Renewable Energy: Exempt From Cost-Benefit Analysis? - Dr. Mackubin Owens

Renewable Energy: Exempt From Cost-Benefit Analysis? - Dr. Mackubin Owens

No matter what one may think of Donald Trump’s personality and antics, it is undeniable that many of his policies were successful. One of the pillars of former President Trump’s foreign policy was to prioritize economic growth, especially by leveraging the new geopolitics of energy. It did so by exploiting the revolution associated with hydraulic fracturing (“fracking”) and directional drilling, which not only powered economic growth by reducing energy costs but also strengthened US foreign policy by reducing US reliance on foreign oil and gas.  As a result, the United States had become the largest oil and gas producer in the world by the time Trump left office, which provided the United States a great deal of leverage in foreign policy, especially in our dealings with Russia and the Arab oil producing states of the Middle East. 

In contrast, the Biden administration has waged a war against hydrocarbons, primarily in a quixotic pursuit of a “green energy” future. The administration has been joined by many states, including Rhode Island, which seek to force a transition to solar and wind energy. For example, Governor McKee recently signed legislation requiring that 100% of Rhode Island’s electricity must be offset by renewable energy by 2033. Unfortunately, such a transition is at odds with both physics and economics.

The 1974 Nobel Laureate Friedrich Hayek once described economics as the “study of the unintended consequences of human action.” This includes what the 19th century French economist, Frederick Bastiat termed the unseen vs the seen. Thus, a policy is proposed to achieve a goal, which may or may not be achieved. In any event, those who propose a policy must take into account not only the intended but also the UNINTENDED consequences. The most important unintended consequence of a policy proposal is it COSTS.

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Economists define cost in terms of the value of foregone opportunity, the highest valued alternative use of resource when it is used in one way as opposed to another. The value of a proposed policy must be balanced against its opportunity cost. Some costs are visible, e.g. the direct financial cost of a project. Others are not. What are some of the indirect costs associated with “renewable” of “green” energy projects? For one thing, land use. Since wind and solar are diffused sources of energy as opposed to fossil fuels and especially nuclear, they require substantial space to capture a given amount of energy. Solar and wind farms require vast tracts of land (and in the case of the latter) sea surface that far exceed the land or sea space required for the production of oil and gas.

It is also the case that the components of wind turbines and solar panels require the extraction, processing, and refining of minerals and metals, processes that emit massive amounts of carbon into the atmosphere. Wind turbines also have a very short lifespan and cannot be recycled. In addition, many of these components require rare earth metals. Unfortunately, the United States is at a disadvantage vis a vis China in this critical area of geopolitical competition.

There are also risks associated with courses of action.  As California has shown, one risk in the case of reliance on renewables is grid failure. California has mandated a shift to renewables and has gone so far as to shutter its last remaining nuclear power plant. But one of the problems with renewables is their reliability. Wind and solar do not produce the same amount of electricity over twenty-four hours. The fact is that the sun does not always shine and the wind does not always blow. This is the case mainly when demand for electricity is highest. During peak demand, the California grid must shift to natural gas.

Too many renewable energy projects are approved without regard to their opportunity costs. That is certainly the case with the RI legislation requiring carbon offsets for electricity. That is why it is important for the RI Assembly to pass H 7815, a bill that would require a data-driven cost analysis of renewable projects.

As the author of the bill, Rep. Patricia Morgan (R-Dist. 26), has stated, “our politicians are permitting…environmental destruction with the goal of net reduction of carbon emissions. But do these projects actually deliver on that promise? No one has ever proven with scientific data-driven standards that, over their entire life cycle through a holistic end to end, cradle to grave, upstream and downstream assessment, [that] these renewable projects reduce carbon emissions.”  

Cost-benefit analysis must be a centerpiece of all public policy. Unfortunately, advocates of renewable energy projects seem to believe that their projects and policy proposals should be exempt.