According to the news report, a PR agency was tasked with spreading the word that clean energy is more expensive than dirty energy at a time when Republicans in Congress are attempting to repeal significant portions of the Inflation Reduction Act, which promotes clean energy, as reported by Oil Price.
Old Industries vs New
Maybe a coincidence. Politics is not our area of expertise. But the arguments that were made sure read like talking points that politicians repeat in cable news interviews:
- Clean new industries will need workers, especially engineers, and won’t get them by raiding staff from fast food restaurants. This is true, of course. The new industries will have to compete for experienced workers, attract American students into engineering, entice engineers from abroad, and offer competitive wages. The old industries will have to compete for the workforce with the new industries. That’s what happens in markets.
- The new policies will upend our decades-long dependence on global markets to provide goods and services at the lowest prices. Well, isn’t the point of going local to protect our national security? Extra security costs money, just as insurance does. So, do you want security or low prices?
- Government handouts to particular technologies distort the market. Economists agree that the least market-distorting way to deal with the problem is to tax carbon and let the market figure out how to reduce emissions. But let’s be realistic. Congress will not approve any new tax. So Biden had the choice of a sub-optimal policy or doing nothing. As Voltaire said, “The perfect is the enemy of the good.”
The main reason why clean energy prices may be higher than those for filthy energy is that the latter do not contain costs borne by society, not the producer or user, as mentioned in these dazzlingly unhelpful bullet points. The purchase price of the dirty product may be equal to or higher than the price of the clean product if the cost of harm to human health or the environment is factored in. So, moving to a clean product can alter the cost to consumers but not the overall cost to society.
What’s the big deal?
The lack of investment in research and development by incumbent energy companies could hinder their ability to compete with new and innovative energy companies. Incumbent energy companies spend very little on research and development, while automotive and fuel cell manufacturers spend a lot more. The cost and price of new products will decrease as producers attain economies of scale, but incumbent energy companies are at risk of losing out to their new competitors if they don’t invest in improving their products.
Decline in cost
Projections show a continued decline in the costs of alternative energy that will soon bring them below legacy energy costs. But that analysis does not take into account any number of projects that could disrupt the energy market even more:
- Co-fire fossil fuel plants with ammonia. (A project that major Japanese utilities and global ammonia producers.)
- Improve perovskites, which could substantially reduce solar costs and revolutionize its uses. (Work ongoing in China and USA.)
- Turn hydrogen into the new storage, fuel, and energy transfer medium. (Huge projects underway throughout the world.)
- Establish the existence of commercial deposits of renewable hydrogen underground. (A small-scale Australian enterprise with potentially big prospects.)
- Demonstrate via an expensive exploratory drill hole in Utah the possibility that we can tap deep, dry rock geothermal energy (enough to replicate the U.S. generating fleet 500 times over).
- Build superconductor grids to connect renewable energy. (A European energy firm wants to do just that, arguing that the existing grid cannot do it. What about here?)
Any of these options might significantly increase the likelihood of decarbonization, primarily by lowering the price and increasing the dependability of electrification. By looking ahead rather than back, we would be able to better estimate future expenditures.
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Source: Oil Price
