US realizes economic wisdom of taking gradual steps to renewable energy

Gulf economies’ stance on phased approach to clean energy is what works

Any fast-track approach towards renewable or clean energy options risks severe disruptions for industry, economies and societies alike. The US move to extend the usage of coal for power plants shows economic realities are finally shining through.

The US recently decided to extend the operations of coal-fired power plants despite earlier plans to phase out coal due to its high pollution levels. Coal is considered the most polluting fossil fuel, emitting 2.2 times more pollution than natural gas.

This postponement by the US aligns with what we discussed last week about the need to incrementally phase out fossil fuels to protect the global economy and living standards. The decision by the US is due to several factors that hinder the adoption of alternative energy sources. Significantly, many projects aimed at renewable energy facilities, such as solar and wind plants, have stalled due to supply chain disruptions, high costs, or inadequate funding.

New tech need high energy
At the same time, the demand for electric energy has seen a significant rise, particularly due to developments in AI, which consumes substantial amounts of power. For example, the International Energy Agency estimates that OpenAI’s ChatGPT uses ten times more electricity than Google Search. This intensifies the growing demand for electric energy sources in the near future as technology applications expand.

Given that coal still accounts for the second largest share of electricity generation in the US, shutting down coal plants as initially planned could lead to an energy supply crisis, impacting industries, particularly those in energy-intensive technologies. Instead of reducing coal-based energy production as planned, it actually increased by 2 per cent in the US in 2022.

It’s important to note that coal is responsible for 45 per cent of total global carbon dioxide emissions from electricity , despite oil and gas being the main energy source, which places coal at a disadvantage compared to other fossil fuels.

The decision to delay the closure of coal plants by the US and several European countries carries substantial commercial implications. Coinciding with a surge in energy demand, this could lead to a 56 per cent increase in the cost of electricity production.

Such a steep rise would subsequently shoot up the cost of producing many goods and services and lead to higher electricity bills for domestic and commercial users. This could result in elevated inflation rates and a decline in living standards, potentially sparking social repercussions.

Save on 2m barrels a day
In contrast, the GCC countries have implemented rational programs for a gradual – and deliberate – transition to clean and renewable energy sources, despite being major oil and gas producers. These nations are enhancing the role of renewable energy, particularly solar, in electricity generation. This shift is expected to save the equivalent of 2 million barrels of oil per day currently used for electricity production, helping diversify energy sources and reduce pollution.

The growth of the global economy necessitates the development of strategies that balance the rising demand for electric energy—driven by scientific progress—with the availability of affordably priced energy sources that do not compromise economic stability or living standards.
Achieving this requires an optimal mix of fossil fuel and renewable energy sources, with an emphasis on increasing the latter’s share in the global energy mix.

By addressing the factors that have delayed transition projects, we can prevent a new energy crisis in the world, fully utilize all available energy sources, maintain environmental safety, and reduce pollution to a minimum, creating a solid foundation for further advancements and sustainable growth.