Wasted Cash & Sunken Belongings: Subsidies and Financing for Fossil Fuels

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Underneath the auspices of the India Good Grid Discussion board, the assume tank based as an umbrella group over India’s 28 state utilities to offer thought management, share main practices, and produce worldwide insights to India, I’m delivering bi-weekly webinars framed by the Brief Listing of Local weather Actions That Will Work. With the glories of on-line recordings and AI transcription instruments, it’s comparatively simple to share each the transcript and the slides that I used, so I’m making a behavior of it.

Reji Pillai (RP): Good morning, good afternoon, good night to all members welcoming you all for this eighth version of our webinar sequence. Right this moment Michael shall be speaking in regards to the futility of losing billions of {dollars} in subsidies for fossil fuels. On one aspect we’re all speaking about web zero, limiting local weather change to 1.5 diploma by by finish of this decade, and on the opposite aspect, persevering with to subsidize and finance fossil fuels and tens of millions of tons being nonetheless excavated and burned. So how will we deal with this? There are very attention-grabbing numbers which Michael shall be presenting immediately. So over to you, Michael. I received’t take any extra time within the introduction, so over to you and let folks ask their questions. We’ll come to the specifics later. Thanks.

Michael Barnard (MB): Thanks, Reji, and thanks as all the time to the ISGF for giving me the chance to offer what insights I can to help an incredible nation of India, to string the difficult needle between local weather motion and bringing the rest of your inhabitants out of poverty. It’s a tough act and India is working exhausting on it. I hope to have the ability to present some helpful insights to allow it to do barely higher. So, sure, regardless of understanding for the reason that 1850s that CO2 is a greenhouse fuel and that fossil fuels have important issues for well being. There’s all the time been an ethical argument, up until lately for persevering with to burn fossil fuels. However that ethical argument is within the rearview mirror for a lot of the world.

And so the query is, how little can we spend on fossil fuels, from what sources to allow us to get by means of the transition? And the place ought to we be spending cash? What’s the correct steadiness? I’d say proper now a lot of the world has the steadiness mistaken. And so I’ll be speaking a bit about that for the following jiffy.

Let’s begin with what are subsidies? There’s quite a lot of arguments about this. Lots of people attempt to fake that courses of subsidies aren’t precise subsidies, they’re one thing else. However I are likely to go along with the Worldwide Financial Fund definition. From 2010 to 2015, they normalized what they thought-about to be subsidies, and it’s an enormous bag.

They speak about direct subsidies, which is those all people thinks about, which is giving cash to the fossil gas trade. They speak about oblique, or, you realize, or additionally giving cash to customers. Oblique subsidies, which is placing a cap on retail costs or underneath pricing, underpricing fossil fuels on the fuel pump or the opposite stuff, or paying customers a charge to cash to allow them to purchase extra fossil fuels. Additional, we’ve bought foregone income the place taxes are lowered on fossil fuels, so the federal government isn’t accumulating cash. These are all fiscal preparations which are instantly associated. Lots of people attempt to exclude oblique. That’s an inappropriate selection.

And naturally, there’s the massive kicker within the room, the detrimental externalities. A few seminars in the past, we talked about carbon pricing and carbon pricing schemes around the globe. That could be a course of that costs detrimental externalities for the financial, human well being and environmental impacts they trigger.

And people are very important as we think about it. We’ve been gaining advantages from fossil fuels for human well being and longevity as a result of they’ve been offering purification of water. They’ve been offering lights that allow better productiveness exterior of daylight hours. They’ve been offering energy for automation, which allows us to do pressure leverage in order that now we have better financial outcomes. However we’re at very a lot the purpose the place the detrimental externalities are outweighing quite a lot of the benefits, and now we have options.

And so as soon as once more, that ethical argument is within the rear view mirror. It’s time to place the cash into issues that don’t have practically the identical diploma of detrimental externalities that don’t trigger our youngsters to finish up with bronchial asthma and numerous illnesses that don’t trigger our dad and mom and grandparents to undergo with cardiopulmonary illnesses and that don’t destroy the pure surroundings.

As we glance ahead, what we ask the query is why are we subsidizing fossil fuels as strongly as we’re immediately? In some instances, there are good causes, and I’ll attempt to pull out a few of these nuances for India as we speak about this. Let’s speak in regards to the Indian context versus different issues. That is Worldwide Financial Fund data from their 2023 replace. What it does is it pulls out gasoline, highway diesel, coal and pure fuel. What I’ve carried out is I’ve assembled only a subset of the bigger tables in order that India is contextualized towards China, america and a few consultant massive economies in Europe. I’m all the time making an attempt to contextualize India towards the bigger economies on the planet, as a result of that’s the place it must be contextualized as we transfer ahead.

China, like India, remains to be within the creating world class. Clearly Europe and america aren’t. And clearly Europe and america supplied the overwhelming majority of the CO2 emissions up till pretty lately. And now the creating economies are growing their share, particularly China.

