Paul Krugman comments on hydraulic fracturing and solar power

Michael Giberson

Paul Krugman commented on hydraulic fracturing for natural gas and on solar energy the other day.

His main thrust is the good news he finds on solar energy, but he detours into a few comments on fracking to generate a charge of political hypocrisy. Fracking is, he says, “a technology that imposes large costs on the public.”

We know that it produces toxic (and radioactive) wastewater that contaminates drinking water; there is reason to suspect, despite industry denials, that it also contaminates groundwater; and the heavy trucking required for fracking inflicts major damage on roads.

Economics 101 tells us that an industry imposing large costs on third parties should be required to “internalize” those costs — that is, to pay for the damage it inflicts, treating that damage as a cost of production. Fracking might still be worth doing given those costs. But no industry should be held harmless from its impacts on the environment and the nation’s infrastructure.

Yes, fracking produces toxic and radioactive wastewater and there are cases in which that wastewater has spilling into streams. Yes, there are reasons to believe that in some cases gas drilling (but not the fracking process itself) has contaminated groundwater. But these cases are relatively rare and, at most, locally significant for a little while. Krugman doesn’t, and I don’t think he can, justify his claim that fracking “imposes large [external] costs on the public.” Still, Krugman’s “internalize the externalities” is pretty basic economic policy advice.

(I’ll agree that the heavy trucking required for fracking can inflict major damage on minor roads, but I assume that those trucks pay diesel taxes and other fees just like any other commercial vehicle would. The tax is supposed to “internalize the externality” of road use, just like Krugman wants. What is the complaint?)

Krugman quotes from the industry-supported website and follows it up with “it’s worth pointing out that special treatment for fracking makes a mockery of free-market principles.” Well, if Krugman is searching for free market principles, neither industry-backed websites nor politicians of any stripe are likely to be reliable resources. If instead he wants to mock politicians that mouth free-market principles as cover for corporate welfare, I’m all in favor. But c’mon Dr. K, name some names!

He turns to solar power for some happier news:

Solyndra’s failure was actually caused by technological success: the price of solar panels is dropping fast, and Solyndra couldn’t keep up with the competition. In fact, progress in solar panels has been so dramatic and sustained that, as a blog post at Scientific American put it, “there’s now frequent talk of a ‘Moore’s law’ in solar energy,” with prices adjusted for inflation falling around 7 percent a year.

This has already led to rapid growth in solar installations, but even more change may be just around the corner. If the downward trend continues — and if anything it seems to be accelerating — we’re just a few years from the point at which electricity from solar panels becomes cheaper than electricity generated by burning coal.

The declining cost of solar is, in fact, good news for consumers.

However, I think a good part of the most recent and dramatic cost declines for installed solar PV systems are not technology driven. As energy prices soared in 2008, a good deal of additional capacity to produce high-grade silicon came online. At the same time, additional capability to produce both silicon and non-silicon forms of PV panels came online. The late-2008 financial crisis suddenly cut spending on many new projects. Economics 101 tells us that when the supply is up and the demand down, the price of solar panels will drop.

Technology is improving, and contributing to cost reductions for solar PV. I’d just be cautious about drawing a line through recent year prices to forecast prices a few years hence. (Uh-oh: Checking for data at EIA shows PV installations up in 2009 and 2010 compared to 2008, so maybe the demand side of my solar story is weak. Don’t see data on manufacturing capability.)

In any case, though Krugman doesn’t mention it, his endorsement of an “internalize the externalities” approach to policy probably commits him to leaning against the Renewable Portfolio Standards, direct-to-industry grants, and production subsidy approaches to encouraging renewable power (none of these policies do a good job of linking subsidies to public benefits). On the other hand, he probably leans in favor of directly taxing various forms of pollution or, even better, application of strict liability standards when the pollution and resulting harm is readily identifiable. Those are my views, too; glad to have such a notable economist on my team.


13 thoughts on “Paul Krugman comments on hydraulic fracturing and solar power

  1. How about the seismic effect the fracturing process is “potentially” causing? Is a regional earthquake considered to be short-term or long-term worry? What will be the “potential” financial and life losses of a 6.0 or 7.0 earthquake to OK to say the least compared to the financial gains of those gas drilling companies? What does your Eco101 calculator say about those number crunching? by Clif Tsay

  2. I don’t usually read Krugman, and looking at this column doesn’t help his cause.

    I even clicked through to the SA article about the declining cost of PV solar panels.

