By: Jacob Carrasco
Could interest rates make the future bright as the sun or dark as coal?
Energy is quite literally what makes the world go round. It is the fundamental study of the sciences because it is the force for change in all of nature. Analogously, energy also is the fuel that keeps the economic machine running: powering boats, planes, and trains; electrifying factories; and keeping the lights on in residential and office buildings. Earth in 2016 consumed almost 15 million ktoe (kilo tonnes of oil equivalent), in a break down heavily sided to non-renewable sources such as coal, natural gas, and fossil fuels. These non-renewable sources are great for short term use; but for Earth to continue its production at pace, the shift to renewable forms of energy is imminently needed before Earth’s resources run out. This article will examine general energy consumption in both China and the United States and analyze the steps these countries are taking to transition to renewable energy sources.
The United States and China are the world’s largest energy consumers. The United States consumes much of its energy to power its vehicles, factories, and power its cities. China as well uses energy for vehicles, factories, and cities, but is also more heavily geared towards manufacturing which is highly energy intensive. In 2017, the United States produced 97.7 quadrillion Btu of power. Similarly, China produced 110 quadrillion Btu of energy. The breakdown of production for the US was: ~85% of energy production from non-renewable factors such as coal, natural gas, and petroleum, and a measly 15% from renewable sources such as wind, hydroelectric, biomass, and solar. China was a little ahead of the US with: 65% of energy coming from non-renewable sources, but 58% of total energy produced coming from coal, and 35% from renewable sources, chiefly hydro-electric.
Despite what might be great numbers for the production of renewable-energy, the World Energy Outlook of 2016 predicted that worldwide energy consumption would rise by 30% by 2040. This result means that even if renewable-energy expansion grew such that the ratio in countries such as the US and China was maintained, billions of tons of coal, natural gas, and oil would still be burned in addition to what is consumed today, further harming the planet by accelerating climate change.
Into The Future
Looking for ways to lower costs and be more environmentally-friendly, China and the US have both introduced policies to promote the consumption of energy from reliable sources. Analysts at Bloomberg report that investment in renewables is hopeful. China has invested heavily in solar power through tax credits for projects on low-voltage grids, with most of those grids situated on the roofs of citizens’ homes. This switch could offload some of the more egregious consumption of coal and natural gas to run light bulbs and kitchen appliances for China’s enormous 1.3 billion person population.
Bloomberg also notes that state-side, continued gains in the efficiency of solar panels and greater producer economies of scale (producing more output at decreasing costs) could lead to more significant investment into renewable infrastructure. In a consumer-oriented way the US has also given incentives to consumers to switch their consumption by offering tax incentives to the owners of electric vehicles and for homeowners with solar panels.
Despite subsidies for renewable-energy firms, the Bloomberg report still warns that rising interest rates may hinder expansion of smaller firms– smaller firms being key to growing the renewable energy market in total. Because solar and wind carry high fixed costs for implementation, less opportunity may exist for an expansion of current solar and wind infrastructure due to an increase in the costs of loans needed to finance development. This is because the more loans a business needs to take out to finance its startup means the higher the interest payments will be, and the less that company will be able to reinvest in itself– or worse go into the red. The consequence of this development may require solar and wind companies to either request additional subsidies from the government to keep expansion at pace, innovate an increase in the cost efficiency of these solutions to offset the additional costs of higher interest loans, or have some firms exit the market in the long-run.
Overall, the analysts at Bloomberg expect for investment and therefore expansion of renewable energy sources to be upward trending, meaning more investment into the expansion of new wind farms, solar plants, and infrastructure development to deliver the energy produced by these firms to the people. This is good for the industry as a whole because the more firms enter the renewable-energy market, the more they will be forced to compete with one another to make their solutions more cost-effective and easy to roll out. Again, in the short-run firms may be bitten by the increase in the costs of financing, but in the long-run renewable energy firms will be needed to sustain the planet. The transition to renewable energy might also become a great economic stimulus as energy costs lower globally allowing lower costs for the new and existing firms that use energy to make the economic machine keep going.
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