How will net-zero change the global economy? Part 1: The energy fundamentals

By Richard Howard

31st January 2020, Richard Howard, @RDHoward

Ever since the First Industrial Revolution, fossil fuels have been the bedrock of developed and developing economies. First on the scene was coal, followed by oil, and finally natural gas, each with energy locked away inside them ready to be used at our beck and call. Due to this on-demand energy, humanity developed new technologies and ways of life at a phenomenal rate, making each decade unique and technologically distinct from the one before.

Fossil fuels are so deeply embedded in our economy that fundamental change will be required if we are going to transition to an economy powered by renewable energy. To illustrate this further, the figure below shows a simplified model of how energy flows through an economy powered by fossil fuels.

The figure above shows how the energy contained within fossil fuels is distributed to energy intensive sectors of the economy: industrial chemicals and materials, transportation, manufacturing and property (commercial and domestic).

Each of these sectors require large amounts of energy to operate but not necessarily in the same form. For example, the processing of industrial chemicals and materials, as well as fossil fuels themselves, require enormous amounts of heat.

What is important to note is that fossil fuels can only be burnt to release their energy as heat and in order to heat for other applications that heat must be converted into other forms of energy. However, as we have discussed before in another blog, the conversion of heat to electricity is an inefficient process. As a result, much of the original energy is wasted.

This presents a simplified overview of how fossil fuel energy flows through an economy. But what if we were to power that same economy with renewable resources?

An Example of Energy Flows in an Economy Powered by Renewable Energy

The energy flows around an economy powered by wind, solar, hydro will look very different from one powered by fossil fuels. All these sources of energy available in our environment are harnessed by turning them directly into electricity. Solar PV panels turn sunlight directly into electricity, whilst the wind or flowing water spin turbines which drive generators. One possible configuration of the resultant energy flows is illustrated in the figure below. There may be other variations on this model, for example, energy storage or hydrogen technologies would potentially alter how energy flows through the economy, but the simplest model is represented below.

Many economic activities will still depend on delivery of the same basic forms of energy. Industrial chemicals and materials will still require heat and transportation will still require motion, but those forms of energy will now have to come via electricity. Crucially, however, the technologies that deliver heat and motion will change. Out goes the gas burners and internal combustion engines, in comes resistance heating and electric motors.

This is not a case of a few industries having to change, but every industry that uses heat or motion and every piece of equipment that uses fossil fuels to provide that energy. The automotive sector is very much in the headlines at the moment, grappling with the rise of the electric car, but there are many other industries that will also need to figure out ways of adapting. Some will have to adapt sooner, others may take more time – we will save that analysis for another blog.

Big changes are required if we are to reach a net-zero world and these will affect the core of our current economic system, with every major industrial sector having to tackle the fundamental issue of energy flow.

Here at Green Finance Guide we are developing technology to document, visualise, and communicate the net zero transition, as well as providing analysis. Feel free to get in touch if you think we could be of assistance via contact@greenfinanceguide.com or Tweet us @GreenFinGuide.

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