Opportunity Cost Of Green Growth

Last week Pure Advantage released a Very Important And Expensive 300 page report written by a UK economics consultancy that seems to specialise in siphoning off money from environmentally aware but economically ignorant people.

There were lots of suggestions and commentary on the opportunities for New Zealand’s government and private sector to take advantage of when it comes to “low carbon power” and “energy efficiency”.

But there is nothing inside that an undergraduate couldn’t put together with a few weeks and a lot of Google searching for buzzwords. I hope the trustees of Pure Advantage feel they got value for money from their consultants.

Whenever the government spends $1 billion dollars, there is an opportunity cost. Whenever the private sector spends $1 billion dollars, there is also an opportunity cost.

If $1 billion goes towards picking winners in green technology, that’s $1 billion that can’t go towards reinforcing already successful research being done by Crown Research Institutes.

Because the New Zealand government currently has to borrow to pay its bills, there’s also a $40 million dollar per year interest expense attached to $1 billion dollars of green growth “investment”.

A lot of the ideas in the green growth report are already being done in the private sector. But most of them fail because they are rubbish ideas. Not because there’s a lack of a market for them – but because they are rubbish ideas all round.

So what happens in the private sector is an investment of $1 billion will only be undertaken if it’s pretty damn likely to pay out more than $1 billion in profits. That’s the litmus test a.k.a how the real world works.

Governments have a terrible track record of picking winners, but the private sector isn’t much better. But private firms will invest aggressively in “green technology” when the numbers stack up.

They currently don’t to the extent some people feel they should. I put emphasis on the word feel because this stuff isn’t grounded in data or empirical reality. It’s one step removed from some of the inane arguments people make for subsidising the arts.

Prodding, pushing, subsidising or showering government largesse onto green growth stuff won’t change the economic reality that a lot of green technology proposals are as realistic as a home-grown space shuttle program based at Ohakea.

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