The importance of energy to an economy is often underestimated. According to Einstein, everything is made up of energy (E=MC2), which means that everything is there as a result of energy. Energy is often invisible. Take electricity, the heat of the sun or the movement of air, for example. Without energy, there is also no economic growth. The strong economic growth of the last 200 years has been made possible thanks to the lavish use of fossil fuels. But even before the industrial revolution, some countries were able to grow strongly thanks to the advantage of sufficient energy. The Romans were adept at using energy from the sun, water, wind and wood. However, with a growing population, at some point, a choice has to be made between food and energy. Whereas firewood and charcoal were initially abundant in the Roman empire, the same energy carriers were very expensive in their latter days. The population on Easter Island disappeared, partly due to an acute shortage of energy (wood). The Phoenicians had plenty of cedar wood until there was no tree left in the mountains of what is now called Lebanon.
The difference of the current energy transition compared to previous transitions is that it is not market-driven, but supported by (supra)national governments. Previous energy transitions were mainly driven by price, which in turn was the result of availability, transport options and the energy intensity of different fuels. What could play a role was the government's preference for a particular form of energy because it could strengthen the autonomy of the country in question. Energy policy was mainly about not becoming too dependent on countries you did not want to be dependent on. For instance, the Italians still get virtually free gas from the Netherlands because they threatened to do business with the Russians. Also, since the US became a net exporter of energy again, the Americans' Middle East policy has turned by about 180 degrees. It is now China making peace between Iran and Saudi Arabia and not the world's policeman.
The moment there are opportunities in a market to make some money the money flows there quickly. That is not how it works in government. There, budgets have to be released and since pretty much all principles in politics are about money, this happens much more slowly than with the 'animal spirits' in the market. That is probably one of the reasons why this energy transition is so stalled. Much has been done to move away from fossil fuels, but there is totally inadequate investment in alternative fuels. Apparently, the market does not yet see the point without subsidies. This is while much more investment is needed than in previous energy transitions. Back then, new fuels were simply added to the existing arsenal, but now the use of existing fossil fuels must also be phased out. That will only succeed if the demand for energy falls.
Furthermore, it took us 150 years to switch from firewood to coal. Then it took 50 years to replace oil. Now it is a challenge to replace oil and gas in 30 years. While it took us more than 150 years to build an infrastructure to produce and consume more than 100 million barrels a day. Moreover, transitions accelerated in the past because the new fuel was cheaper and better than the existing fuel. Now, cheap fuels are being replaced by more expensive alternative energy. Incidentally, the price of energy does change in the future. The marginal cost of producing and processing oil is much higher than the marginal cost of producing alternative energy. Effectively, the sun shines for nothing and also energy derived from it like wind and water have little or no marginal cost. This makes it possible for energy to be traded for a fixed amount in the future, probably with a 'fair user policy'. Energy will then become 'free', with major implications for energy-intensive processes. For instance, the price of food consists largely of energy, and free energy can also be used to produce a lot of clean drinking water.
Now, there are several ways to produce clean energy. Strangely, the focus is mostly on energy carriers, such as electricity and hydrogen. Both can be produced with fossil fuels and alternative energy. In particular, how and when this energy is produced, and transported, has major implications. For instance, existing electricity networks need to be upgraded and adapted to the new reality. This will require a lot of metals. That while it already takes 20 years for a copper mine to produce. Those metals are also needed because supply and demand are less easy to balance. This is where artificial intelligence (smart grids) can add a lot of value. Furthermore, of course, not everything runs on electricity; (bio)fuels are also required, e.g. for transport. One promising energy carrier is hydrogen. Industrial processes in particular require a lot of hydrogen. In the pursuit of zero CO2 emissions, CO2 will probably also need to be stored. And all this on a scale that is probably currently thought impossible.
With the incentives in this energy transition not coming from the market, perhaps a kind of cold-war arms race could accelerate the transition. First, autonomy has become much more important since the corona pandemic and the Russian invasion of Ukraine. Then there is the power struggle between China and the US. According to XI Jinping, the energy transition is a great opportunity to show that the communist system is superior to the capitalist system. But also consider, for example, the US Inflation Reduction Act (IRA), something the European Union, for example, is quite annoyed about. These government investments will change markets, probably leaving only the bigger providers who can comply with all the rules. Of course, this does not help keep energy prices down, but that is not what this time is about either. It does ensure that the financial opportunities in this energy transition may be greater than in previous transitions.
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