Econ Essay Research Paper When Virtue Pays

Econ Essay, Research Paper

-When Virtue Pays a Premium Through the help of government deregulation, increase in technology, and increased awareness of global environmental issues, a transition from fossil fuels to renewable resources is imminent. The cost of renewable resources are on the decline and they are starting to become a real threat to compete with fossil fuels. Renewable resources consist of hydropower, biomass, tidal, geothermal, waste-to-energy, solar, and wind to create electricity. The spread of global greenery has made many large energy firms reevaluate the way they create energy. Companies such as Shell, Enron, and BP are working diligently to acquire a renewable resource branch in their energy companies. Shell vows to be 50-50 fossil fuels and renewable resources within 50 years. BP is developing a solar division, and Enron has just acquired two wind turbine manufactures and one of the largest solar companies in America. At the moment renewables make up only a small share of world energy, but due to increased political support they have the potential to threaten the current energy market. The increase in technology is making the renewable resource industry a potential threat to the fossil fuel industry. Currently, the cost of photovoltaics (PV), which convert sunlight into electricity, have been reduced to half of what they were a few years ago. In countries such as Kenya, Mexico, and South Africa, where they are not connected to the electricity grid, solar energy is the cheapest viable source for energy due to the increase in technology. Not only have key components reduced the cost of renewable resources, but the cost of capital and the maintenance cost required to maintain renewable resource equipment has declined as well. All of these decreases in cost are a direct result of an increase in technology. As learned in economics 300, an increase in technology results in a decrease in price, an increase in supply, and an increase in quantity demanded. As the input prices of photovoltaics (PVs) decreases, the supply of solar energy increases, the price decreases, and the quantity demanded by countries such as Kenya, Mexico, and South Africa increases everything ceteris paribus. These economic forces make for a competitive environment throughout the energy industry.(See exhibit 1)

An example of how renewable resources are being supported by governments is demonstrated in the case of the carbon tax in Sweden. Obviously, the carbon tax was imposed to decrease external pollution throughout the country. With the information that I had in the article, I can only assume that the Sweden government imposed an effluent fee. This is a fee that a polluter must pay to the government for discharging waste. However, their is a dilemma that companies face by finding the optimal amount of pollution that should be discharged. Companies should reduce their discharge of waste to the point where the cost of reducing waste discharges by 1 unit equals the effluent fee. To find the equilibrium of the effluent fee, we must find where the marginal cost of reducing discharge of waste by 1 unit equals where marginal cost of 1 extra unit of waste discharge.(See exhibit 2) Due to the effluent tax, many energy companies began seeking ways to skirt the tax. The obvious substitute was to increase their stock in renewable resources. Now energy converted from renewable resources throughout Sweden is on the rise due to the effluent tax on fossil fuel energy creating a competitive environment.I feel that the author did a fairly descent job of describing how technology has affected the competitive nature of the energy industry. However, I feel that the author could have done a better job explaining what kind of taxes were implemented in Sweden and their effects on the market. The author vaguely touched on deregulation which left the reader a little puzzled by what exactly he had in mind. Overall, the article seemed to be a little vague when it came down to describing economic factors and how they would affect the competitive environment of the energy industry.


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