    First of all, Moore’s law has zippo to do with solar panels. Moore’s law is driven by the ability of ever smaller transistors to do the same thing that bigger ones can in digital electronics. The job of a solar cell is quite different. Its utility is in capturing energy from sunshine. If it gets smaller it captures less sunshine. So size is irrelevant.

    The real problem is not the solar panels, it is the sun, which does not shine 4380 hours per year, because of night. That does not include twilight, clouds, and dirt. Therefor, every watt of solar must be supplemented by an equal or greater amount of generating capacity or of storage. So you have to pay for two systems instead of one.

    Second, solar requires land. As the SA article says, the solar flux at the earths surface (really at noon on a clear day when the sun is directly overhead) is 700 Watts per meter.

    Let’s be real optimistic and assume that you can get 200 Watts per square meter of installation (this would only be possible in the deserts of the Southwest). A gigawatt (one billion watts), the size of a big modern coal or nuclear plant, would need 5 million square meters = 5 square kilometers = ~1240 acres = ~2 sq. mi.

    Maybe you can get your cronies in the Obama Administration to give you the land, otherwise it will cost money, and lots more to grade the land, install roads and drainage, build mounting systems for the panels, buy maintenance equipment, wires, inverters, transformers, and switches. All of that is expensive, even if the flipping cells are free.

  3. “fracking produces toxic and radioactive wastewater”

    I realize this is a rhetorical concession, but as I have pointed out previously, the wastewater is not per se toxic. It is brine. It may contain other dissolved minerals, depending on the geology of the region it comes from. Very small quantities of those minerals may be decay products of uranium, such as radium. The overall quantities of radioactivity are negligible, and since the brine is not drinkable, they are not an issue.

    If improperly disposed of, the brine could render well water too salty to drink (although it would soften it).

    The NYTimes got hysterical about using the brine to de-ice roads in the winter.They shouldn’t have. It is actually a cheap and safe method of disposal.

  4. About solar, it is still in a very infancy stage technologically. We should all be proud of the achievements the global solar industry has been able to attain so far using the so-called “yesterday’s” PV technology (I personally am not satisfied either).

    A lot of solar energy innovations and breakthroughs are still in labs or “garages”. Don’t rule out solar energy for the future just yet as crude and gas will all eventually run of steam or at an astronomically high price. In the mean time, clean & cheap natural gas is welcome in US as long as it can be extracted or produced safely and environmental-friendly. – Clif Tsay

  5. Clif Tsay: Fracking has been linked to small quakes, but no way can fracking put enough pressure down a well to reach anywhere near a quake of 6.0 or 7.0 magnitude. The Associated Press reported a story on the topic a few days ago:

    Fat Man: I usually don’t read Krugman either, but couldn’t resist seeing what he had to say on an energy topic. Then when it turned out that a column on solar power contained a lengthy detour on fracking, I couldn’t resist posting about it. Sure, maybe I should exercise a little self control.

    On toxic and radioactive, yes accepting the claim as technically true since I knew I was going to counter with the claim that it doesn’t add up to significant external costs anyway. Obviously degree of concentration matters a great deal, as for example a banana contains substances that are toxic (if consumed in extreme concentration) and radioactive (but not at harmful levels). Your earlier comment – months ago – help fix my understanding of the matter.

  6. Giberson: Let’s don’t fool ourselves. The AP article says pretty much nothing about the conclusion of the fracking-induced tremor effects. No man on this planet has been able to predict when and where an earthquake may occur let alone the estimated magnitude or the boundaries of the magnitude. Seismic damage is accumulative, the more energy pumped in the more it will be released later one way or another. There has been no field data to prove or predict what may happen if humans keep injecting fluids or altering the inner crust layers. There is no simulation model that can accurately predict the final outcome; however, it is conceivably that the end result must be vastly negative for sure.

