New Development of Carbon Fuels May Be Drag on Economy

high-risk, low-yield hydrocarbon fuels not fit to compete over long term

Opportunity cost is a serious, long-term stress on economies hampered by rampant governmental corruption, or by severe productive resource deficits—in consumer capital, infrastructure, or long-term reliable energy flows. With the ongoing boom in development of shale gas drilling and tar sands oil recovery, there is now massive investment, into the tens of billions of dollars of public and private money, in high-risk, low-yield ways of extracting carbon-based fuels, with the explicit purpose of extending old-fashioned combustible fuel technologies beyond what would otherwise be economically viable.

Massive new investment is flowing to these resources, because existing incentives and the influence of entrenched interests make it more efficient for major investors to pour money into these resources. They are not attracting investment by being inherently more economical than other options. In fact, as a direct result of dedicating such massive investment to new, untested and riskier schemes for carbon fuel extraction—including ultra deepwater drilling—the most efficient means of investment in future energy technologies are being choked off.

We now know that existing clean energy technologies are sufficient to provide 100% of global energy demand. Two researchers, from Stanford and UC Davis, have found that existing wind and solar technologies could produce 90% of all world energy demand, with little added economic cost, if investment policies are directed toward building the needed infrastructure. The remaining 10% could be covered by hydro-electric (4%) and geothermal (4%), with the final 2% from tidal and wave power systems. And during the period of new infrastructure development, existing dominant energy sources would serve as bridge fuels.

Producers could see incentives shift to allow them to transition, with the rest of the economy, into the new more efficient energy-production paradigm. The opportunity cost of not taking advantage of this impending shift could be devastating to the US economy, as other nations race ahead to build a true, and durable, 21st century energy economy. Though the US has potentially more easily accessible wind and solar energy than any other nation in the world, it may forfeit its potential leadership in a 21st century clean energy economy, by holding back significant investment from the most efficient clean energy technologies, making Chinese industry and banking a prime source of funding for US domestic clean energy extraction.

The logic of devoting huge sums to new development of last-gasp shale, tar and ultra deepwater hydrocarbons, is that we should extract all the energy we need wherever we find it, and it is somehow easier to extract this energy than it is other energy. This is simply not the case. It is a choice—between the severe environmental danger, low yield and narrow-interest profits of shale gas, tar sands and ultra deepwater drilling, on the one hand, and easily accessible, 100% clean renewable energy, that will bring more widespread energy-related prosperity. It is a choice about what kind of new infrastructure we develop. 

As narrow carbon-fuel interests stand between public policy and the development of new sources of energy, they naturally seek to privilege the resources they are accustomed to using to do business. But they win the funds for new development by winning the argument that their resources are easier to develop. This does not mean they are in fact easier, or more economical, to develop than cutting-edge clean energy technologies.

The clean energy economy depends in part on the development of delivery and distribution infrastructure. There is great economic opportunity in the development of that infrastructure, and the establishment of first generation true smart-grid technologies will make it possible to harness widespread clean energy for baseload power generation. To put the debate about ease of extraction in perspective, it is worth considering that the same campaign to persuade policy-makers and investors that high-risk, low-yield hydrocarbons are a better bet than high-efficiency, smart-distribution clean energy, also consistently includes false information about whether clean energy resources can be competitive.

There is a concerted effort to forestall the arrival of the smart-grid-enabled clean-energy-baseload economy. It is simple logic: if the high-risk, low-yield hydrocarbons were more competitive, they would not need to make false claims to downplay the productive capacity of clean energy, or monopolize subsidies for new energy development. The massive direct and indirect subsidies now going to high-risk, low-yield hydrocarbons are justifiable only by virtue of their not being economical without the benefit of those subsidies.

Massive investment in high-risk, low-yield hydrocarbons means organizing our budget, our financial sector, and our economy more broadly, to favor those resources and to depend on them, for the foreseeable future. This means building into our long-term economic paradigm the immense externalized costs the fossil fuels sector does not want to bear. This dynamic, combined with the forced underfunding of our advanced clean energy technologies sector, may result in a significant drag on our economy.

In the short term, failure to innovate to meet the challenges of our times means the jobs we should now be creating will not materialize. In the long term, failure to develop a world-leading clean energy economy will perpetuate US reliance on foreign powers for needed energy, indefinitely.

Tar sands, shale gas and ultra deepwater drilling, are high-risk, low-yield energy sources, for a number of reasons. First of all, because they are less energy rich for energy expended and cash invested than previously prevailing hydrocarbon extraction, and they pose elevated risks of accident and/or environmental disaster. But also because the longer the project and the more money invested, the lower the energy return on investment.

Clean renewable technologies are the inverse: the longer the facilities are in place and the more invested over time, the greater the yield for energy and cash invested. The energy return on investment actually improves over time, and the resource becomes more reliable and more efficient. Falling behind on that new energy paradigm is a cost we are not presently calculating, and we cannot afford to be left out of the top flight of producers in that new paradigm. 

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Originally published July 18, 2011, at

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