Monday, February 04, 2013

Why Is Solar Energy Not Saving the Universe (yes the whole universe)?

Invest in solar energy now or solar energy later? 

There are a multitude of issues surrounding this question.  So, I should refine and clarify my question until we are dealing with a clear issue. 

Three questions: (1) Why has the private sector not brought affordable, efficient, reliable solar energy to the market yet?  (2) Is this a market failure?  (3) Is the private sector "failing" in this regard? 

Answers: (2) Pollution could be considered an externality (follow the link if you want to understandify and learnicate thineself on what externalities are in economics).  And, negative externalities are a form of market failure.  No one is paying for the pollution, the producers of pollution do not pass those costs on to consumers so they do not split the costs as they would under something like a carbon tax (carbon taxes often referred to as Pigouvian Taxes, follow this link to learn more).  (3) No.  The private sector is providing energy at the lowest cost to itself and charging a price that allows for the most revenue (at least they are trying).  Which is exactly what the private sector is supposed to do. 

Finally, (1) Why has the private sector not brought affordable, efficient, and reliable solar energy to the market yet?  Because.  Currently, firms have not found solar technology that can provide the same amount of energy at the same costs and make the same amount of money.  More simply, firms cannot provide solar energy to consumers without inccurring costs that are too high to make profit possible.  Conversely, for them to make a profit, they would have to charge such a high price that no one could afford it.

What to do?  Invest in R&D for solar energy.  Charge a carbon tax to make providing energy from fossil fuels more expensive.  I like the former option, understand the attraction to the latter.  But, the absolute worst idea is to try to impose large-scale adoption of CURRENT solar technology.  It's too expensive, too innefficient.  R&D can help the latter, and Pigouvian Taxes (carbon tax) might nullify the impact of the former.

Note: if providing solar is expensive, the government could layout taxes that make providing fossil fuel-based energy more expensive and thus speed the transition to solar and other forms of energy.  Personally, I think natural gas is the best option for now and foreseeable future.  The government needs to loosen restrictions on nat gas, perhpas raise taxes on gasoline to speed nat gas conversions in factories and vehicles, and invest in R&D.

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