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Among the top importers of Russian oil are the EU, Germany, Italy, The Netherlands, and France. The EU accounted for 71% of oil imports from Russia 2 months after the war in Ukraine began. But cutting off oil and gas imports from Russia completely can pose great challenges. The EU is attempting to wean off of Russian oil dependence in response to the invasion of Ukraine by hastening renewable energy adoption.
The 1970’s oil crises led to a flattening of the exponential demand growth for oil globally. It never recovered thanks to improvements in efficiency. What lessons can we learn from the past as we face the current oil and gas crisis brought on by Putin’s war? Climate Now spoke with Amory Lovins, co-author of a recent RMI article assessing the geopolitical dynamics driving a pivot away from fossil fuels.
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[00:00:00] James Lawler: You’re listening to Climate Now. I’m James Lawler and today we’re discussing the impact of Putin’s war on Ukraine on energy sources, prices, and the global shift to clean energy. We’re speaking with Amory Lovins, who is co-founder and chairman emeritus of the Rocky Mountain Institute (RMI).
[00:00:23] James Lawler: Amory, you have co-authored a paper with Kingsmill Bond, Oleski Tatarenko and a few others that has just been published on the RMI website. It’s titled “From Deep Crisis, Profound Change: An assessment of the dynamics accelerating the global sprint away from fossil fuels in the wake of Putin’s War.”
[00:00:47] James Lawler: I’d love to start with another energy crisis actually, which I think sets up the argument in this paper quite nicely, which is the energy shocks of 1973 and then 79, between which, Amory, you published a very famous paper in foreign affairs.
[00:01:06] James Lawler: There is a graph that is in this most recent paper on Putin’s War which paints a very striking picture of the trend in, well, I’ll let you describe it. What is the trend in world oil demand before and after? What does that picture tell us?
[00:01:28] Amory Lovins: Well, from the mid-sixties to 1973 world oil demand was on gradual exponential growth, but after the ‘73 and then the ‘79 oil shocks, which raised price even more, that growth curve was just hammered flat. What happened was really quite striking in historic retrospect. Demand for oil stagnated in the decade after ‘79, even though economies kept growing. European demand for oil, never regained it’s 79 level, and when the oil prices broke in 73, Organization of the Petroleum Exporting Countries (OPEC), the oil producers cartel was supplying half the world’s oil, or a quarter of the total energy in the world. But let’s just look at what happened in the United States. In just eight years from 1977 to 84, U.S. oil use fell 17 percent while the economy grew 27 percent.
[00:02:42] Amory Lovins: Oil imports fell 50 percent, imports from the Persian Gulf fell 87 percent, so America proved able to save oil faster than the OPEC could sell less oil, and the cartels sales dropped by nearly half, but breaking its pricing power for a decade. Per dollar of GDP, U.S. oil use fell 35 percent. That’s 5.2 percent a year, and such a pace could eliminate Europe’s fuel imports from Russia in four years. Just to put that in perspective, it’s really fast savings, but now the U.S. and much of the world could rerun that play only more effectively, and not just for oil, but also for gas and coal, because we have now much more powerful ways to save all fossil fuels cheaper than buying them.
[00:03:37] Amory Lovins: The cornerstone of our U.S. response in 1977 to 85 was making new automobiles more efficient by 7.6 miles per gallon. How did we do that? Well, on average, each car was driving 1 percent fewer miles on 20 percent fewer gallons, and 96 percent of the savings came from smarter design, only 4 percent from smaller size. Then by 1984, we progressed further. The entire light vehicle fleet got 62 percent better fuel economy while vehicles became lighter, no less peppy, and a lot safer.
[00:04:20] James Lawler: Just to underscore the point you’ve made so far, this massive flattening, hammering flat of an exponential growth curve, at least in the U.S. was driven mostly by efficiency improvement?
[00:04:35] Amory Lovins: The cornerstone of effort, the most important part was making just new cars six to 7.6 miles per gallon more efficient. Well, now we’re not just incrementally improving car and other automobile, light and heavy truck efficiency.
[00:05:00] Amory Lovins: We’re going electric, and then they use no oil and last year’s, sales of four or more wheel passenger vehicles worldwide were 6.75 million, that’s over 8 percent of total sales and both those numbers doubled in a year. This year, we’re expected to have 10 million new electric vehicles in the world. Now, the U.S. lags. We have 4 percent market share last year of electric vehicles. The only big one that’s worse is Japan at one percent.
[00:05:45] Amory Lovins: But China was 13 percent, Europe was 17 percent, and by the end of the year, they were 26 percent. And then of course there’s Norway. They’re new auto sales were 65 percent battery cars, 22 percent plug-in hybrids, 6 percent gasoline hybrids, and just 8 percent traditional. Gasoline or diesel powered vehicles. Well, that’s a good existence proof to aspire to, but certainly, getting up to at least Chinese and European levels of electric vehicle buying would save a whole lot of oil from Russia.
