Myth 3. Hard-to-abate sectors prevent an energy transition
This is the third of the Energy Transition Myth Busters series, written by our New Energy Strategist, Kingsmill Bond. Download the full analyst note here.
In sectors such as petrochemicals, cement, steel, trucking, airlines, and shipping it is not possible to find non-fossil alternatives, and demand keeps rising. Therefore, there will be no energy transition.
Hard-to-solve sectors are an endgame problem. All transitions take place in stages, and the hardest sectors can be solved last. Long before we get to the last 21% of primary energy supply required directly by the hard-to-solve sectors, the market will have reacted, and incumbents will have changed strategy.
There is plenty of room for progress in other areas. We have already started on the path to decarbonise electricity and to electrify light industry, buildings and light transport. With today’s technology we can already increase the share of cost-competitive non-fossils from 20% of primary energy supply to 30%.
Technology keeps raising the ceiling of the possible. The continued fall in the cost of solar, wind, batteries and electrolysers means that there will be cost-competitive renewable solutions for half of primary energy by the mid 2030s.
Hard-to-solve sectors already have solutions. Electricity, heat and biomass already make up more than a quarter of total final energy consumption of heavy industry. Technology is chipping away at the easier parts of the hard-to-solve sectors such as light trucking in transport or low-temperature heat in industry.
Hard-to-solve sectors are smaller than ones where we have solutions. Cars use four times as much oil as planes. Electricity uses ten times as much primary energy as iron and steel. And meanwhile the world is electrifying, so electricity will make up most of the growth in energy demand. It is not credible to argue that growth in these small sectors can outweigh decline in the large ones.
The hard-to-solve sectors are islands of enduring fossil fuel demand, but no impediment to a transition. And as renewable energy sources become increasingly prevalent, so each of the islands will be overwhelmed by the rising renewable tide. Meanwhile, financial markets react during the peaking phase of the energy transition, long before the last sources of fossil fuel demand need to be replaced.