Read an Excerpt
THE FALSE PROMISE OF GREEN ENERGY
By ANDREW P. MORRISS WILLIAM T. BOGART ROGER E. MEINERS ANDREW DORCHAK
Cato InstituteCopyright © 2011 Cato Institute
All right reserved.
Chapter OneHow We Live: Reality and Utopia
The promise of building a new economy based on green energy is enticing—enough well-paid, mentally satisfying jobs that help, not hurt, the environment. A switch to green energy will produce many "green jobs," an alluring prospect in a lack-lustre economy. Double-digit unemployment rates of recent years will be vanquished; clean electricity will come from wind turbines and solar panels; homes, offices, and public buildings will be cool in the summer and warm in the winter without the annoyance of high utility bills; and neighbors will grow our healthy, delicious food, free from potential toxins. And these benefits are within easy reach—we can have them if we just borrow a few hundred billion dollars from the great-grandchildren, invest them wisely in the right technologies, and then enjoy the rewards of our efforts for generations to come.
There's an old joke about two economists walking along a city street. One spots a $20 bill on the pavement and points it out to his friend. The other walks right by the money without picking it up, saying to his friend, "If it were there, someone would have already picked it up." The joke pokes fun at economists' belief in "efficient markets," the idea that if there is an opportunity to make money, market pressures will push someone to do it. As a result—and contrary to the signs stuck to utility poles around the country—there are few opportunities for easy money with little effort. The idea of efficient markets captures an important insight from economics. In sum, there aren't many $20 bills on the sidewalk, and someone would certainly pick one up quickly if there were. Proponents of green energy programs would have us believe that there are many $20, $50, and even $100 bills lying about in America. If only we would build windmills, add solar panels to deserts, stuff insulation into buildings, switch our cars to run on biofuels, build more light rail, ride the train more, eat more locally grown produce, and buy more goods produced in America instead of overseas, we'd discover that the money we spent on those things would be quickly recouped by energy savings, greater wealth, reduced environmental damage, and better health. Green energy proponents don't quite promise an "ecotopia," but, as we describe in Chapter 2, they promise something almost as good.
In effect, what green jobs proponents argue is that there are many benefits to be had at little risk if only we will invest a few hundred billion dollars in capturing it. Because they are positive the investments are a sure thing, proponents urge us to borrow money from future generations, confident that not only can we pay them back with the savings in energy, environmental, and health costs but that we will also leave future generations better off if we invest their money in green programs today.
Such bets on the future payoff from investments today might be a good idea, or they might be the equivalent of investing in a fancy subprime mortgage derivative sold by one of the banks that required federal life support. If people or corporations want to invest their own money in producing alternative fuels or insulating their homes, we should wish them well and be eager to learn if their investments pay off. But green jobs proponents want to force people and businesses to take certain actions by regulatory edict and to invest other people's money, either raised through taxes today or, more commonly, from government bonds that have to be paid for in the future. Since we can't easily ask the people who will be paying for these investments, we have to decide today whether spending public dollars on programs is worthwhile. The three of us with children took a poll of our offspring. Unsurprisingly—these are our kids—they voted against borrowing against their earnings.
This book is an effort to help you decide whether green energy proposals are worthwhile. Three of us are either lawyers or economists or both, and all of us work at universities, making us professional skeptics. Our skepticism has led us to ask some questions about green energy proposals that we think their supporters haven't answered. These are questions you need to ask candidates for federal and state offices. Ask them to explain how rhetoric about a "green economy" will be translated into concrete actions. Ask what those actions will cost and how they will be paid for; what the benefits of those actions are supposed to be and how those benefits were calculated; and why the officials believe they have gotten their choices right.
This book draws upon, updates, and expands upon our previous research. In Chapter 2, we discuss where green energy proponents want us to go and suggest an alternative based on markets. In the remainder of the chapter, we look at where we are, asking how green our economy is, and taking a look at why some of those $20 bills aren't actually lying on the sidewalk. Chapter 3 examines the claims for green energy, as a critical part of the green program focuses on transforming energy use and sources. Chapter 4 attempts to unpack what proponents mean when they call something "green," finding many contradictions and inconsistencies in the proponents' definitions. Chapter 5 discusses the use of economic models and the mistakes in green jobs proposals that result from improper use of models, making such predictions an unreliable basis for public policy. Chapter 6 focuses on green economy advocates' anti-trade agenda, a potentially costly problem if the proposals are implemented. Chapter 7 continues the discussion of the peculiar assumptions about economics that are imbedded in much of the discussion, assumptions that display a profound rejection of elementary economic logic in favor of assertions about economic and environmental gains that are supposed to happen because the supporters want them to happen. Chapter 8 debunks some of the claims about the economic stimulus effect of green spending. Chapters 9 and 10 look at transportation issues, including the role cars and trucks play in our economy and the dismal economic record of mass transit systems. Chapter 11 takes a look at the politics of green energy proposals, explaining some of their problems as the result of efforts to build a political coalition that can muster the votes in Congress and state legislatures to unlock the public treasury. Chapter 12 concludes with thoughts about the economy and the environment and a checklist of questions readers can use to do due diligence on future green jobs proposals.
