This video is sponsored by War Thunder

Fossil fuels today are almost universally understood as a major problem for our
world,
for whatever reason individual people think is most pressing.
A reliance on fossil fuel has put the balance of power into the hands of a very
small group
of not necessarily the most savoury governments, it's a major contributor to global
climate change,
it causes direct health issues in areas most impacted by emissions,
and of course it's ultimately non-renewable.
Eventually one day the world is going to run out of this energy supply.
Even for the people who don't particularly care about or believe in that,
fossil fuels are expensive.
The price of extracting, refining and transporting fossil fuels either directly or
indirectly
represents a significant portion of household budget for billions of people around
the world.
That expense is not helped by the overwhelming market control that
same group of operations has on this essential global industry.
Now fortunately this is all happening at the same time that alternative
renewable energy sources are becoming cheaper and more reliable.
So whatever the motivation, a switch to alternatives has theoretically never been
easier.
But despite all of this, global fossil fuel usage has never been higher,
and outside of a brief pause in 2020 when the world went into lockdown,
it's showing no signs of slowing down.
Unfortunately there are some very simple economic factors standing in the way of
what looks like
a logical transition away from these resources, and understanding them will help to
show that
not only are none of us truly blameless, but that it will also take a lot more than

an electric car and paper straws to reverse this curve.

So why is the world using more fossil fuels than ever despite now knowing the
problems
they cause and having seemingly better alternatives?
Is there a realistic economic solution to this problem?
And finally, even from a completely cold-hearted macroeconomic view,
at what point does the economic damage done by fossil fuels outweigh the
benefits we receive from this energy source?
While there are lots of ways to mitigate the use of fossil fuels in the consumer
sector,
one place where this is really hard is in military hardware.
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Before we get into it we must as always give the big disclaimer that the team here
at EE
are not environmental scientists, so when addressing things like the negative side
effects or negative externalities of fossil fuel use, we are going to fall back on
publications
from people who are experts in this area, and instead primarily focus on the
economic
dynamics of this issue. For a more comprehensive analysis of what these negative
externalities
could do, beyond just they are bad and we should avoid them, there is no shortage
of
more qualified people discussing that particular issue.
With that out of the way there is a common misconception that no matter what we do
as
individuals our impact on fossil fuel usage and the subsequent externalities that
come with it
are basically irrelevant compared to the scale of industrial operations around the
world.
The common joke is that using a paper straw while BP dumps millions of litres of
oil into the ocean
rather poignantly highlights this understandable feeling of insignificance,
and a lot of research does back this up. One of the most often highlighted reports
found
that just 100 of the world's largest companies were responsible for over 71%
of industrial carbon emissions globally. So even if as individuals we all behaved
perfectly and cut out carbon emissions entirely, we would only achieve a 29%
reduction at best in a problem that is getting exponentially worse every year.
This has been reported widely by even very reputable economists and commentators,
but unfortunately, or perhaps fortunately, it's also wrong.
The research itself is fine, just misunderstood. For starters it only measured
industrial carbon
emissions, so it didn't count emissions from things like agriculture, forest fires,

and regular natural decomposition, although if anything that just highlights that
the
problem is bigger than any one industry. And now look, this is not to defend the
actions of these companies, but the even more important thing to understand here
is that all of them are producing carbon emissions to make stuff for us.
There are three types of goods and services that can be produced in an economy,
capital goods, intermediate goods, and consumer goods.
Capital goods and services are things like machinery, tools, and training,
but are used to produce other goods. A metal press and a factory is a capital good.

The metal panels that it stamps out though would be counted as an intermediate
good,
which are things that aren't an end product in their own right,
but get used as parts in either capital goods or consumer goods.
That metal panel might end up on another factory machine,
or in something like a personal car, which is a consumer good.
Consumer goods are probably the simplest to understand, they are products that are
sold
to consumers for them to use to improve their quality of life in some way.
The ultimate end goal of any economy is to provide as many consumer goods and
services to its participants as possible. And that might sound very shallow,
but remember consumer goods and services are not just fancy clothes,
the latest iPhone, and an anti-socially large SUV.
They also include things like food, medical services, education, and adequate
housing.
This broad definition of what counts as a consumer good or service is particularly
important as it relates to the economics surrounding fossil fuels,
so make sure to remember that for later.
The point for now though is that even though 100 companies did produce 71%
of the world's industrial emissions, they were only doing it, ultimately,
to produce consumer goods for regular people.
China Coal, which was the largest single contributor,
directly responsible for 14.3% of all global emissions during the period the study
measured,
wasn't burning coal because it hated the atmosphere.
It was burning it primarily to produce electricity for China to use in its
factories
to produce cheap consumer goods that every single person watching this video has
benefited from.
The carbon emissions were a means to an end for these companies to produce goods
that are ultimately consumed by us.
So while it's perhaps cathartic to handwave this problem onto these companies,
they wouldn't be doing this if the people weren't there to consume the
things they were using fossil fuels to produce.
Now with that being said, it would be greatly beneficial to have someone or
something to point the finger at for this problem because that would make
economic policies that address this issue far easier to implement,
but unfortunately even that is difficult.
The use of that coal in China has also produced energy to fuel the domestic
development of the Chinese economy which has led to the eradication of poverty
for hundreds of millions of people.
The consumption of energy is almost perfectly correlated with income,
because not only do wealthier people enjoy more energy-dependent luxuries like
electric appliances, air conditioning, personal transportation,
and the consumption of more goods and services,
they also need more energy to produce their higher incomes in the first place.
But the higher incomes that come from higher energy use,
which in turn still primarily come from fossil fuel use,
are not always paid to the people in the exact location where those fossil fuels
are consumed.
This is where the blame of fossil fuel externalities become
as much a question of philosophy as it is economics.
The production of modern goods has become far more complicated,
with even basic items pulling components and raw materials from dozens of countries

