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November 10, 2011

The Sun Is Setting on Krugman’s Solar Views

November 10, 2011
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Frequent readers of Paul Krugman’s blog and NYT column know that he isn’t afraid to make sweeping statements and to criticize the intelligence and/or motives of anyone who holds a different view. At the same time, Krugman is a really sharp guy and so he usually covers himself so that even if his arguments are misleading, he can always acquit himself on a technicality.

However, in Krugman’s latest op ed—in which he praised solar power and excoriated hydraulic fracturing on free market grounds—Krugman stepped in it. His claims were so over-the-top that even some of his friends behind the scenes had to set him straight, leading to a rare Krugman pseudo-apology. In the present post, I’ll summarize the major flaws in Krugman’s latest masterpiece.

Krugman on Energy Sources

First let’s allow Krugman to present his case in his own words. After telling his readers that we are on the cusp of an energy transformation because of the rapidly falling costs of solar power, Krugman takes a detour to knock on hydraulic fracturing (“fracking”):

…We know that [fracking] 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.

So it’s worth pointing out that special treatment for fracking makes a mockery of free-market principles. Pro-fracking politicians claim to be against subsidies, yet letting an industry impose costs without paying compensation is in effect a huge subsidy. They say they oppose having the government “pick winners,” yet they demand special treatment for this industry precisely because they claim it will be a winner.

These days, mention solar power and you’ll probably hear cries of “Solyndra!”… But 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…

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.

So what you need to know is that nothing you hear from these people is true. Fracking is not a dream come true; solar is now cost-effective. Here comes the sun, if we’re willing to let it in. [Bold added.]

There’s a lot of misleading sentences packed into the above; the disinformation density is impressive. Let’s break up our response into manageable chunks in the following sections.

The Case Against Fracking?

As Robert Bryce (who is hardly a right-wing shill) pointed out in his own response, it’s hard to evaluate Krugman’s claims about the environmental hazards of fracking since Krugman offers no specifics and no links. In contrast to Krugman’s unbacked assertions, Bryce offers a different view from the NYT and MIT, two sources that it would be awkward for Krugman to fault (since he works for the former and got his PhD from the latter). Here’s Bryce:

[NYT journalist Ian] Urbina has spent months, some of it working with the Environmental Working Group, to document cases of water wells that have been contaminated by fracturing. Urbina’s finding: One water well in West Virginia was likely contaminated by fracturing in 1984. After laying out the details of the contamination, Urbina writes, “Drilling technology and safeguards in well design have improved significantly since then.”

Or, Krugman could have looked at the findings of a multi-year study on natural gas released last summer by the MIT Energy Initiative. The 170-page report addresses hydraulic fracturing directly, saying, “The fracturing process itself poses minimal risk to the shallow groundwater zones that may exist in the upper portion of the wellbore.” The report goes on, “The physical realities of the fracturing process, combined with the lack of reports from the many wells to date of fracture fluid contamination of groundwater, supports the assertion that fracturing itself does not create environmental concerns.”

Maybe Krugman wants to challenge Bryce’s evidence, but if so he will need to at least make a quantifiable claim and (preferably) link to a reputable study on the matter.

Solar Is Competitive?

Regarding the alleged competitiveness of solar versus more traditional energy sources, Krugman overlooked the huge issue issue of intermittency. In a previous post on yet another bankrupt recipient of the Department of Energy’s loan guarantees, I covered in-depth this problem, and why solar and wind electricity generation require the storage that Beacon Power was trying to develop. By focusing just on the direct generation costs, while ignoring the potentially huge costs (per average kWh) of storing the solar power so that it doesn’t wreak havoc on the grid, Krugman was exaggerating the near-term ability of solar to “transform” our energy infrastructure.

In fact, this omission was so glaring that Krugman himself was forced to walk back his claims on his blog that very day. He wrote:

I’ve been getting some pushback from people I respect on today’s column, not so much for what I actually said as for what they fear readers may take away from it. So a bit of clarification.

Some of it involves questioning the cost data, but the main point, I think, is that even if solar power’s price per kwh matches coal-fired, it’s not going to take over the market right away, and maybe not ever. The sun doesn’t shine at night, and often doesn’t shine during the day. Intermittency is a big problem, and I probably should have made that clearer.

So what we’re actually looking at is still a partial role for solar, as a piece of a multi-source energy system. The point, however, is that it’s now looking like a much larger part than anyone imagined — and if we priced coal-fired power properly, that transformation would be happening now.

Those who read Krugman regularly know that this is just about the closest to an “oops, I was wrong” he ever comes.

Free-Market Hypocrites?

So we’ve already seen that Krugman’s accusations against fracking are dubious, and that he himself has downplayed his predictions about the imminent takeover of solar. But what about his claims of hypocrisy by the alleged champions of laissez-faire? Are they really implicitly favoring government subsidies to fossil fuels?

First of all, Krugman conveniently omits any mention of government support for solar. He brings up Solyndra, and yet doesn’t take the time to say, “Since solar is so gosh darn innovative and cost-effective, we really shouldn’t have the DOE giving loan guarantees to companies in the renewables industry.” I guess it was because of the Times’ word limit on his op ed.

But what about the alleged environmental damages of fracking and other practices related to fossil fuels? Here, Krugman says that “Economics 101” teaches that the government should tax or otherwise hamper firms that are engaging in a so-called negative externality. So when proponents of fossil fuels oppose, say, a carbon tax, Krugman thinks they are being hypocrites and aren’t really believers in capitalism after all.

This of course is silly. I have published a critique of the carbon tax, showing why it is a dangerous tool to hand over to politicians. Even if we conceded the entire academic economist’s case for an “optimal carbon tax,” there are still many problems (handled in the Public Choice framework) with actually giving real-world governments a new source of revenue.

Krugman should recognize this flavor of argument, for it’s exactly what he used himself when talking about trade policy in his book The Age of Diminished Expectations. Even though most economists are reflexively for free trade (and Krugman himself was a giant in this area in his earlier career), there is actually a technical case to be made for “optimal tariffs” under certain conditions. In other words, with all the bells and whistles of mathematical models of the world economy, you can come up with a model in which a country makes itself wealthier by (lightly) taxing imports.

Yet in his book, Krugman wisely cautions the reader against falling for such a demonstration: [T]here is political reality to consider. Given the uncertainty about what strategic trade policy should be, wouldn’t any attempt at doing it turn into thinly disguised interest-group politics? Almost surely it would.”

It’s the same thing with so-called externalities and corrective “market-based” taxes or emissions permits. We opponents of such measures can (and have) challenged the specifics, but even if what the critics are claiming were true, there would still be a great danger in giving the federal government a tap of perhaps hundreds of billions in new revenue. One doesn’t have to be a complete cynic to realize that the government might not calibrate a “carbon tax” based on the tangency points from one of Krugman’s models.

Conclusion

If Krugman actually believed his latest column, he would favor the immediate abolition of all federal government support for solar power. For once, we at IER would agree with him.

 


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