There are real environmental problems that deserve study and solution. That will happen by economic and technical progress, not mandates from politicians driven by special interests. We begin with a look at where we are today. If we are going to assess green energy proposals, we need to know how green our economy is already.
Energy affects everything we do. Economist Robert L. Bradley Jr. coined the term "the master resource" to describe energy's role in our economy, and the phrase captures the critical function of energy. When we go to the store to buy something (or click on "buy it now" online), we use energy to make the purchase and bring it to our homes. Energy also goes into all the goods we consume. Using Department of Commerce data, American Enterprise Institute researchers Kenneth Green and Aparna Mathur calculated the indirect energy content of a variety of consumer goods in 2006. As an example, they describe the energy embodied in a cotton T-shirt:
Energy is required to grow and harvest the cotton; transport it to a factory; make, package, and transport the chemicals used to bleach, dye, or condition the cotton; run the machines on which the t-shirt is processed; create packaging materials; ship the t-shirt to the store; and keep the heat and lights on in the store.
Green and Mathur calculated that nearly half (46 percent) of the energy we use is used indirectly in the production of food, medicines, and consumer goods. This is important because anything that increases the price of energy will also increase the price of goods that use energy indirectly. Thus, if energy costs were to increase because of forced use of more expensive renewable energy, not only would the price of electricity rise, but so would the price of food, medicines, and consumer goods, such as cotton T-shirts. Those price increases would disproportionately affect the poor. Green and Mathur found the ratio of indirect energy expenditures to income to be four to five times as great for the poorest 10 percent compared to the richest 10 percent of our population. Other analyses reach similar conclusions about the widespread nature of indirect energy use.
Beginning with energy is appropriate because energy is at the heart of efforts to "green" the economy. Advocates tout sources of green employment in building, operating, and maintaining approved energy facilities, such as wind turbines and solar photovoltaic (PV) panels, as both sources of employment themselves and as a means of greening energy-using industries.
Four important things are missing from any discussion of green energy, however. First, Americans currently get just 0.6 percent of total energy from wind and solar power. Add in hydroelectric power, even though many environmentalists oppose many conventional hydroelectric projects, and the percentage rises to 3 percent, still a tiny fraction of U.S. energy demand. Moreover, energy produced by wind and solar is still considerably more expensive than coal, natural gas, or nuclear-generated power. Conventional coal-generated electricity typically costs 25 percent of solar PV and 66 percent of onshore wind. (See Table 1.3.) An energy strategy that relies on rapidly scaling up such small sources is unrealistic in the short to medium term, a problem that green energy proponents gloss over with assumptions about rapid deployment of new technologies.
Second, wind and solar electricity production differs significantly from energy production using coal, natural gas, hydro, or nuclear power. Coal, natural gas, large hydro, and nuclear power plants can work almost continuously, providing power day or night, on windy days and still days, whether it is sunny or raining. Neither wind nor solar is produced continuously or at the flick of a switch—the wind must blow or the sun must shine. As a result, they add new complexity to managing the power supply. Wind- and solar-produced electricity is likely to be generated far away from the existing grid of wires that distributes electric power throughout the United States, requiring expensive investments in new lines. Any strategy that relies on dramatic increases in wind or solar production of electricity must take these problems into account—and green jobs advocates largely do not take this complex (i.e., costly) issue seriously.
Third, even those energy facilities that green proponents are most fond of—wind farms and solar PV fields—are not uncontroversial once someone plans to build one in someone else's backyard. Windmills can cause "shadow flicker," kill birds, and create visual and noise pollution that annoys neighbors. Solar PV fields can interfere with endangered species' habitats. Both require lots of new transmission lines that will have to cross people's properties. As a result, expanding such facilities is much harder than green energy advocates suggest.
