Imagine a computer game in which a planet is struggling
to reduce CO2 levels and failure to do so will result in total annihilation of
human life on said planet. You are in
charge of the planet's eco system and are given 1 billion tons of aluminum to use in a manner
which reduces the most CO2. The game is
set-up such that if you use it well you will save the planet, but if you
squander it, you will doom the inhabitants.
Where would you use it?
You are given lots of choices. You could use it as a substitute for
steel in cars to reduce weight and increase gas mileage. You could put it in electric transmission
lines to reduce transmission losses. You
can also use it to make frames for mounting solar panels. The game also allows use of 1 billion tons of
copper, which could be put in electric motors and generators, reducing their
internal electrical resistance and increasing the output of hydro, wind, or
geothermal generators. Likewise labor
is available and can be used to install insulation; capital can be used to
finance energy efficiency projects with multi-year paybacks. In real life, all of these valuable resources
can be and are used to save energy every day.
So to make the decision about where to use the resources in
this game you will need to consider the relative potential of each resource to
save CO2. If you decide to use these
resources in an application which has a relatively low return for reducing CO2
emissions, you will lose the game. If
you use 1 lb of aluminum to save 1 lb of CO2 when you could have saved 10, you
wasted the resource. And that resource
is now not available for the wiser use.
This is the concept of the energy opportunity cost of non-energy
inputs. Aluminum is not energy, but
could have been used to make or save energy (and therefore reduce CO2).
I can tell you with certainty, that if you use these
resources to make on-grid PV systems, you’ll lose the game and doom the
planet. This is known because one can
easily calculate the CO2 savings from PV and the number is $150/ton, ignoring
any embedded CO2 in the productions and installation. We also know that CO2 trades on the EU market
for $20/ton, meaning that someone, somewhere in the EU can reduce CO2 for a
cost of $20/ton. So there are much
better (less expensive) ways to reduce CO2 than installing solar panels on
homes already connected to the grid.
PV is a very expensive way to address CO2 and might even
have the effect of increasing CO2 when the energy opportunity cost of PV is
considered. Using resources for PV
crowds out the use of those resources in better applications. Using copper for PV will reduce the
efficiency of electric motors. This may
seem strange or non-connected, but PV systems consume copper and this will
drive up the price of copper and result in less copper being used in the next
generation of electric generators. The
market is warning us not to install on-grid PV, but we are ignoring price
signals. Sometimes ignoring price
signals is the correct action, but one must be very careful when charting a
course which ignores prices. Price
signals are by far the best way to determine were resources are optimally used. When price signals tell you that using
aluminum in transmission lines is more valuable than using it in PV, then that
is a reliable answer. Today the market
is screaming to stop using resources for on-grid PV, but we can’t hear the
screams because solar subsidies have almost silenced the cries. Installing on-Grid PV systems is a terrible misuse of these resources and
may cause us to lose the real game.
