Monday, April 15, 2013

Clean Energy and Politics

Dr. Sened is a Professor of Political Science at Washington University in St. Louis, and former chair of the Political Science Department at Washington University. His main interests are comparative theory of institutions, game theory and mathematical modeling. Dr. Sened teaches Undergraduate and Graduate level courses in the Political Science Department.

Two weeks ago, Professor Murray Weidenbaum posted a piece titled, ‘Clean Energy and Dirty Politics.’  I want to respond to four distinct points made by Dr. Weidenbaum. By dirty, Murray refers to the tendency of politics to ‘mess up’ the smooth and ‘clean’ forces of the market.  This is the first argument I want to respond to.   Murray’s second argument is that clean energy is heavily subsidized.  His third argument is that we are using ‘old’ (i.e. existing) technology rather than investing in research towards new technologies.  Finally he argues that there aren’t as many ‘green jobs’ in clean energy as we tend to believe.   In this post I will take these arguments one at a time and provide a response, mainly in an effort to keep this important discussion ongoing.  On Wednesday we will publish a post by Amy Plovnick who speaks about politics standing in the way of popularly approved measures to support increased clean energy production in 29 states in the United States.  On Friday we will post another entry by Alex Bluestone who reports on the progress in D.C. where despite the arguments we refer to here, there is actually progress being made through bi-partisan legislation being drafted to curb green house gas emissions in the U.S.

Dirty Politics – It is useful to distinguish between market forces that allocate resources through the ‘hidden hand’ of the market forces and the politics that is all about ‘authoritative allocation of resource.’  It is well known that as long as markets work, they tend to be efficient and political allocations tend to be inefficient.  But markets often fail.  There was nothing particularly clean in the way the financial markets managed the life savings of so many into the complete collapse of those markets that led to the current, so called ‘Great Depression.’  I am not an expert on the history of eighteenth century evolution of energy sources to which Professor Weidenbaum refers, but it was a massive government intervention that brought about the creation and maintenance of the infrastructure of highways and electric grid that allow the markets to work in the U.S.  It is actually the lack of government intervention that brought this infrastructure to the sad condition it is in today, which creates huge transportation costs that weigh heavily on the U.S. market when it tries to compete with other countries like China, and the EU, where most of the building and maintenance of the physical infrastructure including modern train services that are virtually nonexistent in the U.S. is held and run by the government.  It does not make it more efficient but it guarantees a certain quality of infrastructure that we can no longer count on here in the U.S.  As argued several times on this blog, the U.S. economy pays a significant cost both in terms of GHG emissions and simple green old dollars, due to the sad condition the electrical grid and other elements of the fundamental infrastructure in the U.S.
Subsidizing Clean Energy – Murray Weidenbaum will be the first to agree that we subsidize dirty energy as much as we subsidize clean energy.  With clean energy, we give subsidies to installation, simply because the front end costs of implementing large structures of clean energy are very high and developers and investors shy away from front end costs.  The beauty of it is that with clean energy, once you pay for the installation, the energy then comes quite cheap.  We do not need to subsidize front-end costs for fossil fuel energy generation.  Companies that are engaged in this sector are capital rich and are perfectly capable of paying for new wells of oil and natural gas extraction.  But we heavily subsidize the daily use of these energy sources by ignoring or forgiving the producers the huge costs in pollution and the healthcare services needed to remedy the damage caused by this pollution.  Then, of course, there is the subsidy we give to old dirty energy sources by allowing our utility companies to keep the infrastructure of the grid in as poor a condition as it currently is.  Finally, there is a simple issue that is not a question of having a ‘hard heart’ as Murray claims, but a question of simple arithmetic: if we do not subsidize clean energy today we will have to pay a whole lot more to cover the cost of the damage done by the continued use of fossil fuels as the main means of production in the production of electricity.  Better to invest a little bit in current subsidies than pay an order of far greater magnitude to fix the problems we will create if we do not transition more of our electricity production to clean energy sources.  Global warming is no longer controversial.  It is here and is here to stay.  The only way to stop its devastating progress is to transition to clean energy sources.
On a completely different note, we have links, on this blog, to the Bloomberg Clean Energy stocks indices and it is plain to see that they are actually doing very well.  The clean energy stock market is as ‘clean’ a market as markets may ever be.  Of course, some of the success of clean energy stocks is due to the same subsidies Professor Weidenbaum refers to.  But much more of its success has to do with good old stock market dynamics that are true for all stocks.  The world is of a dire need of ever growing quantities of energy.  Fossil fuel energy is not getting any cheaper, much of it comes from very troubled corners of the world with indeed very dirty politics.  It is only natural for investors to bet on clean energy to eventually pick up and take over, it is a lot more about rational expectations than about government subsidies. We know this to be the case because while government subsidy policies are very volatile and they come and they go, the clean energy stocks seem to keep climbing and be insensitive to the high volatility of government subsidy policies.  
Old Technologies – Yes! We only know how to implement well-established and well-understood current technologies.  No investor and no government will readily invest in premature technologies.  What is the alternative? According to Professor Weidenbaum we need to keep looking for new technologies.  This is definitely true, but by the time they are ready to be implemented, they would be labeled by Dr. Weidenbaum as old again.  It has actually been a huge source of frustration for many that universities and other research organizations have been getting huge amounts of money to keep looking for new technologies that rarely make it into the marketplace.  Due to this very common criticism, many universities have established new policies to implement some of the technologies they develop faster. But it is never fast enough. University researchers have chosen to be university researchers because they are good in the field research, not because they are good at implementation of their research, or else they would have chosen a different profession.  It takes a while to get those technologies from the University lab to implementation, and by the time we start using new technologies they are ‘old’ by some standards. We have got to start somewhere and the best place to start is with the newest technologies that are ready for implementation.  Old or current, however you call them, where else would you start.  Professor Weidenbaum sounds as if he never wants us to start anywhere.
Green Jobs – True! The numbers of green jobs that clean energy projects may yield have been greatly exaggerated.  The same is true of the numbers floated by the fossil fuel industry.  We should be more careful and specific when we estimate job creation potential.  As an economy in crisis we are not doing very well in the domain of job creation and it is time we begin to address these issues with careful estimates rather than slogans.  I will concede this point to Murray!

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