Friday, December 12, 2008

Some clarification on the solar riddle

My last blog was too brief, I suspect, for the challenging idea it presented. So I will elaborate a little further.

The key point I want to make is that a dollars worth of any consumption good or service, due to the infinite interdependency of economic production, requires an equal amount of resources for its production. A dollar spent on a pair of shoes requires an equal amount of coal, oil, minerals and other natural resource inputs, as a dollar spent on an apple, a hybrid car, a haircut, electricity, motor fuel, a solar panel, and every other good currently being produced. A dollar spent on any good also stakes a claim on an equal amount of pollution.

How can all goods be equal? Surely spending a dollar on a massage is better for the environment than a dollar on fuel or electricity?

But let us run through the flow on interactions in each of these cases. You buy a massage. You mistakenly believe that the environmental cost is negligible because there are no material inputs. What happens to the money then? The masseur then spends that money on whatever they choose – food, fuel, furniture, and any other items. Then what happens at each of these purchases/transactions? The dollar divides further to pay for the labour costs, and the upstream material inputs and so on ad infinitum.

The dollar spent on electricity can be traced in a similar way. The wholesale costs as well as the labour and rents of the electricity retailer are paid for. Then these upstream intermediate industries use this revenue to pay for all of their inputs. Any profits made along they way get spent on other consumption items. This single dollar continues to divide and change hands until it is diluted amongst all natural resources that supply our modern economy.

If a dollar represents a claim on a proportion of the resource inputs into the economy, this paints a different picture for environmentalists. There are no ‘green’ alternatives. Which brings me to the solar panels.

A $20,000 solar panel will generate less than $20,000 worth of electricity over its lifetime. If all consumption requires an equal amount of resources, then it takes more coal to make the solar panel than is required to generate the electricity it is intended to replace. In energy terms then, the solar panel is also likely not to produce more energy than is required to manufacture it in the first place.

But then again there is no harm in going solar – you will just have less money to spend on other things (oh, and they aren’t much good for the environment either).


  1. Had a long chat and think over this today.....

    Perhaps as you have suggested, money presents no solution... however;

    1) it's disappointing that solar may actually be worse than coal.... but somehow this intuitively feels wrong. I wish I could articulate why...

    2)...Surely if everyone bought organic cotton and local vegetables, we would be doing the environment a favour...?

    3) Think of a small Italian village or an old growth forest, Opportunity is limited, but everything/everyone has place, co-dependant, HEALTHY....

    ... how do we get there? is growth/greed cultural?

    It's an important issue, especially now. But people quickly resign themselves to avarice without an alternative...

    (I'm assuming a healthy environment is our goal)

  2. Is it correct to assume that the only base load power source for the manufacture of solar cells is coal?
    Try doing your calculations with the premise that solar thermal, wind, tidal etc were the power providers for every process, where possible.
    After all, that's the place where we want to be. There is a change over period, eventually, however there will come a time when fossil fuels didn't contribute to the manufacture of a good or service.

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  4. Dan. A quick reply to you third comment. Why do you suggest a small Italian village and an old growth forest as some kind of utopian vision of healthy codependency? Surely there is greed in such places - think of the mafia. In a natural ecosystem, yes there is codependency, but there must certainly also be greed. The vultures don't think to themsleves, "hmm... better leave some of this carcase for other animals". Maybe they do.

    We are quick to crticise our way of life and become nostalgic in this modern western consumer world that we have come to dislike. But even her and now everything and everyone is codependent, has its place, people are more healthy (at least they live longer).

    Stuart. Thanks for your comment, It is likely (but not certain - maybe that discussion is for another blog) there will come a time when fossil fuels are 'obsolete' in the broadest sense. But that does not change the principle of the matter. A dollar's worth of any commodity is 'responsible' for an equal amount of natural resource input, whatever those resources happen to be (maybe the sum of all resource consumption in human history - again, another time, another blog).

    Clearly then the focus of policy makers should be on regulating those natural resource inputs and the pollution (and externalites more broadly) associated with production techniques.

  5. Mafia yes, vulture no - it can only eat so much.

    I think of a forest because they are still here, unlike Easter Island etc.

    Even if you're restricting resource inputs, doesn't it still comes back to growth in consumption?

    I guess I keep coming back to what makes us content. Unlike a vulture, food isn't enough for us... Is it cultural that we always need more, or genetic? If it's cultural, is there an economic solution to a psychological problem?

  6. One vulture can only eat so much, but so can one human. But we must look beyond the short term behaviour of individuals.

    I think the desire for more is genetic. If such a desire did not exist, how could animal populations survive, let alone grow? Think about a termite colony - like the ones that build the enormous mounds in northern Australia. They must have a genetic desire to build more and larger mounds. If all animals have this desire, what stops any other animal from taking over the planet then?

    They face resource constraints.

