The Myth of Cheap Fossil Fuels – A Roadblock for Renewable Energy

by Ralf Sigrist, Nordex USA
Published: August 20, 2010

Recently, when Senator Harry Reid put forth a “spill bill” rather than an energy bill, my theory that the energy debate in this country has been framed upside down seemed to be confirmed.

Arguments for renewable energy legislation have mixed messages on jobs creation with those of climate change, national security, energy independence and environmental disaster.  After two years of debate and millions spent in lobbying, no one has been persuaded.

Why? Because clean energy got stuck on the wrong side of the cost debate. Guardians of the carbon economy have promoted the axiom that traditional energy is cheap, renewable energy is expensive, and you can’t replace cheap with expensive, especially by way of the taxpayer. That’s the kind of flawed thinking that could allow Senate Republican leader Mitch McConnell’s spokesperson to say “Republicans are more than happy to protect Americans from a job-killing national energy tax,” in reference to cap and trade.

“Keep it cheap” is a winning argument, but it’s dead wrong. It appeals to today’s strained pocketbooks while jeopardizing tomorrow’s economic footing. The truth is that traditional energy costs us dearly and is only artificially cheap. In contrast, wind energy is already cost-competitive in many locations in North America. If meaningfully integrated into the U.S. energy portfolio, it can help build a more stable, long-term energy supply based on a predictable pricing model.

But the public doesn’t feel the high costs of fossil fuels, and therein lies the public perception problem for renewable energy.  In the public mind, money paid at the gas pump and to utilities reflects the true price of energy set by what’s assumed to be a free market. In fact, the federal government pours billions of dollars annually into fossil fuels, grossly distorting the energy market.

This framework is so deeply imbedded into our historical-legal energy structure that it is imperceptible to consumers and industry. We just don’t see it, feel it or even know about it, but it’s right there under our feet, holding up the entire foundation of our economy.  That foundation is beginning to crack. We need to invest in a new foundation now, but our Congressional leaders have lacked the resolve to do this, opting instead to perpetuate the cheap fuel myth.

The hidden costs of fossil fuels are three layers deep. They include current costs, future costs and socio-environmental costs. Let’s start with current costs. The Environmental Law Institute has calculated $70 billion in subsidies for fossil fuels in the period of 2002-2008, in the form of tax breaks, direct spending and even health care costs, like the treatment of black lung disease for coal miners. If those subsidies were to vanish, shock waves would surely shake the nation out of its energy apathy, and we would understand the value of a kilowatt-hour. Renewable alternatives like wind would suddenly look like a bargain deal.

Then there’s the problem of the future. Artificially low as they are, traditional energy costs will rise due to tighter supply, challenges in exploration and extraction and regulation. Today’s slump in energy prices, stemming from the global recession and relaxed demand, is a temporary mirage.  No one, however, can predict the next debilitating price spike or even say what our favorite fuels will cost in 20-30 years. This veil of uncertainty exposes the economy to great risk. In contrast, wind is predictable, allowing prices to be locked-in for up to 25 years.

The perception of cheap fuel is further perpetuated by the fact that taxpayers and society-at-large are unknowingly underwriting the ecological hazards of fossil fuels, and I’m not even talking about climate change. To some extent, the Gulf has brought this reality to light, but I fear it overshadows the everyday, imperceptible damage still off the radar. For example, putting hefty carbon emissions aside, the coal production lifecycle makes a toxic mess of our water and air. But cleaning up after coal would be the end of cheap electricity.

With good intentions, the renewable energy camp has tried to win over the nation with the promise of millions of new jobs. I do believe wholeheartedly in the economic power of renewable energy. And how could I otherwise, since we are investing $100 million in a wind turbine manufacturing plant in Arkansas. We’ve hired 130 people nationwide in the past two years, and have plans to grow our operations to over 1,000 employees by 2014. In addition, we have attracted other suppliers and contractors who are creating more jobs in the hundreds.

But the promise of jobs cannot by itself overcome the main roadblock to progress – the false perception of cheap fuel. Renewable energy has to get on the right side of the cost debate if lawmakers are to support investing political capital in it. We need a widespread shift in public thinking in order to build a real, long-term energy strategy for this country.

Ralf Sigrist is President and CEO of Nordex USA Inc. a leading wind turbine manufacturer headquartered in Chicago with a manufacturing plant in Jonesboro, Arkansas