When Brent and WTI crude prices spiralled downwards earlier this year to less than $60 per barrel, many critics thought that new hopes for cleaner alternatives would be dramatically eclipsed by the mighty force of hydrocarbons. With cheaper access to crude, investment in renewable energy sources are more expensive. But contrary to this basic law of supply and demand, many experts now believe that low oil prices have not had any effect on the development of sustainable energy.
On a broader level, oil prices have gained massive global attention. Governor of the Bank of England, Mark Carney, and IMF Director, Christine Lagarde have both stated that low prices will be unequivocally good for the global economy. Certainly, the logic is intuitive – cheaper energy prices means higher productivity. However, like the projected decline in renewables investment, this shift in oil price has not resulted in the projected growth increase. Again, the tale told by economists has not come true. Across the globe, this kind of conventional thinking has resulted in other lingering problems – the Eurozone faces structural flaws and an austerity crisis, China now appears to be plagued by a rising housing bubble, and the likely rise in interest rates after a significant period of quantitative easing has forced the US economy to stare into the abyss of massive uncertainty.
So why haven’t low prices wiped out the ground gained by the green revolution? While there is an argument that oil and renewables no longer compete because they each serve different purposes – oil still almost wholly supporting transport and renewables being a major contributor to electricity production – this has been a historical shift. The real answer actually lies in the limits of traditional economic thinking. Here, consumer demand is treated as rational and utility maximising. But people are far more complex than this constricting and narrow boxing of humanity. Indeed, the shifts in perception of green energy mean that demand is in fact malleable. To this, demand should be considered in regards to its social context, and not a fixed theory taught from a textbook.
In essence, when considering the economics of the energy sector, one should not discount the effectiveness of the media industry – which has promoted green thinking as a viable and sustainable alternative to traditional hydrocarbons. The growing perception that one day the world could be substantially powered by renewables has certainly developed because of advances in technology. However, this growth has been significantly accelerated by strategic communications. Without it, sustainable energy might have been dead in the ground.
So what does the obstinate growth in investment in the renewable energy sector say about economics? Well, conventional thinking would do well to remember the discipline’s intrinsically social nature. Communication can change perceptions, and by extension, the demand side of basic economic thinking. So ultimately, even though renewable energy may be more expensive, and choosing to invest in the industry is certainly not always utility-maximising; what we are seeing is that consumer demand is more sensitive to changing trends and perceptions moulded by communications than to a socially and culturally insensitive, robot-like economic rationality.