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.