This pink diamond on every of those signifies the precise pricing in these economies for these classes of fossil fuels. And the bars mixture the several types of prices to an financial system for these fossil fuels. So right here we see in Germany that their prices are roughly the identical because the precise environment friendly worth of that gas. That signifies that Germany has internalized all of the detrimental externalities of fossil fuels and isn’t successfully subsidizing fossil fuels. The identical is true of France. China, then again, is subsidizing important quantities of the prices of fossil fuels by its worth level. That’s enabling them to have cheaper gasoline than they might in any other case have, and in addition cheaper diesel. That is the way in which you learn this.

America, which purports to be a pacesetter on this house, has considerably underpriced gasoline, which does contribute to their very important automotive tradition. It’s simply dust low cost to drive round in america, they usually drive massive fuel guzzlers partly as a result of they aren’t pricing gasoline effectively. So equally, as we think about highway diesel, which is rather more vital for the trucking trade, China as soon as once more will not be pricing effectively. India will not be pricing effectively. Germany and France aren’t practically as virtuous for diesel, which has a lot increased particulate emissions and far increased well being impacts as they’re for gasoline. America is in the identical place, inefficient pricing.

As we get to coal, China and america have very poor pricing for coal when it comes to its impacts. France and Germany aren’t good. India is best than China. United States pure fuel, which is, you realize, much less utilized in India at current however growing pretty quickly, is sort of effectively priced, which is an efficient signal. The way in which to consider that is that coverage ought to push the pink diamond to the purpose the place the IMF or India’s interpretation of the same sort of knowledge says that the pricing needs to be to cost the product appropriately for the power. Germany and France are nonetheless underpricing pure fuel. There are modifications in that regard.

Up till lately, Europe has been tending to cost each the price of pure fuel and the price of electrical energy excessive to advertise effectivity. They’re realizing that’s a false dichotomy now and they’re decoupling the price of electrical energy from the price of fossil fuels and offering industrial charges, within the case of Germany, which are less expensive. Up till final 12 months, industrial charges in Germany had been twelve cents US per kilowatt hour. Now they’re exploring for large industrial customers charges as little as six cents per kilowatt hour. That permits electrification to proceed rather more shortly, which is the virtuous path each from an financial perspective and different views. Proper now we are able to begin to decouple that as a result of photo voltaic water storage and transmission are enabling us to decouple the price of electrical energy from the price of fossil fuels and begin actually decarbonizing economies of electrification.

Let’s speak in regards to the subsequent piece. What does that imply for India? So the G7 made a pledge and the G20 made a pledge in 2009 initially. Elements of the G20 made the pledge in 2009 to eradicate fossil gas subsidies. Most have carried out a horrible job of it. Canada, the place I stay, bought a bit of methods into it after which in 2015, when the correct authorities was elected which truly cared about that stuff, versus the earlier authorities which made the pledge, however it was simply lip service and didn’t do something, the federal government that truly tried to do one thing was having important challenges.

India made the pledge in 2015 with the G20, however has solely managed to influence direct subsidies. Direct subsidies, as a reminder, are solely a portion of subsidies they usually’re the direct subsidies to fossil gas producers, producers, distributors. And in order we think about this, India has been taking good motion, however not on oblique or exterior subsidies. So fairly a major lower on this blue bar immediately. Nonetheless, as we think about this, we’re nonetheless at some extent the place oil and fuel and coal have vastly extra direct subsidies than renewable power or electrical autos. That is the inverse of applicable subsidization. Within the 2020s, to ensure that India to really be a part of the trendy financial system, it wants to impress rather more quickly and invert this.

Now, there may be nonetheless an argument for some fossil gas subsidies and funding for particular functions, and I’ll get into that later, however to not this diploma. So let’s speak about what these subsidies appear to be in India. As we see, there’s $5 billion allotted to the Ministry of Petroleum and Pure Gasoline within the present finances. That’s some huge cash and that’s particularly dedicated to increasing extraction of pure fuel and petroleum, dominantly utilizing enhanced oil restoration and fracking. For context, enhanced oil restoration goes into an present oil nicely that’s tapped out because the strain contained in the nicely is insufficient or the constituency of the crude oil is simply too sluggish, its leftover tar to have the ability to be pumped out.

One of many dominant types of enhanced oil restoration is pumping carbon dioxide into the nicely, continuously in supercritical type, to loosen the oil and improve strain and switch right into a flowable liquid once more, then have the elevated strain and extra liquid oil be pumped out the opposite finish. This isn’t carbon seize and sequestration. That is growing the output of petroleum with a powerful detrimental influence for local weather change. So if anyone tells you that enhanced oil restoration is carbon seize and sequestration, nicely, that’s pure greenwashing and dominantly it’s what’s been carried out with carbon seize and sequestration globally. I believe we would have a full carbon seize and sequestration effort as a part of this sequence, simply as we’ll have a full hydrogen session.

There’s one other $700 million for strategic oil reserves. I normalized these all, by the way in which, to US {dollars} as a result of there have been values in my analysis in each. My apologies that they’re not Indian forex, however I made a decision it could be extra applicable to at the least do it in numbers that I understood and I hope that’s sufficient for the viewers. So extra on getting extra oil, extra on liquid petroleum merchandise. Now this one, keep in mind the oblique is decreasing the tax or decreasing governmental revenues to reinforce the power to extract produce, ship extra oil and fuel to customers at a cheaper price. And so there’s a 75% low cost on fuel royalties shifting ahead, which is, to be clear, fully opposite to local weather motion, however could also be justifiable with some features for the interim.

