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October 23, 2012

The Center for American Progress: An Unsustainable Energy Vision

October 23, 2012
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The Center for American Progress (CAP) has released a new study entitled “Regional Energy, National Solutions” that purports to provide “A Real Energy Vision for America.” Yet as we’ll see, the CAP study only promotes more of the same government support for unsustainable alternative energy models—leading to bankruptcies (with taxpayer funds on the line) and an entire industry (wind) that openly admits it can’t survive without special tax advantages over its competitors.

CAP’s introduction to its new report begins this way:

America’s energy future is at a crossroads. Everyone can agree that we must reduce our dependence on foreign oil while strengthening our economy and creating jobs. But how do we get there?

From our perspective, the answer is obvious: The federal government should stop standing in the way of entrepreneurs developing domestic resources. This would accomplish every single objective the CAP writer desires.

Of course, the folks at CAP don’t like the obvious solution. Instead they write:

One path at first appears to be a shortcut: Exploiting our natural resources and drilling our way to an energy-independent future. But it’s a deceptive path, which disregards the long-term implications for our landscapes, environment, security, and economy. The alternative is a longer but more realistic path, one that continues to diversify and strengthen the economy through proactive solutions that move us toward sustainable energy independence and create the jobs of the future.

All pleasant-sounding words. But we must ask: In what sense is “drilling” unsustainable, while government funding of alternatives will give us “sustainable energy independence” and “jobs of the future”?

The CAP “Energy Vision”

Here is the summary the CAP report provides of its overall vision and recommendations:

  • Recognizes that our earth is warming, and our resources are finite, which means we must swiftly enact measures to make us global leaders in the face of that reality
  • Mandates investment in multiple forms of energy and fuel so we are never dependent on just one finite resource for electricity and transportation needs
  • Understands the unique assets of each region of our country, whether they are natural resources or infrastructure and workforce investments
  • Relies on ambitious, large-scale projects to create new jobs and anchor strong economic development strategies to ensure American economic competitiveness and true energy independence well into the future

The body of the report itself consists of contributions from a variety of authors. Each section specializes in a different region of the United States (Gulf Coast, Midwest, etc.) and the specific aspect of renewable energy that region can contribute to a “sustainable” and job-creating future for America. Let’s take a closer look at what’s wrong with their analysis.

Finite Domestic Resources?

The CAP introduction disparages an “energy plan based solely on drilling and mining for more and harder-to-reach fossil fuels” and warns that “our resources are finite, which means we must swiftly enact measures to make us global leaders in the face of that reality.” In so doing, the CAP writers reveal their ignorance of the first principles in resource economics, and their naïve faith in government investment decisions.

Yes, it is certainly true that in a physical sense, there is a finite amount of energy located within the United States—or planet Earth for that matter—in the form of oil, natural gas, and coal. But by the same token, even solar power is “finite”—the sun will eventually burn out.

For human welfare and government policy decisions, the relevant issue is economic scarcity, not physical scarcity. If we include Canada and Mexico—two countries that are hardly likely to boycott exports to the U.S.—and allow for unconventional recovery techniques, then North America has enough resources to last for literally centuries at current rates of consumption.

Economically, it is efficient to get energy from the least-cost, most convenient source. If humanity really does begin consuming more of Earth’s “finite” oil, natural gas, and coal supplies faster than human ingenuity can figure out how to cheaply tap into the remaining stockpile, then market prices will reflect this reality. Elsewhere I have written on the economics of depletable resources. When the economically relevant stockpile of a depletable resource (such as oil) begins to dwindle, its price rises and gives an incentive for entrepreneurs to develop alternatives. We don’t need the government to centrally plan the energy sector, any more than we need the government to run farms lest everyone starve to death. This is standard stuff and it is amazing that the CAP writers would use such dubious rhetoric in appealing to the public.

The simple fact is that right now, oil, gas, and coal are profitable while the grandiose projects that CAP is pushing are not. This is why oil, gas, and coal companies are able to turn a profit and pay taxes to the government, whereas CAP itself admits that its programs need support from the taxpayers, such as the wind Production Tax Credit (PTC) that gives a huge advantage to wind producers. CAP’s vision “[m]andates investment in multiple forms of energy,” which is an implicit admission that these energy projects would not receive investment from people who voluntarily could put their money at risk.

If Not Us, Who?

