“Sustainability” is a popular buzzword in the public discussion of energy and environment policies generally and in the defense of subsidies for “renewable” energy in particular. But the definition of that term is highly elusive, as illustrated by the Environmental Protection Agency’s discussion:

Sustainability is based on a simple principle: Everything that we need for our survival and well-being depends, either directly or indirectly, on our natural environment. To pursue sustainability is to create and maintain the conditions under which humans and nature can exist in productive harmony to support present and future generations.

Human ingenuity is the “ultimate resource.” Credit: Twenty20

Apart from being incorrect substantively – it is human ingenuity that is the “ultimate resource” – this obviously is infantile blather, convincing proof that the EPA has no idea what “sustainability” means as an analytic concept. (Precisely what is “productive harmony?”) We have also an international definition from the United Nations, often cited in the literature:

Humanity has the ability to make development sustainable to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs.

This definition also is useless, as “needs,” whether present or future, are undefined. The evaluation of the unavoidable trade-offs among such needs – should we have more food or better water quality? – is ignored, again whether in the present or future or across time periods and generations.

But such incoherence has not impeded the drive to subsidize such “renewable” energy forms as wind and solar power. “Renewability” has no uniform definition, but the (assumed) finite physical quantity of such conventional energy sources as petroleum is the essential characteristic differentiating the two in most discussions. In a word, conventional energy sources physically are depletable; in contrast, each sunrise and each geographic temperature differential yields new supplies of sunlight and wind flows.

Sadly, the energy content of sunlight and wind is limited, regardless of whether new supplies emerge continually. They contain only so much convertible energy, which is not always available in any event. Moreover, the other resources upon which the conversion of such renewable energy into electricity depends – materials, land, etc. – are finite.

More fundamentally, the basic “sustainability” concept seems to be that without government action, market forces will use up or exhaust a finite resource. Accordingly, subsidies and other support for renewable power generation are justified as tools with which to slow such depletion and to hasten the development of technologies that would provide alternatives for future generations.

That argument is simply wrong: The profit motive provides incentives for the market to consider the long-run effects of current decisions. Specifically, the market rate of interest is a price that links the interests of generations present and future. If a resource is being depleted, then its expected future price will rise. If that rate of price increase (say, 8 percent) is greater than the market interest rate (say, 5 percent), then owners of the resource have incentives to reduce production today; by doing so they can sell the resource in the future and in effect earn a rate of return higher than the market rate of interest.

That shift of production from the present into the future would raise prices today and reduce prices in the future. (The same analysis holds if, say, massive new discoveries yield a reduction in the prices expected in the future; there would result an incentive to produce more today.) The “equilibrium” expected price path is an increase at the market rate of interest. In reality the prices of most exhaustible natural resources have declined over the long term (after adjusting for inflation), in large part because of technological advances – there’s that ultimate resource again – in discovery, production and use. Because of the market rate of interest, market forces will never allow the depletion of a given resource.

Accordingly, the market has powerful incentives to “conserve,” that is, to shift the consumption of large volumes of depletable resources into future periods. That is why, for example, not all crude oil was used up decades ago even though the market price of crude oil always was greater than zero, which is to say that using it would have yielded value. In short, the “sustainability” argument assumes that the market conserves too little and that government has incentives to improve the allocation of exhaustible resources over time. That is a dual premise for which the underlying rationale is weak and little persuasive evidence has been presented.

So what can we say about the interests of future generations? Are they interested in receiving a bequest of a maximum resource base and the purest possible environmental quality? Nope. Future generations want to inherit the most valuable possible capital stock in all of its myriad dimensions, among which resources and environmental quality are two important components and among all of which there are tradeoffs that cannot be avoided.

Consider a homo sapiens baby born in a cave some tens of thousands of years ago, in a world with a resource base virtually undiminished and environmental quality effectively untouched by mankind. That child at birth would have had a life expectancy on the order of 20 years; had it been able to choose, it is obvious that it willingly would have given up some resources and some environmental quality in exchange for better housing, food, water, medical care, safety, ad infinitum. That is, it is obvious that people willingly choose to give up some resource availability and environmental quality in exchange for a life both longer and wealthier.

In order for future generations to receive the biggest possible capital stock, the current generation must consume and invest resources efficiently – that is, most productively. If regulatory and other policies implemented by the current generation yield less wealth now and a smaller total capital stock for future generations, then, perhaps counterintuitively, more resource consumption and more emissions of effluents currently would be preferred from the viewpoint of those future generations.

Making ourselves poorer is in no one’s interest now or later. Subsidies for uncompetitive energy do exactly that, the central reality to bear in mind when confronted with assertions that less is more and that government knows best.