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Fasten Your Seat Belts: Low Carbon Energy Headed Your Way

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When the ice breaks up in a northern river and unleashes the spring melt, it's not just an ice cube in a glass warming from 31-34 degrees—instead, what was a stable, frozen system, becomes a wild, chaotic flood.

The turbulent economics of low carbon energy are similarly poised to ride roughshod over everyone's expectations and transform the conventional dynamics of climate policy. A phase shift is occurring—and like a spring melt, what follows will be wild and unpredictable.

Government can speed up parity and low carbon market share by providing investors with reliable markets for first generation clean energy, deploying renewable portfolio standards, EV mandates, feed-in tariffs.

The conventional analysis is that fossil fuels dominate the economy because they are cheaper. At some point in the future, lower carbon energy—solar power, electric cars—will reach grid or pump "parity," becoming economically competitive. At this point, energy markets will shift gradually away from fossils.

This smooth, static model conceals reality. In many energy markets, parity is already in the rear view mirror—but fossil fuels still (temporarily) rule the roost. About 40 percent of the world's coal and oil is burned in spite of the fact that there is, today, a cheaper low carbon substitute.

Asia is still building a huge number of new coal plants, even where the price of their power is over $0.16/kwh. Yet new wind power costs less than $0.08/kwh, solar about $0.12. Leasing and driving a new EV in the U.S. costs less than driving an equivalent gasoline engine—Goldman Sachs estimates the saving at 17 percent. Yet very few EVs are moving into the 2014 fleet. (The auto industry refuses to offer most EV customers leases, for fear that the electric vehicle revolution will strand their existing engine investments before they have been fully amortized).

Today's capital investments are locking in tomorrow's carbon emissions. Lock-in, not price, is Big Carbon's ace in the hole, and the biggest climate threat. Every customer who drives a Jeep Cherokee off the lot has effectively signed a 15-year fuel purchase agreement with the oil industry. New calculations by Robert Socolow suggest that future emissions from coal plants built in 2013 exceed total current global emissions from existing coal plants.

Price is clean energy's disruptive joker. Climate advocates should understand that reducing global emissions of carbon will, unavoidably, lower the cost of energy, not raise it. Wind turbines, solar panels, LED's, heat pumps and lithium batteries are all manufactured products, whose costs fall, some steadily, some (solar panels) precipitously, as more of them are manufactured and sold. As a result, Bloomberg New Energy estimates that two-thirds of future generation capacity will be renewables.

Fossil fuels—oil, coal and natural gas—are commodities. The cheapest sources are drilled or mined first—so as demand goes up, price soars, ever more rapidly with the cost of extracting coal and oil from deeper, more remote or more challenging locations. (Oil and LNG have tripled in price over the last decade, and Asian marine coal doubled).

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Many economists believe that oil price shocks are behind many global recessions. On a smaller scale, unreliable coal supplies have repeatedly disrupted the Indian power sector. Reserves this summer fell into the crisis range. African economies find the sheer costs of importing oil at $100 more than their fragile economies can sustain.

So passing grid or pump parity isn't a smooth glide—it's more like riding a rough rapid. Consumers should back off fossil dependent cars and power plants long before parity. They will make up in the out years incrementally higher prices at the beginning. But market barriers may discourage them.

That's where public policy counts. Government can speed up parity and low carbon market share by providing investors with reliable markets for first generation clean energy, deploying renewable portfolio standards, EV mandates, feed-in tariffs. Here's what RES's and tax credits did for the cost of renewables in the U.S.

Government should simultaneously enable consumers to choose energy technologies based on the lifetime cost, not initial purchase price—by creating financing mechanisms that eliminate the capital barriers to choice. Goldman, for example, suggests that a substantial government EV purchase rebate (paid for by taxes on EVs over their lifetime) would unleash a huge increase in EV market share.

