Blog Post

RFF President Richard Newell Receives the USAEE Adelman-Frankel Award

Sep 28, 2018 | Richard G. Newell

The following remarks were given by Richard Newell at the 36th USAEE/IAEE North American Conference in Washington, DC, as the recipient of the USAEE Adelman-Frankel Award.

Thank you very much. It’s a great honor to receive this award and be in the company of so many people and institutions whom I admire. I specifically want to thank the US Association for Energy Economics for this recognition. The Association plays an important role in connecting energy professionals across all sectors and levels, and I feel privileged to be recognized from among so many of my esteemed peers.   

At Resources for the Future, we spend a lot of time looking over the horizon. We are constantly asking, “What are the questions that we will need to be able to answer—not just today—but years into the future?” This viewpoint is critical for anticipating potential economic impacts from policy changes, and advising decisionmakers about effective actions to mitigate risk.

Today, I’d like to take these few minutes to briefly mention what I see as perhaps the key issue facing the field of energy economics, and how we can contribute.

Here’s the issue: society faces a major—no, monumental—dual challenge in meeting growing global energy demand while protecting the climate. As we know, global energy demand is rising rapidly.

For example, global oil demand is on the cusp of reaching a new high of 100 million barrels per day. We’re used to these kind of numbers in the energy world, but it’s worth taking a moment to pause and reflect on this.

This growth is—in one sense—great news. It represents a growing global economy and better lives for hundreds of millions of people. At the same time, it highlights the challenge of reducing greenhouse gas emissions and other environmental impacts from the energy sector.

There are certainly bright spots in the challenge of climate change. The costs of wind and solar power have declined rapidly in recent years and they make up an ever-growing share of the global power mix. Natural gas has displaced coal in the US power sector, reducing local and global pollution. The costs of energy storage are also declining, which is enabling the deployment of electric vehicles at scale.

But we shouldn’t kid ourselves: these trends do not signal an inevitable energy transition. In fact, if we look back in history, society has never transitioned away from any individual fuel source, with the possible exception of whale oil. While their percentage shares in the energy mix have changed, the absolute level of global demand for every major fuel—biomass, coal, hydro, oil, natural gas, nuclear, and now renewables—has simply grown over time.

For example, although biomass and waste now comprise just 10 percent of global energy—compared to virtually all of it in 1800—the world uses almost 3 times more biomass and waste than it did back then. And we use 60 percent more coal globally than we did in just the year 2000.

The climate challenge necessitates—for the first time—a true energy transition. Away from CO2-intensive sources, and towards new technologies.

So that’s the challenge. Now what should we, as energy economists, do about it?

In short: we should do what we do best. Analyze data. Develop new concepts for the markets, regulatory institutions, policies, and business practices surrounding energy and the environment. Assess the evidence and identify better approaches. And importantly, communicate what we learn to decisionmakers and listen to them to understand their needs. This is what we do every day at Resources for the Future.

Now, it’s no secret that this is a challenging time for evidence-based decisionmaking when it comes to public policy. Political factors are today—as they always have been—making it more challenging to adopt first-best policies on issues like climate change.

Despite our inclination to advocate for optimal solutions, we need to recognize that a range of considerations and political constraints will continue to move policies in directions that are often second, third, or tenth best from an economic perspective. So while we stand by our analysis and seek to communicate the ideal solution, we also need to be ready to apply our expertise to options that stray from the optimal. If we can steer decisionmakers toward the second best option—rather than the tenth best—we will have served society well.

Now let’s look to the future

As we look toward the future, and potentially toward a first-of-its-kind energy transition, we will need to be responsive—not just to political realities—but perhaps more importantly to new technologies.

The energy sector is changing faster than it ever has before. Who would have thought 10, or even 5, years ago that the United States would be producing more than 10 million barrels of oil per day—emerging as the world’s largest oil producer for the first time in 4 decades? Or that unsubsidized wind and solar can compete with natural gas, coal, and other fuels?

And while we don’t know what mix of technologies will drive future changes in our energy system, there are signs that we may be on the cusp of major shifts with broad implications for businesses, governments, and consumers.

So here are a few of the issues I’ll be watching:

First, to what degree will energy storage change the nature of electricity markets and regulation and enable the truly widespread, efficient deployment of renewables, to where they reach 50 percent, 75 percent, or more of power generation under some targets? Due to the fact that renewables like wind and solar operate with close to zero marginal costs, deployment on this scale would mean huge challenges for power markets and incumbent generators.

Second, will the trend towards electrification continue to accelerate? How fast might the transport sector electrify, and as deployment of electric personal transportation grows, will we also see large shifts in trucking, marine transport, or even aviation? Can electricity be deployed for heat-intensive industrial processes? If not, what other low-emissions options might be available and what are the implications for different fuel sources?

Third, how will the application of information technology to buildings, transport, and industrial energy decisions influence energy demands, energy markets, and the nature of energy and environmental regulation? Will pervasive sensors and data analytics bring about major shifts in how we consume energy at home and at work, or the responsiveness of that demand to market signals?

Fourth, as automation increases across the economy, will it increase or decrease aggregate demand? In a new manifestation of the rebound effect, will the efficiency gains enabled by automation be swamped by increased demand? What other impacts on markets and policies will automation enable and even necessitate?

Finally, will options for carbon dioxide removal and use mature and become viable? These include not just carbon capture and storage for power plants, but also new technologies that make use of carbon in commercial products or pull CO2 directly from the air. The answer will critically affect both the future of fossil fuels and our achievement of climate goals.

In short, the energy sector is at a crossroads. We have never experienced a true energy transition—but one is now required to achieve climate goals.

Decisionmakers—in the public and private sectors—will need guidance that is timely, relevant, and realistic. That’s the role that we, as energy economists, can play in nurturing a healthy environment and a thriving economy.

In the years and decades to come, I can’t think of a better place to be than here, working with you, to develop solutions to the challenges that lie ahead.

I am truly honored to receive this award. Thank you.

The views expressed in RFF blog posts are those of the authors and should not be attributed to Resources for the Future.