Wednesday, October 24, 2007

Renewable Energy and Economic Utility

I just noticed this post on the Sierra Club's new energy blog, and I was mystified by this statement:

"The opponents of clean energy like to fall back on that old chestnut, claiming it's jobs v. the environment--but never both. They argue that thousands will be thrown out of work as we transition to America's clean energy future. Unfortunately for our opponents--and fortunately for America's economy and environment--nothing could be further from the truth."

I have two major issues with this:

1) I read pretty widely on energy issues, and I have never seen this argument. Ever. I suppose someone has made it at some point, but if I had to guess it's probably somewhat less common than the "Tesla invented secret technology that could supply all our energy needs if Thomas Edison hadn't suppressed it" meme. In fact, it seems that just about everyone believes the opposite- for instance, the Apollo Alliance makes job creation the centerpiece of their renewable energy campaigning.

2) The idea that renewable energy "creates jobs" is economically dubious. Under some (probably most) circumstances job creation is good. But the supposed "advantage" of renewables in this area is based on replacing industries that aren't very labor intensive (fossil fuel and nuclear power) with labor-intensive substitutes. This is one of the reasons renewable energy is so expensive- all those new workers have to eat, after all. Now, if the marginal utility of renewable energy was vastly superior to conventional or nuclear power, the new jobs would be a net economic benefit. But a kilowatt-hour of electricity from a solar panel does the same job a kilowatt-hour from a nuclear plant does- and is several times as expensive. Taking environmental externalities into account helps renewables' case some- but I doubt that it's anywhere near enough to make up for the price difference in most cases, at least compared to a well-run nuclear plant.

Economically, this means that renewable energy isn't creating jobs at all- it's actually depriving other sectors of the economy of skilled labor while producing less utility (usable energy) than before.

This goes against the popular intuition that "more employment=better." But the problem with this logic is readily apparent from an example near and dear to my heart- the Soviet Union. In the USSR, there was "full employment." If greater employment was the key to economic success, the Soviets would have beaten us into the ground and I'd be studying the collapse of American capitalism instead of the other way around. But in an economic system that seeks to maximize utility, employment isn't about "more jobs," It's about "getting the most bang-per-buck." New technologies create jobs because they create new goods and services people want to buy, and therefore create new markets. They also free up labor by maximizing the productivity of the workers who remain. This may seem like a bad thing, but in the long run it's good for society- because the same work is getting done with fewer people and less money, and now more labor is available to create more utility. It's a cyclical process, and can be painful at times, but without it we'd be in the dustbin of history along with the Soviet Union.

So, we shouldn't be trying to "create more jobs with renewable energy." Instead, we should be building an economically rational energy infrastructure. This doesn't mean we should ignore environmental externalities or dismiss renewable power altogether. We should be trying to internalize the various externalities of energy sources- carbon emissions, toxic waste from semiconductor manufacture, wars over oil, and so on- and let the market create the energy supply we need. This supply would include "renewable" energy when it made economic and geographic sense- some wind, some hydro, some geothermal- but these wouldn't be forced into existence through Soviet-style "mandates." We need to build a better market and let the market decide.

But I believe that the real winner of this fair match-up would be nuclear power- whose spectacularly low labor intensity is an economic asset, and whose environmental externalities are, joule-for-joule, on par with renewables. In short, nuclear power can provide the clean, affordable energy America needs while fueling real economic growth.

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