Every day, progress is made in the shift toward renewable and sustainable energy. But many aspects of the future of this space seem uncertain. How will the shift affect emerging nations and countries that rely on oil and mining for a majority of their gross domestic product? Where do electric vehicles fit into this puzzle? Why don't big oil companies like ExxonMobil (XOM 1.38%) and Chevron (CVX 2.19%), with their enormous financial resources, seem to be investing in alternative energy production?

On this episode of Industry Focus, Motley Fool analysts Taylor Muckerman and Tyler Crowe answer these questions, explain the context around energy and climate change today, and point to some directions the sector seems to be heading in.

A full transcript follows the video.

This podcast was recorded on Dec. 3, 2015.

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Taylor Muckerman: Hey, Fools! Taylor Muckerman here with Tyler Crowe. We're talking about the Paris Climate Change Conference and some impacts that it might have on the overall energy sector, and also what companies in general are doing to address climate change and the use of fossil fuels.

Tyler, you've been following the conference a little bit. What are your thoughts so far, as it's only a couple days old?

Tyler Crowe: Well, one of the things that I think people maybe don't necessarily understand about the Paris climate talks is that a lot of the foundation for what has been going on with it has been going on for years. If we remember, a couple years ago China and the U.S. had a joint climate talk and they both made pledges on reducing carbon emissions.

And that's basically the framework for what this entire thing is. It's basically a lot of countries that have made these voluntary pledges to reduce carbon emissions, and they've brought them to this conference, and now, this conference is more or less along the lines of "How do we enforce this? And for emerging market countries, maybe, countries that are struggling a little bit more to finance the shift, how can we help them afford it?"

Those have been the sticking points, and what has been the important stuff here, rather than the "How are we gonna cut carbon emissions," because a lot of that framework has already been brought to the table.

Muckerman: Yeah, it's pretty funny. I've seen you look at a lot of the countries that produce fossil fuels -- like Saudi Arabia is fighting back on this a little bit. But then, you have island nations that are like, "No! Please! Dear God! Support [addressing] climate change! Otherwise we're gonna be drowning in the next hundred years!" And one of those emerging markets that's pushed back has been especially Brazil, and I don't think this should be any surprise, given their reliance on mining and oil and gas sector for their entire economy.

Crowe: Yeah, we've seen Brazil push back a little bit. If we look at energy consumption, you have the United States, the EU -- I guess you could say developed, mature markets. And if you look at total consumption, it's been relatively flat or even declining over the past 10-15 years. I think one of the bigger topics to handle isn't gonna be places like the EU and U.S., who have set some targets -- maybe they're not the most ambitious, but they're on the right path -- but rather, these really large emerging economies -- countries like India and China -- that still have a lot of people who, on a GDP per-capita basis, it's still pretty low, average household income earned isn't great.

And to increase those and bring them up to a higher standard of living that they want to achieve, it requires an immense amount of energy. And how to solve that... Brazil is another one just like that. How are we gonna be able to deliver the energy that these people need while at the same time meeting these carbon targets? It's gonna be a really interesting thing to figure out.

Muckerman: Yeah, you would have to imagine... there would have to be some kind of contribution on the part of developed nations to help fund that, as you mentioned earlier -- people not having the money to do so.

Well, let's jump into one of the ways that the global carbon emissions levels could be reduced over the long term, and that's a transition that's underway in some small part, and that's to electric vehicles or hybrid vehicles as the segue to electric vehicles.

We've seen some adoption around the world. I think some numbers from 2009 to the middle of this year, there's over a million EVs sold worldwide now, so, there's been some rapid adoption. That million number doesn't really jump off the page when you think of total vehicles around the world.

But from zero to a million in just six years is pretty impressive. What are your thoughts on the changing industry dynamics in terms of electric vehicles, not just for consumers but also for industry as well?

Crowe: I find it really interesting. I think there's... I guess you could call it the low-hanging fruit, and then the more challenging things that we can achieve here. When we think of conversion over to alternative energy, our immediate thoughts are solar and wind, which are ways of producing electricity.

The ability to disrupt and transform the electric market, moving away from coal, moving away from, to a lesser degree, natural gas is an easier transition. But one of the biggest challenges, of course, is going to be, how do we get transportation? And like you said, electric vehicles have been a good way of doing it. And we've seen companies like Tesla Motors that have really been driving this as of late. Not in the sense of actual total vehicles sold, but more along the lines of driving the technology that is helping to enable.

Muckerman: And the headlines as well. It's getting the word out.

Crowe: Yeah, certainly, the media attention around Tesla Motors helps things an awful lot. But I think there's a big question, that harder stuff that's going to be able to convert -- you know, commuting cars, light-duty vehicles, like what we see with the Nissan LEAF, or Tesla. They're easier fixes because the demands of power are not as great. I think one of the hard things that people don't really think about is heavier-duty jobs. We're thinking about trucking, construction equipment. These are very, very large consumers of fossil fuels, especially in the oil space.

And, where is the technology that's gonna come that we can actually replace these? Because where electric vehicles are right now, it seems like it's a very, very long ways off until we can actually replace these. And the question is, is natural gas an adequate change here?

Companies like Clean Energy FuelsWestport Innovations, they've been trying to push this move toward natural gas for heavier-duty vehicles as an option, and obviously, natural gas is less pollutive than oil. And the question is: Is this going to be an acceptable change over the long term to help meet those needs?

Muckerman: Yeah. And you see some hybrid models out there, in terms of earth-moving equipment, but nothing on a grand scale. And as you mentioned, trucking is a huge user of fossil fuels, and there really hasn't been any momentum that I'm aware of in terms of fully electric semi-trucks or locomotives or anything along those lines.

