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Rob Day | February 14, 2009 at 10:23 AM 10 Comments

What if energy was free?

Readers be forewarned, this is going to be a bit of a different (ie: useless) post from the usual…

I was reading an Andrew Revkin column today, where he poses the question about what unintended consequences might result if the energy tech revolution succeeds in making “solar panels as cheap as paint,” or to paraphrase:  “What happens if energy is virtually free?”

Talk about your deep thoughts, it sounds like the premise of a Neal Stephenson novel, not your typical NYT type of thing.  But at the risk of pontificating outside of my investment horizon, I thought it was an interesting question, hearkening back to my days at an environmental economic thinktank (way back before cleantech was cool, even before it was “cleantech”).

What Andrew is asking is, what would go WRONG if energy is no longer a limiting factor for human population growth?  Would we somehow end up worse off?

The obvious answer is to simply look at the last couple of centuries, when for much of the developed world energy really hasn’t been the limiting factor.  As we’ve bled off our global stockpiles of non-renewable energy sources, we haven’t had free energy, but it’s been artificially inexpensive, to be sure.

With artificially cheap (ie: prices not incorporating all externalities such as damages from climate change, etc.) energy, the U.S. in particular has seen dramatic population growth, expansion of population into new territories putting significant pressure on species and habitats, and significant withdrawal of non-energy natural resource stocks.

So with artificially low energy prices, that’s what happened.  Thus, to be flip, if we have artificially low energy prices, that’s what what will happen.  But what Revkin is really asking, I suppose, is what happens if energy is even LESS expensive than that historically suppressed level.

But I would argue that it’s a flawed question.  Energy will never be free or close to it.  Revkin mentions the possibility of synthesizing food.  If energy is cheap enough, we will use it to address scarcity of other natural resources.  We already have learned just how much all of what we consumed is in reality some other form of consumed energy.  Corn-based ethanol isn’t very net-energy-positive because of all the energy-derived fertilizer we pour into the ground to grow the corn.  The entire “Green Revolution” in some ways is really about the use of cheap energy to grow food.  Same story with water—the embodied energy in water (the energy used to withdraw it, purify it, and transport it) is huge. Food is mostly embodied energy.  Water is mostly embodied energy.  By the time we consume them (factoring in extraction, treatment, transportation, etc.) just about all materials are mostly embodied energy.

Walk through the logical chain here:  If virtual energy is free, Revkin’s fear is the potential for dramatic population expansion, putting more pressure on natural resources.  But if natural resources are under pressure, they will get more expensive.  Given the inherent interlinkages between all the material we consume and the embodied energy, over the long run we would find new ways of supplementing those resources with some solution that would essentially be a huge consumption of energy transmogrified into supplied demand for materials.  And so we would end up with what happened over the last two centuries—a significant increase in Earth’s carrying capacity for humanity, a dramatically expanded population, but nothing like a crash in standards of living, etc.  Energy almost always has been, and almost always will be, the limiting factor for human population growth.  The second law of thermodynamics says so.

EXCEPT:  That’s a very long-run, economics-education-based perspective.  The problem with the long-run is that it ignores near-term inefficiencies.  To whit:  If there is a time gap between the provisioning of virtually-free energy and solutions to turn that surplus into substitutes for other material resources, during that gap (which, as we’re seeing in the painfully slow transition from the Oil Age) we could expect very dramatic impacts on natural resource stocks and non-human habitats.  And, based as well upon history, that’s likely what would happen.

So is there a scenario where all our efforts to find ways to make clean energy dirt-cheap end up having negative unintended consequences?  Of course!  And the above is just one path where that might happen, there are others (more concentrated wealth among the energy “Haves”, more economic power clustered in places where renewable resources are more readily available, etc., to name a couple).

But look, that’s a really long-term question, the answer of which is effectively moot for you and me.  Energy is not going to be virtually free anytime soon.  It takes energy to make solar panels.  It takes energy to make paint!  Basically, because it’s so central to EVERYTHING, the cheaper energy is, the more we will consume it, thus bringing back up prices in a typical economic cycle.  And we’re definitely an awful, awful long way from any period where clean energy generation technologies are significantly cheaper than the subsidized fossil fuel based energy prices we’re already used to.

But we can dream, can’t we?  Solving climate change, and then having unintended problems because of a surplus of clean energy supplies… Boy, that would sure be nice.

