Low Interest Rates May Have Favored Investment in Solar Energy

(p. A17) For the three years straddling the 2015 Paris conference, carbon-dioxide emissions were more or less flat. Then they resumed their upward trend–up 1.6% in 2017 and a projected 2.7% this year.
. . .
Explaining why the efforts thus far hadn’t bent the curve of rising emissions, the Potsdam Institute’s chief economist, Ottmar Edenhofer, said the fundamental reality was an oversupply of fossil fuels, making it harder for renewables to be cost-competitive with coal. An underappreciated factor, he suggested, is monetary policy. Zero interest rates act as an artificial stimulus to renewable energy, which is much more capital-intensive than gas and coal. To students of Austrian economics, it’s a classic malinvestment: When interest rates are suppressed below the natural rate, too much of the wrong sort of investment leads to a boom, then a bust.
As interest rates rise, renewable energy can’t compete without carbon pricing–economists’ magic bullet to solve global warming. Therein lies the biggest cause of despair at Katowice. Thanks to French President Emmanuel Macron’s carbon-tax folly, politicians of all stripes are likely to treat carbon pricing like the plague.

For the full commentary, see:
Rupert Darwall. “Defeat in the Air at the Climate Conference. Reality has a way of fighting back. Ask Emmanuel Macron..” The Wall Street Journal (Wednesday, Dec. 19, 2018): A17.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Dec. 18, 2018.)

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