‘The Increasing Sustainability of Conventional Energy’ (1999 conclusions for today)

“Artificial reliance on unconventional energies is problematic outside niche applications. Politically favored renewable energies for generating electricity are expensive and supply constrained and introduce their own environmental issues. Alternative vehicular technologies are, at best, decades away from mass commercialization. Meanwhile, natural gas and reformulated gasoline are setting a torrid competitive pace in the electricity and transportation markets, respectively.” (1999)

Advocates of energy reality and a consumer-driven, taxpayer-neutral energy industry have reason to be discouraged. Arguments against government intervention in energy market from decades ago are still valid if not more true today.

Peak oil … Energy security … Pollution reductions… Global lukewarming. Game, set, match fossil fuels. Game over for government subsidized wind power, solar power, ethanol, and electric vehicles.

But the advocates of forced (government) eco-energy transformation march on.

A theme at MasterResource, now in its eighth year, has been the false arguments and predictions of the energy interventionists, and the still-true, come-true arguments of the freedom school. As an example of both, I reproduce the executive summary and the Conclusion of a April 1999 study I wrote for the Cato Institute, “The Increasing Sustainability of Conventional Energy.”

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Environmentalists support a major phasedown of fossil fuels (with the near-term exception of natural gas) and substitution of “nonpolluting” energies to conserve depletable resources and protect the environment. Yet energy megatrends contradict those concerns. Fossil-fuel resources are becoming more abundant, not scarcer, and promise to continue expanding as technology improves, world markets liberalize, and investment capital expands. The conversion of fossil fuels to energy is becoming increasingly efficient and environmentally sustainable in market settings around the world. Fossil fuels, in fact, are poised to increase their market share if environmentalists succeed in politically constraining hydropower and nuclear power.

Artificial reliance on unconventional energies is problematic outside niche applications. Politically favored renewable energies for generating electricity are expensive and supply constrained and introduce their own environmental issues. Alternative vehicular technologies are, at best, decades away from mass commercialization. Meanwhile, natural gas and reformulated gasoline are setting a torrid competitive pace in the electricity and transportation markets, respectively.

The greatest threat to sustainable energy for the 21st century is the global warming scare. Climate-related pressure to artificially constrain use of fossil fuels is likely to subside in the short run as a result of political constraints and lose its “scientific” urging over the longer term. Yet an entrenched energy intelligentsia, career bureaucrats, revenue-seeking politicians, and some Kyoto-aligned corporations support an interventionist national energy strategy based on incorrect assumptions. A “reality check” of the increasing sustainability of conventional energies, and a better appreciation of the circumscribed role of backstop technologies, can reestablish the market momentum in energy policy and propel energy entrepreneurship for the new millennium.

VI: Conclusion

The following conclusions and hypotheses can be drawn from this essay:

• Positive economic and environmental trends suggest that fossil fuels will be increasingly sustainable in the 21st century.
• Improving trends with oil, gas, and coal will require that the breakthrough “discontinuities” needed for substitute technologies to become competitive grow over time.
• The weakening scientific case for dangerous climate change makes the global warming issue a transient political problem for fossil fuels rather than a death warrant.
• The Kyoto-inspired energy strategy of mass energy conservation and substitutions of preferred renewable energies will self-destruct if the enabling technologies do not improve enough to ensure affordability and convenience for consumers. Reduced living standards in the developed world and continued poverty in the developing world are not politically or ethically tolerable.
• “Green pricing” in electricity markets will be increasingly problematic and ultimately unsustainable because of internalized externalities with fossil fuels, subjective consumer preferences, and the necessity of political intervention to define what is “green.”
• Currently uneconomical energy technologies are backstop sources for the future. At present they include synthetic oil and gas from coal, central-station wind and solar electricity, biopower, fuel cells, and renewable-energy-powered and electric vehicles. Because of relative economics, nuclear power is already a backstop technology for new capacity in the United States and other areas of the world with abundant fossil fuels.
• The increasing range of backstop energies enhances “energy security” over very long time horizons, although such security can be and has been “overbought” by government policies in the near term.
• The market share of fossil-fuel energy is likely to increase in the 21st century if the environmental movement succeeds in discouraging existing and new capacity of the two largest carbon-free energy sources, hydroelectricity and nuclear power. This is because of sheer relative size: the current world market share of hydropower and nuclear power is thirteen times greater than that of nonhydro renewables.
• Major economic and environmental advances are as likely (and perhaps more likely) to occur within the fossil-fuel family as outside it. One promising possibility for early in the next century is commercially converting natural gas into cleaner reformulated gasoline and diesel fuel.
• The intermittent characteristic of wind and solar energy could make those energies bridge fuels to conventional energy in nonelectrified regions of the world. If so, those technologies would remain as backstop rather than primary energies in the 21st century.
• The range of viable solar applications can be expected to increase over time, especially as space commercialization and remote ocean and desert activities accelerate in the 21st century. Wind turbines, despite being substantially cheaper than solar technology in windy areas, may have a more limited future in an economically and environmentally conscious world because of siting constraints.

The Petroleum Economist’s headline for 1998 projects, “Ever Greater Use of New Technology (1997),” will also characterize future years, decades, centuries, and millennia under market conditions. If the “ultimate resource” of human ingenuity is allowed free rein, energy in its many and changing forms will be more plentiful and affordable for future generations than it is now, although never “too cheap to meter” as was once forecast for nuclear power.

For the nearer and more foreseeable term, all signs point toward conventional energies’ continuing to ride the technological wave, increasing the prospects that when energy substitutions occur, the winning technologies will be different from what is imagined (and subsidized by government) today. Such discontinuities will occur not because conventional energies failed but because their substitutes blossomed.