Friday, September 25, 2009

Climate Change and Health Care: Free Lunches?

In the debate over health care reform, advocates of expanded government health insurance suggest we can pay for this by making Medicare and Medicaid more efficient.

In Paul Krugman's most recent column, he makes a similar claim about reducing greenhouse gas emissions:

The evidence suggests that we’re wasting a lot of energy right now. That is, we’re burning large amounts of coal, oil and gas in ways that don’t actually enhance our standard of living — a phenomenon known in the research literature as the “energy-efficiency gap.” The existence of this gap suggests that policies promoting energy conservation could, up to a point, actually make consumers richer.

Both claims of a "free lunch" are heroic, at best.

In the case of health insurance, Medicare and Medicaid are inefficient, but to make them more efficient we have to reduce government subsidy for health insurance, not expand it.

In the case of energy efficiency, more energy efficient practices exist (e.g., flourescent light bulbs), but they are expensive: if they actually made consumers richer, most would be using them already.

Now the fact that expanded government health insurance and increased energy efficiency would cost more, not less, does not prove they are bad ideas (that's a separate discussion). But it means society must evaluate a tradeoff, not just assert we can have something for nothing.

20 comments:

jimbino said...

No, fluorescent bulbs are NOT more efficient than incandescents. Somebody with no understanding of simple physics started this canard and it has been flying around ever since.

Fact: an incandescent bulb will heat a room as efficiently as any electric heater. In fact, here in Colorado I use an infrared spotlight for exactly that purpose. A regular incandescent lamp of the same wattage would provide exactly the same heat and dozens of folks could read by it!

Incandescents have other clear advantages over fluorescents: they are cheaper, they come 3-way, they can be dimmed, they can be used in very cold places, they contain no dangerous heavy metals, they have no warm-up delay and they do not dim as they age.

Of course, in some cases, a fluorescent can be a better choice, but it is more than foolish to claim that they are more efficient.

Anonymous said...

I just posted over a Mark Thoma's blog about this sounding like a free lunch. Does Krugman think consumers and companies are so ignorant that they refuse to do things more efficiently? Does he really believe that we need government to make us more efficient?

Sometimes I think Krugman makes outlandish statements just to see if anyone will believe it.

Anonymous said...

Krugman is too politically motivated to be trusted as a source of unbiased economic thought. I always take whatever he says with a grain of salt. What you say makes so much sense I can't understand how people could miss it!

Shakes The Clown said...

Krugman is too smart to believe his own bullshit.

I like the environment myself. I bought those long last bulbs and they burned out in months, not seven years. And you aren't supposed to just throw them away, because they are toxic. I threw them away anyway. Last time I buy a bad 5 dollar light bulb that was supposed to save me money.

It is all a pack of lies and I am tired.

I live in Ohio. I like to read up on Geo-Thermal. I think that has a higher place in our future than solar or wind. We don't have solar or wind capacity here, but I think Geo-Thermal is the way to go if you are going to go green. The subsidies don't go that way though. I wonder when we can start saying "Big Solar" or "Big Wind" when talking about these huge evil corporations.

Anonymous said...

the website: http://www.usdebtclock.org/
shows the 'derivatives' market at 645 trillion dollars.
What is the meaning of this amazing number ? It dwarfs everything else imaginable. About 50 times the GDP of the US.
Why is no one talking about this major 'elephant in the room'?

Bruce said...

It's true that there will be no free lunch, however I am very skeptical of some of the claimed costs. Polluting currently costs exactly $0, therefore there is no incentive to even grab the low-hanging fruit.

Frankly we have no idea how companies and individuals would innovate to reduce carbon if there was a price in place, and we have no idea what the eventual cost would be. For the acid rain trading market, the DoE estimated the cost of sulphur dioxide permits would be around $700/ton, but the current price is about $88/ton. This is the result of market-based innovation finding solutions that regulators never thought of.

uvdiv said...

Hello Dr. Miron, others.

I do not agree that CFLs are uncompetitive to consumers. In my calculation: typical CFLs retail in the region of $3 each (as can be readily checked). The increase in efficiency is about a factor of five: for example, a 20W CFL is equivalent, in brightness, to a 100W incadnescent. US electricity is in the range of 5c-20c/kWh (kilowatt*hour), depending on the state (an interesting policy issue in its own right) [EIA data]. So, ignoring discounting, a CFL will pay for itself in electricity savings in typically $3/($0.10/kWh * (100-20W)) = 400 hours continuous usage (200-800 hours, varying over electricity rates). Or in terms of lightbulb usage: at 30 minutes/day, 1-4 years real time; at 4 hours/day, 50-200 days. So, very easily. If the manufacturer reliability claims (order of 10^4 hours) are accurate, and a bulb is used for its full lifespan (many years), the lifetime savings is on the order of $40-$160 (minus discounting) - a full order of magnitude more than the bulb's cost.

EIA retail electricity prices

Specifications of a representative CFL bulb (not a commercial endorsement)

Consumers are noticing this, when they take a minute to run the numbers. I myself have three CFLs running right now.

jimbino - Your reasoning is right, however it only applies in a climate where heating are needed year-round. This isn't the case in most climates; during heating-degree-days, electric efficiency does matter, perhaps even disproportionately so (since increased waste heat means more work for A/Cs).

Regarding the Krugman column - what most irked me was the claim about Waxman-Markey costs. In one paragraph, he claims "deep cuts to greenhouse gases" would have negligible cost, and then cites Waxman-Markey cost estimates through 2020. But this conflation is false: he must know very well that Waxman-Markey has no "deep greenhouse gas cuts" before 2020, that the bill has almost no tangible effects until well after 2020 (long beyond the political horizon, naturally). I recall there is an EPA (?) study saying just this. There is practically no incentive to lower CO2 emissions, because emissions credits are free. So I think it is misleading to cite that cost estimate as an indication of the costs of "deep CO2 cuts".

(To the webmaster - there is something wrong with the blog comment system; the 'Google Account' login does not work.)

jimbino said...

Uvdiv,

Yes my reasoning is right for Crested Butte, Colorado at 9000 feet where nobody has A/C installed. Our winter temperatures fall to -40 deg, so we heat with firewood, lamps, baseboard heaters and gas.

I'm sure the same applies to much of the Mountain West and to New England as well.

So when Obama makes everyone buy fluorescents are we going to be the fools?

uvdiv said...

jimbino -

Nevertheless; if you were to install CFLs there, you would be saving electricity during the summer months, when you (presumably) do not use heaters and hence waste heat has no value. Granted, it's only a savings over a part of the year; but per my calculations above, this is still very large margin. (Try it out - use your own assumptions).

I don't advocate forced efficiency measures.

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