Thursday, December 25, 2014

Fossil fuels, green technologies and what to expect

Many interesting can be found in the article Please Steal Our Fossil Fuels by Adair Turner, a senior fellow at the Institute for Institute for New Economic Thinking (which it seems will provide plenty of great resources for our next IB Economics Syllabus).
2014 seems certain to be the warmest year on record, or at least the runner-up. International agreement on robust action to limit global warming remains inadequate: the just-completed Lima climate-change conference delivered some progress, but no major breakthrough. Away from the diplomatic circuit, however, technological advances make it certain that we can build low-carbon economies at minimal cost and great benefit to human welfare.
Solar energy reaching the earth’s surface provides 5,000 times humanity’s energy needs. The technology to capture it cost effectively and cleanly is available.
The price of lithium-ion battery packs has fallen from around $800 per kilowatt-hour in 2009 to $600 in 2014, and will likely be below $300 by 2020 and $150 by the late 2020s. Once the price is below $250, the total cost of owning and running an electric car will be less than for one with an internal combustion engine (assuming gasoline prices of $3.50 per US gallon).
Total gas and coal reserves could support current demand for more than a hundred years, and technological progress – for example, hydraulic fracturing, which has unlocked shale energy – makes an ever growing share of these reserves economically attractive. Oil production may peak within the next few decades, but gasoline equivalents can be synthesized from gas or coal.
As 2014 draws to an end, falling oil, gas, and coal prices threaten to undermine investment in green energy and stimulate wasteful consumption. 
To believers in rational economic choice, of course, there is no waste. If people choose to drive enormous cars, they must derive some benefit from it; and if switching to green energy makes that choice uneconomic, human welfare must suffer.
This last paragraph is great as it questions the idea of a socially optimal level of production/ consumption that we use so often in all our market failure related (negative production - consumption externalities) analyses:
But economic theory based on real-world experience tells us that consumer preferences are neither given nor absolute. Rather, they are stimulated in a self-reinforcing fashion by group norms, trends, and advertising, and some increases in consumption deliver no permanent increase in life satisfaction.
(but permanent increases in the social costs we and our children face)...

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