A carbon resurgence? With $100 oil and big gaps in renewables, fossil fuels are as essential as ever

The clean energy transition has been interrupted.

With soaring prices and the disruptions caused by Russia’s invasion of Ukraine, the world is turning to fossil fuels again. Governments are releasing strategic reserves, lining up new supplies and urging oil and gas producers to pump up production.

Call it the carbon resurgence, and it’s a reminder that fossil fuels remain as essential as ever.

Even strong advocates of clean energy, such as Larry Fink, CEO of investment giant BlackRock, acknowledged the reset. He said the U.S. was focused on boosting oil and gas supply, and Europe and Asia may increase coal consumption over the next year.

“This will inevitably slow the world’s progress toward net zero in the near term,” Fink wrote in a recent letter to shareholders.

Expensive energy will make renewables and electric vehicles more competitive, but at a cost: “Energy prices at this level are also imposing a terrible burden on those people who can least afford it,” Fink wrote.

The average price of regular gasoline has topped $4 a gallon in recent weeks in the U.S. That’s nearly 50% higher than a year ago. Natural gas prices are also up significantly, which drives up the cost of electricity and home heating.

For years, fossil fuel companies were criticized for contributing to climate change, and some investors divested their holdings, hoping that would accelerate the switch to clean energy. But the current supply shock upends that approach.

“There’s a huge conflict between what people say they want versus what they’re willing to do,” said Michelle Michot Foss, a fellow at Rice University’s Baker Institute for Public Policy. “The bottom line is there are few options for governments and societies, except to continue to use legacy energy systems. And when you look at the data, that’s really what’s happening.”

Global production from wind and solar grew sixfold in the past decade, she said. Combined, they still supplied only about 4% of global energy while fossil fuels provided over 80%.

In the U.S., wind and solar accounted for about 5% of U.S. energy production last year. Add in biomass and hydro power, and renewables’ share topped 12%, according to data from the U.S. Energy Information Administration.

Nuclear contributed 8.3%, and fossil fuels still accounted for 79% of U.S. energy production.

“Everybody’s excited about the idea of using wind and solar, but you really are giving up a lot — and it’s costly” because backup supplies are required in some weather, Michot Foss said.

The surge in wind and solar power over the past decade coincided with the shale revolution, which revived oil and gas production in Texas and beyond.

Since 2010, the shale fields’ net gains in energy supply dwarf the gains from the much smaller wind and solar sectors. The shale gains also made it easier to reduce coal production by almost half, and that’s meaningful in reducing emissions.

The costs of solar and wind have declined by half or more since 2011, according to Lazard estimates. But energy from renewables can’t be stored, transported and “dispatched” on par with fossil fuels.

“Pushing to defund fossil fuels — before lower-carbon resources can credibly ‘fill the gap’ — risks destabilizing” economies around the world, Michot Foss and colleague Gabriel Collins wrote in a January report.

“The broader world grapples with a massively impactful contradiction,” they wrote.

On one side, wealthy elites in the U.S. and Western Europe want to accelerate the energy transition by constraining investment in carbon. On the other side, “billions of global consumers” are facing higher costs.

A consumer backlash, along with other pressures, “appear poised to deliver a carbon resurgence,” they wrote.

The upshot? “I think people are going to learn how to live with carbon-based fuels in the best way they can for the foreseeable future,” Michot Foss said in an interview.

On Wednesday, at a House committee hearing in Washington, lawmakers asked energy executives to explain why gasoline prices were so high — and why they weren’t boosting production even more.

U.S. oil production has not recovered to pre-pandemic highs. One reason is that oil companies are returning more cash to investors, who lost billions in the shale fields over the past decade.

But in West Texas’ Permian Basin, both oil and natural gas production are hitting new highs, according to projections by the Energy Information Administration. In February, Texas also added 5,100 oil and gas jobs, a 2.9% gain for the month, according to federal data.

Liquefied natural gas from the Permian “will be the best source to displace Russian natural gas in Europe,” Scott Sheffield, CEO of Irving-based Pioneer Natural Resources, told lawmakers.

“Just imagine what the price of oil would be today without shale oil growth,” Sheffield said in prepared testimony.

Big investments in solar projects and batteries are in the pipeline at ERCOT, which operates the Texas grid. So renewables should continue their fast growth, especially if federal tax credits are renewed. But oil and gas volumes are climbing, too.

“Both can happen at the same time,” said Luke Metzger, executive director of Environment Texas, an advocate for clean energy. “We can expedite the growth in renewables and efficiency, even if we are — in the short term — continuing our reliance on fossil fuels.”

The world still must reduce carbon, he said, citing a U.N. report released Monday. The report warned that greenhouse gas emissions must peak by 2025 at the latest and be reduced by a quarter by 2030.

Yet Metzger acknowledged the upside to increasing oil and natural gas now, citing the fuel hike protests in 2018 by rural French residents who had to drive long distances daily.

“We have to be mindful of gas prices so there isn’t a big backlash like we saw in France with the yellow vest movement,” he said.