STAFF NEWS & ANALYSIS
Market is Solving Climate Change
By Philippe Gastonne - May 01, 2015

Don't hold your breath, but future historians may look back on 2015 as the year that the renewable energy ascendancy began, the moment when the world started to move decisively away from its reliance on fossil fuels. Those fuels – oil, natural gas, and coal – will, of course, continue to dominate the energy landscape for years to come, adding billions of tons of heat-trapping carbon to the atmosphere. For the first time, however, it appears that a shift to renewable energy sources is gaining momentum. If sustained, it will have momentous implications for the world economy – as profound as the shift from wood to coal or coal to oil in previous centuries. – Grist.org, April 16, 2015

Politicians like Al Gore have made millions whipping crowds into a frenzy over "Climate Change," the newer term for what they once called "Global Warming."

Whether or not one believes the world is in peril, fossil fuels are certainly not pleasant. No one enjoys breathing exhaust fumes or having frackers move in across the street. We accept the disadvantages because the fossil fuel cost-benefit calculation outweighs the alternatives.

This is beginning to change, and the way it is changing is a classic illustration of markets beating government to the best answer.

In short, supply and demand sets prices, and prices drive behavior. No one willingly spends more than necessary to buy energy or anything else. Crude oil prices near $100 drove development of cheaper alternatives. Climate change concerns no doubt helped, but price was the main factor.

Potential profits are always an excellent incentive. They worked this time, too. The cost of solar photovoltaic cells has fallen 75% since 2009. In sunny tropical regions, solar-generated electricity is now competitive with coal, oil and gas. It is cleaner, less expensive, more reliable and does not require extensive infrastructure.

Even Dubai, which you might think would favor the oil sheiks who built it, is building a $330 million solar electricity plant that will generate 200 megawatts of clean energy. The builders promise to deliver electricity for a cost about one-third less than a natural gas plant of the same capacity.

When an industry can undercut the competition's price by 30% or more, the competition does not have a chance. The established players will survive only as long as they can use political influence to protect their turf. Electric utilities in Hawaii and Arizona, among other places, are desperately throwing up hurdles for homeowners with rooftop solar cells.

These utilities will lose. Technology is rendering their state-protected monopolies worthless. They can either evolve or die.

This doesn't mean fossil fuels will disappear completely. Battery-driven cars still have serious limitations, but Tesla and others are making rapid progress.

Did Al Gore's climate change agitation set this process in motion? Maybe, but it would have happened anyway. The economics are simply too attractive. Tax incentives may actually have slowed down the process by subsidizing relatively inefficient technologies.

The bottom line is the same. Fossil fuel demand will fall rapidly over the next few decades. Whatever danger our oil addiction creates for the environment will recede quickly. If we're lucky, decentralized energy might bring decentralized government along with it.

Who knew Al Gore would help the free market so much?

Posted in STAFF NEWS & ANALYSIS
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