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A Different Cost Analysis

by afew Mon Feb 4th, 2013 at 03:17:47 AM EST

[The Hoist: featuring an item or items from today's Newsroom]

David Roberts on Grist:

The cost of not using renewable energy | Grist

A clever new study [PDF] from the World Future Council attempts to do something I haven’t seen before: quantify the cost of not using renewables.

The idea is pretty simple. When we use finite fossil fuels to generate energy, rather than the inexhaustible, renewable alternatives, we make those fossil fuels unavailable for non-energetic uses (think petrochemicals) in the future. In other words, when we burn fossil fuels for energy, we are needlessly destroying valuable industrial capital stock.

You can read the paper for more on methodology and assumptions. The paper uses current market values for fossil fuels rather than attempting to predict future prices, so the estimates are likely conservative.

Here’s the conclusion:

Protecting the use of increasingly valuable fossil raw materials for the future is possible by substituting these materials with renewables. Every day that this is delayed and fossil raw materials are consumed as one-time energy creates a future usage loss of between 8.8 and 9.3 billion US Dollars. Not just the current cost of various renewable energies, but also the costs of not using them need to be taken into account. [my emphasis]

Wind and solar will bequeath future generations more petrochemicals? Hmm.

But burning up fossil fuels now will surely increase the scarcity cost of the remaining resources in the future. Shouldn't we be hearing more about this in media commentary from those who promise a dire future for our grandchildren because of the debt we will be leaving them?


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I haven't time to look at the report. Any takers?
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Feb 4th, 2013 at 03:18:59 AM EST
Neither have I, but the premise is sensible enough: The total economic cost of fossil fuel includes the (discounted future) price impact on petrochemical feedstock.

This effect is very large, and currently not internalized in the pricing process, because for the petrochemical industry, hedging that far into the future would be an onerous expense.

Tl;dr: Financial markets are not perfectly efficient, ergo you need heavy-handed and intrusive regulation.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 4th, 2013 at 04:30:28 PM EST
[ Parent ]
The argument is that there are alternatives to fossil fuels for energy generation and that not employing those alternatives amounts to destruction of potential feed stocks for petrochemicals such as PVC, polypropylene, etc. that are currently essential to our economies. Given that petrochemicals are more valuable than raw fossil fuels our current usage patterns will result in higher costs for these materials, though the authors base all estimates on current prices. Given the finite nature of existing resources, the availability of known alternatives for energy generation the fact that every year we burn for energy ten years worth of petrochemical feed stocks seems especially feckless.

In the late '70s the Shaw of Iran asserted that the best use of existing Iranian oil reserves would be as feedstock for petrochemicals, though without the supporting argument. It appears he was correct in his assessment. While we don't know what future technology may offer to counter increased costs of petrochemical feed stocks, it seems likely that the same technology would be even more effective with abundant feed stocks.

An even more interesting analysis would be the effect on the economy of 2023 and 2033 of continuing to rely on fossil fuels for energy generation at even one half of current consumption rates, with a low end estimate of the future costs of gas, oil and coal derived from extrapolating forward ten and twenty years the price history of the last forty years. Were we to continue to require comparable quantities of fossil feed stocks their cost will likely be much higher.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Feb 4th, 2013 at 12:41:38 PM EST
This is excellent and necessary (even if the actual numbers aren't accurate - I haven't had time to go over them.

It's excellent and necessary because we have a lot of economists out there prepared to make arguments about the burden of current spending and deficits on future generations, but who refuse to take things like this into account.

Now, I'm not sure that "burden on future generations" is always a good frame to be locked into, but it's very useful to be able to fight fire with fire.

by Metatone (metatone [a|t] gmail (dot) com) on Tue Feb 5th, 2013 at 04:45:59 AM EST
For example, Nick Rowe is particularly guilty of this.
(Worthwhile Canadian blog)
by Metatone (metatone [a|t] gmail (dot) com) on Tue Feb 5th, 2013 at 04:50:46 AM EST
[ Parent ]


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