Policy should buffer the turbulence for another reason. Unlike the lower costs of manufactured clean energy technologies, permanent gains, the high prices of fossil fuels are volatile. As demand goes down, so does price. Reducing global demand for oil by only 5 percent would slash price by 25-50 percent. For individual consumers, this makes purchasing a solar panel or an EV less attractive—the cost advantage may go away if the price of coal or oil collapses. But for the economy as a whole, this makes clean energy an even more robust accelerator of growth—not only do you save the cost of the oil replaced by EVs, but the rest of the oil you still use costs less. For the U.S., China, Japan, Europe and India, the spring thaw of breaking fossil fuel monopolies is going to be an enormous economic turbo-charge—but it is also going to be a rough and rocky ride.

We need public policy that manages the coming phase change in energy markets—not imaginary macro-economic models that ignore it and continue to focus on yesterday's problem—fossil fuel price advantage and the need to price carbon.

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An alarming sign of an impending drought is the decreased snowpack in the Sierra Nevada Mountain range, as seen here in Christmas Valley, South Lake Tahoe, California on Feb. 15, 2020. jcookfisher / CC BY 2.0

California is headed toward drought conditions as February, typically the state's wettest month, passes without a drop of rain. The lack of rainfall could lead to early fire conditions. With no rain predicted for the next week, it looks as if this month will be only the second time in 170 years that San Francisco has not had a drop of rain in February, according to The Weather Channel.

The last time San Francisco did not record a drop of rain in February was in 1864 as the Civil War raged.

"This hasn't happened in 150 years or more," said Daniel Swain, a climate scientist at UCLA's Institute of the Environment and Sustainability to The Guardian. "There have even been a couple [of] wildfires – which is definitely not something you typically hear about in the middle of winter."

While the Pacific Northwest has flooded from heavy rains, the southern part of the West Coast has seen one storm after another pass by. Last week, the U.S. Drought Monitor said more Californians are in drought conditions than at any time during 2019, as The Weather Channel reported.

On Thursday, the U.S. Drought Monitor said nearly 60 percent of the state was abnormally dry, up from 46 percent just last week, according to The Mercury News in San Jose.

The dry winter has included areas that have seen devastating fires recently, including Sonoma, Napa, Lake and Mendocino counties. If the dry conditions continue, those areas will once again have dangerously high fire conditions, according to The Mercury News.

"Given what we've seen so far this year and the forecast for the next few weeks, I do think it's pretty likely we'll end up in some degree of drought by this summer," said Swain, as The Mercury News reported.

Another alarming sign of an impending drought is the decreased snowpack in the Sierra Nevada Mountain range. The National Weather Service posted to Twitter a side-by-side comparison of snowpack from February 2019 and from this year, illustrating the puny snowpack this year. The snow accumulated in the Sierra Nevadas provides water to roughly 30 percent of the state, according to NBC Los Angeles.

Right now, the snowpack is at 53 percent of its normal volume after two warm and dry months to start the year. It is a remarkable decline, considering that the snowpack started 2020 at 90 percent of its historical average, as The Guardian reported.

"Those numbers are going to continue to go down," said Swain. "I would guess that the 1 March number is going to be less than 50 percent."

The National Oceanic and Atmospheric Administration (NOAA) Climate Prediction Center forecast that the drier-than-average conditions may last through April.

NOAA said Northern California will continue deeper into drought through the end of April, citing that the "persistent high pressure over the North Pacific Ocean is expected to continue, diverting storm systems to the north and south and away from California and parts of the Southwest," as The Weather Channel reported.

As the climate crisis escalates and the world continues to heat up, California should expect to see water drawn out of its ecosystem, making the state warmer and drier. Increased heat will lead to further loss of snow, both as less falls and as more of it melts quickly, according to The Guardian.

"We aren't going to necessarily see less rain, it's just that that rain goes less far. That's a future where the flood risk extends, with bigger wetter storms in a warming world," said Swain, as The Guardian reported.

The Guardian noted that while California's reservoirs are currently near capacity, the more immediate impact of the warm, dry winter will be how it raises the fire danger as trees and grasslands dry out.

"The plants and the forests don't benefit from the water storage reservoirs," said Swain, as The Mercury News reported. "If conditions remain very dry heading into summer, the landscape and vegetation is definitely going to feel it this year. From a wildfire perspective, the dry years do tend to be the bad fire years, especially in Northern California."

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