Analysis: Energy in the Twenty-First Century

Analysis: Energy in the Twenty-First Century
September 1, 1999



Fossil fuels, once thought by many to be nearing depletion, are in fact becoming more abundant and environmentally sustainable, according to a recent Cato Institute policy analysis.

"Fossil-fuel resources are becoming more abundant, not scarcer, and they promise to continue expanding as technology improves, world markets liberalize, and investment capital expands," writes Robert L. Bradley Jr. in "The Increasing Sustainability of Conventional Energy. Bradley is president of the Institute for Energy Research in Houston, Texas, and a Cato Institute adjunct scholar.

By contrast, according to Bradley, "unconventional energy technologies by definition are not currently competitive with conventional energy technologies." In order for alternative energy sources to achieve any degree of success in an increasingly competitive energy marketplace, writes Bradley, their technologies will have to be substantially improved . . . and they will have to be successfully weaned from the government subsidies and tax preferences that now sustain them.

Given the success of reformulated gasoline in the transportation market, and natural gas combine-cycle generation in the electricity market, Bradley predicts that wind, solar, and other unconventional energy sources will have a tough time competing.



The Amazing Disappearing Fossil Fuel Shortage

"Fossil-fuel availability has been increasing even in the face of record consumption," Bradley reports. “World oil reserves today are more than 15 times greater than they were when record-keeping began in 1948."

According to Bradley, "proven world reserves of oil, gas, and coal are officially estimated to be 46, 63, and 230 years of current consumption, respectively. Probable resources of oil, gas, and coal are officially forecast to be 114,200, and 1,884 years of present usage, respectively."

Oil shortages like those experienced in the 1970s are highly improbable because of the "market learning" that has led to increased energy efficiency; greater diversity of supply; enlarged spot-market trading, futures trading, and risk management; and greater integration and alignment of producer interests with consumer interests, Bradley writes.

The real threat to energy sustainability in the 21st century, he argues, is the environmentalist movement: anti-progress activists who seek to "stabilize the climate" by replacing affordable and reliable energy sources used by a global economy with inferior and costlier substitutes. But even that threat is waning. The most recent setback came this spring, when the NASA scientist who started the public debate on climate change reversed his position.

"The weakening scientific case for dangerous climate change makes the global warming issue a transient political problem for fossil fuels, rather than a death warrant," Bradley predicts.

And if anti-auto activists were to fall back on air quality concerns to justify their attacks on fossil fuels, Bradley predicts, that effort would also fail. The quality of the nation’s outdoor air has improved markedly, due in part to cleaner-running automobiles and unleaded gasoline. That trend, Bradley writes, will eventually include the rest of the world.

"The clean transportation movement is an international phenomenon, not just a U.S. initiative," he notes. Already, 20 countries worldwide have banned the use of leaded gasoline.



Most Alternatives Don’t Measure Up

Alternative energy sources--wind, solar, ethanol, and methanol, for example--have benefitted from government subsidies but remain economically unfeasible. Such alternatives as synthetic fuels and conversion of coal and other solids into oil have met with a similar fate. Indeed, the much-touted federal Synthetic Fuels Corporation, created in 1980 as "the cornerstone of U.S. energy policy," ceased operations after only five years, with most of its funding unused.

Among the alternative fuels that remains in regular production is ethanol, a high-octane motor fuel made from grain and corn. Although its burning reduces nitrous oxide emissions, ethanol produces higher evaporative emissions of smog-producing volatile organic compounds. Nevertheless, the federal government recently saw fit to extend ethanol’s tax breaks, scheduled to expire in the year 2000, for an additional seven years. The move, according to Bradley, "was more a victory for agricultural interests than the environmental community, which has traditionally been ambivalent if not hostile toward this motor-fuel alternative."



But Nuclear Power Is Here to Stay

Only nuclear power, says Bradley, qualifies as a sustainable alternative to fossil fuels. “The size of the world’s nuclear power industry,” he writes, “qualifies uranium as a conventional energy source that complements fossil fuels. . . . For large-scale needs in future centuries, nuclear technologies may be the leading backstop to fossil fuels for primary electricity generation.”

Currently, the industry’s 103 operating reactors in the U.S. supply 20 percent of the nation’s electricity needs. In remarks to the Nuclear Energy Institute’s annual meeting in May, vice chairman Christian H. Poindexter predicted a bright future for the industry.

“This optimism is not based on a starry-eyed attraction to a new technology, but on the environmental contributions and the economic potential of well-run nuclear power plants in a competitive marketplace. . . . Our improved performance now has policy makers considering seriously a revival of nuclear energy,” he observed.

Bradley largely agrees with that assessment. “Because of relative economics,” he writes, “nuclear power is already a backstop technology for new capacity in the United States and other areas of the world.” But, he notes, obstacles both political and market-related remain to be hurdled by the industry.

“Regulatory streamlining and a political resolution of the nuclear waste problem are necessary but not sufficient conditions for the United States to join Asian countries in installing a new generation of nuclear reactors. The other hurdles for market power are market-related.” Gas- and coal-fired plants, Bradley notes, remain less expensive than nuclear plants and can be more flexibly sized.

Moreover, writes Bradley, “Nuclear power will also need to outgrow its federal insurance subsidy (the Price-Anderson Act) as the U.S. court system moves toward more rational liability laws.” The Act indemnifies power plants against legal liability resulting from a nuclear incident in connection with contractual activity for the Department of Energy. DOE has noted that, without the Act, “the nuclear power industry would not have developed or grown.”



World’s Energy Future Is Bright

Confident in the power of what economist Julian Simon deemed the “ultimate resource,” human ingenuity, Bradley predicts a bright future for all energy technologies, conventional and unconventional alike, if energy markets are kept relatively free of government intervention.

“If the ‘ultimate resource’ of human ingenuity is allowed free rein,” he concludes, “energy in its many and changing forms will be more plentiful and affordable for future generations than it is now. . . . for the nearer and more foreseeable term, all signs point toward conventional energies’ continuing to ride the technological wave, increasing the prospects that when energy substitutions occur, the winning technologies will be different from what is imagined (and subsidized by government) today. Such discontinuities will occur not because conventional energies failed, but because their substitutes blossomed.”