    Each species must compete for land (habitat?) and food with others (as well as being the food for others). Thus, we are currently the dominant species who has overcome the resource constraints.

    To your Easter Island example. Yes, the humans are no longer there. But most forests aren't around anymore either. The forest appears old, but it is an illusion. The ecological systems found within them are constantly evolving.

    Pick any current forest. Now go back in time a million years and look at it. Go back further - 20 million years. It is completely different. Some species are there that don't exist in current times, and many current species don't exist yet. So if those truly old forests are no longer there, then they must have been unsustainable. Forests in general appear unsustainable.

    Lastly, restricting resource inputs will limit consumption. Remember, you can only consume what is produced.

  7. Well I'd have to say I agree.

    Except, we have the capacity to consume more than just food vs a vulture... (I think is not necessarily trivial, but it opens up the population debate i.e 1 Billion Indians vs 20 Million Australians...)

    I think I'm on a similar wave length. Although, bringing in 200 million year time frames can trivialise the consequences of our immediate actions.

    There is still a problem with resource restriction - Values. We won't restrict logging until we value the forest. Time for an environmentalist dictator (Dominican Republic?).

    I can't help but imagine, hypothetically, the world restricts oil production for environmental reasons, yet the Americans are hooked. Are they going to quietly agree unless their values change?

    Really I agree with your economics, depressing as they may be, but am desperately trying to find a path to a healthy environment, before I/society gives up....

  8. It's me again!

    Stuart asked what if all energy used to create a solar panel was renewable?

    On a similar line of thought. Your underlying assumption is everyone will continue to consume in the same manner i.e. resource intensive consumption. So if I, as an individual, spend my money on massages it doesn't count because the massage therapist will spend her income on a hummer.

    But, what if everyone consumed less intensively and we all gave each other massages (so to speak)?

    If you change this assumption, does every dollar spent still have the same effect?

  9. Dan and Stuart. If all energy used to create a solar panel is renewable, you could not create one. My argument was that they take more energy to create then they produce in their lifetime, thus you could not make a solar panel from renewable energy sources only.

    THe second point you make is an argument that has raged in the halls of our economics department. I have not got a simple way of explaining why I believe this will not work, but it is closely linked to the monetary and financial system. I will attempt to explain my point in a future blog,

  10. Re. solar panels:

    I just did a quick calculation and it will take me 45 years to pay it back at 15c/kwh and 14 years at 50c/kwh, which is what I'm getting now(not to mention I only paid for about 10% of it with Government Rebates - I guess that part is irrelevant though).

    Regardless of these payback periods, and assuming they currently don't create more energy than they were created with, what about technological improvements? With everyone buying solar, in 10 years time we may have solar that does create more energy than it needed to be made?

    You also mentioned in your original post solar wasn't good for the environment anyway?

    (Excuse me for struggling with the concept - I just bought one...)

  11. I can't quite get my intuition around this counter-intuitive concept. I'd like to try to develop some points that still bamboozle me:

    1. Equating dollars to energy: For the purposes of example let's make up an economy, let's call it Moldova, which is powered 100% by coal-fired power plants. Say Moldova is a pretty dodgy place and the coal-fired power plants are running break even: so it costs the same amount of Mol-dollars to produce the energy as what they sell it for. Intuitively we would expect that this system could work; that the Moldovians, however poor they may be, would have electricity. However if we substitute the words coal-fired power plant with solar panels it becomes impossible. In both examples the cost of production equals the price of their product. It's easy to understand that if in the process of creating the solar panel we require the same amount of electricity than it produces over it's lifetime we gain nothing since we can easily equate apples with apples. However when we equate dollars with energy, one dollar spent on buying a solar panel (e.g. $1 = 1Wh) only produces 1Wh back again we gain nothing from the process. Thinking this way, equating $ with Wh, how can our poor Moldovians still use their electric milking machines?

    2. I'm trying hard not to believe that we gain nothing from buying solar panels. Assuming they cost (like in Moldova) the same as the value of the energy they produce. We spend a dollar on a solar panel: this dollar in infinitely divided as it swims upstream through peoples wallets, and through this process looses it's identity as my 'green' dollar and comes out representing the total resource inputs of our economy, probably more a brownish sludgy colour now. So it doesn't matter if I temporarily green wash my dollar or spend it to create a burning petrol feature-fountain in my front yard: it's all the same. However I reckon by buying a solar panel I change the resource inputs of our economy: so my dollar swims up a slightly altered stream, it still arrives a brownish sludgy dollar, but a slightly greener one.
    However after my solar panel is online, the total resource pool of the economy increases, energy becomes cheaper and consumption increases to fill in the space my green dollar bought: so total polluting is not reduced. Arrghh! I thought I was arguing for solar panels!! damn. BUT.. if the federal government wants to stimulate the economy they should spend it on solar panels? Since they would be growing the economy without increasing pollution. I've lost my point. Anyway what do you think?