before being assembled and shipped to their end destination where they are
ultimately consumed.
Even beyond that there is the process of disposing of,
or recycling goods once they have been consumed.
Every step of a modern supply chain involves the use of fossil fuels,
and even if some part of this process can source energy from renewables,
there are things like shipping either by land, sea,
or air that just don't have any available non-fossil fuel alternatives.
This lengthy process makes it difficult to trace back
who is truly benefiting from fossil fuel use and who is really paying the price for
it.
And that's an important thing to get right,
not only because it makes it possible to point a cathartic finger,
but because it makes it easier to create policy around.
Developing countries like China and even New Caledonia produce
2 to 4 times the carbon emissions per capita of advanced European economies like
Switzerland.
But people in Switzerland produce nearly an order of magnitude more wealth every
year.
The simple explanation for this is that countries like China and New Caledonia
are doing a lot of the world's dirty work,
their industries produce less economic value per person overall,
but they are operating businesses like big crude factories or strip mines
that take a lot of power normally provided by outdated power stations or diesel
generators.
Compare that to industries in places like Switzerland,
where most of their economic output and value-add comes from people working in
offices,
where the most energy-intensive machine they will use in any given day
is the air-conditioning to keep the place warm or cool.
Wealthy countries like this also have more money to put towards investments
into renewable energy sources than poorer manufacturing-based economies
which are frequently using very outdated power plants.
Now the thing here is that since they earn much more money by doing this work,
they can produce more and are ultimately the end-consumers
of a lot of that stuff that manufacturing-based economies produce.
So the question is, are they more responsible for the negative
externalities caused by the fossil fuels than the people actually burning them?
It's an important question because a lot of countries have started to
implement or seriously consider trade restrictions and tariffs
based on how much carbon the countries they are importing from emit.
If a country hypothetically produced all of its goods using totally
renewable and emissions-free processes, it wouldn't pay anything to import
its products into the country with this carbon tariff.
But of course, a country that still uses outdated coal-fired power plants
to power inefficient factories would pay a tariff to import its goods.
Theoretically, this would make the goods from the dirty country more expensive and
therefore less competitive in that market which would incentivise
especially export-led economies to invest into cleaner manufacturing.
In reality, most manufacturing in the world today,
despite improvements, is still pretty carbon-intensive.
And that's disregarding the bunker fuel-powered cargo ships that transport these
goods.
All these systems really do is make things more expensive for consumers in the
economy
implementing these trade restrictions because importers are going to pass
those costs along to end consumers.
Now this hit to consumption and the end consumer's pocket by itself
isn't necessarily the worst thing if the only goal is a reduction in fossil fuel
use,
because an increase in price will all other things being equal lead to a
reduction in consumption which means a proportional reduction in carbon emissions.
Of course, an economy must also consider factors like living expenses,
and that's the true trade-off at the heart of this issue.
Nobody really wants to consume less stuff,
so companies struggle to compete based on their environmental efforts.
Policies that increase prices to offset externalities are rarely popular,
and investments into alternatives are rarely made where they're needed the most.
But now that energy production from renewables is cheaper than fossil fuels,
does this change the economics?
Hot take alert here, but from a macroeconomic perspective,
it's counterproductive to just assume that fossil fuels are bad,
and any alternative is going to be better.
The reason that fossil fuels, despite their drawbacks, are still so commonly used
today,
is that they have a lot of advantages that we have built our economies around.
They may not be renewable, but they are highly abundant,
and fears of things like peak oil are no longer a concern, at least for the
immediate future.
Fossil fuels are also relatively easy to transport to provide an energy source
anywhere in the world.
Something like hydroelectricity and geothermal energy are amazing options where
they are available,
but they're not available everywhere,
and they can't be transported beyond the reasonable range of electrical
transmission lines.
Fossil fuels are also energy dense, which means especially things like commercial
transportation relies on fossil fuels because equivalent battery packs are at least
currently
so large and heavy that they take up too much space to make things like
electric trucks or container ships possible.
Another inherited advantage is that the industrial world has effectively
been built around energy from fossil fuels.
Even if the technology was there to electrify the cars, trucks,
planes and ships that drive our global economy,
it would be a significant investment into rebuilding the infrastructure that
surrounds
these operations.
All of that infrastructure also takes a lot of energy to create,
which means the benefits, especially in already highly developed countries
that don't originate a lot of these emissions, are hard to fully realise.
Now this would be almost impossible if fossil fuels still had the advantages
that set them apart for a long time, which is their relatively low cost.
Now the final cost for producing energy from any source is broken down into the
upfront costs and the ongoing costs.
Energy sources like natural gas have consistently been very cheap because
the plants that burn them to generate electricity are relatively simple,
well understood and easy to scale.
They do however have ongoing variable costs because the natural gas
needs to be continuously pumped in these facilities to make them operate.
A similar direct alternative like nuclear energy has lower input costs thanks to
how
little fuel reactors actually use, but the price to construct these facilities
to modern standards and ensure adequate precautions are taken around waste safety
means that over their lifetime they are still an expensive alternative.
That being said, hypothetically if a highly energy dependent industrial economy
already had operating nuclear power stations it would make sense from an
ecological and economic perspective to make sure that they stayed operating
instead of relying on fossil fuels from a neighbouring country with
not the greatest geopolitical track record. Hypothetically of course.
Something like photovoltaics on the other hand are cheaper to operate once
installed
since beyond basic maintenance they don't have any input costs,
but creating the same capacity with them is for now at least much more expensive.
The panels themselves are more expensive for the same energy output,
they require more land to be set up on, adding to the upfront costs.
They also work best in places that get a lot of sun,
and without even more expensive storage solutions they are useless at night.
Fortunately the price of panels has come down so much as technology and
manufacturing has improved
that once factoring in those fixed and variable costs, over the life of the two
electrical
sources solar panels are now on average cheaper. Which is great, but the important
qualifier here
is over the lifespan of these installations.
An investment that pays itself off over decades is palatable for an advanced
economy with modest
growth and a lot of excess wealth to put towards this kind of return.
But the regions of the world that are producing the most carbon emissions are
developing economies
that either don't have the money to make those investments,
or have other more pressing things to spend it on.
If an undeveloped economy is growing at 5% every year fuelled by industrialisation,

