Transforming The Energy Paradigm

The most transformative periods in history are linked to eras of energy transition. The most impactful was the emergence of fossil fuels. What does that say about what lies ahead? Have we entered a period of energy transition, and if so, are we on the cusp of another highly transformative period? Energy is just one piece of a very disruptive decade ahead – but it is perhaps the biggest piece. As we Accelerate Towards a new energy paradigm, what can we expect? One thing is certain: there are societal and geopolitical implications to consider.

One area that is moving faster is the electrification of the auto industry. In a recent Fortune Article by Jeffrey Ball, he describes a goal to rewire the world, driven by a surge in consumer concern, political priority, and corporate imperative. The stakes are high both for industry and society. Per the article, the auto industry has taken notice. On January 28th, General Motors announced that by 2035, it intends to cease building petroleum-powered cars and light trucks and to move entirely to ones that run on electricity. Here is what the article states:

The General, as GM is known in Motown – a nod to the dominance over the global auto sector that GM once had and hopes, through its switch to electrification, to claw back – declared that it would spend $27 billion over the next five years on a combined effort to electrify its lineup and to increase its vehicles’ ability to drive autonomously. That’s more money than the company intends over the same period to throw at its internal-combustion-powered vehicles, the products that have powered GM since William Durant, the company’s cofounder, pivoted more than a century ago from hammering out horse-drawn carriages to manufacturing smoke-belching automobiles.

In a sign that a corporate shift to Purpose and Well-being is underway, Exxon Mobil faced Mounting Criticism from environmentally minded shareholders who argue the company is failing to adequately decarbonize its business and thus to safeguard its profits and dividend. Economics is a powerful force, which is likely to drive the transition to electric vehicles faster than many realize. Under activist investor pressure, Exxon announced a new business unit that will spend $3 billion over five years to develop low-carbon technologies, including hydrogen. J.P. Morgan believes companies are beginning to hear the message around more aggressive actions and disclosures on climate, and stakeholders will continue to put pressure on these initiatives. COVID-19 serves as an Accelerator, playing that role across multiple domains. From the article:

The pandemic has intensified, not slowed, this transformation, as governments have moved to tie stimulus programs to corporate environmental progress and as increasing numbers of CEOs have concluded that electrification—and, more broadly, decarbonization—is likelier to help their companies’ fortunes than to hurt them.

However, electric vehicles are only one piece of the bigger fossil fuel story. Per estimates by energy analyst IHS Markit, oil’s days are hardly numbered. The article provides several projections throughout this decade. Still, combined with ride sharing, electric vehicles will make a dent. In a sign of growing emphasis, GM unveiled a new corporate logo that it said was designed in part to resemble an electric plug. The company plans, by the middle of this decade, to sell 30 electric models globally and for 40% of its U.S. lineup to be electric. Much is left to be done. Subsidies are still part of this story and charging infrastructure must evolve alongside this push from the auto industry. One thing is certain, an energy transition is underway – and the journey leads to a transformative place. The only question remaining is the timeline. For more on this energy transition, see the links below.

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