By: Chitanya Ajjarapu
A closer look at the economic ramifications of implementing green energy might serve to explain the hesitation thus far
Ever since the industrial revolution of 1850 the world’s economies were propelled into a new age of production, manufacturing, and consumption of goods and services. To fuel this rapid progression of technologies and factories, the world fixated on coal and oil, a seemingly plentiful and cheap fuel source. As we know today, these fossil fuels are not only finite in quantity but also devastating to the environment and global ecosystem. Scientists have confirmed that, as of September of 2016, we have already crossed a point of no return for carbon emissions. Further research indicates that carbon pollution levels can still rise, raising problems like longer droughts and more intense heat waves, a large part pointing back to the overuse of fossil fuels. Because the concerns surrounding one of our largest sources of energy are certainly warranted, it might seem obvious that a switch to a cleaner energy source is clearly the best course of action. But this is not necessarily so. A switch to clean energy sources on a scale that is ideal to environmental activists would carry serious economic consequences that would be felt over several sectors in the United States.
Before taking a look at the economic effects of switching over to green energy, it is worth looking at possible effects for doing the exact opposite: ignoring possible environmental regulation and maintaining our current fossil fuel consumption levels. As these resources are finite in nature, they will eventually run out. It is predicted that at our current usage, oil will deplete around 2050, gas will deplete around 2060, and finally coal will run out in the year 2088 once its consumption increases after its substitute fuels are gone. These sources of energy fuel our homes, run our cars, and essentially keep the world going. As time goes on and the supply continues to deplete, the number of people needed to mine and harvest these fuel sources will also decrease, causing more pressure to be placed on these resources and heavily inflating the price. These fuels are key input materials for many sectors around the world, and the rise in their prices will choke the supply for these sectors as well, raising prices all over the world, crashing job markets and most likely ending in a global recession. So the question isn’t “will the world switch to a cleaner alternate fuel source?”, but rather “when will the world do so?”
If we breakdown the United States energy consumption, we see that 80% of our energy is from fossil fuels, with coal as smallest section at 14%, while only 11% is obtained from renewable energy. That 14% of coal accounts for a total of 174,000 jobs in the US. One number estimates that 2 million jobs rely on the existence of fossil fuels in our nation. It is these blue collar jobs that will be largely affected if we switch over our energy reliance to renewable sources; the faster the switch occurs, the harder these workers will feel the effects. Economically speaking, we will never see a 0% unemployment rate. In the healthiest economy, there will always be a little unemployment, recognized as the “natural rate of unemployment”. There are many reasons for this, one of them attributed to sectoral shifts. The technological sectors in the US are always changing, quickly introducing new goods and services that make the previous ones obsolete. Once they die out, the employees previously needed would no longer be required. In this case, the sectoral shift would be in the energy sector, and 2 million jobs can be lost in a very short time. Although sectoral shifts are temporary, the fear of such a rapid and sizeable job loss is enough for the friction towards renewable energy and lobbyists to plead with protectionist politicians.
One must ask themselves what would spark such a large-scale switch from fossil fuels to nonrenewables. The alluring feature of fossil fuels is how cheap they are to acquire and use. Nonrenewables as well as cleaner alternate sources in general need much more time and money to implement, and many would argue that they aren’t as profitable. However, this wasn’t the case in the last decade with ethanol, a corn-based biofuel. In an effort to bolster alternate energy growth in the US, various state governments began to incentivise producers and consumers to manufacture and use ethanol. These incentives ranged from lucrative investment tax credits and business tax exemptions for producers as well as tax credits for alternative fuel vehicles and reduced fuel tax on hybrid fuels for consumers. The high price of ethanol and large incentives to produce it quickly attracted many new sellers to enter the market, leading to a huge increase in supply and thus sparked a steady drop in the price of ethanol. By July of 2008, ethanol’s price decrease coupled with the fluctuation of the price of corn, the most crucial input material, the cost to produce each gallon proved to be too much and forced many companies into bankruptcy, causing a crash in the ethanol market, exemplifying yet another reason as to why fossil fuels are so alluring. Although they are finite in nature, much of America is still very reliant on them for power. The stability of such fuels are hard to deny: they have steadily been fueling our lives since the 1850’s. At least in the short term, the market can only keep becoming profitable with low risk of volatility, ironically making it the safe option.
When someone mentions renewable energy, chances are that biofuels aren’t what pop into your mind. We gravitate towards solar, wind, and hydroelectric; those that have been exposed to us for a long time. This is the bulk of the barriers to renewable energy: the cost to implement such technologies. Compared to a natural gas plant only costing $1000 per kilowatt, solar energy can cost anywhere from $2000 to $3200 per kilowatt to implement and wind can cost up to $1700 per kilowatt. There is also a large land investment involved with renewable energies. Coal, natural gas, and even nuclear energy plants are able to operate in a concentrated space, whereas these renewable sources need to be decentralized and expansive to be effective.
When 80% of our energy is coming from fossil fuels, an industry that has survived for centuries, it’s hard to visualize an 11% cross section of relatively contemporary energy coming out and putting the fossil fueled behemoth to rest. Renewable energy is an underdog with a lot of heart, existing to benefit the environment while still helping us run our lives. Sadly, the monetary gains that are involved with producing and supporting fossil fuels are so great that the idea of protecting our planet in the long term is trampled under the feet of lobbyists with deep pockets. Renewables have to compete with big corporations with hundreds of lobbyists and protectionist politicians supporting their existence. Especially now, with our own EPA headed by a coal lobbyist, renewable energy firms, many of which are small startups hoping to find traction in a progressive world, will find it daunting to compete with such a large part of American industry.
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