Energy is Not Scarce: Comment on Wilkinson on the Sustainability of Economic Growth

Michael Giberson

Holman Jenkins’s editorial on energy in yesterday’s WSJ seems to take the right approach:

[W]e can’t drill our way out of the dilemmas of living in the world. But drilling is one of many things we can do that are worth doing. Over time, the price mechanism and technology will tell us how to harness the energy that is infinite around us. There’s the sun, the tides, geothermal and nuclear — energy is not in short supply; only know-how is. And a shortage of know-how is a problem that our society, as long as its basic incentives remain intact, is constantly solving every single day.

This concluding paragraph can also be taken to sum up, in more elegant fashion, the fundamental point on the sustainability of economic growth made by Will Wilkinson a few days ago (and see responses to Wilkinson by Tyler Cowen, Felix Salmon, and Daniel Hall).

As I see it, Wilkinson is right that energy, per se, is not scarce – as a commenter on the post put it, it is usable energy that is scarce. Turning widely available kinds of energy into usable forms is one of the things that humans have been doing for a long time. As Jenkins indicates, we will continue to find better ways to do it so long as social conditions permit.

Wilkinson takes a similar view, but I think hasn’t quite worked the kinks out of his argument.

In his point (c) Wilkinson says “the initial high price of alternative energy will temporarily slow growth,” but his sentence is identifying the wrong culprit. Any price is high, or not, only in relation to other prices, and only in relation to the value the priced product or service offers relative to its substitutes. It is the eventual high price of the energy sources currently used, for which our existing stock of capital is well-adapted, that will drive consumers toward alternatives. (Various subsidies and other public policies make a difference, but primarily through their effects on prices.) It is the increasing scarcity of the currently-used forms of energy resources that can temporarily slow growth.

Wilkinson’s point (d), “environmental quality is a global public good”, is a bit too aggregate for my tastes. Even as broad a phenomenon as global temperature change will be harmful in some places, but fairly would be rated as an improvement at other sites (unless you have an extreme fondness for, say, the exact global temperature patterns of the pre-Industrial Revolution period — but tell me why I should care about your temperature fetishes).

I also can’t jump to Wilkinson’s conclusion:

(f) there are no meaningful limits to growth from either the scarcity of energy, or from negative environmental externalities from economic production, since in the medium run, those externalities are positive.

“The medium run” – one of those vaguely defined terms that is longer than the short run, but not so long as to expose the author to the Keynesian “in the long run we are all dead” response. With Felix Salmon and Daniel Hall, I don’t see any reason to believe that the environmental externalities from economic production will necessarily be positive, even in “the medium run.” (Whether it happens, or not, depends on many things – social attitudes, public policies, availability of various kinds of resources and know-how, and so on. We can’t just assume all of these factors will line up properly.)

So I can’t quite jump to Wilkinson’s conclusion, but nonetheless find myself agreeing in spirit, so to speak, with the fundamental idea. I think Jenkins said it well: “energy is not in short supply; only know-how is. And a shortage of know-how is a problem that our society, as long as its basic incentives remain intact, is constantly solving every single day.”