Is the Green Dream Dead?

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I think we can now safely say that the green transition, at least the imminent one envisioned by the most breathless advocates, is dead. Let’s look a four countries to see why and what the prospects are for a revival.

Germany

Germany is my favorite punching bag for bad energy policy.

This is not a good trend:

With the launch of the war in Ukraine, Germany lost access to cheap Russian natural gas. That exposed the lie at the heart of Energiewende which translates literally as Energy Turnaround. Germany has pursued this policy since roughly 2010 making huge investments in solar, wind, and hydro energy along with focusing on energy efficiency. Just to make sure they cut off their noses to spite their faces, they also decided to shutdown their existing green energy supply from nuclear.

This would be a bad policy mix for most countries but it was and is colossally stupid one for a major industrial producer whose entire economy depends on exporting manufactured goods. The saving grace was cheap Russian natural gas imports meant to tide Germany over until it could somehow make up for having among the least number of solar hours a day on average in the world.

Even Putin didn’t think the Germans were dumb enough to risk cutting off the gas. It was one of his major miscalculations. To be fair, Germany is also experiencing a slow down because China (its former number one export market) has been going through a major economic slowdown. On the other hand, the US (its current top export market) has been doing great.

Some will point to the fact that over half of German power generation is coming from renewables as a success but to me the proof is in the electricity prices. While they are down from the 2022 peak, they are still more than double what they were in 2019. Given that AI and electric vehicles are now making cheap energy and electricity even more important, Germany needs change but the prospects are mixed.

In the national elections coming early next year, the more conservative CDU party is expected to win the plurality of votes but it will need a coalition partner to rule. It has ruled out partnering with the far right party, Alternative for Germany¹ , which soundly rejects any climate focused policies.

The most likely partner is the SPD which is the left of center party that runs the current government. That probably means no major move away from renewable energy but I’m guessing they turn the nuclear back on in dumping the Green Party from the coalition. The green energy dream died 2 years ago but nobody let the Germans know.

China

As this chart from Our World in Data shows, China remains a coal based country. The share is declining but it is still the vast majority of total energy from the world’s largest user of energy. Renewables are an infinitesimal part of the mix.

On electricity production in particular, China passed the US has the largest producer back in 2010. They now produce more than double the electricity that we do. Raw production isn’t everything. The US uses electricity more efficiently but China’s ability to scale electricity generation is impressive.

China has also installed more solar and wind than anyone else. As this chart from S&P Global shows, over 60% of power generation is still fueled by coal but solar is growing and is projected to reach up to 65% of coal’s total in 2024. But as the chart above shows this isn’t making a huge dent in overall energy consumption. To be fair though, China seems to be pursuing an all of the above diversification strategy.

Even with the increasing use of renewables in electricity production, the reality is that China still hasn’t gone through a data center revolution yet. The US has built more data centers than the rest of the world combined. China comes in 4th. The government will have to prioritize data center construction to try to match the US lead in AI. When that happens in earnest, I’d guess coal starts increasing its share of electricity production again. There will be no green dream to be had in China.

India

India shows us how far the green dream has to go once you leave the more developed economies. With the world’s largest population, India is growing economically. As it does, its energy consumption is sky rocketing. Overall energy consumption is growing at 8% per year and coal production is expanding at 11%. So much for the UK and Norway going net zero. India’s starting up three coal plants a week.

The International Energy Agency has a fascinating interactive chart showing how dependent India is on coal for electricity consumption. Again AI will drive this higher.

But now let’s look at energy consumption for all purposes:

Look at Biofuels at 27.5%! This isn’t your weird uncle’s Volkswagen that he adapted to burn used cooking oil. This is a country that is still burning wood, reeds, agricultural waste, etc. as a primary heat source. Coal would be a step up in this case. India shows us how far many developing economies have to go to even get to 20th Century levels of energy production; much less to some 21st Century green vision.

The US

The US is in a unique place. It is the largest producer of fossil fuels but it’s also made large green energy investments. In particular, Biden’s Inflation Reduction Act provided billions in solar, wind, electric vehicle, battery, and other tax credits and R&D funding. It also focused on incentivizing the production of that equipment in the US.

It’s had an impact. This is the growth in electricity generation by source since 2018. Renewables are getting real:

But , as in China, the overall energy mix from each source tells a different story:

We’ve made some progress on renewables but they remain a small part of the overall energy mix. Unlike Energiewende in Germany, the IRA was an investment to spur a change but it wasn’t a mandate to transition. It was helpful to diversify our energy supply but let’s be real here. There is no way the US is going to give up its advantage in natural gas and oil production for vague climate goals.

