Do the Math: An Expensive Job Killer

by Michael Trebilcock is Professor of Law and Economics, Faculty of Law, University of Toronto  Financial Post

In response to Mr. Lovins’ comments, let me pose the following questions:

  1. If electricity generated by wind power is competitive with other forms of electricity generation, why does it require such large subsidies? In 2008, the U.S. Energy Information Administration reported the following relative subsidies, on a dollar-per-megawatt-hour basis, for 2007: natural gas at 25¢, coal at 44¢, hydro at 67¢, nuclear at $1.59 — and wind at $23.37. And why is the proposed feed-in tariff for wind power in Ontario ($13.5 per kilowatt hour) and related costs at least twice the prevailing price for electricity in the province? If wind power is competitive, why doesn’t the wind industry renounce all subsidies?
  2. If wind power has had such a dramatic impact on carbon emissions in Denmark, why is it that European Environment Agency data show that carbon emissions in Denmark have been essentially flat over the period 1990-2007 (with some year-to-year variation), while wind production has increased dramatically over this period? Why “adjust” these emission figures downwards to reflect electricity exports (sold at a substantial loss) when these are displacing carbon-free hydro and nuclear power in neighbouring countries?
  3. Given the meagre and intermittent electricity output from wind turbines, how can it possibly displace most conventional sources of power? In his recent book, Sustainable Energy — Without the Hot Air (UIT), reviewed by The Economist magazine, David Mackay’s estimates imply that to replace 90% of existing electricity generation in the U.K. with wind power, the entire country would have to be blanketed with wind turbines. Even if wind turbines can displace some conventional sources of electricity, what is gained by this when, as in Ontario, 75% of current generation output is already carbon-free and when hydro-abundant provinces could substantially increase clean electricity exports to the United States (displacing dirty electricity there) if domestic electricity were priced at its opportunity costs (with rebates to low-income consumers)?
  4. How credible are claims that wind power can create significant new “green” jobs, when either higher production costs to electricity-intensive industries, or higher subsidies and hence tax burdens, are likely to kill far more jobs?

Here are my predictions:

  • The expansion of wind power in Ontario will significantly increase overall electricity costs;
  • Wind power will have no significant impact on carbon emissions in the province;
  • Wind power will create no net new employment in the province but will kill jobs through higher electricity costs.

I assume that Mr. Lovins makes the opposite predictions. Let us revisit these issues several years from now in the light of the empirical evidence (rather than mere conjecture) and see who is right. I am confident that my scholarly reputation, which Mr. Lovins believes is in jeopardy, will survive this test unblemished. In this respect, I am in distinguished company.

In The Vanishing Face of Gaia: A Final Warning (Allen Lane), James Lovelock, one of the world’s most distinguished Earth scientists, writes that “Europe’s massive use of wind as a supplement to base-load electricity will probably be remembered as one of the great follies of the 21st century” — probably along with ethanol (which the Ontario government has also chosen to subsidize heavily despite high costs and negative environmental impacts).

To reiterate a fundamental point that I have made repeatedly: With well-designed carbon taxes or cap-and-trade systems that make polluters pay, and better regional integration of electricity markets, it will not matter what I, Mr. Lovins, the Danish Embassy or any political energy czar thinks, because these decisions will be made by hundreds of millions of consumers and producers in the face of socially efficient incentives. Competition for the most technologically efficient solution to the problem of greenhouse-gas emissions will replace corporate rent-seeking, environmental theology and political hubris in betting the bank on fancied technological “winners.”