[00:06:27] Amory Lovins: This automotive transformation is sweeping the world, driven by policy, by economics, and frankly, by customer enthusiasm because good electric cars are simply better. You buy them because they’re better, not because they’re efficient, and quickly this is spreading of course, to trucks and buses. And the more efficient we make vehicles at the same time we make them electric, the easier the conversion to electric drive becomes because you need fewer of the costly batteries, less electricity, and less time to charge them, less charging infrastructure, and you’re also saving critical materials.
[00:07:11] James Lawler: Yeah. So, could you compare in size or in magnitude, how can we compare the 1973 energy shock with the shock that’s occurring as a result of Putin’s war today? Are these comparable? How do we make that comparison?
[00:07:35] Amory Lovins: The energy shock we’re experiencing right now is very comparable in size to the oil shocks of the 1970s, but they differ in four main ways that now we have much cheaper alternatives, particularly from solar, wind, green hydrogen and batteries, all on a steep learning curve. Higher volume makes the cost lower, and then we buy more, and then they get even cheaper.
[00:08:07] Amory Lovins: Then, we have these solar and wind technologies much further along their S curve of deployment than say nuclear was in 1973. So, they’re much larger, more mature industry, and they’re everywhere. Any country can buy or build them. Solar and wind, of course, are available anywhere, and ordinary market actors can deploy them quickly.
[00:08:45] Amory Lovins: So, Vietnam, for example, recently put in mainly rooftop solar power, equivalent in output to half their dominant coal power in one year, 70 odd percent of it in December, and most of that in the last week of December, just incredible. It’ll take the grid a while to catch up.
[00:09:08] Amory Lovins: And then of course, there’s necessity that we now have this imperative to get to net zero and energy security, not just clean and healthy, so as we add energy security to the previous imperatives for climate protection, public health, and affordability, those four together I think will overcome incumbent resistance a lot better than we have seen in the past.
[00:09:42] James Lawler: Let’s talk about what this means for Russia and fossil fuel use in general, what this would likely mean. Could you describe Russia’s production of fossil fuels today for the world? How do they rank in terms of fossil fuel production? What’s the magnitude of that output?
[00:10:06] Amory Lovins: Russia is the world’s biggest exporter of oil, of gas, and of total fossil fuels. Indeed in 2020, they were twice as big an exporter of a fossil fuels as Saudi Arabia because the Saudis only export oil, but Russia also exported gas and some coal. So, Russia added up to 15 percent of international energy trade, and they’re now being cut out of markets, which of course leads to a classic supply shock, just like we had in the seventies. When Europe and North America, and probably Japan as has already happened for coal, stopped buying Russian fossil fuels.
[00:10:54] Amory Lovins: That doesn’t mean that those fuels vanish from the market because there are some other countries willing to buy them at a steep discount cause no one else wants them. So, India is buying a lot of Russian oil for which their refineries are set up, and they’re getting a discount upwards of $30 a barrel for taking it off the Russian’s hands.
[00:11:19] Amory Lovins: Well, that doesn’t make the oil disappear, it means it frees up other oil India was importing from elsewhere, and that can now serve other countries because the source ia acceptable. So, that sort of thing in India and perhaps in China could help reduce the price shock to the world. It isn’t like in the Arab oil embargo where the oil in a real sense did disappear from the market and you had a crunch between reduced supply and a largely unchanged demand. So, they collided, and the price went up. Of course, the price is up, but a lot of that is driven by gas because Russia reduced storage in Europe over the previous winter, it controlled a lot of that storage and got away with reducing storage, reducing flows to Europe, to set the stage for its war and that raised energy prices a lot and really started making the whole energy system ring like a bell. And, of course, now that we’re seeing embargoes emerge on buying Russian fossil fuels, particularly in Europe, but already in the U.S., which buys a lot less of them.
[00:12:50] Amory Lovins: That is going to be disruptive, but not for long because we’re already seeing dramatic, uh, policies emerge, led by the European commission and by Germany, and these are not policies to, you know, revive declining, and more of a nuclear or go drilling in the North Sea. To be sure, some backward energy policies like Britain’s do include some of that, but they’re not part of the EU anymore.
[00:13:28] Amory Lovins: Most of it is a strong emphasis on efficiency and renewables, which are exactly the things to do if you want to get off Russian fossil fuels quickly and affordably. Anything else, you can do in supply is likely to be too slow and way too costly.
[00:13:53] James Lawler: So, let’s talk about some of those specific things that, or maybe you were just turning to this, but what did we see in the immediate aftermath of the invasion in the policy arena?
