Invest in energy infrastructure now. Our grandchildren's future depends on it.
The argument over climate change has been going on for years. Disagreement over how bad the effects will be, how long we have left to act, and, how much needs to be spent in combating this worldwide danger has resulted in delays, underspending, and even ignoring the threat altogether. And now it may just be too late.
Here in the U.S., we tend to focus on our own needs. After years of wrangling, we have finally passed the $1 trillion, bipartisan Infrastructure Investment and Jobs Act. It promises to address America's dilapidated infrastructure. On the shopping list of investment projects is an upgrade in power infrastructure and additional spending to increase the "resiliency of our infrastructure" in relation to climate change, cyber-attacks, and extreme weather events.
While I applauded the effort, I was disappointed with the amount of spending, and said so in past columns. As far as Congress is concerned, the subject is now closed with this one-and-done spending effort. To me, this spending is not only insufficient, but will cost a heck of a lot more to resolve in the years ahead — if we have the will to do so.
Almost everyone agrees the globe is getting hotter. Fossil fuels, as we know, contributes a great deal to global warming. Renewable energy seems to be the answer. Unfortunately, we need to develop both alternatives for the foreseeable future thanks to the geopolitical state of world affairs. Equally important, we need the capability to move the power generated from these energy sources to where they are most needed. That is where the electrical grid becomes of vital importance.
Here in North America, the power grid is divided into five distinct regions. Texas, Alaska and Quebec comprise three smaller grids, while two larger ones serve the East and West.
Although some money in the infrastructure law addresses the grid, it is woefully inadequate, in my opinion. A recent Princeton University research paper estimates just upgrading the U.S. transmission grid alone will cost $2.4 trillion by 2050. That sum is many times the amount of investment spending earmarked for the power grid in the new legislation.
Most readers are aware of the precarious state of the power grid in Texas. Recently, California's grid has made the headlines as it joined several states buffeted by heat wave after heat wave that threatens widespread blackouts. These heat waves are expected to continue. Switching to hydroelectric power and its transmission, the Colorado River Basin supplies 57 percent of renewable energy in the West through hundreds of hydroelectric dams along the river's main stem and tributaries. Drought is threatening that power generation output.
Take Lake Powell, the nation's second largest reservoir. Its water moves through generators that churn power to more than 5 million people in seven Western states. Thanks to the historical, 21-year megadrought, the water levels of the Colorado Rivers biggest dams are fast-approaching, or already at record lows. Power generation is already down 20 percent in the last two-plus decades. Further declines are expected this year and next.
In prior columns, I explained that the decline in the number of U.S. oil refineries has translated into a lack of refining capacity. It has hamstrung the nation's abilities to process usable grades of oil, no matter how many barrels we pump out of our wells. I could go on and on, but what is happening here is also happening overseas.
In Europe, the Ukraine War, Russia's response to European Union (EU) sanctions, and the continents over reliance on Russian gas has thrown the EU's energy infrastructure into chaos. Germany, Europe's economic powerhouse, has been especially short-sighted in its energy decisions. For years, cheap Russian gas has allowed the country to produce and pursue economic leadership, while reducing alternative sources of energy such as nuclear power.
China is also reeling from its own policy mistakes in infrastructure. Its massive, decades-long, decision to replace coal with hydropower as their source of power generation has been crippled by drought. Unfortunately, the government failed to diversify sufficiently into alternative forms of energy. Instead, they are now expanding their coal-fired power capacity with 258 coal-fired power stations proposed, permitted, or under construction. India and some African nations are even worse off. These large coal users have yet to even consider energy infrastructure investments.
Climate activists, some policy makers, university think tanks, environmentalists and many economists have spent more than a decade begging global governments to spend or borrow the multi-trillion dollars necessary to address climate change and its damage to world economies. It was a time when interest rates were practically zero, and the cost of borrowing trillions was historically low. That window has closed.
Interest rates are rising and are predicted to keep rising. Economies are slowing and inflation is adding additional costs to solving what is fast becoming an insurmountable problem that will make COVID-19 look like child's play.
There are estimates out there that the cost of achieving a net-zero global economy by 2050 would require $5 trillion in spending per year between today and 2030. The financing cost of such spending in a rising interest rate environment is anyone's guess.
The hard truth, however, is that expansion of power generation capacity throughout the energy space faces opposition from voters who do not want a smelly refinery, or bird-killing windmill in their backyards or mountain tops. Politicians are only too happy to oblige. After all, why should they worry about what happens to your grandchildren when they are no longer running for office? Unless we all do something now, those grandchildren may not be around to solve this problem.