The high cost of clean energy

Paul Krugman expressed the mainstream line when he argued in a column in the New York Times on Thursday that “it’s easy being green”. For Krugman the cost of cutting carbon emissions will be minimal.

His argument rests on two propositions. First, bolstering energy efficiency should cut wastage and therefore end up making consumers richer. Second, the best available economic analysis suggests that cuts in greenhouse emissions would only impose modest cuts on the average family.

I have not studied the American material on this subject in detail but I am pretty sure that Krugman is underestimating the costs of cutting greenhouse gas emissions. For a start making steep cuts in energy efficiency is not straightforward. Even making a house significantly more energy efficient can involve substantial investment. Making production more energy efficient can also be costly. Energy efficiency does tend to increase over time but it is not a straightforward process and generally does not happen in a dramatic way. Also, contrary to the common perception, greater energy efficiency normally leads to more energy use rather than less.

Second, even if it were true that greenhouse emissions would only impose modest cuts for the average family, and I would question the maths here, why should people accept reductions in their living standards? Surely people should justifiable expect their living standards to increase?

What the world really needs is more energy use rather than less. The key is to invest in new, decarbonised forms of energy supply. Such investments will be expensive but if sufficient economic growth can be generated they would be affordable. They should also create the basis for further growth in the future.