Have you been paying more for gas? Looking at this map, you can see that gas prices around the country have been rising in most places.
Economist James Hamilton suggests that the price of gas is directly connected to the GDP. Citing the BEA breakdown of consumer spending, he points to 4% as a threshold. If consumer outlays on energy goods and services exceeds that 4% level of total spending, then the economy will “stumble.” The auto sector, he says, is especially vulnerable because SUVs and light trucks are again sales leaders.
This takes us to a fundamental dilemma. Higher prices mean less energy consumption but they tug GDP growth downward. As this analyst states, “…the administration has to decide whether climate change is the most important matter at hand, in which case any energy-induced recession is worth the price; or whether the health of the economy is of paramount importance, and any climate policy must be subordinate to that.”
Agreed? Or a third alternative?
The Economic Lesson
In a reader friendly (but lengthy at 70 pages) paper, “Reflections,” the Bureau of Labor Statistics (BLS), describes the changes in consumer spending during the past century. Looking at NYC and Boston, in 1901, a typical family earned $750 while by 2002-2003, that same family would have taken home $50,302. Adjusted for inflation, the increase was close to a 4.5 multiple. So, from $750 in 1901, a NYC family would have been earning, in real terms, $3023 annually in 2003. The report conveys great facts about consumers then and now.
What if peak wind for your wind farm equals peak demand? Good? Not necessarily. The key is timing.
According to a NY Times article, certain wind installations have to “dump energy late at night…” because there is no demand for power at that hour. How to avoid wasting energy? Batteries are one solution.
Hearing about batteries for wind installations reminded me of ethanol and locovores. Ethanol fuel can sound ideal. However a closer look at the entire ethanol production process in an MIT study reveals a close call for diminishing GHG (greenhouse gases). Similarly, buying local produce will lower transport emissions. However, what if the type of food we eat has a significantly greater impact on GHG?
You see where this is going. It takes us to cost and benefit. Are wind farm batteries a cost or a benefit?
The Economic Lesson
As economists, we can assess the success of wind farms (or ethanol or buying local produce) by thinking at the margin. For each extra kilowatt hour of electricity generated by wind turbines, we should look at cost and benefit. Then, when cost equals and moves onward to exceed benefit, we should stop production.
The problem, though, is how to define cost and benefit. In Eastern Oregon, residents are complaining about wind farm noise. Does cost include that noise? Turbine transport? Battery production? Are new jobs a benefit? Do we want to learn more about wind energy by using it? A cost/benefit list could be endless. The bottom line, though, remains cost/benefit analysis. Let’s evaluate green projects at the margin so that we know they are truly effective.