Friday, April 21, 2017

Data used to promote "sustainable" mutual fund shows a big economic problem

The promotional piece for a mutual fund based on “sustainability” shows the graphic in Figure 1 below. I thought it would be interesting to parse this claim a bit to see what I could learn.


Figure 1


I note that this figure makes a claim about the number of jobs and not about economic reasoning or “sustainability”, whatever that actually means.  Since the subject of the day is investment, clearly economic reasoning should play the crucial role in assessing the merits of any claims made about the mutual fund’s mandate.


What might an analysis of the data for jobs and energy use tell us about the productivity of investments made in solar and wind energy projects when compared to fossil fuel energy production? How would workers in the wind and solar sector compare to the output of people working in coal, oil and gas energy production?  Given that wind and solar are intermittent, dilute and non-portable energy sources that have not been adopted by producers and consumers until recent huge taxpayer subsidies, one would suspect the traditional energy worker to be more productive than the newer ones in wind and solar, but by how much?  Would there be a small gap in favour of fossil fuel energy workers? Would the wind and solar workers be able to take advantage of the “sustainability” and “renewability” of wind and solar to leverage these innovation in energy production and perhaps be even more productive than the old-fashioned workers toiling in “dirty” oil, gas and coal companies?  


To determine this, we need to know what percentage of energy is produced by these different sources, then combine this with the number of workers in each energy sector. Every year a report titled “BP Statistical Review of World Energy” is published and provides great depth of information on trends in energy consumption by geographical distribution and by energy type. The report lumps wind and solar together with other alternative energies under the category of “Renewables” energy, so the data will somewhat overstate the true amount of wind and solar energy, but since other renewables such as biofuels are much smaller, this is not very important for our discussion.  Figure 2 shows the world consumption of energy. I note that the thin but growing upper orange slice is the renewable energy category and that it only represents 2.8% of global energy production.


Figure 2. World energy consumption in 2015, BP Statistical Review of World Energy 2016, p.42


However, the United States is far more advanced technologically than most countries, and one would expect that after a few decades of massive taxpayer subsidization of wind and solar that it would be a larger percentage of energy than for the world, and so it is. In fact, in the United States renewables account for 3.1% of total energy consumption, about one tenth more than for the world average. Not too impressive an accomplishment, as measured by promoters of renewable energy, is it?


Now to the heart of the matter - the integration of jobs data (which I will refer to as workers instead of jobs because I find it to be a more human term and it focuses our attention on the essential characteristic of work done instead of position held) with energy production data (which must be equal to energy consumption as shown in the research source). So, which of the following are you betting on?
  1. Fossil fuel workers are somewhat more productive than wind and solar workers.
  2. Workers in both categories are about equally productive.
  3. Wind and solar workers are somewhat more productive than fossil fuel workers.
  4. None of the above


Figure 3 combines the energy data from the 2016 edition of the BP statistical review of world energy with jobs data from the U.S. Energy and employment report of January 2017.  It turns out that in 2016 fully 86.0% of all U.S. energy came from fossil fuel sources, while as previously stated only 3.1% came from all renewables, including wind and solar. Given the number of workers in each sector, it takes 95.4 fossil fuel energy workers per million tonnes of oil equivalent energy whereas it takes 6,632.4 workers in renewables to produce the same amount of energy.


Figure 3. Energy production per worker in the United States in 2016


In other words, the average fossil fuel worker produces 69.5 times more energy than one in the renewable energy sector and the multiple choice answer is d) None of the above.  When advocates for renewable energy are promoting investment because it creates jobs, they really, really mean it.  A company that produces renewable energy needs to hire about seventy workers for every one worker needed by a fossil fuel company, but is this a virtue?  Does this mean the renewable company is more deserving of receiving an investment?


If the key criterion for making an investment is the number of jobs created then the motivation is to make the worker as unproductive, as inefficient, as regressive as possible.  In the fossil fuel business this would mean giving up trucks in favour of wheelbarrows, sacrificing excavating machines in favour of pick-axes, eliminating tanker ships in favour of wooden barrels. Sure, many more jobs would be created, but the cost of energy would skyrocket back to the level it was before industrialization and the entire world, not just the non-industrialized countries, would be back in an era of energy poverty. In fact the world would be in total poverty since it is energy that enables production of all other good than support our civilization.


The problem is that advocates of renewable energy use the wrong standard of value. They use standards like “nature as untouched by man” or “climate stability” or “bio-diversity.” By their standards, value is detached from human lives and thus actually loses all meaning, since without humans to value it there is, by definition, no reasoning being to assign value by choosing from the alternatives.

When human flourishing is the standard of value then decisions are focused on what promotes human well-being, human life and human happiness. By adopting a standard of value that is in keeping with the ideas of the best enlightenment thinkers, and more recently as elaborated by philosopher Alex Epstein, author of “The Moral Case For Fossil Fuels,” humanity can accelerate the pace of progress and continue to make our environment safer, cleaner and more enjoyable for future generations.