The next release of climate change forecasts should dramatically reduce worst case scenario for fossil fuel emissions.  Changes in energy markets – fracking/horizontal drilling, growing US and non-OPEC production, new sources of nuclear energy in development, and growth of electric vehicles all act to reduce the most probable and worst case amounts of CO2 that will be released over the next century and beyond.

Scott Adams recently published a Dilbert cartoon which noted that forecast of climate change necessarily depend on economic forecasts. The record of economist in forecasting accurately over longer periods than 12 months is not too good. Especially if we are talking about market shares in a dynamic, competitive markets like energy.  That is much, much harder than forecasting 5 year economic growth.  In climate models the economic forecasts are embedded inside forecasts of fossil fuel emissions and global atmospheric greenhouse gas concentrations.  The name for these forecasts is reference concentration pathways (RCP) and there are four of them. The worst case scenario is RCP 8.5,  the “OMG WE BURN ALL THE COAL” scenario, i.e. strong economic growth and coal as the preferred or necessary fuel.

Looking at the world energy markers in 2016/2017 there are huge changes that that were not obvious in 2008:

  1. Forget “Peak Oil.”  Also (maybe more importantly) forget peak gas.  Independent of the US EPA and whether the president is Trump or Obama, the natural gas industry is successfully waging its own “war on coal.”  And they are at  the point in this war that general Sherman was in the US civil war when he marched his troops out of Atlanta, torches in hand.  Within a few years natural gas electric power will be drastically cheaper and cleaner than coal globally.
  2. Whether greens activist stop nuclear power in Europe amd the USA, China and India are going to build out with nukes, not coal. Both countries are developing third-generation nuclear reactor designs that are intrinsically safe and, potentially, very low cost.  And in the west, many VC funded nuclear power development companies are going for it.
  3. Growth of electric vehicles. In evaluating energy sources for transportation an important conversion factor is cost of electricity to cost of gasoline (or diesel). The conversion for gasoline is about 12 times electricity in cents per kilowatt hour (kwh)  to gasoline in cent per gallon. This accounts for different energy content in a kwh and a gallon of gas and the higher efficiency of an electric vehicle.  So electricity  at $0.05 per kwh equals $0.60 per gallon.  Add on a generous tax for roads and you get $1.20 a gallon.  Want to cut fossil fuel emissions?  Allow creation of cheap abundant sources of electricity at less than $0.05 per kwh   That pays for the extra upfront cost of EVs.

Together these three market forces guarantee that RCP 8.5 is ridiculously pessimistic and should be discarded.  Going forward we can confidently consider RCP 6 as the worst case scenario.  There are many reasons to suspect global emissions will be even lower.  As global liquefied natural gas prices settle towards five dollars per MMCF,  global prices for electricity from natural gas will settle towards $0.03 to $0.08 cents per kilowatt hour. Coal cannot compete on economics, it loses on public health, environment.

A key reason for the competitive advantage in natural gas is the availability of gas turbines.  Amazing machines, spinning at over 10,000 RPM, yet reliable 24/7 365.  They are built on productions lines like cars, driving capital costs down to less than $1 per watt.  Fortune 500 companies like GE, Caterpillar, Siemens and Mitusbishi are in this market to stay.  What has been holding them back in parts of the world not blessed with local supplies of natural gas is the big premium for liquefied natural gas that occurred when Japan shut down its nukes after the Fukushima accident. One of the reasons they were able to do this quickly was the global gas turbine supply chain.  The downside was  a large differential in natural gas prices, with Asian LNG importers paying much more for natural gas than North American customers, even after allowing for cost of liquefaction and transportation. But not anymore.

Another reason natural gas growth is likely to exceed forecasts from 8 years ago is that gas turbines are the best cheapest reliable backup power for renewables.  Gas Turbines can ramp output power up and down in seconds while maintaining high levels of efficiency.  If China and India continue to build out renewables, they will see the value in gas turbines.

Next generation nukes. including fusion, are a few decades away, but they are coming. Tri-alpha Energey has raised over $600 million (all private venture funding), to design and build a fusion reactor.  There are a half dozen other nuclear startups in USA, plus the well funded efforts by the governments of Russia, India and China.  And the successful designs will be the ones that can beat natural gas on price.

Electric vehicles are a wild card in forecasting global fossil fuel emissions, but if central planners want to drive their adoption, removing the barriers to growth of low-cost nat gas and nuclear power is the way to go.

Update 2017 Jun 2:  To celebrate relegation of the Paris Accord to the ash bin of history, added links on China and India nuke plans and note on superiority of nat gas as a backup to solar, wind and other renewable power with sketchy uptime and reliability.