In his weekly address President Obama used the recent spike in gas prices to explain that we need to invest in more renewable energy:
But you and I both know that with only 2% of the world’s oil reserves, we can’t just drill our way to lower gas prices — not when we consume 20 percent of the world’s oil. We need an all-of-the-above strategy that relies less on foreign oil and more on American-made energy — solar, wind, natural gas, biofuels, and more.
This doesn’t make sense to me.
First, let me say that it seems that Cato Institute scholars Peter van Doren and Jerry Taylor are correct when they write that President Obama is not responsible for the spiraling price of gasoline. I think they correctly blame the price increase on the increase in the price of oil. My understanding is also that refinery capacity has declined and that we are now a net exporter of refined gasoline. Either way, it comes down to the law of supply and demand.
Still, I don’t how the fact that we may not be (I wouldn’t say can’t) “able to drill our way to lower gas prices” implies that the federal government should subsidize “solar, wind, natural gas, biofuels, and more.”
For one thing, as Keith Hennessey explained a few days ago, solar, wind, and natural gas have almost nothing to do with the price of gasoline.
In America there is little overlap between fuel used for transportation and electricity used to light, heat, and power our homes and businesses. If you could magically make solar power price competitive with electricity produced from coal or natural gas you would do almost nothing to lower the price at the gas pump because there are so few electric-powered and hybrid vehicles on the road.
Similarly the development of massive shale (natural) gas resources in the U.S. will make electricity more affordable in the U.S. but will have almost no effect on the cost of our transportation fuel.
Yes, there are linkages. There are a few hybrid vehicles on the road, and some commercial vehicle fleets use natural gas as fuel. But these are vanishingly small when compared with the petroleum-based and bio-based fuels we put in our cars, trucks, boats, and planes.
Read the whole post here.
Second, I don’t see how expensive non-profitable technologies are the answer to our wallet pains. I don’t think there is anything wrong with any of these technologies except for the fact that they can’t yet function profitably without subsidies (I am against all subsidies). And while there is nothing wrong with experimenting with new technologies — it is precisely what the free market is for — the federal government is neither competent nor called upon to do the job.
For that reason, I second Taylor’s sentiment that, “When the day comes that the electricity from solar or nuclear power plants is worth more than the costs associated with generating it, I will be as happy as the next Greenpeace member (in the case of the former) or MIT graduate (in the case of the latter) to support either technology.”
We are not there yet. The United States Energy Information Administration estimates that the projected costs of generating electricity in the year 2016 from renewable sources will remain more expensive than other conventional forms of power.
A 2010 article by economist Geoffrey Heal published in the Review of Environmental Economics and Policy looked at the prospect for cheap renewable energy sources and concluded that it is unlikely:
The conclusion is that the main renewables face a major problem because of their intermittency (the wind doesn’t always blow nor the sun always shine) and that this has not been adequately factored into discussions of their potential. Without new storage technologies that can overcome this intermittency, much of the decarbonization of the economy will have to come from nuclear, carbon capture and storage (CCS) and energy efficiency (geothermal and biofuels can make small contributions). Nuclear and CCS are not without their problems. New energy storage technologies could greatly increase the role of renewables, but none are currently in sight.
In other words, whatever our reasons for wanting solar, wind, or other renewable sources (the environment or less dependency on foreign oil) we must face the fact that it is currently more expensive than what we use now. Some people may think the tradeoff is worth it, some think it is not.
But the president shouldn’t mislead us by saying subsidizing alternative energy sources will make the price of gas come down at the pump or reduce our energy bill.
More important, I continue to be against the government deciding what sources of power must be encouraged and then subsidizing that industry. On that point, I leave the last word to Reason science correspondent Ronald Bailey who wrote after the nuclear disaster in Japan last year:
The main problem with energy supply systems is that for the last 100 years, governments have insisted on meddling with them, using subsidies, setting rates, and picking technologies. Consequently, entrepreneurs, consumers, and especially policymakers have no idea which power supply technologies actually provide the best balance between cost-effectiveness and safety. In any case, let’s hope that the current nuclear disaster will not substantially add to the terrible woes the Japanese must bear as a result of nature’s fickle cruelty.
Update: I am told that refinery capacity probably aren’t playing any significant role in the price increase of gasoline.