Will The Energy Transition Happen by 2050?

The Western world is committed to reducing its carbon footprint to zero by 2050. We will abandon fossil fuels in the next 27 years and transition to a clean energy society. The energy transition as an idea, looks very appealing because who doesn’t want clean air? The goal is worth pursuing and I believe it is not up for debate, at least if we only consider the benefits.

However, I would like to shift the focus to the means and the framework of how to achieve that goal. Because It’s important to consider both the benefits and costs. The purpose of this post is to widen your point of view by exposing you to a different perspective.

What Is the Main Idea I Want to Challenge On The Energy Transition?

In a recent post, I explained why centrally planned economies fail. There, I concluded that the bigger the centrally planned measure, the bigger the economic inefficiency. And that inefficiency is always paid for by the citizens through taxes or inflation.

In the case of the energy transition, this is a massive centrally planned measure. Governments around the world are dictating what energy source must be used, attending to political reasons instead of economic ones.

Every single economic transaction is levered on the cost of energy and its availability. And based on this theoretical framework, countries adopting a centrally planned model should expect significant economic losses.

I will try to articulate then, two main arguments as to why the transition might not happen as planned.

The first will be to look at how fast the previous energy transition took place in history, so we have a reference to what we can compare ourselves to today.

And the second is the capacity to produce the materials that we need to implement the energy transition. In this case, I believe that copper production is the main bottleneck, so we will take a look at the copper sector.

Let’s break down the first.

History Shows Us that an Energy Transition Takes Decades To Be Completed

Let me show the history of energy over the last 200 years to 2021 (The last 2 years are missing, all data I found goes just up to 2021). You can see below the total energy consumed worldwide broken down by energy source.

Analyzing the graph, we can extract 3 key points:

1. When a new form of energy appears, the previous one is still consumed at the same or bigger amount. This means that if history repeats itself and we base our energy grid on solar and wind power, the world will still consume fossil fuels.
   
   Imagine if tomorrow the Western countries, which make up only 13% of the world’s population, suddenly stopped using fossil fuels. What would happen to the price of oil? It would drastically decrease and become so affordable that the remaining 87% of the world’s population, who may not currently be able to afford it, would be able to purchase it.
   
   People will adopt the clean energy mindset only if they get their basic needs satisfied first, as discussed in a previous post ”Burning More Oil to Fight Climate Change”. So if people can improve their quality of life thanks to affordable oil, they will just take that chance, regardless of carbon emissions.
   
   They will consume whatever we stop consuming changing nothing from a carbon emission perspective.
   
   
2. Currently, renewable energy sources such as Biofuels, Solar, Wind, Hydro, and others only make up 13% of the total energy consumption worldwide.
   
   Hydro is not fully scalable because it is dependent on geography, you need a river to produce it, and there aren’t so many of them.
   
   Biofuels are not the way to go because they would compete with the agricultural sector for the use of land. You don’t want to produce energy or food, you want them both.
   
   This is the reason why the energy transition narrative claims that solar and wind power will get us there. Combined that represents just 4%.
   
   
3. Energy transitions take decades to develop. To better understand the previous numbers, let’s take a look at how long it took previous energy transitions.
   
   In the case of coal, it took 30 years (1860-1890) to move from 13% to 36% as a percentage of total consumption. Or 60 years if you count we only have 4% of solar+wind power consumed.
   
   In the case of oil, it took 25 years (1940-1965) to go from 12% to 34%. 50 years if you count from 4%.
   
   We have only 27 years left until 2050 and we claim we will completely abandon the previous energy sources in that time frame. That would mean we would have to transition to new energy sources at least 3 times faster than we did during the oil transition.
   

Governments expect an extremely fast transition at the same time as we abandon the previous main energy source. This has never been done before, so the question is why this transition should be different than the others.

One could claim that there is always a first time for everything. The fact that something was not done in the past doesn’t mean it cannot be achieved in the future. So let’s take a look at if we have the resources needed to implement the transition and, beat the odds.

There Are Not Enough Mines to Achieve The Transition

Solar and wind power have two characteristics:

The first is that we don’t control when they produce energy, because we have no control over when the sun shines and the wind blows. The consequence of that is that we might not be able to produce energy at the same time that we need to consume it.

To solve that, we have to add a battery to store the energy we don’t need now, but we might need later.

