Thursday, March 12, 2009

Should we adopt solar energy before it is more efficient than fuel energy?

Renewable energy, and in particular solar energy, is not yet as efficient as the generation of energy from exhaustible sources, such as oil, gas and coal. Yet, because the latter will at some point be exhausted, a switch from the latter to the former will have to happen at some point. Some want to encourage this now, none the least because of the pollution aspect of exhaustible resources, and I have argued before that such encouragement should happen by taxing 'bad' energy instead of subsidizing 'good' energy.

Now imagine that switching is costly, but that switching brings us into a regime where the quality of life grows faster. Then one would not want to switch when the two energy sources are equally efficient, but rather earlier. The main reason is that one wants to exploit the additional growth effect. This is essentially the argument of Simone Valente in a recent paper, using an endogenous growth model.

Of course, this result hinges on the fact that renewable energy leads to stronger growth. As non-renewable energy sources become more scarce, their price increases. But this price is capped by the price of renewable energy. This means that once the price of energy does not increase anymore, or even declines as this renewable energy becomes more efficient, growth can rely more on energy again and not build down energy use due to its scarcity.


Diego said...

Great... If we want to take advantage of solar energy it have to be today, when it is at the same level of fuels, it wont have the same impact as today.

Great post..

Emmanuel said...

We should adopt solar energy before even before it is more efficient than fuel energy..first of all look at the gas crisis in Europe each winter..most people and buildings or atleast a lot of people do..and some countries I won't name use blackmail to get the gas prices's a situation pay me or your people will freeze to's equal like someone putting a gun but not to a single person but to an entire rewnable energy would protect a lot of people in a way that I hope no one would be able to do that or so I hope..and since there would be no fear or depleting or solar sources the energy prices would inevitebly go low..and the quality if life would go up...