For the “E”nvironmentalists who actually think we should continue to allow Christmas to exist despite its wastefulness, I wonder what they think Santa should put in the stockings of children who have been bad. Coal is off limits since it is an evil fuel source that kills polar bears. Or maybe not. If kids get lots of coal in their stockings, presumably they will keep it as a toy rock for their collection, or just throw it away. Maybe all of that coal accumulating in the stockings of naughty children will prevent it from getting burned?
Or perhaps the bad children of our Eco-Future will no longer be threatened with coal … perhaps bad children will be threatened with … windmills? Sounds weird. I’d love to see it, imagine an entire generation of small children growing up to despise windmills.
In any case, back to the economics. It is often argued that Green Energy subsidies are required because of “increasing returns to scale” in the rollout of energy infrastructure. This is either because of natural monopoly conditions or the existence of some positive externalities that investors cannot capture. But why is the infrastructure needed to build out a grid connected to windmills any more of a natural monopoly or have any more positive externalities than a grid connected to coal plants (ignoring the climate, which is an issue NOT related to the infrastructure, but to the source of the fuel itself – which is why folks are arguing now that we need BOTH a carbon tax AND a green energy subsidy … that was predictable of course)? Of course, if any sector is subject to increasing returns, it would be the coal sector over the wind sector. To build coal plants and wind farms with equal power capacities, I would argue that (ignoring zoning and other regulatory hurdles for each) that it takes far longer and far more up front capital to deliver a coal plant than a bunch of windmills. Furthermore, the wires connected to coal plants do the same thing as wires connected to windmills.
Or think about the massive buildout of petroleum fueling stations around the country. How could a private investor EVER have made the decision to build one of those, and how could automakers pumping out ICE’s ever coordinate with them to ensure that gas engines get built and gas stations get built to fill ’em, with the associated massive investments in pipelines, drilling rigs, refineries, etc.? Unimaginable.
Yet coal plants and an extensive gas station network have been build. But let’s take the “E”nvironmentalists seriously who want to argue that major infrastructure is underinvested in. If this is the case, then shouldn’t they be arguing that (ignore the externality of the CO2and non-CO2 pollution) we should have even more coal fired plants and even more gas stations? And therefore as a matter of public policy, if we now allow ourselves to think about the pollution problems associated with coal fired energy (and ignoring the social good delivered by abundant, reliable, cheap electricity), isn’t it an empirical question about whether we have too few or too many coal plants? If increasing returns technologies or positive externalities results in too few coal plants being built, then isn’t it possible that we have the right amount out there?
Again, as both a theoretical and empirical matter this has to be the case. And again, for the purposes of my post it matters NOT one iota whether I am correct or incorrect in the magnitudes. The point is that this should be an open question, yet the policy discussion starts with the ending that we simply need government to subsidize windmills and solar panels and all kinds of other groovy investments. But that is not at all obvious, and wouldn’t be obvious if one were actually doing anything resembling honest research. How many articles have you read that recognize this point before they go on to say that, “on balance, the evidence still suggests that solar subsidies are justified?” I’ll help you figure out the answer.