Nomi’s Note: Welcome to a special edition of Inside Wall Street. All this week, I’m bringing you some of my favorite content from geopolitical strategist Peter Zeihan.
In the fight against climate change, leading nations have promised to reduce carbon emissions and power their countries by cleaner means.
Around the world, different energy transition strategies are yielding different results.
And right now, we’re in the middle of the worst energy crisis the world has seen for decades. Some countries are struggling to keep the lights on.
Yesterday, in the first of a two-part series, Peter showed us what two of Europe’s largest countries, Germany and France, are doing to keep their economies powered up.
Today, he looks closer to home… and explores the different approaches being taken by our two most populous states, Texas and California.
And he shows us that when it comes to the energy transition, location matters…
Texas is a very sunny place. Especially western Texas, which is part of the American Southwest.
The Southwest is the sunniest region on the North American continent. And Texas is also in the Great Plains, which is one of the windiest locations in the Western hemisphere.
Texas doesn’t have an official green program. But it’s been adding solar and especially wind power at huge volumes.
Also, as the turbines go higher and higher, above about 700 feet, you’re tapping into stronger and more reliable wind currents.
That means you can even use that wind power for base load capacity, because it’s not so intermittent.
And then that brings us to California.
One of the fun things about California is its policymakers are a little wackadoo from time to time.
But one of the things that California does not get enough credit for is this:
Its bureaucrats have been imbued with enough power to move the goalposts when it’s clear that the technology is not working out.
The state legislator in Sacramento will pass green mandates.
But if 5-10 years down the line, it looks like the technology is not maturing as they thought… the bureaucrats have the authority to move those goalposts a little bit.
It puts pressure on the industry, without it necessarily being a death blow.
I think a lot of the concerns folks have about California experiencing wide-scale blackouts because of the green transition are a little overblown.
I’m not saying it’s not a risk. It’s something we should keep an eye on. But California has developed a legal structure for dealing with this.
But we need to compare California (a very sunny, moderately windy state) with Germany (not sunny or windy at all, as we saw yesterday).
California and Germany have very similar mandates for their green tech. But it really doesn’t work in Germany at all.
We’re seeing that right now with all the coal coming back online and, at least to this point, their refusal to bring nuclear back online.
We’re going to see a broadscale failure in Europe of all things green, probably this year and certainly next year. Particularly in Germany.
The winter is probably going to be pretty harsh.
But in California, it’s a different picture. Not only does the geography work better for green tech, we have a more flexible legal system.
There are also secondary impacts that help in places like California and Texas, that don’t in Germany. Again, it has to do with geography.
Peak demand in Germany is in the winter, at night, when solar can’t help at all.
Peak demand in Texas and California is in the summer during the day. And if you have solar panels on your roof, you are preventing that solar gain from going into your attic.
I used to live in Texas.
I took a thermometer up into my attic. And I discovered that before and after I got solar panels, the temperature difference was typically 30 degrees in the heat of the summer.
It makes it a lot easier to cool your house if the solar energy is not hitting the roof in the first place.
California and Texas can count on that. Germany, not so much.
First Rule of Geopolitics
Where does this take us?
Well, we’re going to see Europe’s green programs broadly collapse this year. Especially Germany’s.
Their programs are going to be shown to be hollow. The technologies are going to be shown to not work very well at all in those geographies. We’re going to see carbon emissions expand considerably.
But in California, everything’s going to be more or less hunky-dory.
The green movement is going to have about two years to digest this.
And hopefully, the outcome of this for the green movement will be a recognition that geography matters. That’s the first rule of geopolitics.
And if that’s the case, then maybe we’ll get some smarter policies in a whole lot of places. (New York State, by the way, is in a very similar situation to the Germans.)
California can show a way forward.
And if the greens can realize that place matters, and where you get your power matters… then Diablo Canyon – the nuclear power plant I talked about yesterday – probably won’t shut down.
Then we can have a new model of an integrated system that is more carbon-friendly for the environment… without the risk of massive rolling brownouts and blackouts.
That’s probably where this is going to go.
It will mean that the knives come out within the green community…
Between the ideologues who think that all solar is good – even if it’s facing north at the North Pole in the middle of the night…
And those that can actually do math, like me.
Author, The End of the World Is Just the Beginning
Nomi’s Note: Nomi here again. As a veteran geopolitical analyst and strategist, Peter has immersed himself in the world of international affairs throughout his career.
In his latest book, The End of the World Is Just the Beginning, he combines his unique understanding of demography, economics, energy, and politics to map out what happens next in our world.. Including in the energy transition.
To order your copy of Peter’s book today – at a discount over the major retailers – simply click here.