In today’s Exponential Investor:

  • All that money hasn’t made a dent
  • A once-in-a-century event
  • Car makers trapped in decade-long agreements

The collective push from Western governments to shift from fossil fuels didn’t begin with the invasion of Ukraine…

Nor did it begin when the price of gas shot up at the end of 2021…

… or when the oil price pushed through US$100 per barrel in 2008 for the first time…

… or even when governments started talking about climate change the Kyoto Protocol in 1997…

Rather, the idea of moving away from oil began in the 1950s, when M.K. Hubbert’s “peak oil theory” was born.

Geologist Hubbert’s theory is that peak production from an oil field will happen in the middle of the reserve’s life cycle. In other words, half of the oil had been used and now only half remain.

His implication was being that continued depletion of oil reserves would leave a world reliant on hydrocarbons, with an ever-shrinking resource and no suitable replacement.

Hubbert’s research proved oil was a finite resource and kicked off the tinkering with renewable energy. But there wasn’t an earnest drive away from oil until the 1973 oil shock.

When the Middle East turned off the taps, Western governments were forced to reckon with the political and economic risks of relying on other countries for oil.

A precarious position the United Kingdom finds itself in again today.

Despite the global public and private investment into oil alternatives, rapidly increasing demand for power means barely a dent has been made in the past several decades.

In 1990, 82% was generated from fossil fuels. Today, after a whopping £1.65 trillion has been spent on renewable technology, that figure has fallen just 2% to 80%.

That’s the problem with incumbent energy systems… money doesn’t fix the problem.

Government steps in, makes it worse

Yesterday, the Financial Times commented on the Inflation Reduction Act in the US, asking how the EU is meant to respond to this bill.

The IRA, as it’s locally known, is a piece of US legislation with US$368 billion (£304 billion) with built-in spending allowances for green technology, as well as creating incentives to procure minerals from US mines and spur a resurgence in domestic manufacturing.

Part of the purpose of the legislation is to speed up the decarbonisation process (being less reliant on fossil fuel engines) through subsidies and bringing back supply chains to within US control… or its allies who are happy to submit to its control.

In short, the government wants an energy transition, and it wants it now.

One of the IRA’s provisions is that there will now be a subsidy of up to US$7,500 (£6,215) for electric vehicles (EVs) where 40% of the vehicle had been made in the US. The subsidy will remain the same, but each year the percentage of EVs made in the US will increase by 10% and capped at 80% by 2027.

Apparently, the US spending big bucks on localising supply chains has angered Brussels, with EU trade commissioner Valdis Dombrovskis saying that the incentives “discriminate against EU automotive, renewables, battery and energy-intensive industries”.

While our friends are incensed at US lawmakers clearly favouring their countrymen, the rhetoric coming from the EU may just be faux outrage. Good for headlines perhaps, and curry favour with the EU auto makers, but largely meaningless.

As the ink dried on the laws, the Alliance for Automotive Innovation in the US was quick to point that currently only 21 out of 72 EVs for sale in the US would meet the criteria for the tax rebate.

More to the point, most vehicle manufacturing locks in supplier contracts for five years at a time – however, commitments for 10, 15 or 20 years is common as well.

There’s almost zero chance any more cars would qualify for the subsidy by 2027.

To boot, if the boffins over in the EU had got all the way to page 386, they’d discover that there is a provision that covers commodities or manufacturing components that come from free trade agreement partners.

Word has it that this provision is skewed to favour commodity-rich Canada and Australia. But it’s not a stretch to see key EU vehicle manufacturers being added to the list…

Incumbent supply chains

This is as much an energy transition as it is a metamorphosis of supply chains. You can’t change one without changing the other.

Energy transitions, especially at a global scale, aren’t linear. They move at their own pace. It took 215 years to move from wood and wind to oil and coal.   

None of these transitions were smooth. Nor were they quick.

For each form of energy, many decades elapsed from discovery to mass market adoption.

The first coal-powered steamboat was built in 1807, but it took another 12 years for ocean-going steam ships to use coal.  

Oil was first discovered in the mid-19th century, but it took another 50 years for it to be used as fuel for ships. The British Royal Navy only switched to oil in 1914.  

Ocean-faring ships fuelled by oil were faster and cheaper to run. Fewer workers were required since no one was needed to stoke the coal, ships could be more easily refuelled at sea and there was more space for cargo, since there was no coal on board. An added bonus was that oil was less likely to explode if struck by fire, making the ships better suited for battle.

Despite the benefits of oil-powered ships – and various naval fleets switching from coal to oil in the 1910s – the commercial and passenger shipping fleet shift to oil didn’t happen until the 1950s… some 40 years after its first usage.

And even then, steamships were still in use.

In fact, the last steamship was made in 1984… and wasn’t retired for another 30 years. Yes, you read that right. This steamship using technology from the 1800s, stopped being used in 2014. Just eight years ago.


Infrastructure. Or as Odinn Melsted wrote in the Canadian Journal of History:

… incumbent energy systems tend to be resistant to change. They establish certain configurations of energy production, distribution, and consumption that gain stability.”


Coal was more than just a precursor to oil and gas. It was the fuel of the late nineteenth and early twentieth centuries and the backbone of industrial society; it was used for steam-powered transportation by rail and at sea, for residential heating, industrial production as well as electricity generation,

Coal, oil and gas are the world’s dominant forms of energy – switching to a different one will take a very long time.

Much like automakers in the US are trying to point out now, their supply chains and manufacturing processes are based upon today’s energy sources.

Sure, we want to switch to electric vehicles as soon as possible, but even the US government is about to find that throwing money at the problem doesn’t undo multi-decade commitments.

Dino power for decades to come

As much as we like to joke about it, fossil fuels do not actually come from dinosaurs.

Hydrocarbons like oil, gas and coal come from plants in former tropical swamps that have decayed, decomposed and been buried under hundreds of metres of layers and rock… and then their chemical composition was through heat and pressure.

The “fossil” part of fossil fuels is really referring to plants and the odd invertebrate.

Given how many decades it will take to move to an alternative energy source, there’s still plenty of opportunity in these stocks. Keep your eyes on existing fossil fuel producers with the ability to expand their resources.

Until next time,

Shae Russell
Co-editor, Exponential Investor