Is It True that Alternative Energy Is Too Expensive?

Washington’s Blog

Many people assume that alternative energy is simply too expensive, and not competitive with oil and other conventional means of energy.

While some alternative writers allege that the big oil companies have artificially increased alternative energy prices by buying up promising alternative energy technologies - for example supposedly helping to kill first-generation electric cars by buying up promising battery patents so they couldn't be used in electric models - we don't even need to go down that rabbit hole.

Specifically, a 2008 report for Congress by the Congressional Research Service entitled "Renewable Energy R&D Funding History: A Comparison with Funding for Nuclear Energy, Fossil Energy, and Energy Efficiency R&D" notes:

Over the 30-year period from the Department of Energy's inception at the beginning of fiscal Year (FY) 1978 through FY2007, federal spending for renewable energy R&D amounted to about 16% of the energy R&D total, compared with 15% for energy efficiency, 25% for fossil, and 41% for nuclear. For the 60-year period from 1948 through 2007, nearly 11% went to renewables, compared with 9% for efficiency, 25% for fossil, and 54% for nuclear.

In other words, renewable energy research and development received a small fraction of the R&D funding for nuclear and fossil fuels. This has skewed the market, making conventional energy sources cheaper and alternative sources more expensive.

In addition, when the externalities of environmental, military and terrorism costs are taken into account, conventional energy production is much more expensive than most people realize.

For example, as I wrote yesterday, the government has decided that deepwater oil drilling in the Gulf and other fragile and hard-to-drill regions - and securing oil in Iraq and other foreign regions - are in our national security and national energy policy interests (remember that Alan Greenspan, John McCain, George W. Bush, Sarah Palin, a high-level National Security Council officer and others all say that the Iraq war was really about oil).

Nobel prize winning economist Joseph Stiglitz says that the Iraq war alone will cost $3-5 trillion dollars.

And economist Anita Dancs writes:

Each year, our military devotes substantial resources to securing access to and safeguarding the transportation of oil and other energy sources. I estimate that we will pay $90 billion this year to secure oil. If spending on the Iraq War is included, the total rises to $166 billion.

In addition, experts say that the Iraq war has increased the threat of terrorism. See this, this, this, this, this, this and this.

The bottom line is that if alternative energy R&D was funded at the same level as conventional energy, and when the externalities of environmental, military and terrorism costs are taken into account, it is not clear that alternative energy is really substantially more expensive than conventional energy. At the very least, if the playing field were leveled, alternative energy could become cost competitive in the relatively near-term future.