However it’s a very powerful argument, and policymakers ought to actually have their ft held to the fireplace over any determination giving some huge cash to grease and fuel. The previous three years have seen document earnings for oil and fuel companies globally, so it’s obscure why they want more cash from taxpayers. ONGC investments, a few billion for drilling, $7 billion in enhanced oil restoration tasks. That’s some huge cash. These are massive numbers and pipeline infrastructure at this level, pipelines are heading in the direction of being stranded belongings. A pipeline is usually a 30 12 months asset. What that is saying is that there are 12,000 pipelines being in-built India that are anticipated to nonetheless be working within the mid 2050s. Is that reasonable?

I’d say proper now, as I look around the globe, most of what I’m seeing is pipeline organizations trying to fake that hydrogen shall be utilized in them, which it received’t. After which we’re beginning to see strongly that it’s a shutting down of pipelines. We’re beginning to see a discount of pipelines. We’re beginning to see intentional sunsetting of pipeline infrastructure, particularly within the distribution aspect, partly as a result of as we transfer ahead, the problem for fuel utilities would be the loss of life spiral, the place clients transfer to induction cooking, warmth pumps, full electrification, and in a area the place there is likely to be, name it 100 clients in a area, 20 of them go away to electrification, 40 of them go away, after which 50 of them go away. Then they’ve half the purchasers.

However all the prices of sustaining the security and supply of the product, then they get to 70% and 80%, they usually can’t afford to ship fuel for the charges that clients can afford to pay. That’s the utility loss of life spiral. And so what we’re seeing now could be organizations around the globe, utilities around the globe are beginning to be compelled, usually to sundown fuel distribution options, fuel distribution networks in an clever and strategic trend over the following couple of many years. Utrecht within the Netherlands is a good case research in that, then again, India is quickly making an attempt to develop its fuel utility infrastructure, which is totally opposite to what needs to be carried out. It needs to be electrification first. Gasoline, nicely, it needs to be costlier, ship it by bottles for the individuals who demand it and transfer on.

So let’s pivot to banks, as a result of it’s not simply governments throwing billions and billions of {dollars}. In truth, it’s not even billions. The IMF assertion for 2023 was that globally there have been $7 trillion of direct, oblique and detrimental externality subsidies for the fossil gas trade, $2 trillion of that, which is quite a bit, fairly an enormous quantity. $2 trillion was direct and oblique subsidies, $5 trillion was detrimental externalities, to provide you a way of scale. However that is one other $2 trillion since 2016, for the reason that Paris settlement was signed from JP Morgan Chase, American banks, Chinese language banks, Canadian banks, British banks and a Swiss financial institution. So now we have this drawback the place main monetary establishments globally are persevering with to offer investments, that’s debt financing and in lots of instances fairness financing, into the fossil gas trade. That is enabling these industries to develop extraction, processing, refining and distribution of fossil fuels after we know there’s a disaster.

And that is the worldwide view, it’s not a very good view, however India’s banks usually are not on the record of the worst ones, however they’re nonetheless doing quite a lot of funding. State financial institution is doing quite a lot of work with pipelines and fuel tasks. HDFC is doing quite a lot of work with oil and fuel infrastructure. Icici has bought some massive scale infrastructure. Entry is on this house, IndusInd is in right here. These are all banks who needs to be funding renewables, electrification, electrical autos, electrical automobile fleets, decarbonization of commercial warmth, and as a substitute they’re principally spending much more cash on fossil fuels.

That signifies that there’s a major disconnect between local weather targets and the way in which the banks are this now on the planet. We’re beginning to see central banks just like the RBI, India’s RBI, establishing clear environmental, social and governmental tips for banking portfolios. And the very best that RBI has carried out has inspired it. So from a coverage perspective, extra enamel are required with that.

And the rationale for that’s as a result of there’s sturdy challenges and dangers related to this as we transfer ahead right into a low carbon future. As we transfer ahead into the long run, we see dangers from an Indian context.

So let’s begin parsing round these and finish with well being impacts simply because it’s helpful. So in all probability the worldwide power disaster that was dominantly a European power disaster fomented by the invasion of Ukraine by Russia, created power spikes throughout Europe, but additionally in the remainder of the world. As a result of Russian fuel and Russian oil was an affordable commodity like Saudi’s product, it was being consumed globally after which a lot of sanctions made it an unlawful substance, which suggests it’s promoting much less, however which means a decrease provide with fixed demand, elevated prices. We noticed important worth spikes. It is a widespread factor as we glance around the globe. I can return to 1972 with the OPEC OilCcrisis, when the key oil producing nations on the time turned off the faucets to maximise their earnings and prices of power shot up with renewables.

