Matthew E. Kahn , Professor of Economics at USC provided this insightful post:
Energy engineers are having an interesting fight over whether the US electricity grid can “easily” be 100% renewables (and thus create 0 GHG emissions) in the next 30 years. A prominent Stanford Engineer and his team says “yes” while some important critics say no. In Today’s NY Times (“Economics Scene”) Eduardo Porter sides with the critics. The interesting thing here is that no empirical microeconomists who study energy are part of either research team or are quoted in the NY Times. Yet, at the end of the day — this is a microeconomics issue.
Here are some of the key issues that both the original study and the critique ignore;
1. The land markets?
It would be terrific if wind and solar and hydro are so low cost by the year 2050 that we can generate all of our power using them. Assuming constant returns to scale, how much land would need to be allocated to each of these to generate our expected power demand in 2050? In a world where land is very valuable close to cities, what land would be set aside for this? Would current property owners be compensated for this land? Or would this be “roof top solar”? I do not believe there is any discussion of land markets in the original 2015 PNAS paper or the new critique. So the opportunity cost of land should be included in all of these calculations.
2. Transmission lines?
Assuming the renewables generation is far from cities, where will the transmission lines be built to bring the power to the cities? How will NIMBY issues be solved? How will potential veto power be bought out here? Or will engineers make a breakthrough such that power can be “emailed” without transmission capacity?
3. Comparative Energy Costs?
How much induced innovation will be needed to make the green energy production technologies cheaper than natural gas in the year 2050? So, we need an estimate of dynamic innovation in the dirty sector vs. the clean sector (see the recent work of Daron Acemoglu and co-authors on the “great race”).
4. Flexible power demand?
What will be aggregate electricity demand in 2050? How many consumers in the residential, industrial, commercial sectors will be signed up for dynamic pricing? How elastic will their demands be for power such that if the price of power rises will they in aggregate reduce their consumption by 2% or by 34% This plays a key role in determining the feasibility of the green grid! If demand is highly responsive to higher prices then the green grid is much more viable! So, now we are back to fundamental issues of the microeconomic determinants of the aggregate demand for electricity.
5. Electric vehicles demand?
Building on #4; what will be the aggregate demand of the transportation sector for energy and electricity in 2050? What % of the fleet will be EVs and how many miles will they drive and how many miles per kwh will they achieve? Some of these are micro-economic questions!
6. Air Conditioning Demand?
Building on #4, what will be aggregate demand for air conditioning during hot summers? What thermostat level will businesses and households cool to? How efficient will air conditioners be then (see the 1999 QJE by Newell, Jaffee and Stavins on induced innovation; see point #3 above).
7. Resistence from Vested Interests?
I appreciate that the engineers want to debate what is feasible but this overlooks important implementation issues that may raise the cost of introducing their valuable ideas. For example,
which interest groups would seek to veto the Stanford “vision”? Coal miners will not favor Jacobson’s equilibrium. If Progressives need to buy out West Virginian Senator support for coal, this cost should be added to the full cost of the green economy. Is it included? I doubt it.
“Pie In The Sky”
From the day of your birth
It’s bread and water here on earth
To a child of light, to a child of light
But there’ll be pie in the sky
By and by when I die
And it’ll be alright, it’ll be alright