Ideas From Aspen, Part 2

July 1st, 2011 at 5:39 pm

Just back from an interesting panel on manufacturing where we had a good talk about the role of government in the sector.  I again stressed the economic rationale for government’s role in overcoming barriers that no single firm could overcome, like R&D, coordination across place and sectors, access to credit for unproven innovative initiatives, and unfair trade practices by global competitors.

In that context, I was reminded of what a Rorschach test this graph is.  It shows how responsive American investment in wind capacity is to the production tax credit (PTC), a tax incentive provided to companies to nudge them towards investing in alternative energy sources.

When the PTC expires, the bars go to about zero.  When it’s on, they go up.

You could look at this and decide wind power is a non-economic investment in America—firms won’t do it without a tax incentive.  Or you could decide that if we want to build a domestic wind power sector, it will take a number of years of help through the tax code to stand one up.  Your decision should also be informed by the fact that a number of other countries, both advanced and emerging economies, have decided to invest big in clean energy.

Eric Spiegel, CEO of Seimens, argued the latter…no surprise there, but he stressed it should be temporary, until the sector is able to profitably stand on its own.

I’m with him on that point.  I look at the graph and see that gov’t support of wind power is necessary to develop the sector and help firms overcome the types of barriers noted above.  But I understand the other argument: hey, if other countries want to subsidize the heck out of this stuff, let them do so and we’ll reap the benefits, paying lower costs for their products.

If you think of Americans as primarily consumers, you’ll buy the latter point.  If you think of us as workers who need good jobs in a new, growing, clean energy sector, you’ll buy the former.  And yes, we’re both, so it’s a matter of how you weight the options.


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4 comments in reply to "Ideas From Aspen, Part 2"

  1. pjr says:

    The political and military costs of our dependence on foreign oil are difficult to quantify, so are ignored. I believe they have been and are enormous, and dwarf any subsidies we allocate to domestic alternative energy sources. That said, we’d need substantial domestic investment and we’re decades behind schedule.

  2. Kevin Rica says:

    Conventional energy companies generally produce huge amounts of energy and then they sell it. They think of production in terms of thousands of barrels per day, trillions of BTU of natural gas, or GWH of electricity. Then they multiply that by the price of energy. That’s their revenue stream and they are very interested in it.

    Alternative energy companies, (see chart above) talk about how many MW of capacity they install and what subsidies they get for it. That’s their revenue stream. They don’t care about the energy that they produce because they don’t produce much energy and it’s not very valuable. They want the subsidies.

    And since they can’t produce much energy, they can’t offset much fossil fuel. And since they never solve the problem, the problem never goes away — and neither do the damned subsidies.

    However, the American Solar Power Association has developed a new solar panel. It directly absorbs subsidies and emits press releases.

    Incidentally, for those of you who don’t realize it, when the American Wind Association says it’s installed MW of capacity– that is not energy. MWH (megawatt hours — one thousand kilowatt hours KWH) is a measure of electricity (energy) produced. Look at your electric bill, it’s in kwh — how much electricity (energy) you used.

    MWH is only a measure of theoretical potential to produce electricity. In practice, a MW of installed nuclear capacity produces almost three times as much electricity annually than an average MW of wind power and as much as six times as much as a MW of solar.

    So they next time you hear an alternative energy advocate talking about how much has been installed, ask him or her about how much energy was produced.

  3. Virgil Bierschwale says:

    without jobs for our people we will NOT be buying anything.

  4. Tucker says:

    Or else firms know that the tax credit will come back so they wait until it does so to make wind power investments.