There’s an old adage about ‘never letting a good crisis go to waste’ which has been applied to any number of situations and no more so than the current Russo-Ukrainian War which has seen international energy markets disrupted and prices soaring. Because, to paraphrase Samuel Johnson, there’s nothing like a crisis to concentrate the mind.
Well, that could be disputed. Vito Stagliano’s book “A Policy of Our Discontent” described how American politicians ignored energy policy until a crisis occurred, but if the crisis concentrated their minds, the results were not fruitful. Instead, politicians reacted along ideological lines and/or to satisfy various constituents whether industries, unions or farmers.
There seem to be more proposals to solve the current crisis than there are Russian soldiers in Ukraine. Conservatives suggest the U.S. should allow increased drilling generally, including ANWR, approve the Keystone XL pipeline and resume drilling on public lands. Higher U.S. oil production, it is argued, would weaken the impact of an embargo of Russian oil, reduce the political leverage oil exports grants that country, and lower global oil prices more generally.
Liberals point to the way renewables produce domestic energy and are not vulnerable to foreign disruptions. Connecticut Senator Chris Murphy suggested that, in addition to domestic oil and gas, we should ‘fill the gap with renewable energy’ such as offshore wind energy. Or consider this comment from European Commission president Ursula von der Leyen: “But in the long run, it is our switch to renewables and hydrogen that will make us truly independent. We have to accelerate the green transition, Because every kilowatt-hour of electricity Europe generates from solar, wind, hydropower or biomass reduces our dependency on Russian gas and other energy sources.”
But there are problems with most of these suggestions. First and foremost, the primary problem we face is higher oil prices and more domestic production will not change that very much. The U.S. is energy independent but consumers are paying much more (for now) because of higher oil prices. Oil companies, despite Senator Warren’s belief, did not raise prices but—surprise!—they are not going to sell their oil at a discount and more than, say, our close ally Canada did with their exports to the United States during 1979’s Iranian Oil Crisis.
Second, renewables are not well designed for responding to energy crises because they have no surge capacity. Granted, countries could invest in surplus wind and solar power, leaving it idle until war, revolution or embargo affects global energy markets, but the cost of that would be phenomenal aside from the fact that it would only be dispatchable if the weather was favorable.
Ah, you object, we could buy more storage to provide surge capacity. However, anyone familiar with the electric power industry knows that they have always struggled to find enough storage capacity to cope with daily and seasonal peak demand—and rarely turn to batteries or renewables. Why? A 40 kwh lithium-ion battery costs about $5000, despite the decline in costs, and provides about 2.5% times as much energy as a $100 barrel of oil. True, the battery could be used repeatedly but you would still need power to recharge them.
There is also a real world experiment that demonstrates the role renewables play (or don’t play) in improving energy security. Germany has engaged in a massive rollout of renewable energy since 2010 as the figure shows, increasing by 150% since then at a cost of more than $30 billion per year.
Sadly, this has not translated into less dependence on Russian gas, or on gas more generally. The figure below compares German, French and English consumption of natural gas over the past three decades and there is no significant difference between them. German natural gas consumption is largely unchanged, in part because of its use to back up unreliable renewable power generation.
Finally, there is a major difference between the lobbies for petroleum and renewables. The renewable lobby wants more government aid, while the petroleum lobby wants less government interference. And yes it is true that renewables are cheaper than oil at the moment, they don’t replace oil in nearly any instance. European gas prices are certainly high enough to support more investment in renewables, but the current price spike is unlikely to persist beyond this year.
Which raises a further flaw in proposals to ‘solve’ the energy crisis with renewables. Advocates often point to the fact that renewable costs are largely fixed (that is, capital) not variable, meaning the production cost is relatively fixed and predictable. This is said to be a major point in their favor, as consumers like price stability. Unfortunately, in the case of renewables, this usually means prices are higher most of the time, when markets are not disrupted.
Ethanol advocates are among those making this argument, as if ethanol prices were not subject to weather fluctuations, and indeed, while ethanol was cheaper than gasoline at various points in the past few years, the figure below shows that this has rarely been true. Ethanol’s use is not primarily as a fuel for this reason; most usage is as an octane enhancer. E85 is available in many places but rarely chosen by consumers.
More oil and gas production would help the current situation somewhat—but also generate jobs and government revenue over the long run. More investment in renewables would generate jobs—but also be a sink, not a source, for government revenue and will only marginally enhance energy security over the next couple of decades. Hopefully, governments will check their math before rolling out policies to ameliorate the current situation.
