Will We Ever Stop Using Fossil Fuels?

In recent years, proponents of clean energy have taken heart from the falling prices of solar and wind power, hoping they will drive an energy revolution. But a new study coauthored by MIT energy economist Christopher Knittel and colleagues at the University of Chicago suggests that technology-driven cost reductions in fossil fuels will lead us to continue using all the oil, gas, and coal we can—unless governments pass new taxes on carbon emissions.

“If we don’t adopt new policies, we’re not going to be leaving fossil fuels in the ground,” says Knittel, a professor at Sloan. “We need both a policy like a carbon tax and to put more R&D money into renewables.”

While renewable energy has made promising gains lately—the cost of solar dropped by about two-thirds from 2009 to 2014—new drilling and extraction techniques, such as hydraulic fracturing (or “fracking”) and oil production from tar sands, have made fossil fuels cheaper and increased the amount of oil and gas we can tap into. In the United States alone between 2000 and 2014, oil reserves have expanded 59 percent, and natural-gas reserves have expanded 94 percent.

“There are hydrocarbons that we can now take out of the ground that 10 or 20 years ago we couldn’t,” Knittel observes.

As a result, even though we’ve been using our resources, we have consistently maintained about 50 years’ worth of accessible oil and natural-gas reserves in the ground over the last 30 years.

“You often hear, when fossil-fuel prices are going up, that if we just leave the market alone we’ll wean ourselves off fossil fuels,” adds Knittel. “But the message from the data is clear: that’s not going to happen anytime soon.”

Although the cost of renewable energy has dropped significantly within the last decade, solar is still about twice as expensive as natural gas. And on the transportation side, high battery costs mean the price of oil would need to exceed $350 per barrel to make an electric vehicle cheaper to operate than a conventional one right now. In 2015, the average price of oil was $49 per barrel.

This trend—cheaper renewables being outpaced by even cheaper fossil fuels—portends drastic climate problems. The study, published in the Journal of Economic Perspectives, concludes that burning all available fossil fuels would raise global average temperatures 10 to 15 °F by the year 2100; burning oil shale and methane hydrates, two more potential sources of copious fossil fuels, would add another 1.5 to 6.2 °F.

As the study concludes: “Such scenarios imply difficult-to-imagine change in the planet and dramatic threats to human well-being in many parts of the world.”