[00:14:08] Amory Lovins: The European Commission got into gear quickly, and this is understandable because Russia’s 11 percent share of global fossil fuel production is especially focused to Europe. It’s a fifth of Europe’s total energy, and it’s much more for some European Union countries, but that means that Europe is now funding Putin’s war with $400 million a day in hard currency just to buy gas, and altogether Russia’s earning over a billion dollars a day for oil and gas and coal. So, now Europe is loath to buy those fuels or other commodities. Traders don’t want to accept them, ports don’t want to admit them, dockers don’t want to unload them. So, you know, why should you pay over a billion dollars a day to fund Putin’s war and make up for the blockage of the central banks’ funds held in foreign banks. They could replenish that very quickly with a billion dollars a day, so that means that Russia is going to have to sell its gas east to China.
[00:15:34] Amory Lovins: It’ll take at least three years to finish another pipeline, and by the way, it will displace coal, so if you didn’t leak a lot of gas along the way, that would be good for climate. NUt they would take the price. China offers, not the price Russia wants, and as some foreign policy experts have remarked, China doesn’t have friends, only vassals.
[00:15:57] Amory Lovins: It’s not fair that Russia wants to be in that position, but it wouldn’t have a lot of choice, and meanwhile, three years is an awfully long drought in their gas cashflow. So, the way things are shaping up now, Europe is likely to buy two thirds less Russian gas by this fall or winter than it did previously.
[00:16:23] Amory Lovins: And by sometime around next summer, probably no Russian gas, and the oil purchases will also phase out rather quickly, mostly over the next year or two with some dribs and drabs bagging along over the next couple of years, right. Russia has got to lose its big market and its influence in Europe.
[00:16:48] James Lawler: Wow, and so, I mean, do you think that Putin just didn’t consider this at all? Like what was going, I mean, this is obvious, there’s a lot more that you wonder about Putin, but on this particular point, like, did he not think this through? Or what did he think would happen here?
[00:17:06] Amory Lovins: Well, whether through his own view of the world, or because of bad advice he got from a very limited circle of advisers, I think it’s clear he did not expect the central bank funds abroad to be frozen.
[00:17:22] Amory Lovins: He did not expect European or allied cohesion, and he didn’t expect that they could do without his fuels, but they now feel very strongly. They’re seeing the horrors in Ukraine, they will not keep funding his war, they will do what’s necessary to get off his fuels, and they need his fuels less than he needs the money.
[00:17:51] James Lawler: Now there have been some articles I’ve seen recently that, because of the increased energy prices, Putin’s war has sort of paid for itself in that the amount that they’re earning through selling the fuels that they are selling is making up for the decline in demand from countries who refuse to buy them.
[00:18:14] James Lawler: Is that something you’ve seen, or no?
[00:18:19] Amory Lovins: I haven’t run the numbers, but that sounds broadly plausible in the very short run, and that’s exactly why there’s such strong consensus in Europe, that we need to stop buying this stuff and funding his war, and what they’ll buy instead doesn’t require supply from anybody. The sun will shine and the wind will blow, regardless. You aren’t buying a fuel from anybody, and by the way, this also very much speeds up achieving their strong climate goals, which they’ve been the world leader. So, in terms of energy independence, helping stop the war, long run energy security, a deflationary economy, instead of inflationary, as you go from fuels to renewables, and the climate and public health goals, this is a win on every possible front. And the only loser is Putin.
[00:19:25] James Lawler: I wonder if you could, I know that you just did this in a fashion, but I wonder if you could characterize the attitude toward fossil fuels in Europe before the war, and then after it started, particularly in Germany.
[00:19:46] James Lawler: Because I think that in the paper, you paint a fairly striking picture of how policy shifted in a very short period of time as a result of the invasion.
[00:20:02] James Lawler: Before Putin’s war, Europe was trying to save fossil fuel gradually mainly to protect the climate, but there was a lot of internal opposition, and Germany did end up letting the Nord Stream 2 pipeline get built, even after the Russians had started bullying and made it clear that this was a security risk to depend ever more on Russian gas, but Putin’s war changed all that very abruptly, and German policy shifted more in 10 days than it had in years.
[00:20:48] James Lawler: The notion of Chancellor Merkel that by having this business relationship with Russia at the cost of more German dependence on Russia, you could somehow have some leverage or influence toward improving Russian behavior turned out to be false, and the German government swiftly brought forward its net-zero target for the power sector by a decade to 2035.