Comments [10]

  • Bill Brobeck 03/4/09 4:08 AM

    When people think of energy as electricity used to just to run the toaster and gasoline is used to run your car then free energy is impossible. But “close to free” energy is very much a possibility, especially if you barter your excess solar energy for other energies like transportation fuels and natural gas. That’s why I patented the energy credit card which allows anyone to get a gallon of gas from your solar PV panels. So if we all look into the crystal ball, we might see the cost of energy to be only the cost of local transmission and distribution. Now you’re getting down to a penny a Kw-hr.

    Reply
  • johnnyA 02/14/09 12:49 PM

    perhaps “Peak Iridium” will keep solar from being ‘cheap as paint’ as Andy fears. 

    And I really don’t know what to say about this : “What Andrew is asking is, what would go WRONG if energy is no longer a limiting factor for human population growth? ...”

    Is that the purpose of the Green Revolution?  To prevent babies from being born?  Really?

    Green on the outside, Red on the inside…

    Thx

    Reply
  • Chris Johnson 02/14/09 3:56 PM

    Excellent stimulating scenario, well argued for the most part.  I would propose for your consideration, adding three other observations:

    1.  Malthus wasn’t wrong in principle, but untimely.  For serious effects to result from over-consumption, the biosphere has to be near its maximum productive capacity.  We’re close now.  Energy, as Mr. Day concluded, is integral. 

    2. The harsh words Mr. Smith addressed to Morpheus about the ‘human virus’.

    3. Joseph Tainter’s ‘The Collapse of Complex Societies’ describes the collapse of Roman and Mayan civilizaiton as “diminishing returns on investments in social complexity.”  Tainter, according to Wikipedia, also musters modern statistics to show that marginal returns on investments in energy, education and technological innovation are diminishing today.

    To stay abreast of reality, it’s probably a good idea to routinely review trends in global demographics, deforestation, desertification, declining water supplies, and the deteriorating state of oceans and the atmosphere. 

    Finally, let’s not forget that the only one of God’s commandments the human race has faithfully kept is the one exhorting them to ‘go forth and multiply.’ 

    One must realistically question if the human experiment nearing its conclusion?

    Reply
  • Rob Day 02/14/09 4:19 PM

    John Alexanian…  Are you accusing me of being a communist, or are you accusing Revkin of being a communist, or are you simply echoing what I once heard the Indonesian Forestry Ministry director say, which was to accuse all environmental-leaning people of being communists?  Your comment is confusing, sorry…

    Reply
  • Rob Day 02/14/09 4:24 PM

    Chris—

    Can’t say I agree with your dire view… but in terms of data on trends, WRI (http://www.wri.org) is a great resource.

    Cheers,

    Rob

    Reply
  • johnnyA 02/15/09 12:43 AM

    Hi ya Rob—this wasn’t a ‘useless post’ at all

    - I know you aren’t a Red, nor is Andy - but that ‘limiting factors in population growth’-line reminded me that I heard that communist China, proud of how their ‘one-child policy’ may have prevented an large amount of Co2 from escaping into the atmosphere, thinks they should be rewarded monetarily—and be paid in ‘carbon credits’.  ( I forget where I saw that but pretty sure it was CNN.)

    The ‘one-child policy’, or any form of limiting the growth of human population, or any communist concept that restricts personal freedom, isn’t something that should be admired by anyone in America or anyone cleantech.

    I hope that the innovators in this industry are counting on bringing good things to light by creating new technology that is intended for the masses.  Innovative cleantech products will not be successful if they aren’t affordable. 

    But cleantech startups won’t survive unless they’re profitable.  That’s the crux of the situation, right?

    Here’s a link to China’s ‘one-child policy/emission savings’
    http://www.reuters.com/article/environmentNews/idUSL3047203920070830

    p.s.—please post more about your thoughts on the abundance and scarcity of food & water. 

    Thx

    Reply
  • Scott Rackey 02/15/09 6:42 AM

    Thanks for another great piece Rob! 

    I think the article actually points to growing dichotomy in political discourse.  I don’t think there is an established name for these two sides yet, but they seem be slowly resolving themselves. 

    On one side you have groups that view humanity as a “virus”, a plague, or at least a uniform group of sinners.  You are basically born guilty and you have no right to the planet.  Repent!  The end is near! 

