Economics of Alternative Energy

Whenever I hear people talking about “green jobs” I shake my head. Green jobs are primarily jobs that are in clean and alternative energy. Energy can be derived from solar, wind, or water. I am actually in favor of alternative energy as long as the government doesn’t fund any of it. People making energy more efficient and bringing down the cost of energy is great. In fact, I believe energy in 20 years will not only become cheaper but more plentiful.

The biggest argument for alternative energy seems to be that it will create jobs and reduce our carbon footprint. The New York Times ran a recent article called “Number of Green Jobs Fails to Live Up to Promises”. The gist of the article is that government officials promised x amount of green jobs but in reality there ended up being much fewer. California spent $93 million in order to create 538 full time jobs. This works out to be $172,000 per job. Not only did it create very few jobs it came from tax-payers money.

In December of 1974 Popular Science predicted that by 1986 the cost per watt would be 60 cents per watt in today’s dollars. In 2007, the price per watt of solar was $3.66. Clearly, this prediction was way off. I use to subscribe to Popular Science and remember getting them on Saturday afternoons. One problem I realized was that nearly everything they were writing about was basically in a research and development phase which meant most of the things they talked about never came to the market place. Experts keep predicting in x more years solar will be competitive, but the main reason why this never comes true is because the government offers generous subsidies, incentives, and tax credits for installing solar which distorts the true price of solar energy. If we got the government out of subsidizing solar and other alternatives the technology would get better and prices would drop faster than if the government was subsidizing it.

Right now the U.S. consumes a lot of crude oil. Last time I checked crude oil was more abundant and cheaper than any other resource. In order to get the same energy out of one gas station you would have to cover the city of Los Angeles in solar panels. Remember this is just the energy for one gas station. The U.S. has 21 billion barrels of proven reserves. Not only do we have these proven reserves we also have undiscovered oil (can’t drill due to regulations) of 134 billion barrels of oil. Not only do we have oil but if we ever ran out there are other countries around the world that could export it to us. I am always reminded of the words that we will never run out of any resource that is valuable. In the last twenty years we used crude oil more efficiently. Even the cell phone has increased crude oil efficiently since people can now communicate in real time so they aren’t wasting gas trying to figure out where other people are. Navigation and GPS systems have also made us more fuel efficient by getting us to where we want to go. No doubt we will become more fuel efficient and develop better ways to use crude oil.

Alternative energy could help just as long as it isn’t subsidized. This week Evergreen Solar a maker of solar panels announced they were going bankrupt. It seems as if the company made most of their money off government subsidies and credits offered to consumers. Data from the Energy Administration and Greeneconmetrics Research shows that solar energy in terms of cost per kilowatt hour is more than seven times that of oil.

My prediction is we will be using more solar energy in the future (hopefully without taxpayer money). The technology will improve slower than people expect because we keep subsiding it. Think of the computer industry in the 1980s and 1990s got subsidies. How much worse off would we have been?