Economics of Renewable Energy

Daniel Gross presents a thoughtful piece on alternative energy in yesterday's New York Times. The article explores the economics and complex relationship between (sometimes subsidized) renewable energy projects versus traditional energy production. Bush has called for the nation to replace 20% of gasoline with ethanol in 10 years.

The government talk is being backed by action and policy. The federal government offers a 51-cent-a-gallon tax credit to ethanol producers and maintains a 54-cent-a-gallon tariff on ethanol imported from Brazil. More than 20 states have so-called renewable portfolio standards, which mandate that utilities derive a fixed percentage of their power from renewable sources.

The Renewable Fuels Association says that the 85 ethanol projects now under construction would more than double the existing capacity of six billion gallons a year by the end of 2008.

The American Petroleum Institute feels it would be preferable to leave it all to market forces. Gross detail how government investment in new technologies has worked in the past, and can in the future.