Arnold Kling  

Alternative Energy and Rent-Seeking

Should There Be Compulsory Att... Teaching Un-Normal Economics...

In this essay, I put together some recent ideas.

Subsidizing "good" energy in order to justify using "bad" energy is like eating salad in order to justify eating dessert. It is an exercise in self-deception.

...The most important, inconvenient truth about energy policy is that there is no justification for a subsidy for good energy. Subsidies for wind farms, solar energy, ethanol, and so forth, whether they come from government "energy policy" or personal carbon offsets, are pure pork.

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COMMENTS (14 to date)
Ivan Kirigin writes:

I emailed this to Arnold, but thought that I should make it more public. A good idea that I don't have time to implement should be openly released :)


It's the latest in a long line of reason that shows energy offsets are dumb.

In the same way I don't like subsidies by governments, but I do like
longer term research investment, I thought of an alternative
alternative :)

Make an energy offset non-profit that funds research into making
alternatives more efficient and thus cost competitive. The marginal
dollar spent on alternative energy must be siphoned away so that only
a percentage of the profit (if any) would go towards more research
into better alternatives.

This implies the best way to produce better alternatives is to invest
directly in them. This can be done on a university level -- funding
grad students and research labs. It could also be done on an angel
investor basis -- betting on higher risk but big payoff that
traditional angels might ignore.

What do you think? and are both available domains :-P

Norm Cimon writes:

Guys, guys, where have you been for 50 years? As early as the Kefauver committees in the mid-1950s, it was well known that oil depletion tax laws were written solely for the benefit of the oil giants, essentially massive subsidies that dwarf anything even remotely available for renewables to this day. In the 1970s, more of the same. Despite an ever-decreasing rate-of-return per unit of drilling effort, billions of dollars in subsidies continued to be poured down the rathole, pardon me, the oil well. It has been this way forever, yet academia has never seen fit to make much of this. Do you think that, just perhaps, that hurts your credibility?
Or is it only now that these issues are deemed worthy for discussion? There is a disconnect as wide as the Persian Gulf here.

spencer writes:

If an individual eats both salad and cake but keep their total caloric intake below the energy they burn the analogy is completely correct because the individual will lose weight. The analogy is that the individual eats the salad rather then steak so that he can also have cake within his overall caloric budget.

So your basic premise or analogy is invalid.

Ivan Kirigin writes:

i think he means salad vs. salad + cake. Clearly the salad is the way to do. Eating it doesn't let you eat cake. Either way, it's just a analogy. Buying offsets doesn't decrease conventional energy usage.

The effective increase in price of energy to use is offset by more energy on the market that someone else will consume at a lower price. No net loss in calories.

Ivan Kirigin writes:

"Do you think that, just perhaps, that hurts your credibility?"

I am against those subsidies as well.

What about arnold's discussion about subsidies being bad would make you think he disagrees?

spencer writes:

If buying offsets does not reduce energy consumption what does selling or creating offsets do?

Matt writes:

Norm has it right. We have been subsidizing the "alternative" energy (oil) far too long, it should cease.

Once the oil subsidies are gone, then the market will separate the good and bad energies.

What the hell is Arnold talking about? Wind farms? Solar? Is Arnold complaining that these energy sources are too penalized by oil subsidies?

Brad Hutchings writes:

An intellectual heavyweight (and former coblogger of Arnold's from his Corante days) weighs in with his reaction:

Click here.

Excerpt: Take this bit of malarkey from James "Dow 36,000" Glassman's TCS Daily. Glassman's Arnold Kling, a notorious shill for the carbon industry, calls all government support for carbon-free energy "pork."

Great work Arnold ;-).

Norm Cimon writes:

Ivan, if you're against those subsidies then you should be working harder. Despite the complete lack of statistical evidence that the billion dollar honey-pot for the oil industry produces any noticeable increase in oil production, the flow of money continues to this day. I agree, turn off all subsidies, but more than that, value all energy at its real cost. What could be more conservative than that?

Un-filtered coal, which the power industry insists it has to be allowed to burn, is responsible for the epidemic of asthma we now face. None of those health costs, and they are in the billions, have ever been properly allocated. The plain truth is that all the economic arguments are on the side of clean energy when the true costs are placed right up front.

Now, if you can't or won't do that, then a green tag market is a perfectly viable alternative.

Bruce G Charlton writes:

This was a terrific piece - well done AK! Let's hope it gets readership where the insights might do some good.

dWj writes:

If I'm socially-minded and think carbon emissions create external costs of $n per unit, I should refrain from emitting carbon when my (consumer) surplus is less than that. If I find an offset program that actually reduces emissions for less than $n per unit, I should buy some. In the simplest model, perhaps I should spend all my money on them; better models would give different points at which to quit spending money on them. In any rational-actor model, though, buying them up to exactly the point at which they cancel out my emissions would be optimal only as an unlikely coincidence; I should almost certainly be buying either more or fewer than I'm "using".

Robert Speirs writes:

"epidemic of asthma"? First I've heard of it. I do know that asthma is the favorite fake ailment of all time.

morganja writes:

Robert Speirs,

In fact, a million hits from a simple google search. This, in a nutshell, is why economics is such a joke. Once an economist puts his ideological blinders on, he can't see the world in front of him. This site properly criticizes the Austrian school for their aversion to reality. But they continue to make the same mistake.

Norm Cimon writes:

Fascinating comeback Mr. Speirs. I take it you consider yourself someone who deals in facts? Let me suggest that lung capacity is a very real and measurable phenomenon unlike the proper discount rate for valuing health effects into the future.

Here are the figures from that bastion of radical thought, the Center for Disease Control and Prevention: From 1980 to 2003 the prevalence of asthma in children rose to 5.8 percent from 3.6 percent.

What this means is that coal fired power plants incapacitate tens of thousands of people every year and they bear none of those costs. I repeat, so much for proper cost allocation.

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