It’s not often I disagree with Ron Bailey, but his article about the “Smart Grid” today glosses over the main reason why electric companies aren’t investing in it now.
It’s not because they’ll be selling less electricity and that means reduced profits. One of the main points about a smart grid means that you can charge more when there is a strain on the system caused by peaking and less when there isn’t. So your income stream takes on a different character. Yes, people tend to use less electricity on the whole, but this is made up for by the fact that you don’t have to generate extra electricity to supply the concentrated demand, and you are getting more revenue for electricity you generated that would otherwise be wasted. Most companies would prefer this, but there’s a lot of regulation out there, aimed at keeping prices “fair,” that prevents it. Why build a grid if regulation prevents you from utilizing its main benefit?
Moreover, there are massive regulatory barriers to construction. The presence of NEPA requirements, for example, which provide a pretext for environmental organizations to bog new infrastructure projects down in court action as well as red tape. That is one reason why three former California governors just complained about environmental regulations stymieing infrastructure projects.
There are two ways for government to incentivize investment in a smart grid. One way is to pony up taxpayer cash, to cover the costs of the regulations it has imposed. The other is to suspend or get rid of those regulations – and then they won’t have to take money out of our pockets (and our children’s pockets). Liberate is the best way to stimulate.
Alex Tabarrok has more on the reasons why grid upgrades just aren’t happening. See also here (this is not an endorsement of all those policies).
Apparently, global warming is now irreversible. Or, at least, it is if you don’t consider any of the policy options that might, you know, reverse it. As Roger Pielke Jr points out, the study didn’t examine the potential for geoengineering:
Geoengineering to remove carbon dioxide from the atmosphere was not considered in the study. “Ideas about taking the carbon dioxide away after the world puts it in have been proposed, but right now those are very speculative,” said Solomon.
Then only reason geoengineering remains speculative is because the global warming industry is locked into one policy model: mitigation. If adaptation is the red-headed stepchild of global warming research, geoengineering is the unacknowledged bastard, kept tied up in the basement and fed only with a bucket of fish heads.
Meanwhile, the McKinsey Global Initiative has come out with version 2 of its “we can save the world very cheaply” report, which is available if you register and give them your email address via the links here. The fiendish consultants have disabled the ability to cut their charts out, so you’ll have to get a copy for yourself, but their Exhibit 1 shows that all the “affordable” options are to do with energy efficiency, not grand new green energy projects, which are much more expensive and require aggressive carbon pricing (and this needs to be born in mind as well). Furthermore, these are truly global initiatives – something has has to be done everywhere, around the world – as Exhibit 4 makes clear. Something we can do quite affordably may be a different kettle of fish heads for the developing world. If you can’t afford an incandescent lightbulb, you can’t afford an LED lamp, whatever the CO2 abatement potential is. I hope to provide a full response to the McKinsey paper soon.
I’ve spent a while crunching the numbers relating to energy and environment spending in the stimulus bill. The bill will spend about $80 billion on energy and environment, which can be broadly broken down into the following categorizations:
Electricity infrastructure/efficiency – $35.6 billion
Renewable projects – $11.95bn (mostly $8bn in loan guarantees and $2.4bn for clean coal)
Climate science/general energy academic research – $9.3bn!!! (including $1.9 for nuclear research)
EPA programs (Superfund cleanup etc) – $12.2bn
Other environmental (National Forest Service, National Park Service, Bureau of Land Management etc) – $10.899bn
So that means around $57 billion of the total is aimed at reducing greenhouse gas emissions.
Thanks to Jonathan Tolman, we can work out how many jobs this will create. As he says, not every program gives a figure for created jobs, but about 5/8ths of them do. That $50 billion is supposed to create just under 1 million jobs, but many of these are in the traditional environmental areas of clean-up.
Of the $57 billion aimed at reducing greenhouse gas emissions, just over half the expenditures have job numbers associated with them. Those total $32.3 billion, for a total of 353,000 jobs, at $91,000 per job. These are overwhelmingly related to the (much-needed) creation of a smart electricity grid, and improving the efficiency and weatherization of the housing stock, which will be a good thing even if global warming turns out not to be a problem*.
The actual “green energy/jobs” program, in the sense most people think about it of revolutionizing our energy provision, amounts to $6.4 billion and 70,000 jobs. There may well be more (there are no job figures attached to the renewable energy loan guarantees, for instance), but that remains so speculative that it was not even suggested in the Bill.
* This should not be taken as an endorsement of government expenditure on the programs.
From today’s Greenwire:
NEW YORK — The crisis roiling Wall Street is threatening to choke financing for green energy projects. Venture capitalists and private equity firms could fill the void as traditional financing options dry up. Indeed, private equity fund managers say the current turmoil could turn into a net positive for them: As debt markets turn their backs on green energy companies, many will look to venture capital and private equity to get backing for new projects or expansions. But the new, highly risk-averse environment will make it that much more difficult for companies to convince investors to put money behind renewables. While the sector is still very popular, the chief worry among money managers is protecting existing portfolios and guaranteeing that any new investments will net them strong, long-term returns.
Oh dear, what a shame, never mind. In a threatening recession, with a looming energy crisis, the last thing we should be doing is wasting money on projects that are not economically viable and that will actually make energy more expensive, which is all that renewable energy projects have been able to do so far. Now, I don’t mind venture capitalists doing it, or private investors putting up their own money because they believe it is important, but the mainstream funding sources must concentrate on what is viable and what will produce the affordable energy the economy needs. The renewables industry has to get its act together, and stop leeching off the rest of the economy. If it can do that, I’ll be only too happy to applaud its true maturation.
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