Trade-offs: Germany’s Choice for Power Generation

(HT Watts Up With That)  In response to disasters at Chernobyl and throughout Japan, the German government led by Chancellor Merkel is replacing nuclear plants with coal and natural gas powered plants.  The phase out will be completed by 2022.  One small irony is that the government will finance the conversion using funds designated for projects promoting “clean energy” and “combating climate change” (“Germany to fund new coal plants with climate change cash”).

A spokeswoman from the Economics Ministry said that the new plants would not affect Germany’s goal of reducing greenhouse gas emissions by 40% by 2020. 

We all face trade-offs, including governmental officials.  Nuclear power plants are vulnerable to occasional releases of radioactive gasses into the atmosphere.  Coal, and to a lesser extent natural gas, release carbon into the atmosphere and many believe that these emissions dangerously warm the earth.  The damage of radioactive gas releases would largely be confined to Germany and her immediate neighbors but the damages of carbon releases would be shared with the world.  Wind and solar plants use vast tracks of land and German climatic conditions are not suited for their production.  Excluding external costs, coal and natural gas plants generate electricity most cheaply.  Cheap electricity is necessary for Germany to maintain its healthy manufacturing sector.

Reading the tealeaves, and with the understanding that I have no special insights into German politics, I conclude that the Merkel government has chosen jobs over the environment, but in a somewhat subtle manner. Government officials have chosen to discount the costs of global warming relative to a nuclear plant meltdown perhaps from a reassessment of the relative costs of each, perhaps from a heightened sense of nationalism that focus on national external costs rather than world external costs associated with global warming. 
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McAuliff on the Restarting American Offshore Leasing Now Act

Michael McAuliff, a writer for the Huffington Post, seems to oppose the Restarting American Offshore Leasing Now Act, which would expedite drilling in Alaska and the Gulf, largely because he finds arguments offered by supporters as specious (“More U.S. Oil Drilling Won't Lower Gas Prices, Experts Say”). 

The Bill was sold as a plan to bring lower oil prices, move the country towards energy independence and create jobs.  McAuliff hits an easy target; politicians always oversell the benefits of their activities.  He uses Mike Lynch, an oil analyst for Strategic Energy and Economic Research, Inc. who identifies himself as a moderate Republican and Phyllis Martin, an analyst with the U.S. Energy Information Administration to evaluate the oversold benefits.Lynch and Martin argue that implementation of the legislation would not reduce oil prices now and would have little impact in the future.  Lynch believes potential production increases in the U.S. are too small to have much impact on world prices.  They also argue that increased production would not make us energy independent.  The analysts agree that new drilling in Alaska would create jobs, increase tax revenue, and earn a lot of people a lot of money.

I believe that the analysts are largely correct, but a little depends on your interpretation of key words.  Assuming that drilling in Alaska increases world production by one percent, that gas prices are $4.00 per gallon and elasticity of demand ranges between 2 and 3, prices would fall between 8 and 12 cents a gallon.  I would call that a significant project.  Drilling in other locations and increased use of hydraulic fracturing and other new technologies would further increase production and, holding other things constant, decrease prices.  I agree with the analysts that the U.S. is unlikely to achieve energy independence through increased drilling even if it would reduce the amount of oil we import.  McAuliff seems to have a problem with oil companies profiting from their activities.  I do not.  If big oil can create jobs, increase profits and reduce the price of gas and other oil-based products, I am all for it.

McAuliff seems to have an unstated argument--drilling increases pollution.  It is an argument that I respect.  There is a tradeoff of pollution and wealth.  Wealth enhancing economic projects increase pollution even when cost benefit analysis justifies a pollution causing project.  Some people value a more pristine environment than a little more wealth and for them, marginal costs would exceed marginal benefits.
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