Last month, electric car start-up Fisker Automobile became the latest government-backed green energy company to file for bankruptcy. The carmaker was the recipient of a half-billion dollar loan from Washington, for which taxpayers are now on the hook. The episode is a sharp reminder that alternative energy, no matter how heavily subsidized, is not going to replace fossil fuels anytime soon.
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Not that crusaders against oil and natural gas learn from serial failure. They’re just switching tactics. Green activists are now demanding that universities, pension funds, and municipalities stop investing in fossil fuel companies.
350.org, the leading group behind the divestment campaign, frames the issue as a moral imperative – one modeled on the anti-apartheid movement and its advocacy of boycotts and economic sanctions on the South Africa of the 1970s and 80s.
The faux-parallelism is obvious. One divestment targeted a repressive government that disregarded the human rights of its own people. The other targets the energy sources that Americans most rely on — and if successful, would hurt those struggling hardest to make ends meet.
Fossil fuels remain the most efficient, reliable, and affordable energy available. They enable ordinary Americans to travel to work, heat and cool their homes, and put food on their family’s table. And since fossil fuels power our economy – 80 percent worth – rising energy prices would reverberate across the nation.
For well-heeled student activists, higher energy costs might be just a nuisance — a reason to spend less on clothing and entertainment. But for lower-income households, which already spend a quarter of their income on energy, it would be a crisis.
Thanks to government mandates and a huge taxpayer commitment, the cost of renewables is falling. But according to projections by the U.S. Energy Information Administration, most all alternative sources of energy will continue to be much more expensive than conventional forms of power. This is why fossil fuels are projected to retain their 80 share of the U.S. market through 2040, according to a new study by the Energy Information Administration.
The reason revolves around basic energy physics relating to density and flow. Unlike conventional power sources — which can be built almost anywhere and operated at any time — renewables are dependent on time, location, and weather. Simply put, the wind doesn’t always blow and the sun doesn’t always shine.
As a result, wind and solar power facilities punch far below their weight. The annual output of a turbineaverages just 30 percent of capacity, while a solar panel can produce 20 watts of energy per square meter – so long as they’re in a desert solar photovoltaic farm. In contrast, conventional power plants often produce upwards of 1,000 watts of energy per square meter.
Given these facts, it’s no wonder that renewable energy start-ups all but disappear when the federal tax credit lapses.
By contrast, fossil-fuel energy, those chosen by consumers, not government, generate millions of jobsand hundreds of billions of dollars annually in wages and economic activity. The industry is the third largest in the United States, and gas and oil companies rank as the second-, third- and fourth-largest companies in the Fortune 500.
Middle America has a much larger stake in this sector than many people, including the divestment activists, are willing to admit. Nearly half of all traditional energy stocks are held in retirement accounts. Another 21 percent, according to the consulting firm Sonecon, are held in mutual funds, with their broad bases of ownership.
The high performance of energy stocks has built many a nest egg and helped many a university endowment weather the recent recession. One study found that oil and gas stocks averaged 7.9 percent annual five-year returns – compared to an average 2.9 percent annual return on all other U.S. stocks.
This exceptional performance is certainly why many universities — including Harvard, Brown, and Cornell — have refused to divest despite student petitions and protests. These schools understand how much a strong portfolio matters to research, scholarships, and financial aid packages.
Likewise, with public pension funds under severe strain, municipal leaders (even in San Francisco) are reluctant to risk their workers’ retirement security in order to make a political statement.
Divestment activists wed to climate alarmism should be reminded that among developed nations, the United States has been a surprise leader in cutting greenhouse gas emissions. Carbon emissions in the United States have fallen by 13 percent over the past five years and are now at their lowest level since 1992. In 2012 alone, emissions dropped another 4 percent, while in Europe, they essentially remained stagnant, dropping just 1.3 percent.
This shift didn’t happen as a result of campaigning against fossil fuels. We enjoy cleaner air today because of technological improvements and old-fashioned market forces.
Divestment activists are right about one thing: investing in affordable, clean energy is not only good for economic growth, it’s good for the environment and for people. If universities, cities, and others want to invest in a healthier planet, they’ll stick with fossil fuels.