[00:21:23] James Lawler: They’re tripling their rate of renewable installation even before Putin’s war, and now it’s going to go even faster and have a lot of extra efficiency in using energy. The leading German utility called E.ON and Fortescue in Australia more or less overnight created a partnership to deliver up to 5 million tons a year of green hydrogen to Germany to help run heavy industry, and the European Commission with strong German influence published at plan to cut Russian fossil fuels completely out of the European energy system in five years, and to cut imported Russian gas by two-thirds this year. But that actually has since sped up even more, and I credit Germany quite a lot for helping to push that because they have shown historically how to do efficiency and renewables systematically and effectively. I think part of the result is to look at the proof of the pudding, is that their wholesale electricity price had only half the rise in last December’s volatility that France did, and German wholesale electric prices have undercut the French ones for all but one year since 2006.
[00:23:00] James Lawler: Wow, and so where do you think, what do you think the trajectory of the war will be?
[00:23:11] Amory Lovins: Well, it’s really hard to foresee the war. You could end up with regime change in Kyiv, regime, change in Moscow, a long, grinding stalemate , some kind of face saving settlement, or possibly escalation to weapons of mass destruction.
[00:23:35] Amory Lovins: It’s really hard to assign probabilities to those because so much depends on what goes on in Putin’s head, which is pretty inscrutable, but I think the course of getting Europe off fossil fuels is very clear. In our recent paper, we ran some deliberately simplified scenarios just because they’re so transparent and easy to understand, and it’s almost impossible, not to get off Russian fuel, fossil fuel in the next five years or so with the kinds of achievements and further accelerations that we’re seeing in efficiency and renewables. This will have a big demonstration effect, even though Europe uses only 9 percent of the world’s fossil fuels, and that demand is shrinking, it will have a disproportionate effect because it will set higher fossil fuel prices in places like Asia that can save fossil fuel just as well as Europe can.
[00:24:59] James Lawler: Why will it set higher prices?
[00:25:02] Amory Lovins: Well, because countries like Japan and China will be competing with Europe for the same loads of liquified natural gas, and that drives up the price, they compete at that price, it’s therefore more lucrative for them to save gas or gas fired electricity, and those savings free up Asian gas to go to Europe. Europe will be finding solutions other countries can adopt, particularly in renewables and grid integration. That’s already been happening. The extra capacity that European ambition will get built for green hydrogen, or renewables, or efficiency can serve markets and speed learning and training, save fungible fossil fuels, and drop prices faster everywhere, so the infrastructure all over the world, is going to improve faster. Europe is strongly incentivized to encourage everybody’s energy transition and to deploy its expertise and capital to do that elsewhere, as German companies are already doing, and of course it breaks the narrative that energy transitions are way too slow, right?
[00:26:19] Amory Lovins: The notion that Europe could reduce Russian gas imports by two thirds this year would have been laughed out of the room a few months ago, but now it’s what’s happening, right? And I think this breaks a lot of mental log jams and counters the narrative from the fossil fuel industry that the transitions have to take half a century.
[00:26:42] James Lawler: How do you think this is going to impact the clean energy transition in other parts of the world?
[00:26:46] Amory Lovins: Well, the need to deploy renewables and the opportunity is even greater in the global south, which already buys the majority of the world’s renewables, and I think the, these events in Europe are going to speed up an energy leapfrog in the global south.
[00:27:07] Amory Lovins: It’s interesting that the sales of oil fueled automobiles peaked in 2017, not just for the world, but also in China, and what is coming right at us in all parts of the world is faster, renewable deployment, and more efficiency. So, before Putin’s war, the consensus of the best forecasters was that the COVID-19 pandemic, which crushed fossil fuels, but accelerated renewables to handle all the growth, that would result in fossil fuels, bumping along a rocky plateau for most of the rest of the decade, and then slowly declining. But what we now see is the likelihood of a much steeper decline driven by all the forces that we’ve been discussing, and I think this will show up everywhere from super efficient buildings to rapid spread of heat pumps, to green hydrogen, to very efficient use of energy and industry, and of energy intensive materials.
[00:28:28] James Lawler: Well, thanks so much, Amory. This has been fascinating, as always, to speak with you on these topics and we really appreciate you making this time for us today.
[00:28:37] Amory Lovins: My pleasure. Thank you.
[00:28:40] James Lawler: That was Amory Lovins, co-founder and chairman emeritus of the Rocky Mountain Institute RMI. That’s it for this episode of the podcast. To listen to other episodes, watch our videos, or read our articles, visit climatenow.com. To get in touch, email us at firstname.lastname@example.org. We hope you can join us for our next conversation.
[00:28:58] James Lawler: Climate Now is made possible in part by our science partners like the Livermore Lab Foundation. The Livermore Lab Foundation supports climate research and carbon cleanup initiatives at the Lawrence Livermore National Lab, which is a Department of Energy Applied Science and Research Facility. More information on the foundation’s climate work can be found at livermorelabfoundation.org.