Solar Breakthroughs and Natural Gas Push Back

Two unrelated articles--one on a breakthrough solar building in Brooklyn that will generate 25% more energy than it uses, and the other on the natural gas industry lobbying to prevent the federal government from eliminating the use of fossil fuel in its buildings by 2030-- illustrate the political economy of sustainability and the creative technological challenge, public policy challenge, human character challenge, and evolutionary challenge of sustainability.

Solar Breakthroughs

A recent article about a breakthrough net-positive solar building in Brooklyn (12 MW-hrs/yr) illustrates how conventional progressive perspectives over what's possible are often simply wrong. After four solar installation companies walked away from the building saying solar was impossible, the owners formed their own firm to pioneer the effort. Now, they will be producing 25% more energy than the building uses, earning $24,000 per year for the surplus, and have launched a new solar design and consulting practice.

Natural Gas Pushback

With the U.S. green building movement on track to help deliver $3.7 trillion in energy savings by 2030, a related article discusses the natural gas industry’s attempt to derail the federal government from making federal buildings 100% renewably powered by 2030 (see also, Architecture 2030). Their method is to weaken or repeal Section 433 of the Energy Independence and Security Act of 2007. /1/ Although largely symbolic, the American Gas Association (industry lobbying group) is asserting that the federal goal would substantially and adversely affect the use of natural gas in the U.S., and therefore, the industry too. Yet, the stock of buildings owned by the federal government accounts for only about 1 percent of all buildings across the country and consumes less than one-half of 1 percent of total U.S. energy consumption. Although a false claim, the politics of big business may win this battle. Even so, the green building industry may win the war. After all, its progress is substantial enough now to be finally in the cross hairs of the fossil fuel industry!

Win-Win Outcome

The win-win outcome would be as follows: (1) investors finally realize that the fossil fuel industry tremendously over estimates the asset value of their reserves; (2) market valuations of such firms drop to reflect their real, risk-adjusted value; as (3) scarce capital (including the large profits of the oil industry) flows into the renewable industry; and (4), spurred by market-correcting public policy, global GHG production peaks in 2015 and drops to zero as soon as possible, but by no later than 2040, to keep global warming within a 1-degree C scenario. How would this occur? First, investors and the public need to realize the implication of the IPCC’s work: any economic scenario that includes anything but the phasing out of fossil fuels over the next 3-40 years is a system-destroying scenario. With this realization, investors shift their bets for future profit to the renewable energy industry. With this price signal in play, existing fossil fuel firms have the option of jumping on the real economic bandwagon of renewable energy, or going the way of all outmoded economic firms and business models—being tossed onto the dustbin of history (hopefully before they take the system down).

Unfortunately, the short-term dynamics of increasing scarcity from peak oil combined with global economic growth will continue to generate big profits for the oil companies and lure investors into pretending that the future will allow oil companies to monetize their reserves fully. However, institutional investors may be held to a higher standard of fiduciary responsibility through such market innovations as the Carbon Disclosure Project. If so, that sector of investors may be sufficient to tip the scales in spurring a correction of the market valuation of firms in the fossil fuel industry. After all, positive profit in a market economy associated with increasing scarcity is a signal to increase supply. If supply cannot be increased, it is a signal to develop a substitute. Moreover, developing the substitute is precisely what those huge oil profits are for in a free market economy. Unfortunately, because the market, left to its own devices, will increase supply far beyond the point where its use needs to stop so that increasing GHG emissions do not crash the biosphere through catastrophic climate change, human intelligence, through public policy, must substitute to correct the market failure. Through public policy, human intelligence must initiate and accelerate the market substitution of renewable energy for fossil fuel, and do so within the parameters that will contain global warming to 1 degree C or less.

The 2015-2040 GHG Elimination Envelope for a Livable Future

In evaluating these debates and the challenges ahead, it is sobering to understand the "allowable" envelope of future fossil fuel use. Under the optimistic IPCC scenario of limiting global warming to 1 degree C, global GHG emissions must peak around 2015 and must decrease to zero by 2050 <<fact check this>>. Even under this scenario, the return to benign and stable pre-1990 climate conditions would take another 50-100+ years <<fact check this>> of zero GHG production because of the long lifetimes of GHG emissions and the long lag times within the climate system required to respond to changes in GHGs. During this period, some of the damaging conditions of climate change would occur, and to this humanity would have no option but to adapt to harsher and extreme weather events and conditions, substantially changing hydrologic regimes, and the related changes they would bring to local ecologies and economies, from the agricultural to the industrial sectors and the built environment.

Secondary Strategy – Adaptation Hardening

During this period, the human economy and environment must be "hardened" against these changes or humanity will lose its historic accumulation of invested capital from the on-going damage the harsher conditions will bring. The insurance industry can only insure against low-probability events. With climate change, even under the 1-degree C warming scenario, normalizing extremely harsh events and conditions, including some amount of sea level rise, the insurance industry will likely become the first sectoral casualty. Climate change will bankrupt the industry as claims far exceed reserves or it will eliminate its market and make it irrelevant as the insurable low probability/high consequence events become normalized, high consequence events daily!

