TOMATOES vs GRAPES
While a tomato is a fruit it really has nothing to do with deciding what are the best ingredients in a fruit salad. So also with Drs Gisser and Brown when writing about solar subsidies. Comparing old base producing coal plants with new technology is like evaluating old hothouse tomatoes against new green grapes. First Gisser writes about the low cost per KWh in an old coal plant versus new solar. He is comparing a base load plant with a new peak production operation. My rooftop solar, providing midday power to PNM, is replacing spot price purchases, diesel generators, and natural gas peakers. The cost of these peakers is, at best, equal to but probably much, much higher than my unsubsidized 12.9 cents per KWh (7.5 cents subsidized!). Second, Brown writes also about the cost per KWh of the subsidies but fails to describe how he calculated it. I think the big components of Brown’s renewables’ subsidies turn out to be Ethanol (an agriculture subsidy) and R&D. Remove those and things look decidedly different. Alternatively, on the basis of Subsidies to Operating Costs Oil & Coal are much higher than everyone else (I too can choose my reference). What are the economic reasons to subsidize? Two efficiency arguments come to mind: Pollution (Externalities for economic wonks) and Market Development (Infant Industries). Since Loose covered the first let me explain the second. New technologies are “subsidized” to allow them to Start Up, call it Initial Working Capital. It allows the company to locate and identify buyers, ultimately allowing for Economies of Scale as their market grows. It also enhances competition as new competitors with better technology enter the industry, driving down the production costs. So how is solar doing in this regard? It is now becoming accepted that solar without subsidies can compete favorably with NEW gas, coal, and nuclear. This is true in some parts of Europe and some say in Connecticut and Southern California. Also new solar production costs have been estimated to have fallen 21% last year as new technology is being developed. PNM, in their Distributed Energy Program, pays Renewable Energy Credits (REC’s) on this basis, that is the price they pay for REC’s goes down as more solar installations come on line, ostensibly because of lower production costs of solar. Finally I am in favor of limiting the time of subsidies (Sunset Laws) including solar since I am aware that some infants grow into adults but still poop in their pants (e.g., Ethanol). But also ask yourself why does a 70-year-old subsidy, Depletion Allowance, still exist? How is the average taxpayer being helped? I see no Efficiency Gains and clearly Equity is not the reason. So I guess I am in favor of eliminating some energy subsidies.
‘Clean’ Energy Subsidies / Mandates Help the Economy
The whole caboodle and much more. As a “geezer” who is also a retired economist I strongly disagree with “Gisser” the retired economist. His facts are often misleading and his assertions, while often not supported, are arguable without much difficulty. Since Mr. Gisser is regularly publish in the Journal it is fair to assume everyone knows his background. Not so with me. Just a few facts so you know the ground I stand on. I am spent much of my career as a financial economist, including teaching government finance, which means I have a macro leaning which is opposite of Mr. Gisser’s micro view of the economic world. I have also dabbled in public regulatory hearings while my PhD is in Regional Environment Economics (a long time ago).
Let me begin on what Mr. Gisser has said or implied and I agree with. He implied there is global warming, which in turn causes climate change. Said change would see increased temperatures in some areas, more violent storms, and extreme droughts. He goes further to write that this is caused by increased CO2, which I think he is saying is caused by human activity. If it is caused by a geological cycle I don’t think he, and certainly not I, would advocate human activity to reverse or lessen the CO2 increase. No one should mess with Mother Nature. Since it is human caused we agree that something should be done. The difference in opinion is then WHEN, not IF. Mr. Gisser writes to wait 80-100 years and I couldn’t disagree more.
Let me start with Mr. Gisser’s data on how coal is so cheap while solar & wind are so expensive. PNM reports that San Juan is 4.8 cents per kWh which is true. But, check your electrical bill for starters. I pay 7.33 cents for the first 200 kWh and 10.09 cents for everything after. I’ll ignore the taxes on top of that. But that is not the main point. San Juan is a “Base Load” generator. The issue, especially when comparing solar, is what are the marginal costs of the “Peak” Generators. If PNM has to buy from the “Spot Market” or crank up diesel generators the costs are double plus. It is exactly the peak times of day that solar is producing electricity.
Mr. Gisser writes that the cost of solar is 13.5 cents and wind is 8.3 cents per kWh. PNM is buying my solar for 10 cents per kWh (Yes, I have panels) and soon they will be buying at 9 cents per kWh from others. Even though PNM will drop its payment to me to 7 cents per kWh down the line my estimate of ROI on this investment is still in excess of 10%. PNM is heavy into purchasing wind and has a Blue Sky program where people voluntarily pay more (I’m also enrolled in that).
There is no environmentalist who supports government subsidies of ethanol. I was born, raised, and went to undergraduate school in Iowa where Corn is King. I taught and lived in the Upper Midwest for a long time. Check the voting records of both parties and the new “tea baggers” from the corn belt states. Not a one of them is supporting the removal of the ethanol subsidies despite all the scientific evidence on the boondoggle that it is. Where are the fiscal conservatives in the House of Representatives with regard to ethanol when it comes to reducing our federal deficit?
And then Mr. Gisser brings up the BIC argument. We shouldn’t reduce our emissions because Brazil, Indian, and China won’t. First, that isn’t necessarily true and if they did reduce is Mr. Gisser ready to advocate the USA do something now? Second, it is a bit like a smoker saying he/she won’t quit until everyone else does because of the damage caused by second hand smoke. First hand pollution is bad also. The coal plants emit more than particulate matter. There are sizeable emissions of CO2 and NO2 that cause regional health problems, the Navaho Indian Reservation being a prime example. Finally there is a moral issue. If something is bad we should stop doing it. The European Community is way ahead of the USA in all of these matters.