U.S.-based industries and utilities that consume a lot of natural gas have been trying to figure out just how to respond to proposals in Congress to allow expanded natural gas exports, a move that could significantly raise the price of one of their chief inputs.
But, there is one segment of U.S. industry that ought to be cheering for such an outcome--though I doubt that its leaders will be offering their support in anything above a whisper. The renewable energy industry would benefit from higher natural gas prices--and higher coal prices, for that matter--since, as these fuels for electric power plants become dearer, renewable energy sources become more competitive. The costs for renewables are in the production and installation of the solar panels, wind towers and dams; the fuels--sunlight, wind, and water--are essentially free.
But it would seem almost unpatriotic to cheer for higher energy prices in America. Higher prices--all things being equal--tend to depress economic activity. And, higher energy prices also tend to make American goods less competitive on world markets by increasing the costs of many inputs. Hence, my observation that the titans of the renewable energy industry will probably stay largely mum in the fight over expanded exports of U.S. natural gas.
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But there are good reasons for the American public to shoulder the burden of higher energy prices now to help build a more secure future. First, climate change is already on course to destroy the way of life that Americans say they want to preserve. Second, there is no chance, NONE, that fossil fuels can sustain American society and the world in the long run. Only renewable energy can offer the promise of essentially perpetual supplies.
This second reason tells us that we must make an energy transition at some point. And, given the uncertainties about fossil fuel supplies and the wars and conflicts they engender, it would be wise to make that transition as soon as possible. In addition, history has shown us that energy transitions can take two generations. No one can say for certain whether fossil fuel supplies can continue to grow or even remain stable for 50 years to see us through such a transition. And, we will need to use fossil fuels to build the renewable energy economy. If we use them instead simply to have one last energy orgy, there may not be enough left to build the renewable energy infrastructure needed to replace them.
But the first reason, climate change, tells us that we must embark on the needed energy transition now. We cannot wait to see how things turn out. The melting of sea ice and the tundra tells us that time is up. Extreme droughts and floods--predicted by climate models--have already arrived and are the cause of soaring food prices and extensive property damage. Since the effects of warming lag by about 40 years--because the oceans take so long to warm--we are only seeing the effects of greenhouse gas emissions through the early 1970s. Even if we stopped emitting all greenhouse gases today, we'd still have 40 or so more years of warming ahead of us.
The best and most precise way to encourage energy conservation and a renewable energy buildout would be a steadily rising carbon tax. But, in the absense of sensible energy policy, it might now be time for those concerned about the ongoing delay in building the renewable energy economy to embrace world prices for all energy here in the United States.
Coal and oil already trade at world prices in the United States since they can be shipped to the highest bidder worldwide. (Even though crude oil exports from the United States are restricted, we produce far less than we consume and the effect is the same as if we had no restrictions.) Natural gas is essentially trapped on the North American continent because there are currently no operating export terminals that can liquefy the gas for transport by special liquefied natural gas carriers. Some export terminals are planned, however, and one is actually being built now in Louisiana.
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There will be a fierce battle fought over just how much natural gas should be allowed to leave the United States for more profitable markets in Europe and Asia. And, that battle might be fought against the backdrop of rising prices as current wells deplete rapidly without adequate drilling to replace them.
Some will say that rising natural gas prices will cause utilities to switch back to coal. But, a switch back to coal en masse by utilities seems unlikely given the emerging regulation on greenhouse gas emissions. Instead, utilities are increasingly likely to favor renewables to help them to comply with those regulations.
In whatever manner higher prices are achieved, they will be better for America in the long run since they will hasten the day when the country can say goodbye to fossil fuels as its main energy source and reroute them to more valuable and critical purposes. Those include making fertilizers, pharmaceuticals, fabrics, industrial chemicals, and plastics of all kinds, all of which are far better uses of oil and natural gas than simply burning them and wrecking the climate in the bargain.
By. Kurt Cobb