By Fat Tail Investment Research

In 2005, writer David Foster Wallace gave a commencement speech at Kenyon College.

The speech is famous for a story Wallace shared:

‘There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, “Morning, boys, how’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, “What the hell is water?”’

More than a decade later, Bill Gates published How to Avoid a Climate Disaster, a book on the need to curb our greenhouse gas emissions.

In it, Gates cited Wallace’s story and argued fossil fuels are our civilisation’s water.

‘Fossil fuels are like that. They’re so pervasive that it can be hard to grasp all the ways in which they — and other sources of greenhouse gases — touch our lives.’

Whether we’re aware or not — and whether we like it or not — our world runs on fossil fuels.

Oil, natural gas, and coal still account for about 80% of the world’s primary energy inputs.

And while these inputs may be a small fraction of global GDP, they support all other economic activity.

Here’s how Bill Gates explained it in his book:

‘Did you brush your teeth this morning? The toothbrush probably contains plastic, which is made from petroleum, a fossil fuel.

‘If you ate breakfast, the grains in your toast and cereal were grown with fertilizer, which releases greenhouse gases when it’s made. They were harvested by a tractor that was made of steel—which is made with fossil fuels in a process that releases carbon—and ran on gasoline.

‘If you got dressed, your clothes might contain cotton—also fertilized and harvested—or polyester, made from ethylene, which is derived from petroleum. If you’ve used toilet paper, that’s more trees cut down and carbon emitted.

‘If the vehicle you took to work or school today was powered by electricity, great—though that electricity was probably generated using a fossil fuel. If you took a train, it went along tracks made of steel and through tunnels made using cement, which is produced with fossil fuels in a process that releases carbon as a by-product. The car or bus you took is made of steel and plastic. The same goes for the bike you rode last weekend. The roads you drove on contain cement as well as asphalt, which is derived from petroleum.’

Not to mention that toothbrushes, clothes, and building materials must all be transported along the supply chain.

And greasing the wheels of the globalised supply chain are fossil fuels.

All the trucks, ships, ferries, and cargo planes relaying the freight of the world are powered by oil, diesel, and petrol.

We’re much more environmentally conscious these days.

We bring our own bags to the supermarket.

We deck our roofs with solar panels.

Some of us bring reusable coffee cups to our local cafes.

But despite this suburban environmentalism, the world still relies heavily on fossil fuels to function.

In fact, while coal consumption has levelled off in recent years, oil and gas consumption hasn’t.

As Oxford University’s Our World in Data noted:

‘Fossil fuel consumption has increased significantly over the past half-century, around eight-fold since 1950, and roughly doubling since 1980.

‘But the types of fuel we rely on has also shifted, from solely coal towards a combination with oil, and then gas. Today, coal consumption is falling in many parts of the world. But oil and gas are still growing quickly.’

Source: Our World in Data

[Click to open in a new window]

Given the massive current dependence on fossil fuels, any transition away from them won’t happen overnight.

We cannot wean ourselves off fossil fuels in a few years or even a decade.

As financial historian Edward Chancellor wrote for Reuters earlier this year:

‘If history is any guide, the transition is likely to be painfully slow. It took more than a century for crude oil, which was first extracted in the United States, Canada and Russia in the 1850s, to overtake coal as the world’s largest energy source.’

Canadian scientist Vaclav Smil drummed home the point in his Grand Transitions, published last year:

‘Large energy transitions have always been gradual, prolonged affairs unfolding across generations, and the shift from carbon to non-carbon energies will be no exception.’

Consider how persistent our fossil fuels use is despite the strong push for renewables across the world.

While the share of fossil fuels in primary energy supply fell from 98% in 1950 to 90% in 2000, absolute consumption rose 5.3-times.

And during the 18 years since 2000, total primary energy use grew 50%. Yet fossil fuels’ share remained at around 80–85%.

While the world needs to keep investing in renewables and cleantech, it must also remember that phasing out fossil fuels won’t be easy…or quick.

This shouldn’t derail the entrepreneurial drive to innovate in the renewables sphere…but it should ground our energy policies in realism.

[Click to open in a new window]

Vaclav Smil concluded his book on energy transitions by warning (emphasis added):

‘The combination of the mass, complexity, and spatial extent of this global system and of the cost of equally reliable and affordable alternatives (even if they were fully available for mass-scale deployment) makes it obvious that [fossil fuels’] complete displacement will be a multigenerational task, and its success (however rapid or remote) depends on the sustained decline of atmospheric CO2.’

Let’s heed that warning as we resolutely push for renewable energy.

Kiryll Prakapenka, For Money Morning

Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…

Here’s something I often hear: solar panels — or wind turbines for that matter — aren’t really that great because many end up in landfill instead of being recycled.

Let’s leave behind all the gloom and doom today and focus on (still) one of the most exciting corners of the market…lithium.

It’s becoming clear that leaving our energy supply in the hands of others is a risk and that producing more of our own energy is becoming critical to many economies.

A huge mid-week sell-off in the key commodity has sent shockwaves across markets. It seems as though all the indicators are beginning to price in a US recession.

In today’s Money Morning…poor timing, poor planning, but plenty of opportunity…the big names getting in on the action…a big endeavour with big potential…and more…

On Friday, the US consumer price index (CPI) surprised markets by coming in at 8.6% over the last 12 months — the highest in 40 years.

At Money Morning our aim is simple: to give you intelligent and enjoyable commentary on the most important stock market news and financial information of the day — and tell you how to profit from it.

Our goal is simple: to show you stuff about investing and wealth protection that the mainstream is NOT showing you.

Email: support@fattail.com.au

All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in our reports are forecasts and may not be a reliable indicator of future results. Any actual or potential gains in these reports may not include taxes, brokerage commissions, or associated fees.

Copyright © 2022 Money Morning Australia | ACN: 117 765 009 / ABN: 33 117 765 009 / ASFL: 323 988