    On the other, you have the people that recognize that quality of life has improved in direct proportion to energy use per capita or in inverse proportion to the cost of energy.  In real dollars, energy has gotten progressively cheaper over time.  We have every reason to believe that it will continue to do so into the future.  Innovation is not likely to stop, and the payoff for cheaper energy is huge.  The people in this camp recognize that cheaper energy is inevitable, and our responsibility is to make sure it is done responsibly.

    This dichotomy is not merely an academic disagreement.  We are living this question now.

    Although the concept of “free” energy is intriguing, it’s not a realistic question.  How about more attainable levels.  What about $0.05/kWhr or $0.01/kWhr.  My personal goal is to see $0.001/kWhr.  With these hard metrics, you can start asking real-world questions.  Take ethanol for example.  Imagine all of the heat-based processing was done purely with electricity.  At what price of electricity would ethanol be economically competitive (all true costs considered) with $40/barrel oil?  At what price of electricity is it cheaper to make nitrogen-based fertilizers via electrolysis than reformation of natural gas?  What price of electricity do you need to have fertilizer costs half as much as today.  How would the world change if fertilizer was half the price it is today?

    These are real questions that we will be faced with during the next few decades.  I believe that the cost of energy will continue to drop steadily.  The pace of this change will be relatively slow at first.  Energy is the world’s largest industry, and it doesn’t change direction very quickly.  However, the rate of change itself will also track with cost of energy (most industry does).  As energy gets cheaper the pace of change will speed up.

    These are exciting times, and I for one think that most of this change will be for the better.

    -Scott

    Reply
  • Chris Johnson 02/15/09 4:34 PM

    Rob:  Thanks for your response.  I looked at WRI briefly and will investigate thoroughly.

    No, I’m not always a pessimist, just as you’re probably not always an optimist. 

    Your original posting essentially defined ‘the energy theory of value’, ala K Marx’s ‘labor theory of value’.  Both are valid and provide useful insights.

    The problem that I see is basically that lifting the ‘other half’ of humanity out of their neolithic poverty will require huge inputs of energy and clean water—but more important is the energy.  It just ain’t there.  Algae, cheap solar and cheap wind can help, and over time will.  But by then the forests will be all gone up in smoke from cooking the daily meal.  Etc.  And what do these ‘vermin’ produce?  More vermin!  Mr. Smith wasn’t far off.

    If you want to try to explain how the half of humanity living on $2 a day or less can actually contribute positively to the potential solutions (bio-remediation, etc.) I will be pleased to listen.

    It looks like I need to post an article that’s as hard hitting, possibly frightening, as yours.

    Cheers, Chris

    Reply
  • Pluranomics 02/16/09 2:31 PM

    Leon Walrus would say that a progressive economy as opposed to a retrogressive economy is our only economic goal, defined as final equilibrium. 

    In this instance, using more air, water and light resources (solar) as opposed to land resources to make energy is final equilibrium. We never actually get to the point where energy is “free”, but as long as the energy is always getting cheaper, it will continue to get “progressively” cheaper. For example, the moment a solar panel is produced we have earned energy. We can “utilize” the energy from that solar panel to manufacture another solar panel and another solar panel.

    This is in contrast to borrowed energy or fossil fuels, where you always have to dig a deeper coal mine or drill a deeper oil well in further away places to keep that clock radio telling the time or not; defined by Walrus as a “retrogressive” economy. More work and less free time.

    Reply
  • Jesse Teichman 02/20/09 5:10 AM

    I can’t help but feel that social norms play a much larger role than energy as a limiting factor.  It is no doubt true that when we were an agrarian society, the idea was to build one’s personal workforce via offspring - and access to abundant energy was a key determinant.  However, as people moved into the cities, I think other factors took hold; i.e., did moving from a one-room apartment to a two-room apartment represent a quantum, or an incremental, price jump in a given urban area?  Did one’s neighbors frown upon you if you had fewer than 6 children - or more than two children? Were mothers first conceiving at 18 or 25, or at 35 when their financial circumstances were more stable? Certainly energy is a factor, but only one of many.

    Reply

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Rob Day is a Boston-based cleantech venture capital investor and entrepreneur, and is also the President of the Renewable Energy Business Network (REBN). The views expressed on this blog are those of Rob and his friends and colleagues, not necessarily the views of REBN or Greentech Media or any other group. Contact Rob Day at: (JavaScript must be enabled to view this email address)

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