We don’t have that concern as a result of renewables are inside a rustic’s area, rather more so than fossil fuels. The worth shocks and the considerations about geopolitical considerations, just like the battle, just like the OPEC oil disaster, like different crises of power over the previous many years associated to fossil fuels, you possibly can keep away from these. After I talked to Australian funding funds, one of many questions they’d was, how will we make inexperienced metal made with renewables worth aggressive with pure fuel? I mentioned, nicely, it’s important to worth within the volatility of pure fuel, as a result of as we undergo the transition away from it, we’re going to see much more volatility in pure fuel and oil. As mergers and acquisitions happen, as blocks of corporations try to drive out advantages for themselves, as battle, just like the Houthis blocking the Strait of Hormuz.

These kinds of issues all drive up the price of fossil fuels vastly greater than they drive up the price of renewably generated electrical energy. So avoiding that may be a actually good choice. Clearly, India is simply as topic to excessive climate attributable to local weather change, and probably extra so. Each nation on the planet is seeing radically totally different climate. Ravi in Toronto and myself in Montreal proper now, lived by means of fairly excessive warmth final week, unusually excessive for the cities we’re at present in. However that’s not as uncommon. In the meantime, two days in the past in Calgary, hail was shattering automotive home windows and destroying home windows and buildings, and terrifying residents of town because it destroyed their home windows and was hurtling into their dwelling rooms. And so we’re seeing all these occasions globally.

Let’s return to 2017, into the area the place you’re. There was the monsoon that flooded Bangladesh and displaced a 3rd of the populace. So these are occasions that are pushed by our consumption of fossil fuels, and we’re making them worse the extra we develop fossil fuels. So all of the subsidies are subsidizing excessive climate.

There’s reputational threat. India doesn’t should be the primary on the desk, however they will’t be within the laggards. As we transfer ahead, India’s international popularity and its cultural enlargement and the willingness of individuals to provide it the good thing about the doubt, to persist in commerce offers with it, grow to be extra in danger the extra it spends on fossil fuels. In contrast to Saudi Arabia, it’s not an exporter, but when it continues to subsidize fossil fuels, it finally ends up being doubtlessly thought-about the way in which Saudi Arabia does with out Saudi Arabia’s financial clout.

The following piece within the dangers is social inequity. A fossil gas financial system tends to offer the very best profit to the very best socioeconomic brackets, and the very best prices, the least profit to the bottom socioeconomic brackets. It is a actuality of the fossil gas economies. As we glance around the globe, there’s a powerful correlation between GINI indices, the diploma of revenue inequity in a society, and excessive fossil gas consumption or petro states. There are outliers, like Norway, which is fastidiously managed, however it’s an outlier. Have a look at america. It’s now the largest exporter of fossil fuels on the planet, and its inequity has elevated considerably since 1980. On the identical time, it’s elevated its exports. So if we think about social inequity to be a threat, and each authorities persists on the will of the folks, whatever the political system, social inequity is without doubt one of the issues to be very involved about from a coverage perspective.

Power safety is an attention-grabbing one. As I mentioned, renewables principally get generated inside a rustic. India is large enough to generate all of the power it wants, principally within its borders, however it’s additionally slender sufficient that it could’t actually make the most of photo voltaic highs and lows. And so at that time, you begin needing connections east and west and north. You begin needing an HVDC grid to attract power from the north to the south extra effectively. However power safety can also be a spot that’s an controversial place for present funding in fossil fuels.

As I mentioned, India is now beginning to do unconventional extraction of oil and fuel to allow it to keep away from a number of the worth volatility in worldwide markets. And I actually acknowledge that benefit. However it needs to be on the benefit order. The consumption of that pure fuel and oil needs to be on a benefit order on the backside of the benefit order. Proper now, it’s not India, and that should remodel.

There’s additionally a regulatory threat. Worldwide rules. As I mentioned, the carbon border adjustment mechanism in Europe, which I talked about a few seminars in the past, goes to extend. As India expands its use of fossil fuels, versus increasing rather more quickly its electrification, it places itself at better threat of ending up on the mistaken aspect of aggressive benefits with economies which haven’t been subsidizing fossil fuels, which have been reworking to electrification. And so, as you think about ahead for the following many years, elevated fossil gas use is a aggressive drawback and shall be topic to regulatory shocks that may trigger challenges. You already know, it’s simple to foresee. It’s a grey rhino threat, and India wants to concentrate to it from a coverage perspective.

There are additionally the dangers of stranded belongings. These billions of {dollars} for pipeline enlargement and enhanced oil restoration and strategic oil reserves are strongly susceptible to being far too massive, underutilized and even bankrupting. I’ll evaluate and distinction Canada, which is equally responsible on this regard. The federal authorities a couple of years in the past purchased a pipeline from the oil producing area of Alberta to the coast so oil from the oil sands may get to water and be shipped. Their speculation was that it could go to Asia. Not going to occur. It’s truly going to go to California for quite a lot of causes.

However the pipeline, they tripled it in dimension, to ship 3 times as a lot oil. However it’s going to be a stranded asset. My projection is it’s going to be operating at a 3rd of its capability by 2035 and certain be bankrupt completely by 2040, which is why the federal government had to purchase it. Kinder Morgan, the agency that owned it, mentioned there’s no actual motive to truly triple this as a result of there’s no marketplace for this product. And that’s bearing out. The pipeline will not be delivering the worth proposition that was articulated, so now they’re pretending it’s doing one thing else now that it’s in operation.

