The Cost of the Insurance Policy Matters

Supporters of the precautionary principle argue that even if it is uncertain that we will face a global warming catastrophe from producing CO2, we should insure against it by abating CO2 just in case.  "You buy insurance on your house, don’t you," they often ask.  Sure, I answer, except when the cost of the insurance is more than the cost of the house.

In a speech yesterday here in Washington, Al Gore challenged the United States to "produce every kilowatt of electricity through wind, sun, and other Earth-friendly energy sources within 10 years. This goal is achievable, affordable, and transformative." (Well, the goal is at least one of those things.) Gore compared the zero-carbon effort to the Apollo program. And the comparison would be economically apt if, rather than putting a man on the moon—which costs about $100 billion in today’s dollars—President Kennedy’s goal had been to build a massive lunar colony, complete with a casino where the Rat Pack could perform.

Gore’s fantastic—in the truest sense of the word—proposal is almost unfathomably pricey and makes sense only if you think that not doing so almost immediately would result in an uninhabitable planet. …

This isn’t the first time Gore has made a proposal with jaw-dropping economic consequences. Environmental economist William Nordhaus ran the numbers on Gore’s idea to reduce carbon emissions by 90 percent by 2050. Nordhaus found that while such a plan would indeed reduce the maximum increase in global temperatures to between 1.3 and 1.6 degrees Celsius, it did so "at very high cost" of between $17 trillion and $22 trillion over the long term, as opposed to doing nothing. (Again, just for comparative purposes, the entire global economy is about $50 trillion.)

I think everyone’s numbers are low, because they don’t include the cost of storage (technology unknown) or alternative capacity when it is a) dark and/or b) not windy.

A while back I took on Gore’s suggestion that all of America’s electricity needs could be met with current Solar technology with a 90 mile x 90 mile tract of solar.  Forgetting the fact that Al’s environmental friends would never allow us to cover 8100 square miles of the desert in silicon, I got a total installation cost of $21 trillion dollars.  And that did not include the electrical distribution systems necessary for the whole country to take power from this one spot, nor any kind of storage technology for using electricity at night  (it was hard to cost one out when no technology exist for storing America’s total energy needs for 12 hours).  Suffice it to say that a full solution with storage and distribution would easily cost north of $30 trillion dollars.

  • “Sure I answer [me too], except when the cost … is more than the cost of the house.” To which I add ” or when it appears that the ‘fix’ is likely to more damage…”

    If he wants to wage war on brown people, why doesn’t he just say so?

  • Luis Dias

    This “high cost” of 17 trillion dollars in 40 years is equal to 500 billion dollars per year, which is inferior to the amount that is spent on the war on iraq and the oil imports combined.

    Of course, such cost is also about infrastructure, which has to be built anyway, for no one believes that the present infrastructure is going to survive the next 40 years.

    I think that it is a good plan, and a good goal.

  • Mesa Econoguy

    Gore has solidified his position as Supreme Economic Nutjob (no wonder his handlers won’t let him debate anyone) with this brainless plan. The numbers are way low, and fail to take into account many factors, such as storage (mentioned above), as well as economic displacement factors, and my continual favorite, the government fudge factor. A good rule of thumb for this last one is come up with your cost estimate, then double it.

    Anyway, here’s Marlo Lewis on Planet Gore [NRO]:

    The economics are even sillier. Maybe Gore is right that “enough solar energy falls on the surface of the earth every 40 minutes to meet 100 percent of the entire world’s energy needs for a full year,” and that “ enough wind power blows through the Midwest corridor every day to also meet 100 percent of U.S. electricity demand.” But that tells us nothing about how economical — or uneconomical — it is to collect and harness diffuse energies like wind and sunlight, or to transmit electricity from solar collectors in, say, Phoenix, Ariz., to consumers in Buffalo, N.Y.

    The Energy Information Administration (EIA) forecasts that under current policies, which include numerous state-level RPS programs and a multitude of federal and state subsidies and tax breaks, wind power will grow from 0.6 percent of total generation in 2006 to 2.4 percent in 2030, geothermal will grow from 0.4 percent to 0.6 percent, and biomass (both dedicated facilities and co-fired with coal) will grow from 1 percent to 3.2 percent. Solar power’s contribution is projected to remain so miniscule by 2030 that EIA does not even assign a percentage. See EIA’s Annual Energy Outlook 2008, p. 70.

    In all, EIA projects that non-hydro renewable sources will supply only 6.8 percent of all U.S. electric power by 2030. One reason renewables are nowhere near on track to meet Gore’s goal is that, “In general, renewable energy is expected to remain more expensive than the generation it would displace, that is, its avoided cost” [AEO08, p. 71].

    More importantly, building a whole new electric supply system in ten years would not only cost a bloody fortune, it would also require scrapping hundreds of billions of dollars of capital assets long before the end of their useful life. It is hard to imagine a more wasteful misuse of public and private capital.

    The last person you want steering capital outlays and economic efficiency policies is this idiot, as he apparently has zero clue about opportunity cost.

    Shut up Al.

  • Luis Dias

    Mesa, your argument is failed for a simple reason. The EIA forecasts this based on current policies, read your own comment:

    The Energy Information Administration (EIA) forecasts that under current policies…

    If Al Gore wants to change the policies, then of course that his own figures will be different than that of EIAs, like D’oh!

    I mean, you are complaining that Al proposes to travel to London, when the plane’s clearly heading to Paris. It’s as if you can’t talk to the pilot!

