When clean energy will kill coal

Today I was discussing the future of hydrocarbons with a colleague whose family has been highly successful in the fossil fuel industry, and in addition to his skepticism on the anthropogenic nature of climate change, he raised the issue of cost. He was of the opinion that we will become steadily more, not less, addicted to oil, coal and gas in the medium- to long-term.

I disagreed strongly with him, and here’s why. Within a matter of seconds, I had him agreeing with me that vehicles are rapidly shifting from oil. We shared the belief that electric vehicles are the future. His objection? Where are we going to get the electricity from? And his definitive answer? Coal. And perhaps some nuclear.

Of course, if we’d had this conversation a mere decade ago, he would have laughed off the suggestion that our vehicles would run off batteries in a matter of a few years. The technology was unproven, expensive, heavy, and on and on. And yet, here we are in 2009, on the cusp of what is widely recognised as the next phase in vehicle production. The future, as they say, is now.

The same will be true of coal. Within the next few years, there will come a point when power generated by one or more renewable sources will be cheaper than coal-generated power. Ron Pernick and Clint Wilder have pointed out that this tipping point already occurred in Colorado after Hurricane Katrina caused natural gas prices to spike, and clean energy produced by wind power briefly became not just competitive with but in fact cheaper than hydrocarbon-derived power. Demand for the local green power program quickly outstripped supply that November in Denver and the rest of that state.

Of course, this was temporary, but it was a harbinger of things to come. Coal is cheap because it is an entrenched, old technology. It is financially “safe” and relatively plentiful. Wind happens to be the clean technology that has become most widespread and most cost-efficient – and as the technology improves and returns to scale increase, costs will dip even further. In the long-run, the same is likely to be the case for solar, tidal, geothermal, wave, and other renewables. And as soon as these technologies deliver energy more cheaply than dirty energy, the growth in takeup will be explosive.

This is the very reason why a price must be put on carbon today. Is pricing GHG emissions “artificial”? Perhaps. But it is simply a policy decision that must be taken to speed up the consumer uptake of clean energy. Rather than waiting for all smokers to die of lung cancer, we put a price on lung cancer by taxing cigarettes and funding public health with the revenue; rather than waiting for double-digit unemployment, we put a price on unemployment by taxing progressively and funding reskilling and work-finding programs; and now we will put a price on carbon to reverse the damage that dirty energy has hitherto caused. The reason in the short-term is that we must put a price on the externality of pollution and climate change, but in the long-term it is a no-brainer: burning fossils – literally – is a 19th century practice that will inevitably be replaced by clean energy.

It is my view that the tipping point will occur with or without what I regard as sufficient government intervention. The current ETS being considered by the Australian government doesn’t even begin to take the issue seriously. But even this scheme, the CPRS, will drive innovation, and the cost-efficiency of the technology will snowball, and we will rapidly come to the point where we view burning hydrocarbons to produce energy as quaint, if not downright barbaric. Like the mainstreaming of electric vehicles that is about to take place, renewable energy which is already competitively priced today will – inevitably – become cheaper than coal and extremely widespread.

As an aside, US Interior Secretary Ken Salazar today proclaimed that wind power off the East Coast could replace 3000 coal-fired power plants. This is just the very beginning of what is in store for clean energy over the next decade.