Energy Transition and America's Future: Interview with Gregor MacDonald

Gregor MacDonald

For those of you who follow Gregor MacDonald (@gregormacdonald) on Twitter or read his excellent blog, Gregor.us, or were fortunate enough to catch his subscription-only newsletter and weekly web-TV program while it lasted on StockTwits, you know Gregor represents a thoughtful, studied voice on energy transition and possesses a macroview of the global economy.   

Currently, he's turning his attention to long-form journalism and is working on a piece addressing the global transition back to coal, which should be an important work.

I interviewed Gregor to get his insights on energy (especially renewables, coal, and nuclear) and our future.

GS: You recently expressed the opinion that renewables are going to replace nuclear. How far down the path are we towards a real energy transition?

One has to hold two competing ideas at the same time, here in the midst of our difficult journey through energy transition.  First, the world is tipping back towards coal as oil supply peaks and the five billion people in the developing world reach for the fossil fuel still growing in supply: coal.  And yet, from an extremely low level, renewables like solar and wind are starting to grow at an astonishing annual rate. 

One has to be cognizant and sober about scale, here.  Yes, power supply from solar and wind globally are tiny compared to coal and natural gas generation, but it is no longer out of the question that the first threshold -- matching the power generated by nuclear -- will be achieved by wind and solar.

GS: And what about nuclear?  In the wake of Fukushima, what are its prospects?

GM:  Fukushima does not alter the course of nuclear so much as it merely perfects the trajectory already seen in the past few decades: the slow decline of the nuclear industry. 

Growth in nuclear the past few decades has slowed progressively, the industry no longer attracts young people, and most important of all: the complexity of the technology has only served to increase costs -- at prohibitive rate.  The result?  Private industry has little or no interest in building nuclear power.  The energy return on investment is low, and also in decline; the liabilities are too great and can only be covered by governments.

What we will see in this coming decade, therefore, is that the return on investment for both solar and wind -- both in capital and energy terms -- will not only accelerate but will also pull away from the comparative proposition in nuclear and possibly even natural gas or coal power generation.  The speed of construction, the lack of complexity especially in solar, and the much reduced community opposition both in the OECD and Non-OECD mean that new power generation from solar and wind will come on line quickly, blowing past the hurdles that plague fossil fuels. 

Again, this does not mean renewables will "replace" coal and natural gas.  Not this decade -- and not the next either.  But the growth rates will diverge in a massive way, and the career opportunities for young people will swing hard in this direction.

GS: You've long expressed the opinion (one that I share) that coal is going to be with us for a long time to come. What does that mean for the future of energy?  What do you think needs to be done to ameliorate some of the environmental damages caused by fossil fuels?

GM:  I hope to articulate the large trends, in both supply and demand terms, which dictate why coal will be humanity's primary energy source over the next 20+ years, in my pending essay on coal.  That said, starting in 2006 when I realized that a second coal age was likely, I was also struck by another, obvious realization: that coal would create problems requiring solutions.  At the ASPO meeting in Washington last year, I suggested that technologies which mitigated coal emissions and which also burned coal efficiently in-situ would see enormous growth -- and would be enormously profitable.  

If I recall, a number of these have started to sprout and while this will not assuage environmentalists (who are correct that "clean coal" is little more than a mirage) I do think that given the poor emissions level now seen in the developing world is a standard worth raising.  And, I do believe China and India will eventually reach hard for new emissions technology.

GS:  You recently wrote than "Energy, not financial capital, holds primacy for the economy’s future."  Are we heading into a new era of constrained supply? What does this mean for the US economy?

GM:  In my view, the reason that at least 15 if not 20 million Americans are either underemployed or simply unemployed is that the economic system can no longer access enough cheap energy to create profitable output.  Sadly, this is why labor has been shifting hard to the developing world, where very low wages offset high energy input costs, thus securing profits for corporations.  But all is not lost.  

Over the past few years I've studied the US capability in exports, and also the potential rebirth of local economies.  In short, the US, despite the problems, decent infrastructure and low electricity rates that can be utilized for niche manufacturing.  Port cities such as Philadelphia, Seattle, Boston, and Portland, OR, also offer easy direct routes to world markets.  

Indeed, I would encourage interested readers to look at economic data from the late 19th century and notice the thriving cities in America during that time.  While it's true that many of the "price" levels that the US enjoyed in the 1980-2005 period--whether in houses or wages--will not be seen again, it's also true that reorganizing the US economy to remove a lot of the discretionary waste will bring revival.

In other words, America is now on course to become "poorer" in materialistic terms and the terms we came to understand in the post-war era.  However, in terms of life quality, America may very well be on course to finally reach a better destination.  We are still very rich in natural resources in an otherwise resource constrained world.  And, we are still risk-taking innovators.  Once we drop the project of Empire, with its excessive military waste and reinvest in ourselves again, a lot of these nascent trends will start to unfold.