Thread by @binarybits

There's an under-appreciated interaction between macroeconomics and manufacturing economics when it comes to renewable energy policy.

A basic factor driving progress in renewable energy is the learning rate: the more of something (batteries, solar panels, windmills) you make, the cheaper it gets.

In the early years, this was the policy rationale for heavily subsidizing green energy technology heavily even though it didn't otherwise pass a basic cost/benefit calculation.

The cost of a kWh of solar power in 2010 was way higher than conventional sources. Subsidies encouraged people to buy them anyway, which didn't directly do much for global warming but helped scale up panel manufacturing and bring down future panel prices.

A key point is that falling costs are mostly a function of volume not time. When forecasters say EVs will reach price parity with conventional vehicles in 2024, that's because they think it will take that long to reach the necessary scale, not because it inherently takes 4 years.

If we subsidize these technologies more, they'll scale up faster and prices will fal faster. Normal considerations of frugality apply with less force here because spending now lowers costs in the future.

Here's where macroeconomics comes in: interest rates on government debt are insanely, ridiculous low right now. The federal government can lend money for 30 years at a 1.7 percent interest rate. Assuming 2 percent inflation, people are paying the government to take their money.

In a "normal" macroeconomic environment you could say that heavily subsidizing renewable energy is a nice idea in theory but not practical given limited resources. But today the government has access to basically unlimited cash at a real interest rate of less than nothing.

In fact, with unemployment high, deficit-financed renewable energy subsidies are likely to boost overall economic output. Some of that higher output will be re-captured in the form of tax revenue that could be used to retire the debt later.

So renewable energy subsidies have three different types of positive externalities:

(1) Directly reduce emissions (obviously)
(2) Reduce the cost of future renewable energy
(3) Boost future employment and tax revenue

One final point: the "lower future costs" externality applies globally. If our subsidies lower solar panel or battery or windmill costs, they do so in China and India and Nigeria as well as in the US.

Renewable energy subsidies here provide a de facto subsidy for clean energy in the Global South in a way that's much simpler and more politically salable than sending them money directly. And of course climate change is a global problem so this ultimately helps the US.