Jason Hickel Really Needs To Speak To An Economist

Or perhaps an accountant will do

We’ve this marvellous assertion that the real problem with climate change is that renewables are cheaper, yes, but fossil fuels are more profitable. Therefore etc etc.

It is clear to everyone that decarbonization is happening far too slowly. Even the best-performing high-income countries are not reducing their emissions fast enough to achieve the Paris Agreement objectives—not even close. And one big reason is that even though renewables are now routinely cheaper than fossil fuels, they are still not nearly as profitable. Returns on fossil fuel investments are around three times higher than returns on renewables, largely because fossil fuels are more conducive to monopoly power while the renewable sector is highly competitive.

This is - as we’d expect from Hickel - entirely bass backwards.

If the Brent Crude price is at $80 a barrel and BP thinks it can exercise its market power to sell Brent crude at $90 then BP will sell precisely no barrels of Brent crude. Same goes for Shell, Exxon and all the rest. Fossil fuel companies are price takers. If you are a price taker then you have no market power. They are, the two statements, price taker, no market power, the same statement only phrased in slightly different ways.

To take the example of offshore wind as a renewable. These firms do have market power. That’s why they’re able to demand, and get, strike prices higher than the market price for their output. Sure, they gain that market power because government is filled with idiots but they are gaining higher than market prices - they have market power.

That economic claim - but of course, this is Hickel here - is simply wrong. Fossil fuel companies do not have market power, offshore wind in the UK does.

Which then brings us to the accounting difficulty he’s got. Which is that renewables make less profit than fossil fuels because renewables are more expensive than fossil fuels. Well, they are at market prices at least.

This should be obvious to anyone at all who is not an anthropologist. Our entire climate change problem is that fossil fuels do not pay the costs of the externalities of their emissions. If renewables were cheaper than fossil even ignoring emissions costs then we’d not have a climate change problem in the first place. Who would be using the more expensive fossils in place of the cheaper renewables in that first place?

Now, it might be possible that renewables are cheaper than fossil plus a carbon tax. But then that’s why every sentient economist on the planet has been shrieking these past three decades that the first thing we do is have a carbon tax. Which would make that true and whole comparison - fossil plus emissions as to renewables - contain all the costs. As it happens some to many fossil uses are still cheaper, even on those grounds, than renewables.

But it’s this accounting problem which explains that second error. Renewables are not, in fact, cheaper than fossil. Which is why they are less profitable.

At which point all the rest of his blather about speshul interest rates and subsidised investment can be ignored. Because his opening analysis is not just wrong it’s 180 degrees different from reality. And, you know, top tip here, starting at odds with reality just ain’t a good way to be defining policy.