Like the current state of technology for electric car batteries, altruism can take us only so far in moving our economy to new forms of energy. Economic carrots and sticks have more control over our energy future than good intentions.
For instance, only a relatively small number of people will voluntarily pay a premium for innovations that provide more in personal satisfaction from helping the environment than they do economic sense. That number is further reduced by the fact that not everybody can afford to install solar panels on their roof.
Over the long run, energy-saving measures pay off. But for families living paycheck to paycheck, the short term is their economic horizon. They have only enough money to put food on the table, to pay the rent and to make monthly payments on that gas guzzler that’s now worth less than they owe. They will continue to make energy-inefficient, long-term decisions because that remains their most economically rational choice.
The rise in gasoline prices proves that market forces go a lot further than altruism in changing personal behavior. The punitive stick of $4 gasoline and rising natural gas prices make people think twice about hopping in the car just to get a quart of milk, or whether they should plan their trip to do all their shopping at once. The sharp stick of high prices gets people on the bus. It gets mom yelling at her teenager to cut short an indulgent shower. While that conversation is underway, dad’s turning down the thermostat and wondering about those flash hot water heaters that don’t waste energy by constantly keeping 50 gallons at 125 degrees Fahrenheit.
Government can facilitate good consumer decisions by clearing away muddled price signals and helping consumers clearly see the economic carrots and sticks from which to choose.
They will continue to make energy-inefficient, long-term decisions because that remains their most economically rational choice.
Take wind power. About 19,000 households in New Mexico have added wind-generated electricity to their energy consumption portfolio. PNM’s Sky Blue program allows a household to supply up to 90 percent of its electricity from wind generation. That decision is driven principally by altruism. Sky Blue subscribers contribute $1.69 extra per month for every block of 100 kilowatt hours of electricity. It’s more a charitable way of encouraging the spread of wind technology than it is a rational purchasing decision.
But there is a way for wind energy to make economic sense and promote the choice of wind power beyond its altruistic core of environmentalist fans.
Wind is not a commodity whose price is set by the Chicago Board of Trade. The price of wind isn’t influenced by the decline in the U.S. dollar or competition from China. Israel and Iran can rattle sabers all day long and it won’t affect the price of wind blowing over New Mexico’s mesas. The price of wind itself is always fixed at zero.
The costs of converting wind power to electricity, though, are not completely independent of other energy markets. The blades that turn in the sky must be forged in foundries that use electricity. Windmills must be delivered on trains and trucks burning diesel. But those costs are fixed once the wind farm is up and running. There is no reason for the daily costs of wind power to jump around like oil on the spot market.
Buying wind power can eventually make economic sense if its price is determined on its own merits. A consumer could rationally decide that it was worth paying an additional charge for wind power as insurance against spikes in electricity bills due to rising oil, gas and uranium prices. If, as expected, those costs continue to rise, the additional costs of buying wind power will turn out to be a smart economic investment.
But PNM makes wind customers pay the same fuel adjustment charge for rising coal, natural gas and nuclear costs that it charges all customers. On 600 kWh, that charge is $9.30 during summer months and $5.85 the rest of the year. That’s regardless of whether a consumer gets 90 percent of her electricity from wind farms or 100 percent from coal, gas and nuclear plants.
Public Regulation Commissioner Jason Marks has spurred an inquiry into whether requiring wind energy customers to pay the same fuel adjustment charges as all PNM customers is fair. Of course it isn’t fair. But more importantly, it doesn’t make economic sense. By freeing wind customers from the rising prices of fossil fuels, we can begin to make choosing this form of clean, renewable energy more than a moral virtue.