Price signals! Government does need no stinkin’ price signals.
States like Texas, however, have failed to heed considerations of both net energy and supply and demand in installing massive wind farms at great taxpayer expense where fossil fuels would be far cheaper and more reliable. Lacking price signals, the central planner is blind to the economic consequences of his grand designs.
https://mises.org/wire/why-green-new-deal-more-expensive-joe-biden-realizes
One of President Biden’s first executive actions was to declare January 27 “Climate Day.” This ad hoc holiday provided an opportunity for his administration to celebrate the latest rationale for economic central planning. The day’s festivities began with three executive orders on climate change, science, and technology.
In his remarks, Biden bundled his environmental agenda with a jobs program, along with a broader policy to address social inequality and environmental injustice. Among the ambitious goals of Biden’s $2 trillion Green New Deal are 1 million new high-paying union jobs in the automobile industry, half a million electric car charging stations, and a 100 percent carbon pollution–free electric sector by 2035.
The goal of transitioning the electrical grid to zero carbon emissions in the next fifteen years stands out as a singularly misguided effort. Even granting the nonobvious assumption that we must immediately transition away from fossil fuels, overhauling the American energy infrastructure is a vast and complex calculation problem. To be truly sustainable, individuals and firms would need to act on local knowledge, assessing where and what kinds of renewables might meet their energy needs.
The concept of “net energy” illustrates why replacing fossil fuels with large-scale renewable energy is often counterproductive. In Carbon Shift, a 2009 book discussing peak oil and climate change, David Hughes summarizes it like this:
A two-megawatt windmill contains 260 tonnes of steel requiring 170 tonnes of coking coal and 300 tonnes of iron ore, all mined, transported and produced by hydrocarbons. The question is: how long must a windmill generate energy before it creates more energy than it took to build it? At a good wind site, the energy payback day could be in three years or less; in a poor location, energy payback may be never. That is, a windmill could spin until it falls apart and never generate as much energy as was invested in building it.
This life-cycle accounting of “energy return on energy invested” (EROEI) succinctly describes multiple stages of intermediate capital within a hydrocarbon-based structure of production. Hughes also hints at the basic questions facing all entrepreneurs—namely, where they should place their investments and how they should configure heterogeneous capital to recoup up-front costs plus some profit or “windfall.”
Wind turbines and solar panels do enjoy a wide market in off-grid applications, such as remote farm properties and on oceangoing sailboats, where the abundance of wind and scarcity of petroleum products makes the investment a no-brainer. In sunny parts of the country, solar has reached “grid parity.” States like Texas, however, have failed to heed considerations of both net energy and supply and demand in installing massive wind farms at great taxpayer expense where fossil fuels would be far cheaper and more reliable. Lacking price signals, the central planner is blind to the economic consequences of his grand designs.
The president revealed his ignorance of the technological and economic problem at hand when he stated matter of factly, “We know what to do, we’ve just got to do it.” On the contrary, we have no idea how to create a nonpolluting electrical grid without emitting much more carbon in the process than we otherwise would have.
If the government invests trillions of dollars in energy-intensive capital investments—whether wind farms, solar charging stations, or transformer stations—it will have two primary effects.
First, it will frontload carbon emissions into the construction phase. This may offer the illusion of reducing pollution when in fact it merely shuffles emissions to a prior stage of production. California’s high-speed rail, for example, will take an estimated seventy-one years to offset its own construction emissions through the cars it will hypothetically replace (assuming it is ever completed). Furthermore, electric charging stations are typically powered by coal or natural gas—not solar panels.
Second, and relatedly, a Green New Deal funded by debt will distort the capital structure, skewing investment toward long-term fixed capital assets at the expense of the intermediate capital maintenance of the overall structure of production. Theoretically we could burn more coal, petroleum, and natural gas today to build a zero-pollution electrical infrastructure for tomorrow. But when it comes time to service offshore wind turbines, will the helicopters and boats used for maintenance be powered by electricity as well? And what kind of energy will power the factories that manufacture the solar panels and wind turbines? Claiming that they will run on renewables is eerily similar to the circular reasoning and magical thinking used by proponents of modern monetary theory to promote the illusion of spending without taxation.
The Green New Deal is, if anything, a formula for a new dark age. Texas’s recent power outages show the difficulty of the task facing grid managers. There, an attempt to prematurely transition to unreliable wind energy exacerbated the strain on the grid when turbines froze at the crucial moment when they were most needed. The grid managers failed to keep a maintain a sufficient buffer, even without the additional mandate of ensuring the creation of new green jobs and mitigating the discriminatory effects of climate change. It is ironic that a state and nation so rich in natural energy resources would be leading the charge to cancel fossil fuels in favor of technology that has never been proven effective, or even environmentally friendly, at a large scale.
The stock of fossil fuels is large but not infinite. Geological surveys indicate that there is plentiful energy in the ground to advance civilization and develop new sources of abundant and nonpolluting energy. However, we must be careful not to squander our petroleum patrimony on unused charging stations, unreliable wind farms, and half-finished trains to nowhere. Author:
Charlie Deist is a writer, radio producer, and sailboat captain in Berkeley, California. He received his BA in economics from UC Berkeley.
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