1406. Krugman's Illusion: We Becoming Richer, But Not Damaging The Environment

By Saral Sarkar, April 28, 2014

About a week ago I read/ heard German media stories on the fifth IPCC report on climate change, especially on the third and last part of it. In the meantime we have all got used, almost insensitive, to the regular bad tidings coming from the IPCC. But a statement made by Ottmar Edenhofer, one of the three co-chairs of its third working group, made us sit up and take notice. He said: “It would not cost the world to save the planet;” the cost of limiting global warming to 2 degrees Celsius would be only 0.06 percent less yearly growth than what would otherwise be possible. 

Then, a few days later, I read an article by Paul Krugman (Nobel Laureate in Economics) in the New York Times (17.04.2014) entitled Climate Change:Salvation Gets Cheap. Referring to the glad tidings on the cost of saving the planet coming from the IPCC, Krugman wrote he thinks the climate threat is solved. He went even further. He wrote: “… there’s no reason we can’t become richer while reducing our impact on the environment.”

One could perhaps be hopeful about humanity somehow solving the climate threat at the last moment. But I think it is impossible that we can all become richer while reducing our impact on the environment. These are two different things, though related.

Are the renewable energies emissions free?

Krugman refers to a study of the Department of Energy entitled Revolution Now and comments: “That sounds like hyperbole, but you realize that it isn’t when you learn that the price of solar panels has fallen more than 75 percent just since 2008.” Let us assume that this particular piece of information is reliable. But what has that to do with solving the climate threat? In all cases of industrial production, there are costs, called externalities, that are not borne or not borne fully by the firms that produce the commodities in question and are therefore also not passed over to the buyers through higher prices. Atmospheric and maritime pollution are best examples thereof. Such costs are either not borne at all, by nobody, or they are socialized, i.e. borne by all members of a community – a village, a country, a region, neighboring communities, or the whole world community. As German ecologists say, prices do not tell the whole truth about costs. Socialized costs may involve some immediate money costs for the affected community, but it may also be that the future generations would someday have to bear these costs in some form or other – either as some money costs (e.g. for repairing the damages done) or as deteriorating health and/or as environmental destruction of various kinds.

Since in the case of climate change we are today suffering the negative impact of large-scale externalization of costs, both past and present, i.e. emission of green house gases in the atmosphere, it is particularly important to ask whether or not all the industries involved in the production (or extraction) of the raw materials and equipments used for producing the renewable energies – solar panels, wind turbines, rotors, palm oil etc. etc. – themselves emit green house gases into the atmosphere. There is no doubt that they do, because such industries mostly (if not wholly) use conventional energy generated by burning fossil fuels.

We also know that in the case of photovoltaic-solar and wind energy, at the very last stage of production, in which sunshine and wind are converted directly into electricity, no green house gas emission takes place. But the process of delivering that electricity to the consumers again generates green house gases, because copper cables, transformers, storage facilities like batteries etc. etc. are produced by industries that use mostly (if not wholly) conventional energy produced by burning fossil fuels.

It may be argued that, on the whole, for producing and delivering a given quantity of electricity, the renewable energy technologies emit less green house gases than the fossil fuel burning power plants (because the former do not burn fossil fuels at the last stage of production). That may or may not be true. I do not know of any comparative figures on this question. It must be very difficult to work out reliable figures on this question. But we may get some indication when we consider the energy cost of production of renewable energies.

Price versus energy cost of energy, or the EROEI

Any economist knows that the price of a commodity depends on many factors: supply and demand, cost of production, the state of competition at the relevant markets, normal profit expectation, whether or not firms producing the commodity are getting subsidies and other favors (e.g. through protective duty) from their state etc. Cost of production of a commodity depends largely on the state of technology, wages and salaries, scale of production, prices of the needed raw materials and intermediate goods ( such as energy),which in turn depend on all these factors.

    But when we talk about production of energy, then we have to consider another matter. We want light in the evening, for which we spend energy (in the form of electricity or a flame on an oil lamp). Light and energy are two different things. We may be willing to spend any amount of energy to get the desired intensity of light. But when we want to produce energy by spending energy, then it would not make any sense if we produce, say, 9 units of energy by spending 10 units of energy.

