When the Wind Don't Blow and the Sun Don't Shine

“The Economist’s” Buttonwood invented a new term called the DOG (Discount for Obnoxious Government) Factor and referred to Vladimir Putin’s capricious trampling of property rights and the rule of law as costing Russia approximately One Trillion Dollars in market value and creating a huge drag on its economy.  Noxious decisions are a drag on all economies and not just for Iran or Argentina mentioned as well in the editorial article. To stay away from partisan politics here in the U.S. by using our insane corporate tax policy that incentivises our companies to place capital abroad as an example of a noxious drag on our economy, let us instead examine Germany’s energy policy as an example.  That Germany counters its lower carbon emissions policy as well as devalues the country’s stock makes the decision doubly incomprehensible.

The monkey wrench to the system is Chancellor Angela Merkel’s emotional decision to shut down Germany’s nuclear power plants by 2020.  A decision that belies the country’s reputation for excellent engineering logic and execution.  That a government with such a talented population could come to such a hasty decision is difficult to comprehend inspite of the Fukushima nuclear disaster and Japan’s equally large engineering  talent. The breakdown in logic is that shutting down nuclear energy increases Germany’s carbon emissions and makes the country more beholden to carbon rich despots such as Russia’s Vladimir Putin.

Sun and Wind can not provide Germany’s energy needs.  Paul Joskow of MIT pointed out the costs of intermittency, the cost of on and off production when the wind don’t blow and the sun don’t shine. These costs are huge, currently not calculated and require even more investment in gathering and storing such energy. Ultimately though, the biggest problem with sun and wind energy is that it is too dispersed.  For a world that wants to preserve its habitat with great swathes of natural parkland and concentrate populations in city islands, you need concentrated energy, nuclear being the best example.  Concentrated so that forests are not mowed down to grow ethanol for automobile fuel or migratory birds chopped to smithereens by wind farms. Sun and Wind are high acreage to energy production systems which are most susceptible to NIMBA (not in my backyard) syndrome which is certain as more wind and sun energy production is put in place. Merkel’s thought that these sources can provide Germany with a majority of its energy needs is a pipe dream.

Germany has sponsored much solar energy development with rich subsidies despite not having a sun drenched climate.  It was a minor acknowledgement at not an unbearable cost to their green movement and the goal of reducing carbon emissions.  But combining carbon emissions reduction with the elimination of nuclear energy production is impossible, if you understand the numbers.  The end result is a huge devaluation of an investment stock while throwing out the original goal of reducing carbon emissions which Germany is currently not doing by using coal to cover those intermittency gremlins of Dr. Joskow.  And those gremlins keep on pawing away at the need for natural gas to keep coming from Russia and a diminution of any geo-political decision making such as supporting Ukrainian sovereignty.  France on the other hand has energy independence, meets low carbon emissions goals and protects its natural beauty because it embraces nuclear energy. It has plenty of obnoxious policies holding its economy back, but its nuclear bet is not one of them.

Many Germans would argue that it is a matter of time before France suffers a catastrophe similar to that of Japan’s Fukushima disaster, but much has been learned so that it will be less likely. Inspite of Fukushima, Chernobyl and Three Mile Island the record for nuclear energy is very good, similar to airline versus automobile travel when comparing direct deaths from atomic exposure to coal miner deaths.  Deaths from breathing impure air are difficult to calculate but make the case for carbon much worse. There are many years left before the 2020 limit that Germany has set for it’s nuclear energy plants and it would be logical for them to educate their innumerate “green” voters of the folly of this course taken by Merkel in the heat of Japan’s disaster.