Decarbonization Now? (No, not yet.)

Paul Krugman’s recent opinion column in the New York Times ran under the headline, “Salvation Gets Cheap.” At first I though Krugman was making a snarky comment on ex-Mayor Michael Bloomberg’s claim that the ex-mayor’s work on restricting access to guns, and efforts on obesity and smoking would ensure a place in heaven. But no, Krugman is opining that technology is providing an easy way forward on climate change:

The climate change panel, in its usual deadpan prose, notes that “many RE [renewable energy] technologies have demonstrated substantial performance improvements and cost reductions” since it released its last assessment, back in 2007. The Department of Energy is willing to display a bit more open enthusiasm; it titled a report on clean energy released last year “Revolution Now.” That sounds like hyperbole, but you realize that it isn’t when you learn that the price of solar panels has fallen more than 75 percent just since 2008.

Thanks to this technological leap forward, the climate panel can talk about “decarbonizing” electricity generation as a realistic goal — and since coal-fired power plants are a very large part of the climate problem, that’s a big part of the solution right there.

It’s even possible that decarbonizing will take place without special encouragement, but we can’t and shouldn’t count on that. The point, instead, is that drastic cuts in greenhouse gas emissions are now within fairly easy reach.

The “Revolution Now” report, which was linked in Krugman’s column online, is surprisingly weak sauce. The U.S. Department of Energy report (your tax dollars at work) purports to describe “four technology revolutions that are here today” and “have achieved dramatic reductions in cost” and “a surge in consumer, industrial and commercial deployment” in the last five years. The four “revolutions” are onshore wind power, polysilicon photovoltaic modules, LED lighting, and electric vehicles.

Each “revolution” gets a two-page summary and a colorful chart showing declining costs and rising use. The summaries are footnoted, just like real research, and studded with more factoids than the front page of USA Today. Here’s a fun fact: the ratio of empirical claims to footnotes in the article’s two pages on wind power is 4-to-1.

You can get a sense of the quality of the report by considering the claims strung together on electric vehicles: First it is reported “more and more drivers are abandoning the gas pump for the affordability and convenience of in-home electric charging,” then that 50,000 EVs were purchased in 2012 and the rate of purchase doubled in early 2013. Next we are told “to maintain this momentum the most critical area for cost reduction is batteries.” A paragraph later the report said, “In many senses, EVs are already competitive with traditional cars.” In the final paragraph, however, a sober note: it will take “further progress on reducing the cost of EV batteries” to make “these benefits available to a larger audience.”

The sober note referenced a DOE battery cost target of $125/kwh by 2022, at which point the DOE expects ownership costs for a EV will be similar to a standard vehicle. A glance back at the chart suggests current battery costs nearer five times that level, leaving at least this reader wondering in which sense “EVs are already competitive with traditional cars” and part of the “technology revolutions that are here today.”

The revolution is here today! Or maybe in 2022!! Or maybe whenever “further progress” is made!!!

Overall the report is more enthusiasm than analysis, and not sufficient to justify changing beliefs on the cost of decarbonizing energy supplies.

Price gouging-moral insights from economics

Dwight Lee in the current issue of Regulation magazine offers “The Two Moralities of Outlawing Price Gouging.” In the article Lee endorsed economists’ traditional arguments against laws prohibiting price gouging, but argued efficiency claims aren’t persuasive to most people as they fail to address the moral issues raised surrounding treatment of victims of disasters.

Lee wrote, “Economists’ best hope for making an effective case against anti-price-gouging laws requires considering two moralities—one intention-based, the other outcome-based—that work together to improve human behavior when each is applied within its proper sphere of human activity.”

Intention-based morality, that realm of neighbors-helping-neighbors and the outpouring of charitable donations from near and far, is good and useful and honorable, said Lee, who term this as “magnanimous morality.” Such morality works great in helping family and friends and, because of the close relationship, naturally has a good idea of just what help may be needed and when and where.

When large scale disasters overwhelm the limited capabilities of the friends and families of victims, large-scale charity kicks in. Charity is the extended version magnanimous morality, but it comes a knowledge problem: how does the charity identify who needs help, and what kind, and when, and where?

