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Broken Windows: Destroying Wealth To Create Green Jobs

25 Saturday Feb 2023

Posted by Nuetzel in Industrial Policy, Renewable Energy

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Broken Windows Fallacy, Consumer Surplus, Dispatchable Power, Fossil fuels, Frederic Bastiat, Green Energy, Green Jobs, Job Creation, Keynesians, London’s Great Fire, Market Intervention, Michael Munger, Milton Friedman, Planned Obsolescence, Renewable Power, Societal Wealth

Investments in “green energy” create jobs, just like any other form of investment in physical assets. We’re told, however, that the transition to renewable energy sources will create a veritable jobs bonanza! Apparently, this is believed to be a great selling point for everyone to get behind. Sure, promoting job creation is always popular with politicians, and it is very popular with private actors seeking to win public funding of one kind or another.

The heavy emphasis on jobs creation brings to mind an old Milton Friedman story about a visit to China during which dignitaries brought him to a construction site, no doubt thinking he’d be impressed with their progressive investments in infrastructure. At the site, Friedman noticed workers digging a large trench or arroyo with shovels. When he asked why bulldozers or backhoes weren’t used, he was told that the jobs were too valuable. His response was something like, “Then have them use spoons!” The lesson, of course, is that merely creating jobs is not a prescription for building wealth and prosperity. But there is more at stake here than the low productivity of construction workers who lack the best tools.

There are some bad rationales for heavy investment in renewable energy sources, and I’ve addressed those at length previously. The appeal to job creation, however, is awful on simple economic grounds. It emphasizes a thing that is easily counted while ignoring massive costs that are generally untallied.

In the U.S. we have a huge base of productive capital that meets our energy needs, the bulk of which is built to utilize fossil fuels. That plant constitutes wealth to society, and not just to those with an ownership interest. Dispatchable power is available to the public at a rate below that at which they value the power. That ability to deliver consumer surplus on demand is a major aspect qualifying power capacity as societal wealth. The push for renewables, if wholly successful, would make the existing base of generating capacity redundant. There is no doubt that the ultimate goal of renewable energy advocates is to destroy existing capacity reliant on fossil fuels. They simply have not come to grips with the reality that it meets energy needs far more efficiently than intermittent renewables like wind and solar power. In spirit, the effort bears a strong similarity to destroying bulldozers to replace them with shovels, or spoons!

Recently, Michael Munger discussed the mistaken notion that renewable investments are justified based on job creation. He noted that with a coincident dismantling of the existing base of power generation, it amounts to exactly what Frederic Bastiat called the broken window fallacy, which insists that breaking windows is a great way to keep glaziers fully employed. There are many examples and variations on this idea, including so-called “planned obsolescence”.

Bastiat poked fun at an elite French government official who had marveled at the economic gains reaped in England with the rebuilding of London following the “Great Fire” of 1666. Bastiat engaged in some satire by suggesting that France could greatly benefit from burning Paris to the ground. But his point was serious: we often hear that reconstruction provides a silver lining for workers following hurricanes or other disasters. Fair enough: rebuild we must. The Keynesians among us would say it works out well for workers who are otherwise unemployed. Disasters destroy wealth, however, and often lives, not to mention opportunities for incremental wealth creation that are lost forever. The reconstruction jobs are not “good news”!

Unfortunately, people get carried away with broken windows arguments, using them to justify their own pet projects. The addition of new competing products and technologies is unquestionably healthy, but not when one side enlists the state as a partner in destroying viable incumbents and existing public or private wealth. For that matter, the state and its allies seem intent on destroying invested physical capital even before it’s services can come on line… if it’s viewed as the “wrong” kind of capital.

The costs of a transition to renewables is massive. The “big ask” for green energy involves not just taxpayer support for the build and usage, with all the inefficiencies endemic to taxation and market interventions. So-called green energy also entails huge environmental costs, and it calls for the wholesale destruction of an embedded industry. That means decommissioning invested assets having many years of useful life. And that goes for physical plant all the way from the wellhead to final use, including the destruction of stoves, cars, and other machines too numerous to mention. Those machines, by the way, still account for roughly 80% of our power use.

