Renewable Energy’s Not-So-Bright Side

The answer is blowin’ in the wind, and shining in the sun, too — or so say two papers cited by Brad Plumer in a recent article for The New Republic. The authors argue that we can have a fully renewable-based, nuclear-free economy by 2050.

Pointing to research by Mark Jacobson of Stanford University and Mark Delucchi at the University of California, Davis, Mr. Plumer writes: “the transition to all renewable would be mind-blowingly hard, but it’s at least possible to go carbon-free without nuclear (or algae). What’s more, the world wouldn’t have to pay that much more for energy than it does today.”

I’m sure that’s right — but I’m a bit skeptical about the cost estimates, for reasons having to do with personal career history.

I effectively began my career as a professional economist way back in the summer of 1973, working as a research assistant for Bill Nordhaus, an economics professor at Yale University. Mr. Nordhaus was in the early stages of a long and highly successful run of research into resource economics, and was trying to come up with a way to estimate “appropriate” energy prices.

And he had come up with a wonderfully elegant approach, building off the classic Hotelling model of exhaustible resource pricing. The Hotelling model posits a resource owner trying to decide whether to leave resources in the ground or extract them now. The key insight is that this decision depends on whether the net price — the price of the resource minus the marginal extraction cost — is expected to rise more or less rapidly than the rate of return on alternative investments.

As Mr. Nordhaus’s research assistant, I spent the summer of 1973 on this project: my days were spent in the geology library, reading Bureau of Mines circulars on the engineering and costs of alternative energy sources, my nights at the computer center drinking vending machine coffee.

In short, I was in heaven.

The paper Mr. Nordhaus produced was wonderful. But as it turned out, it was much too optimistic. Not his fault or mine: it was those Bureau of Mines circulars.

What was wrong with those circulars? They were much too optimistic about the costs of alternative energy sources, especially alternatives to oil. Basically, the engineers were understating the difficulties involved. Later, economist Marty Weitzman would formulate a law: the cost of alternatives to crude oil is 40 percent above the current price — whatever the current price is.

And hence my skeptical reaction to the new study about the costs of running an all- renewable economy.

To be fair, we probably have much more solid ideas about the costs of wind and solar power than we did about shale oil and coal liquefaction back in 1973: wind is already a widely used technology, and concentrated solar power is pretty well understood, too. But there will be surprises, not all of them positive.

Note: Bill Nordhaus’s classic 1973 analysis of energy prices can be found at brookings.edu.