Putting the cost of going green in context
By Kurt Zenz House | 15 July 2009
Editor's note: The following column was coauthored by Benjamin Urquhart,
a research associate at Harvard University's
Center
for the Environment, and Mark Winkler, a PhD student at Harvard's
School of Engineering
and Applied Sciences.
Over time, the global energy infrastructure must change because the
continued combustion of fossil fuels is altering Earth's climate in
potentially dangerous ways and because the large wealth transfer from mostly
democratic oil-importing countries to mostly autocratic oil-exporting
countries is propping up repressive regimes worldwide. So, we know that the
world's energy infrastructure must change. But, the interesting questions
are: how big an investment are we willing to make to bring about that change
and how fast are we willing to make that investment?
Many groups have tried to answer these questions. In the last year alone
former Vice President Al Gore, Google, oilman T. Boone Pickens, Greenpeace,
and the International Energy Agency all have published hypothetical
scenarios for how the United States could transform its energy
infrastructure over the next two decades. Gore's "Repower America" calls for
generating 100-percent renewable electricity by 2020. Google's "Clean Energy
2030" would eliminate coal- and oil-burning power plants by 2030, while
retaining natural gas power plants to maintain grid stability. Greenpeace is
strongly anti-nuclear, while Pickens promotes wind power and natural gas as
alternatives to foreign oil.
When measured against historical extremes, the cost and physical
requirements of these ambitious energy plans is within the country's reach.
That doesn't mean they'll be cheap."
The quantity of new electricity-generating capacity proposed in the Gore and
Google plans has led to criticism that they are unrealistically expensive.
We try to place such commentary in a more quantitative context by comparing
the industrial and financial commitments necessary to achieve the Google and
Gore plans to two large-scale, government-led efforts from the twentieth
century--the industrial buildup that accompanied World War II and the
construction of the Interstate Highway System. These massive projects serve
as tangible benchmarks for the magnitude of financial commitment and public
support that will be required to rebuild the U.S. power sector.
Let's start with a bit of history: The U.S. industrial commitment to World
War II was staggering. At its peak, the war occupied almost 40 percent of
the nation's total economic capacity, and it required massive quantities of
raw materials--at least 100 megatons of steel to build among other things
more than 80,000 tanks, 250,000 planes and helicopters, and 15 million tons
of munitions. The inflation adjusted annual cost of the war effort averaged
close to $700 billion between 1943 and 1945, while the total cost of the war
effort topped $2.5 trillion (in 2006 dollars).
In comparison, constructing the Interstate Highway System demanded a less
intensive effort--but one of far longer duration. With the majority of its
47,000 miles covered by 11 inch-thick concrete--and weighing an impressive
700 megatons--it remains the largest public works project in U.S. history.
During its peak years of construction, from 1970 to 1980, 17 megatons of
concrete were used annually to create 1,100 miles of roadway a year, at a
real annual expense of almost $11 billion, or about 0.3 percent of the
nation's annual economic output over that time. The project--from its start
in 1956 until its symbolic completion in 1995--cost the nation close to $350
billion (again, in 2006 dollars).
How do current energy transformation plans compare to these massive
governmental efforts?
To determine the answer, we calculated the overnight capital cost--the cost
of a project without interest payments, as if it were finished in one
night--as well as the requirements in steel and concrete for the Gore and
Google plans. We also calculated expenditures for the U.S. Energy
Information Agency's (EIA) Annual Energy Outlook, the traditional
policy-neutral, business-as-usual scenario. We then compared the total and
annual expenditures of capital, steel, and concrete using World War II as a
baseline for capital and steel consumption, and the highway project as a
baseline for concrete consumption. (Note: Although the cost of steel and
concrete also are included in the total capital numbers, we wanted straight
comparisons for the total mass of steel and concrete to compliment the more
traditional capital comparisons.)
The results are summarized in two charts we have generated. The first chart
PDF shows that achieving Gore's vision of removing fossil fuels from
electricity production by 2020 will require 50 percent of the capital and 60
percent of the steel required to wage World War II as well as 25 percent of
the concrete that was used to construct the Interstate Highway System.
