That is the topic of my latest Bloomberg column, here is one part:
In the short run gas will substitute for the much dirtier coal, but over the longer term fracking is competing with greener forms of energy production.
The bottom line: If you are bullish on green innovation, perhaps you should be bullish on innovation in fossil fuels as well.
One notable feature of energy is that it is easy to use more of it. If energy were truly cheap, people would take more plane trips, build more robots, desalinate more water and terraform more of the earth’s surface. These are wonderful ambitions, but they might lead the world to use both more green energy and more carbon-intensive energy.
…it seems increasingly easy to imagine a world with wonderful green energy innovations and lots of carbon emissions — and people will praise the former to feel less bad about the latter.
Most likely, the world’s countries will develop their energy supplies in a sequential, rolling fashion. Japan developed economically before China, which in turn became industrial before Vietnam, and currently Vietnam is leading most of Africa. It could be that the world always has some growing countries that will want to use lots of fossil fuels, and a universal transition to solar power and good batteries could be distant.
Price pressures along the way could reinforce this basic logic. As green energy becomes more common, batteries may become more expensive, as they are based on a variety of scarce physical inputs. At the same time, the initial slack in demand for oil and gas, during a true green-energy transition, will make those resources very cheap. Is it such a sure bet that an industrializing Uganda will immediately and directly go the green energy route?
To be continued…