The economy of Iceland got a lot of attention at the peak of the financial crisis thanks to the extraordinary rise and fall of the country’s banking sector. And while that really was a wild ride (check out the classic Planet Money episode), Iceland remains one of the richest countries in the world, even after the collapse of its banking adventure.
So what’s going on in Iceland? The population is generally well-educated and healthy, and the country has a pretty effective public sector as well as a lot of tourism and fishing. The fishing industry fuels a lot of the country’s exports, but their biggest export is actually aluminum and aluminum products.
Island nations with small populations often struggle to develop manufacturing export industries because they have a tiny domestic market, a limited capacity for agglomeration, and bad supply chain logistics. Densely populated islands with a large population — the U.K., Japan, and more recently Taiwan — are classic industrializers, but Iceland is the opposite: the country is in the middle of nowhere and barely anybody lives there.
The secret to their aluminum success is that because aluminum manufacturing is very electricity-intensive, it’s good to make aluminum where energy is cheap.And energy in Iceland is very cheap despite the fact that it’s a very sparse, very cold island with lots of driving, lots of home heating needs, and zero domestic fossil fuel resources. Gasoline is, in fact, very expensive for those reasons. But Iceland meets a lot of its electricity needs with hydropower, and the rest — along with home and water heating — comes from the island’s abundant geothermal resources. And geothermal, where available, is a really great source of energy because it lacks the emissions associated with fossil fuels, the waste concerns with nuclear, and the intermittency of wind and solar.
Why doesn’t everyone use it? Traditionally, geology. But there’s a chance we could overcome that in the modern age if we stopped tilting the regulatory playing field in favor of fossil fuels.
The heat below us all
As every tourist who visits can see, geothermal power is very close to the surface in Iceland. You can swim in the warm waters of the Blue Lagoon and visit geysers and volcanos; landscapes are dotted with signs advising visitors not to touch pools of water so hot they’ll burn.
Under those circumstances, tapping into geothermal power is relatively easy, but most of the world isn’t like that.
The earth is roughly spherical, though, and the center is incredibly hot, so going deep enough at any location on the planet will yield tremendous thermal energy. Today’s geothermal power facilities are located in places where very hot geothermally-warmed water is close to the surface and easy to access. But we humans are pretty resourceful, and in principle it’s possible to drill two giant holes in the ground, shoot water down one of them, and have it pop back up the other, creating a bunch of really hot water that can either be used to generate electricity or piped to nearby homes for heating.
The graphic above illustrates an “EGS,” or Enhanced Geothermal System. Conventional geothermal systems, like those in Iceland, leverage heat that’s basically lying around for anyone to collect. With EGS, we are making our own luck. But in reality, there’s no sharp dichotomy. Even the most convenient geothermal power sources require some human ingenuity to tap into. And while the genius of EGS is that in theory you could do this almost anywhere, in practice some locations are much easier than others. As with anything that involves giant holes in the ground, complications arise because geology differs hugely from place to place. The terrain is easier to drill in some locations and harder in others, and of course there’s the question of depth.
And what you generally want in engineering projects is to start with the relatively easy cases, perfect the techniques and make some money, and then tackle harder problems over time.
Learning by doing in geothermal energy
The oil and gas drilling industry offers a precedent for this.
The world occasionally worries about running out of oil. This is genuinely something that could happen — the quantity of oil in the ground is finite, and human consumption outpaces the formation of new oil — but the oil depletion scares of the 1970s and the early aughts weren’t concerned about the total exhaustion of global resources. Rather, they were about the depletion of accessible oil. After all, just because oil is down there somewhere doesn’t mean we can obtain it in a cost-effective way.
It turns out, though, that if a large number of people have both the opportunity and the financial incentive to figure something out, they tend to solve the problem. What ultimately brought the most recent round of “peak oil” hype to an end was new innovations in hydraulic fracturing and horizontal drilling that opened up previously inaccessible oil reserves of oil. Thanks to those innovations, the United States emerged as the world’s number one oil producer in Barack Obama’s second term, and we’ve held the title ever since despite considerable upheavals in the global energy market.
And the industry actually keeps getting better at drilling.
Once the easiest new wells were drilled, companies had to constantly innovate just to keep production steady, and over the past 10-15 years we’ve seen technological advances that are just as impressive as the advances in wind, solar, and battery costs during this time. They just tend to get hyped up by a different group of people, since fossil fuel production and renewable energy have different implications for climate change.
But unleashing this same pattern of drilling innovation on the problem of EGS could provide a potentially huge source of renewable energy. It would be much better than oil wells, not just because of pollution but because the “easy” geothermal projects wouldn’t suffer the same kind of rapid depletion that easy oil wells do. The same pace of innovation in drilling would yield a much better curve in terms of actual energy output.
Unfortunately, though, we can’t just transfer our current oil drilling know-how to EGS, in part for technical reasons but also for bad regulatory reasons.
Drilling is hard, permitting is harder
Tim Latimer used to be an engineer in the oil and gas industry, but he cares about climate change and has worked for the past several years as the CEO of an EGS startup called Fervo Energy.
