As 2021 draws to a close, I wanted to share some climate optimism. Climate and energy writer Dave Roberts interviewed carbon market analyst Kingsmill Bond, who is incredibly bullish on the long-term prospects for clean technology and bearish on fossil fuels.

In fact, he believes the world reached peak demand for fossil fuel, including coal and oil and gas, back in 2019, and that even as demand recovers, it won’t go beyond this peak. Meanwhile, clean technologies are plummeting in price and cost of deployment.

It’s worth reading the transcript of the full interview, but some highlights are below.

First, Bond notes that four of the crucial clean technologies (solar PV, wind, batteries, and electrolyzers to convert surplus electricity into hydrogen) are on established learning curves (the amount that their costs drop for every doubling in deployment) at between 16 and 34 percent. In practice, that means this already-cheap energy source is “a) going to get cheaper, b) going to spread globally, and then c) be followed up by these other technologies, also on learning curves, which will then provide us with the energy that we need at much lower cost.”

Second, he describes how fossil fuel incumbents are already pretty much on a death spiral. Specifically, he cites how legacy automakers were unprepared for the increasing shift toward new electric vehicles over old internal combustion engine (ICE) models:

You then look at the cost curves of the new stuff, and you realize that you’re going to have to change. You have to reallocate your capital out of ICE [internal combustion engine] cars and into electric vehicles. Meanwhile, you figure out that you’ve got continuous decline now coming for your ICE car sales, so suddenly, your ICE factory is a liability, not an asset. Furthermore, as your sales of ICE cars start to drop, you’ve got to allocate the same fixed-cost structure over a smaller number of cars, and your cost per unit increases. This is economics 101. 

That’s what happens to the old people. What then happens to the new people, Tesla and BYD and the EV makers, is, as they produce more cars, the costs of the batteries fall because of these learning curves. As costs fall, demand increases, and as demand increases, they’re taking more market share, and they can then go to the second feedback loop, which is the financial markets.

Tesla can go to the financial markets and in an afternoon they can raise several billion dollars and build a new factory in Berlin, which increases their capacity to build at the same time the fossil fuel sector is finding it very difficult to raise capital, and is obliged by investors to change their strategic direction — as we saw, famously, with Engine No. 1.

The reason these incumbents struggle to adapt is relatively simple:

The answer is, incumbents, first of all, try and resist change. Then they struggle to put capital into these new technologies, because they’re not sufficiently profitable. You saw lots of examples of the oil center saying that over the last decade: we’re not going to put our money into solar and wind because we can get a 20 percent IRR on oil against a 5 percent IRR on solar. Why would we? The problem, then, is that by the time this stuff does get profitable and starts to eat into their old business, it’s too late, and other people have moved into this area. That’s exactly what’s happening now in the energy system.

Finally, Bond argues that the potential for cheap and abundant clean energy is massive: “If you look at the technical potential of solar and wind, which has been a lot in the last five years, it’s 100 times our global energy demand today.” It’s hard to imagine just how different our world would be if clean energy was essentially cheap and limitless.

Something to ponder as we head into the new year of 2022, with much work to be done to address climate change. May it be a good one for all of you!