Good news on climate change: rapid expansion of clean energy

Climate change has been seen almost universally as a burden, a hot potato to be passed from country to country at annual climate change conferences. Although it is widely recognized that climate-friendly solar and wind energy have become cheaper and easier to produce, most do not realize that they are very likely to become even cheaper and grow rapidly. This will have enormous political and commercial consequences, creating not only dangers but also enormous opportunities.

Because technological progress depends on unforeseen innovations, it is to some extent unpredictable: we do not know what the next innovation will be. However, the rate at which a given type of technology improves is remarkably predictable.

The best-known example is Moore’s Law. In 1965, Gordon Moore, who would co-found Intel, predicted that the density of microchips would double every two years, a prediction that has remained accurate to this day. As the density of these components has increased, their relative cost and power consumption have decreased and their speed has accelerated. Thanks to this exponential improvement in efficiency, today’s computers are about a billion times more powerful than they were when Moore made his prediction.

Like computer chips, many other technologies are also becoming exponentially more affordable, although at different rates. Some of the best examples are renewable energy technologies such as solar panels, lithium batteries and wind turbines.

The cost of solar panels has fallen on average by 10% per yearmaking them about 10,000 times cheaper than they were in 1958, when they were pioneered in powering the Vanguard 1 satellite. Lithium batteries have fallen at a comparable rate, and the cost of wind turbines has also declined steadily, albeit at a slower rate.

However, not all technologies follow this path. Fossil fuels cost about what they did a century ago, adjusted for inflation, and nuclear power is no cheaper than it was in 1958. (In fact, in partly due to increased security concerns, it is a little more expensive.)

Global technology deployment follows another pattern, called the S-curve, first increasing exponentially and then stabilizing. Careful analysis of the diffusion of many technologies, from channels to the Internet, can predict the pace of their technological adoption. When a technology is new, prediction is difficult, but as it develops, it becomes easier.

Applying these ideas to the energy transition indicates that key technologies such as solar power, wind power, batteries and green hydrogen fuels are likely to grow rapidly and dominate the system energy over the next two decades. And they will continue to get cheaper and cheaper, making energy far more affordable than it has ever been.

This will happen first in electricity generation, then in the hardest-to-decarbonize sectors, including aviation and long-distance shipping. Green hydrogen fuels are particularly important because they have the potential to provide long-range storage to power the grid when wind and solar are not available. Although this technology is still in its early stages and presents challenges, its cost has already fallen significantly, and studies of similar technologies suggest that these fuels could improve as quickly as solar power.

All of this is excellent news for the climate. We are improving and adopting technologies that can move us away from fossil fuels just when we really need them.

The transition has initial costs, but the long-term benefits are enormous. Future savings more than offset current investments, as the transition would make sense from a purely economic perspective, even if we didn’t worry about climate change.

The sooner we invest and adopt policies that enable the transition, the sooner we will realize long-term savings. And the transitions will bring many other benefits, including better energy security, less pollution, better health, reduced environmental damage and more stable energy prices.

Even though energy only represents about 4% of global production, the rest of the economy depends on it. A rapid transition will create winners and losers, upending global trade and geopolitics. Fossil fuel producers that do not adapt quickly will go bankrupt and petrostates will suffer.

This is a prime example of what Austrian economist Joseph Schumpeter calls “creative destruction.” This is bad for incumbents, but it presents a huge opportunity for challengers trying to take their place. Those who rise to the occasion will prosper, and those who ignore it will perish.

Just as Moore’s Law has helped chip designers predict and plan for the future, its generalizations provide guidelines that can help us ensure that the energy transition happens not only quickly, but also smoothly and cost-effectively. .

J. Doyne Farmer is Director of the Complexity Economics Program at the Institute for New Economic Thinking at the Oxford Martin School, University of Oxford. He is the author of “Making sense of the chaos: A better economy for a better world.