An acquaintance from my undergrad days saw this poster on my Facebook wall and posed the following hypothetical: If we had $1.4bn to give as subsidies to either the fossil fuel sector or renewable energy sector, which would lower energy costs more for the consumer?
Answer: Renewables, hands down!
Here’s why: The first thing we learn in Economics is that the scarcer something is, the more expensive it is. The limited supply of fossil fuels means the fuel not only costs something, the cost per unit will continue to increase – we see this today in every other newspaper headline proclaiming that the days of cheap oil are over. In the meantime, renewable energy sources are renewable and abundant. At the most you will pay to grow energy crops for biomass, and at the least, you will receive the natural power of the sun and wind for free. What does cost money is investment in infrastructure to harness that energy. Once the upfront investment is paid for you only have to worry about (low) maintenance costs. Fossil fuels, on the other hand, require both investment and maintenance plus a continually rising marginal cost of fuel. If we want to talk about the $1.4bn as a public investment, the more profitable return is clearly renewables.
Simply put, investment in renewable energies gives you a good return. The risk is low: the tech already exists and is in use around the world, demonstrating that fluctuations in wind and solar are easily dealt with.
That’s my economic argument for renewables. I know the dismal science is like a bland sponge cake, but if you would allow me to ice this cake-argument I’d ice it with externalities like health care costs from pollution and the price tag of lost jobs (eg. warmer climates allowing the Western pine beetle to thrive and infest BC forests, affecting forestry jobs) and lost biodiversity due to a damaged environment. I’d then finish the cake with an argument for the kind of transparency and democratic decision-making that are missing in fossil fuel companies.
But even if you give me just the bland sponge cake of financial cost-benefit analysis, it’s obvious why renewable energy is the smarter and more profitable investment.