May 20, 2022

Who created the miracle of renewable energy?

This is a preview of Paul Krugman’s newsletter, which is now only available to subscribers of the New York Times. Sign up twice a week to send it to your inbox. As terrible as many things in the world, the climate is unique in its existential threat to civilization. It is shocking that so many politicians staunchly oppose any serious action to deal with this threat.

However, we still have the opportunity to take sufficient measures to prevent disasters, not because we have gotten smarter, but because we are lucky. We used to think that achieving a substantial reduction in greenhouse gas emissions is difficult and expensive, although the cost is much less than what anti-environmentalists claim. However, in the last ten years, we have experienced a technological miracle. As Max Roser well documented in an article, the cost of solar and wind energy that was once considered a silly hippie fantasy has plummeted to the point where rather modest incentives could lead to a rapid reduction in fossil fuel use:

Here the sun is coming.
The sun is coming. Credit … The World in Data
But is this really luck? This miracle, actually two miracles, because solar energy and wind energy involve completely different technologies, does it happen when we need it? Or is this the result of good political decisions?
The answer is that there is a good policy example: the Obama administration’s investment in green energy and European subsidies, especially investment in offshore wind, played a central role.

Chapter What is the basis for this conclusion? First of all, neither wind energy nor solar energy is a completely new technology. Windmills have been used extensively since at least the 11th century. Photovoltaic solar power was developed in the 1950s. As far as I know, the cost of these two technologies has dropped dramatically recently, with no major scientific advance behind them.

On the contrary, what we are seeing appears to be that the increasing use of renewable energy is driving cost reductions. In the case of solar and wind power, as energy companies gain experience, we have seen a number of gradual improvements: As products like turbine blades go into mass production, component prices have dropped significantly. As Rosser pointed out, renewable energy appears to be subject to a learning curve, in which costs fall with accumulated production.

Here’s the thing: when an industry’s learning curve is steep, government support can have a huge positive impact. By subsidizing such an industry for a few years, its cost will decrease with experience and eventually it will reach a critical point where its growth can be self-sustaining and subsidies are no longer needed.
It can be said that this is something that has happened or is about to happen with renewable energies.

The US Recovery and Reinvestment Act of 2009, Obama’s stimulus plan, was primarily aimed at solving the problem of collapsing demand after the 2008 financial crisis. It helps a lot, but it still gets a bad rap because it does not have enough power and cannot be recovered quickly. (No, this is not in hindsight. I was yelling at the time). But it also includes large amounts of funds for green energy: tax breaks, subsidies, government loans and loan guarantees.

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Some government-supported projects have problems, and Republicans are politically angry at the loss. But venture capitalists hope that some of the companies they support will fail; if this never happens, they will not take enough risks. Similarly, the government’s plan to promote this technology will surely yield some results. If it is not, it is not expanding the boundary.

In hindsight, Obama’s actions seem to have indeed pushed the frontier, especially by pushing solar energy from the use of limited, high-cost technologies to the point where it is generally cheaper than traditional energy sources.
Obama’s policies also contributed to wind power, but I suspect that most of the credit goes to European governments, which have subsidized offshore wind power projects in the early part of the past decade.
In short, it can be said that government support for renewable energy has created a cost miracle, otherwise it may not happen, and this cost miracle may be the key to saving us from a full-scale climate disaster.

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