The challenge is that before and during an election,
there are many myths promulgated as reality. If this
continues unabated, this muddles the debate and leads to
inaction or poor decisions. The objective of this short
article is to highlight some consistent topics that are
often confused, or what I call myths that are purported to
be realities. By working with facts and good logic, we
will improve the quality of debate and the resulting
decision-making.
Debate 1: How is the Problem Defined?
Myth: Climate change is not real,
thus “clean” energy is not needed
Reality: This is the wrong
response to the wrong question; a broader framework is
needed
There are some that still debate climate change,
whether it is real and – if so – the potential impact.
But to start with climate change as the central question
misses the mark. The future of energy and
sustainability is about solving the question of “how do we
meet the needs of growing worldwide energy demand in an
economical, environmentally-acceptable, and secure manner.”
Climate change is just one piece of the environment portion
of this statement, albeit an important one. Different
people might value different aspects of these criteria
differently but the debate should start with a framework
that is broader than just climate change. To solely
address the climate change aspect of the issue assumes that
there is the only aspect of the question at hand. This
is simply not true.
I would be remiss to not comment on climate change at all.
There is not 100% assurance that rising carbon dioxide
levels cause global warming. Nor is there 100%
assurance on what will happen if it does. That is a
fact. I would also note that you cannot state with
100% certainty that you will continue breathing five minutes
after reading this, although the probability that you will
is likely high.
So climate change, like many things, is a probabilistic
question. And the probability that climate change is
real, and the impact will be non-trivial is quite high for
several reasons. First, the argument is logical.
Carbon dioxide in the atmosphere does trap heat, the levels
of carbon dioxide have increased measurably, and the
increase can clearly be linked to industrial development.
Second, analysis from the vast majority of the world’s
leading scientific organizations, such as the National
Academy of Science in the US and the Royal Society in the
UK, are consistent in their assessment that climate change
poses a real risk. Finally, the main sources of
opposition always seem to be those that have the most to
lose economically and thus their objectives can be
questioned. I would note that the numbers of
persuasive deniers are dwindling.
Perhaps most interesting was a Koch Brothers funded study
at the University of California at Berkeley. The
study, backed by the Koch Brothers, who are known to fund
studies skeptical of climate change, ended up reversing
course and printing their view under an op-ed entitled, “The
Conversion of a Climate Change Skeptic.” It’s getting
lonely being a climate
change skeptic and will only get lonelier in the future.
Debate 2: How Should Government be Involved?
Myth: The government should stop
subsidizing clean energy and let the ”free market” work
Reality: The government is deeply
involved in all forms of energy; there is no free market in
energy
People that make this comment – and there are many – are
either woefully naïve or intentionally deceitful. Let
me start by saying I am a huge advocate of free markets and
small government. I strongly believe that in areas of
the economy where price signals are relatively accurate this
is by far the best way to allocate capital.
So what is the problem? Free markets work well when
pricing is accurate, and in energy, it is not. Fossil
fuel prices are subsidized to a massive extent through tax
breaks, insurance guarantees, direct subsidies and the like.
The environmental impacts of various fossil fuels are not
accounted for in many cases. This is not just carbon
dioxide, but other emissions such as mercury, nitrogen
oxides and sulfur dioxides. And there are other costs,
such as maintaining US military presence in various parts of
the oil-producing world, that are not accounted for at all
in the price we pay. So the comment that renewables
are only cost effective with subsidies is a hollow
critique.
So subsidies and government intervention are part of the
energy industry. But all of these subsidies are
legislation massively favor renewables correct? The
answer is a resounding no and was probably the most
disappointing non-response from President Obama in Debate
#1. While the data can be cut in many ways, the
subsidies to fossil and nuclear industries are a multiple of
renewables. See “The
Real Deal on US Subsidies: Fossil’s $72b, Renewable Energy’s
$12b” by Greentech Media for some sources and analysis.
As a former coal analyst, I find the shock by some at the
amount of subsidies to the renewable industry entertaining
given what has gone to such industries as coal. See
Time Magazine’s 2006 report, “A
Magic Way to Make Billions” detailing the synfuel credit
given to coal as an example.
I had a reporter once ask me, “If this is true, then why are
people often shocked to hear such statistics?” I
believe there are two reasons. One, the incumbent
energy industry has gotten subsidies for so long, and often
in such a non-transparent manner, that they are no longer
felt or noticed. Second, perhaps more importantly, the
renewable industry has marketed their subsidies very poorly.
Perhaps they should take a lesson from the gasoline industry
when credit cards were first introduced. At first,
there was a surcharge for using a card and usage was
stagnant and customers were irritated. Then marketing
changed the message and had cash users pay a discount,
which, in effect, was the same thing, but people felt a lot
better about it. Perhaps renewables should be
marketed as a discount to the full price of traditional
power versus a premium to the false price we see.
