Friday, August 10, 2012

Thoughts on solar subsidies

As per my usual style, I didn’t want to invest the time in posting a blog, but wanted to start a discussion, so I posted an interesting article on my Facebook page, which received comments, to which I started writing a response, which became long enough to justify turning it into a blog post. Hence the new title of my blog, which could still change.

The instigating article is here.

I think the most interesting part of this article is where he says that if the cost of solar cells themselves drops to 0, the cost of the aluminum mountings, etc. is still too high to make solar power an economically viable alternative. That is true not because aluminum is terribly expensive, but because solar power is intermittent, which means that no matter how many solar cells you have, you still have to build the same number of coal, etc. plants as before in order to meet peak demand when it’s cloudy. This means that the aluminum used to build solar cells doesn’t do anything to reduce the cost of the steel and mortar of the building of coal plants. The only thing it reduces is the expenditure on the coal itself.

I can think of two potentially valid counterarguments to this article's question of solar energy’s economic viability, but neither could be argued to be obviously true.

The first is that we could invent an economically viable way of storing solar energy, which would then allow solar cells to actually reduce the number of coal plants. That pesky second law of thermodynamics tells us that any time you convert energy from one form to another (AKA store the energy), you will lose some of that energy in the form of wasted heat. The question an economist should ask, and an engineer should answer, is how much of the energy is wasted? If it’s 1%, you could have economically viable storage, if the storage equipment is inexpensive enough. If it’s 60%, you definitely don’t have economically viable storage. Even though I don’t know the exact percent efficiencies of various methods, or their equipment costs,* the current consensus, I believe, is that it is not economically viable. But then again, we could be only an invention or two away from solving it.

Here’s one person who claims to have invented a solution (liquidmetal batteries). Even though MIT professors are really cool, and even though he deals with many of the problems of economic viability (cheap equipment, low maintenance costs) I have my doubts about his invention, especially at the end when he claims that the molten metal in his batteries are kept hot by the passing electricity. By definition, if the electricity keeps them hot, then it is wasting electric energy to do so.

The second objection to this article is that it assumes that the price of nonrenewables will not increase. Since economic viability is a question of relative and not absolute costs, if electricity generated by nonrenewables quadrupled to 40 cents per kilowatt-hour, then solar could easily become viable. How far away is that future? In my opinion, fairly far. Before solar becomes viable, shale oil likely will, for example. Currently, it’s considered too expensive to extract shale, even though it’s quite abundant in Utah and other places. Even though by definition, the price of nonrenewables will eventually rise, and even though oil already has clearly shown that trend, natural gas seems to be abundant still, and has recently dropped significantly in price.

After that, the big question that many readers may ask is, why didn’t you include pollution and global warning in your potential objections? As it turns out, even assuming that global warming has disastrous and imminent consequences, it is still a very bad idea to subsidize solar energy. Here’s why (written by the same author as the first)

To use my own analogy, humor me and suppose that it’s been solidly proven that people who eat twinkies are less likely to become heroin addicts. Clearly, then, if we want to reduce heroin addiction, we must subsidize twinkies! Wrong (much to Hostess’ lobbyists’ chagrin). If you want to discourage heroin use, it is better to tax heroin than to subsidize its alternatives. By doing so, you get the economic incentives right, discouraging the bad thing directly, rather than promoting the "good" thing, which has its own bad consequences, and whose only (apparent) virtue is that it is a substitute for a bad thing.

Carbon emissions aren’t overtly evil, like heroin, but if there are negative externalities you’d like to prevent, then taxes are much more effective than subsidies. A tax on gasoline could incentivize me to get off my rear end and ride my bike instead of taking the car (which has the added benefit of preventing my obesity and subsequent drain on healthcare resources). A tax on nonrenewable sources of electricity would incentivize electricity conservation, and it would incentivize engineers to get rich by inventing more efficient renewable sources, without sucking them into subsidized, resource-wasting, potentially dead-end technologies.

Is it possible that, with the breathtakingly rapid decline in genetic sequencing costs, we could engineer an algae/yeast that cheaply produces fuel? Perhaps. But that will happen much more slowly if government makes breathtakingly inefficient corn-ethanol just as lucrative as brilliant innovation. Perhaps someday engineers will design a tokamak fusion reactor that actually produces more energy than it uses. Perhaps micro-CHP** will help us use the nonrenewable resources we have more effectively. Perhaps there are other solutions that nobody's been creative enough to even imagine yet. Or, perhaps I misjudged, and solar power will overcome its problem of intermittency. 

Even the smartest engineers don’t fully know which of these avenues is the most promising. But government bureaucrats know even less, and legislators are chiefly concerned with which industries lobby them the most, not with which ones actually benefit society.

Ultimately, if we get the incentives right, I believe that we can harness engineers’ innovativeness to invent our way out of the world’s most complicated resource and environmental problems. Given the current inefficient incentives, who knows? I am convinced that the biggest problems we face today are not rooted so much in scarcity as they are in selfishness and economic incompetence.

*But here's an old article, which I have barely skimmed, which has a cost-estimate for various methods of storage.

**I thought of micro-CHP myself, I am proud to say, then discovered on Google that somebody else had already thought of it and was already producing it. I must say, though, currently, micro-CHP’s are at least four times more expensive than a competent business should be able to make/install them, I believe. Or, perhaps reducing noise pollution from such devices is more expensive than I thought.

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