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Economic Thoughts on the Future of Energy

Reliable and affordable energy is a requirement for a healthy economy, one that is creating economic wealth via the abundant and efficient application of productive work. For the last century fossil fuels have supplied most of the world’s energy needs, contributing to the creation of economic wealth, advancing science and technology, and improving the standard of living for all, even if unequally.

Now we have the additional requirement that our sources of energy be clean, that they not add additional emissions to the atmosphere, meaning that we require new sources of energy to power the economies of the future, as much as possible for the benefit of all.

Has previously created economic wealth been invested wisely? Have the scientists and engineers delivered us a solution? What is the optimal path for adopting these new sources of energy? What will be the economic cost for this conversion? Is there one single solution for all countries?

Encouraged by significant government financial subsidies, the U.S. has accelerated the development and deployment of clean energy solutions such as solar farms, wind turbines, and electric cars. But it must be acknowledged that all such subsidies result in economic distortions, over-producing products beyond their free market need, preventing the development of other needed products, thus diminishing the productivity of an economy in the short term. As these market inefficiencies consume economic wealth, they must be used prudently and sparingly.

Such financial subsidies require the availability of excess economic wealth which simply may not be available in less wealthy countries. That when making our choice as to what products to subsidize the development and deployment of, perhaps we should be considering what makes most sense globally, and not just domestically.

The U.S. chosen subsidized clean energy solutions will require new infrastructure, such as expensive battery storage for the electrical grid, increased grid capacity, electric car charging stations, etc., each requiring even more consumption of economic wealth. While politicians often make the claim that such subsidized programs will “create jobs”, the truth is that creating jobs is not the same as creating productive jobs. Excessive unproductive jobs are a sure path to a less wealthy society, less able to meet future financial challenges.

Nevertheless, these subsidies appear to be serving their purpose. Solar farms, wind turbines and electric cars are available, with prices dropping as volume increases. But the question that needs to be asked is, “are these the correct clean energy solutions for all countries?” Especially those countries that will produce most of the future carbon emissions and are in a very different economic situation than the U.S.

Per the following graph, note that the net emission output by the U.S. is already decreasing, while they continue to increase in Asia, China and India, representing about 45% of the world’s population, and today accounting for about 2/3 of annual emissions.

This next graph clearly demonstrates that there is a relationship between emissions per capita and GDP per capita. As GDP per capita increases, as the average standard of living improves, so will the emissions per capita.

The red line is my addition.

China’s GDP per capita is about 1/5 of the U.S., and India’s is about 1/4 of China’s, meaning that there is plenty of room for economic growth for both, but especially for India. It is safe to assume that in both countries there is tremendous political pressure for such growth, as it is their right to improve their standard of living.

Which implies that as the GDP per capita of Asia, China and India continues to increase, as their emissions per capita continues to increase, so will net global emissions. Regardless of what California mandates or how much electric cars are sold in the U.S. Our domestic emissions can drop to zero and global emission output will probably continue to increase.

Also consider that even after our tremendous investment in solar and wind, the vast majority of global energy consumption is still sourced by fossil fuels, with global energy consumption being directly proportional to global emissions. That in China alone more than 1,000 coal plants are in operation, with 240 more planned or already under construction. That India today has 173 coal powered plants, with 39 more under construction.

Given this over reliance of high emission emitting coal, are we focusing on the right global energy solution? Are solar farms, wind turbines and electric cars the best solution for Asia, China, and India?

Is there an alternative? A clean, reliable, on-demand energy source that is available today, one that is emission-free and over many decades of use has proven to be safe, affordable, and extremely reliable? One that can be a drop-in replacement for existing and planned coal power plants, compatible with existing electrical grids? For which is this almost an inexhaustible supply of fuel? Which can meet the growing grid demand for electric vehicles, and for the production of green hydrogen and sustainable aviation fuel?

Sure, it is called nuclear power, which will be covered in my next blog.

Eric Johnson is the author of “What the Hell is an Economy?”

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