Fourth, defining what energy counts as "green" is difficult and symbolizes the problems in reconciling the interest groups within the green jobs coalition. Is nuclear power "green?" Green Jobs in U.S. Metro Areas, a report prepared for the U.S. Council of Mayors that studies the impact of green jobs on U.S. cities, suggests that existing nuclear plants are, but new ones would not be, so no more should be built. Many green groups oppose all nuclear energy. In general, nuclear power confronts green energy advocates with a dif- ficult question about trade-offs—more nuclear power plants would undoubtedly reduce carbon dioxide emissions, a key goal for most green interests. But nuclear power has environmental downsides, such as the disposal of long-lived radioactive waste products. Nuclear power is not the only form of energy that poses trade-offs, however. Producing solar PV panels can involve considerable hazardous waste that requires disposal; the larger land footprint of solar panel farms increases their environmental impact; and the sunny regions best suited for solar power are often environmentally sensitive deserts. There are similarly complex trade-offs about the use of biofuels and hydro power.
Here we look at the realities of energy production and use in the United States and the rest of the world and compare that to green energy advocates' proposals. We think that the data suggest that green energy proponents have been peddling an unrealistic vision of energy production and use and are suggesting measures that will require either dramatically increasing the cost of energy or significantly cutting its use. Both would mean a reduction in the standard of living. The impacts globally would be even worse, as increasing energy use generally—and increasing use of electricity in particular—is an important way to improve the quality of life for people in developing economies.
The Big Picture on Energy
Before we can evaluate the claims about energy made in support of green programs, we need a clear picture of where we are today. We begin with where the federal Department of Energy experts say we are and where we are going in terms of energy production. From Figure 1.1, we can see how important conventional energy sources are, with coal, natural gas, liquids (petroleum based), and nuclear providing over 94 quadrillion BTU while biofuels (such as ethanol) and renewable energy sources provide just under 7 quadrillion BTU.
Figure 1.2 shows that this proportion of traditional sources to "green" sources is not likely to change dramatically between now and 2030. Indeed, the increase in energy from renewables and biofuels over that time is about the same size as the increase the U.S. Energy Information Administration predicts for nuclear and coal. The EIA does not have a crystal ball for making such forecasts, but its predictions are based on energy expertise, data, and careful statistical analysis, rather than on hope and an optimistic attitude, as are many of the predictions in the green energy literature. Importantly, unlike the interest groups touting green energy spending plans that will funnel public money to their own pockets, such as the American Solar Energy Society, the EIA has no horse in this race. Regardless of what our energy future looks like, there will likely be an EIA gathering data. Its predictions are thus a valuable benchmark against which to compare predictions of special interest groups.
If we look at electricity, the picture is even clearer. As Figure 1.3 shows, for electricity generation, the overwhelming majority comes from coal, nuclear power, and oil and natural gas. 10 Just over 10 percent comes from any form of renewable energy. When we look at the types of renewable energy used to generate electricity (see Figure 1.4), we can see that over 70 percent comes from "conventional hydro"—precisely the type of renewable energy that environmental groups are opposed to expanding and some are working to eliminate. Solar's contribution is tiny. And even by 2030, a very long time in the forecasting business, only wind shows a sharp increase in power generated, nearly all of which comes about within the next decade in EIA's predictions. The EIA forecasts that the share of energy generated by wind rises only from 0.8 percent of total generation in 2007 to 2.5 percent in 2030.
Why is wind forecast to increase its capacity so sharply in the next few years? The major reason is government mandates and subsidies. Table 5.1 at page 101 lists the subsidies for various fuels in dollars per kilowatt-hour (kWh) of energy produced and shows that wind receives subsidies courtesy of taxpayers more than 10 times greater than nonrenewable fuels when adjusted for the total amount of energy production. This adjustment is crucial to comparing subsidies, since the amount of energy produced by different sources is so dramatically different. Refined coal and wind receive similarly high levels of subsidies per kilowatt-hour.
We will review issues related to subsidies in more detail later, but for now note that it pays to be suspicious of programs that are driven by subsidies rather than by market demand for three reasons. First, if an energy source is being subsidized, the price does not reflect the cost, so people use more of it than they would if they paid the real price. Since green energy advocates are generally fans of increasing conservation, subsidizing any form of energy is inconsistent with the market signals necessary for reducing consumption (e.g., direct higher prices for users, not subsidies from taxpayers). Second, once a subsidy is available, an interest group quickly organizes to protect its members' continued receipt of the subsidy, and it becomes difficult to wean the subsidized from the flow of public dollars. Finally, if the subsidies do disappear, or a better subsidy is offered elsewhere, firms chasing subsidies are quick to decamp. For example, BP shifted its wind power spending from Britain to the United States because American subsidies were more generous than British ones.
Excerpted from THE FALSE PROMISE OF GREEN ENERGY by ANDREW P. MORRISS WILLIAM T. BOGART ROGER E. MEINERS ANDREW DORCHAK Copyright © 2011 by Cato Institute. Excerpted by permission of Cato Institute. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.