Energy Costs

The economy is in the process of contracting by 18%. One of the industries that supposedly will bring us out of this recession is the promotion of alternative energy through the use of a carbon tax or cap and trade legislation. The purpose of this legislation is to increase the cost of energy for consumers, in order to encourage alternative energy.

Will this work? To answer this question we must understand the true cost of alternative energy.

What would the cost of energy have to be for alternative fuels to be economically viable? Unfortunately, many people don't understand economics. For something to be viable, the front end cost of installation must be paid off in a reasonable time, and the cost of financing the project plus operating expenses and a reasonable profit must equal the amount consumers are willing to pay.

Some people are pushing wind power. Aside from the fact that we would have windmills from sea to shining sea even to make a dent in our electricity usage, the cost of energy would have to nearly triple for this technology to be economically sustainable without subsidies. Can our consumers handle energy costs three times higher than current rates?

Some people think solar power. The technology isn't close to being economically sustainable. Some suggest costs of energy would have to increase four to five fold. Can our consumers handle this price hike for energy?

Others suggest battery technology will be the future. The costs are just too great.

Energy is the glue that holds an economy together. The price of energy is figured in everything we buy. While only a small percentage of our income is spent directly on gasoline and electricity, every product we buy relies on energy. Some suggest a doubling in the price of energy reduces our purchasing power by 25%. 

If this is true, a doubling of energy costs without a corresponding increase in wages will create economic chaos that $140 oil did last year. Many people think the housing bubble was the sole cause of the economic crisis we are experiencing, but the pin that popped the bubble was the rapid rise in energy prices. 

Cap and trade legislation will lead to another rapid rise in energy prices which will only extend the depression we are witnessing today.