one would come to deductively expect looking at history and observing the developments mankind has gone through from industrial revolution of the mid 1800s and the discovery of oil in the late 1800s/early 1900s. We can also see oil take a more prominent role in the energy make up from the 1950s onward i.e. post-World War II where we in fact see all 3 pictures in terms of energy, population and GDP per capita grow at steeper gradients .

The important takeaway in this historically informed two century picture in terms of energy is that the world has never really replaced an energy type in so much as much as it has instead added a new energy type on top existing ones.

So for example, we have traditional bio-fuels, the most basic form of primary energy i.e. wood from trees used for fire and cooking. This continues to be used especially in developing and rural parts of the world and is relatively at similar levels as it was in 1800. However, we have since added other discovered and harnessed forms of energy on top of it as time has gone along. That is, coal in the mid-1800s, oil and gas in the late 1800s, nuclear and hydro since the mid-1900s and more recently renewables in the last 20 years. Basically put, the size of the pie keeps increasing. It is also worth noting that crude oil doesn’t only have an energy dimension but also has a petrochemicals and plastics dimension as well which is also intertwined with global GDP and population growth. This talks to crude oil outputs which are fundamental to other products such as fertilizers, solvents, polyester, lubricants, waxes etc.

In this context of absolute energy consumption, we therefore have never actually seen the world conduct an energy transition i.e. in the context of a replacement of one primary energy source for another at a global level. The reason why isolating this impact is necessary is because absolute quantities are what directly impact the ecosystem in terms of greenhouse gas emissions (GHG) and overall strain on the earth. This is a big part of reason the energy transition discussion is topical today as we observe a correlated growth in GHG emissions (which mainly constitute of CO2) and primary energy consumption as shown by Our World In Data image below. Note the similar steepening of curves from the mid 20th century as seen before with energy, population and GDP per capita.

Further insight into the emissions picture is shown through the Center for Climate & Energy Solutions where can be represented here with respect to contribution by sector and greenhouse gas types.

BPs 2019 statistical review of energy puts the carbon dioxide emission quantity at approx 34 billion tonnes for the year 2018 therefore using proportions above, we can estimate an annual GHG emission total of approx 45 billion tonnes/year. For context, this mass quantity is comparable to 58 million Airbus A380 planes or 240 000 times the current global fleet if we could ever pile them up.

Having seen how we have progressed on energy and emissions, in Part 2 of this article series we look at the other perspective of viewing the energy transition and set the tone for the topic areas that will form the foundation of articles presented on FutureWattage.

By Tare Kadzura ACMA, CGMA, EMME

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