    We also have to differentiate between different forms of energy. In thermal (or nuclear) power plants, electrical energy is produced by using heat energy obtained by burning coal, oil or gas (or by splitting atoms). Since we absolutely need electrical energy for hundreds of kinds of work – e.g. using a computer – we may be willing to spend any amount of heat energy to get the required quantity of electrical energy. We also produce electrical energy by using the energy of falling water (hydroelectricity). After electrical energy is produced in these ways, it is delivered to millions of factories, households etc, where it is used for various kinds of work.

    Now comes the point relevant to our present topic. Factories that produce photovoltaic panels or wind turbines or rotors use electricity. Even if they need some heat energy for particular steps in the production process, they generally use electricity to produce that heat. Since photovoltaic panels, wind turbines etc. produce electrical energy, i.e. the same form of energy that is used to produce these equipments, they only make sense if they produce in their lifespan of ca. 15 to 20 years more energy than what is needed to manufacture them – in other words, if their energy balance is positive. In our days, one also speaks of EROEI to indicate the ratio between energy return on energy invested.

    There is much uncertainty about the energy balance (EROEI) of both photovoltaic and wind-turbine technology for producing electricity. There are people (including myself) who doubt that the energy balance of photovoltaic technology is at all positive. As for wind energy technology, these people think that its energy balance is positive (2– ?/1), but not positive enough to successfully compete with thermal power plants.

    These uncertainties and doubts persist because it is very difficult, possibly even impossible, to work out exact figures on the EROEI of these technologies. Too many aspects of the studies made to arrive at the currently known figures had to be based on assumptions and guess work. I have been reading reports on these studies since about the early 1990s. I found that in 1991, some researchers asserted that, in European climates, the energy pay- back time (EPBT) of photovoltaic technology – the time it takes for a photovoltaic panel to harvest the quantity of energy that was invested in manufacturing it – was 1.2 to 2.1 years. These figures were by and large comparable to those of large-scale thermal and nuclear power plants; i.e. they were ostensibly already then competitive. But in 1995 – after four years of further research and development – another researcher stated that this figure (i.e. EPBT of photovoltaic panels in European climates) was 9 years. Similarly, while a study made in 1984 found that the EROEI of photovoltaic technology was 1.7/1 to 10/1 (obviously in different areas), another study ascertained in 1996 that it was 0.41/1 (that is, negative). The latest figure I have is from an article written by Ted Trainer (in April 2014), who too has been studying this matter since long. He writes cautiously: “… several recent studies have found that when all relevant factors are included, the ratio of energy produced by a PV[photovoltaic] module in its lifetime to the energy needed to produce it is not 10/1 as is commonly thought, or 60/1 as some advocates have claimed, but probably between 4/1 and 2.4/1.”  (EROEI and EPBT figures are from Sarkar 1999: chapter 4; Heinberg 2003: 152f., Trainer 2014)

    These results are inexact not only because they had to be largely based on guesswork and many assumptions, but probably also because the researchers did not use the same methodology. Also time (relevant for technological development) and place (relevant for quantity and intensity of sunshine) of the studies varied. In such a situation, I think it is permissible to apply logic and common sense in order to get an approximately true picture of the prospects and promises of renewable energies. Then one can’t help asking a few questions:

    If solar panels have become so cheap since 2008, why do energy companies still insist on building new coal- or oil-fired thermal power plants? And why do oil companies are still searching for oil at enormous costs deep under the ocean bed in the Atlantic or the Arctic Ocean? Why does the Japanese government want to recommission the nuclear power plants that had been shut down in the wake of the Fukushima catastrophe? Why hasn’t India, which is very rich in sunshine and wind and has a long coastline, yet decided to bid farewell to conventional coal and uranium based power technologies? Why is it still paying every year a huge oil import bill? And why must renewable electricity producers of Germany still demand and enjoy the privilege of guaranteed sale and guaranteed prices that are much higher than the prices of conventionally produced electricity? Obviously, renewable energy technologies cannot yet compete with conventional energies.

