Economics for Environmentalists
By Arnold Kling
By the year 2020 solar electricity will be as cheap or cheaper than that produced by fossil fuels
I wish that environmentalists knew basic economics. In a free market, the price of electricity is the same regardless of which energy source is used to produce it. If electricity is selling for 2 cents a kilowatt, then the use of fossil fuels adjusts to where it costs 2 cents a kilowatt on the margin to produce energy using fossil fuels. The same thing happens with solar.
Freling believes that we will have to shift away from fossil fuels and toward solar power over the next twenty years. In textbook economic terms, he is saying that the cost curve for using fossil fuels will shift upward while the cost curve for using solar power will shift downward. If that happens, what we will observe is a change in the quantities used for the two sources of energy. But for market-competitive electricity, the marginal cost will be the same, regardless of energy source.
For Discussion. Assuming that Freling is correct about the future shift in cost curves, what energy policy, if any, is called for?