And eventually, there are well being impacts. Fossil gas burning causes folks to get sick, and it causes much more folks to get sick, much more folks to get most cancers. It places lots better burden on the well being system of India or another nation that does that. And so electrification doesn’t. A wholesome populace is a productive populace. A wholesome populace is ready to interact in extracurricular actions like expanded studying and entrepreneurial actions. An unhealthy populace is simply making an attempt to get by means of the times and received’t be a productive financial driver for India. So for India to be a strongly aggressive nation sooner or later, avoiding the well being influence dangers might be a good suggestion.

After which there’s the chance prices. Each greenback you’re spending on fossil fuels, you’re not spending on low carbon expertise. I attempted to make this make a mangrove tree, and I type of bought partway there to get this concept. However this can be a basic factor. The billions of {dollars} that the federal government is throwing at fossil fuels and the oblique subsidies it’s offering for fossil fuels to maintain them low cost for customers usually are not enabling the transition to low carbon expertise.

As I mentioned, there’s an argument for some stuff for power safety. In all probability the one argument within the house. However it’s not the correct argument. The correct argument is electrification, transmission, storage, renewables and funding these issues to keep away from all these dangers.

There some nations to take a look at, and I’d suggest the ISGF doubtlessly think about or get one other sibling company who’s extra focused any such stuff to do a research based mostly on this. Go take a look at Indonesia, which decreased its gasoline and diesel subsidies to extend the worth of these issues to advertise electrification. And it shifted the fiscal sources it used to provide to folks for gasoline and diesel social help packages. So the people didn’t lose the cash, they simply didn’t have it tied to fossil fuels. That’s the correct selection. That’s a progressive strategy.

You already know, the main practices are listed down the aspect right here. There’s a set of literature on this. Incremental reforms are a key one. That’s the identical sort of factor for carbon pricing. You must deliver it in low after which improve it yearly a bit at a time in order that finally and with consistency, in order that strategic investments may be made.

Italy’s carried out some nice stuff. They’ve mentioned, nicely, we’re not going to throw more cash at fossil fuels or as a lot, however throw it at renewable energies as a substitute. So as soon as once more, investing within the expertise of the long run as a substitute of the expertise of the previous as a lot as attainable.

Consider it or not, Ukraine continues to try this. To try this. One of many attention-grabbing issues about Ukraine is that within the early months of the battle, one thing that had been mentioned and never acted on for years, which was connecting transmission and connecting Ukraine’s electrical energy grid to Europe’s electrical energy, occurred in months. It was simple to do. The invasion overcame institutional inertia, they usually did that. There was a powerful push up till the invasion for Ukraine to grow to be a renewables powerhouse in jap Europe. It’s an enormous, broad plain, very similar to the areas to east and west of New Delhi. And so there’s quite a lot of land for wind and photo voltaic and good sources. And they also’ve been working alongside that. And now as they arrive out of the battle within the subsequent 12 months or two and Russia is shoved again behind its borders, it’s going to be attention-grabbing to see what the following steps are.

Thailand has been doing good work as nicely. And so there are main nations for India to take a look at, their main practices for India to contemplate align with the Indian context and to use. And so there are answers proper now. India has carried out a very good job since 2015 with one portion of subsidies. Its banks usually are not the worst banks on the planet when it comes to investing in fossil fuels, however their arms are nonetheless soiled, their arms are nonetheless lined in oil. And so there’s an actual alternative right here for India to rethink this and to align extra successfully and effectively with the financial system of the long run and to keep away from all these dangers I talked about. So these are my slides. We now have about 20 minutes for dialog, so please ask questions.

RP: Sensible, Michael, sensible articulation of the fallacy of giving subsidies for fossil fuels at this age, this period, after we are literally experiencing the results of local weather change. Newest DoE USA paper says there have been 28 climate occasions in 2023 which broken the grid. We’re solely speaking in regards to the grid. And the financial loss in the course of the 12 months is calculated at $90 billion for america from the climate occasions, which value outages for as much as 24 hours or extra. So 28 instances it occurred final 12 months and this 12 months it could be extra. And India and plenty of different creating nations, we’re seeing some issues or the opposite. Each different day. Each different day, some nook of the nation is. Any questions?

Ravi: Thanks. Truly, this has been in all probability one of the vital tough components of a sequence of discussions, just because how do you get a cadre of nations or a area on the planet to indicate trigger that there’s this system that may be adopted and it should be, it’s important to praise Michael for that, as a result of it’s a really tough topic that he’s making an attempt to deliver on to say that these small modifications in insurance policies, if you’ll, finances to finances, although they’re bigger {dollars}, they really set up a pathway for future budgets and future budgets to truly help these so referred to as sick insurance policies, if you’ll. And so you bought to nip this within the bud and say thats not the path we must always go.

However the important thing side that I’ve, and I don’t have a solution or a remark is how do you kickstart this? As a result of for those who take a look at all of the COPs, there may be an understanding that the following COP, due to all the issues on the planet, largely conflicts, will not be going to draw even the COP 26 measures that had been promised a number of years in the past. And so the query, I feel, stays in a really tough manner. And perhaps Michael can articulate how he hopes that this gospel, if you’ll, can truly be carried out on a regional foundation so that every one shares one another’s experiences? I imply, India would have been an excellent catalyst however now, for those who go searching India, you’ve gotten all types of conflicts.