    The only thing we can know for sure is that any made-made attempt trying to alter the Nature in a big way esp. into those unknown scientific territories will eventually get penalized by the Nature for generations to come. So, why take unnecessary chances while we really don’t know for sure? Drilling Corps had been telling people that there was no link between earthquake and fracking, which was recently (this week) disapproved by the US Gov. Now, someone wants us to believe that those earthquakes can never reach 6.0 or 7.0? based on what theory or simulation or historical data?? (I am willing to take that face value if that someone were God.) – Clif Tsay

  7. Aren’t there environmental downsides to solar? I’m thinking of heavy metal pollution, though I’m no engineer. I’m asking if there are any such issues.

  8. Bruce, traditional silicon based solar cells are similar to computer chips and have similar environmental impacts. Some alternative technologies for making solar cells involve cadmium and tellurium, so the industrial processes can be messy but I think there is relatively little environmental risk.

  9. Let’s all hope this little “solar energy” baby will grow up one day to Superman so that he can rescue mankind and this planet in time.

    This little infant still needs intensive baby care (industry’s lobbying/petition, local and central government’s favorable incentives and policies) all the time, otherwise it will get sick easily. The digestive system of the little one is not very good, so it has to eat a lot but only 20% or so turns into useful energy. Hope his stomach can get more efficient soon so that we don’t have to waste a lot food (sunlight). Doctors say his stomach can only absorb certain types of food (limited wavelengths in the whole solar spectrum) while wasting a lot of the food (IR, UV, heat). Pediatricians say this little one is very smart and will become a very useful man to the society, most impressively he has a very long life expectancy according to his genetic analysis – as long as we take good care of him – otherwise he may die prematurely.

    Meanwhile, he has to become more productive (>60% efficiency), need to cost less to raise and educate (<$1/W or <$0.05/kWh) in order to win over his other energy cousins, need to raise more of this type of kids so they can become the mainstream in population from current about 1% worldwide, need to make him smarter and more intelligent so that he can do more and consume less (land, material, energy)….

    The biography of this little "solar energy" infant has been written but only part of the prologue is done. Nobody knows how long it is going to take to finish the whole bio and how many chapters will be unfolded…..

  10. Clif: Let’s try this again

    1839 – Becquerel observes the photovoltaic effect in a conductive solution exposed to light.

    1905 – Einstein publishes a paper explaining the photoelectric effect with the quantum theory of light.

    1916 – Millikan’s experiments prove that Einstein was correct.

    1954 – Bell Labs (which had invented transistors 7 years befor) announced the first modern silicon solar cell. The New York Times forecasts that solar cells will eventually lead to a source of “limitless energy of the sun”.

    1962 – The Telstar communications satellite is powered by solar cells.

    1977 – President Jimmy Carter installs solar panels on the White House and promotes incentives for solar energy systems.

    There is nothing new or infant about solar PV. Just because it is bald and drools, it is not an infant. It is a doddering old man.

  11. Fat Man: No need to repeat history for me because everybody can copy those from Wikipedia. I am fully aware of PV (past, present and some future) plus I am personally involved in solar field (not sure about you). Doesn’t mean I know everything about PV but I am an active learner in solar field. Most of those history you cited is about PV theory not commercialization, efficiency, cost/performance, deployment. Trust me, we still have a long way to go on PV technology front and that makes it exciting and promising. Although we shall give due respect to those who made PV possible, it doesn’t mean that is the end of road.

    Let me try it again in a different way for your better understanding. The current PV technology and business is still evolving (in infant stage: low IQ, high cost, low efficiency…). For instance, I would call the traditional PV module “dumb module” (PV1.0, Chinese PV makers are very good at making them dirt cheap). I am expecting US to dominate PV3.0 technology (e.g. CIGS, CISX, 3D architecture, power management/system integration, PV/TE integration, full-spectrum solar cell) assuming we can raise this “solar baby” properly. On the other hand, PV2.0 (e,g. AC module) is going to a toss-up. Further, PV power distribution should be part of the PV technology development, for instance, smart-grid-compatible, micro-grid-compatible, networkability, interconnectivity, building-architecture-compatible, cell-level optimization and tracking, AC/DC direct output, low footprint PV system, greener or less materials (just to name a few)……

    Again, we are still a long way to go before we can become self-content with solar (PV) technology in my humble opinion. For utility companies, renewable energy is just a drop in the bucket – a history (10 or 20 years) to be written before Utilities can even pay enough attention to solar energy. Right now, solar PV growth needs to be milk-fed with favorable policies and incentives. That is an “infant”. Bless!

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