Wednesday, February 10, 2010

Renewable Energy and Neoclassical Economics

Charles Weiss and William B. Bonvillian offer a telling anecdote in their book, Structuring an Energy Technology Revolution:
A bus is traveling along the California coast packed with neoclassical economists attending a convention. They are accompanied by one reporter. Suddenly, the bus crashes through the guardrail over a 300-foot cliff toward the sea. The reporter starts screaming, but the economists are all silent. The reporter asks the economist seated next to him why he and his colleagues are not screaming since death is imminent. The economist responds, “My friend, there is so much pent-up demand that a parachute will appear.”
Of course, it's too late to invest in a parachute factory when the bus has flown off the cliff. Likewise, it is too late to invest in renewable energy and energy efficiency technologies when fossil fuel supplies go off the cliff.
The real world is different from the idealized world of the free market fundamentalists in that new business requires time, innovation and capital, all of which are subject to scarcity. If we lived in a world with infinite capital, then no bank would ever go broke and no family would ever go hungry.


Anonymous Edmund Dohnert said...

Tom -

Good one!

Some economists seem to think that as soon as fossil fuels get too scarce or expensive one can simply flip a switch that changes everything to renewables. Even if we had a generation to do this, it would be an extremely difficult task, so we don't have a lot of time to waste.

The other big obstacle is the way the future is so heavily discounted by financial people. Renewables such as wind and solar have high capital cost and low operating cost. When it comes to a choice between low capital cost/high operating cost or high capital cost/low operating cost, almost without fail a large corporation will choose the option involving low capital cost/high operating cost.

Until we start looking at things in a radically different way, we are not going to start making a major transformation to renewables until it is too late.

9:50 AM, February 11, 2010  

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