Renewables Predictions Badly Miss the Mark

Today I spent some time with 2010 book Energy and Climate Wars. I don't typically enjoy seeing other people proven wrong, but in this case I couldn't help but smile at the authors' cynical and misguided take on efforts to bolster the renewables industry and avoid the worst affects of climate change.

Let me offer a paragraph from the introductory chapter:

"The fact is that the renewable energy revolution is yet another, ideologically driven, non-starter. Indeed, we would not even be talking about its possibility if it were not for the fact that the tiny impact of renewables on current world energy supply (meeting about 1-2% of world energy demand now and by 2050) if governments were not creating "facts on the ground" pouring billions in taxpayer cash into an uneconomic Black Hole"

As I write this, in 2019, renewables have grown to account for 11% of total energy supply in the US and 26% of the world's electricity supply. A primary shortcoming of the authors' predictions is that they failed to account for the dramatic price drops and efficiency improvements in wind, solar, and storage technologies.

Wind power is now cost competitive with the cheapest fossil fuel options. Solar has more than tripled in efficiency and decreased in price tenfold over the past 30 years. Battery storage prices have plummeted and are expected to decrease 3x through 2030. The holy trinity of utility-scale storage, cost-competitive renewables, and AI-driven grid management will unlock the full capabilities of renewables in our electricity supply. Electrification of light transport will be a major trend of the next 20 years. Some EVs already have a total cost of ownership lower than their gas-powered counterparts even without tax credits, and as battery costs drop further this gap will widen.

The authors were correct about the government needing to pour money into this nascent industry in order to make it competitive, but they failed to predict that the manufacturing and installation learning curves and technological improvement would in short order make renewables competitive with legacy power sources and remove the needs for these same tax incentives. Maybe not surprising given that 2010, the year the book was published, was an inflection point for installed renewables, especially solar.

This mistake belies a more fundamental flaw with our author's uncompromising free-market beliefs; that government investment in an industry is necessarily perpetual and driven by a desire for control rather than a desire for societal improvement (or the desire to avert societal disaster). They attribute the push for energy transformation as "imposing Big Government through centralizing socialist policies." They don't allow for the idea that some problems cannot be solved by the free market and require collective action (i.e., government intervention). Problems that flummox the free market include external costs not born by the market participants, especially long-term costs caused by short-term activities. When it comes to global warming, it won't be the energy supermajors forced to flee their countries as crop yields plummet; by the time we feel the full force of climate change, this quarter's investor report will be long since filed and forgotten.

Progress without regulatory pressure is a combination of market forces and chance. This is no more obvious to me than the stroke of luck that is natural gas. How fortunate are we that, over a period when we failed to muster the political will to reduce emissions to the levels our scientists have implored us to, we developed the technology to efficiently and cheaply extract natural gas, a fuel that generates half the CO2 emissions of coal. I'm thankful for this coincidence, but we need only imagine what would happen if we discovered a new power source that was 10 times less expensive, 10 times more plentiful, and 10 times higher in carbon emissions than natural gas. How would the market react? When it comes to the external consequences of private enterprise, the market will take us only as far as fortune allows.

All of this is not to lay blame at the feet of energy companies, their shareholders, or their executives. Corporations exist to deliver profits to investors, and managers as agents of the company have an obligation to do the same. I'm only arguing that government intervention is called for when the alternative is leaving our fate to chance.

Luckily, we have an avenue to shape the market in a way that is more free-market than government mandate, and has supporters on all sides of the political landscape. A tax and refund scheme is the best way to allow our innovators to do what they do best and to encourage a speedy transition away from carbon-intensive fuel sources. It can be done in a way that is progressive but also does not raise taxes on balance. Look no further than this National Review article from this April detailing conservative support for a tax and refund scheme among the public, policy folks, and elected officials.

While a carbon tax would speed up our national energy transition, I'm heartened by the progress we're making without one. Wind and solar are become more cost competitive all the time, and societal pressure is pushing big firms like Apple, Google, and Amazon to make massive renewable purchases. Clearly the predictions made early in the decade were way off the mark. We can only hope that the current pace of change continues.