I leave you with part of Munger’s closing:

“Once you are duped into believing destruction is productive, almost everything that a rational public policy would label as a cost becomes, by some judo move of seraphic intuition, a benefit. … The problem is that jobs are not wealth. Wealth is access to the goods, products, and services that make our lives better. It is true that ‘studies show’ that wiping out all our productive wealth based on fossil fuels … would create jobs. Those ‘studies’ are among the best arguments against doing anything of the sort.”

Electric Vehicle Fueling Costs in the Real World

31 Sunday Oct 2021

Posted by Nuetzel in Electric Vehicles, Renewable Energy

≈ 1 Comment

Tags

Anderson Economic Group, Biomass, Charging Time, Commercial Power Rates, Deadhead Miles, Dispatchable Capacity, Disposal Costs, Electric Vehicles, EVangelists, Fast Chargers, Fueling Cost, Intermittency, Internal Combustion Engines, Joe Biden, Nuclear Energy, Opportunity cost, Phantom Drain, Power Failures, Power Grid, Recharging Costs, Renewable Power, Thermal Energy

While the photo above exaggerates, honest electric vehicle (EV) owners will tell you that “refueling” is often not cheap or convenient. However, less jaded EV drivers and enthusiasts seem to view recharging costs through an oversimplified economic lens. A realistic accounting involves a variety of cost factors, including the implicit cost of the time needed to recharge when away from home. An analysis recently published by Anderson Economic Group (AEG) provides a thorough comparison of the costs of fueling EVs relative to vehicles powered by internal combustion engines (ICEs).

Promoting the Narrow Focus

AEG notes the shortcomings of most cost studies quoted by “EVangelists” (not AEG’s term):

“Many commonly-cited studies of the cost of driving EVs include only the cost of electric power for EVs, but compare this with the total cost of fueling an ICE vehicle. Moreover, many presume drivers can routinely charge at favorable residential rates, ignoring the much higher costs of the commercial chargers EV drivers must use when they are away from a residential charger (if they have one).”

The kind of incomplete assays to which AEG refers can lead to statements like the following, from none other than Joe Biden:

“When you buy an electric vehicle, you can go across America on a single tank of gas, figuratively speaking. It’s not gas. You plug it in.”

Well no, it’s not a single tank of “gas”. You still have to stop, plug into a source of power mostly generated by fossil fuels, and it might take a while to get back on the road.

Cost Categories

The AEG report concludes that vehicles powered by ICEs are far cheaper to fuel on average than EVs. The analysis considers several categories of fueling costs including:

  • Gasoline Prices vs. Commercial & Residential Power Rates: EV drivers recharging away from home often pay more costly commercial rates.
  • Registration Taxes: applied at EV charging stations, but bundled in fuel price for ICEs;
  • EV Charging Equipment: upgraded “Level 2” chargers are generally “encouraged” at purchase of an EV;
  • Deadhead Miles: usage costs on fueling/charging runs; there are far fewer EV charging stations than gas stations in the U.S., which can lead to costly “excursions”;
  • Charging/Refueling Time: much higher for EV drivers away from home;

Direct Costs

AEG performed their analysis using electric rates, gas prices, and other cost factors as of mid-2021. They did so for six “representative” vehicle classes: entry level, mid-priced and luxury EVs and ICEs. Direct monetary costs account for the first four factors listed above; they do not include the time costs of refueling.

AEG calculates that the direct monetary costs of driving 100 miles in a mid-priced ICE vehicle is $8.95, while the cost in a mid-priced EV using a high proportion of commercial charging is $12.95, about 50% more. The direct cost in a luxury ICE is $12.60, but for a luxury EV it is $14.15 (12% more) for mostly home charging and $15.52 (23% more) for mostly commercial charging.

In addition, AEG finds that the direct cost of EV fueling is far more variable than ICE fueling. This is due to widely varying rates for commercial and residential power, including time-of-day variation, differences in charger efficiency, and the varied structure of pricing at different commercial charging stations.

