An All-Renewable Grid Is Economically Superior To Mixed Generation

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One of the ongoing arguments that the forces opposed to dealing with climate change make is that transitioning the grid to renewables will be economically devastating. A nuance that’s emerging is that a mixed grid with lots of fossil fuels is economically superior. It isn’t, and it’s worth pulling together the set of arguments for why.

We have to start by asking ourselves what we mean when we say ‘economically superior’. The Exxon-Valdez disaster of 1989 spilled 35,000 metric tons of oil into sensitive waters off of Alaska. Was that an economic benefit or negative? It depends on what lens you use. One of the odd impacts of the spill was a short-term economic uptick in jobs and business due to the massive oil spill cleanup efforts. In the long term, tourism, fisheries and related industries have continued to be impacted, but if you picked your timeframe the disaster could be read as an economic benefit.

Similarly, the US healthcare system has a very high per-capita cost with poorer outcomes than other roughly equivalent societies, yet the healthcare industry in the USA is a massive economic driver. Is the poor structuring and payment system in the USA a net economic benefit or a net economic negative?

In context of economic benefits, we have to cast our nets across a broader rather than narrower set of topics and a broader rather than narrower timeframe in other words.

Power generation mixes

The question boils down to whether a solely renewable grid is superior to a grid with a remaining substantial percentage of fossil fuel generation mitigated with carbon capture and sequestration.

The first contains a couple of variants that are worth exploring a bit. The first variant is a fully electrified economy, with industry, agriculture, transportation and the like all using electricity generated by renewables and stored in some interim form, mostly batteries but also hydrogen in some cases and (cleaner) manufactured hydrocarbons in others. The second variant adds biofuels from woodchips, biodiesel, and biomethane sources to the mixture with continued thermal generation of electricity and greater continued use of internal combustion and diesel engines for transportation.

The partially fossil fuel grid assumes that the negative externalities of fossil fuel generation and transportation fuels can be managed. The expectation is that these will be internalized in the cost rather than remain uncosted negative externalities. This includes carbon dioxide and methane emissions which cause global warming, with the Pigovian tax being some combination of a straight carbon tax, cap and trade, and regulation. This would enforce carbon capture and sequestration in theory, although the practice remains so uneconomic it’s hard to see it working. Pollution negative externalities include loss of productivity via multiple causal mechanisms, additional burdens on healthcare systems and premature loss of life.

Timeframe

The timeframe is important. Carbon emissions today create economic impacts 20–100 years from now. Pollution emissions today create economic impacts that are both immediate and long-term, as the Exxon Valdez example shows. Burning fossil fuels for transportation and generation, in other words, requires us to view longer term, not quarterly or annual economic cycles.

Viability

There are a couple of additional pieces to the puzzle. A key one is viability. Can we actually transform our global economy to one powered by renewable energy, regardless of storage?

Yes, we can. The go-to source for this is the work of Dr. Mark Jacobsen out of Stanford. The Solutions Project he spearheads looks at the transformation globally through 2050. That gives us the timeframe necessary, but to be clear, Jacobsen is only looking at direct economic impacts of jobs and the like. He’s ignoring negative externalities in his work.

As the infographic shows, across the largest 139 countries in the world, there are two primary economic metrics he calls out.

Jobs

Renewables create a lot more jobs than the increasingly capital-intensive fossil fuel industry. Putting up 100 3.3 MW wind turbines across a few dozen square miles of Idaho and then maintaining them takes more people than the equivalent generation in gas or coal.

This can perhaps be most clearly seen in the jobless recovery in Canada’s oil sands, where economic recovery did not see a return of the thousands of jobs for workers whose jobs had been automated in the efficiency drive of the recession. Traveling to Brazil is instructive, as Petrobras remains a governmentally-owned oil company and is vertically integrated. There are half-a-dozen service people at every gas station and it takes four times as much labor per barrel in their refineries. This is because Petrobras is a governmental mechanism for balancing employment numbers, not an efficiently run organization. It’s a dying breed globally, when even Saudi Aramco has floated shifting to private ownership.

Right now in the USA, there are more people employed in the solar industry alone than in the entire fossil fuel industry. Add in wind generation and the necessary transmission and distribution of electricity. Add in Tesla’s employees and all of the businesses working on the transition to electrified transportation. There’s a big jobs gain to be had in the transition.

Rejected Energy

The second is the energy efficiency gains that the infographic calls out at the bottom. That’s a two-edged sword, but the underlying concepts come from this work on energy flows by NREL.

If you expand that in your browser and look at it for a while, you’ll notice all of the gray flows converging on a box in the upper right labeled Rejected Energy. That term is for energy which is in the primary energy source which is not used for effective economic benefit. It’s mostly waste heat from fossil fuels and the management of that waste heat.

