Energy Cost is Why We Disagree About Climate Policy

By withdrawing the United States from the Paris Agreement President Trump has put the burden of proof on those private investors and nation states that believe renewable energy is economically beneficial. Far from being a disaster, this is a step towards a reasonable and spontaneously attractive climate change policy.Like many of those vilified for their views on the subject of climate change, President Trump is more of an energy policy sceptic than an anti-rational “denier” of atmospheric science. He senses, and with good reason, that the aggregate of energy policies proposed to mitigate climate change brings with it the threat of major wealth destruction and a reversal of several centuries of exponential increases in human well-being.Mr Trump sees this from his own national perspective, believing, again with good reason, that the policies are extremely and comparatively disadvantageous to the United States. However, this narrow view is a subset of and entirely compatible with the broader conclusion that renewable energy policies will be damaging to human prospects at the global level, however much they may favour certain countries in the short term.Those who disagree with him are, for the most part, either explicitly or implicitly affirming the contrary proposition, namely that the renewable energy transition envisioned is already economic and will bring enhanced global prosperity.That is the black and white of the matter; you either think that the low carbon energy policies make sense, or you don’t, and it is this root level division that provides the most profound explanation of why we disagree to any extent about climate change. If there were no differences of opinion about energy, there would be hardly any disagreement about climate change policy.Furthermore, this account not only explains the fact of the quarrel, but also the haut en bas and moralising tone of Mr Trump’s critics. If you believe that economic, low-emitting renewable energy is already available, then it will also seem to you that only ill-will and stupidity prevents its adoption, and thus that President Trump’s decision to withdraw from the Paris Agreement is ignorant at best and probably malign.But his views are neither of these things. The reasoning is certainly elliptical, and the manner is brusque, to say the least, but in the last analysis he simply has a different view about the economic consequences of renewable energy, views that are in fact widely held amongst both specialists and the general public.The case for renewables is not proven, and in spite of a rolling barrage of positive PR round the industry there are still very good grounds for reserving judgment. Even if the claimed equipment cost reductions are real, and this is extremely dubious in the case of wind power, the economic lifetimes remain deeply uncertain, and the electricity system integration costs for uncontrollable generators are without doubt extremely high. Upbeat babble about electricity storage, smart metering and ingenious demand management cannot conceal the fact that these “solutions” all tend towards increasing the capitalization of the electricity sector, thus greatly reducing its productivity, a clear recipe for higher consumer costs and for deeply unpleasant macroeconomic impacts.As with many problems in technology and commerce, a resolution to this matter cannot be delivered politically or administratively. It is, to use Easterly’s convenient phrase, not a matter of administrative deployment, but a research question, the answer to which can only be discovered by free experiment and the taking of risks. Indeed, the President’s de facto rejection of state support for alternative energy actually brings this discovery closer. A number of US corporates and other interests are now declaring that they will continue to invest in low carbon technologies in spite of the President’s decision to withdraw from the Paris Agreement. Fine. Let them do so. If the enthusiasts are right, then renewable technologies will sweep the board through fundamental and real advantage, bringing general benefit. If they are wrong, the lesson will be learned painfully and in full public view but with limited malinvestment.So in pursuit of truth, let us remove all the deep market coercions that are currently feeding the suspicions of President Trump, amongst others. Delete the portfolio standards, abolish the tax credits and income support subsidies, and make the ‘alternative’ technologies pay their costs on the system and earn their their place in the wholesale markets through normal competition. And by all means do the same for equivalent subsidies to fossil fuels, though green campaigners will be disappointed to find that these are not nearly as common as they think.Many “Parisians” are now consoling themselves with the thought that a Trump presidency cannot last more than eight years at the most. That is an evasion. The reality to which Mr Trump has given voice is enduring. It can be temporarily suppressed, but it will not go away. The disagreement about energy is not trivial. Cheap energy is the cause of prosperity. Climate policies grounded in anything other than cheap energy will not be sustainable.