The National Renewable Energy Laboratory (NREL) has published a slide presentation called "How to Estimate Economic Impacts From Renewable Energy." As one reads through the presentation, it becomes quite clear that what NREL refers to as "economic impacts" has nothing to do with economic growth and in fact turns real economic analysis on its head. In making their presentation, they point to proprietary economic impact models that they typically use with acronym names like IMPLAN, REMI, and JEDI, among others.
Imagine two projects whose initial investments would be the same. In the first, the government gives $1 million of taxpayer money to a group of farmers to hire people to till some additional plots of land with picks and shovels rather than modern farm equipment. The second would involve a $1 million investment by a private entrepreneur in a new computer technology that would save other businesses and consumers millions of dollars a year in reduced labor and other resource costs. Clearly the economic activity that would be generated by the government grant would be wasteful while the economic activity generated by the investment in the new computer technology would enhance efficiency and be socially beneficial.
But if one were to estimate the so called economic impact of these two projects using the models typically invoked by the renewable energy industry, there is no reason to believe that the second example would come out looking any better for the economy than the first. The reason for this is that these models actually define "output" in terms of the amount of resources that are consumed in the production process, i.e. the economic costs of production, rather than the value of the products that the consumption of those resources generates.
This is something that is acknowledged explicitly by NREL in their presentation. Here is how they define the term "output:"
Output is the sum value of all goods and services provided at each layer of the supply chain
- Example: For a wind turbine it is the cost of the iron ore, plus the cost of the rolled steel, plus the cost of the assembly, plus the cost of the final project
There are two things that should be noted. The first is that "output" is defined completely in terms of the costs of production — the cost of iron, the cost of rolled steel, etc. The second is that what economists would actually consider to be the output of this wind turbine, electricity, is left out of the equation. In fact, according to these models, the economic contribution of this hypothetical wind turbine actually has nothing to do with whether or not it produces any electricity at all. They get away with redefining costs as benefits. The greater the cost of any project, when run through these models, the better it’s going to look in terms of the amount of "output" that is generated. Whether or not the wind turbine ultimately produces any electricity at all is irrelevant. In the bizarro world of IMPLAN, REMI, JEDI, and the rest, inputs are outputs, costs are benefits, and inefficiency is good for the economy.
The very next bullet point on the same slide acknowledges the truth about what is actually being reported in any economic impact study of renewable energy that might be released by the solar or wind industry. It has nothing to do with economic growth or expansion of real economic output. It sates that:
- This [what is described under the bullet point above] is in contrast to metrics like GDP [Gross Domestic Product] or GSP [Gross State Product] which reflect only the sum of the value added (i.e. sale price less material input prices) or the market value of final goods and services
Ultimately what they are pointing out is that in order to get a measure of what actual economists would call output, or added value to the economy, by the hypothetical wind turbine, they would have to add in the value of the electricity that is generated and then subtract out everything that their phony output measure focuses on. In other words, most of what they are measuring as added output would, given the actual economic definition of the term, be considered a drag on the economy.
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