    What should be instead discussed is the feasibility of it. And of course that many posters here are reluctant on the fact that a politician should decide what is “economical” or not, (woo, the socialists!!) but the key thing here is that any change in infrastructure was more than an economical change, it was also a political decision. Without government funding, there wouldn’t be nuclear technology. Without government infrastructuring, we wouldn’t have the current oil-based society. It’s always more than economics. It’s a vision of the future. Concerning the dark aspects of a future carbon-dependence based society, even discounting AGW entirely, a society that can harvest the energy of such ubiquitous energy sources (sun, sea, wind, etc) clearly has advantages that are not being taken into consideration here, like the obsolescence of policing the resource pits of the world with an incredible war machine, the true globalization of energy (the lack of speculation-driven fear on energy sources; the lack of blackmail; etc) could become as revolutionizing as the internet itself was in “horizontalize” the discussion and information gathering.

    In this sense, I cannot simply look at GW-driven proposals with the disdain that you have. Even if GW is proven false (which I very much doubt, but I am nobody) they propose the exact same things that one should propose if they want a better future.

    So I guess I am asking to cut some slack. As the next big future blog says, there are many many more reasons than GW for us to abandon coal. It is deadly (more deadly than nuclear), toxic, pollutant, damages the regional environment (ask the chinese about it). And there are many many more reasons than GW for the renewables to be a great idea, energy independence from nasty theological terrorist countries, etc.

    Let’s discuss things as they are, why the polarization of things? Rant what you want at Al Gore for his GW obsession, but do you need to disagree with him on every single thing?

  • Luis Dias

    More importantly, building a whole new electric supply system in ten years would not only cost a bloody fortune, it would also require scrapping hundreds of billions of dollars of capital assets long before the end of their useful life. It is hard to imagine a more wasteful misuse of public and private capital.

    Well I very much doubt the economic sources for this statement. Some questions:

    Is the author disregarding peak oil?
    Is the author disregarding peak coal?
    Is the author disregarding the already soaring cost of coal due to impressive growth of demand?
    Is the author disregarding the economic impact of the oil-policing-policy of the USA around the world?
    Is the author disregarding the economic impact of the warring tensions produced in oil-producing countries against the USA?
    Is the author disregarding the economic impact on the health care of a country which has a coal-based industry? (even if health care is completely private)
    Is the author disregarding the fact that 3 billion people are trying to reach the first world, and that such scenario is already beginning to create an impossible-to-meet demand on energy resources?

    I don’t know, but I would really think that such was the case.

    Methinks that many many people are still thinking in an OECD based economy of the 20th century. Methinks that many are still stuck in a mindset of 1 billion rich and 6 billion poor, and that such scenario is fixed forever.

    When one leaves such boundaries of thought, and realizes the current waves of change, one will acknowledge that perhaps it is time to change the train.

  • Mesa Econoguy

    Luis, apologies in advance.

    Are you a complete blithering idiot?

    Yes, that is under current policy, which is already phenomenally expensive, with little result. Efforts to increase this to the levels Gore is talking about would require exponentially greater expenditures, read at least $22 trillion.

    That’s insane.

    Ok, I don’t apologize. Please learn the art of reading comprehension. You can shove this “change the train” crap right up your ignorant ass.

  • Mesa Econoguy

    Missed the tag…

  • Mesa Econoguy
  • Luis Dias

    Apologies accepted. Oh, you took off your apologies, my bad.

    You know, insulting other people doesn’t really help your own arguments, though you probably must feel much more of a macho man after your pet insult masturbation time. For me, it is quite amusing to watch, if not sad.

    22 trillion, which is your own figure taken out of your ass, probably, stands for 2.2 trillion dollars per year if one should believe Al Gore’s program to be on schedule. Take oil at 100 dollars. I’m being helpful here. USA imports 8 million barrels per day. That gives you 3 billion barrels per year, which is 300 billion dollars dumped at foreign terrorist countries. Add to it the 300-500 billion per year spent on iraq. Add to it the billions of dollars which are imported (and will be increasingly. What? You thought coal and gas was infinite? That cream nougat core earth is showing difficulty to be heard of) of other fossil fuel energy. Now add to it the hundreds of billions immersed on corn biofuels, US own oil production, gas production and coal production.

    2 trillions a year doesn’t seem that flabergasting now, does it?

    It doesn’t mean that I am endorsing Al Gore’s rush plan just yet. However, failing to cope with peak oil and eventually peak coal and peak gas is only going to cost you much more, for it would only take the price of oil, coal and gas to triple or quadruple for my figures go dead north. And albeit rampant speculation, one is completely naive if really believes that oil is going back to the 50s range.

  • Mesa Econoguy

    Estimates are from above, $17-22 trillion, numbers from William Nordhouse (Yale)

    Since you apparently can’t read, here is the link, moron.

    2 trillions a year doesn’t seem that flabergasting now, does it?

    Since you have absolutely zero evidence CO2 is causing global warming, I’d say anything north of 10 bucks is pricey. 2 trillion not much…. Please.

    You will accomplish virtually nothing using mandates and requirements to switch to alt fuels (especially if authored by Gore and his friends) other than to increase the cost of doing business far beyond where the price of oil currently is. This will cause enormous economic damage, but you’ll still have your precious “peak oil.” And you have failed to prove that warming will lead to greater costs.

    I am at a loss to better explain that to noneconomic people commenting on public policy (you). You simply don’t get it.