Let’s Talk About Free Markets for Energy

Draft!!!1

We hear about the need to move to new, renewable energy sources such as wind, hydro, solar, or geothermal.  Those who criticize this goal can at times seem impatient or they perhaps even scoff at the viability of moving to such energy sources.  The critics will claim that renewable are unrealistic because they cannot compete with oil, coal, gas or nuclear.  For example, nuclear might cost 8 cents/KwH while wind or solar might be 11-12 cents/KwH. So, since those costs per kilowatt hour reflect the natural order of things, it is obviously foolhardy and irrational to ignore the facts of the lower costs of dirty (fossil fuel) or dangerous (nuclear) power.  In fact, in this “free markets are natural and hence irresistible view of the world,” if I push for renewables, I can only do so through “unnatural” interventions into markets such as government subsidies, taxes on dirty or dangerous energy, or other perversions of the natural order of markets.

The problem with this criticism is that it is just flat wrong on the costs of dirty and dangerous energy.  I’ll have a debate on the viability of renewable compared to the double-D of dangerous or dirty energy.  But let’s add some history to the story.  Let’s put all the facts on the table.

First, commercial nuclear power was only made possible due to the WWII Manhattan project.  According to the Brookings institute, the historic cost of the project was $20 billion, which is about $200 billion in today’s dollars.  If any one renewable industry had a $200 billion budget for innovation research, who knows what kinds of breakthroughs in the core technology could be accomplished?  The Department of Energy has spent 10% of the cost of the Manhattan Project since 1948, total, on renewable energy research.  Put another way, we spent $200 billion creating bombs to destroy the world and 1/10th of that on technologies to save the world.

Second, commercial nuclear power cannot get an insurance policy.  Insurers will not write a policy to cover the rare but catastrophic events such as Three Mile Island or the Fukushima plant.  I have left off Chernoybl since it was not built in a capitalist economy.  When we have the rare but inevitable nuclear catastrophe, its costs are so high that there is only one answer. A national government will cover the costs of the clean-up, rebuilding, and loss of health and life.  If we add the true cost of insurance to nuclear power, is it still so much cheaper than alternatives.

Finally, when it comes to fossil fuels, the dirty pair of the double-D energy sources, we should include the cost of our military budget spent keeping oil flowing.  This is a tricky calculation, to be sure.  But, to believe Donald Rumsfeld, who claimed that the invasion of Iraq had “nothing to do with oil” is laughable.  We only need look at the foot dragging around helping the Libyan opposition to Qaddafi now, compared to our yawn as Saudi troops entered Bahrain (home of the US 7th fleet in the Persian Gulf) to help bully pro-democracy protesters to know that oil is a vital strategic interest.  So, how much do we spend keeping gas “cheap” in a free market compared to the supposedly crazy, kooky ideas of alternative fuels?  By one rough calculation, we have spent $7.3 trillion defending the Persian Gulf since 1976.  That is about $240 billion a year.  The cost per gallon at current consumption (178 billion gallons a year)?  $0.73.  But we pay for that cheap gasoline not at the pump, but in our income, payroll, estate, and other taxes.

My numbers may be way off.  But that is not the point.  Let’s have an honest discussion about the costs of energy and fuel.  Free markets don’t exist as natural entities.  They are always products of history and the accumulated choices of our politics.  Markets have rules of the game; the reporting of costs reflect interests; facts always have a long tail of history.  So, by all means, let’s talk about free markets, but let’s do it with a free flow of facts and honesty about who pays for what, when, and how.

 

Draft of “Let’s Talk about Free Markets.”

We hear about the need to move to new, renewable energy sources such as wind, hydro, solar, or geothermal.  Those who criticize this goal can at times seem impatient or they perhaps even scoff at the viability of moving to such energy sources.  The critics will claim that renewable are unrealistic because they cannot compete with oil, coal, gas or nuclear.  For example, nuclear might cost 8 cents/KwH while wind or solar might be 11-12 cents/KwH. So, since those costs per kilowatt hour reflect the natural order of things, it is obviously foolhardy and irrational to ignore the facts of the lower costs of dirty (fossil fuel) or dangerous (nuclear) power.  In fact, in this “free markets are natural and hence irresistible view of the world,” if I push for renewables, I can only do so through “unnatural” interventions into markets such as government subsidies, taxes on dirty or dangerous energy, or other perversions of the natural order of markets.

The problem with this criticism is that it is just flat wrong on the costs of dirty and dangerous energy.  I’ll have a debate on the viability of renewable compared to the double-D of dangerous or dirty energy.  But let’s add some history to the story.  Let’s put all the facts on the table.

First, commercial nuclear power was only made possible due to the WWII Manhattan project.  According to the Brookings institute, the historic cost of the project was $20 billion, which is about $200 billion in today’s dollars.  If any one renewable industry had a $200 billion budget for innovation research, who knows what kinds of breakthroughs in the core technology could be accomplished?  The Department of Energy has spent 10% of the cost of the Manhattan Project since 1948, total, on renewable energy research.  Put another way, we spent $200 billion creating bombs to destroy the world and 1/10th of that on technologies to save the world.

Draft of “Let’s Talk about Free Markets.”

