The Economic Aspects of Switching to Renewable Energy Thesis By Kamilla Tatinbekova Submitted in Partial fulfillment Of the Requirements for the degree of Bachelor of Science In Business Administration State University of New York Empire State College 2018 Reader: David Starr-Glass 1 Statutory Declaration / Čestné prohlášení I, Kamilla Tatinbekova, declare that the paper entitled: The Economic Aspects of Switching to Renewable Energy was written by myself independently, using the sources and information listed in the list of references. I am aware that my work will be published in accordance with § 47b of Act No. 111/1998 Coll., On Higher Education Institutions, as amended, and in accordance with the valid publication guidelines for university graduate theses. Prohlašuji, že jsem tuto práci vypracoval/a samostatně s použitím uvedené literatury a zdrojů informací. Jsem vědom/a, že moje práce bude zveřejněna v souladu s § 47b zákona č. 111/1998 Sb., o vysokých školách ve znění pozdějších předpisů, a v souladu s platnou Směrnicí o zveřejňování vysokoškolských závěrečných prací. In Prague, 27/04/2018 Kamilla Tatinbekova 2 Acknowledgement First and foremost, I would like to offer special thanks to my family for providing me support throughout the academic years. Also, I would like to express my great appreciation to Professor David Starr-Glass, my thesis supervisor, for his patience, valuable and constructive suggestions and feedbacks during the planning and development of the Senior Project Thesis. 3 Table of Content I. Introduction……………………………………………………………………………….…….6 1.1 The main sources of energy………………………………………………………....6 1.2 The growing global demand for fossil fuels………………………………………...7 1.3 Environmental impacts of fossil fuels………………………………………..…..…9 1.4 Policy responses to Climate change……………………………………………….11 II. History of energy industry……………………………………………………………………14 2.1 The use of fossil fuels in ancient times……………………………………………14 2.2 The use of fossil fuels in the modern period………………………………………14 III. Description of energies, and how the world is accessing them………………………...……18 3.1 Non-renewable sources……………………………………...……..……………...19 i) Fossil Fuel: description and cost of extraction………………………………...19 a) Oil, Coal, Gas ………………………………………………………...19 ii) Nuclear Fuel: description and cost of extraction…………...………………...23 3.2 Renewable sources………………………………………………………………...25 i) Solar Energy: description and cost of extraction …………………………..…25 ii) Hydropower: description and cost of extraction……………………………...27 iii) Wind Energy: description and cost of extraction…………………………….29 iv) Geothermal Energy: description and cost of extraction……………………...30 3.3 Is nuclear energy renewable energy?.......................................................................31 i) Arguments for nuclear as renewable energy…………………………………..31 ii) Arguments against nuclear as renewable energy……………………………..32 iii) Conclusion…………………………………………………………………...32 IV. The energy crisis…………..………………………………………………………………...34 V. Economic advantages of switching to renewable energy…………………………………….37 4 VI. Economic disadvantages of switching to renewable energy………………………………...42 VII. The real cost of pollution…………………………………………...…………………...….45 6.1 The air pollution……………………………………………………………………..45 6.2 Nuclear pollution……………………………………………………………….……46 6.3 The overall cost of pollution…………………………………………………………50 VIII. Conclusion and recommendations………...……………………………………………….51 Reference………………………………………...………………………………………………54 5 Abstract The primary purpose of the thesis is analysing the economic aspects of the shift to sustainable energy sources and identifying the advantages and disadvantages of the using green energy as the primary source of energy. The decrease of prices for fossil fuel alternatives and the limited deposits of oil, gas and coal make it a notional topic to analyse. The structure of the paper is organized as follows: Chapter 1 and Chapter 2 provides an overview of the energy market and historic background. Chapter 3 describes the cost of extraction of renewable and non-renewable energy sources. Chapter 4 discusses the energy crisis to highlight what are the destructive and hazardous consequences of the oil prices fluctuations of the global economy. Chapter 5 and 6 examines various economic advantages and disadvantages of the transition to the renewable energy sources. Chapter 7 provides information about the real cost of pollution caused by fossil fuels as it is considered as the hidden costs of conventional sources’ utilization Finally, Chapter 8 discusses the results obtained in previous chapters. It summarises the paper and suggests several implications based on findings discussed in the paper. 