Wednesday, September 1, 2010

The zero-sum fallacy in "green" technologies

Usually, the fallacy is invoked to support tax increases, in calculating the amount of income we can redistribute from rich to poor.  The fallacy is that this kind of analysis ignores incentives.  If you tax income you get less of it.

Recently, a version of the fallacy is invoked by the environmental movement, in calculating how much pollution we can avoid if we would adopt green technologies, like solid-state lighting.  Although it does use less electricity, it also increases demand for electricity by reducing the "price" of lighting.  On net, you could end up with more pollution following a change from incandescent bulbs to solid state lighting.
To work out what solid-state lighting would do to the use of light by 2030, Dr Tsao and his colleagues made some assumptions about global economic output, the price of energy, the efficiency of the new technology and its cost. Assuming that, by 2030, solid-state lights will be about three times more efficient than fluorescent ones and that the price of electricity stays the same in real terms, the number of megalumen-hours consumed by the average person will, according to their model, rise tenfold, from 20 to 202. The amount of electricity needed to generate that light would more than double. Only if the price of electricity were to triple would the amount of electricity used to generate light start to fall by 2030.


  1. If the goal is to avoid or minimize pollution, and if reducing prices increases demand, then one solution is to raise the price of energy in a way that affects energy producers equally. Current debate about a "carbon tax" is an example. A carbon tax would increase the cost of fossil fuels, raising the price of electricity. Consumers will use less electricity, which means less pollution . . . it also means fewer jobs in energy-intensive industries, which will force the migration of resources to other industries or countries with lax regulation.

    So, could environmentalists use taxes to avoid the zero-sum fallacy?

  2. Maybe taxes (like cap and trade) would work but business does have a pretty good track record of avoiding expensive migration of resources is a high probability. The goal of reducing pollution is tied to adoption of "cleaner" alternative methods of producing energy which is not a quick fix but a worthy longer-term goal.

    As far as the higher demand reaction to lower prices - maybe this is true in the short run but I question the model there are more moving parts than Dr. Tsao can account for which is not such much a criticism as recurring theme...