Russia’s invasion of Ukraine shows the true cost of fossil fuels – Grid News

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Russia’s invasion of Ukraine shows the true cost of fossil fuels

If war can upend the economics of your cheap fossil fuel-based energy system, was that system really cheap to begin with?


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Renewable energy has expanded dramatically in recent years as costs have come down, but fossil fuels are still often seen as the more economically viable option. Russia’s invasion of Ukraine has thrown that calculus into doubt as energy markets reel and governments struggle to keep up.

“The price of energy does not match its cost,” said Benjamin Sovacool, a professor of energy policy at the University of Sussex in the United Kingdom. It’s well known that energy prices don’t capture all “externalities” — or side effects of energy use, like the health costs associated with pollution from a coal-fired power plant. The burgeoning crisis of energy supply and cost in the wake of the Ukraine invasion could be considered a sort of externality — one that, if weighed realistically, might shift the balance in favor of more climate-friendly decisions.

The European Union gets about 40 percent of its natural gas and a quarter of its crude oil from Russia. Last week, though, the European Commission put forth a plan to cut that reliance steeply by the end of this year. Germany canceled the long-anticipated Nord Stream 2 pipeline, which cost $11 billion and would have carried yet more natural gas from Russia. In the U.S., the Biden administration announced an outright ban on the import of Russian oil and gas, with bipartisan support.

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The result of all this is a price shock. The price of a barrel of oil soared above $130 before dropping slightly last week. Natural gas in Europe hit an all-time high on March 7. A gallon of gasoline in the U.S. also hit an all-time high (though below previous records when adjusted for inflation) at well over $4. In short, the world is now starting to pay through the nose for the energy that was, supposedly, the cheaper option.

“What we need is for governments to open their eyes and bury once and for all the narrative of cheap fossil fuels,” said Michael Taylor, a senior analyst at the International Renewable Energy Agency. “When you take into account the direct costs, subsidies, climate damages and health costs, fossil fuels are not cheap by any stretch of the imagination, and policy should reflect that.”

Climate change is the ultimate externality, a global cost associated with fossil fuel use that will cost the world — and in particular the most vulnerable people in it — an incredible amount in terms of lost lifestyles, lost livelihoods and lost lives.

Should war level the playing field?

War works as a sort of bidirectional externality for fossil fuels. Competition for oil has more or less caused some conflicts — think the first Gulf War, when Saddam Hussein invaded oil-rich Kuwait and then torched hundreds of wells on his way out the door — while the presence of war can then cause shocks to the oil-based system, as the world is seeing today. That makes it clear that fossil fuels do not actually come cheap.

“It’s a very pesky problem because no policymaker wants to adequately price externalities,” Sovacool said. Looking back, if the potential for geopolitical strife had been included in energy pricing conversations, we might have a very different system today.

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In the U.S., as the use of coal for electricity production has declined, it has largely been replaced by natural-gas-burning power plants. Renewable energy’s growth has been slower than many have hoped, even as the effects of climate change have become more apparent and destructive. In part, this is due to the issue of storage. The sun and wind aren’t 24/7 sources of energy, so there needs to be a way to store — using large batteries, compressed air or molten salt, among others — the power they produce for renewables to constitute a large chunk of the power supply. And storage, the prevailing logic goes, has been, and still is, too expensive.

Even as recently as 2019, an analysis found that the cost of energy storage would have to drop by 90 percent in order to allow renewables to take over the grid from fossil fuels. But a country dotted with wind turbines with banks of expensive batteries doesn’t suddenly see electricity prices shoot up when Russia invades Ukraine. (To be clear, wars can and do disrupt the flow of materials like nickel or lithium needed for some clean energy products, but this would largely be an issue for building new infrastructure rather than operating existing plants or vehicles.) So that estimate is, in some sense, wrong from the start. Just how wrong, though, is a difficult question to answer.

“Unfortunately, [the uncertainty] means that most research teams won’t measure it,” Sovacool said. “They won’t even try.”

An oil shock due to a war is an essentially unpredictable event. With other externalities, it is possible to put numbers on things — the coal power plant will cause this many cases of asthma, and that many hospital admissions, and this many premature deaths. You can’t do the same sort of calculation for the gas power plant built in 2010 that becomes extremely expensive to run in 2022 thanks to one autocrat’s somewhat inscrutable whim.

True cost of oil dependence

But you can measure some costs of the reliance on fossil fuels. Researchers led by David Greene at Oak Ridge National Laboratory estimated the costs of American oil dependence between 1970 and 2010. They found that through several mechanisms including “wealth transfer” to oil companies and loss of potential GDP, the cost was above $5 trillion — or more than the cost of every war the U.S. has ever fought in, dating to the Revolutionary War.

“It doesn’t show up on our energy bill. It shows up on our military bill or our taxpayers’ bill,” Sovacool said. “The history there is: ‘Oh my god. Externalities of geopolitics are massive.’”

The problem here is that building an individual power plant or choosing how many electric vehicles to manufacture is an acute, localized calculation, while the best analysts can do when it comes to war is much more zoomed out. Using those zoomed-out calculations, though, might help the world avoid the next geopolitical conflict’s oil shock.

The situation in Ukraine remains very fluid, but as President Joe Biden put it last Tuesday as he descended from Air Force One, when asked for a comment about gas prices: “They’re going to go up. … Can’t do much right now.”

  • Dave Levitan
    Dave Levitan

    Climate Reporter

    Dave Levitan is a climate reporter for Grid where he focuses on interconnected stories about climate and science, and politics shaping action around both.