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Gresham’s Green Law
Posted By Tait Trussell On February 17, 2011 @ 12:10 am In Daily Mailer,FrontPage | 8 Comments
The U.S. Secretaries of Interior and Energy Feb. 7 announced plans to fast-track four offshore areas for wind farms, with future wind structures off the coasts of several more states. This could be a disastrous error at a time of oil supply uncertainty. As King Solomon wrote in the book of Ecclesiastes, this is a futile “grasping at the wind.”
The government could issue leases for four new East Coast wind farms by year’s end, the Associated Press reported. The Interior Department said the sites it has identified are off the shores of Virginia, Maryland, Delaware, and New Jersey. In coming years, plans are to put wind turbines hundreds of miles at sea out from Massachusetts, Rhode Island, North Carolina, Hawaii, and even in the Great Lakes.
The National Wind Strategy acknowledges that financing these far-at-sea turbines in the Outer Continental Shelf will be an unknown expense. But the Strategy states that “financing could amount to roughly half of the cost” of obtaining the wind energy.
The Department of Energy plans initially to spend more than $50 million to begin to try to meet Barack Obama’s impossible goal of generating 80 percent of the country’s electricity from clean energy sources by 2035.
To put things in perspective, only 11 percent of the electricity was generated from renewable sources in 2009, according to the Energy Information Administration (EIA).In its Annual Energy Outlook 2011 (published in December) EIA predicts only 56 percent of electricity will be generated by not only renewables but also by natural gas and nuclear sources in the next 25 years—far below the President’s boundless wishes.
Many politicians have fallen under the spell of “green” jobs creation, at least partly entranced by the $7 billion in subsidies the Obama Administration has handed out for wind farms and other renewable energy programs. But–as in what economists know as Gresham’s Law–bad money drives out good. Jonathon A. Lesser, founder and president of Continental Economics, Inc., a firm that has worked heavily with utilities, points out, “There’s no such thing as a free lunch, green or otherwise.”
Just last September, as Lesser notes, California’s Air Resource Board adopted a mandate that requires the state to get one-third of its energy from renewable energy by 2020. Then-Gov. Arnold Schwarzenegger foresaw “a million-trillion global market for clean energy, and I look forward to seeing even more investment and job creation happen throughout our state….” As Lesser says, “Politicians blithely ignore economists and continue to promote a mythical ‘green’ economy that will soon emerge.”
In Obama’s State of the Union speech the President said, “I challenge you to join me in setting a new goal: By 2035, 80 percent of America’s electricity will come from clean energy sources….”
Obama named his pal Jeffrey Immelt, General Electric CEO, to head the President’s Council on Jobs and Competitiveness. General Electric has more than 13,500 wind turbine installations worldwide. GE could be subsidized to make windmills here, and then ship them to China.
Lesser writes in an analysis in Regulation, a journal, published by the Cato Foundation, that some politicians “carry on much like the Spanish conquistadors who searched for the Seven Cities of Cibola (the legendary cities supposedly overflowing with gold). Ignoring economists “does not invalidate basic economic principles. Forcing consumers to buy high-cost electricity from subsidized renewable energy producers will not and cannot improve overall economic well-being.”
According to Lesser, “Renewable energy might reduce air pollution (although no actual evidence of this exists). It will certainly create a few construction jobs.” And government subsidies for renewable energy “will benefit renewable energy developers. But when the entire economic ledger is tallied, the net impact of renewable energy subsidies will be reduced economic growth and fewer jobs overall.”
Subsidized renewable resources “will drive out competitive generators, lead to higher electric prices and reduce economic growth.”
The Cape Wind project to be constructed off the Coast of Nantucket Island, Lesser calls one of the “most egregious examples of the green energy fallacy.” Some 130 turbines are to be installed.
Lesser maintains, for example, some proponents misrepresent wealth transfers and wealth benefits. “Taking money from Peter and giving it to Paul hardly creates wealth.” Proponents also ignore the “adverse economic effects of the resulting higher electric prices that high-cost renewable generation brings.” Such analyses ignore the “cost part. No wonder the results are so encouraging.”
Lesser in his article goes into a complex explanation of how electric utilities work, including something called “price suppression.” Lesser says politicians have sought to take advantage of markets with lower prices. “As a result, a number of states introduced ‘price suppression’ as a goal especially in New England.” Connecticut, for example, in 2007 enacted legislation requiring the state’s Energy Advisory Board to issue request for proposals that would reduce capacity market prices in the state. In Massachusetts, in 2008, an act forced renewable resource generation into the New England capacity market.
Renewable resource advocacy studies “always ignore the economic effects caused by higher electricity prices. Households whose electric bills increase because of renewable energy mandates have less money to spend on everything else” and “goods and services whose production requires electricity increase in cost. So, consumers have less money to spend on goods and services that cost more to produce….This is why subsidizing industry—green, red, or tutu-frutti—reduces economic well-being.”
Lesser concludes: “[I]ndustries that require never-ending subsidies simply cannot increase overall economic welfare. To believe otherwise is to believe in ‘free lunch” of the worst kind. Yet, free-lunch economics are driving the push for renewable energy. Subsidies will destroy competitive wholesale electric markets and drive out existing competitors. This “will cost jobs because businesses, forced to pay higher electric prices, will either relocate, contract, or disappear altogether. It will reduce the income of consumers, who will forever be forced to subsidize resources…all in the name of ‘green energy.’”
The wild-eyed plan to install wind farms hundreds of miles at sea instead of letting experienced energy producers drill for essential oil and gas off shore is a topsy-turvy scheme with no hope of solving America’s energy needs. It’s a futile “grasping at the wind.”
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