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Will Houston adjust its proud moniker to “energy transition capital of the world”? There’s not a place better positioned to take the title, according to Michael Cohen, BP Plc’s chief U.S. economist and head of oil analysis speaking during a recent webinar.
“Houston—think about it—it’s the center of PADD 3, and the Gulf Coast Area is the center of energy transformation,” Cohen said during the webinar hosted by Rice University’s Baker Institute for Public Policy on Aug. 27. “I think it’s hard to come up with any other energy center across the world that is more of a Nexus for that energy transformation other than the Houston and broader Gulf Coast and Louisiana area.”
The thought might seem counterintuitive for a city called home by almost 2,000 oil and gas companies, but it is the fossil fuel industry presence that solidifies Houston’s role in the energy transition to cleaner fuels. Part of the reason is that the green energy sector is not large enough and can’t grow fast enough to move the transition forward at the necessary pace.
“It’s great that renewables are growing,” Cohen said. “They’ve grown, you know, 300% over the last 10 years, but still represent only something like 5-6% of global energy demand today. So, you need these companies that are at the heart of the energy system, and many of those energy companies either have operations or are even headquartered in Houston. That Gulf Coast energy center is critical, overall, for how the rest of the energy system is going to evolve.”
Energy consumption accounts for 70% of global greenhouse-gas emissions, which makes transformation of companies a key element of the movement toward cleaner fuels and reduced emissions, he said.
Decarbonization challenge
Cohen discussed several aspects of BP’s “Statistical Review of World Energy 2021,” which was released in July. Economic disruption induced by the COVID-19 pandemic cut global energy output sharply in 2020, leading to a reduction in carbon emissions of 6%. The concurrent drops in energy and emissions allow the calculation of a carbon price of about $1,400 per metric ton, a figure BP Chief Economist Spencer Dale termed “scarily high.”
The challenge, Dale wrote in his analysis in the outlook, “is to reduce emissions without causing massive disruption and damage to everyday lives and livelihoods.”
The U.S. has been able to accomplish this to a point because renewable sources of energy like solar and wind are displacing coal as fuel for electrical power generation. On a global level, however, emissions from greenhouse gases like CO2 are heading in the opposite direction, Cohen said.
“In economies where energy demand is growing by leaps and bounds, variable renewable energy is not enough to satisfy it,” he said. “What we showed in previous statistical reviews in 2018 and 2019 is that energy demand growth is so fast that coal is swooping in to take some of that share and maintaining its share in the overall power mix.”
That goes to the challenge of decarbonization: energy affordability and access. Emerging economies will choose coal over renewables because lower-cost coal can most quickly lift their populations out of energy poverty.
“It’s important that to again reflect on why that is and understand that we need more than just an increase in renewable energy to continue to decarbonize the power mix,” Cohen said.
The Paris Agreement addresses that issue, stipulating that the response to climate change should focus on sustainable development and efforts to eradicate poverty, and acknowledges important interconnections between these goals and the energy system. It includes a focus on conservation and biodiversity both on land and in the oceans.
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