The market will get us to net zero

Ambrose Evans-Pritchard writes in The Telegraph:

team of mathematicians at Oxford University has carried out the world’s best study so far of the economic windfall to be had from a turbo-charged decarbonisation based on unstoppable leaps and bounds in known technology. 

It concluded that the net gain is $26 trillion (£19 trillion), or $14 trillion under cautious assumptions. The faster it happens, the bigger the benefit. It can be achieved in 25 years, beating the global target of 2050. Most changes do not require lavish state funding any more than public money is needed to make mobile phones. 

“I know that there are some who say we are going too fast. I say to them first that there is a force out there stronger than government. That force is the market. And the market is going green,” said Boris Johnson, before rolling out his Net Zero Strategy on Tuesday.

With the right rules and policy signals – and seed money to bring the newest technologies to scale – free enterprise will take care of the problem, guided by Adam Smith’s Hidden Hand. 

Renewables will prevail because fossil fuels cannot compete. They will slide rapidly into obsolescence so long as the market is not obstructed, or so long as the authorities stop “standing on the hose”, in the words of Andrew Forrest, Australia’s former polluter-in-chief and now hydrogen king.

Cathie Wood from the technology fund Ark Invest likens it to the fate of the whale oil industry in the 1860s, once the fifth-largest sector of the US economy and chief source of lighting fuel. Within a decade whaling had mostly vanished because something better came along: kerosene.  

The Oxford report, by the Institute for New Economic Thinking, said global solar costs have been falling by 15pc a year since the mid-1990s in a textbook case of Wright’s Law, the so-called learning curve of innovation. 

The models long used by governments and agencies to predict solar performance assumed on average that costs would fall by just 2.6pc a year. It is why the establishment has been so fantastically wrong. Ditto with lithium batteries. The “learning curve” has been 13pc a year since the 1990s. Electrolysers are only just starting, moving from toolshed phase to factory-scale production with advanced robots. They will track the same trajectory.

Unsubsidised new wind and solar have reached parity with fossil fuels across most of the world, cheaper for most of mankind, according to Bloomberg New Energy Finance. Wright’s Law of technology still holds, so they will become even cheaper, subject to the supply of critical minerals. 

However, Wright’s Law does not hold for fossil fuels. The Oxford group found that coal, gas, and oil have traded at the much same level in real terms for 140 years, with ups and downs along the way but no structural fall in cost – a “random walk”, in academic jargon. 

Once the cost curves cross, the game is up. The collapse becomes unstoppable, or to borrow the Hemingway dictum, you go bankrupt two ways: “gradually, then suddenly”. 

It is a good reminder we don’t need hundreds of costly policies. We just need an Emissions Trading Scheme and a free market.

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