The second morality that Lee’s title referenced is the morality of “respecting the rights of others and abiding by general rules such as those necessary for impersonal market exchange.” This “mundane morality” of merely respecting rules does not strike most people as too compelling, Lee observed, but economists know how powerful a little self-interest and local knowledge can be in a world in which rights are respected. Indeed, the vast successes of the modern world–extreme poverty declining, billions fed well enough, life-expectancy and literacy rising, disease rates dropping–can be attributed primarily to the social cooperation enabled by local knowledge and voluntary interaction guided by prices and profits. The value of mundane morality after a disaster is that it puts this same vast power to work in aid of recovery.

The two moralities work together Lee said. Even as friends and families reach out in magnanimous morality, perhaps each making significant sacrifices to aid those in need, the price changes produced by mundane morality will engage millions of people more to make small adjustments similarly in aid. A gasoline price increase in New Jersey after Sandy’s flooding could trickle outward and lead gasoline consumers in Pittsburgh or Chicago to cut back consumption just a little so New Jerseyans could get a little more. Similarly for gallons of water or loaves of bread or flashlights or hundreds of other goods. Millions of people beyond the magnanimous responders get pulled into helping out, even if unknowingly.

Or they would have, had prices been free to adjust. New Jersey laws prohibit significant price increases after a disaster, and post-Sandy the state has persecuted merchants who it has judged as running afoul of the price gouging law.

Surely victims of a disaster appreciate the help that comes from people who care, but they just as surely appreciate the unintended bounty that comes from that system of voluntary social interaction guided by prices and profits called the market. Laws against post-disaster price increases obstruct the workings of mundane morality, increase the burden faced by the magnanimous, and reduce the flow of resources into disaster-struck regions.

Perhaps you think that government can fill the gap? Lee noted that restricting the workings of mundane morality increases the importance of political influence and social connections, but adds the shift is unlikely to benefit the poor. On this point a few New Jersey anecdotes may inform. See these stories on public assistance in the state:

We often honor the magnanimous, but we need not honor the mundane morality-inspired benefactors of disaster victims.  While the mundanely-moral millions may provide more help in the aggregate than the magnanimous few, the millions didn’t sacrifice intentionally. They just did the locally sensible thing given their local knowledge and normal self-awareness; doing the locally sensible thing is its own reward.

We need not honor the mundanely moral, but we also ought not block them from helping.

Looking for renewable policy certainty in all the wrong places

From EnergyWire comes the headline, “In Missouri, industry wants off the ‘solar coaster’.” (link here via Midwest Energy News).

A utility rebate program authorized by voters in 2008 is making Missouri into a solar leader in the Midwest. But $175 million set aside to subsidize solar installations is [nearly] fully subscribed … and the same small businesses that scrambled to add workers last year to help meet surging demand are facing layoffs….

Heidi Schoen, executive director of the Missouri Solar Energy Industries Association, said the industry, which has generated thousands of jobs and millions of dollars in new taxes for the state, is just looking for certainty.

“We want off the solar coaster,” she said. “We don’t want to be in this boom-and-bust situation.”

It is a patently false claim.

If they wanted off of the boom-and-bust policy ‘solar coaster,’ they’d get off. They could go do unsubsidized solar installations for example, or if (when?) that proves unprofitable get work doing something else. By their actions they signal that they prefer the booms-and-busts that come with reliance on politicians for favors.

Better red than dead, but not red yet (on solar power)

In her New York Times Economix column Nancy Folbre recently said (“The Red Faces of the Solar Skeptics,” March 10, 2014):

If the faces of renewable energy critics are not red yet, they soon will be. For years, these critics — of solar photovoltaics in particular — have called renewable energy a boutique fantasy. A recent Wall Street Journal blog post continues the trend, asserting that solar subsidies take money from the poor to benefit the rich.

But solar-generated electricity is turning into a powerful environmental and economic success story. It’s also threatening the balance sheets of electric utility companies that continue to rely heavily on fossil fuels and nuclear energy.

I don’t count myself a renewable energy critic, but I do find myself as a critic of most renewable energy policies and so feel a bit like Folbre is addressing her points to me. In response I’ll say my face isn’t red yet, and I’m not expecting it to turn red anytime soon.

Folbre is a distinguished economist at the Univ. of Massachusetts, but she isn’t a specialist in environmental or energy economics, and I think her thinking here is a little muddled. (In this muddling through she has similarly distinguished company–consider this response to a Nobel prize winner.)

