Common Tragedies

Thoughts on Environmental Economics

Questions for the Goreacle

Posted by Rich Sweeney on November 10, 2008

I love Al Gore. No one has done more to increase political awareness about the dangers of global warming. And now, having essentially settled the debate over if we should act, Gore has shifted his focus to informing how we should act. His vision is an admirable one. Since last spring Al has been pushing for the US to commit to getting 100% of its electricity from renewable sources in the next ten year. I think everyone agrees that it would be awesome if that happened. Yet while it is the job of politicians to inspire and lead the public and to challenge us to to achieve our stated social goals, its the job of policy analysts like myself to evaluate their propositions. So I have some questions about the plan that Gore put forth in yesterday’s NYTimes and on the We Can Solve It website.

  • In the Times op-ed, Gore writes, “The cost of this modern grid — $400 billion over 10 years — pales in comparison with the annual loss to American business of $120 billion due to the cascading failures that are endemic to our current balkanized and antiquated electricity lines.” Does anyone know where that $120 billion came from? Or even what it represents? EIA lists total 2007 electricity sales at $343 billion.
  • Under the heading “Are materials or land availability a limiting factor?” on the We website, there are charts comparing annual US glass and steel production to the quantities called for under Gore’s plan. The solar thermal glass requirement looks to be about 40% of US production and the steel requirement is 8%. Now I guess the point is to show that these quantities are less that we currently produce, but that’s a pretty useless metric. The real constraint is the cost of displacing the 40% of glass currently going to other uses. Lots of great things are technologically or materialistically feasible if cost is no obstacle. Did we learn nothing from the run-up in corn prices this summer?
  • Gore takes 2020 EIA electricity demand estimates as the target level of generation for his scenarios. But then he also calls for the electrification of our transportation sector. Clearly this would increase the amount of electricity demanded (by how much is anyones guess). I like his point about PHEVs acting as batteries for renewables, but doubt that this could really impact the grid. Reliability is a huge issue when it comes to electricity.
  • Gore’s plan also meets 28% of the EIA 2020 target with energy efficiency. Where does this come from? Is it really “efficiency” or simply demand reduction as a result of the high price of eliminating fossil fuels? Again, lots of things are “feasible”, but welfare losses matter.
  • Finally, what actually happens to all the coal and natty gas plants? Much of our current capacity has another 20-30 years of capital life left. How do we eliminate them? Is it through legislative fiat or does the government buy these plants out and retire them? Either way, this would cost somebody a lot of money.

Ok I realize there isn’t a lot of insight here. I really just wanted to list the questions I had when I read Gore’s plan. Any CT readers have answers to these/ questions of their own?

4 Responses to “Questions for the Goreacle”

  1. Rich, the $120 billion number likely came from an EPRI survey.

    Here is a reference to the number in Amin and Gellings, “The North American power delivery system: Balancing market restructuring and environmental economics with infrastructure security”, Energy, Volume 31, Issues 6-7, May-June 2006, Pages 967-999:

    To obtain data on the economic impact of power outages and disturbances, The Electric Power Research Institute (EPRI) conducted a survey of 985 firms in three sectors of the economy with high sensitivity to power reliability. The firms surveyed were in the digital economy sector, the continuous process manufacturing sector, and the fabrication and essential services sector. In the survey, respondents estimated their costs arising from a series of power quality and reliability events, based upon their own recent experience [9].

    To move from the survey of “sectors … with high sensitivity to power reliability” to an economy-wide number, the EPRI study used a variety of assumptions which give results ranging from $72 billion to $186 billion. The $120 billion figure was among the results produced in the study; the median result from five different approaches for extrapolating from the survey to economy-wide estimates was approximately $100 billion.

    The footnote [9] points to “Primen, The cost of power disturbances to industrial and digital economy companies, 2001” as the source of the estimates.

    There may be better ways to guestimate the cost of power supply disruptions than surveying “sectors … with high sensitivity to power reliability” and then scaling up. But at least in this case the number has a pedigree.

  2. Rich Sweeney said

    Thanks a lot Mike. I figured there was a source behind that number.

  3. […] Sweeney may be an Al Gore enthusiast, but he’s got some good questions about the gritty details of Gore’s “renewable in 10 years” […]

  4. Re: EIA lists total 2007 electricity sales at $343 billion.

    I don’t know whether you intend to suggest that the $343 billion is somehow related to what the real cost of disruptions could be, but I don’t think there is a simple relationship.

    The cost of a disruption to a consumer is the loss of consumer surplus (i.e., the loss of the value from consumption net of the electricity costs saved). Since the per unit consumer surplus is large compared to the sales price for many (inframarginal) uses of electricity, it is possible that the costs of disruptions would be many times the value of the associated foregone sales.

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