“The Increasing Sustainability of Conventional Energy”: A 25th Anniversary

Solid analysis passes the test of time. I subject myself to this test regularly. So on the 25th anniversary of my Cato Policy Analysis, The Increasing Sustainability of Conventional Energy, I ask you the reader to see how my arguments from Earth Day 1999 stand up.

The executive summary and conclusion follow.

Environmentalists support a major phase‐​down of fossil fuels (with the near‐​term exception of natural gas) and substitution of favored “nonpolluting” energies to conserve depletable resources and protect the environment. Yet energy megatrends contradict those concerns. Fossil‐​fuel resources are becoming more abundant, not scarcer, and promise to continue expanding as technology improves, world markets liberalize, and investment capital expands.

The conversion of fossil fuels to energy is becoming increasingly efficient and environmentally sustainable in market settings around the world. Fossil fuels are poised to increase their market share if environmentalists succeed in politically constraining hydropower and nuclear power.

Artificial reliance on unconventional energies is problematic outside niche applications. Politically favored renewable energies for generating electricity are expensive and supply constrained and introduce their own environmental issues. Alternative vehicular technologies are, at best, decades away from mass commercialization. Meanwhile, natural gas and reformulated gasoline are setting a torrid competitive pace in the electricity and transportation markets, respectively.

The greatest threat to sustainable energy for the 21st century is the global warming scare. Climate‐​related pressure to artificially constrain use of fossil fuels is likely to subside in the short run as a result of political constraints and lose its “scientific” urging over the longer term. Yet an entrenched energy intelligentsia, career bureaucrats, revenue‐​seeking politicians, and some Kyoto‐​aligned corporations support an interventionist national energy strategy based on incorrect assumptions.

A “reality check” of the increasing sustainability of conventional energy, and a better appreciation of the circumscribed role of backstop technologies, can re-establish the market momentum in energy policy and propel energy entrepreneurship for the new millennium.

The Lessons of History

The following conclusions and hypotheses can be drawn from this essay:

1. Positive economic and environmental trends suggest that fossil fuels will be increasingly “sustainable” in the 21^st century.
2. Improving trends with oil, gas, and coal will require that the breakthrough “discontinuities” needed for substitute technologies to become competitive will grow over time.
3. Anomalies in the scientific case for catastrophic climate change make the global warming issue a transient political problem for fossil fuels rather than a death warrant.
4. The Kyoto-inspired energy strategy of mass energy conservation and substitutions to preferred renewable energies will fail if their enabling technologies do not sufficiently improve to ensure affordability and convenience for consumers.  Reduced living standards in the developed world and a continuation of poverty in the developing world are not politically or ethically tolerable in any energy evolution.
5. Currently uneconomical energy technologies are backstop sources for the future.  These backstop energies at present include synthetic oil and gas from coal, central-station wind and solar electricity, biomass, and renewable and electric vehicles.  Nuclear power is a backstop energy in methane-prone regions of the world given that its cost is more than double the levelized cost of gas-fired combined-cycle units for new capacity.
6. The increasing range of backstop energies increases “energy security” over very long time horizons, although such security can be and has been “overbought” from government policies in the near term.
7. The market share of fossil-fuel energy is likely to increase in the 21^st century if the environmental movement succeeds in discouraging existing and new capacity of the two largest carbon-free energy sources, hydroelectricity and nuclear.  This is because of sheer relative size: the current world market share of hydro and nuclear is thirteen times greater than non-hydro renewables.
8. Major discontinuities are as likely (and perhaps more likely) to occur within the fossil-fuel family than outside it.  Two promising possibilities for early in the next century are substituting clean diesel for reformulated gasoline and commercially converting natural gas into oil products.
9. The intermittent characteristic of distributed wind and solar could make these energies bridge fuels to conventional energy in non-electrified regions of the world.  If so, these distributed technologies would remain as backstop rather than primary energies in the 21^st century.
10. The range of viable solar applications can be expected to increase over time, especially as space commercialization and remote ocean and desert activities accelerate in the 21st century.  Wind turbines, despite being substantially cheaper than solar, have a more limited future due to siting constraints in an economic and environmentally conscious world.

Petroleum Economist’s headline for 1998 projects, “Ever greater use of new technology,”[1] will also characterize future years, decades, centuries, and millenniums under market conditions.  If the “ultimate resource” of human ingenuity is allowed free rein, energy in its many and changing forms will be more plentiful and affordable for future generations than it is now, although never “too cheap to meter” as once forecast for nuclear power. 

For the nearer and more foreseeable term, all signs point toward conventional energies continuing to ride the technological wave, increasing the prospects that when major discontinuities and energy substitutions occur, the winning technologies will be different than what is imagined (and government subsidized) today.   Such discontinuities will not occur because conventional energies failed but because their substitutes blossomed.

[1]Staff article, Petroleum Economist, December 1997, pp. 8-17.

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