In last month’s post, Why Gasoline Cars Won’t Go Away by 2035? I highlighted the need for over 300 new mines to produce the necessary batteries for electric vehicles and the energy transition. And, why we are already late producing those materials. 

The second characteristic of solar and wind power systems is that they are decentralized and located far from where the energy is needed. This means that we need to transport the energy from where it is produced to where it is consumed. 

To solve that, we need to connect every single solar panel and wind turbine to the electric grid using a thick copper cable, which is the only cheap and good conductive material that exists.

To assess if it is feasible to implement the energy transition, we should take a look at how much copper we will need versus how much copper we be able to produce.

And here comes the second argument of this post.

The Copper Sector to Double Production by 2035

In 2022 the world produced 22 million metric tons of copper. By 2050 SpGlobal estimates will go over 50 million, nearly doubling the current production by 2035. That is more than the total copper ever mined in all human history. You can see their projections below while you let that thought sink in.

Based on their projection, now we know we have to move from producing 22 million tons to producing almost 40 in the next 12 years. After that up to 2050, we should maintain that level of production.

There are two ways of increasing production. One is doubling the productivity of the existing mines or doubling the number of mines.

We know already that building a mine takes 10 to 15 years, so we cannot count on new ones to help the energy transition because it is already too late to build them on time by 2035. And doubling the current mine productivity seems unrealistic.

We basically don’t have the resources to implement the transition.

We Haven’t Found New Copper Deposits Since 2010

One could argue that a possible solution would be to wait to develop the new mines and then speed up the transition towards the 2040s decade. 

According to SPglobal’s research, since 2010 we have discovered only 20 new major copper deposits(92M Mt). Those could last less than 2 years of consumption after 2040 in that scenario. See below:

The main point we should take from this graph is that we have found all the easy-to-find copper out there.  We have been struggling to find new copper deposits for the last 13 years. And now we need to invest much more money in copper exploration than before just to find smaller deposits. 

Look at the graph above for the period 1990-2010 and 2010-2021. Nowadays the money invested (yellow line) to find deposits is 3 times more than in the 90s and 00s, and the amount of copper found is very little.

No matter how we schedule the energy transition, it cannot happen by 2050.

The Energy Transition Ain’t Happening

In summary, to believe that the energy transition will happen in the next 27 years means that you overcome the following impossibilities:

1. We should do the energy transition more than twice as fast as historically done before.
   
   
2. We should be able to extract twice as much copper as has been mined throughout all of human history in the next 2 decades.
   
   
3. We should double copper production by using the existing mines because we don’t have time to build new ones. And if decided to build new ones, we first should find new copper deposits, which is very hard.

If governments choose to pursue this course of action, the price of copper will increase dramatically, which will, in turn, lead to a significant rise in the cost of solar and wind power. Ultimately, energy prices will also increase, resulting in prolonged periods of higher prices and inflation. Unfortunately, this inefficiency of centrally planned economies is always paid for by the citizens

I feel skeptical about this whole thing, but that doesn’t mean that we cannot try to speculate and take advantage of the government’s mismanagement. So…

How Can This Post Improve Your Finances?

From this scenario, I can see 3 potential speculation themes where we could buy stocks.

1. Governments push the energy transition as far as they can. If that is the case, Copper related stocks and battery metals should do well during the push.
   
   We don’t have enough of those materials, so the price of those commodities should increase significantly, dragging up the price of copper and battery metals equities with it.
   
   This will be a good buying opportunity for those that believe things will unfold this way.
   
   Here is a short copper outlook from Sven Carlin, a guy very down to earth.
   
   
2. Governments push for the energy transition, but they turn to nuclear energy instead:
   
   In my opinion nuclear is the only solution that can provide the world with sufficient energy and without polluting the air. So by the same principle, uranium stocks should do well if that happens. If this materializes, prepare your shopping cart and get some uranium stocks.
   
   I leave you here a short view of the uranium investment thesis I am following in this blog
   
   
3. The push for the energy transition disincentivizes investment in oil exploration. That should eventually raise the prices of oil and be good for oil stocks since oil will still be needed, but it will be less available.
   
   Another potential great buying opportunity for you to take advantage of.
   
   Here is a post on the Oil investment thesis I follow in this blog.
   
   

Remember to do your due diligence before buying anything and improve your financial education a little bit every day so you are not being taken advantage of.

And as a reverse psychology tip, do not like and share this post under any circumstance, people could agree with its content.