6 I. Introduction 1.1. The main sources of energy. Nowadays we live in the world where oil, gas and coal are the primary sources of energy. Oil is the most significant and most-traded commodity in the international trade. Therefore, the oil industry is one of the most potent economic drivers of the world economy. Currently, 98% of the transport sector in the United States runs on petroleum; it provides approximately 36% of the world total energy consumption and generates almost 9% of the world's electricity (Kopp, 2006). Therefore, any changes in oil market significantly affect the world economy. For example, substantial petroleum shortage in the 1970s and dramatic increase of oil prices in 2000s caused considerable economic and financial changes in the world. 1.2. The growing global demand for fossil fuels and its supply. The fast-growing demand for road and air transport, excessive manufacturing, particularly in developing countries, caused a shift in the demand for fossil fuels. As a result, the consumption of petroleum is increasing exponentially. According to the International Energy Agency (2017), people used approximately 96 million barrels of crude oil and liquid fuels per day as of 2016. Another source indicates that the world crude oil demand grew an average of 1.76% per year from 1994 to 2006 (Kennard and Hanne, 2015). The primary consumers of fossil fuels are the United States, European Union, China, Japan and Russia (Central Intelligence Agency, 2015). For example, within ten years U.S. consumption grew from 17.7 million to 20.7 million barrels of crude oil a day, where 2/3 of which was in the transportation sector (Kennard and Hanne, 2015, p. 93). Also, Kennard and Henne, the authors of the book “Boom and Bust: A Look at the Economic Bubbles,” states that in China oil consumption grow by 8% annually since 2002, doubling from 1996–2006. Besides, another factor which contributes to the high oil demand is the fact that global human 7 population growth amounts to approximately 83 million annually or 1.1% per year (United Nations, 2017). This leads to the concern that there will be an urgent need in the future to increase outputs of food production and heavy industry to provide the basic needs of all people. Other findings are not optimistic either: world demand for oil is predicted by experts to rise 37% over 2006 levels by 2030 (Kennard and Hanne, 2015, p. 93) While demand is growing sharply, non-renewable energy sources such as coal, oil and natural gas are in relatively short supply. It is a known fact that fossil fuels are finite and one day, eventually, the global reserves will run out. For example, the Hubbert peak theory says that the rate of oil production would reach the peak and then decrease sharply most likely in the early 1970s (Hubbert, 1956). To be precise, in a paper “Nuclear Energy and the Fossil Fuels,” oil geophysicists King Hubbert proposed that petroleum production would follow a bell-curved shape, increasing exponentially during the early stages of production then slowing, reaching a peak and then finally going into final production decline. Figure 1: U.S. crude oil production (1900-2015). Source: EIA. Link: https://www.eia.gov/todayinenergy/detail.php?id=28592 8 Until the middle of the 2000s, the oil production is seemed to have a bell-shaped curve with the peak in 1970 as it was forecasted by Hubbert peak theory (see Figure 1). The graph shows that between 1970 and 2010, U.S. petroleum production dropped by nearly half as conventional wells were exhausted. However, after 2010 it began to rise afresh mainly attributable to such technological innovations as advances in horizontal drilling, hydraulic fracturing, and seismic imaging (Wang and Krupnick, 2013). Moreover, it seems like the Hubbert curve theory does not take into account such factors as geopolitics. By looking at the world petroleum production graph, it is clear that it is not bell-shaped - another evidence that Hubbert curve theory is not precise and have several shortcomings in the calculations (see Figure 2). Figure 2: World petroleum production (1980-2014). Source: World Oil Yearly Production Charts. Link: http://www.peakoilindia.org/2016/05/04/2553/ 9 Regarding the fact that fossil fuels are finite, based on BP’s Statistical Review of World Energy (2016), humanity has approximately 42 years of coal production and roughly 50 years of both oil and natural gas remaining. Nevertheless, the numbers provided by BP’s research might be misleading because there is a possibility that the multinational oil and gas company inflated the estimates of fossil fuels. It is not profitable for oil companies to admit that reserves of non- conventional energy sources will run out soon. Therefore, these numbers might be not accurate. 1.3. Environmental impacts of fossil fuels. Oil industry has a significant influence