Image Credit: greenforall.org, Creative Commons.
Those who worry about climate change and energy production very much want to believe recent reports from financial analysts that the prospects for clean power remain strong despite the global recession. Given what the brains running the world's economies managed to accomplish in 2008, however, it would be wise to take anything coming from those who describe themselves as "financial analysts" with more than a pinch of the proverbial NaCl.
Still, there are good reasons to remain optimistic that renewable sources of electricity and transportation fuels are worthy investments, reasons that have more to do with physical realities than economic or even political forces. As always, the laws of thermodynamics trump the markets.
For example, Jackson Robinson and Elizabeth Levy, a pair of analysts at a firm that helps you figure out how to best invest in green companies, recently wrote in Yale University's e360 magazine that their "bullish assumptions on green energy [remain] unchanged -- indeed, even strengthened." And the folks behind the Clean Tech forum write reassuring about the relatively high levels of venture capital still being poured into the sector.
Well, they would, wouldn't they? Among their explanations are the role of energy and in security, the expected continued growth in energy demand and the high profile that climate change is enjoying now that the finally U.S. has a president who believes what scientists tell him. All of which are probably true. But they aren't what I find most convincing. What I find convincing is Robinson and Levy's No. 2 reason: "The marginal cost of new oil production is rising over time."
In other words, for every barrel of a non-renewable source we consume, the more expensive getting the next barrel out of the ground gets. It's an axiom of any business that you extract the low-hanging fruit first. Hopefully, technological advances make extracting the harder-to-get stuff progressively cheaper, but there's no way around the fact that it will take more and more energy to extract each barrel as time goes on.
The standard estimate of the world's oil reserves is that there were around 3 trillion barrels of oil when we started burning it up a century ago. We've gone through about 1 trillion barrels so far, but only half of what's left is found in conventional wells like those in Saudi Arabia, the North Sea or the North Slope of Alaska. Production from all of those sources have either peaked or are about to.
The last trillion barrels are found in more tricky locations, mostly trapped in the tar sands of Alberta or the shale of Wyoming and Colorado. It takes much more energy (typically very dirty energy) to turn the tar or shale into usable fuel than Saudi oil requires -- and the economics of those "unconventional" resources are going to follow the same trends as conventional oil.
Clean energy, like wind and solar and geothermal, by comparison, are only going to get cheaper as the economies of scale and technological advances continue to push costs down.
The question is: will the upward trend in the cost of oil and the downward trend in the cost of renewables be fast enough to allow us to make the switch before we've burned so much oil that the climate changes irrevocably for the worse?
If so, great. If not, get ready for carbon taxes. Either way, clean energy investment makes sense.
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