So a sample of my complaints: She trumpets the fast declining price of solar panels by picking a factoid out of a story in ComputerWorld: “declined an estimated 60 percent since the beginning of 2011!” ComputerWorld? Maybe the work of the U.S. Department of Energy or other more traditional information sources wasn’t sensational enough (claiming as it does, merely that “U.S. solar industry is more than 60 percent of the way to achieving cost-competitive utility-scale solar photovoltaic electricity”).

An investment company would have to acknowledge that cherry-picked past results are no guarantee of future performance, but it isn’t even clear that she is firm on the idea of “cost.” Folbre declares that generous subsidies and feed-in tariffs have “allowed solar photovoltaics to achieve vastly lower unit costs.” Really? Well maybe if we subsidize it a little harder, it will become free for everyone!

C’mon professor, get serious! Perhaps it is true that generous subsidies and feed-in tariffs have allowed owners of solar PV systems to experience lower out-of-pocket expenses, but it is a little embarrassing to see a distinguished economist make this mistake about costs. Should we conclude congressional junkets overseas don’t cost anything because the government foots the bill?

Not until the penultimate paragraph does Folbre get back on firm ground, talking about renewable energy policy rather than technology:

Subsidies are not the ideal public policy for promoting clean energy. As a recent analysis by the Carbon Tax Center points out, a carbon tax devised to protect low-income households from bearing a disproportionate share of higher energy prices would yield more efficient overall results, as well as encouraging solar power.

But in our subsidy-encrusted energy economy, some subsidies are better than others. As farmers say, make hay while the sun shines.

Yes, as any economist ought to say, “subsidies are not the ideal public policy for promoting clean energy.” In fact, it’s been said here a time or two.

[HT to Environmental Economics.]

ICLE letter to Gov. Christie opposing direct vehicle distribution ban: Over 70 economists and law professors

Geoff Manne of the International Center for Law and Economics has spearheaded a detailed, thorough, analytical letter to New Jersey Governor Christie examining the state’s ban on direct vehicle distribution and why it is bad for consumers. Geoff summarizes the argument in a post today at Truth on the Market:

Earlier this month New Jersey became the most recent (but likely not the last) state to ban direct sales of automobiles. Although the rule nominally applies more broadly, it is directly aimed at keeping Tesla Motors (or at least its business model) out of New Jersey. Automobile dealers have offered several arguments why the rule is in the public interest, but a little basic economics reveals that these arguments are meritless.

Today the International Center for Law & Economics sent an open letter to New Jersey Governor Chris Christie, urging reconsideration of the regulation and explaining why the rule is unjustified — except as rent-seeking protectionism by independent auto dealers.

The letter, which was principally written by University of Michigan law professor, Dan Crane, and based in large part on his blog posts here at Truth on the Market (see here and here), was signed by more than 70 economists and law professors.

I am one of the signatories on the letter, because I believe the analysis is sound, the decision will harm consumers, and the law is motivated by protecting incumbent interests.

I encourage you to read the analysis in the letter in its entirety. Note that although the catalyst of this letter is Tesla, this law is sufficiently general to ban any direct distribution of vehicles, and thus will continue to stifle competition in an industry that has been benefiting from incumbent legal protection for several decades.

Information technology has reduced the transaction costs that previously made vehicle transactions too costly relative to local transactions between consumers and dealers. Statutes and regulations protecting those incumbents foreclose potential consumer benefits, and thus do the opposite of the purported “consumer protection” that is the stated goal of the legislation.

See also comments from Loyola law professor (and fellow runner and Chicagoan!) Matthew Sag.

Someone please explain the American Wind Energy Association’s funky electricity price arithmetic

About a month ago the American Wind Energy Association blogged: “Fact Check: New Evidence Rebuts Heartland’s Bogus RPS Claims.” I’m scratching my head a bit trying to understand their so-called facts. The big claim from AWEA:

The eleven states that produce more than seven percent of their electricity from wind energy have seen their electricity prices fall 0.37 percent over the last five years, while all other states have seen their electricity prices rise by 7.79 percent.