Prospects for renewable energies

But will they soon be able to outcompete the conventional energy technologies? Or can they in near future make the latter superfluous and supply all the energy needs of our industrial societies? I think the prospects are negative. We know that easily accessible and easily exploitable sources of raw materials, particularly those of conventional fossil fuels, are getting exhausted and new finds are unable to compensate for the exhausted quantities. The geographical and geological conditions under which these resources are being found and exploited are progressively worsening. We cannot change them. Think of extracting oil from the bottom of the Arctic Ocean! As a result, more and more energy has to be invested for extracting raw materials – coal, oil, gas, uranium, metal ores, rare earths etc. That means, their energy cost of production (also partly reflected in their financial costs) is steadily rising. Now it is exactly with such raw materials that all the equipments of all renewable energy industries –solar and wind power plants as well as bio fuel factories – are built. That means, the energy investment required for building such power plants is continuously rising. But the average energy content of sunshine and the fact that the sun does not shine in the night are cosmological constants. Climate scientists are predicting (and we are noticing it already) that, with climate change, wind velocity during storms will strongly rise. But that will be of little use to wind power plants, because in such cases the generators must be shut off. Such being the facts, the EROEI of renewable energy technologies cannot rise in future. It will rather go down – in spite of small technological developments that might still take place. Miracles do not happen.

    But one question still remains: How come prices of solar panels have sharply fallen? As stated above, prices of commodities depend on several factors. In the case of solar panels, it is well known that the main cause of the drop-off in price is that Chinese producers have entered the world market in a big way. They haven’t achieved any technological breakthrough. But their wages are much lower than those in Europe and America, they have less environmental and other conditions imposed on them, and the state is granting them subsidies and other favors. What is more, they are offering their products at dumping prices. The five or six German producers that recently went bankrupt and those that are threatened with bankruptcy, give these reasons for their misery. They complained to the European Commission and asked it to impose restrictions on Chinese exports of the product to Europe. The case ended with a compromise, but that did not help the German companies that were already bankrupt. Another explanation for the drop in prices is the enlargement of the scale of production, which was made possible by the promotional measures taken by states in the rich countries.

    I think the dispute will be settled in the next ten years through facts on the ground. "In the meantime also renewable energy enthusiasts concede", writes a Green Party intellectual, "that one cannot reckon with permanently profitable solar electricity production north of the Mediterranean Sea (Wiesenthal 2013: 29).

The difference between “feasible” and “viable”

 “But”, renewable energy enthusiasts ask me, “why do you altogether rule out that one day industrial societies will succeed in fully replacing non-renewable energies with renewable ones?” Of course, in principle, that too can happen. The future is in principle always uncertain. But we have to begin to act today in order to prevent foreseeable catastrophes in not all too distant future. That means, we have to act on the basis of less than 100 percent certain knowledge. In order to act effectively, we must then know, or try to infer from known facts, what is probable and what not. I think it is improbable that even the best renewable energy technologies of the future will someday be able to supply the whole energy needs of industrial societies.

    If we could be satisfied with light from oil lamps and do all work using only manual and animal labor power plus heat energy from burning wood, then our economy could be fully based on renewable energy. But that would not be an industrial economy, which cannot function without electricity and liquid or gaseous fuel. To get all of these latter forms of energy from sunshine or wind is not possible. A law of nature, the entropy law, stands in the way.

    Sun’s energy reaches us in a high entropy state, i.e. in a highly dissipated form. That is sufficient for agriculture and plant growth, from which we can get wood for fire. But for producing electricity we have to concentrate a large quantity of highly dissipated sunshine with the help of photovoltaic panels or aluminum mirrors. Production of these equipments themselves consume a large amount of concentrated, i.e. low entropy energy that we mostly get from fossil fuels found in nature. That means we can use this method of producing electricity only as long as sufficient quantities of easily extractable fossil fuels (or uranium) are available. That is why Nicholas Georgescu-Roegen (1978) called solar electricity technologies parasites. It is more or less so also with wind energy. That means, solar electricity technologies are feasible but not viable. They would only be viable, if the second generation of renewable power plants, i.e. all the needed equipments from A to Z – solar panels, aluminum mirrors, wind turbines, factories, roads, vehicles etc. etc.etc. – could be built/manufactured with solar or wind energy only. That would not be possible if the EROEI of (net energy produced by) solar and wind energy technologies remain so low as it is today. If we assume, as Ted Trainer writes, that the EROEI of solar panels is 2/1, then, after we have consumed this energy for our daily living and the other usual activities, no surplus would be left for investing in the production of the second generation of solar power plants. Trainer writes: “Estimates in the literature are that the ratio [EROEI] must be at least 7/1 for a technology to be viable.” It is very improbable that that would be the case in future, because, as I have argued above, the trend is pointing in the opposite direction.

