Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
  • How do you encourage speedier adoption of your product or service?
  • How do you increase the value your product or service creates for your customers?
  • How do you extract more of the value created by your product or service for yourself?

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  • Ron Giuntini said More
    As always a good read.
    I have always... Thursday, 25 January 2018

A recent article in the WSJ, “Renewable Energy, Meet the New Nimbys” by Jeffrey Ball, highlighted one of the key threats to increasing the availability of clean energy supplies: At what point do priority national interests – producing nonpolluting domestic energy -- need to override local goals – protecting environmentally valuable places?

Even as Americans tell pollsters they are eager for alternatives to fossil fuel, some are fighting proposals for solar and wind projects and for the thousands of miles of transmission lines that would be needed to carry the cleaner energy to market. The protests echo grass-roots opposition that has blocked nuclear plants and energy-producing trash incinerators for decades.

The new backlash is fueled by worries that renewable-energy projects would occupy vast amounts of land to produce significant amounts of power. Either renewable projects would have to be centralized and sprawling, covering many square miles apiece, or they would need to be distributed in pieces across millions of rooftops and lawns.

Renewable-energy projects would reduce pollution and combat climate change. The trade-off is that many more people would have to see wind turbines, solar panels and other energy infrastructure near their homes in order to diminish the need for coal mines and other fossil-fuel facilities.

There are two major obstacles to the implementation of clean energy proposals:

  1. Many clean energy proposals fail to take into account all the costs associated with implementing the projects, and
  2. The costs associated with implementing clean energy projects tend to be concentrated or locally experienced, while the benefits tend to be diffuse or less locally experienced.

 

The Costs of Implementing Clean Energy Projects

There are several large disadvantage associated with the implementation of clean energy sources that are not usually considered by project advocates.

One of the primary downsides of most clean energy production, wind and solar power in particular, is that it requires a whole lot of space. Allocating the requisite space to the production of clean energy means that space cannot be allocated to other uses, such as preserving the habitats of indigenous flora and fauna.

Another big disadvantage to implementing new clean energy projects is that due to the space requirements, they tend to be situated in remote locations. This means that any infrastructure necessary to support and transmit the energy to end users, such as maintenance facilities, roads, and transmission lines, must be constructed. Often times, the costs and pollutant emissions associated with the construction and maintenance of clean energy infrastructure will be enough to offset any potential benefits.

A third big disadvantage to implementing clean energy projects is that they tend to be much less efficient at providing energy than fossil fuel generated energy, in terms of resource requirements. As mentioned above, clean energy tends to require a lot of space (and money) for all the infrastructure. In other words the energy produced per dollar of infrastructure or per acre of land for wind and solar energy tends to be much greater than that for fossil fuel generated power. Also, clean energy infrastructure tends to be located remotely, which means it must be transmitted a long distance across power lines. During this long distance transmission, much of the energy is dissipated, which means that only a fraction of the energy originally generated is actually available for use to the end user.

A last big disadvantage to implementing clean energy projects is that to the extent that they are located near end users, the bulk of their requisite infrastructure tends to mar surrounding views, which can severely decrease property values.

Any reasonable cost-benefit analysis of new clean energy projects should surely consider these costs.

 

Localized Costs vs. Diffuse Benefits

Oftentimes goals for achieving some threshold level of energy generation from renewable sources are established and/or discussed at relatively hig levels, such as at regional, state, or national levels. For example, Obama’s goal is to produce “fully one-quarter of U.S. electricity from renewable sources” by 2025. As another example, “In 2002, California established its Renewable Portfolio Standard Program, with the goal of increasing the percentage of renewable energy in the state's electricity mix to 20% by 2017.”

Furthermore, since pollution is mobile, one entity’s actions can cause air pollution to individuals in other regions. As an extreme example, researchers in California, Oregon, and Washington have detected air pollution from factories in China. In the same vein, when one entity acts to curtail pollution by switching over to the use of clean energy, the fact that he is now polluting less benefits the other individuals who were previously suffering from his emissions. In other words, individuals do not suffer all the negative effects associated with the pollution they cause, but they also do not capture all the benefits associated with the pollution they save.

At the same time, however, many of the costs associated with clean energy projects are felt locally. In particular, specific costs are borne by the people whose neighborhood is traversed by new transmission lines, or by the individuals whose views are impeded by windmills.

Due to the diffuse nature of the benefits associated with producing clean energy but the localized costs, there will always be pockets of people who strongly oppose new projects. If advocates of new clean energy projects can find a way to remediate some of the costs that are borne by select few individuals, they might be able to significantly reduce opposition to their projects. 

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