He had a great Twitter thread last year about the history of drill bits, which is a story of continuous evolution. Right now, the state-of-the-art drill bit is something called a PDC bit that involves artificial diamonds and technology that was originally pioneered by the federal government at Sandia National Laboratory before being commercialized and reaching its potential during the current shale boom. When I met Latimer at a conference last week, he explained that PDC bits weren’t used in the older generation of geothermal projects, but there are now efforts to apply this technology to geothermal. The problem, unfortunately, is that these projects are undertaken in different conditions that involve harder rocks and higher temperatures (because the whole point is to tap into geothermal energy).
Initially, the bits he was using would wear out super fast. But they realized the bits might work more efficiently if there were more diamonds around the side, so they custom ordered new ones, which did in fact work better.
That’s the “learning by doing” process. The more you drill, the more you get to optimize your equipment. And of course the suppliers can also get better at making the new equipment as they get more scale and have more practice. And while I’m sure Latimer would love to have the whole geothermal market to himself, realistically this truly takes off when multiple companies are working with multiple suppliers — the mix of trial-and-error and cross-pollination can really improve things.
Right now, of course, the expense is still so high that energy produced this way isn’t remotely competitive with other sources. But California’s Public Utility Commission has done the world a favor by mandating the purchase of a certain amount of geothermal electricity next decade and jump-starting a market for geothermal drilling at locations where a relatively shallow well is feasible and where companies have the opportunity to hook up to California-bound transmission infrastructure. Hopefully, that California incentive program drives enough investment to move us down the learning curve and make some great things happen.
The problem is that while the shale boom happened largely in Texas, where almost all land is in private hands,the places where the geology and the transmission infrastructure line up are almost all federally owned land. Federally owned land doesn't mean it's parkland. There is tons and tons of commercial exploitation of natural resources on federal land — for timber, grazing, and oil and gas drilling. But while oil and gas drilling on federal land has a categorical exemption from NEPA, geothermal drilling does not. Each well requires a permitting process that's very labor-intensive, both in terms of the work that a driller needs to do but also in terms of staffing at the Interior Department. That raises costs, but I think more importantly given where we are with the technology, it slows things down. Since everyone is in some sense really just drilling for California's guaranteed purchases, some work will get done no matter what red tape is in the way. But moving up the learning curve will require companies to iterate, which is hard to do when each iteration generates a big stack of paperwork that piles up on understaffed desks.
A better energy system needs better rules
This issue was not addressed in Joe Manchin’s permitting reform proposal, so I’m not going to argue that the whole saga proves that he’s right about permitting reform.
But I do think it is illustrative of the general point. The United States of America already has an economy that runs on fossil fuels. We have special regulatory exemptions so that oil and gas exploration can happen on federal lands. We have transmission lines to take power from coal- and gas-fired plants to people’s homes and offices. We have natural gas pipelines.
What we don’t have is the infrastructure for a zero-carbon economy.
Solar and wind installations are cheap to build in terms of a megawatts-per-dollar calculus. But the best locations for wind and solar aren’t necessarily where the electricity demand is, and we need to build a lot more interregional transmission. If we think hydrogen is going to play a big role in the clean energy economy, we will need new pipelines for it. If we think carbon capture will play a role, we need pipelines for that, too. And if we think geothermal is promising — which it seems to be — we will need the ability to drill those wells and ultimately build new transmission lines.
Environmentalists are not dispositionally inclined to say we need to drill more. But solar panels and batteries don’t fall out of the sky either; they are manufactured out of materials that are mined from the ground. There’s no way around the need to dig some holes. We need to align our regulations with our intentions, and geothermal permitting is a great place to start.
This is a huge problem for Europe as they deal with Russian gas shutoffs; the talk of Europeans freezing to death this winter is badly overstated, but big swathes of European manufacturing becoming economically unviable is absolutely on the table.
Most of the West has a huge legacy of federally owned land that wasn’t desirable for Homestead Act farming. But because Texas entered the union after a period as an independent republic, the federal government never owned the unsettled land there, so even the very arid parts of the state are in private hands.
I have pretty well established myself as being in the “cautious optimist” column when it comes to the cost and economies of scale that the more tradition “green” tech stack of solar PV, wind, and storage will possess by the end of this decade, and I am at least that pessimistic about nuclear’s potential turn-around.
But enhanced geothermal is very much the outlier… a potential game-changer in which I have a great deal of faith. The fact is that if we get the permitting and policy environment right, it is very much dependent on existing, proven, well-understood technologies which are already cheap, rather than projected to become so. Our ability to effectively execute is virtually assured, compared to moderately probable in the case of renewables+storage and damned unlikely for nuclear.
Today's essay includes this nugget of wisdom: "It turns out, though, that if a large number of people have both the opportunity and the financial incentive to figure something out, they tend to solve the problem." There are, of course, limits to its application. But if politicians, activists and their founders could internalize this simple insight, many problems would move from the "impossible" to the "solvable" column quickly.