Reality Check: Green Energy Fantasies Threaten Post COVID Economic Recovery

There’s debate over which did more harm: the coronavirus or government policy responses to it. But there’s no argument that our economic recovery requires reliable and affordable electricity. Which means that the current arguments about recharging economies using heavily subsidised and chaotically intermittent wind and solar are as dangerous as they are delusional.

Ross McKitrick makes the point that, if subsidised renewables didn’t make economic sense before the lockdowns were enforced, they make even less sense now.

Ditch the fashionable green recovery plans
Financial Post
Ross McKitrick
19 August 2020

Green technologies that were known money-losers before the pandemic are still money-losers today.

There’s a curious idea floating around that the COVID crisis undid the principles of economics. Nobody puts it exactly like that, but it’s implied in the various proposals for restructuring the post-pandemic economy so that it will look very different from the one we experienced up to the end of January. Amid the buzzwords about “Resilient Recovery” and “Building Back Better” are proposals for an investment push into green technologies and new environmental policies, including initiatives that failed to pass standard economic tests before the pandemic.

So how, exactly, did the pandemic change the criteria for evaluating policies, investments and major public projects?

The short answer is: it didn’t, and any claim otherwise is untrue. The recovery from the pandemic shutdown should not be seen as an “opportunity” to make bad investments and policy decisions. Bad ideas prior to the pandemic are still bad ideas today. Policies that failed cost-benefit tests before the shutdown are even more likely to fail such tests now that unemployment has soared, public debt has exploded and business investment is faltering. Green technologies that were known money-losers before the pandemic are still money-losers today. The only thing that’s changed is that we have even less money to work with, so the need to avoid wasting it is higher than ever. It’s critical to choose investments that will lead to real growth and job creation.

When it comes to choosing good investments, the guiding principle is profit. Will the new capital generate a revenue stream greater than the cost of acquiring it? If yes, the jobs that accompany the capital investment will be sustainable, at least as far as we can reasonably surmise. If no, the project will lose money and will either end quickly or will require subsidies funded by adding costs elsewhere in the economy.

“Sustainability” does not mean using fewer resources or cutting energy consumption, though it can involve those things. It means value-creation in a competitive marketplace where the concept of value can be expanded to include (but not consist solely of) natural and environmental capital. A profitable investment is one where, after all costs are paid (including environmental costs), the outputs are worth more to society than the inputs, including the labour costs. Profitable investments are sustainable. Unprofitable investments are not.

This principle has long been the foundation of economic analysis for both policies and projects. The pandemic did not change it. The only thing COVID-19 might have done is make it even more valuable for society to increase employment and decrease non-essential demands on the public purse. Which means that the idea of coupling a post-pandemic recovery plan with any kind of Canadian Green New Deal is bound to be harmful.

There are rumours that Bill Morneau resigned as finance minister because he didn’t agree with the prime minister’s green recovery agenda. If so it is too bad he didn’t stay on and fight. And it is imperative that his successor, Chrystia Freeland, not give in to the Trudeau team’s dubious inclinations on this file.

We have enough experience with green technologies to know they don’t run on solar and wind, they run on subsidies. Ontario ruined its electricity cost advantage by hitching its grid to long-term renewable energy developments that were only viable on the basis of above-market payments financed by surcharges that have imposed a heavy cost across the economy. Empty promises of green jobs ran up against the reality that money-losing projects destroy more jobs than they create.

We are entering a phase of the COVID recession when many of the main benefit programs will start winding down. Even if there’s still a need for them, we can’t simply keep borrowing hundreds of billions of dollars to keep everyone locked down at home. We must begin reopening businesses and re-employing laid-off workers as much as is safely possible. And we must begin aggressively generating wealth to pay back the staggering costs of the COVID response.

The idea of adopting an even more aggressively “green” approach to the economy is diametrically opposed to these things. Now more than ever we need policy-makers to support profitable investment and capital formation, which often simply means not imposing unnecessary rules and regulations on entrepreneurs. We also need policy-makers to subject their fashionable green recovery plans to rigid cost-benefit analysis, rather than imposing ideologically driven economic restructuring schemes that overvalue minuscule pollution reductions and undervalue income and productivity gains.

In other words, what we need now is what we have always needed: a focus on creating an investment climate and policy framework to support profitable entrepreneurship. The pandemic didn’t change that, it only made it more imperative.
Financial Post

About stopthesethings

We are a group of citizens concerned about the rapid spread of industrial wind power generation installations across Australia.

Comments

  1. Crispin bpm says:

    Victoria’s coronavirus response is lowering the morale of the entire country. It is deeply disturbing to see what is happening in Melbourne. The overriding concern is one of the mental health issues that such a large body of people must be going through under effective house arrest. The way the Victorian Labor Party are mishandling COVID-19 is in my opinion Un-Australian. And Daniel Andrews is an Un-Australian politician. Given the Victorian Labor Party’s mishandling of quarantine in the first place, they shouldn’t be involved in the process from now on. All quarantine functions should be handled by the Federal Government. Victoria has shown itself to be incapable of the responsibility of containing any future spread of the virus.

  2. Jacqueline Rovensky says:

    And that goes for Australia as well. If Governments are going to pay money out to investors it has to be those who can prove they can flourish and continue to invest themselves in a growing industry/business which can grow and employ more people not less after it has built its factory.
    It would also be good if it could show that its existence can assist Australia’s businesses by purchasing product or material requirements for their use, in so doing ensuring other business and employment grows. Currently the employment they provide is mainly for the construction of their projects, after they have been built there is little employment locally or otherwise available.
    This would create a circle of interdependence and help Australia grow prosperous again with ‘full’ employment and a future for all.
    It also has to be a LOAN not a HANDOUT, those who receive it must be able to provide a good business plan that allows for repayment of the LOAN. It should not be a HANDOUT that continues to be handed out for ever and a day.
    Currently Governments are handing out money to Renewable Energy companies – note plural – every time someone comes up with a plan it means money is drawn from our taxes that should be spent on us, not to fill the industries pockets, especially when it is being used to erect SHORT-TERM structures, nor should a company receive money for multiple projects, one for each company should be sufficient – we do not own them, the companies investors do so they should be able to make sufficient profit to invest in more projects.
    Also why should we the people of Australia be funding the required supply and or upgrade of the structural system necessary to get these companies goods to ‘market’?
    Do farmers pay to get their produce to market, do supermarkets get paid by the Government (us) to deliver their goods to market, what about their suppliers do they get paid by the Government (us) to supply the supermarkets? Yes of course they use the money they sell the goods for to pay those requirements so we do pay – but it is not a ‘hidden’ payment paid from our taxes.
    Any industry or business must show it is capable of getting its goods to market as well as keeping profits in this country so they can continue to grow and flourish BEFORE they are provided any Government assistance BUT ONLY IF it is absolutely necessary and only a LOAN.

  3. Thank you STT for publishing this excellent article written by Professor Ross McKitrick.
    Here’s another article regarding the financial impact of the broad based Covid-19 lockdown of all non- essential businesses in Ontario.

    https://www.theglobeandmail.com/canada/article-coronavirus-update-ontario-declares-recession-projects-385-billion/

    Since this devastating situation was entirely unanticipated, why wouldn’t our Finance Minister be able to invoke ‘force majeure’ to cancel these long term contracts? Surely Ontario has more urgent priorities, all things considered?

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