Four Unexplained Things About Energy Transition – Geoffrey Cann – Energy News for the Canadian Oil & Gas Industry

By Geoffrey Cann

For all the talk about energy transition, many aspects about transition remain unexplained. Here are four that puzzle me about how transition will work.

Energy Transition

I’m in the midst of a home renovation. The renovation should allow the house last another 20-30 years with minimal upkeep, and may well be our final home as we embrace the ideal to age-in-place. The renovations are extensive—walls are being opened up for the first time in 30 years, the flooring is being upgraded, and we’ve had to move out for the four months it will take to carry out.

Meanwhile, I have this once-in-twenty year window to deploy new energy solutions in the house. Options include:

New windows for better heat retention in the cold Canadian winter.
A power coupling to the roof for a solar panel array.
A heat pump to augment or replace the gas furnace.
A battery to store solar energy.
A plug in for a future electric vehicle.
Better insulation throughout.
An electric water heater to replace the gas heater.

But what’s remarkable is that it falls entirely to me to take the initiative on all of these new energy ideas. I would have thought that the instant I surface at the local planning office to secure a building permit, someone with knowledge about the national agenda for energy transition would be chasing me to encourage me to do the right thing, and embrace these (and likely other) innovations.

Instead, it’s been crickets.

I don’t understand how energy transition is expected to work at the individual home owner level if all the decisions, all the research, all the work, all the cost, and all the hassle are downloaded to the homeowner. And I’m reasonably up on the issues and the possibilities. The same cannot be said for the majority of home owners who likely don’t work in the energy industry.

For the first time in my life, I have this fleeting chance to fix one house for the future, and it’s not going to happen.

In the meantime, I’m curious how many other aspects of modern life are going to cope with the transition. Here’s four unexplained things about energy transition that perplex me.

Environmental Remediation

How are we going to clean up or remove all the existing energy infrastructure devoted to the old energy?

There’s a lot of infrastructure in place to support our fossil fuel societies, from onshore and offshore oil and gas production facilities, transportation pipelines, oil refineries, gas plants, tank farms, trucking and rail operations, port facilities, barges, ocean tankers, and fuel retailers. As we diversify our energy mix, what is to become of this infrastructure, and how are we going to pay to clean it and remediate it?

Many oil and gas communities are already reporting an alarming rise in the number of abandoned oil and gas wells that require remediation, lest they become an environmental liability. As demand for oil and gas recedes, more and more wells will need to be remediated, and with it, the need for funds.

At a local level, we can see this slowly playing out at fuel retail, where the concentration of battery electric vehicles slowly rises to a point where there are not enough gasoline customers to sustain fuel sales. Globally, there hundreds of thousands of small time convenience retailers whose businesses will eventually be at risk.

Fuel retailing is not the same as selling jeans. Each retail site has several underground tanks for storing fuel, and the number one rule of fuel tanks is that they leak. Cleanup is not trivial. Environmental studies are involved and treating contaminated soil is costly. Land values are at risk. And electric charge points are far easier and faster to site.

For a clue about how this will work, take a look at Australia, who have been progressively shutting down their domestic refineries and converting them to tankage businesses. Or keep an eye on Japan, whose population is going to shrink during energy diversification, putting demand through a perilous double decline.

Taxation and Energy Transition

Where is the public policy discussion about taxation and energy?

Many governments are dependent on the royalties and revenues that come from energy sales. Royalty revenue is a hot topic amongst those governments, such as Alberta, that are dependent on the income from their oil and gas sales. Land sales and exploration rights are additional sources of government income. Services to all the oil and gas infrastructure are taxed. Energy diversification puts some of these revenues for some governments at some level of risk, and with it the social benefits from taxation (such as schools and hospitals), which means governments will need to invent new sources of revenue (new taxes).

In many countries, taxes are applied to each liter of gasoline or gallon of diesel that is used for transportation on a publicly funded highway. In theory, those tax dollars pay for road up keep (paving, construction, beautifying, cleaning, snow removal). What happens when huge numbers of on-road vehicles become battery electric and no longer burn gasoline or diesel? What will the taxation policy be? How exactly does government tax sunshine, which is essentially a free good to everyone?

I’m amused by governments that support hydrogen as a replacement fuel for oil and gas, but who do not also, and equally, engage in a taxation discussion. Yes, hydrogen could be more environmentally sustainable, provided it is manufactured from renewable or green energy sources. And hydrogen, in a liquid form, looks amenable to leveraging some existing infrastructure investments for manufacturing and distribution.

But as a fuel, hydrogen also looks very much taxable like a petroleum product, and governments need new tax sources. The distribution and handling of hydrogen as a flammable and dangerous product, similar to gasoline, will be tightly controlled by a small number of market participants which are easier to tax, unlike sunshine and batteries which are not.

Governments that skew the narrative to favor fuels like hydrogen have a horse in the race, as it were, to capture the taxation possibilities.

Promoting New Energy Solutions

How will companies ethically promote their green credentials?

Imagine you are a diversified energy company that sells a variety of energy products under a single brand. Some of your energy offerings (gas distribution to the home) are decidedly less clean than others (your renewable wind business). Or perhaps you operate a coal import facility to generate electricity at your baseload power plant that sits alongside your solar plant.

To present one part of your energy business as explicitly “green” is to implicitly brand other parts of your business model as grey or brown. How does that work ethically? How do you attract talent to work in such a model?

At best you advertise your portfolio of energy products along such lines as reliability, friendliness, and courteous service, and you don’t draw too much attention to your green business. But then you’ve left yourself open to Amazon’s adverts that point out how they are all green all the time and how they’re committed to solving the world’s climate problems you’ve contributed to.

Or how about vehicle makers who sell internal combustion engine products alongside their new battery electric gear? How do they point out all the merits of their new products while not simultaneously dissing their incumbent products? Inevitably they focus on performance features (seats four, nice cup holders, great acceleration) and avoid talking too much, or at all, about the fuel or fuel efficiency. Maybe they show a power outlet and talk vaguely about “being ready for new energy”.

One ad I’ve seen recently features a mullet-sporting dude behind the wheel of a 1980’s pickup who’s comparing his rig to a fully-loaded late model truck. The advert speaks to the digital features of the truck only, and no mention of fuel. This is the future of advertising.

Newcomers to the energy industry do not face this dichotomy in messaging. They can simply point to the problem of a world in climate crisis, and lay out what they’re doing about it. They don’t need to worry about cannibalising the sales of legacy pick ups. And they don’t have to deal with the ethical question of selling both green and grey solutions.

Buildings and Energy Consumption

Our man made structures account for a very substantial amount of our energy use. The modern home in an industrialized nation will almost certainly have a connection to the local power grid, which supplies energy for lighting, the big five household appliances — fridge, stove, clothes washer, clothes dryer, and dish washer — and optionally for heating. For the past decade we have been swapping out incandescent and fluorescent lighting for LED lights, but big the appliances and our heating systems last for decades.

Many homes will have another utility connection entirely for natural gas supply for hot water and heating, and sometimes cooking. In some communities, heating oil is delivered to the home for heat and hot water.

The ducts and piping for these grid connections are often deep inside the walls and foundations. Replacing them often means gutting the building and starting from scratch.

Eventually, we can achieve energy diversification by fundamentally redesigning building codes for all new buildings to equip them with solar power capture, batteries, in-garage power points, heat exchangers and heat pumps. But we also need to figure out a pathway to remediate existing household energy use, which is most readily done by targeting all those inefficient household appliances.