The blog post mentions DOE data, and the post links to a report the AWEA assembled titled “Wind Power’s Consumer Benefits” which cites U.S. EIA data on “Average Retail Price of Electricity to Ultimate Customers” (find the data here). The blog doesn’t explain their method and the report is only barely more helpful in that regard.

The AWEA report describes the price suppressing “merit order” effect of subsidized/low marginal cost wind energy, but that is a wholesale price phenomena that doesn’t include various other utility compliance costs, and anyway the AWEA is making claims about end consumer benefits from lower retail prices. The merit order effect only matters to consumers if consumers end up paying lower retail prices.

So I downloaded data from the EIA site and tried to calculate the retail percent change in price for every state over the last five years, then compared the eleven states that AWEA said produce more than seven percent of their electricity from wind energy to the remaining states and DC.

By my simple average, prices in the 11 “wind states” were about 18.8 percent higher in December 2013 than they were in December 2008; prices in the 39 other states and DC were about 5.7 percent higher in December 2013 than they were in December 2008. Now maybe AWEA is doing a weighted average by kwh sold or something different than my straightforward calculation, but they don’t explain it and I can’t reproduce it.

Can you?

The price data from December 2008 and December 2013 for the eleven “wind states” and “Avg-All Others” are:

State Dec-08 Dec-13 Percent change
Iowa          7.10          7.77 9.4%
Kansas          7.01          9.19 31.1%
Minnesota          7.66          9.27 21.0%
North Dakota          6.35          8.03 26.5%
South Dakota          6.93          8.57 23.7%
Oklahoma          6.55          7.14 9.0%
Texas        10.85          8.77 -19.2%
Colorado          8.01          9.48 18.4%
Idaho          5.97          7.91 32.5%
Wyoming          5.68          7.71 35.7%
Oregon          7.24          8.61 18.9%
Avg-All Others        10.60        11.19 5.7%
* Prices are cents/kwh

I can’t help but notice that only one of the 11 wind states (Texas) saw a decline in prices over the time period, and the other 10 wind states actually saw prices increase from December 2008 to December 2009 faster than the overall average of the other states.

So what kind of funky AWEA arithmetic turns (mostly) larger retail price increases in the 11 states into a big consumer benefit?

NOTE: By the way, a sophisticated attempt to address the questions of wind power’s consumer benefits-if any on net-would look at a lot more information than simple average retail rates by states. I was trying to engage the debate on the level presented and even at this simple level of analysis I can’t tell how they got their numbers.

Discrimination in West Virginia price gouging case?

Are West Virginia “outsiders” more likely to be accused of price gouging?

From the March 8, 2014, Charleston Gazette, “Morrisey accused of discrimination in price gouging response“:

CHARLESTON, W.Va. –A Putnam County storeowner accused of price gouging bottled water during the water crisis says Attorney General Patrick Morrisey discriminated against him because he is Lebanese, questioned him unethically and illegally leaked the charge to the media before informing him of it.

On Feb. 14, Morrisey filed suit in Putnam Circuit Court alleging that Achraf Assi’s convenience stores, Hurricane-based Mid Valley Mart LLC, unfairly raised the price of Tyler Mountain Spring Water from $1.59 a gallon to $3.39 a gallon the day after the Jan. 9 chemical leak that contaminated the region’s drinking water.

Morrisey alleged that Assi, who owns the two stores that allegedly sold water at inflated prices, kept the prices higher for a week following the chemical leak.

In this news report the West Virginia Attorney General refers to alleged price gougers as “bad apples.”

The attorney general’s office reported over 150 calls concerning prices during the water emergency and documented 74 cases of increased prices on water and other goods. As of late February, the AG’s office reported issuing six subpoenas and 15 cease and desist letters. Only one price gouging case has been filed subsequent to the water emergency.

So far as I am aware, this is the first time I’ve seen claimed that price gouging laws have been implemented in a discriminatory fashion.

In 2012 I suggested the possibility that price gouging laws could be applied in discriminatory fashion (here and here). In brief, my claim was (1) the laws typically grant some discretion to the state, and any discretion exercised was unlikely to favor “outsider” groups; and (2) enforcement is almost always triggered by consumer complaint and so gives any consumer bias a role in anti-price gouging law enforcement. I’ve also speculated that “outsider” merchants may be more likely to raise prices in response to emergencies, but know of no research on that possibility.