The Market Fundamentalist

http://www.reuters.com/article/idUSLDE60J0PA20100120?type=marketsNews

Germany will slash its feed in tariff subsidies for solar energy. France will also, as will other countries.

The study that Bob claims was paid for by “big oil” is a major reason. It has blown the cover off of the protectionist feed in tariff schemes.

If merely installing solar and wind energy was the goal, then feed in tariffs certainly worked. But, if producing usable energy is the goal, or effectively reducing greenhouse gases, then not so much.

Germany leads the world in installed solar panels, and is second in installed wind power. But the RMI Institute study (http://www.instituteforenergyresearch.org/germany/Germany_Study_-_FINAL.pdf) says:

“Installed capacity is not the same as production or contribution.” In 2008, 6.3 percent of Germany’s electricity production was from wind, followed by 3.6 percent from biomass and 3.1 percent from water. Meanwhile, the report notes, “The amount of electricity produced through solar photovoltaics was a negligible 0.6 percent despite being the most subsidized renewable energy, with a net cost of about €8.4 billion (US $12.4 billion) for 2008.” German consumers foot that bill. In 2008, the price mark-up due to green energy subsidies amounted to 7.5 percent of average household electricity prices. Keep in mind that German residential electricity prices are already high at about 30 cents per kilowatt-hour. The average American pays about 12 cents per kilowatt-hour.

Kind of reminds me of the Canadian Supreme Ct decision that noted that “saying that everyone has access to medical care is not the same as providing access” if you have to wait months or years for procedures.

As for reducing greenhouse gases, the feed in tariffs are also prohibitively expensive.

the RWI analysis found that the feed-in tariffs for solar electricity in Germany are equivalent to paying more than $1,000 per ton to reduce carbon dioxide emissions (the wind power subsidy from feed in tariffs was better at only $80 per ton). In late 2009, an emissions permit for a ton of carbon could be had for less than $20 on the European climate exchange. “Hence, the cost from emission reductions as determined by the market is about 53 times cheaper than employing [photovoltaics] and 4 times cheaper than using wind power,” notes the report. Clearly, feed-in tariffs are an absurdly expensive way to cut carbon dioxide emissions.

What about that protectionist scheme of promoting technological progress in solar power? Again, not so clear that is working either.

Alexander Hamilton proposed that the US adapt protectionist schemes to allow the US to develop its own industry in his “Report on Manufactures”. Bob’s hero Thomas Jefferson opposed him, and Jefferson won. The US did not become protectionist until the invention of the cotton gin spurred high agricultural tariffs around 1817.

But, when it comes to Bob’s pet project, green energy, Thomas Jefferson can take a back seat. ( again, I am attacking the ideas, not the person, but when a person has bad ideas, and is championing them, then that person can be mentioned by name.)

Protectionist policies to promote infant industries never work, for pretty much the same reason that protectionist policies to promote established industries do not work well.

As we unravel the tangled web of protectionist argument, we should keep our eye on two essential points: (1) protectionism means force in restraint of trade; and (2) the key is what happens to the consumer.

Another protectionist fallacy held that the government should provide a temporary protective tariff to aid, or to bring into being, an “infant industry.” Then, when the industry was well-established, the government would and should remove the tariff and toss the now “mature” industry into the competitive swim.

The theory is fallacious, and the policy has proved disastrous in practice. For there is no more need for government to protect a new, young, industry than a mature older industry.

In the last few decades, the “infant” plastics, television, and computer industries made out very well without such protection. Any government subsidizing of a new industry will funnel too many resources into that industry as compared to older firms, and will also inaugurate distortions that may persist and render the firm or industry permanently inefficient and vulnerable to competition. As a result, “infant-industry” tariffs have tended to become permanent, regardless of the “maturity” of the industry. The proponents were carried away by a misleading biological analogy to “infants” who need adult care. But a business firm is not a person, young or old.
http://mises.org/rothbard/protectionism.asp

In this case, rather than spur new technologies in solar panels, the European feed in tariff schemes are promoting a speculative frenzy in existing OLD AND INEFFICIENT solar technologies. Companies are producing the same old solar panels to grab the tariffs , and NOT investing in research and development of new technologies.

The European Photovoltaic Industry Association (EPIA) stressed that it would be important for both France and Germany to follow the evolution of market prices in their feed-in tariff systems.

“We are advocating the implementation of sustainable policy support schemes. That support should lead to an accelerated penetration of solar energy but avoid a market overheat and possible speculation,” said Adel El Gammal, secretary-general of EPIA.

El Gammal has it wrong in the next sentence, when he claims that:

He warned, however, that if feed-in tariff cuts were too high, this would have a detrimental impact on the industry. “It would for instance eliminate smaller actors too early, which in some cases would have innovative ideas,” he said.

The study shows that the “market overheat” and “possible speculation” being CAUSED BY THE FEED IN TARIFFS are the main reasons why smaller actors are being eliminated. The partnership of government and business always makes it harder for the little guy with new ideas.

It is a sad commentary that well intentioned but economically challenged people in America are advocating European ideas like feed in tariffs and socialized medicine when Europe itself is trying to move away from them.

It is also unfortunate that the Green movement which is anti war and voluntarist at its core, and which advocates purely voluntary ideas like fair trade coffee and food coops, is also infused with those who would use the power of the state to restrain free trade, and yes, as we saw this week, free speech as well.

Brendan

This entry was posted on Wednesday, January 27th, 2010 at 9:33 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.