Why green energy is cheap


The BBC News web site reports this week that Green energy is to ‘cost consumers’. According to a report published by the UK’s National Audit Office (NAO), consumers face a 5% rise in electricity bills by the end of the decade to help meet government targets on renewable energy. The NAO concludes therefore that renewable energy is a relatively expensive way for Britain to cut emissions of greenhouse gases.

This powerful deduction makes me think the NAO needs to audit its auditors. What poppycock! Clearly the NAO is staffed by neoclassical economists who fail to see that the market regularly underprices products and services by failing to incorporate the environmental costs of providing them. If the taxation system were harnessed to penalise the polluters and subsidise the clean technologies, this would produce relative prices that would come close to telling the ecological truth. The following passage from Eco-Economy by Lester Brown highlights the flaw in their logic:

Compare, for example, the cost of wind-generated electricity with that from a coal-fired power plant. The cost of the wind-generated electricity reflects the costs of manufacturing the turbine, installing it, maintaining it, and delivering the electricity to consumers. The cost of the coal-fired electricity includes building the power plant, mining the coal, transporting it to the power plant, and distributing the electricity to consumers. What it does not include is the cost of climate disruption caused by carbon emissions from coal burning — whether it be more destructive storms, melting ice caps, rising sea level, or record heat waves. Nor does it include the damage to freshwater lakes and forests from acid rain, or the health care costs of treating respiratory illnesses caused by air pollution. Thus the market price of coal-fired electricity greatly understates its cost to society.

One way to remedy this situation would be to have environmental scientists and economists work together to calculate the cost of climate disruption, acid rain, and air pollution. This figure could then be incorporated as a tax on coal-fired electricity that, when added to the current price, would give the full cost of coal use. This procedure, followed across the board, would mean that all economic decisionmakers — governments and individual consumers — would have the information needed to make more intelligent, ecologically responsible decisions.

Source: Lester R. Brown (2001), Eco-Economy, Earth Policy Institute, W.W. Norton & Company, New York-London, pp. 22-23.