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Koch-Fueled Offshore Wind Study Still Doesn’t Fly

By Michael Conathan, CAP’s Director of Ocean Policy

The reaction from Americans for Prosperity to our piece pointing out fundamental flaws in a Koch-backed study bashing the nascent offshore wind industry in New Jersey was no less predictable than the findings of the report itself. After all, why should anyone expect this organization, which is fighting against every major clean energy and climate program in existence, be expected to do something other than tear down the offshore wind industry?

As usual, AFP simply reached into its handy kit bag of catch phrases to fill in the blanks in Tuesday’s mad-lib of a blog post about our analysis of flaws in the Beacon Hill Institute’s study. There’s nothing new about AFP tossing around buzzwords like “radical environmentalists,” “anti-capitalist,” and “job-killing” — the last of which they’ve used more than a dozen times in 6 months to describe anything that vaguely threatens the status quo.

Much the way conservatives seem to think anyone who disagrees with their ideas, up to and including President Obama, must not “love America,” AFP insists that those of us who endorse boosting our economy by developing technologies of the future rather than relying on industries of the past must be jamming our “radical, job-killing, anti-capitalist agenda down the throats of the American people.”

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This is precisely the kind of my-way-or-the-highway attitude that has led Washington to a perpetual stalemate in which nothing moves other than the continuous downward slump of our economic future.

Such automated jabs from AFP are not, in and of themselves, worthy of a response. However, Paul Bachman, BHI’s Director of Research, took the opportunity to lay out a thoughtful, if still misguided response to my arguments.

His post did not, in fact, invalidate my initial points. Nor does it address the fundamental economic issues at question — the inefficiencies associated with fossil resources due to dramatic and real economic costs from pollution, and the inhibition of an emerging advanced technology manufacturing industry in the United States. I understand Bachman’s response; I just don’t happen to agree with it and want to explain why.

To reiterate, my post enumerated three specific shortcomings in the BHI report: 1) The study underestimates economic savings of offshore wind power, 2) It inflates the costs of offshore wind, and 3) It is dismissive of the industry’s job creation potential.

First, the BHI study underestimates economic benefits of offshore wind by applying a high discount rate and assuming a low and stable price on carbon. Bachman helpfully notes that their 10 percent discount rate is nominal, while our suggested 3–5 percent rate is real. But to arrive at their nominal rate, they tack on 4.2 percent for inflation, a figure that simply doesn’t reflect recent trends.

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Only in the last four months has inflation crept over 3 percent, and according to the Bureau of Labor Statistics, it has only equaled or exceeded 4.2 percent for eleven of the past 151 months (dating back to 1999). Even if BHI had used the current 3.6 percent inflation rate, it would produce a real discount rate of 6.4 percent — still potentially more than twice what the discount rate should be, meaning BHI could indeed be underestimating the benefits by as much as fifty percent.

We also criticized the BHI study for assuming a carbon price that is much too low. Bachman’s response focused solely on the concept that a market for carbon has not emerged; but lack of a market does not mean carbon emissions come without societal cost. Our initial post didn’t clarify this distinction, so let’s do that now.

The National Academy of Sciences found that damages to society from carbon pollution — including impacts to human health, crop and timber yields, buildings, and recreation — cost an estimated $120 billion in 2005 alone. Just because these expenses aren’t reflected in the market price of carbon doesn’t mean they don’t exist. In fact, the cost of carbon pollution is a massive drag on the economy, as it means we have to pay more for everything from groceries to relief from increasingly extreme and frequent natural disasters.

Because these costs are borne by all of us, rather than those profiting from the fossil fuel economy, current energy policies subsidize and privilege the fossil fuel industry over other potential — and sustainable — energy sources. And these de facto subsidies distort markets in favor of the oil, coal, and gas producing industries.

Second, BHI overestimates the cost differential between offshore wind and fossil fuel generation. While Bachman made no real effort to counter our claim that, “experts believe coal prices will rise in the future,” it’s useful to think about why this is true. Three reasons coal will be significantly more expensive in the future, come from the report cited in our initial post:

  1. World proven reserves of coal (i.e. the reserves that are recoverable at current economic and operating conditions) are decreasing fast.
  2. The bulk of coal production and exports is getting concentrated within a few countries and market players, which creates the risk of market imperfections. And
  3. Coal production costs are steadily rising all over the world, due to the need to develop new fields, increasingly difficult geological conditions and additional infrastructure costs.

Third, the BHI report clearly underestimates the job creation potential of offshore wind. The 150 MW Ormonde Wind Farm off the coast of Great Britain provided about 800 job-years in just the direct installation phase. If New Jersey installs 1100 MW, as BHI projects, that could lead to slightly less than 6,000 job-years for installation alone. New Jersey will also benefit from manufacturing jobs, since manufacturers prefer to locate near installation sites due to the difficulties of transporting the large pieces of turbines. The Political Economy Research Institute at the University of Massachusetts found that each direct job in renewable energy leads to .4 “induced” jobs, equating to 2,400 more job-years for New Jersey. Against these facts, AFP’s total of 2400 jobs just doesn’t hold up.

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Ultimately, the United States must develop a diversified energy portfolio. But at a time when it appears obvious to the entire world that the global energy and innovation futures belong to renewables, BHI’s Koch-fueled study presents the public with only egregious misdirection from the economic costs wrought by clinging to 20th Century energy technology.

Leaving aside the major point that BHI treats the New Jersey project as a stand-alone case study rather than a first-in-class launch of a broader business model, all we need to do is look to the examples already being set in Europe and China to know that this industry is bigger than a single wind farm in New Jersey.

In fact, as our CAP colleague Melanie Hart reported today, China is making a renewed push into alternative energy technology, an industry it sees as a means of overtaking the U.S. in economic development. She cites Chinese Vice Premier Li Keqiang talking about his country’s decision to invest in the “green economy and low carbon technology”:

If we respond appropriately we can seize this opportunity, gain the upper hand, and push forward a new breakthrough in development. Otherwise, if we miss out on our opportunity, it will be harder to overtake [the developed countries], and we may lose the initiative and even fall behind.

In other words, the U.S. can be a leader in an emerging industry, or it can line up behind China and lose what has been our greatest advantage as we have built the world’s biggest economy: our innovative edge.

Gee, AFP, who’s killing jobs now?

By Michael Conathan, Center for American Progress Director of Ocean PolicyThe Center for American Progress’ Senior Policy Analyst Richard Caperton and Economist Adam Hersh contributed to this report.