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by: Alexander Bonelli

Example HADM 2230

Alexander Bonelli

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Financial Accounting Principles
MacAusland, M
Class Notes
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This 5 page Class Notes was uploaded by Alexander Bonelli on Wednesday August 17, 2016. The Class Notes belongs to HADM 2230 at Cornell University taught by MacAusland, M in Fall 2016. Since its upload, it has received 4 views.


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Date Created: 08/17/16
Alex Bonelli AEM 2500 10/18/15 A Renewable Energy Transition Many governments worldwide face the difficult challenge of meeting the demands of a growing population while enforcing better environmental standards to promote sustainability. The field of resource economics attempts to conceptualize this issue, stressing the need to include environmental effects in every day economic deliberation. Unfortunately, our modern economy is founded on cheap and plentiful fossil fuels that greatly pollute our Earth with limited if any financial repercussions. A solution proposed by many resource economists and governments alike, including the U.S., involves accelerating the transition to a renewable energy economy to promote ecological sanctity, advance national security, and avoid future economic losses due to compounding negative externalities and potential market collapse if fossil fuels are exhausted. Despite providing innumerable benefits, many barriers exist preventing a shift to a “green” economy before we reach a critical point of environmental decline. In order to meet growth in energy and resource demands sustainably, the U.S. government needs to augment investment into renewable energy sooner rather than later. The net benefits of renewable energy trump the uncertainty associated with changing a fossil fuel based economy that has laid the foundation for modern industrial progress. The environmental consequences of a capitalist economy cannot be ignored further, especially if CO2 levels and global mean temperature are expected to rise and severely alter ecosystems. The U.S. government under Obama’s administration has already taken a firm stance on reducing environmental impacts through such programs as the Clean Power Plan and EPA Energy Star initiatives. The environmental benefits of renewable energy, like greenhouse emissions and pollution, will only mend ecological conditions and establish a global environmental standard. These ecological externalities aren’t accounted for currently, but eventually will impose economic expenditures greater than the cost of current investment in renewables. Because demand for energy is astronomical and the social cost of fossil fuel emissions is not internalized, companies are incentivized to pursue operations with the lowest cost and greatest profit margins regardless of ecological side effects. By having a well-established infrastructure and large scale production, fossil fuel are economically more feasible than renewable energy. Yet unbeknown to many, by spending on research, development, and implementation of renewable energy, the government will not only save money in the future, but diversify its energy supply to support the economy while minimizing dependence on unstable foreign fuel. Though initial spending will have to be high to grow renewable infrastructure and meet high initial costs, it will create more jobs per dollar investment than fossil fuels and employ local workers. For example, solar energy is adding proportionally 10 times more jobs than the rest of the economy, and solar energy related jobs are predicted to rise by 24% from 2012 to 2022. Local generation of renewable energy also generates more tax revenue, for renewable power firms must pay state and local income and property taxes. Wind power in Iowa, which generated more than 20% of electricity in the state, provided more than 19.5 billion dollars in tax revenue in 2011. If all states made use of their renewable energy resources, then state tax revenue and employment would drastically increase, leading to national economic growth, a reduction in the national debt, and a waning reliance on energy from politically volatile nations. A diversified electric grid comprised of mostly renewable sources would also result in more stable electricity prices that are less susceptible to price changes triggered by political conflict or shortages. Current market dynamics impose artificial barriers that incentivize fossil fuel use at the expense of renewable energy production. Only government intervention can alter market conditions to negate environmental externalities before catastrophic levels of climate change impose great costs to all sectors of society. Many models project that it will take a collective investment of approximately 18 trillion dollars to develop an infrastructure and economies of scale for renewables to compete with mature fossil fuel technologies in the U.S. For renewables to achieve market dominance before temperatures rise by 2 degrees in 2035, they must achieve mass production to reduce costs and amplify in scale by at least 2025, which will require different government pricing strategies. Lowering renewable prices relative to that of fossil fuels will lead to higher production volumes and higher demand, yet developing too quickly may lead to shortages of skilled labors and supply bottlenecks. Unequal government taxes and subsidies heavily prioritize fossil fuels, for renewable energy only received 21% of total subsidy money from 1950 to 2010. Conventional power technologies also have lower tax burdens achieved through years of political lobbying. For example, fuel expenses can be deducted from taxable income, but renewables can’t benefit from this tax provision because they require high capital and transmission investment, yet low fuel operating costs compared to fossil fuels. Through write-offs and other incentives, the U.S. government artificially lowers the price of fossil fuels to satisfy energy demand, which diverts capital from more efficient activities like energy efficient investment or the growth in renewable energy. Hence, the U.S. government can modify its policies to incorporate long term sustainability in the energy market to avoid eventual collapse, especially since peak oil production has already been exceeded and most fossil fuel deposits are quickly diminishing. Our current economic framework fails to properly value the public benefits of renewables because of the free-rider problem, in which all benefit from positive externalities but not all are willing to pay for it. Consequently, research and development producing indirect socio-economic benefits with little effect on a company’s bottom line will be undervalued in our restricted energy market. If the government were to include external public costs of fossil fuels to reach a socially optimal resource allocation, then private research would favor renewable power because it would provide a competitive advantage and faster payback. Policy mechanisms are able to maximize public benefits and cultivate “green” markets, but to do so requires breaking down market and knowledge barriers that overlook accelerating future costs of fossil fuels. If renewables were given the same government financial compensation as fossil fuels, integrated renewable power would become less risky to invest in, causing costs to fall and market opportunities and profitability to soar. Only then would commercial and industrial consumers, which make up 2/3 of all buyers, buy green electricity. Renewable electricity production will finally separate emissions from economic growth, for electricity power generation produces the most emissions out of any economic sector at about 35%. When assuming a long term view of energy security and economic improvement, the paramount solution for the U.S. becomes incentivizing renewable energy. Renewables have the potential to continuously supply energy to drive our economy well into the future. However, a significant energy transition can only occur with muscular government policy that realizes the short window of opportunity we do have. Works Cited obama-announces-new-actions-bring-renewable-energy renewables/barriers-to-renewable-energy.html#.ViKnl36rTIU 430000-by-2020/subsidies-energy-us/ oil-subsidies-persist-even-liberals-love-them/ 6893464_1/courses/16312_2015FA/Clean%20energy%20%20Doubling%20down %20%20%20The%20Economist.pdf renewables/renewable-energy-electricity-standards-economic- benefits.html#.ViLOEX6rTIU growth-are-really-finally-separating/


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