Implicit Time Cost

It should be obvious that the time costs of refueling EVs are more significant than for ICE vehicles. However, I believe AEG’s report might over-estimate the difference. They say:

“… it takes substantially longer to fuel EVs than for comparable ICE cars. Real world conditions often impose additional burdens, including these two:

  1. Driving and charging time: … it often takes about 20 minutes to drive to a reliable DC fast charger. It often takes another 20 to 30 minutes for the charging process to complete. Of course, this is for fast DC chargers. Slower L2 chargers are much more common …
  2. Recurrent reliability problems: EV drivers face recurring problems at chargers such as breakdowns, software bugs, delays in syncing the mobile application with the charger, charger output being significantly lower than advertised, and outright failures. This is in addition to the problem of vehicles blocking (or “icing”) EV charging spots.

Online forums are full of comments from drivers expressing frustration about these problems.”

All true, as far as it goes. The implicit value of this time depends on the driver’s opportunity cost. Whether valued at the minimum wage or at a much higher opportunity cost, AEG’s straightforward valuation of the time cost is five to six times as high for EV drivers than for ICE drivers, depending on the vehicle class. For EVs, the time cost AEG calculates can be more than $200 a month, or about $20 per 100 miles for a someone who drives 1,000 miles a month, versus about $4 for a similar ICE driver. Adding those values to the direct monetary costs (which AEG does not do) yields a total cost per 100 miles of $33 for a mid-priced EV versus about $13 for an ICE vehicle in that class. That’s 2.5 times more to fuel an EV than a comparable ICE vehicle!

However, I would discount the cost of EV fueling time, because many drivers can use this waiting time productively, whether performing certain work tasks remotely or simply enjoying it as an extension of their leisure time, reading or viewing/listening to content on their mobile devices, for example.

Other Qualifications

AEG acknowledges that their cost comparisons use commercial power rates to account for “free” chargers offered by some stores to shoppers and by some employers to workers as benefits. That’s because stores and employers compensate for that kind of service along pricing and other margins.

AEG does not account for “phantom drain” (the loss of EV battery power while not in use) and the costs of battery degradation over time. Nor do they attempt to quantify the use of battery power while charging takes place (which inflates charging time but also increases direct costs per mile).

I would also note that many of the EV cost disadvantages described by AEG are likely to diminish going forward. More charging stations are being added as the fleet of EVs grows. Battery technology is improving as well, and chargers will become faster on average. In addition, EV “engines” have far less complexity and fewer parts than ICEs, which undoubtedly confers maintenance cost advantages over a period of time.

The Green Itch

Finally, while some consumers might find that EVs scratch a certain green itch, these vehicles are not carbon neutral, as noted above. The vast bulk of the power they use comes from fossil fuels. Higher energy prices in general might or might not work to their advantage, but electric power availability is becoming less reliable as the push toward renewable power generation continues. As we have seen repeatedly, reliance on intermittent power sources has drastic consequences for users in the absence of adequate, dispatchable baseload capacity.

To put a somewhat finer point on the difficulties posed by the intermittency of renewable power, a great deal of EV charging is done at night, when solar panels are not harvesting energy. Wind turbines can harvest a greater proportion of their power at night, but they must be fairly tall to do so (the minimum height ranges from 30 to 100 meters, depending on local conditions). That requirement means that the manufacture and construction of these turbines and their towers is all the more carbon intensive. Furthermore, disposal of both solar panels and wind turbines at the end of their useful lives creates serious environmental issues that green energy advocates have been all too willing to ignore.

Ultimately, until our ability to store power at scale advances dramatically, the issue of renewable intermittency can only be dealt with via adequate baseload power. Growth in the number of EVs will require growth in the dispatchable capacity of the power grid, which means either more plants burning fossil fuels, nuclear power, hydroelectric, biomass, or thermal energy. The alternative is an increasing frequency of blackouts, which would drastically reduce the utility of EVs.

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Ominous The Spirit is an artist that makes music, paints, and creates photography. He donates 100% of profits to charity.

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