Tuesday, April 13, 2010

Some recent posts on basic environmental economics

© 2010 Joshua Stark

I read Paul Krugman the other day as he decided to weigh in a bit on economics and greenhouse gasses.  It's a good piece, and a good example of the reason economics is called the 'dismal science'.  No free lunch, you can't have your cake and eat it, too, etc., etc.

I found it at my favorite environmental economics website, however, and I recommend you read their environmental economics primer, too.  Env-Econ., run by two professors at Appalachia State and Ohio, I believe, make good points, and the site is worth a visit every couple of days.

Krugman also commented on his blog about some kickback from environmentalists for his piece, and he tries to explain himself a bit.

In his blog post, he mentions a belief among many environmentalists that he doesn't quite hold, himself:

"On the first (belief among many environmentalists, the claim that): there is actually a fair bit of evidence that many energy-saving measures would also be cost-saving, even at current prices.  Like most economists, I take these estimates with a grain of salt: if these actions really are cost-saving, why aren’t they being taken already? Isn’t that an indication that there are hidden costs? That said, in the real world people aren’t perfectly rational, so there may well be energy-saving measures with negative cost that aren’t being undertaken."

I've got to disagree with the Nobel Laureate, Princeton economist on this one.

First, Prof. Krugman doesn't seem to remember the constraints of poverty.  For example, how exactly will a renter put in energy-saving washing machines and dishwashers?  How will homeowners put them in, if they must pay, also, for the upgrades?  The same goes for water heaters, windows, new heating and A/C units, cars - the list is long.

Second, Prof. Krugman doesn't seem to remember the imperious influence of huge corporate interests on the marketplace and infrastructure.  Oligopoly and oligopsony play powerful roles in determining just where the "efficiencies" end up in a market, and the dollar amounts rarely reflect the greatest efficiencies for consumers.

You can tell a person that for $20,000, they can eliminate their electricity bill with a solar panel system, but if A) they can't get twenty thou., and B) they have to remove themselves from the electrical grid or suffer penalties and be responsible for the maintenance of a brand-new thing, they won't do it, even if it'll save them $300 a month. 

If, however, you tell homeowners that they can roll their solar loan into their home loan, and they will get back wholesale price for the extra energy they give to the electrical company (often during peak energy use hours, interestingly enough), then you would see the true efficiencies being borne by the consumers, and you would see a rise in solar use.  If you tell landlords the same thing, then they can do that plus get a small premium (smaller than the monthly electrical bill in a similar home, for the renters), too.

So, it isn't the efficiency of the product when compared to other forms of energy, it is the efficiency of the product to the individual user through the hurdles of market manipulation and poverty.  

I usually like Prof. Krugman, but in this case, he doesn't seem to see the trees for the forest.

Update:  David Roberts over at Grist has a similar, though not the same, complaint to Krugman.  


Anonymous said...

A link to a PG&E retail feed-in tariff for you, since I just noticed your last response and comments are closed over at EnV-ECON.


Oh, and while I vastly preferred the state of electricity generation markets under PURPA (must-take tariffs for QF's including renewables) and decry the dysfunction in the CA generation market due to deregulated oligopoly by generators (not utilities), all the caps I know about are on subsidy programs. Wholesale interconnection bearing the cost of required system upgrades is not capped and is required to be allowed under federal open wires regulation.

Massive interconnection of over-expensive generation is proceeding apace due to RPS and other govt subsidies. The problem is with the incentive structures, not the utilities. Take a look at why GE is charging twice as much for >8 year old wind-turbine tech as just a few years ago. Incentives are mostly giveaways to industry and finance (not utilities) on the backs of ratepayers and taxpayers.

Anonymous said...

You should view this Krugman comment in the context of modestly qualifying his previous energy gap post. Apparently some folks thought he was saying the energy gap was so big we could switch to renewables completely while making money on the deal. It isn't.

Josh said...

benamery21 - thanks for the link! I haven't looked at it yet, but I'll get to is soon.

Also, I appreciate your separating generators from utilities, although some of them are semantic separations (PG&E the utility paid out the nose to PG&E the generator, both under the umbrella of the corporation PG&E).

I take your word on the incentives, for sure.

Anonymous - he should have been more clear, then. Since he is usually pretty clear, I don't think he should get a pass on this, but should be taken to task for the comment he made. I'm mean.
: )