By Andrew P. Morriss, William T. Bogart, Roger E. Meiners, Andrew D. Dorchak
“This new work [289 pages] offers an outstanding, nearly unprecedented evaluation of claims by green energy and green jobs proponents that we can improve the economy and the environment, almost risk free, by spending billions of dollars on what are ultimately false promises.”
Energy affects everything we do. The late Julian Simon coined the term “the master resource” to describe energy’s crucial role in our economy. Nearly half of 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 prices 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 poorest.
The False Promise of Green Energy looks at the realities of energy production and use in the United States and the rest of the world versus the promises of green jobs’ advocates. The data in our book strongly suggests that green-job 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.
Either and both would reduce living standards. 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 best way to encourage development of new technologies is not for the government to select some favored ones and subsidize them. Governments love to do this, because it allows politicians to hand out money to special interests.
Remember the Synfuels Corporation? Congress and President Jimmy Carter wanted to spend $100 billion (which a sum back then!) to synthetically produce liquid fuels from coal to replace oil. The project was unsuccessful, and President Ronald Reagan pulled the plug shortly after taking office.
Instead of letting Congress choose the next technology, we should leave that to market competition. When governments choose technologies, they often fail for three reasons.
First, government decision makers are insulated from market signals. Without having to respond to price changes, decision makers can’t learn the important lessons about how they work.
Second, the public resources governments make available are so addictive that firms reorient themselves away from producing to meet market demand toward pleasing the government decision makers who allocate funds. Every dollar spent on campaign contributions is unproductive of energy. But because those dollars yield reliable results of more subsidies and special treatment, while money invested in technology is risky, firms rationally invest in lobbying instead of R&D.
Third, government decision makers own only those successes (and failures) that happen between now and the next election. Worrying about the economics of solar power in 2030 is well past the time horizon of anyone in government today. No one in office now is likely to be held responsible for their decisions today 15 years from now when the results are in and the bill comes due.
Markets, on the other hand, price in the future. If a company is making a big bet on solar technology, its stock price will reflect that. If solar seems like a good bet, the stock price will rise. If not, it will fall. Today’s executives can be held accountable for that decision.
Wasted Money, Bad Energy
The costs of the green energy programs proposed by the interest groups described in The False Promise of Green Energy are staggering. The federal government committed $62 billion in direct spending and $20 billion in tax incentives to green jobs programs as part of the 2009 stimulus bill. And keep in mind that this money is all borrowed and must be repaid with interest.
Worse, the price tag is open ended. Even the proponents are reluctant to give firm cost estimates since one can, of course, add or subtract pieces of a program that can encompass many things. For example, the premier report from the United Nations that endorses massive moves to “green energy” as we abandon coal, natural gas, oil, and nuclear energy admits: “No one knows how much a full-fledged green transition will cost, but needed investment will likely be in the hundreds of billions, and possibly trillions, of dollars. It is still not clear at this point where such high volumes of investment capital will come from, or how it can be generated in a relatively short period of time.”
The scale of social and economic change that could be imposed is immense. To take just one example, the worldwide production of cement in 2007 was 2.77 billion metric tons. Cement is ubiquitous in modern society. Yet, as the UN report admits, the “cement industry will only become sustainable if the building industry finds completely new ways to create and use cement or eventually figures out how to replace it altogether.”
Green energy advocates propose equally dramatic shifts in energy production technologies, building practices, and transportation. These calls for dramatic changes in every aspect of modern life are wrapped in a bright, shiny package in the green jobs literature, promising not only a revolution in our relationship with the environment but to employ millions in high paying, satisfying jobs. Despite the new green packaging, these calls for creating a new society through central planning are as old as human history.
The failure of the twentieth century’s utopian experiments suggests caution in undertaking such widespread transformations of society. The master resource requires a free market path, not a road to serfdom.
Andrew P. Morriss is the D. Paul Jones Jr. and Charlene Jones Chairholder in Law and a professor of business at the University of Alabama.
William T. Bogart is president of Maryville College and previously served as a member of the economics faculty at Case Western Reserve University.
Roger E. Meiners is the Goolsby Distinguished Professor of Economics and Law at the University of Texas at Arlington.
Andrew D. Dorchak is head of reference at the Case Western University School of Law’s Judge Ben C. Green Law Library.