With the threat from COVID receding, America is resuming its technology-driven sprint toward a fully electrified economy, while the last century’s fossil fuel infrastructure faces quick and profound disruption. The speed with which this is happening isn’t fully appreciated by those who don’t study the economics of technological disruption full time.
Stanford-affiliated economists Adam Dorr and Tony Seba, and superstar hedge fund manager Kathy Wood of ARK Invest, have made understanding the causes and consequences of technological disruption their life’s work. For 15 years, they have predicted, with uncanny accuracy, the explosive growth of high-tech industries and the disruption of traditional industries this growth has left in its wake. According to their analyses, there is every reason to expect that there are blue skies ahead both for the nation’s economy, and the planets’ climate, if decision makers recognize it, and don’t block the way.
They remind us that fracking has flooded the power generation market with cheap natural gas over the last decade, devastating the market for coal. Since 2010, 60% of the nation’s coal-fired power plants have closed. During that time, the total market cap of the nation’s coal companies went from $500 billion to $5 billion — a 99% drop.
Most banks overestimated the productivity of the fracking industry and the demand for the oil and gas it produces. Consequently, the industry has suffered net losses of $342 billion since 2010. In five years, these analysts argue, the fracking industry will face a far tougher challenge. By then it will cost more to keep running an existing gas-fired power plant than to build and run a new solar or wind facility equipped with four hours of battery storage. At that point, gas-fired power plants will be shuttered as quickly as coal-fired plants are being shuttered now, unless state public service commissions force rate payers to subsidize them.
Transportation currently accounts for 60% of oil demand. After 2025, this source of demand will rapidly dry up. By then, lithium-ion batteries will have scaled up massively, cutting their costs in half. This will allow anyone to buy a compact electric vehicle with 200-mile-plus range for $12,500. Price competition this severe will quickly eliminate the market for new internal combustion engine (ICE) vehicles, and will eliminate 30% of the crude oil demand along with it.
More significantly, by 2025, electric vehicles will be equipped with fully autonomous driving software. Currently, it costs upwards of $10,000 annually to own and operate the average ICE passenger car, if fuel, maintenance, depreciation, taxes and insurance are included. By 2025, Tesla and others will operate fleets of driverless taxis offering subscribers unlimited local miles for $100 a month. When consumers realize that using a subscription service rather than driving their own car can save them $5,600 a year, self-owned cars, and the fossil fuel they consume, will disappear. The value of self-owned vehicles and their related infrastructure (oil fields, pipelines, refineries, car dealers, parking lots) will collapse.
By 2030, economic pressure will ensure that almost everything on wheels will be electric, fleet owned and autonomous. The energy needed by the transportation sector will fall by 80%, and its carbon emissions will fall by 90%.
Technology is driving down the cost of clean energy at exponential rates, which will compel an equally rapid phase out of the fossil fuel industry, if economic forces are allowed to play out unimpeded. This process will clear the air, boost human health and stabilize the climate. Remarkably, these technology-driven changes appear to be taking place fast enough to save the planet.
The biggest threat to the success of this process is if money managers and political decision makers who are not aware of these trends continue to misallocate hundreds of billions of private and taxpayer dollars to doomed investments in the unsustainable energy industries of the last century.
Malin Moench
Malin Moench, Holladay, has degrees in law and economics from the University of Utah. After 37 years of legal analysis and economic modeling work for the federal government, he now volunteers for the Citizens’ Climate Lobby.
