There has been some attention to Whole Foods’ recent announcement that they will purchase sufficient wind energy credits to run all of their stores.
The Austin-based company said it is purchasing 458,000 megawatt-hours of wind energy credits a year — enough to power 44,000 homes annually — from Renewable Choice Energy of Boulder, Colo.
Because power does not flow from wind farms directly to a home or business through a utility grid, Whole Foods is purchasing energy credits — like a voucher — that assure wind energy eventually gets placed on the grid.
The company began rolling out wind energy for all 173 stores in the United States and Canada last month. Prior to that, 20 percent of its electricity had been from renewable sources.
If you want to learn more about how wind credits work, visit Renewable Choice Energy’s website.
I love seeing new markets, and I love seeing entrepreneurs serve the vast, diverse interests of heterogeneous consumers with subjective preferences. I am concerned, though, about some of the unintended pernicious incentives embedded in subsidies of such good things, like renewable energy. The recent Energy Policy Act, as well as other pieces of state legislation (including renewable portfolio standards in several states), contains subsidies and tax breaks for renewable power. My question is this: if it has economic value, why does it need the subsidies? If customers value clean energy enough to pay the higher price, won’t they do it? If the subsidies are meant to overcome some barrier, what barrier is it? The most pressing barrier for wind has been interconnection barriers from transmission-owning utilites, but many of these are falling through some FERC proceedings and rulings.
Recently Pete Geddes said it well:
I recently met with a Bozeman writer about my opposition to subsidies for alternative fuels. Am I opposed to all subsidies, including those for fossil fuels, or just for wind, solar, and synfuels? Of course, I responded, I’m opposed to all commodity subsidies on ethical and environmental grounds. But I support federal investments in basic research and projects like the construction of the Hyalite handicapped trail.
Here’s how I think about the difference. When we subsidize things that trade in the market, we benefit the well off and well organized at the expense of the most vulnerable members of society. This holds true whether in Bozeman, Boston, or Birmingham. Princeton Ph.D. George Will said it well: “The world is divided between those who do and do not understand that activist, interventionist, regulating, subsidizing government is generally a servant of the strong and entrenched against the weak and aspiring.”
Here’s a key point. If consumers really derive superior value (i.e., in terms of price and performance) from alternative energy sources, won’t entrepreneurs rush to deliver these products to them?
We all care about our energy future; some of us care for the environmental consequences. They include: human health, natural beauty, and ameliorating the negative effects of climate change. Most folks primarily value warm homes in the winter, fast and convenient transportation, and inexpensive energy. The questions we face involve balancing competing values. In what combination and in what amounts should we seek the things we want?
Thanks to Russ Roberts for the link.
Like Pete, I worry about the extent to which such subsidies serve only to reward the well-organized and do not lead to an increase in economic surplus/welfare.