Discarding Outdated Fossil Fuel Accounting Practices
The green revolution and in particular, renewable energy products such as solar power, wind turbines, geothermal and algae based fuels are not waiting for viable technology; it already exists in many forms. What they are waiting for is a massive sea change in our antiquated financial accounting systems.
We keep hearing that green technology has too long a payback or too low an internal rate of return and just can’t compete with non-renewable coal, oil and natural gas, etc, etc.
Now to be fair, renewables have two drawbacks that have to be considered in their use and integration into the power grid. The first is their low capacity factors. For example, wind farm turbines sit idle when the wind stops blowing, and solar cells power output drops sharply when the sun is not shining, due to cloud cover and of course night time.
On the other hand, non-renewable energy systems can operate 24 hours a day without interruption, so they will be used for some time to come as more dependable base-load power sources.
The second factor is evident when we compare installation and operating costs. Renewable installations spend 80% of their budget in the first year and 20% over their 20 or 30 year operating life. Non-renewables such as coal and natural gas powered plants are the opposite, only 20% is spent on the initial installation and 80% on the next 20 or 30 years of operation. And again our antiquated and myopic accounting practices analyze these facts and then say that coal, oil and gas plants obviously have a better return on investment!
Of course as we run out of non-renewables, their power production will slowly dwindle away and we better be prepared for that inevitable event by building up renewable energy options and developing technologies now. The book “Last hours of Ancient Sunlight” by Thom Hartman covers that inevitability very well.
The Costs of Oil
Now to get back to the aspects that are not considered in the cost of oil. We complain about $4+ a gallon gasoline, but how many people realize that we are probably paying over $10 a gallon IF we add on all the currently ignored direct social and economic costs of oil!
These are called “externalities” by economists, who recognize the existence of these external costs of doing business, but other than that recognition, these costs are still not assigned to their correct source.
As just one example, look at our enormous military budget, (currently a staggering $700billion a year). A large portion of this cost is spent on the 800+ military stations maintained around the world, to protect critical sea lanes for oil tankers and oil pipelines and to act on a moment’s notice to attack any politically motivated disruptions to foreign oil field production or oil storage sites. A significant portion of that budget is a direct cost of oil.
And to that cost figure, we have to add the social costs of young soldiers being trained, deployed and killed, severely injured or made incapable for the rest of their lives. Then we must also consider the enormous stress this imposes on these soldier’s families and friends, both economically and emotionally. That is another direct cost of oil.
And on another front, if we look at the enormous costs of the oil spill in the Gulf, and the effect on the ocean, wildlife and beach environments, to people’s health and livelihood and the stress they were under with hurricane seasons coming along with the likelihood that more oil and toxic dispersant sludge will be thrown up on their shores. That is another cost of oil.
And as another example, we see poor mountain people in Afghanistan being killed and injured in the name of protection from Al Qaeda by drones operated remotely from an office complex in the Mid West. Their injuries and deaths are simply written off as collateral damage when the truth is, we are in that poor mountain region mainly because of the huge oil and gas fields located in southern Russia. These sources will eventually need a pipeline to be built to transport the crude oil to a warm water all-season coastal port through that region, for the oil tankers to pick up and transport to markets in the West.
We see a similar example with an unaccounted for externalized cost of coal. Apart from carbon dioxide emissions, mercury and other heavy metals from coal-burning power plants, these plants ironically emit over 1,000 times the radioactivity of nuclear plants in the form of radon gas directly into the atmosphere. This highly toxic gas was absorbed over millions of years into underground coal formations and is now being directly released into the air when the coal is burned.
There are inevitable negative health effects of that dangerous radioactive emission being exhausted into the atmosphere from a coal plant and carried to those people living downwind! Yearly deaths from health problems caused by coal plant emissions, just in the US alone, are conservatively estimated at about 60,000 people, by various concerned citizen groups.
Also the huge amounts of foreign aid paid to protect dictatorial regimes against the wishes of the people under their control, are all direct costs of oil. Incidentally we see these regimes are starting to fail in the Middle East, due to their younger generation’s frustrations with a static society that has been kept backward and out of step with the modern world just to suit the oil interests. That is another cost of oil.
And closer to home, looking at a typical oil company’s Income Statement, we also see that they are granted enormous tax breaks, which make no economic or social sense, such as depletion allowances from taxes for using up a non-renewable resource!
And in more recent times, we see that oil companies can drill in federal waters without paying any royalties.
To date taxpayers currently subsidize the oil industry by as much as $4.8 billion a year to an industry showing record profits for owners and shareholders.
And in the US, many states which are under the oil companies economic/political lobbying control do not charge them for exploitation of these non-renewable resources. These resources are state-owned assets, and the oil companies acquire them at very low cost.
Solar, wind, tidal and geothermal energy do not need these massive hidden support costs. They are renewable and cannot be stolen by any super-power and so are unlikely to be the source of dragged out wars and intrigue between nations under the sham of spreading democracy as happens now for oil.
The Sun pays no attention to national boundaries and in most mid and southern latitude countries, a surprisingly small surface area of solar plants can deliver most of the electrical power a country needs. This is particularly true here in the US.
So taking all these factors into account, let’s get our accounting practices into the 21st Century and realize we now live in a global economy and apply ALL the real costs of each energy resource as they are incurred by the entire world. Then we can compare and make an informed correct decision to support the most viable energy resource technologies.
This will require a sea change in accounting. Accounting principles and practice are still stuck in time at the beginning of the Industrial Revolution where we witnessed horrendous costs to the environment and to workers. Children were starved, overworked, killed in often avoidable accidents and poisoned by fumes and toxic heavy metals. The air was made unfit to breathe! All these enormous social costs were externalized and thrown onto the back of the society to bear and companies were measured on profitability within incredibly narrow accounting standards. Often the most polluting, child exploiting companies were deemed the most efficient and profitable and given the most support.
Admittedly there has been many improvements over the past 150 years as we can see with child labor laws enforced and many companies in the US and other developed countries are being asked to clean up their dangerous emissions and remove toxins from their workplaces and are starting to do so.
However we need to further expand our accounting horizons to a world-view and take that same approach to a global scale, especially when comparing renewable energy technologies and demand that the comparison be based on their real costs.
If we can achieve that vision, then the correct decisions for support of green renewable energy will become abundantly clear! And the world will be a safer and cleaner place for us all.