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Conflicting Agendas: Economic Growth vs. The Greens?

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Conflicting Agendas: Economic Growth vs. The Greens?

The Hill December 14, 2020
Energy & EnvironmentClimate

The selection of Brian Deese to direct the National Economic Council (NEC) places a spotlight on some of the conflicting commitments within the Biden administration. Bowing to pressure from progressive climate activists, Biden pledged last July to pursue an aggressive climate plan that would eliminate fossil fuels by 2035. The selection of Deese — the current head of sustainable investing at BlackRock and a former Obama adviser behind some of that administration’s most notable climate policies — signals Biden’s willingness to use economic policy as an engine for pursuing his plan.

But it puts Deese in a tough spot, too. For all his green bona fides, Deese, who is already receiving vocal criticism from climate purists, can’t escape fiscal realities: an aggressive attempt to decarbonize by 2035 would spell disaster for the economy, which Deese has promised to revitalize.  

A recent report from the University of California, Berkeley, known as the 2035 Report, offers a glimpse of an America decarbonized in the next 15 years. But it betrays, too, the extent to which its own goals are both unfeasible and at odds with economic health.

Plenty. In 2019, for example, hydrocarbons accounted for a vast majority of electricity generation in the U.S. Despite billions of dollars in subsidies, wind and solar power provided less than 10 percent. Yet the 2035 Report claims these trends could reverse themselves within 15 years, even as electricity consumption is forecast to increase by almost 20 percent between now and then.

In other words, wind and solar generation would have to increase at least sixfold in the next 15 years to accommodate the 90 percent goal and meet the increase in electricity demand — a feat that the 2035 Report claims is not only feasible, but economical. 

The fine print says otherwise.

Rather than actually lowering electricity costs, the 2035 Report acknowledges that electricity costs will be 12 percent higher than they would be under “business-as-usual” conditions. Spending on electricity in the U.S. is forecast to be around $600 billion in 2035. Hence, a 12 percent increase in costs translates to an additional $74 billion in that year. Overall, the report’s own analysis shows that, between now and 2035, consumers and businesses would pay over half a trillion dollars more for their electricity.

As large an increase as that number represents, it is surely an underestimate. Although the report blithely assumes the costs for wind and solar power, as well as battery storage, will decrease rapidly, basic economics suggests otherwise.

First, the 2035 Report relies on forecast trends in wind and solar power costs based not on underlying costs themselves, but on changes in prices for power purchase agreements. But as I’ve discussed previously, power purchase agreement costs are subject to a “winner’s curse,” with suppliers underbidding their true costs. Moreover, huge increases in demand for wind and solar power will allow suppliers to bid up the prices they charge.

Second, the report dramatically underestimates the necessary battery storage necessary for keeping the lights on when the wind doesn’t blow and the sun doesn’t shine. Suggesting the U.S. only needs 600 gigawatt-hours (GWh) of back-up power, the authors fail to acknowledge that average daily electricity consumption in the U.S. in 2019 was actually 10,000 GWh. (The report authors admit in the fine print that their modeling software couldn’t process quantities of battery storage that could power America for greater than four hours.)

The report’s boldest claim is that thanks to “plummeting” wind, solar and battery costs, the U.S. can have a “90 percent clean grid” by 2035 — all while avoiding 11 billion tons of carbon dioxide emissions and reducing health and environmental costs by $1.2 trillion through a combination of nuclear power and renewable energy.

What’s not for Deese and the NEC to like?

Plenty. In 2019, for example, hydrocarbons accounted for a vast majority of electricity generation in the U.S. Despite billions of dollars in subsidies, wind and solar power provided less than 10 percent. Yet the 2035 Report claims these trends could reverse themselves within 15 years, even as electricity consumption is forecast to increase by almost 20 percent between now and then.

In other words, wind and solar generation would have to increase at least sixfold in the next 15 years to accommodate the 90 percent goal and meet the increase in electricity demand — a feat that the 2035 Report claims is not only feasible, but economical. 

The fine print says otherwise.

Rather than actually lowering electricity costs, the 2035 Report acknowledges that electricity costs will be 12 percent higher than they would be under “business-as-usual” conditions. Spending on electricity in the U.S. is forecast to be around $600 billion in 2035. Hence, a 12 percent increase in costs translates to an additional $74 billion in that year. Overall, the report’s own analysis shows that, between now and 2035, consumers and businesses would pay over half a trillion dollars more for their electricity.

As large an increase as that number represents, it is surely an underestimate. Although the report blithely assumes the costs for wind and solar power, as well as battery storage, will decrease rapidly, basic economics suggests otherwise.

First, the 2035 Report relies on forecast trends in wind and solar power costs based not on underlying costs themselves, but on changes in prices for power purchase agreements. But as I’ve discussed previously, power purchase agreement costs are subject to a “winner’s curse,” with suppliers underbidding their true costs. Moreover, huge increases in demand for wind and solar power will allow suppliers to bid up the prices they charge.

Second, the report dramatically underestimates the necessary battery storage necessary for keeping the lights on when the wind doesn’t blow and the sun doesn’t shine. Suggesting the U.S. only needs 600 gigawatt-hours (GWh) of back-up power, the authors fail to acknowledge that average daily electricity consumption in the U.S. in 2019 was actually 10,000 GWh. (The report authors admit in the fine print that their modeling software couldn’t process quantities of battery storage that could power America for greater than four hours.)

Moreover, as my Manhattan Institute colleague Mark Mills has documented, windmills, solar panels and batteries require huge quantities of raw materials, with corresponding environmental and fiscal costs. For example, the 1,200-pound battery pack in a Tesla Model S, which stores 85 kilowatt-hours of electricity, requires over 500,000 pounds of raw materials to be mined. How many new domestic mines does Deese believe the progressives will allow the U.S. to develop to provide those materials? And policies to “electrify” the entire U.S. economy — especially mandating electric vehicles — will greatly increase that demand. A greater need for materials translates into more environmental impacts and higher prices.

The progressive arm of the Democratic Party will pillory Deese if he doesn’t use his position to advance fanatical green goals such as decarbonization by 2035. They’ll accuse him of greenwashing. They’ll say he’s impure. They already have. If Deese wishes to preside over a recovering U.S. economy, rather than a decaying one, he will need to remain steadfast against the fusillade of green slings and arrows aimed in his direction.

This piece originally appeared at The Hill

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Jonathan A. Lesser, PhD, is the president of Continental Economics, an economic consulting firm, and an adjunct fellow with the Manhattan Institute.

 

Photo by Alex Wong/Getty Images

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