(Google's requirements are a bit higher because its forecast assumes a
higher U.S. growth rate for electricity consumption.) The other chart PDF
shows that the annual expenditures required to achieve the Gore and Google
plans would require 60 and 90 percent, respectively, of the concrete used
annually for the highway system and about 20 percent of the steel consumed
annually during the peak of war spending.
Take a moment to consider these numbers. Achieving either plan would require
both an annual investment of concrete equal to the amount used to build the
Interstate Highway System and an annual steel investment equal to
one-quarter of that required to defeat the Axis powers. That is a massive
industrial investment! Furthermore, these are only the steel and concrete
requirements; the quantity of photovoltaic panels, for example, required to
achieve the Gore or Google plan would be 28 and 74 times current global
production, respectively.
The material requirements to achieve the Gore plan are significantly lower
than those required to achieve the Google plan primarily due to their
radically different estimates for the growth in electricity production.
Google estimates that U.S. electricity production will grow by 4 percent to
roughly 1,024 gigawatts by 2020, which essentially matches the EIA's
forecast. The Gore plan, on the other hand, assumes that U.S. electricity
production will decrease by a staggering 27 percent! That decrease--Gore
claims--will result from huge increases in energy efficiency, but the EIA
forecast already includes significant efficiency improvements.
We should note that the energy plans would last longer than World War II,
making the annual rate of spending about 15 percent of the peak annual war
expenses ($100 billion-$124 billion versus $800 billion per year). Also,
because the U.S. economy is about six times larger today than it was in the
1940s, these costs represent a much smaller fraction of the country's total
economic output (about 1 percent of gross domestic product). Put another
way, the economic demands of the war effort were equivalent to diverting two
days of every worker's five-day work week, the energy plans--over their
lifespans--would demand only about 24 minutes from every worker's week.
Although each plan has other aspects that merit critical analysis (e.g.,
estimated capacity factors, load growth rates, and balance of peak and
base-load power) our analysis yields an interesting conclusion regarding the
required financial and industrial investments. Specifically, we have
identified two precedents for large-scale, governmental projects with
industrial and financial investments that exceed the total requirements of
both the Gore and Google plans. When measured against historical extremes,
the cost and physical requirements of these ambitious energy plans are
within the country's reach.
That doesn't mean they'll be cheap. After all, fighting World War II was
incredibly expensive--the modern economic equivalent would be passing a $700
billion stimulus package every eight weeks for the next three years.
Furthermore, defeating the fascist powers was of utmost importance as those
powers represented a material and immediate threat to every living person in
the free world. Although we strongly believe that the world's energy
infrastructure must change, we don't believe that either climate change or
energy-driven trade imbalances are remotely as scary today as Hitler was in
1941; and thus, while we could rebuild the energy system as we rebuilt
industry for the war effort, the impetus to do so is far smaller today than
in was in the 1940s.
Rather than waging war, rebuilding our energy infrastructure according to
these plans would be more like keeping the peace: Consider that were the
government doing all of this spending, it would require an annual budget of
about one-third the average peacetime budget of the Defense Department. When
we recall that Defense employs more than 3 million people, includes a
massive research, design, and procurement system, and maintains a system of
facilities worldwide, we get a sense of the magnitude of these proposed
energy plans.
Another important fact to consider is that neither the Gore plan nor the
Google plan assumes that the government will pay for everything transforming
the U.S. power sector entails. Rather, both groups believe--admirably, in
our opinion--in the endless capabilities of the American entrepreneur. In
other words, these plans are betting that free enterprise will spring into
action with the necessary capital. (With one proviso: Said entrepreneurs are
given the proper policy incentives such as a stiff price on carbon
emissions.) While we also believe in the power of individual initiative
coupled with enlightened policy, we are cognizant of the fact that both
World War II and the Interstate Highway System were entirely funded by U.S.
taxpayers. So taking on an industrial transformation similar in scope to
either the war effort or the highway system with mostly private capital
is--to put it modestly--a challenging proposition.
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