GBN Blog
Surprise! Cheap Energy Is The New Policy
Cheap energy has for decades been the energy policy of the United States and is once again. This is no surprise as cheap energy is very popular with everyone except environmentalists, who dislike it because higher prices encourage efficiency and accelerate the shift toward cleaner technology.
Two events have conspired to defeat any momentum toward raising the price consumers pay for energy. The first was the recession and rising unemployment, which at a minimum makes the timing bad. The second event was the shift in power in the Senate resulting from the election in Massachusetts. There is now a belief widely expressed in the Senate that cap and trade or any other scheme that raises the price of energy during the recession is dead. The focus of policy has shifted mainly to the supply side – cheap natural gas, nuclear power, renewables and, of course, off shore oil – all justified mainly by energy security rather than climate change.
Cheap energy misaligns incentives and undermines any effort to meaningfully deal with climate change. There are two options left:
- Regulating efficiency does work as we have seen, particularly in California. Tough and rising standards make it harder to be inefficient. But they are also politically difficult to achieve.
- Senator Maria Cantwell has proposed something else that just might fly, Cap and Dividend. The idea is that the money made by selling permits under the cap would be sent as dividends to consumers to compensate for the higher price of energy. It is not piece of rhetorical twist and might be more popular. For an excellent overview on Cap and Dividend, see this February 4th article from the Economist.
Unfortunately, however, for the near future cheap energy will encourage demand and extend the time horizon needed to recover investments in efficiency and new technology.
4 Responses to “Surprise! Cheap Energy Is The New Policy”
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Peter Schwartz
GBN cofounder and chairman. An internationally renowned futurist and business strategist, Peter previously headed scenario planning for Royal Dutch/Shell and directed the Strategic Environment Center at SRI International.
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Peter:
Quick comment,
I fear you are right. I don’t want to get too partisan but is ironic that the free market party echews market pricing when it comes to energy.
Our best hopes are with your solution A. Maybe the epa can pull it off…
On B, I doubt if business will ever go along with it. Especially now that uscap has been severely gutted by the most recent defections…
Looking forward to the next post
J
As far as the administration’s intentions, could it be that they believe that building new infrastructure creates opportunities for imposing new, carbon-oriented pricing structures, which may be politically impossible to impose in the absence of such a demonstration, because of vested interests? Too wishful?
I think we can work with “cheap”. When it gets cold here in Minnesota and my furnace kicks on, I really like “cheap.” And I admit I like using energy to make my life better beyond simply not freezing to death.
I would really like to see widespread adoption of solar PV technology, but from the perspective of my consumer dollars it is far too expensive for me to power even my garage door opener. The general wisdom against solar leadership is nearly always predicated on cost of the technology. So why can’t it be made cheap?
Consider how you would drive massive adoption of localized electricity production with grid-tied PV systems, like San Francisco’s Sunset Reservoir project or one of the many shopping mall rooftop projects. Benefits of that model would be to offset carbon, help cities reduce tax burdens, and let entrepreneurs make some money creating environmental benefit.
The “free electricity” part is not the issue. Projects go from concept to “throw the switch” in less than a year, and maintenance on PV systems is not very troublesome.
The problem is that it takes too long to realize return on the initial investment. That is, system cost per watt needs to become cheaper.
Now the industry mindset seems to be directed toward creating huge PV solar projects similar in scale to a fossil-fuel-burning or nuclear plant. From this perspective only large centralized plants can be built, requiring large capital investments and power loss over transmission lines. There’s not really any reason it has to be that way, even for present-day industry to maintain a strong market presence and stay profitable.
For the “cheap (distributed) solar” model to happen, raw materials (silicon, etc) would have to drop significantly in cost. I can’t claim to understand those economics, but is there any more to it than “we can’t produce more, driving prices down to stimulate demand, because solar technology costs too much” passing as risk strategy? There’s the “mining is environmentally bad” argument, but that applies equally to any human enterprise, and needs to be addressed separately.
Part two of the equation: Manufacturing efficiencies when realized would somehow have to be passed down all the way to the system installers and end-users rather than taken as profit in the middle of the supply chain. Again, cheapness is a virtue rather than a liability.
I’m sure I’m ignoring a lot of the factors that make the current state of the PV industry so lethargic, but high cost is the most-often cited reason solar electricity is considered not competitive. And the occasional volcanic ash cloud could be worrisome I guess.
But the point of this sketch was to suggest that even in this unlikely arena cheapness can and should be leveraged in promoting a clean and carbon-neutral energy future that maximizes our quality of life.
Just a thought. Thank you for yours.
Define cheap.
Not all energies are equal. Oil has relatively few substitutes; the idea of “peak oil” is almost mainstream now, and demand is rising. Can’t see how will continue to get “cheap” oil for long. Current gasoline prices were considered high a few eyears ago!
Real question is: are we going to organize transition or be forced into it?