The Coming Disruption: The Global Alternative Energy Megatrend | By Kenneth Rapoza

In the first 100 days of the Biden administration, the new President, like his predecessors, is doing what he set out to do on his campaign. Chief among them is moving the U.S. into a post-carbon world. Outside of “economic equity and inclusion”, the cause of climate change is at the fore of this new Administration. The hope is that the rest of the world – namely India, China and to a lesser extent Russia and Brazil – will one day follow suit, making climate their cause célèbre.

China already started this a while back with their Al Gore-ish climate themed documentary “Under the Dome”. In it, a CCTV reporter reveals her daughter’s respiratory problems caused by smog in Beijing. Go ahead, travel to Beijing and look in the hotel bathroom. Bet there is a dust mask in there, just in case the sky goes gray with soot from coal particles.

For Biden, canceling new phase construction of the Keystone XL oil pipeline from the Alberta to the Midwest and ordering a temporary ban on new oil and gas drilling on federal lands has not stopped climate change in the U.S., or elsewhere.

China is cranking out more coal plants than ever.

In his new book, “The Prologue: The Alternative Energy Megatrend in the Age of Great Power Competition”, Atlantic Council Vice Chairman Alexander Mirtchev defines the alternative energy megatrend as it relates to national security and using energy as leverage with other countries. He does it in the context of the new great power rivalry between the West and China, in particular. Mirtchev is also a founding member of the Kissinger Institute on China and the United States and Distinguished Visiting Professor at the Schar School of Policy and Government at George Mason University.

Richard Evans, former CEO of defense contractor BAE Systems called it “a breakthrough study.”

His 300+ pager is a future energy sector magnum opus. He takes a multi-faceted look at the politics of energy as it becomes more techno-economic, socio-political, and ideologically driven. If you believe the planet is doomed in 12 years, you are all for canceling Keystone, and oil drilling, and coal. You are all for more windmills, more solar panels, more battery powered EVs. But if you are not worried about planet rolling over and becoming uninhabitable within a generation, you are going to get all of those things anyway.

What does it all mean?

This is what Mirtchev seeks to address in The Prologue. Anyone interested in the great energy debate and who wins and who loses in the post-carbon future should spend some time with this book, due to be published later this month.

Although the Megatrend’s capacity to play a role in strengthening global economic security remains uncertain, Mirtchev writes that alternative energy technologies promise a number of solutions to rid the world of its climate change fears.

From an economic perspective, too, these new technologies can “help stabilize the global economic system, create and sustain new sources of economic growth, and optimize economic development,” he writes in Part III of the four-part book.

In tackling energy as security, he says transitioning to a post-carbon economy could lead to more economic security because you would have a greater level of resource certainty, “which is beneficial since the greater the uncertainty the less rational the behavior of market participants.” Mirtchev also reminds us of the wild swings of oil prices, especially when Middle East political dramas heat up.

Will there be more jobs? And where will that be? That is a question Mirtchev doesn’t seek to answer. For now, many of these alternative fuel supply chains are in Asia, most notably China. It is only a matter of time before Vestas – the large Dutch wind turbine maker – is majority sourced in China – or owned by it.

Tesla’s TSLA -3.5% second largest battery plant is in Shanghai. How hard is it to imagine that the company will realize that they are closest there to the supply chain of lithium, and just start producing batteries there for export? To date, Musk has promised not to do that. But Musk is not going to be in charge of Tesla forever.

All of this could change with the right domestic policies, however, Mirtchev argues.

“Renewable energy development, in conjunction with market opportunities and entrepreneurial advances, may also spur the creation of new industries directly or indirectly involved in the renewable energy value chain, which could lead to new economic growth paradigms,” he writes. “How this catalytic process takes place will determine the means by which the global economy will adapt to the resulting changes.”

Alternative sources of power have been bantered about now for at least two decades. Recall when British Petroleum said that its BP acronym now meant Beyond Petroleum. Royal Dutch Shell, its British counterpart, is investing in offshore windmills after exiting solar.

Only five years ago, you would be hard pressed to find a Tesla outside of California, New York City and Boston. Now, they’re in small towns nationwide. Within 15 years, gas powered cars will be something you only see at classic car shows.

The United States, Europe, and, increasingly, China have emerged as the largest business and investment markets for the energy transformation Megatrend.

Capital markets have formed around renewables with a number of stock indexes tracking the sector performance, such as the S&P Global Clean Energy Index or the NASDAQ Clean Edge Green Energy Index.

London investment banks like Schroders and Paris-based BNP Paribas tout their green status constantly.

New investment in renewable energy has grown five-fold since 2004. A noticeable shift of capital flows to alternative energy development “would have extensive implications in the future,” Mirtchev says.

A lot of this push to remap and rebuild the global energy market will come from the government, as is happening in China.

“The new grand energy game will have a greater influence on global affairs in the 21st century than ‘Star Wars’ did in the 20th,” wrote Lord Peter Truscott, Former UK Energy Secretary, in his review of The Prologue. Star Wars was the Reagan-era policy to develop satellite defenses against the Soviet Union.

The ideological constructs and values behind the alternative energy megatrend, as well as the innovative and insufficiently established nature of alternative energy technologies, are encouraging government dominance of the sector.

According to the International Renewable Energy Agency, the share of direct public investment varied at between 12% and 16% of the total between 2013 and 2015 (averaging $40 billion), before dipping to 8% in 2016 ($21 billion). The actual share of public finance allocated to promote renewable energy is way larger.

When various schemes of government support expenditures are taken into account, including regulatory instruments and fiscal incentives, the share of public financing in Western Europe in 2015, for example, rose 55% for total renewable energy investment.

Government incentives’ contribution to the development of renewable energy markets – from solar manufacturing protections in the US, to EV tax breaks for buyers – is what makes all of this plausible.

An example: in Western European – where countries like Germany have outsourced their traditional energy like coal to Poland and nuclear to France, shut off its zero carbon nuclear power plants, and plugged into windmills and solar, around 50% of the total electricity produced from those non-fossil fuel sources in 2015 got some form of subsidy. The U.S. is next in line, surely to follow in Europe’s tracks given the new Biden government’s climate change concerns.

Poland’s Coal Mining Problem

The current status of alternative energy development is comparable to that of the Apollo Project, says Mirtchev. Political will and pressure from civil society propel the megatrend, with economic security considerations often taking a back seat to political concerns and practical needs.

To limit the rise in global mean temperature to below 2°C, the share of renewables in primary energy supply needs to grow to about 65% in 2050. It is estimated that to make it happen, a total of $25 trillion should be invested in renewables over the next 30 years. That would be a tripling of current annual investments. But the “megatrend” is on, and nothing or nobody in sight appears to be able to stop it.