The headline in May 12 Wall Street Journal highlights an important direction in the energy economy: “There’s Not Enough Power for America’s High-Tech Ambitions.” The article notes, the hunger for electricity has disrupted visions of a green energy transition: “One major source of disruption is data centers. The facilities are ballooning in size as people spend more of their waking hours online and companies digitize everything from factory processes to fast-food drive-throughs.”
Focusing on fast-growing Peach State, the article continues, “Georgia’s main utility, Georgia Power, has boosted its demand projections sixteen-fold and is pushing ahead on a hotly contested plan to burn more natural gas.”
This is how the conflict between growth and the environment is often framed: The irresistible force(s) of tech growth and energy hunger, colliding with the immovable object of concern about climate change. But maybe there needn’t be a collision. Maybe the force and the object can actually be harmonized, for the mutual benefit of both. This is what Directional Investing is all about: observing trends that can be made into friends.
The Journal emphasizes that the energy surge is not just local, but national:
U.S. power usage is projected to expand by 4.7% over the next five years, according to a review of federal fillings by the consulting firm Grid Strategies. That is up from a previous estimate of 2.6%.
The projections come after efficiency gains kept electricity demand roughly flat over the past 15 years, allowing the power sector to limit emissions in large part through coal-plant closures.
So what will happen to energy production? Some will say, of course, that we need “de-growth.” That’s a fashionable thought in some academic and activist circles, but it’s not an acceptable answer for the nation—not many Americans want the U.S. wants to be Germany, let alone the Shire of Tolkien’s telling. The cinematic Hobbits were cute, to be sure, but in real life, they would be desperately poor.
Others will say greater efficiencies are possible, and that’s no doubt true. However, efficiencies have a way of running up against Jevon’s Paradox—the more efficient things become, the more they consume.
As for new energy sources, we’ll no doubt continue to dabble in wind and solar, but again, the German bad example is cautionary. And nuclear power is making a comeback—including, as the Journal reports, in Georgia, where Plant Vogtle in Waynesboro has just been expanded. (And the voraciousness for energy has gone international; they're even thinking about powering data centers in a volcano in El Salvador.)
Yet the most obvious source of power is right in front of us: carbon fuels. According to current thinking in the U.S., carbon fuel is mostly limited to oil and natural gas—coal is regarded as too dirty, and so American production has been limited, even as the world’s coal consumption is rising.
However, if we were to apply ourselves to the challenge of cleaning coal, we could do so. And that, in turn, would unleash the abundant power and wealth of coal—the U.S. possesses some 470 billion tons of usable reserves. As the U.S. Department of Energy observed in 2022, the energy potential of that much coal (measured in British Thermal Units) exceeds that of American oil and gas.
So it would really pay if we could figure out how to clean that coal; not only to get the energy but also to harvest the metals and other elements resources that make coal “dirty.” We could discover, in fact, that “dirt” can be a resource. For instance, coal oftentimes contains the element molybdenum, which in the larger environment can be a pollutant. However, scientists at Northwestern University have just figured out how to use molybdenum to capture carbon. Thus we can see the potential: The molybdenum in coal could potentially be used to pull out carbon from the atmosphere. So a twofer: clean the coal, clean the atmosphere.
In fact, properly thought through, every component of coal is valuable. What’s said of animals in farms and stockyards—“use everything but the squeal”-- applies just as much to natural resources.
Such circular-economy thinking is now being applied to carbon capture.
For instance, on May 6, the Journal took note of an Illinois-based company, LanzaTech, that uses microbes to capture carbon. We can step back and see that such organic carbon capture has the potential for near-infinite spinoffs into anything organic: food, fiber, fertilizer, and fuels, just for starters.
On May 8, CNN reported on the opening of a direct air capture (DAC) plant in Iceland. Interestingly, the plant, dubbed “Mammoth,” is powered by Iceland’s plentiful geothermal energy (another good “all of the above” energy source). The new facility will capture the carbon and insert it into the earth, where it will soon bind into rock When fully operational, the Icelandic plant looks forward to capturing 36,000 tons of carbon a year; to be sure, that’s a tiny fraction of the approximately 10 billion, and tons of carbon emitted into the atmosphere each year, and so if the DAC vision is scaled up, we would need many such plants, even if each plant grows more carbon-consuming. Such carbon-consuming, we can add, brings with it the prospect of captured carbon being repurposed into building materials, and, over time, just about anything else.
To some, that will seem a daunting prospect, and yet the proliferation of DAC sites could prove popular, as a tool for rural economic development (as I argued here, back in 2019), and of course, among investors.
Because there’s so much energy, and wealth, involved that it’s impossible to see that we will obey the greens and leave it in the ground. According to the Institute for Energy Research, total resources of oil in the U.S. amount to 2.8 trillion barrels. (We can pause to note that resources is the total in the ground, or under the sea, as opposed to reserves, which is the amount that’s recoverable under current prices and conditions.) By the broader measure of resources, at the current price of around $80 a barrel, that’s a total value of oil in the U.S. of $224 trillion. As for natural gas and coal, the numbers are similarly astronomical. The truth is, the total ultimate value of carbon fuels in the U.S.—including methane hydrates offshore—is properly measured in the quadrillions of dollars. To put that another way, that’s millions of dollars, per American. Repeat: millions of dollars. If it’s a shame to not use it, chances are there won’t be anything to be ashamed about.
These mega numbers suggest that for all the talk about the energy “transition,” we’re not likely to transition away from carbon fuels—instead, we are transitioning our understanding of them, and how they can fit into an enlightened understanding of the circular, renewable, economy. Carbon fuels burned become carbon captured becomes carbon repurposed.
The concept of the circular economy is another way of expressing this idea. Indeed, once we establish circularity, the specifics of the climate-change debate matter less, because circularity means efficiency, and efficiency is a virtue beyond any externality.
To put this another way, carbon capturing and repurposing offers a positive feedback loop of positive returns for investors—they can make money at every bend in the wheel. With apologies to Simon & Garfunkel and their famous song, “Hello carbon my old friend/ I’ve come to talk with you you again.”
The Directional Investor is happy to hum along.
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