Alternative Energies and Other Fairy Tales

The quest for alternative, non-fossil fuel, energy sources is driven by two misconceptions: (1) The mistaken belief in “peak oil” (that we are nearing the complete depletion and exhaustion of economically extractable oil reserves) and (2) That market mechanisms cannot be trusted to provide adequate and timely responses to energy needs (in other words that markets are prone to failure).

At the end of the 19th century, books and pamphlets were written about “peak coal”. People and governments panicked: what would satisfy the swelling demand for energy? Apocalyptic thinking was rampant. Then, of course, came oil. At first, no one knew what to do with the sticky, noxious, and occasionally flammable substance. Gradually, petroleum became our energetic mainstay and gave rise to entire industries (petrochemicals and automotive, to mention but two).

History will repeat itself: the next major source of energy is very unlikely to be hatched up in a laboratory. It will be found fortuitously and serendipitously. It will shock and surprise pundits and laymen alike. And it will amply cater to all our foreseeable needs. It is also likely to be greener than carbon-based fuels.

More generally, the market can take care of itself: energy does not have the characteristics of a public good and therefore is rarely subject to market breakdowns and unalleviated scarcity. Energy prices have proven themselves to be a sagacious regulator and a perspicacious invisible hand.

Until this holy grail (“the next major source of energy”) reveals itself, we are likely to increase the shares of nuclear and wind sources in our energy consumption pie. Our industries and cars will grow even more energy-efficient. But there is no escaping the fact that the main drivers of global warming and climate change are population growth and the emergence of an energy-guzzling middle class in developing and formerly poor countries. These are irreversible economic processes and only at their inception.

Global Politician