We hear about the need to move to new, renewable energy sources such as wind, hydro, solar, or geothermal.  Those who criticize this goal can at times seem impatient or they perhaps even scoff at the viability of moving to such energy sources.  The critics will claim that renewable are unrealistic because they cannot compete with oil, coal, gas or nuclear.  For example, nuclear might cost 8 cents/KwH while wind or solar might be 11-12 cents/KwH. So, since those costs per kilowatt hour reflect the natural order of things, it is obviously foolhardy and irrational to ignore the facts of the lower costs of dirty (fossil fuel) or dangerous (nuclear) power.  In fact, in this “free markets are natural and hence irresistible view of the world,” if I push for renewables, I can only do so through “unnatural” interventions into markets such as government subsidies, taxes on dirty or dangerous energy, or other perversions of the natural order of markets.

The problem with this criticism is that it is just flat wrong on the costs of dirty and dangerous energy.  I’ll have a debate on the viability of renewable compared to the double-D of dangerous or dirty energy.  But let’s add some history to the story.  Let’s put all the facts on the table.

First, commercial nuclear power was only made possible due to the WWII Manhattan project.  According to the Brookings institute, the historic cost of the project was $20 billion, which is about $200 billion in today’s dollars.  If any one renewable industry had a $200 billion budget for innovation research, who knows what kinds of breakthroughs in the core technology could be accomplished?  The Department of Energy has spent 10% of the cost of the Manhattan Project since 1948, total, on renewable energy research.  Put another way, we spent $200 billion creating bombs to destroy the world and 1/10th of that on technologies to save the world.

Second, commercial nuclear power cannot get an insurance policy.  Insurers will not write a policy to cover the rare but catastrophic events such as Three Mile Island or the Fukushima plant.  I have left off Chernoybl since it was not built in a capitalist economy.  When we have the rare but inevitable nuclear catastrophe, its costs are so high that there is only one answer. A national government will cover the costs of the clean-up, rebuilding, and loss of health and life.  If we add the true cost of insurance to nuclear power, is it still so much cheaper than alternatives.

Finally, when it comes to fossil fuels, the dirty pair of the double-D energy sources, we should include the cost of our military budget spent keeping oil flowing.  This is a tricky calculation, to be sure.  But, to believe Donald Rumsfeld, who claimed that the invasion of Iraq had “nothing to do with oil” is laughable.  We only need look at the foot dragging around helping the Libyan opposition to Qaddafi now, compared to our yawn as Saudi troops entered Bahrain (home of the US 7th fleet in the Persian Gulf) to help bully pro-democracy protestors to know that oil is a vital strategic interest.  So, how much do we spend keeping gas “cheap” in a free market compared to the supposedly crazy, kooky ideas of alternative fuels?  By one rough calculation, we have spent $7.3 trillion defending the Persian Gulf since 1976.  That is about $240 billion a year.  The cost per gallon at current consumption?  $13.90.  But we pay for that cheap gasoline not at the pump, but in our income, payroll, estate, and other taxes.

My numbers may be way off.  But that is not the point.  Let’s have an honest discussion about the costs of energy and fuel.  Free markets don’t exist as natural entities.  They are always products of history and the accumulated choices of our politics.  Markets have rules of the game; the reporting of costs reflect interests; facts always have a long tail of history.  So, by all means, let’s talk about free markets, but let’s do it with a free flow of facts and honesty about who pays for what, when, and how.

Second, commercial nuclear power cannot get an insurance policy.  Insurers will not write a policy to cover the rare but catastrophic events such as Three Mile Island or the Fukushima plant.  I have left off Chernoybl since it was not built in a capitalist economy.  When we have the rare but inevitable nuclear catastrophe, its costs are so high that there is only one answer. A national government will cover the costs of the clean-up, rebuilding, and loss of health and life.  If we add the true cost of insurance to nuclear power, is it still so much cheaper than alternatives.

Finally, when it comes to fossil fuels, the dirty pair of the double-D energy sources, we should include the cost of our military budget spent keeping oil flowing.  This is a tricky calculation, to be sure.  But, to believe Donald Rumsfeld, who claimed that the invasion of Iraq had “nothing to do with oil” is laughable.  We only need look at the foot dragging around helping the Libyan opposition to Qaddafi now, compared to our yawn as Saudi troops entered Bahrain (home of the US 7th fleet in the Persian Gulf) to help bully pro-democracy protestors to know that oil is a vital strategic interest.  So, how much do we spend keeping gas “cheap” in a free market compared to the supposedly crazy, kooky ideas of alternative fuels?  By one rough calculation, we have spent $7.3 trillion defending the Persian Gulf since 1976.  That is about $240 billion a year.  The cost per gallon at current consumption?  $13.90.  But we pay for that cheap gasoline not at the pump, but in our income, payroll, estate, and other taxes.

My numbers may be way off.  But that is not the point.  Let’s have an honest discussion about the costs of energy and fuel.  Free markets don’t exist as natural entities.  They are always products of history and the accumulated choices of our politics.  Markets have rules of the game; the reporting of costs reflect interests; facts always have a long tail of history.  So, by all means, let’s talk about free markets, but let’s do it with a free flow of facts and honesty about who pays for what, when, and how.

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About Jordi

I am an assistant professor in the Management School at Bucknell University. I specialize in organization theory, social networks, and studying the network society. I have three children, including twins. They love bouncing on the couch, legos, music, and my waffles. My wife teaches English at the same university. I am interested in most things, but these days, networks, social entrepreneurs, the environment, innovation, and virtual worlds. Finding Hidden Abodes and Shaking Iron Cages since 1972

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