You Mean Incentives Work? Even Perverse Incentives?

Well, fancy that.  If you artificially make something more lucrative relative to alternative behaviors, you get more of it.  And the greater the spread between doing X, which you make more lucrative by government fiat, and Y, your “control” behavior, the more of X you get.  You’d think this is the sort of thing that most folks would figure out by the time they’re in about seventh grade.  Leave it, however, to the government perpetually to discover this dynamic anew, every time it reaches in and monkeys with the market.

The most recent folks on whom the light of ordinary common sense has dawned are the Germans.  Their environmental minister, a boy name of Altmaier, has just figured out that Germany’s so-called “Engergiewende” (hard to render in English, but “energy change-over” is about as good as you can get without sounding goofy) is going to run upwards of one trillion Euros.  Given the predictability with which all governments, everywhere, at all times radically underestimate actual costs of messes they’ve made, the true number is likely to turn out at least double that.  Even on its own terms, that €1 trillion works out to about $1.38 trillion.  That’s a lot of money, folks.

Germany has a national-level renewable energy statute.  Under that statute people who install solar panels on their roofs, and builders of wind turbines, receive cash subsidies from the government, because of course those wonderful renewable energy sources are extortionately expensive, and the statute prescribes the price at which the renewable has to be purchased by the grid so that people will be willing to become producers of renewable energy electricity.  The cost of the subsidy thus fluctuates with the spread between ordinary electricity and the cost of the renewable; the greater the spread the greater the effective subsidy.  But it doesn’t stop there:  Because on windy and extremely sunny days the grid can’t handle all the electricity produced, the producers have to be de-coupled from the grid . . . and they’re paid just as if they were still producing for the grid.  Ca-ching!!  Of course, on calm or cloudy days, and at night every day, there’s not enough juice going into the grid, so the conventional (and remaining nuclear) producers have to maintain their old plants in stand-by to make up the shortfall, or else the population is going to go cold and dark.  Since those plants aren’t needed when the renewables are producing at adequate capacity, however, while they’re just standing there, with steam up and nowhere to put their juice (not only does the grid buy from the greenies at artificially high prices, it buys from them preferentially), they’ve got to be paid as well for not producing (or else the producers will go broke very quickly).  Ca-ching!!  And when excess electricity production pushes its way onto the grids of the Netherlands or Poland (not sure precisely why (it’s not explained in the linked op-ed), but it seems that happens as well, fairly predictably), apparently Germany has to pay for that privilege.  Ca-ching!!  Finally, because of the manner in which the German electrical grid developed over time, just fixing the bottlenecks in the national grid, so that solar- and wind-powered electricity can be moved from its point of generation to its point of use, will alone run to a third of a trillion Euros.  Ca-ching!!

If all of the above bears more than a little resemblance to U.S. agricultural policy, it’s no accident.  They are both efforts to steer, through subsidies, certain people to over-produce specific commodities and at the same time insulate the over-production from the market risk of over-production.  For a humorous (if depressing) short course on how the Soviets won the Cold War after all, see the chapter on farm policy in P. J. O’Rourke’s Parliament of Whores, which over twenty years on retains its relevance.

But it gets better.  Because the German government pays a fixed price for renewable energy and sends the bill to the non-renewable customers, the risk of over-pricing and over-production is placed on the non-subsidized customer.  Householders and investors can, directly in the former case and indirectly in the latter, insulate themselves by suckling at the same tit.  With each additional subsidized producer from whom the grid has to purchase power at artificially high prices relative to non-renewable sources, the greater the incentive for the next customer to become a producer from whom unrealistically expensive power must be bought.  No one, after all, wants to be the last fossil fuel electricity customer in Germany.  And with each additional “green” electricity producer the costs go up and the pool from which those costs have to be paid goes down.  Further, since as the writer points out there are now millions of German households, investors, and industries who are getting fat from the subsidies, the subsidies are rapidly acquiring the status of sacred cows which cannot be slaughtered.

It gets even better, as it always does with government.  As the op-ed points out, the whole subsidization approach of the renewable energy law was predicated upon ever-climbing prices for fossil fuel energy.  Eventually the cost of fossil fuels would catch up with the solar- and wind-generated product and everyone would go on normally.  In doing so they mistook trend for destiny.  As the op-ed points out, not just the U.S. but Poland, Russia, Argentina, and Australia as well have within the past few years discovered massive reserves of oil and natural gas.  As and when those are developed, the price effects will destroy for decades if not generations the model the German law is based on. 

At least competition from cheap new reserves of fossil fuels is something the governments of the world can control.  They can simply decree that those newly-discovered reserves are off-limits.  Wouldn’t it be fascinating to find out who’s funding the anti-fracking lobby here and elsewhere?  Anyone want to bet that, George Soros-like, they’re players with deep commitments in the “green energy” industry?  We already know the Saudis are bankrolling the Canadian effort to strangle the oil sands development.  Dear Leader’s standing athwart the Keystone XL pipeline benefits, among others, the rail transporters of oil from the Bakken field, which would be connected with and its product moved by a completed Keystone XL pipeline, thereby eliminating all those gorgeous miles of tank cars.  [Aside:  Dear Leader and his cronies moan about the potential contamination from a potential leak, as if there were never in recorded history an incident of a bunch of tank cars derailing and rupturing.]  Perhaps not coincidentally one of those rail transporters counts among its larger stakeholders a gentleman named Warren Buffett.  Gentle Reader may remember him; he’s the chap who keeps plumping for higher taxes . . . at the same time his holding company is fighting a $1 billion tax bill from Uncle Sugar.

Who could have seen it coming?  I mean, other than a seventh-grader of ordinary intelligence?

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