Just Deserts

Does anyone else find it hypocritical that the US solar industry is upset with China, because China might be averting market forces and selling solar products below cost?

Market forces that the US solar industry is happy to avert by using mandates and subsidies to stimulate sales of uneconomic products they just happen to manufacture?  They lobby congress to pass laws forcing the taxpayers to subsidize their products and thereby transfer wealth from the pockets of the citizens to the accounts of the solar corporations.  Now they are upset China is undercutting them in price?

I call that just deserts. After lobbying for a decade to plunder the public coffers they are now dropping like flies (bankruptcies) because China also sees the huge artificial market and wants to play.  So maybe they are 'cheating."  The taxpayers are now actually benefiting from lower cost, if not "below cost" on the solar panels they are being forced to purchase thanks to the lobbying efforts of the solar industry.

As a citizen, taxpayer, and ratepayer the only thing I have to say about the US Commerce Department trade case against China is "Thanks China!"

Solar Subsidies: Misdirecting Consumers and Industry

"Solar subsidies are a placebo which is giving the general public a sense of security about our energy future and is robbing the motivation of those entrepreneurs that could actually address our energy problems."

In a recent Economist on-line debate, the affirmative motion “This house believes that subsidizing renewable energy is a good way to wean the world off fossil fuels” was surprisingly defeated. In his closing remarks, the moderator softened his strident opposition to the negative case, even admitting that "subsidizing renewable energy, is wasteful and perhaps inadequate [to address climate-change concerns].”

Beyond the Climate Debate

The debate, indeed, reopened the question whether anthropogenic greenhouse-gas forcing was a serious planetary environmental concern. But such focus short-changed what I think is the more important question for The Economist.  Not only are the renewable-energy subsidies (such as for solar) wasteful and potentially insufficient, they are outright diabolical if indeed there is a looming environmental crisis.

I am not evaluating whether anthropogenic global warming is real and potentially cataclysmic; I’m arguing that if there is a valid concern about the enhanced greenhouse gas effect, not only will the subsidies not solve the problem, but may very well prevent or postpone a legitimate solutions.

Grid Solar: Radically Uneconomic, Intermittent

I've written before about why on-grid solar power is absurdly uneconomic and has almost no hope of becoming a viable alternative to current generation technology--or even competitive with other more viable renewable technologies. I’m asking the reader to accept this position for the sake of understanding the potential implication of my claim.

I think it is safe to say that public opinion towards solar is very positive, and there are many in the field claiming that on-grid solar is at or near grid parity.  But it only appears this way because of massive governmental subsidies/ratepayer surcharges for installing and using solar PV.  In reality, it is hopelessly inefficient from an economic sense to be a fix for our CO2 concerns.

The Real Problem of Subsidies

So here is the real problem with the subsidies. Subsidies make solar appear viable today, so where is the motivation for an entrepreneur to risk money, or even focus on developing real energy alternatives when solar is “almost” there? How can an inventor justify striving with the effort it takes to really develop something great when he is competing against a straw man technology which can provide power at almost the same cost of traditional power sources today? But of course it really doesn’t.

The answer is he can’t justify the effort, so the next great thing is not developing, at least not with the sense of urgency it should be. Why enter a contest when you are competing against someone with an unfair advantage? You may be the faster swimmer, but your competitor is using flippers.

Solar subsidies are a placebo which is giving the general public a sense of security about our energy future and is robbing the motivation of those entrepreneurs that could actually address our energy problems. Subsidies are much worse that just wasteful, they’re diabolical. They lull us into thinking we have almost solved the problem and they hinder us from seeking the real solutions.

An Analogy to Leprosy

“Necessity is the mother of invention,” and it’s fairly easy to see this is often the case. Need is a great motivator. We need to feel the pain of our situation to really challenge and change it.

Leprosy maims it’s victims by robbing them of their sense of pain. The leper can put his hand on a hot surface and not feel the heat. He can twist an angle and will keep walking.

In the same way, on-grid solar subsidies will allow a homeowner to continue using much more electricity than he can afford (or the planet can sustain) and he will not know it. If he felt the pain of the real cost, he would use less power. But he does not feel it, since subsidies hide the pain, like leprosy.

Summary:

Subsidies defeat market forces on both sides of the equation. They reduce potential supply by hindering entrepreneurs from developing new energy supplies and they increase demand by artificially keeping the price of energy down. There could hardly be a more cleverly disguised means of exasperating a potential climate issue.

If solar PV does not develop into a viable alternative, which I believe it won’t for many decades, not only have we wasted billions of dollars, but far worse, we defeated normal protective market forces which would have better prepared us for a potential necessary change in energy use. So in the near term, perhaps our bigger concern is anthropogenic energy policy.

Green Jobs

Some solar advocates talk about solar energy projects in terms of how many jobs are created. They say subsidies for solar create jobs.  But what is not visible to the untrained eye is that subsidies also destroy jobs, and in sum, they are a net loss for the economy.

Who do you think pays for these subsidies?  The answer is taxpayers and ratepayers pay for the subsidies given to the solar industry. 

So what happens to these tax and ratepayers as they are forced to pay more in taxes and electric bills?  Of course, they can now spend less in other segments of the economy.  There is no free lunch.  Their reduced spending will directly cause economic losses and job losses in the balance of the economy.

 

So on net, the solar subsidies just shift jobs from one activity to another.  But we are worse off.  The new solar jobs don’t have much economic value.  If they did the market would have already employed people to install solar electric systems.  But the jobs that were lost were more productive, since they were created by real demand.  So on net, we shifted people from more productive activities to less. This causes lower overall economic output and lower aggregate wages. 

Imagine a small island of 100 inhabitants.  Assume they were all productive in gathering food, providing water, building homes, etc.  Now assume the island government takes 10 workers out of the job force and makes them dig holes.  The overall output of the island will drop by 10%.  This means that there will be 10% less goods and services available.  There are still 100 inhabitants, but now only 90% the output.  So everyone has less.  Either prices increase or wages decrease, but the result is the same.  Everyone can now afford only 90% of what they could afford before the 10 workers were ‘redirected.’ 

This is very similar to what is happening with solar subsidies.  Workers are moved from productive activities to less productive activities so overall output drops. 

So the next time you hear someone say, this or that solar company employed 100 people, it is more accurate to see it as 100 productive workers are now unproductive and we will all have less goods and services to go around.

But it is easy to be fooled by the jobs myth.  When the solar jobs are created, the number of jobs are easy to see and report in a news article.  But when spending drops in the balance of the economy, the job losses are diffuse and difficult to count.  You will see shirts with solar company logos, but no one laid-off in the restaurant business will wear a shirt that says “I lost my job do to solar subsidies.”  But they did just the same.

The economic loss might be worth it if solar actually contributed to reducing CO2 or providing energy independence, but those arguments are just as flawed.