The modern internal combustion engine is a marvelous piece of engineering, but it runs up against hard limits of the Carnot cycle and the requirement to put a lot of energy into crude oil to turn it into gasoline and distribute the bulky product around. The well-to-wheel efficiency of an internal combustion car (ICEV) is around 16% while a battery electric vehicle is around 80%.

Renewable energy doesn’t pay for its ‘fuel’, so there is no rejected energy. While the Betz Limit of 59.3% puts an upper bound on efficiency of taking energy from moving air, there is no cost for the moving air as there is for coal or natural gas. Any discussion of efficiencies has to be put in economic context in other words, and direct assertions of greater or lesser efficiencies are red herrings.

Economic implications

Economically, this has implications which must be teased apart. The first way we’ll tease this apart is that cheaper energy is better for the economy. Everything we do requires energy, whether it’s surfing the web or transporting grain from Canada to China in a freighter. If the energy is cheaper, then the gears of the economy are greased.

Not throwing away two-thirds of the primary energy is economically advantageous from that perspective.

However, the other way to look at it is that there will be economic dislocation. Just as the USA’s poorly structured medical system makes some corporations and people very wealthy and fixing it would make them less wealthy, shifting to the much more efficient, higher-labor renewable economy would take money away from the corporations and people who are part of the fossil fuel economy today. If there were no negative externalities of fossil fuels or if they were cheaper, then this would be a no-brainer, but that’s not the case.

Let’s look at that cheaper part first. Lazard is a global investment bank. It publishes an annual assessment of the average, unsubsidized cost of all forms of electrical generation in the fourth quarter. This means that they have removed tax breaks, subsidies, incentive programs, feed-in-tariffs and the like, and are looking at pure cost of production.

You’ll note that utility-scale wind and solar generation are the cheapest forms of new-build generation in the world on a level-playing field. In fact, they are so cheap right now that in many jurisdictions it’s cheaper to build new wind and solar generation than to keep operating existing gas and nuclear generation, which along with cheap fracked natural gas is causing bankruptcies and shutdowns in those sectors. Natural gas is just slower to arrive at the problem the coal industry is facing, but it’s already starting to see this issue as well.

So primary energy from renewables is cheaper. And we’ve agreed that cheaper energy is better. And that not throwing away a lot of energy is better.

Intermittency is a faux-problem

Getting energy to where it is needed is a moderately trivial exercise, although one that people keep bringing up as if a tiny town in Alaska or an isolated island is where everyone lives. The current reality is continent-scale grids bringing electricity from near the Arctic Circle in Canada and Scandinavia into New York and Paris, wind generation from the Prairies and offshore to the populated coasts and solar generation from the south to the north. High voltage direct current (HVDC) is going from strength to strength, with China just unveiling a massive new 1.1 million volt HVDC transmission line using ABB transformers. China is even proposing seriously, at a very high level, a global polar HVDC continental backbone to share electricity around the more populous northern hemisphere.

People who claim that renewable intermittency is an issue are cherry-picking contexts free of continent-scale grids, HVDC, and modern electricity markets.

Negative externalities

But what about those pesky negative externalities? The assessment from Lazard doesn’t look at the cost of pollution or the cost of carbon. It just looks at the cost of generation.

What is the cost of pollution? The World Health Organization tracks this. For Europe alone, air pollution costs US$1–1.5 trillion annually in economic costs.

That is loss of productivity and the value of life, quantified. And it’s mostly not internalized in the cost of fossil fuel generation. Air pollution today causes not only deaths and severe illness in people at risk today, but creates people with poor cardiovascular health who are less productive and more of a burden on healthcare for decades.

And then there’s the cost of global warming. The social cost of carbon is an economic construct that determines the negative economic value per ton of CO2-equivalent emissions. The Obama Administration set it at $36, but that’s understood to be a politically acceptable number, not an accurate one. It’s a good start, but inadequate from a number of perspectives. It’s also not an accurate number to use as a price of carbon via Pigovian taxes, as urgency of change requires a higher number. The carbon price is trending to a median of $90 with a calculated high of $180 per ton of CO2-e, while the highest carbon tax in the world, the BC Canada one, is only US$26.

Summary

It’s clear that shifting to a renewable economy is viable, will have economic consequences for a subset of industries, and will be economically beneficial in multiple ways. Why wouldn’t this be obvious, now that it’s been laid out as such above? Because there are vested interests who are going to be losers in the transition, the fossil fuel industry. They are spending billions to ensure that the transition is as slow as possible, which also means maximizing the negative externalities for all sectors of the economy.

There’s really no reason to assess a mixed economy, except to say that by definition we will have a mixed economy for the duration of the transition, and there will undoubtedly be a long tail. The transition will likely be 80% complete in the second half of the 21st Century and probably 90% to 98% by 2100, but that last 1% to 2% will linger a long time.