We Don’t Need Energy Revolutions. We Need Energy Evolution

Apropos my visit to Germany: Bloomberg reproduced a piece from InsideClimateNews.com titled “Can the US Create Its Own German-Style Energy Revolution.”  It is a paean to Germany’s Energiewende. Indeed, it is the capstone to a 6 part series (available as an Amazon eBook!) plus a slide show that is one big slobbering wet kiss to Germany’s top-down policies designed at controlling how energy is produced and consumed.  And of course, German top-down social control policies have always worked out so well.

The piece is a classic in the genre.  It measures “progress” in alternative energy purely by outputs.  How many MWs generated by wind.  How many generated by solar.  The cost of these MWs as compared to alternatives is not even mentioned, except obliquely.  And that oblique reference illustrates the absurdity of the whole exercise, not that the author of the piece notices:

For Tunnicliff, who works in natural resource management, adopting native landscape was a logical choice in a desert climate. Bolted to his roof was another rational choice: a solar photovoltaic system that supplies most of his family’s electricity needs. He installed the system even though he estimates it will take 12 years to break even on the investment.

“That is the future of energy,” he said, pointing to the dark blue panels on his roof.

12 years to break even on solar.  In Phoenix.  If that’s the future, we’re screwed.

Interestingly-but not surprisingly-the piece fails to mention any of the problems with Energiewende, in particular the huge costs of implementing the policy-costs that are far larger than originally estimated, and which are causing unease even in the relatively docile German populace as electricity tariffs are skyrocketing.  It also fails to mention the degradation in electricity quality that results from a reliance on solar and wind, which are vulnerable to the vagaries of the weather.

But there is one paragraph in the piece that should be sufficient to convince any American that this is a crack-brained idea:

The absurdity of the U.S. impasse over energy reform was highlighted when the primary author of the Germany law, Hans-Josef Fell, told me what I already had heard from other German leaders—that he was inspired to write the act by what today seems like an unlikely source.

“Your President Jimmy Carter was the first politician to promote an industrial revolution with renewables,” Fell said when we met in his Berlin office in April. “I looked to the USA in the 1970s. There was wind power in California and solar power on the White House. I thought, ‘Oh, this is wonderful! Why can’t we have this in Germany?’”

Jimmy Carter thought it was a great idea.  That’s all you need to know.

We don’t need energy revolutions.  We need energy evolution that is driven by balancing costs and benefits.  Costs and benefits that are highly unpredictable, and which can change rapidly in short periods due to technological, economic, and political shocks.   Exactly the circumstances in which top-down, socially planned, command-and-control-type approaches are extraordinarily inefficient, and prone to creating economic havoc.

I think Germany will come to regret Energiewende when it moves beyond dreaming about the environmental benefits and actually has to pay to costs of achieving them.  So let’s hope that the US doesn’t smuggle in Jimmy Carter’s energy policies using Germany as a cutout.

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About Craig Pirrong 238 Articles

Affiliation: University of Houston

Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.

Professor Pirrong's research focuses on the organization of financial exchanges, derivatives clearing, competition between exchanges, commodity markets, derivatives market manipulation, the relation between market fundamentals and commodity price dynamics, and the implications of this relation for the pricing of commodity derivatives. He has published 30 articles in professional publications, is the author of three books, and has consulted widely, primarily on commodity and market manipulation-related issues.

He holds a Ph.D. in business economics from the University of Chicago.

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