Breaking windows for a better economy?

Factchecker energie SER

Last week, I came across the “factchecker energie” from the Energy Agreement of the SER (Social Economic Council, the Netherlands). The goal of this fact checker is to give, ahem, “objective information about sustainable energy to civilians and companies”, because the “heated discussions on this subject are not always based on facts”.

Nice to hear that they care about the facts, but it is a pity that, as usual, only the facts from one side are provided.

This post will be about the first fact check from a series of (currently) five and is called Episode 1: The Energy Agreement is good for the economy (attention, Dutch ahead). This is how it starts (translated from Dutch):

What are actually the benefits of the Energy Agreement?
The Energy Agreement contributes to an affordable, clean energy supply for the Netherlands. […]

“Clean energy”? Okay, while I agree that a windmill or a solar panel itself doesn’t emit CO2 when producing electricity, its intermittent nature requires backup and there will be emissions. That same intermittent nature makes that the backup sources (mostly fossil fuels) run less efficient, therefor emitting more than when running at optimal efficiency. These emissions are not produced by the wind mill or solar panel, but it is a direct consequence of their intermittency.

Because of the priority rule (alternative energy has the highest priority for putting power on the grid), those backup plants make less sense economically, they can’t compete with the subsidized wind and solar production. This means that electricity providers will go for the cheapest way of producing power, like coal or lignite. Although this is a consequence of the economics of alternative energy, it is not even mentioned by the authors.

Look at guide country Germany. Its emissions are basically stable for the last eight years or so, in spite of an aggressive growth of alternative energy in that same period. I am at a loss why people regard them as an example of how the transition should be done. Unless emission reduction is not the goal, they are obviously doing something wrong. If we would balance the achieved reduction against the investments being done, that wouldn’t look good.

The authors also use the word “affordable”. That doesn’t necessarily means cheap. The definition of affordable is “believed to be within one’s financial means”, which is rather subjective. In this specific case, it will not be as cheap as fossil fuels and the authors also acknowledge this at the end of their fact check:

Nice, but do the gains of the Energy Agreement weigh up against the investments?
From purely economic considerations, you strictly should not do these investments. But, then you actually should not invest in security or defense either. Is JSF worth the investment? Is the Oosterschelde barrier [a storm surge barrier, part of the Delta Works] worthwhile, knowing it might be used once in a decade or so? It is necessary to organize the energy supply of the Netherlands in a different way. That’s worth the investment.

Ooooooops.

Wasn’t the subject of their fact check that wind and solar energy are good for the economy?

The comparison with these examples, suddenly makes it a completely different story. I understand from their examples that alternative energy sources don’t make much sense from an economic standpoint (which I agree with), but we should do it anyway for reasons other than the economy. This other reason seems to be the vague “organizing the energy supply in another way” and this is then claimed to be worth the investment.

Then why do the authors claim that it is “good for the economy”? The reasons are jobs and investments (this continues from the first quote):

[…] It also creates jobs, because plenty of investments are made. Think of new jobs related to windmills, solar panels, heat pumps and insulation of homes and buildings. There are other jobs, such as in marketing, communication, sales and the like.

Not sure what insulation of homes and buildings has to do with alternative energy sources. They make as much, or even more, sense in a fossil fuel based economy.

The authors then claim that those intermittent energy sources will create 13,000 net additional jobs between 2012 and 2023 (excluding industry and transport). It is assumed that, in an average scenario, there will be more than 30 billion euros “private” investments between 2012 to 2023 plus almost 3 billion of public investments (improvements of the national grid).

That 3 billion public investment seems very low. The government does much, much more than just paying for the “improvement of the grid”. The private sector is not exactly interested in wind and solar, unless there is an incentive to do so. That incentive being subsidies. So I am not really sure that those jobs are “private” jobs. How many of those jobs would have been there without those subsidies? How many would last if the subsidy would be dropped?

Later in the fact check, their reasoning became a bit more clear:

Will these new jobs be at the expense of existing jobs? Aren’t coal-fired plants being closed?
Indeed, we generate our energy less and less in large power plants and increasingly it is produced small-scale and local. This leads to not less, but more work because you need to make solar panels or other facilities on each individual property. Another example: if you’re replacing an old boiler with a heat pump, it requires more man-hours than if you routinely would place a boiler. On balance, it also provides more work.

Basically, the technology they support will take more effort to install, maintain and repair, therefor more jobs are needed in the production of electricity/heat and more jobs are better for the economy.

It is even more than that. Wind and solar are low-density, distributed and intermittent power sources. These requires large constructions to be able to capture this low-density energy. Wind and sunshine are free, but the installation that convert it into electricity surely aren’t. It makes that electricity will become more expensive. This means more energy poverty, more expensive products (energy cost is part of the price), companies become less competitive (potentially moving production abroad) and so on.

As far as I know, increasing energy prices are not exactly good for the economy. I am also not sure that more labor to get the same production of electricity or heat is good for the economy.

This reminds me strongly of the Broken Window fallacy. For those who don’t know the story yet: if a boy breaks a window of a shop, should this be considered good or bad for the economy?

Some claim this broken window is a good thing, because now the shopkeeper has to replace the window and a glazier will have some extra work. As have those who produced and transported the glass, and so on.

Others disagree and claim that a boy breaking a window is not necessarily good for the economy, because there was no special need for replacing the glass until it was broken by the boy. Therefor this window is an additional cost to him and he can’t spent this money on something else.

The two authors seem to think the former is correct. More labor means better for the economy. But this extra labor cost (plus the other issues) make energy more expensive or give rise to extra taxes and this extra money could not been spent on something else.

Concluding, the two authors are not telling the whole story. Let me get this straight: our current economy is based on the use of fossil fuels, but the authors nevertheless claim that a transition from these high density energy sources to low density, intermittent energy sources with high labor costs, requiring backup and being not attractive to investors unless subsidies are provided, is somehow beneficial for our economy?!?!

I have a hard time believing that.

If what they are saying is really true, then why wasn’t this transition done already a long time ago? Then why is our society so reluctant to give up using fossil fuels? Then why is it so hard for governments to come to meaningful agreements? There are good reasons for that, but those two “experts” are not looking into them.

There is something fundamentally missing in their story.

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3 thoughts on “Breaking windows for a better economy?

  1. vuurklip

    “Wind and Solar” are “free”. Yes, nobody creates wind and sunlight. But fossil fuels are also free in the sense that they have not been created by us.

    However, as there is a cost in harvesting fossil fuels, so is there a cost in harvesting wind and solar energy. The main difference is the EROEI (Energy Return On Energy Input).

    Reply
  2. poitsplace

    Think of the economy as a kind of pyramid. At the lowest, subsistence levels it’s completely flat. Everyone works but only for themselves. Many die because there isn’t a lot of extra. As we developed technologies, we were able to do the same amount of work with fewer people. The economy grew to higher levels, with fewer people at the bottom doing the basics and more people specializing and providing more advanced goods/services.

    But the so-called renewable jobs weaken the economy. They shrink our pyramid…5X the people providing the same amount of electricity. They might have been welding, creating great container ships. They might have been working an assembly line making cars. The lower skilled ones might have been doing something simple providing service down at a local coffee shop. But they’re not…they’re all wrapped up producing a very basic commodity and in a way that makes it substantially more expensive…and of course that price hurts the economy too.

    They’re almost anti-jobs…but not quite. Now going off (and out) on a brief tangent, regulatory jobs, THOSE are anti-jobs. Each regulatory job is literally a person paid to go around making sure others follow procedures that make them less productive. You must be very careful with such jobs. Some may be necessary…but many are for things that sort themselves naturally.

    Reply

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