Difficult in practice for sure – but the marketing of these
so-called subsidies could be much better.
While government intervention and regulation in the energy
industry is a constant presence that does not mean that all
regulation is a good thing. I would still strongly
advocate for as little as possible. And for that which
remains, I’d rather see the government try to promote
consistent pricing for which all technologies can compete
versus direct subsidies to certain companies. The right type
of government involvement should be debated, not the false
question of whether renewables should be supported. As
an example of a creative solution, see Jeffrey Leonard’s
article, “To
Save Energy and the Planet, Cut Energy off the Dole."
Debate 3: Where Should Innovation be Focused?
Myth: We need new technology,
period
Reality: We need innovation in
technology, policy, business models, and financing
There have been countless calls for new technology in energy
and sustainability. From Venture Capitalists to the US
Government, billions of dollars have gone into various
so-called “disruptive” technologies. But the best
technology does not always win in any industry, and
especially so in energy. I argue that a fixation on
innovation in technology without corresponding innovation in
policy, business models and financing is a losing recipe.
Government and investors should be aware, as it is clear
that the lessons will be very expensive for those that have
gotten it wrong.
Policy creates incentives, which drive behavior in energy.
“Decoupling” is a good example of innovative policy aligning
incentives for the common good. Any business typically
wants its customers to use more of its product. More
use means more profits. Unfortunately, in the utility
business that means that there is an incentive to have
customers use energy inefficiently and thus they will need
to buy more energy. Decoupling can be
complicated in its implementation but in effect separates
usage from profits. So utilities can be incented to
have efficient users of energy as their profits will remain
stable, or even increase if so.
Business model innovation is also needed. The concept
of “negawatts” is a good example of one such innovation.
Instead of building capacity, or megawatts, to align supply
and demand, some businesses have formed around curtailing
demand to accomplish the same goal. The businesses
that formed around this concept, such as EnerNoc, were
really innovating the model of doing business versus having
a business based on technology.
Finally, innovations in financing of energy projects are
needed. Whether it is innovative ways of matching the
right tenor, risk profile, return requirements to specific
projects, or more creative forms of securitization of cash
flows from projects, the impact of innovative financing
could be immense. Innovations in this area have the
potential to be just as critical – perhaps even the most
critical – to the ultimate uptake of alternative energy.
Debate 4: Can Alternative Forms of Energy Make a
Difference?
Myth: Some of the new technologies,
such as solar and wind, will never make a dent in our energy
mix
Reality: It will take time, yes,
but the signs are already clear they are having an impact
First, you have to ask yourself if change happens in the
energy markets. The answer is yes. The United
States has undergone several key transformations of our
energy mix. First our energy mix was dominated by
wood, then coal, then oil, and now natural gas is gaining
share. Given the size of the energy markets, these
transitions can take decades. Wood went from about 90%
share in 1850 to less than 50% by 1885 and then continued
declining. Coal went from close to 80% share in 1910
about 30% by 1950. They can and do happen, but they
take time.
But how do we know if a change will ever happen, or if we
are waiting for a fantasy that will never come to fruition?
This is a better question as just because change can happen
it does not mean that it will happen towards cleaner forms
of energy. One simple way is to look at the
percentage of new capacity coming from these sources, as
that will likely be a leading indicator of what generation
will look like in future years. Solar and wind have
been very large shares of new capacity being added.
For example in the month of September 2012, wind and solar
were 100% of new capacity added according to the FERC.
You can also see the share in generation increasing as well,
with non-hydro renewables going from 3.1% of generation in
2008 to a forecasted 6.0% in 2013 per the Energy Information
Administration. I believe that these are clear signs that
a transformation is underway and given the falling costs for
sources such as solar, believe that this trend will
continue.
If this trend continues, what might this look like in
several years? Germany has installed the most solar of any
country in the world so it is an interesting case study.
While the debate on solar in Germany could be a long one,
what I find interesting is that recent data on Germany’s
power curve shows that solar generation is clipping the peak
of power during the day in a very meaningful way, nearly
flattening it at times which is truly remarkable. As most
power demand occurs during the middle of the day, this is a
costly period of time for utilities to ensure power and
often an expensive one for customers. It is also when
the sun happens to shine the most which is good for solar
generation. Seeing a power curve flattened, especially
by distributed generation that does not have to be owned by
the utilities, will have huge implications for many
participants in the energy markets for years to come.
The commentary above highlights that these are
complex issues. I do not assert these issues are
simple, but rather that a good debate must focus on reality
and not the myths that are often promulgated.
Focusing our debates on facts and coherent logic will give
us the best chance at making the right decisions on the
topic of energy and ensure the best impact on our economy,
environment and security.
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