And so that you do not need that stability, political stability round India to have the ability to say, okay, massive brother, small brothers, small sister, massive sister type of strategy that SAARC was alleged to create. So East Asia, maybe, and he had two experiences. There’s maybe one such the place there might be promise in forging this. And Reji, perhaps in our visits in a while, we must always consider getting Eddie concerned on this, as a result of that’s the way in which to do it. One nation, after they do it, and the opposite nation, neighboring nation, doesn’t. You will have all the time had this challenge as to. I imply, Canada is one good instance of that. He spoke of the pipelines, and but we’re very closely influenced by US insurance policies. And in order that simply turns into one space. So I don’t have a remark aside from a very good remark. A really tough topic.

I feel that is probably the most tough in a sequence of discussions the place it includes foresight, insurance policies and a few stage of management. And I don’t see that stage. I imply, I’m going again to Maurice Robust. I imply, he was the chairman of Ontario Hydro at the moment, and I used to be a small man within the government workplace pushing paper. And it took 1992 to 2000 to even give you the IPCC report. It took one other ten years to even come and perceive the 1.5 and two levels and three levels, the final ten years of which we’re seeing all these occasions truly go up and up and up. However but, I’m sorry to say, in 2024, we nonetheless haven’t bought what I’d think about as a pathway that’s absolutely understood and accepted by all to say that is the non fossil pathway.

We are going to go, not even in america, not even in Canada. And so now we have these debates nonetheless as to what constitutes 2.5. And we fully neglect that our cities are flooded, hurricanes happen, hail in the course of summer time. I imply, all that’s simply there for us to see, however but now we have not. Our political system will not be absorbing it. I don’t know why, however I don’t have a solution for that. So anyway, who is aware of the reply for this?

MB: I’ve a solution why our political system will not be accommodating. It’s as a result of the entrenched particular curiosity teams which are the fossil gas trade, the fuel utilities, know that their days are numbered. They’ve some huge cash, they usually’re creating confusion, creating disinformation, creating political sick will, making a pretense of disagreement the place there isn’t truly disagreement, and selling options which are non options, like carbon seize and sequestration and hydrogen in an effort to delay the inevitable, nevertheless there may be.

Ravi: For Canada, I’d settle for that. However for India, as you rightfully identified, the present finances is form of moving into an space that it hasn’t gone up to now, and it’s dedicated a lot of sources it must preserve feeding this beast going ahead in subsequent budgets. So in a manner, it has chosen a fork within the highway that it by no means selected earlier than. And in order that itself form of alarms me. I imply, your factor was so nice that it factors out that they selected a fork which is the antithesis of all of the greenhouse and inexperienced power that India has been selling and doing for the final 5 years.

MB: Nicely, there’s a solution for that. One of many issues that I identified you began a couple of years in the past was that fracking and shale oil are applied sciences, they usually allow extraction of fossil gas reserves that had been unavailable globally and they might be exported. And so, as I level out, we’re seeing these applied sciences emerge in each China and India. There’s excellent news and unhealthy information with that. The excellent news is that the key oil producing states not have a lock on it. So the geopolitics change. The unhealthy information is it allows nations that couldn’t extract quite a lot of these issues to extract quite a lot of these issues. Nonetheless, america expertise with fracking and with shale oil shall be repeated globally. So let’s speak about that briefly, as a result of it has sturdy implications for banking and funding and governmental funding in these applied sciences.

So, transient historical past. In 1972, there was the OPEC oil disaster. Gerald Ford, the president on the time, in 1974 established the primary US nationwide funding for unconventional oil and fuel extraction. And 30 years later that grew to become the shale oil and fracking increase for oil and fuel, respectively. Principally, pumping pressurized steam and grit and water into underground shale formations to fracture them. Depart behind quartz pebbles that preserve the fractures open to allow oil and fuel to circulation out. In 2019, what we noticed in america was important bankruptcies within the shale oil and pure fuel industries. Banks had been truly not solely foreclosing, however seizing belongings, which is extremely uncommon. The explanation for that’s that each fracking fracked fuel reserves and shale oils had a lot shorter lifespans than had initially been assumed or projected.

They had been assumed that when you’ve fracked or carried out a shale oil effort, you’d have a 20 12 months lifespan or a 30 12 months lifespan for that asset. However it’s turning out to be two to 3 years. The heavy capital value and the heavy upfront value for these applied sciences was not paying for itself with the anticipated fiscal advantages. And that’s a powerful lesson for India because it adopts these applied sciences. There’s a important overstatement of the monetary advantages of those applied sciences and a powerful fiscal concern for investments in them. Have to take a look at them with a really involved eye.

Equally, what we’re seeing is insurance coverage charges are going up fairly considerably on all kinds of various applied sciences, industries and stuff. Because the insurance coverage trade says, we are able to’t afford to cowl these sorts of liabilities attributable to elevated local weather dangers.