    This problem cannot be solved even if we try to use the enormous quantity of high intensity sunshine available in the deserts of the earth. One such project, the Desertec project of some of the biggest European corporations, is today on its deathbed.

Conclusion

Today, in Germany, the result of years of promoting renewable energy technologies through subsidies (collected from the consumers including smaller businesses) and other favors is that electricity price has increased so much that tens of thousands of poor Germans cannot pay their electricity bills and are getting their grid connection cut off (coal price rises have also contributed something to it). The present federal government is therefore trying to arrest this extraordinary price rise by reducing to some extent the guaranteed subsidized prices paid to the producers of renewable energies. So we see that even the so-called “Energiewende” (energy-system-change) of the Germans aimed at reducing the emission of greenhouse gases is faltering, and the government is being criticized by pseudo-environmentalists for putting on the brakes against it.

  Krugman thinks we can all become richer while reducing our impact on the environment. This is also the mantra of many other pseudo-greens and pseudo-environmentalists all over the world, who propagate illusions of green growth, sustainable growth, green New Deal etc. etc. Edenhofer, the IPCC man, naively assumes in the midst of a stagnation-crisis that the world economy would regularly grow at a yearly rate of two percent (Süddeutsche Zeitung, 14.04.2014). But Krugman, the star economist, ought to have known better than to persistently demand policies for pushing economic growth. He argues: “Other things equal, more G.D.P. tends to mean more pollution. What transformed China into the world’s largest emitter of greenhouse gases? Explosive economic growth. But other things don’t have to be equal. There’s no necessary one-to-one relationship between growth and pollution.” That’s right. But other things can also become worse than before, so that the environment can also be destroyed without economic growth. Even at zero percent rate of growth an industrial economy continues its work of polluting and degrading the environment.

    The environment is more than just the climate, which Krugman thinks can be saved by substituting renewable energies for conventional energies. And the environmental crisis is a much bigger matter than the climate crisis. It includes, apart from the state of the climate, also the state of the oceans, the rivers, agricultural lands, forests, biodiversity and many other things. Krugman does not seem to know that if we all are to become richer, that will require much more than installing more solar panels and wind turbines. That will require extracting more fossil fuels, more mineral ores, building more dams, more factories, more roads, more houses, more stadia, more cars, more airplanes and so on. That will give the environment the final death blow. We shall then see that one cannot eat money.

    My hope is that it – all getting richer – will not be possible any more. For not only has oil extraction reached its peak, but also the other resources are getting depleted very fast. I recently saw a documentary film that shows that even the most ordinary resource sand has become so scarce that it is being stolen. For big building projects even sand on the seabed is being excavated, as a result of which the strands are vanishing under the water. Actually, we should be talking about preparing ourselves for a frugal lifestyle.

    Maybe we should be preparing ourselves for much worse things. Recently, a team of American scientists carried out a research project to ascertain the conditions that led to the collapse of past human civilizations. The project was partly funded by NASA, the organization whose purpose was to put man on the moon. The scientists concluded that there are strong indications that our present civilization is headed for collapse(Ahmed 2014).

Literature

Ahmed, Nafeez (Dr.) (2014) “Nasa-Funded Study: Industrial Civilisation Headed For 'Irreversible Collapse'?” in: www.the guardian.com/environment/earth-insight (14.03.2014).

Georgescu-Roegen, Nicholas (1978) "Technology Assessment: The Case of the Direct Use of Solar Energy". In: Atlantic Economic Journal, December.

Heinberg, Richard (2003) The Party’s Over. Forest Row: Clairview.

Sarkar, Saral (1999) Eco-Socialism or Eco-Capitalism? A Critical Analysis of Humanity’s Fundamental Choices. London: Zed Books.

Trainer, Ted (2014) Relax! Solar energy can save us.  Krugman says so.

Wiesenthal, Helmut (2013) ''Der Solarstrom – Lackmustest grüner Energiepolitik', in Böll Thema – Es grünt, Berlin, Nr. 1.