You certainly see some adoption into liquefied natural gas, but that's still a fossil fuel at its origin. So we're not completely removing ourselves from that. And even the earth-moving vehicles that I'm talking about, a couple from Caterpillar, Komatsu, and Deere, they are still hybrid, so, they're using a diesel engine as a generator to produce electricity for the drive train and such. So, still using fossil fuels.

I think you're right -- the industrial side of our transportation sector, I think that's going to be the slow burn in terms of adoption. And you're talking about so much power needed to disrupt that industry in terms of engine side and kilowatts needed, that these batteries are going to have to improve significantly to be able to tow and haul tons and tons of material. 

Moving on, we've got another segment we'd like to talk about. Moving toward cleaner energy, big energy companies in terms of oil and gas companies could get caught off-guard. I saw an article on Financial Times questioning whether some of these big companies are the Kodaks of the next generation in terms of change creeping up on them, until it's too late to really counteract or adopt change themselves.

Tyler, you emailed me this morning an idea in a company that you had in mind that might be getting a step ahead in regards to not changing their business model completely, but at least creating new business lines that do involve green energy.

Crowe: Yeah, one of the biggest challenges -- you get a lot of investors or media people asking the question: "Why can't big oil companies like ExxonMobil and Chevron, that generate tons and tons of cash, how come they aren't getting more into the alternative energy space?" And what they're doing now seems more like a greenwashing. Like, "Oh, we're doing this," but it's a very token amount of investments compared to what they do."

And one of the big reasons is, they don't really have a strategic advantage when it comes to moving into alternative energy. There are a bunch of petroleum engineers, geologists, things like that. These guys don't really know photovoltaics. They don't have that knowledge or that industry expertise, or any sort of strategic advantage, where a company like SunPower for solar is going to eat their lunch if they were to get into this space. 

However, if there is one thing that they could do, and looking at possibilities that big oil could get into, I think one realm that they could use as a transition into alternative energy is actually offshore wind. There's a lot of potential when it comes to offshore wind. But what we've seen with projects as of late is, they all come in wildly overbudget, they take much, much longer to develop, which is one of the big issues with so many energy projects as of late.

So, if you look at big oil companies, one of the things they've been very good at over the past 10, 20, even 30 years is building out infrastructure and facilities in offshore environments. And it is very possible that they could use these strategic advantages that they have in that developing and constructing infrastructure in the offshore realm to build offshore wind facilities.

And we're actually starting to see one company test the waters with this, and that's Statoil -- they're the Norwegian natural oil company, a hybrid publicly traded natural oil company. They've been building floating offshore wind facilities off the coast of Norway. They've been relatively small test facilities, almost even using them to power offshore oil rigs.

So, not exactly the biggest transition to alternative energy. But it shows a way forward that actually gives them something they can bring to the table, because as long as the ExxonMobil, Chevrons that you have over the world don't really have something to bring to the table, I don't really see them making any significant movements anytime soon.

Muckerman: And you mentioned Statoil. It made me think of another European company, Total, I believe they're heavily invested in sun power. Is that correct?

Crowe: Yeah, I think they own like 60% of all shares outstanding in sun power.

Muckerman: And that goes back to what you were talking about earlier, about these chemical and petrochemical engineers maybe not necessarily having the photovoltaic experience or wind power, turbine experience. So, why not go out there and dump some cash into a company that's already got gobs and gobs of experience in these different industries?

So, you've got two big European energy companies making some movement toward these renewable resources. And you look at Exxon a few years ago, completely selling out of their foray into biofuels. There was a small movement, but they sold out of it. And BP, another European company, they cancelled most of their renewable projects. So, perhaps these companies with so much cash on their balance sheets, perhaps rather than trying to figure it out themselves, maybe you'll see some unexpected acquisitions over the next five to 10 years in the renewable energy space, rather than trying to reinvent the wheel themselves.

To go back to Tesla talking about some of these bigger auto manufacturers not necessarily being able to keep up on the EV front because they have these engineers who aren't data scientists and technology experts... So, Tesla's way ahead of the game. They're hiring a completely different group of individuals compared to the Fords and General Motors of the world.

So, even those big auto companies are going to have to make that transition in employment as well. So maybe you'll see some acquisitions there. And it's such a dramatic shift on both fronts that acquisitions kind of make the most sense.

Crowe: Yeah. The one thing you do have to give credit to these big oil companies for is, for the most part, they are very good capital allocators, and they are very good long-term investors. If you look at some of the investments they have to make for oil and gas projects, it's 10- to 15-year investments. I think a great example is Gorgon's LNG project in Australia. Maybe not the best-budgeted one, they've gone over budget quite a bit...

Muckerman: You're being too nice.

Crowe: But this was an offshore gas find that they found back in the early '90s, and have had the vision and foresight to develop this over a 25-year process. If these companies were to start to see returns on solar energy or alternative energy or any other form that we can find, if they can start to see attractive returns, I would not be surprised if they started to make that transition, simply because they can look at it from a capital allocation standpoint and say, "This is the best way to deploy our capital."

Muckerman: Makes a ton of sense. Well, Fools, I think that about wraps up the show, unless, Tyler, you've got anything that you wanted to get off your chest?

Crowe: No, I think I'm gonna be watching Paris to see what happens for the rest of the time. Other than that, I think everybody needs to enjoy the holidays coming up, and coming down from Thanksgiving.

Muckerman: Right on. I think the implications of these Paris talks aren't going to be felt immediately, but certainly some long-term investing themes that people can take to heart. If you have five to 10 years or longer to leave your money in the market, you could take some smaller bets on progress and change in the renewable energy sector.