And so there are fiscal pressures that are going to trigger bankruptcies of traders in these locations. Proper now Canada is making an attempt to promote the pipeline and I’m simply making an attempt to determine who the heck goes to purchase it for what purchaser, sale worth. I’m fairly positive the Canadian taxpayer goes to eat $30 billion of the price of cash that’s put into the pipeline in an effort to discover anyone who needs to purchase it. It’s simply not value what’s being spent on it and it received’t final for, as I mentioned, greater than one other 15 to twenty years. So the stranded belongings are coming. The electrification transformation is shifting rather more quickly than governments or trade assume.

I spend quite a lot of time as of late power storage for warmth, for trade, residential and business house, and I spent quite a lot of time trying on the low value of batteries. We now have the options for all this, however governments are nonetheless placing cash into the fossil gas trade due to a brief sighted perspective on that threat profile. I feel that the chance display for fossil gas investments is underappreciated by policymakers and bankers at this level as a result of they’re listening to the mistaken advisors.

Different questions or considerations?

Subir: Thanks very a lot. I had an remark. I imply, in fact you drew the eye to the purpose that there’s a lot funding occurring by the federal government of India on subsidies to the ONGC for drilling, for exploration and in addition to organising the networks, oil and fuel networks. I feel that there could also be some larger causes that a lot of funding is happening past the share economics and that could be pushed by the nationwide safety and people features which they should look into relatively than simply the economics, quick economics per se. Any ideas on that?

MB: Nicely, yeah, if you wish to truly create nationwide safety and nationwide power safety, renewables, transmission and storage are the way in which to do it. The purpose of that is that if we think about that fracked and unconventional fuel and oil belongings are quick time period belongings, and that enhanced oil restoration of tapped out oil fields is a brief time period means of getting on the remaining 10% or 20%, these are going to expire shortly, and then you definitely’re going to left with an entire bunch of pipelines from locations that don’t have oil and fuel to locations that count on oil and fuel.

But when we as a substitute put money into the pipeline of the long run, excessive voltage direct present transmission and the power supply of the long run, wind, photo voltaic and water, and the power strategic reserves of the futures batteries and pumped hydro, then that’s truly future proofing and that’s truly offering strategic power reserves and power safety from that’s not topic to unstable oil shocks. As a result of committing to the fossil gas trade signifies that as costs spike globally, you’re going to see all kinds of different issues.

Let’s take an instance with america. Proper now. There’s an enormous controversy in america as a result of in 2015 they’d the funding tax credit score for wind power that was going to run out. And they also managed to do a deal between the folks on the aspect of renewables and electrification and the folks on the aspect of fossil fuels that allowed them to export crude oil. That was one of many different issues that got here out of the OPEC oil disaster. There was laws put in place that america couldn’t export fossil fuels for power safety, which was cheap on the time, however then the unconventional extraction meant that they’d surplus, and they also needed to try this. Incentives for renewables continued.

What we noticed was that pure fuel companies in america had been exporting LN to different markets, and worth spikes had been spiking inside america for power, although they’d important native reserves, and that’s important native manufacturing. So what we see is committing to a fossil gas trade that continues to commit to cost volatility from international fossil gas issues. It’s a reasonably straight line. It’s one of many key dangers. And having home reserves doesn’t isolate home customers from that as a result of the wealthy corporations will promote it to the very best bidder. If that highest bidder is in Europe or in China, then Indian customers will go begging or they’ll be paying international costs for the power.

And so power safety, I take a look at this, I take a look at power independence, and I all the time say it’s strategic power independence. When you have a fractious relationship with Pakistan, you’ve gotten a very good relationship, higher relationship with Bangladesh, you realize, considerably challenged relationship with China, attention-grabbing relationships with African states. There are nonetheless nations you commerce with, nonetheless nations you commerce all kinds of commodities with. I don’t think about placing HVDC into these nations to share electrical energy throughout borders any in a different way than I think about another commodity or another luxurious good. It’s simply one thing it’s important to hedge. The extra connections you’ve gotten extra broadly with HVDC, the extra you hedge any particular person connection and the extra strategic power independence you’ve gotten. However fossil fuels usually are not the way in which to power independence or strategic independence anymore. I hope that solutions your query usefully.

Subir: Yeah, thanks for this angle. I actually respect that. Instead, in fact, the HVCC investments are actually the way in which to go, however on the identical time I really feel that, okay, perhaps we’re contemplating the gas financial system throughout the nation, however I imply, if I take a look at it globally, I don’t see that the nations like Qatar and all who have gotten massive reserves, they’re going to any day scale down. They are going to carry on dropping the costs in order that they’re within the sport for a few years to return. That’s what I really feel. I imply, I’d love to listen to on this level that at any time limit these usually are not going to go away for perhaps one other 50 years. It seems to be like they’ll carry on dropping the costs to be within the sport.

MB: However at that time the very best value producers begin dropping off. Venezuela and Canada each have very heavy bitter sulfur. It’s excessive in bitumen, it’s principally principally asphalt that’s excessive in sulfur. And so these are very pricey to extract, value to course of, value to distribute. And as such, as the worth of oil diminishes, the oil sands will drop off, the Venezuelans oil will drop off. Shale oil is an costly oil by comparability, and it’ll grow to be costlier as the price of power to extract and course of it will increase attributable to carbon pricing. Proper now, the key of enhanced oil restoration is that they burn quite a lot of fossil fuels behind the meter in an effort to energy their processes. So their power return on power invested is down round two to 4, versus typical oil, which is ten to 18.

