Energy Transition Plans Keep Freezing Today’s Demand Into Tomorrow

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A lot of energy-transition analysis begins with an assumption that is easy to miss: the size and shape of today’s market are carried into the future. Once that happens, the analytical task becomes finding a low-carbon substitute for everything the incumbent system currently supplies.

That approach can make the replacement problem much larger than it needs to be. Industries change as the energy transition proceeds, technologies compete across sector boundaries, demand responds to price, and some of the commodities that dominate today’s energy system shrink for reasons that have little to do with the technology being proposed as their replacement.

I discussed this recently with Amy Rennison at an Earth Set event at Octopus Energy’s London headquarters. The conversation covered shipping, hydrogen, grids, heat pumps, aviation, carbon removal and data centres, with questions from the audience repeatedly pulling us back to the assumptions underneath apparently confident transition forecasts. I expanded the discussion in The Energy Transition Has An Assumptions Problem.

Shipping is a good place to see the problem. Roughly 40% of maritime freight tonnage is coal, oil and gas, with raw iron ore accounting for another 15%. Fossil-fuel demand declines as energy systems electrify, steel production changes, and inland and short-sea routes increasingly become candidates for battery electrification. All of those changes affect the amount of liquid fuel the shipping industry will eventually require.

My projection leaves about 70 million tonnes of annual shipping fuel demand by 2100. Other projections reach several hundred million tonnes. That gap has enormous consequences for investment because it changes how much biomass, synthetic fuel, renewable electricity and supporting infrastructure appear necessary. A fuel pathway that looks impossibly constrained against one demand forecast can look quite different against another.

The same issue appears when biological fuels are discussed across transport sectors. Cars, trucks and trains electrify, much of shorter-distance shipping can electrify, and fossil-fuel freight declines. Aviation remains a stronger claimant on scarce sustainable liquid fuels, which affects what is economically available to shipping. Looking at those markets together changed my own assessment of how much biodiesel and renewable diesel should appear in my maritime pathway.

Hydrogen provides a different example of assumptions shaping investment. The broad hydrogen-economy narrative depended heavily on green hydrogen becoming inexpensive enough to compete in transportation, heating, electricity storage and a wide range of industrial applications. I kept working through production and delivery economics and found a much smaller addressable market when hydrogen remained expensive.

Policies, subsidy programmes, corporate organizations and investment plans had already formed around the larger market expectation. Institutions do not disappear as quickly as the assumptions that created them. Once money, staff and political commitments accumulate around a proposition, changing direction becomes an organizational problem as well as an analytical one.

That helps explain why some of the most valuable transition work looks less exciting than another new energy device. Electricity transmission and distribution have to expand. Utilities have to change how they plan and build while maintaining reliability. Wind, solar and battery projects need communities willing to host them, which requires local benefits and serious engagement rather than relying on national opinion polls.

Octopus Energy was an appropriate place for the conversation because much of its contribution comes from deploying existing technologies through software, customer relationships and different commercial models. Heat pumps and electric cars did not need to be reinvented before companies could make them easier for households to adopt.

The audience also pushed the discussion into assumptions that cannot be resolved with engineering. Ocean physicist Helen Czerski challenged my treatment of aviation demand. I estimate that roughly 91% of aviation is discretionary, which can easily be misheard as a prediction that almost all flying disappears. That is not my projection.

Discretionary travel responds to price in ways that essential daily travel often cannot. People can travel less frequently, choose nearer destinations, substitute video calls for some business trips or pay more for trips they value highly. The harder issue is political: describing how demand responds to more expensive sustainable aviation fuel does not tell us how readily governments will accept policies that make familiar travel more costly.

A transition scenario needs that political uncertainty in view. Technology can be available and economically coherent while public acceptance determines when, where and how quickly it can be deployed.

Carbon removal presents another version of the demand problem. Climate science supports the need for atmospheric drawdown, but that does not make every future emissions forecast sound. If a scenario overstates future fossil-fuel demand, the modeled carbon-removal requirement grows with it. Large removal requirements can then be used to justify technologies whose eventual scale and cost are still uncertain.

There are stronger and weaker removal opportunities. Restoring forests, wetlands and grasslands and improving agricultural practices have important roles. Concentrated biogenic carbon dioxide from a valuable industrial process located near appropriate geological storage also begins from a better position than capturing dilute carbon dioxide and transporting it through large new networks. Those cases should be assessed on their own merits instead of being bundled into a generic carbon-capture category.

Data-centre projections carry another hidden assumption. Today’s computing requirements are often extended into the future while improvements in software, chips and system architecture receive less attention. Constraints on cost, hardware and electricity consumption create powerful incentives to improve efficiency. Computing demand can still rise rapidly while the amount of electricity needed for a given task changes substantially.

The same analytical discipline applies across these examples. Start with the service society will need, examine how the market providing that service is likely to change, and make the assumptions visible enough for other people to challenge them. Only then does it make sense to estimate the amount of fuel, infrastructure or capital required by a particular solution.

The transition already has a broad set of mature technologies capable of doing useful work. Capital allocation improves when forecasts pay as much attention to the changing size of the problem as they do to the ingenuity of the proposed solution.

The full Earth Set discussion, including the challenges to my own assumptions and the implications for utilities, aviation, carbon removal and data centres, is in The Energy Transition Has An Assumptions Problem.