Creative Energy Destruction: Renewables Lost Long Ago

It is the second most famous term in the history of economics after Adam Smith’s metaphor invisible hand. It describes the competitive market process in the real world. It was coined in 1942 by the famous, iconoclastic Austrian-American economist Joseph Schumpeter, who would reminisce:

I set out to become the greatest lover in Vienna, the greatest horseman in Austria, and the greatest economist in the world. Alas, for the illusions of youth…. As a horseman, I was never really first rate.

“Creative Destruction” …

The best businesses rise to the top in consumer-driven markets. Less competitive firms contract and even disappear. Creative destruction is the process whereby the bad is eliminated, the better replaces the good, and past performance gives way to new strategies and victors. No firm is forever, and financial loss is a characteristic of capitalism, as is the more used term profit.

Protesting against the textbook “perfect competition” model, under which a multitude of price-taking firms were optimally efficient at equilibrium rest, Schumpeter focused on the real world of change. “[C]apitalist reality, he said, is “the new commodity, the new technology, the new source of supply, the new type of organization … which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.”

He famously continued:

Every piece of business strategy … must be seen in its role in the perennial gale of creative destruction; it cannot be understood irrespective of it or, in fact, on the hypothesis that there is a perennial lull…. [1]

… and Energy

Energy is a story of creative destruction. Coal gas, and later coal oil, replaced a variety of animal and vegetable oils, including whale oil, camphene oil, and stearin oil. Crude (mineral) oil then displaced manufactured (coal) oil, just as later natural gas would displace manufactured (coal) gas.

Coal itself displaced primitive biomass (burned plants and wood) and other forms of renewable energy, such as falling water and wind. Fossil fuel was a concentrated, continuous-burn industrial-grade energy. W. S. Jevons’s The Coal Question (1865), the book that founded both mineral and energy economics, explained how coal (and by implication, gas and oil) were uniquely suited for—and indeed, prerequisites for—the machine age. Indeed, it is hard to imagine an Industrial Revolution without carbon-based energy bringing Newtonian mechanics to life.

The intensity of fossil energy can be understood as a stock of the sun’s work over the ages, not a dilute flow from the sun (solar, wind), or a low-density mass from limited years of sunshine (biomass). “The ancient resource pattern depends primarily on animate energy and hence on current solar radiation,” Erich Zimmermann explained in 1951. “The modern resource pattern is built around stored-up solar radiation.”

Jevons described the new world of energy where the primary supply was now plentiful, flexible, and continuous. “[T]he economy of power … consists in withdrawing and using our small fraction of force in a happy mode and moment,” he explained. With coal, and the other fossil fuels to come, the unreliability of wind power and water flow was overcome.

“The first great requisite of motive power is, that it shall be wholly at our command, to be exerted when, and where, and in what degree we desire,” Jevons explained. “The wind, for instance, as a direct motive power, is wholly inapplicable to a system of machine labour, for during a calm season the whole business of the country would be thrown out of gear.”

But even if wind were consistent and storable, it was still too little from too much given the land requirements. Biomass, too, required more timber fuel than surface land could comfortably grow. 

Water power was no substitute from steady coal because of the periodic drought and flat lands, explained Jevons 148 years ago. And so it came to be in 2001 when a bad water year exacerbated California’s electricity crisis during a regulatory-induced shortage.

Relevance Today

Jevons’s energy-by-energy analysis is as true today as it was when penned in 1865 (just add oil and gas to Jevons’s example). Coal could be burned continuously and evenly, avoiding the intermittency of wind or sunshine. Coal did not depend on the season or on a weather condition or topography of land, as did water flow. Coal was storable and transportable. Coal production and combustion needed far less surface area than would a similar amount of renewables.

In short, there could not be a return to the chancy, inflexible, dilute energies of the past—which were, ironically, all renewable from a physical viewpoint.

Creative destruction demoted renewable energy in the nineteenth century. And no amount of taxpayer or ratepayer subsidy will reverse the fact that yesterday’s energies remain unsuitable today–for largely the same reasons.

[1] Emphasis added. For references for this post, see Robert Bradley, Edison to Enron: Energy Markets and Political Strategies (Scrivener/Wiley: 2011), pp. 485–88.