Monday, August 23, 2010

Too Many Wind Turbines?

One of the blessings of the free market is that market prices provide economic decision makers a way to calculate profit and loss. This economic calculation guides them in using scarce factors of production to make those goods most highly valued by members of society. The beauty is that the same prices that allow entrepreneurs to establish which investments are profitable and which are losers also provide an incentive to act on that guidance. In a free market an entrepreneur who satisfies customers better than anyone else reaps large profits. Those who waste resources making things customers do not want reap losses. The market price system, in other words, serves as a benevolent constraining influence on the entire structure of production, providing social order instead of chaos.

When the state intervenes in the economy, however, this necessarily hampers the market and distorts the price structure, providing false signals while muddying the economic calculatory water. A good case in point is the desire of governments to promote cleaner alternative energy sources. A news story from the British paper, The Guardian, reports that over half of Great Britain's wind farms have been erected where there is not enough wind.

The culprit, the story says, is government subsidies for businesses to build wind farms. The subsidies "designed to help Britain meet green energy targets are encouraging firms to site their developments badly." The average wind turbine in the U.K. operates at a measly 21% efficiency level, while some are as bad as 4.9% efficient.
Britain already has 264 wind farms with a total of 2,906 turbines. 7,000 more turbines are planned to be built over the next 12 years to meet European emission targets. Instead of helping the environment, however, the state is encouraging businesses to clutter the U.K. with too many wind farms in areas that are utterly unproductive.

This is the sort of thing that would not perpetuated in a free society. Entrepreneurs guided by profit and loss calculation would build wind farms where and to what extent they were profitable. If they did not reap a profit, they would not be built and scarce resources that would be wasted building the wind farms would be available for more highly valued uses.

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