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  • Energy from an economics perspective

    Posted by Ken on December 3, 2020 at 21:33

    I’d like to start a discussion on energy topics because I cannot understand what appears to be the strong support of fossil fuels and antipathy towards renewable forms of energy. To start with I will focus on Alex Epstein’s book “The Moral Case for Fossil Fuels”.

    Epstein’s book starts off on a strong footing with the observation that humanity has benefited tremendously from the availability of cheap energy. He then goes on to say that the cheap energy was overwhelming provided by fossil fuels. That is clearly true. Where he goes off the rails from my perspective is with his conclusion that we should continue to emphasize fossil fuels and not get distracted by arguments against them or by the new technologies the promise to address some of the problems of fossil fuels.

    Just because fossil fuels have got us where we are does not mean that we should not look for better alternatives. What I was expecting from his book was an acknowledgment of the obvious issues with fossil fuels and then a discussion of our alternatives going forward. Clearly we would prefer to live without the disadvantages of fossil fuels, and I was hoping for a even-handed discussion on how to do that. Is it better to try to replace fossil fuels where we can with things like solar and wind, or is better to continue to use fossil fuels while trying to mitigate its environmental costs?

    Instead, Epstein largely dismisses the problems with fossil fuels with sweeping statements on how the environment is cleaner than it has ever been. However, it is only cleaner because we have managed to acknowledge and clean up much of the pollution caused by our earlier use of fossil fuels. That is precisely the process we are engaged in now and he hopes to subvert with his book.

    I have a hard time reading Epstein’s book because most of the arguments are based on emotional manipulation and are one sided. For example, he tells about a hospital in the Gambia that cannot afford to run the generator past 2pm, and how that resulted in the death of a baby and in a decreased ability to save children in general. This is a story about the importance of cheap energy and he tells it that way. But it is also a story about the failings of fossil fuels. Fossil fuels require centralization for processing and distribution. This hospital was off the grid and so its energy was too expensive. Had they switched to solar the hospital could have remained open many more hours and could have refrigerated its medicines. Had it included wind or small hydro, it could have stayed open into the night. The lesson should have been that all sources of energy involve trade-offs and no source is best in all situations. But it wasn’t, it was an emotional story designed to support the idea that cheap energy is good. But nobody disagrees with that point. Its a red herring.

    He also tells a sad story about a Chinese farmer’s wheat and corn fields, which have been replaced by a tailings pond for a rare earth metals mine. He then attributes this pond to increase in the use of wind power. Rare earth metals are used in magnets, which are needed to produce wind mills. But of course magnets are used for lots of things, like the generators used to convert fossil fuels to electricity. There are also a huge number of similar stories of woe that are caused by fossil fuels, such as the Jharia coalfield fires that have burned 37 million tons of coal since 1916 when they first started, or the Iraqi and Kuwaiti oil field fires. You can just as easily imagine a story about the devastation that fishermen experienced after the Exxon Valdez or Deep Water Horizon spills, but those stories are left untold.

    Without an honest discussion of the trade-offs between fossil fuels and its alternatives, I was left wondering about the actual point of this book? It seems like a full throated promotion of fossil fuels. But who does that? Does he really believe that fossil fuels needs his help? In 2014 when he wrote the book oil, gas, and coal company stocks combined were worth nearly $5T and fossil fuels had been ascendant for 150 years. Was he really worried that they would be knocked off their perch by wind mills without his help? This is the part I really don’t understand.

    But apparently he has something to worry about. Fossil fuels are starting to lose in the market. The share of energy provided by coal is rapidly falling and the share provided by wind and solar is steadily increasing. King Coal is largely being killed by natural gas, but wind and solar have made significant inroads because they are often cheaper than their alternatives. Wind and solar are intermittent and so cannot yet replace fossil fuels, hydro, and nuclear completely, but they do offer a cheaper and cleaner supplement. The current grids were designed to be tolerant of the drop-out of a large (>=1GW) base load plant, and so can accommodate significant intermittent sources. At least 20% of our supply can come from intermittent sources, and that raises to 40% if grid-level battery storage becomes practical.

    From an economics perspective, it seems like the only defensible position here is to let the market decide which is best once the true costs can be accounted for by the market. For that to occur, all subsidies should be eliminated. Some say that renewable energy sources are disproportionately benefiting from subsidies, but fossil fuels receive a tremendous amount of subsidies, and have a very long time. Furthermore, fossil fuels are protected from paying for their rather extensive externalities. Of all the subsidies, the ones received by the fossil fuels industry are the least defensible.

    So I guess my question is: as economists shouldn’t we be anti-subsidy rather than pro fossil fuels or anti renewable energy? If we are pro fossil fuels, aren’t we fighting the market?

    Chris replied 2 years ago 2 Members · 3 Replies
  • 3 Replies
  • Chris

    Member
    December 4, 2020 at 18:29

    Interesting commentary and question. I have not read the book (yet?), but was on the Zoom/podcast episode and did come away with a bit of a question mark hanging over my head, like what happens when we take things to the limit, in a Kantian ethics sense (as I think of it, as only a lightly read person who finds some philosophical questions interesting and sometimes useful).

    It also made me think about the tragedy of commons, such as what we see all around is in all kinds of human activities, where the profits are privatized and the costs are socialized, which happens many industries, including mining, energy, banking, probably medicine, and on and on. I don’t know what the solution is, but my next stop is some of the materials referenced at the end Hans-Hermann Hoppe’s “From Aristocracy to Monarchy to Democracy: A Tale of Moral and Economic Folly and Decay,” which I listened to (a couple times so far) since “Democracy – The God That Failed: The Economics and Politics of Monarchy, Democracy and Natural Order” is does not seem to be available as an audiobook (yet?). Thank you to Saif for recommending. Check Hoppe out if you haven’t already. And read him again if you have.

  • Ken

    Member
    December 4, 2020 at 20:20

    Ah yes, the tragedy of the commons. That seems like a tough nut to crack. One argument for the state is that it can regulate the use of the commons. Does not seem to work all that well in practice. I have read both Rothbard and Hoppe and have not found the problem addressed to my satisfaction. Generally they say that someone should own the commons. Apparently promising progress has been made with that in terms of fishing rights in the open oceans. But for energy, someone would need to own the air. I cannot imagine how that would work.

    • Chris

      Member
      December 5, 2020 at 09:21

      In the end, it will get figured out, either by humans or by nature.