Legalities and Externalilties has its first "request" post. A former classmate, Morgan Cox, brought this interesting article to my attention, so a special thanks goes out to him for being a loyal follower and active participant in our little project.
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Google recently released a report that calculates the opportunity cost of delaying innovation in clean and renewable energy, and boy, is it big -- up to $3.2 trillion, by their calculation. Google used McKinsey's Low Carbon Economics Tool to analyze various macroeconomic indicators like GDP, petroleum product demand, U.S. energy bills, and carbon emissions under various scenarios that describe "breakthroughs" in renewable energy infrastructure, such as
- refinements to the energy grid
- cost breakthroughs in clean technology and alternative clean fuel sources
- increasing costs in petroleum resources
- carbon pricing
Google provides access to the full report (only 27 pages, one of which is an executive summary if you're short on time), and it's worth a read if you're at all interested in this subject.
The real appeal to this article, at least in my mind, is the sheer sticker shock of the cost of delayed technological development; $3.2 trillion is nothing to shake a stick at. However, the weakness that is inherent in this type of analysis is that this number isn't necessarily representative of anything; we can't simply flip a switch and start cranking out technological advancements, and there's no guarantee that, even if we had laid the foundation for these breakthroughs by investing heavily in R&D decades ago, we'd see the breakthroughs that would result in the savings they discuss here. Aside from that, modeling technological development has plagued economic analysis for as long as economic analysis has been performed.
The really neat contribution of this report has to do with policy. Certainly this analysis is meant to try and sway policy formation, but we also cannot forget that politics is a huge impediment to the realization of the gains they discuss here. Politics being the short-sighted, sycophantic quagmire that it is, many of the scenarios discussed here may never be seen or, at the very least, won't likely come around for awhile. Let's take a look at some of the specific policy alternatives examined in the report for examples.
First, we'll look at the $30 carbon price. We can cross this one off the list almost right away, since very few of our elected leaders would be willing to pull the trigger on any scheme that imposes a price on carbon. That's certainly not to say it shouldn't be done; heavy emitters need to be forced to internalize the damage they do through emissions of greenhouse gases, and making the emissions of these gases more expensive through carbon pricing would be a good motivator for innovation of clean energy technology. However, innovation happens in the long-run and politics in the short-run, and with economic conditions and popular sentiment being what they are, it's my assessment that there's very little support for this type of policy.
Second, we have high oil prices. Again, higher prices are a great motivator for innovation, but there are a lot of people around the world that are very heavily-invested in keeping America using their oil. Saudi Arabia, whose royal family keeps its position through lavishing its subjects with royalty-funded projects, has a lot of swing over the price of oil. Of course, we could get around this by setting a floating tax that makes gasoline equal to $4.50/gallon permanently, but, again, no politician in their right mind would even bring this up.
In the end, I think it's a neat analysis that is good for highlighting that which we're missing out on by failing to take the lead in clean technology development, and it's a real shame. And while it's subject to some limitations -- as all analysis and modeling exercises always are -- hopefully it can get some of our more prominent and powerful leaders thinking about making substantive changes in energy policy.
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