Institutional Failure – Free Market Public Policy Response

If there were a single "agent" of climate change, the attorney general would already have sued them, charged them with criminal negligence or intent for crimes against humanity and violations of the Endangered Species Act (ESA), found them guilty, and they would be sitting out multiple life sentences in a federal penitentiary. Why the federal government has not yet listed Homo sapiens and most other living creatures as endangered species under the ESA because of our present, business-as-usual catastrophic climate change trajectory (high probability of warming scenarios above 2 degrees C) is another interesting question and failure. If the free market worked as well as economists claim, the price system would have taken out the fossil fuel industry and prevented climate change long ago. Unfortunately, neither of modern society's central control institutions (law or the free market) has worked in the case of climate change. Instead, we are left to devise Hail Mary plays and high hopes for success that some would simply call magical (or wishful) thinking. Absent that, nature, the market of last resort, will adjust, and that adjustment will not be pretty.

Much like the recent financial crisis, where current bets were made that had no possibility of being recouped; humanity is now consuming 50% more of the earth’s life support capacity than it presently produces annually (see the Ecological Footprint Network). As a result, the adjustment to equilibrate the false expectations of future life support capacity with the real capacity will be severe and protracted, and not amenable to quick economic policy fixes. Avoiding it by expanding the real economy of nature’s capacity for life support is the only option. Humanityaccomplishes this through biomimicry and the creation of an environmentally regenerative human economy that also incorporates those regenerative economic principles into the heart of the human economy in transformed daily machinations of material use, production processes, consumption, and material cycling all powered by a surprise discovery of abundant and cheap solar energy. Getting there arises from the on-going innovation of materials, processes, and products using net zero or restorative environmental impact as some of the key design parameters.

Accelerating Warming Means GHG Elimination ASAP

Given that data since the IPCC developed its scenario assessments in 2007 suggests that the climate is warming and changing at a much faster pace, peak global GHG emissions are probably as high as they should be and they probably need to drop to zero long before 2050. So, is there a window and role for natural gas in this transition to zero global GHG emissions as soon as possible? If there is, it is a very small window. Under these circumstances, any portion of humanity's capital invested in the fossil fuel industry is not only wasted, but also counterproductive. Scaling renewables, not only to generate the amount of energy needed, but also to bring the price down is the imperative of our time, not a natural gas window, not fossil fuel in any form, not even a transition. Humanity needs to leap to a zero carbon economy as quickly as possible. Does this sound like pure fantasy? Try imagining living in a fossil-fuel powered world of increasing absolute levels of GHGs and accelerating global warming. Which is the real fantasy?

Economic Case for GHG Elimination Now – The False Economics of Current Prices

Such a leap might seem ill advised based on a widely held perspective of one commenter on the Brooklyn solar building article: fossil fuels have lower market prices, now and for the foreseeable future. He notes that the cost of the building's energy will be far above the current market price of $0.15 / kW-hr. However, that price is based on the current subsidized and otherwise under priced cost of fossil-fuel-based energy without including critical components, as follows: (1) the revenue generation from the sale of the surplus; (2) not using the much higher average 20+ year cost for the likely increased price of fossil-fuel-based energy in an era of shortages, price spikes, etc.; (3) not using the likely much lower cost for renewable energy as increasing returns to scale and lower prices are achieved; (4) not including the health and mortal suffering and economic costs of air pollution; and (5) not including the ultimate, non-monetizeable costs of crashing the biosphere.

Even if Global Warming Is Uncertain – It’s Still the Smartest Bet and Business Move

Even under the argument that there is uncertainty about global warming and therefore any premature incursion of costs would be an excessive waste, prudent public policy dictates use of the precautionary principle and planning as if catastrophic climate change were true. Fortunately, that is also the best business strategy and model smart businesses and communities can make to resuscitate a moribund economy and secure the most prosperous future (see H. Lovins for the most current formulation, and Thomas Friedman as two excellent synthesizers).

Ultimately It’s Not a Choice of Widget, But Our Future – Degenerative Demise or Regenerative Success

The choice between fossil fuel and renewables is not an incremental marginal cost economic choice, but a societal choice over its future, a choice between death and life, and the “moment of truth” is now. There are those who say we must lead with economics, and that is true; but which economics becomes the critical question? That of the current market with its inaccurate prices and false price signals that have led us to the brink of the precipice, or those real economic opportunity costs of degenerative demise or regenerative success--our choice. Again, given that the GHG production window must shut as soon as possible based on the best available information international scientists have assembled to date, and who are notoriously conservative in interpretation and presentation, how big is the window for natural gas or any fossil fuel? Under these circumstances, the profit path becomes one of innovating to a renewable energy economy. Those first to market will be the biggest winners, with a new global society the ultimate winner.

Notes:

/1/ Section 433 of the Energy Independence and Security Act of 2007 is a sweeping clean energy law passed by the George W. Bush administration. Last month, the House Energy and Water Development subcommittee tacked on a provision to a federal spending bill that would prohibit the DOE from funding Section 433. The House Committee on Appropriations then approved the plan on April 25 and it now awaits a full vote from the House.