To see the ultimate flaw of the CAP vision, ask yourself this: Suppose someone in the year 1912 said, “Eventually we’re going to run out of oil. So we shouldn’t develop it today, we should instead use ‘sustainable’ energy sources.” This argument would have been just as true a century ago, as it is today. And yet, if people back then had heeded such advice, humanity would have missed out on 100 years of economic growth and the revolution in personal transportation made possible by inexpensive and concentrated energy.

This is the true absurdity of the CAP position. They would never allow humans to enjoy Nature’s gifts, unless these gifts could be reproduced for the rest of time. Under what value system is this sensible? It’s one thing to argue that we should preserve our natural heritage for our grandchildren. But CAP doesn’t want our grandkids having access to domestic energy, either. They are demanding that no one ever use our immense stockpiles of oil, gas, and coal, period. This is a position that makes no economic or even moral sense.

The Fatal Conceit

In addition to their fundamental mistake of thinking market prices cannot adequately handle depletable resources, the CAP study goes further and discusses the regional distribution of its mandated investments in various energy sources. At this point the CAP thinkers reveal themselves to be central planners, who aren’t simply correcting a “negative externality” but indeed want to guide the development of the entire energy sector.

Conclusion

Economic theory and the lessons of history show that decentralized markets make wiser investment decisions than government edicts. Contrary to its claims, the Center for American Progress report offers a vision of an unsustainable energy agenda that will stifle economic growth and raise energy prices for Americans.


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  • http://twitter.com/nickrsan Nick Santos

    Two things: First, proposing that because the sun will eventually go out means that solar is finite is illogical. When the sun burns out, human life on earth ends, so for the purposes of humans on Earth, solar energy is infinite – it will last humanity’s lifetime, or longer.

    Second. arguing that the real issue is economic scarcity is overly simplistic. Markets don’t price the true cost of the forms of energy you propose, so they are artificially cheap. This is about so much more than depletability. It’d be fine under many value systems to use up one resource simply because it’s there – I’ll allow that argument. However, if the use of that resource has significant externalities, then you should look seriously at alternatives that don’t possess those socially detrimental characteristics. Why should we continue using fossil fuels given the massive inequities common in their distribution and use? Continuing to put toxics into rivers and aquifers that people drink from and the air that people who have little ability to change their situation breathe is tragic and absolutely avoidable if we don’t accept the status quo. To quote you: “Under what value system is this sensible?” These are the exact types of situations that we have governments for.

    • wrothbard

      Not if we use our coal-powered rocket-ships to go to another star.

      “Why should we continue using fossil fuels given the massive inequities common in their distribution and use?”
      Most of the stuff we use is distributed and used inequitably. That’s sort of the point of the market. Stuff isn’t simply thrown out in all directions, it goes to those market actors that have the need and the resources to acquire it.

      “Continuing to put toxics into rivers and aquifers that people drink from and the air that people who have little ability to change their situation breathe is tragic and absolutely avoidable if we don’t accept the status quo. To quote you: “Under what value system is this sensible?” These are the exact types of situations that we have governments for.”
      You mean the governments that are giving the permits that allow companies to put poisons and toxins into rivers and aquifers that people drink from? Those governments?

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  • cesium62

    The U.S. may have hundreds of years of fossil fuel resources to last centuries, but if you thought wind and solar were expensive, wait until you start paying for gas produced from “technically recoverable” fossil fuels.

    Market prices, especially when externalities are priced in, absolutely will move us from fossil fuels to renewable energy. Of course, the market isn’t particularly kind and gentle. It doesn’t mind spiking prices up by a factor of three or four while waiting for technology and demand to adapt.

    And markets are not perfectly efficient. Adding a small amount of solar panels to the top of rooftops in some locales (like San Francisco and San Diego) reduces the need to build new transmission lines. (Peak capacity on a transmission line is reduced during hot weather which corresponds with peak demand used to run air conditioners.) But the market is not good at bringing together the multiple players needed to realize this efficiency.

    Economic theory and lessons of history do not show that decentralized markets make better investments than government edicts. If that were the case, we wouldn’t have standards on how to build electric plugs. People get together and make agreements. Saying that people make better agreements in blue rooms than they do in green rooms, which is quite analogous to what you are arguing, is clearly silly. What lessons of history does show is that you get bad decisions when one group of people are making decisions for another group of people without accepting any input from the other group of people.

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