Timmy in ‘believing two contradictory things’ shocker

February 29, 2012

Timmy doesn’t like wind turbines, or, indeed, anything of the other solutions to climate change which are subsidised. This is fair enough; it’s entirely coherent for any classical liberal to dislike any prospect of rent-seeking that appears to impose costs on the rest of society. In a post on Forbes yesterday, he endorsed a letter from an engineering professor to the Telegraph which criticises ‘premature’ technology deployment – i.e. the deployment of technology before it reaches a level at which it can compete successfully with established tech.

Solar panels, he points out, are frequently described by their advocates as likely to be cost-competitive with coal plant in at most ten years’ time. If this is the case, he argues, then why do we need to spend money subsidising their production? Surely we could just wait ten years and reap all the benefits of clean energy without having to shell out millions of pounds of bill-payers’ money? In fact:

“Another way of making the same point is that instead of deploying subsidy requiring energy production systems now we should be, assuming we are going to do anything about climate change, be putting those resources into the R&D of renewable systems so as to get them to economic efficiency that much the faster.”

On the same day as this post went up, Timmy put the following up on a post about the NHS:

“For there’s something we learned in the short 20 th century, that period betweem 1917 and 1991. Market based systems improve total factor productivity better than centrally planned systems.”

Put simply, markets are the best tool we have for procuring something that we want more cheaply. If we want good quality healthcare that’s free at the point of use, then the cheapest way of ensuring that is by permitting competition within the NHS. If we want cheaper wind turbines and solar panels, we need a market. We need a bunch of people who want to buy these things, and people who compete to sell them to them.

I feel confident enough in this to make the following prediction: solar panels will be cheaper in ten years’ time if we fund a market in them than if we spend the same money throwing boffins at the problem. This is because the market will pay people to spend money on boffins too, boffins with stronger incentives to make the solar panels better.

Now, you can argue whether the current market we have in green energy is the correct shape to properly incentivise  increasing productivity. What you can’t do is say that we should have a thing and then say that the best way to get that thing is to fund experts to think really hard about the problem, and then say the exact opposite about another thing. I’m quite frankly shocked that Timmy has decided to eschew his own economic knowledge for that of engineer on this point.

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2 Responses to “Timmy in ‘believing two contradictory things’ shocker”

  1. “If we want cheaper wind turbines and solar panels, we need a market. We need a bunch of people who want to buy these things, and people who compete to sell them to them.”

    No, we don’t.

    A little story for you from the frontlines of the renewables industry. Back in the mid-1990s I supplied some metal to Westinghouse. For their R&D on solid oxide fuel cells. Didn’t pan out (although similar R&D being done at St Andrews did) as they were trying to be a bit too exciting in their plans.

    But as I looked in to what they had been doing I found that they’d started all of this in the mid-80s. They were spending enough money that the researched extraction methods for a specific metal they might want to use, patented at least one such method. That’s quite big money being spent there.

    Now, when was all the stuff about climate change really starting? 92 perhaps, the Kyoto meeting? 97 maybe, when it all got signed? 2004 or something when FiTs came in?

    Westinghouse had thought up a renewable, tested it, found it didn’t quite work and closed it all down again before near any of this went on.

    Why?

    Because markets are forward looking.

    We do not need to have a market for people to spend money on developing things. We only need the prospect of a future market for people to spend money on developing things.

    As indeed with my own current work. Working out where in the globe, and by what extraction method, we’re going to get the metal for the next generation of wind turbine blades from. A lovely special alloy which allows them to run in higher wind speeds. And requires a modicum of a very rare metal.

    I and my backers (currently really a drinking group in The City) don’t give a shit about how many windmills are being bought and installed right now. We care only that if we come up with a better windmill blade alloy, of the materials to make such, that there will in future be a market.

    • Adam Bell said

      Bit puzzled by your first example – the wind industry properly began – with government backing – back in the early 80s following the oil crisis. Jimmy Carter was talking about renewables back in the 70s. The cost of fossil fuels has always been a big driver behind development; if anything Westinghouse was backward-looking.

      However, your point still stands – markets are forward-looking. Let’s assume no support for wind power has ever been supplied by any country whatsoever, so Denmark’s wind industry dies the same death the UK’s wind industry did in the 80s. Let’s assume that – along the lines of your Westinghouse example – there’s no pressure to acquire competitive advantage which distributes innovation widely, resulting in single companies attempting to come up with competitive models of turbine by themselves. In the current marketplace, that means someone like Siemens would have to develop all the likely components of the competitive turbine themselves – direct-drive generators, thermal regulation for the blades, software control for blade angle that eliminates stall – in order to have a competitive product. A bunch of SMEs wouldn’t have the scale to invest that sort of money on the assumption that other people were inventing something that could make their invention work.

      At the same time, the oil and gas companies – which do have a market – are continuing to innovate, and while not eliminating price rises, are certainly keeping them lower. Your investment decision wouldn’t be ‘There’s a whole bunch of people already in the wind sector who are crying out for better blades,’ it’d be ‘There’s no-one with a wind turbine anywhere the market that could compete with fossil fuel, even with our blades’. Your investment would be postponed until well into the future.

      Markets don’t appear overnight. Subsidies bring demand – and hence scale – forward. There isn’t a date when we’d have cheap renewables regardless of whether we subsidised or not – there’s later, and there’s sooner.

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