The green energy revolution is making greater progress than expected. Solar and wind power have seen exponential cost declines, and electric vehicles seem to be a market winner.
That’s all good news, but improving green energy is not the same as addressing climate change. There is good chance that even optimistic projections for green energy will come true — and carbon emissions will continue to increase.
That’s in part because of innovation not only in green energy but also in the fossil-fuel industry. The fracking revolution in the US has been a positive development, if only because gas is usually cleaner than coal. Nonetheless burning gas (and the fracking process itself) creates environmental problems, including carbon emissions. It is easy to imagine the US fracking revolution spreading to more countries, thereby boosting the use of natural gas. In the short run gas will substitute for the much dirtier coal, but over the longer term fracking is competing with greener forms of energy production.
The bottom line: If you are bullish on green innovation, perhaps you should be bullish on innovation in fossil fuels as well.
One notable feature of energy is that it is easy to use more of it. If energy were truly cheap, people would take more plane trips, build more robots, desalinate more water and terraform more of the earth’s surface. These are wonderful ambitions, but they might lead the world to use both more green energy and more carbon-intensive energy.
Russia’s attack on Ukraine has made me less optimistic about people’s willingness to incur economic pain to bring about better energy outcomes. The prices of oil and gas have risen dramatically because of the war — yet not many countries seem to be looking to resume the use of nuclear power, which is a form of green energy. Germany is not overturning its previous decision to shut down its nuclear power plants, for example. And while France may extend its use of nuclear power, it is hard to see a major pro-nuclear trend.
A more common response to the war and its associated energy price hikes has been to insulate consumers from the effects of higher gas prices. Governor Gavin Newsom of California has proposed $11 billion in gasoline vouchers for drivers in the state, which is hardly a stronghold of climate denialism.
Overall, few politicians or voters (outside of oil- and gas-producing regions) seem delighted by higher prices for fossil fuels, though such price hikes might be required to diminish carbon emissions. Even Germany seems willing to continue as a major financier of Russia’s aggressive war in Ukraine, with its atrocities against civilians. If this is true in a country still horrified by its fascist past, where the ideology of “never again” remains strong, then it is unlikely that arguments about the need for green energy will hold much sway.
Norway’s sovereign wealth fund typifies the world we live in. The country has decided that the fund should divest from fossil-fuel assets. Yet most of the fund’s assets come from selling Norwegian fossil fuels to the rest of the world.
Again, it seems increasingly easy to imagine a world with wonderful green energy innovations and lots of carbon emissions — and people will praise the former to feel less bad about the latter.
Most likely, the world’s countries will develop their energy supplies in a sequential, rolling fashion. Japan developed economically before China, which in turn became industrial before Vietnam, and currently Vietnam is leading most of Africa. It could be that the world always has some growing countries that will want to use lots of fossil fuels, and a universal transition to solar power and good batteries could be distant.
Price pressures along the way could reinforce this basic logic. As green energy becomes more common, batteries may become more expensive, as they are based on a variety of scarce physical inputs. At the same time, the initial slack in demand for oil and gas, during a true green-energy transition, will make those resources very cheap. Is it such a sure bet that an industrializing Uganda will immediately and directly go the green energy route?
So there is reason to temper all the optimism about the green energy revolution. It’s all good news, but even if it’s all true, it doesn’t necessarily mean a better energy future is imminent.
Bloomberg
