I have written about the lack of political will to alter the energy status quo. So what is this status quo? I would divide it into the incumbent fossil fuel businesses and the current alternative energy challengers.

It’s easy to understand the motives and behavior of the fossil fuel side of the energy status quo.  A more interesting issue is the alternative energy side of the status quo.  The science and technology community, the environmental community and the section of society influenced and supported by these communities have mostly accepted that CO2 is a problem. They also have accepted that the alternative energy technologies to solve the problem are wind, bio and solar. Because these communities add up to a sizeable political constituency they have persuaded governments to subsidize these uneconomic technologies to varying extents. In the US these constituencies are mostly on the Democratic side, so subsidies ebb and flow with the fortunes of the Democrats. This leads to boom and bust and no consistent US energy policy.

A deeper problem is that by supporting uneconomic technologies, success is directly related to government support and the degree of success is tied to the amount of subsidy.  Subsidy amount in the US has been small. This and this alone has determined the small scale of current energy that comes from alternative energy, mostly wind. 

The other element of policy that has been pursued is carbon taxes.  The motivation is that raising the cost of fossil fuel energy will make alternative energy sources more competitive.  However this is putting the cart before the horse.  The current alternative energy technologies only directly compete with fossil fuels in a small fraction of the energy market, mostly electricity generation.  Oil is the economic king of energy, tied almost exclusively to transportation where it holds a virtual monopoly.  Bio fuels cannot replace oil, and no alternative energy is cheap enough to make synthetic oil without unrealistically high carbon taxes. Interestingly ExxonMobil is in favor of carbon taxes. Obviously they don’t think it’s a problem for them. This means blanket carbon taxes are mostly not going to have the intended consequences, but could easily have considerable unintended consequences.

The economic limit to subsidy and the ineffectiveness of carbon taxes is not appreciated by the broad science and environmental constituency who think that wind and now solar have crossed into economic viability and are being held back by unseen forces.  The economic reality is far from this perception, but so long as these constituencies are backing this losing horse, they are blocking the development of technologies that might be viable competitors.  This blocking is a form of self-defeating political-correctness blinders within the constituency.   

In previous posts I mentioned Bill Gates 2010 Ted talk and subsequently a recent 2012 paper “Beyond boom and bust”.  These seem to be part of an attempt by a courageous few to start a debate about creating a more effective energy policy.  Another source explaining the topic is the book “The climate fix”, written by Roger Pielke, Jr. which clearly describes the reasoning in depth.  Some other papers are An analysis of technology –led Climate Policy as a response to Climate Change  and IRPP Study: A technology-led climate change policy for canada .

A central tool all use in reasoning about the problem is the Kaya identity.  This was designed to allow a simple understanding of the relationship between GDP, energy and CO2 and was used by Bill Gates in his TED2010 talk. 

The Kaya identity:  CO2=P*(GDP/P)*(E/GDP)*(CO2/E) where CO2 is world CO2 production, P world Population, GDP world GDP, E world energy consumption.

In a world where P is rising, GDP/P is rising and E/GDP is fairly constant and hard to reduce, reducing CO2 mostly comes down to reducing CO2/E, the “carbon intensity”.

Current attempts at policy center on mandating CO2 reduction through carbon taxes and subsidizing clean energy alternatives.  Both of these policies have failed.  There is no agreement on CO2 reduction, and if there were it would likely fail and destroy GDP growth.  Alternative energy relies completely on subsidies and its size as a percentage of energy is determined by the level of subsidy governments are willing to make.  All credible forecasts for the percentage of energy from wind, solar and biomass show only a small percentage of future energy from these sources because they need subsidy into the far foreseeable future and the subsidy needed to raise their percentage would be politically untenable and likely would also destroy GDP growth.

These perspectives lead to a policy to get the horse in front of the cart and first develop viable market competitive energy technologies before mandating CO2 reduction. The policy does not specify what these technologies might be, though various nuclear technologies might fit the energy requirement but clearly would not be politically acceptable today.

Unfortunately, despite the failure of current alternative energy technologies, they are now well established industries with strong constituencies and strong ties to government and in a policy debate they will most likely prevail and oppose any policy change.  

So far Terrapower is the only seriously financed attempt at a technology-led solution, but it’s hard to see private financing covering the decades and billions it will take to commercialize a new reactor technology. 

With government policy support out of the picture and limited private capital likely to be committed, viable solutions have to need little capital up front, scale from initially small to large while growing organically and making a profit.  A tough set of requirements that StratoSolar satisfies.