German companies are voting with their feet. As this analysis from the Financial Times shows, German corporate investment into the US is hitting all time highs even as they shut down production in Germany.

The green energy dream never fully took over the US and I think technological developments will put the final nail in the dream’s coffin-at least for now.

The AI Wave

As we heard on The New Rules podcast a couple of weeks ago, electricity demand is spiking because of AI.

The hyperscalers (Amazon, Google, Meta, Oracle) are searching for energy anywhere they can get it and data centers alone are estimated to need anywhere from 9-20% of US electricity production in the next couple of decades. Utilities are accostomed to growing production with the rate of inflation. Now we are asking for multiples of that.

As Tom Terbusch from the Electric Power Research Institute laid out on the pod, there are few energy sources that can scale with the demand. It’s basically gas and coal in the next 5 years and possibly 10. Gas turbines are easy to set up and cheap to run, particularly in the US, and far cleaner than coal. Solar and wind simply can’t scale quickly enough. They require too much space and their intermittency requires massive battery storage and backup gas generation capacity anyway. That makes them expensive for AI applications that need to be up and running 24/7/365.

It’s my contention that our AI competition with China will break the green strangle hold on permitting and building in the US. Winning the AI race against China is seen as existential. We will not lose to save obscure species of butterflies and mice. An environmental regulatory roll back is coming.

Don’t get me wrong. I believe the investments in green energy are a great thing. More production from more sources is great for diversification. Solar and wind both have their place but to try to make a full transition before it’s clear how far we can scale these energy sources is dangerous and delusional.

Or Is the Green Dream Just Postponed?

I’ve laid out the case for why I think making a significant transition to renewable sources is undesirable and unlikely but that is really my short to mid term opinion. In the long term, I think we could make a transition if we are realistic. There will be substantial pressure to do so.

The hyperscalers who are driving so much electricity demand are very sensitive to their carbon footprint. They’ve all made pledges to be greener in public filings and risk securities fraud lawsuits if they don’t demonstrate a path to net zero. I also think they want to avoid becoming the oil companies of the 21st century in public opinion. Tech has already suffered a lot of reputational damage and I don’t see them wanting to compound that.

Of course, we are seeing a vibe shift with the new Trump Administration pledging to drill, baby, drill and threatening to repeal all those subsidies and tax credits in the IRA. But these things come in waves. Two years ago, we were moving to the green new future and four years from now we might see an Administration dedicated to that future sweep into power again. Mandates don’t last very long.

Already multiple Republican members of the House have gone on the record to defend various IRA items and the Republican Speaker of the House has pledged to reform the IRA with a scalpel rather than a sledgehammer.

While we have no choice but to use gas now, in 10 years the situation will be different. The real hope is that nuclear and geothermal will be viable by then. Some like Noah Smith have been skeptical of a nuclear future for energy. I think this is too pessimistic.

As Tom pointed out on the pod, small modular nuclear reactors (SMRs) are about to become a real thing. If you think about it, the US government has been running dozens of SMRs on subs and ships for decades. Now we have the technology to build these things everywhere.

They produce about a third of what a traditional nuclear plant does at about 1/10th to ¼ the size of a traditional reactor. They are also modular meaning we can make many of the parts in a factory which is key to getting scale and efficiency in the building process.

Nuclear is a real option but the industry needs to demonstrate that the technology is ready for prime time.

The most surprising learning from the pod was Tom’s hope for geothermal technology. The core of the earth is hotter than the surface of the sun, so the energy is there. It works great in places where that heat naturally vents like Iceland but the earth’s crust is thick in most places and drilling to the heat is currently expensive and not scalable.

However, a lot of people are working on lowering these costs and in particular fracking related companies specialize in this type of work. 15-20 years ago, no one thought we could turn the US into the largest fossil fuel producer again through the then emerging technology of fracking. Now it’s a reality. Who’s to say we can’t do the same for geothermal?

In the end I think the dream is just postponed but it will stay that way until we have fully scalable and cost competitive green energy technologies. Energy is another one of those areas where we got delusional post Cold War. We thought we could wish away the realities of our messy world. The new rules are teaching us the old rules again. Energy is life and to quote Jeff Goldblum, “Life will find a way.”

Keep learning,

Alan

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1  A theme I’m going to write more about is the center’s inability to work with more extreme elements in society to bring change in Europe. A similar dynamic is playing out in France and the UK. I used to think multiple parties was a good answer for getting new ideas into the system but now I question that. It seems like Trump’s take over of the Republican Party has forced change but also restrained the worst elements of his coalition. I don’t see progress happening without some integration of center with one of the extremes.