Could the red roiling in the financial world stall the march to green, renewable energy? So argues an article in yesterday's New York Times. But does it have to be that way? Why should green energy fare worse than fossil-fuel energy?

Renewable energy sources like wind have been on a growth spurt. As noted in a post last week, the electrical generation capacity of wind has been "growing at about 30 percent annually. In 2007, we added a record-setting 5,200 megawatts (MW) of new wind capacity, and in the first six months of 2008 another 2,700 MW."

Some predict that growth spurt will soon be stunted. It is argued that today's market turmoil -- the credit crunch, tightening of investment funds, and falling fossil fuel prices -- forebodes a bleaker future for renewables. Now, I’m just a scientist and not an economist, but I’m not so sure that is the case.

To begin, let’s look at the impact of the credit crunch. The thinking here is that the lack of capital will cut off investments in new renewable energy projects. But why should a lack of credit disproportionately disadvantage renewable energy?

There is a general consensus that a large amount of new electrical generating capacity needs to be added in the coming decades -- both in the United States and globally (see government projections: domestic and international). According to a recent government-commissioned report [pdf], some 110 new coal-based power plants have been proposed in the United States alone. Power companies want also to start construction on nuclear power plants, and the oil companies want to get busy drilling hither and yon. All of these projects will require capital investments and loans, and the lack of capital and credit will impede them just as they will impede new renewable energy.

In fact, the lack of capital may even provide wind energy with a competitive advantage. The generation or capital costs of wind per unit of electricity generated is significantly less than that of coal and nuclear energy and competitive with natural gas (see this analysis [pdf]).

Now, let’s turn to declining fossil-fuel prices. That certainly does seem to present a problem for alternative energy. As fossil fuels become less expensive, renewable energy alternatives will tend to get “priced out of the market,” making investment in them less profitable. But the appearance of a cost disadvantage for alternative energy relative to fossil fuels may be just that – an appearance rather than a reality.

Many economists agree that the true costs of using fossil fuels are not reflected in the price we consumers pay for using those fossil fuels (see here and here).

Not included in the price are the environmental and health impacts associated with the extraction of and pollution from these fossil fuels. And while we don’t pay for those costs when we buy the energy from the energy companies, make no mistake we pay for them eventually in higher health care costs and higher costs for ecosystem services such as clean water. In the case of greenhouse gas pollution and global warming, many of us may actually escape payment, but our children won’t.

The bottom line is that the apparent competitive advantage of fossil fuels is to some extent a reflection of a distortion in the marketplace rather that a true price differential. To remove that distortion, the environmental and health-care costs of using fossil fuels must be internalized into the price for the energy generated from these fuels; for example, by implementing a carbon tax and/or a cap-and-trade system. Once that is done – and I am not alone in thinking that it will happen (see here) –- renewable energy may look to be a good bet to investors even with falling fossil fuel costs.

So maybe the future of renewable energy is not so bleak. In fact there are encouraging signs for the industry. Competition to be the first offshore wind farm on the East Coast is keen, and the pace of venture capital investment in clean energy was so strong this summer, especially in California, that some see opportunity. And maybe there is a way to get over the investment hump imposed by current economic conditions. There is a growing sentiment in the United States that we need a new stimulus package to get our economy out of the recession blues. Even Federal Reserve Chairman Ben Bernanke is on board with the idea. There are lots of ways to stimulate a lagging economy. Sending checks to folks is one way, but not the only way. Another is to invest in infrastructure. That’s what FDR did back in the 1930s.  And if we were to invest in infrastructure, why not put some of that investment into renewable energy?

Like I said I’m just a scientist, but …