On this, the 50th anniversary of Earth Day, we should all be celebrating that the Levelized Cost of Energy (LCOE) for alternative generation sources is dependably lower than that of carbon emitting sources. (My co-contributor at Forbes, Silvio Marcacci, wrote an excellent article about this happy occasion in January of this year.)
The icing on the Earth Day cake was the news that WTI crude oil futures traded at negative prices on the runup to the 50th anniversary celebration. This counterintuitive market action means that producers had to pay consumers to take possession of oil next month.
While it is true that the collapse in oil prices is tied to the COVID-19 demand shock and that we still have years to go before renewable energy sources provide a majority of the world’s power generation needs, the direction the world is headed is clear.
To paraphrase Martin Luther King, Jr., the arc of energy history is long, but it bends towards renewables.
As reassuring as that phrase sounds, the journey thus far has not been without many bumps, provided in large part by the vested interests of energy incumbents using the tools of political influence.
For decades, people of a certain political persuasion pooh-poohed alternative energy as being uneconomic without government subsidies. But after spending some time reading through the Oil and Gas Lobbying Report published by The Center for Responsive Politics, it is clear to me that the subsidies most germane to this discussion are the ones provided to politicians by the energy industry.
According to the Center for Responsive Politics, over the past five years, oil and gas interests have spent an average of over $125 million per year in federal lobbying efforts, led by privately-owned Koch IndustriesKVHI and followed up by behemoths like ExxonMobilXOM and ChevronCVX.
This indirect subsidy to fine steak houses on K Street totaled well over $1 billion during the last decade; a decade which also saw the highest global temperatures since the beginning of the Industrial Age and the highest atmospheric carbon dioxide levels the last 3 million years.
What has this largesse bought energy incumbents?
- Generous tax shields for the oil companies themselves and for their investors.
- Discounted lease rates to drill on public land (as well as some pretty rocking parties, it sounds like).
- Decades’ worth of living large for oil executives.
- Decades worth of political inaction for the most pressing threat to our civilization.
The shocking fact is that the people who have ended up paying for the largesse are the same ones reading this article, as well as every other human living in the 50 years since the first Earth Day and those that will be born in the time before the 100th Earth Day is celebrated.
The Oil Shock of the early 1970s – coming a few short years after the first Earth Day – underscored the danger of relying on foreign energy sources. Rather than taking the immediate pain and figuring out how to innovate our way to energy independence, the powerful carbon mining lobby crafted policy that ended up costing trillions of dollars on overseas wars and intrenched us in a dead-end paradigm.
The reliance on fossil fuels also ended up creating perverse investing incentives that drove the fracking boom, providing mountains of capital to companies that should not have been able to receive a molehill’s worth.
Those chickens are coming home to roost now, as the demand destruction wrought by COVID-19 is about to show investors how many oil and gas producers have been swimming without bathing suits.
Let us rejoice at the progress these fifty years’ worth of Earth Days have brought us, but also mindful that the longer one accepts lies as fact, the harder it is to adjust when the lies can no longer be maintained.
Intelligent investors take note.