In his book “The Idea of Justice,” Nobel Laureate Amartya Sen gives an example of a flute and three kids. One of them is the best flute player, the other one is inferior, and he has no toys. The third one is the maker of the flute. All three of them want the flute. The question is how to decide on such an issue? The answer would be mostly a personal opinion.
During the 2008 oil price hike, there was a discussion about whether high prices may lead to new resources and a different kind of economy. The answer is mixed. Higher rates made the shale revolution possible. However, when you trace the origins of the shale revolution, it goes back to 70s and 90s. A lot has been accumulated to make the shale revolution possible. High prices of 2008 became a catalyst. It created a different kind of energy environment in the US with new players in shale.
During the 2008 oil price hike (147$/barrel), markets saved the world by crashing. If the economies were moving in full speed, there is no doubt that 200$/bbl could be seen. Shale may have a finger in the post-2008 world, but the innovation has started with government subsidies, a long time ago. Do high prices lead to new resources? The answer is again complicated. Electric cars, solar panels as well as shale resources, have become hot topics. But which one affected our energy world most? Shale or solar panels/Evs?
My aim is not to create a classical dichotomy over fossil fuel resources or green energy technologies. Solely, the question is how it happened in the past: why and how? Does it rhyme with ‘today’s arguments?
Climate crises is not a new challenge, but can not be solved overnight with a few regulations. From the governments’ perspectives, renewables are excellent if you do not care about the security of supply. Security of supply is not a mere technical term but the jargon to define consumer expectation. Anytime, anyhow the energy should be there.
The modern energy system, just like other advanced systems, aims to save a human from the forces of nature. And any service provided by energy systems is entirely against nature. Even fire is a destroyer of life. Mobility, lighting, pipelines, heating systems, microwave... All these energies and relevant technologies are blasphemy to nature.
For years, the energy system evolved to protect human from nature’s forces. Protect her from darkness, coldness, draught, tiredness, labor, and so. It takes control of the troops from the earth and hands it to the human with powerful fossil resources from hell such as the hot, stinky stones like coal. We paid a small amount for these services, but nature seemed to pay the hefty price.
This ‘month’s California Public Utility Commission newsletter has a line that politicians fail to acknowledge to the masses : ”And we will need to spend considerable sums to decarbonize our grid, which will be made somewhat easier by sharp declines in costs over the past decade in clean energy resources such as solar photovoltaics (80 percent), wind (50 percent), and battery storage (74 percent). All these investments are important, but they will also add to the financial burden of millions of Californians”.
The main problem is whether the masses are ready for the financial burden of the energy transition. If oil prices increase, the responsibility will be diminished, you may say. However, as oil prices rise, coal consumption may increase too. Coal is the most diverse and accessible hydrocarbon resource on earth.
The second problem is governments highly regulate electricity sector investments worldwide. Costs are not decreasing. Governments can push for more regulation. But they fear the payment day will come and take its toll on the political parties.
The third problem is the markets. Are markets ready for competitive, spot renewable markets? Forward prices, risk hedging mechanisms, creative destruction? Unfortunately not yet. We have a renewable market based on the tenders from the early 90s and long term agreements those nothing to do with innovation and trying to protect investors from the market forces.
So who should have the flute for climate crises? All of them is the most straightforward answer. Energy businesses, markets, governments, disadvantaged groups all have the stake. But the biggest problem of all is the markets do not have the tools, and they are not ready to push for the transition. Since markets are not prepared, banks do not provide enough financial support. They cut fossil investments. However, no surge in energy transition financing can be seen. When markets and banks are not ready, investors do not foresee what will happen. The first step should be to fix the markets beyond carbon pricing.