And they also’re spending some huge cash by burning quite a lot of fossil fuels, however it’s hidden from the price of that as a result of they’re simply burning stuff they’ve. As we begin pricing these emissions, that value goes up. And so as soon as once more we get to some extent sooner or later the place mild, candy oil near water like Saudi Arabia’s, will proceed to be extracted for the diminishing demand for oil. And sure, the worth will go down, however there’ll nonetheless be important spikes attributable to conflicts, attributable to Strait of Hormuz and the Houthis inflicting delivery distractions, attributable to regional conflicts which improve as local weather crises trigger inner and exterior displacements of residents and result in civil wars. We’re coming into a interval of world instability.

And the very best strategic power is to make as a lot as attainable inner to your nation from renewables and use it in excessive effectivity power, electrical energy and sources. It’s exhausting for me to contemplate a state of affairs the place you’re doing something with fossil fuels which isn’t as a backup. For that, the first technique needs to be getting off of fossil fuels and getting out of that route race.

Subir: In my view, that’s an excellent level, that from the strategic perspective, it makes higher sense to have these sources throughout the boundaries. That’s the last word insurance coverage that one nation can have, relatively than relying on exterior gas for positive. So thanks very a lot in your factors, Michael. I actually respect that.

MB: I’ll share yet one more information level with you, which is type of enjoyable. So, Israel. Israel is type of the last word political island state. It’s in the course of a area the place all people hates it, and that’s enjoying out once more proper now. When Mark Z. Jacobson did his 145 nation research of 100% renewables by 2050, he grouped them right into a set of teams. And a few nations, like South Korea and Israel, he thought-about as remoted entities. In different phrases, they weren’t entities which might be a part of a regional electrical energy sharing group. There’s a nuance on that. And so even in Israel, it was cheaper to energy it completely by renewables with storage and transmit electrical energy simply round a small geography of Israel than it was to run the nation on fossil fuels. In order that’s type of assertion one, assertion two.

Nonetheless, proper now, there’s a cable in development from Greece to Israel, an HVDC cable, undersea cable, to allow Israel to be related into a bigger grid and to share electrons throughout important geographical distances. And so even theoretically remoted states like South Korea and Israel, truly with trendy HVDC expertise, don’t should be remoted. And as soon as then you definitely select who you hook up with, why? And for those who’ve bought main units of commerce with home, with third events, why wouldn’t you commerce electrical energy with them as nicely?

RP: The UK Netherlands HVDC connection, virtually 800 kv line was lately commissioned, principally undersea cable. The ISGF initiated a dialogue in 2018 about connecting the South Asia grid with the western half, the Gulf GCC grid, and in addition with the ASEAN grid within the east. So from Saudi Arabia to Singapore, now we have 5 hours of time distinction, which might be actually an asset within the photo voltaic period. So we introduced all of the six nations within the Gulf, cooperation nations, six of them, they have already got a GCC grid. And on the jap aspect of India, ten nations within the ASEAN, have an ASEAN grid with six of them are interconnected. One or two extra will get related by 2030. And in South Asia, India, Nepal, Bhutan, Bangladesh are already interconnected, and we’re doing energy buying and selling amongst this nation.

And sooner or later in time, Sri Lanka additionally will get related. So this South Asia grid, connecting to that GCC grid and with the ASEAN grid is a few thought which was initiated by ISGF manner again in 2018. And in 2019, March, we introduced all the important thing determination makers from the GCC, from ASEAN and India and our South Asia grid folks. We had a day lengthy dialogue and eventually all people agreed that that is good for everyone within the rising period. And we’ll interconnect, beginning with two interconnections. One is an undersea cable line from Oman to Gujarat, western a part of India. So a 2000 megawatt HVDC line and an overhead line from Manipur to Thailand through Myanmar. These two had been mutually agreed by all of the events. I imply, there was a consensus on this and a feasibility research was to occur.

Some worldwide businesses, just like the European Union, ADB, World Financial institution, USAID, all these folks expressed curiosity. Nothing may progress a lot by the point the COVID got here, and it’s two years gone. So now there may be quite a lot of curiosity in the identical space. There have been discussions as a substitute of Oman interconnecting UAE with India and all undersea connections, as a result of our headline won’t come apparent, our neighbors issues. So we see that sooner or later in time, all people will see logic investing into that interconnection with ASEAN to South Asia to West Asia, and that GCC grid already getting related to Jordan and different locations.

So it’s going to be an attention-grabbing time, perhaps the gate course, the worldwide power interconnection, massive program of $38 trillion, a 50 12 months program which will take its personal time, however this regional grids getting interconnected is one thing which can occur at marginal funding and far larger profit to all of the members.

So we’ll cease anyone, another factors? Thanks, it was a beautiful session. And subsequent session shall be on 22 August, identical time, 07:30 p.m. India time.