most of that economy's attention should be reinvesting back into that industry to
hopefully improve the lives and living conditions of its people.
Making large upfront investments into renewables at the expense of making
other investments into industrial infrastructure to further push compounding
economic growth
is a hard thing to ask developing economies to do when advanced economies have
already
benefited from taking advantage of exactly the same energy sources.
A demonstration of just how unfair this is might actually touch on a surprisingly
viable solution.
If economies are effectively going to be trading money for a reduction in
emissions,
either through taxes on polluting goods, polluting companies, tariffs on polluting
countries,
or subsidies on things like EVs or solar panels,
then it makes sense that that expenditure to be directed to where it is going to do
the most good.
Spending a billion dollars of taxpayer money on modernising coal plants in a
foreign country
would reduce emissions more than spending a billion dollars on domestic EV
subsidies,
but it would understandably be far less politically popular amongst those same
taxpayers.
So just like it would be difficult for a high-emissions developing manufacturing
economy to sell the idea of slowing down economic progress for the benefit of the
world,
it would be just as difficult to sell the idea of advanced economies making
the same trade-off of spending money to reduce emissions in other countries
where that spending would have the highest marginal benefit.
A solution that is fair, economically viable, politically popular,
and not vulnerable to exploitation by bad actors is clearly elusive,
which is why despite a keen awareness of the drawbacks of fossil fuels and massive
progress in making alternatives more viable, the economics of hundreds of countries
all
looking out for their own best interests on a global issue is why this chart still
looks like this.
And don't forget to play war thunder now on PC,
xbox or playstation and claim your welcome goodies like the eagle of valor 3d
decorator,
100,000 silver lions and 7 days of a premium account.
Now in this video we threw a bit of shade at Germany who has recently made exactly
the
wrong decisions and somehow ended up more dependent on fossil fuels for less of an
economic benefit. We didn't want to go too far into that particular example because
we made an
entire video on it just a few weeks ago which you should be able to click to on
your screen now.
Thanks for watching mate, bye.
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