Green Energy Revolution Is Tougher Than Greens Think

  • Date: 22/05/15
  • Michael Levi, Council on Foreign Relations

The fundamental problem is that substantial initial success in displacing fossil fuels with zero-carbon energy will drive down the price of the remaining fossil fuel energy.

Had you asked most analysts a year ago what it would take to decarbonize the transportation system without aggressive new policy you’d have got an answer something like this: You need low-carbon technologies that can beat $100 oil on its own terms. And if you ask the same question today about electric power, you’ll usually hear that zero-carbon technologies need to come in at costs under the ever-rising cost of grid-distributed, fossil fuel generated electricity, a rather fat (and growing) target.

Both answers are wrong. The fundamental problem is that substantial initial success in displacing fossil fuels with zero-carbon energy will drive down the price of the remaining fossil fuel energy. (The supply-driven fall in oil prices hasn’t helped either.)  This means that, absent policy, clean energy will face an ever-tougher economic challenge as it increasingly succeeds.

Consider transportation fuels. A surge in oil production has driven prices well below where people previously expected them to be. But the same thing would have happened to prices had there been a surge in deployment of ultra-efficient cars or low-carbon biofuels that had the same impact on the supply-demand balance. And – this is the critical thing – effecting such a surge is exactly what people who want a clean energy revolution envision. If the world shaved, say, ten million barrels a day off its oil consumption over the next decade, oil prices would be far lower that if that didn’t happen. That would make the next ten million barrel a day reduction considerably more difficult.

Something similar applies to electricity.

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