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Cost and Benefit: Is the Air Ever Too Clean?

Oct 16, 2013 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic Thinkers, Environment, Government, Innovation, Labor, Regulation, Tech, Thinking Economically • 355 Views    No Comments

Implying that we cannot put a price on environmental responsibility, Maine’s Senator Edmund Muskie (1914-1996) once said, “Can we afford clean water? Can we afford rivers and lakes…which continue to make life possible…?…These questions answer themselves.”

A recent article in the Wall Street Journal illustrated why many economists would disagree with the Senator.

The place is the Mississippi Power Co.’s Kemper County plant. The goal was to create clean electricity from low quality coal. And now, the result has been a federal subsidized $4.7 billion project–one of the most expensive in the US– that has not yet produced a kilowatt of electricity. Among other problems, cost has run out of control because of underestimated labor and materials expenses.

Predictably, at this point, lots of people oppose  the project. Some Mississippi consumers and businesses are unhappy because their electricity rates have skyrocketed because of the dollars spend by the local utility. Others are concerned about the complexity of the technology while natural gas is providing a cheaper alternative. Even some environmentalists consider the plant a disaster.

Still though, an EPA assistant administrator said, “We’re confident plants of the future will be built with this technology.” And, another government official points out that initially cost tends to be high and then drops. In addition local businesses that benefit from the construction activity are pleased.

Where does this leave us?

We can start with a cost and benefit perspective. Thinking at the margin, when the cost of emissions mitigation exceeds its benefit, an economist would say to stop.

Or perhaps, we should have begun merely by asking whether government should favor a specific technology with a $700 million subsidy. Instead, aren’t we better off with the market’s judgement and discipline?

We also can ask whether it is  ethical for a profit-seeking business to be ethical? Believing that profits are the responsibility of the business firm, Nobel Laureate Milton Friedman (1912-2006) said that it is not appropriate for corporate management to pursue social responsibility. Agreeing, former Harvard president and Secretary of the Treasury Lawrence Summers cited the housing bubble debacle fueled by Fannie Mae and Freddie Mac to display the cataclysmic results of combining doing good with seeking profits. Then though, seeking balance, Harvard economist Edward Glaeser discussed the debate surrounding corporate responsibility in his economix blog. Reminding us that it need not be “black and white,” he encourages us to ponder different levels of corporate social responsibility.

Which perspective appeals to you?

Sources and resources: For more detail about the Kemper plant and ‘clean coal’ process, WSJ.com is a possibility while an un-gated article from Bloomberg is here. Always interesting, the economix blog at the NY Times explored the corporate social responsibility debate.  

Note: Several sentences were in a previous econlife post.

 

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