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A few of my recent newsletters have been critical of the renewable energy sector. Many readers responded asking why - why I don’t appear to support clean, sustainable energy and why I haven’t acknowledged the problems with fossil fuels.
Let me clarify, I am pro-renewable energy, but I am anti-fallacy - especially when disguised as policy.
Let me explain.
The deforestation of critical ecosystems, depletion of fisheries and, of course - our carbon emissions, have given me conviction that we have altered the course of the planet. For better or worse, I think we are very effective at altering the course of the planet.
We are the only animal that redevelops a habitat to suit our needs. We are uniquely designed for this - as soon as we can, we start building. My three young boys may wrestle like their wild animal cousins - but I’ve never seen wild animals obsess over blocks and legos like my young boys.
We tend to be excessive. It is entirely possible that we overdevelop the natural world to the point it can no longer sustain human life - our water sources become contaminated and our soil infertile. But the earth will be fine. Our own doing or not, we will eventually be the sixth mass extinction. A blip on the screen.
But not yet. I am optimistic about our future.
I am optimistic about our discovery of zero-emission, renewable, base load power. I am optimistic about the future of carbon capture technologies. I am optimistic about our ocean cleanup, habitat restoration and species rehabilitation projects.
All of this is a consequence of human beings’ intuitive love of building solutions. I am long human ingenuity and innovation.
The tricky part will be that the speed of human innovation is directly tied to the price and efficiency of our energy.
We take everything too far - eventually. Compared to driving a pick-up truck, riding a horse would seem like an environmentally friendly solution. But a few weeks ago, I wrote about the Great Horse Manure crisis of 1894, when major cities like New York and London were battling disease and drowning in waste because thousands of horses had overcrowded the streets. The Times newspaper predicted that “In 50 years, every street in London will be buried under nine feet of manure.”
Urban civilizations were doomed, the headlines said. Nations from around the world gathered in New York at the world’s first International Urban Planning Conference in 1898 to discuss solutions. A similar story today…
But despite the environmental risks, urbanites did not abandon horse-drawn carts to save the planet. They abandoned horses in exchange for a better solution when Henry Ford began producing automobiles at competitive prices.
Humans change course when the economic incentives reward doing so.
I believe we need to pivot from fossil fuels. And we will - because eventually, our supply of fossil fuels will run out. As the supply becomes more scarce, the price of energy will go up. Human progress cannot afford expensive energy.
But as in the Great Horse Manure Crisis of 1894, humans will not depart the status quo without economic incentives. Government policy may appease moral virtue, but it does not sustainably dictate industrial action.
Let me give you a far more uncomfortable example, inspired by hedge fund manager Erik Townsend.
For thousands of years, civilizations around the world progressed at different speeds, innovating in different directions. Culture, language and organizational structures were as unique as the places they originated from.
But there was one parallel - the source of energy. The cheapest, most accessible, most productive source of energy, for thousands of years, was human slavery.
The stoic philosophers of the Roman Empire, the Comanche warlords of modern-day North America, the pre-modern Chinese empires, the Aztecs and British Noblemen all had one thing in common.
It was the same thing that King Sargon of Akkad, who built the Akadian Empire 4000 years ago, had in common with George Washington, a founding father and first President of the United States.
They owned slaves.
But during a 100-year period, roughly 1807 to 1910, a coordinated global awakening seemed to occur.
Germany, the United Kingdom, The United States, South Africa, India, Russia, the Chinese Empire, Brazil, Argentina, and dozens more, all passed slavery abolition acts.
Why, after thousands of years, did the world change all at once?
Was it collective global enlightenment?
Or was it that between 1775 and 1859, steam, coal and oil all became commercially available, scalable and affordable energy sources…
I would love to give us credit for “doing the right thing”, but it is possible that wasn’t the case.
During the 1920s, gas prices in the US fluctuated between .21 - .30 cents per gallon. Adjusted for inflation, this was around $3.00 in today’s dollars. According to the US Department of Energy, one gallon of gasoline can produce the equivalent energy of 482 hours of human labour.
It is entirely possible that the creation of scalable, accessible and cheap energy is what allowed the abolishment of slavery.
So…
How will we transition the world off of fossil fuels?
Not through doom and gloom headlines. Not through government policy. And unfortunately, not by a desire to prolong the health of our ecosystems.
Not because we are all willing to “do the right thing.”
We will transition because our fossil fuel reserves are finite, and our demand for energy is infinite. This equation inevitably leads to higher prices for the increasingly scarce resource. Higher prices will drive the need for innovation. Entrepreneurs will be incentivized to meet the need.
So, I am not anti-clean energy. As I said before, I am anti-fallacy. I believe I am pragmatic.
The energy policy and climate goals developed in the 2010s will now be tested in the real world. Will they hold up? Or were they a fallacy?
Let’s take a look at this.
We were already entering a new cold war, but the hot war in Europe accelerated this. Global battle lines are being drawn that will determine who is willing to supply who, with what. Resource security will define the coming decade.
75% of the countries in the world are net energy importers - meaning they lack true energy security. When you lack energy security, you lack food security. If you lack food security, it is hard to worry about the health of coral reefs and polar bears.
This is why despite the sabre rattling of the Paris Accord, I expect governments worldwide to loosen policy towards fossil fuel extraction. Europe has already restarted dozens of shuttered coal power plants. Germany is debating removing a ban on natural gas fracking.
At the UN Climate Summit in 2021 in Glasgow, the participants left with resounding support to end global fossil fuel investment.
But global LNG investments are now expected to peak at $42 billion in 2024 - up 50% from current spending.
Now I may sound like a demon here or the bearer of bad news relating to clean energy - but I try to depart my emotional attachment to an outcome from the pragmatic reality of the world. Like it or not, the human world is a for-profit enterprise. It always has been. It always will be. So follow the money.
Surging investment in fossil fuels will likely decrease the cost of fossil fuel-based energy - reducing the urgency to find a better solution. But it will also accelerate the depletion of economic reserves - eventually increasing the cost and, therefore, providing the economic incentives required for new energy.
I am very optimistic that my kids will know a world where emission-free, baseload power is like wallpaper - it will surround them everywhere, yet they will never even give it a second thought.
I just don’t think the story will occur the way our politicians and media are selling it.
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