Let it be noted that the following bet has been placed, for a value of 500 Canadian dollars, at their present value:
I say that in August of 2036, the per-watt price of electricity consumed by the average Canadian consumer will be lower in real terms (accounting for inflation) than it is today. My friend Tristan Laing thinks the cost will be the same or higher. The price in question will be that quoted on the average Canadian’s electricity bill.
He has posted the same declaration on his blog.
[Update: 12 August 2006] I agree with a commenter that the cost per kilowatt-hour will be the easiest metric according to which this wager can be settled. To give a very approximate contemporary value, the cost to consumers for each kilowatt-hour of electricity used in Ontario today is about 5.8 cents. I will come up with a Canadian average soon.
I will be 52. There will have been at least 3 new American presidents, and no more than 7 (barring deaths, impeachments, and resignations). Quite a long time scale.
I should also confess to having prior knowledge of a similar bet between Julian Simon and Paul Ehrlich in 1980. Simon was basically on my side, arguing that prices would fall over time. In their case, the bet was over copper, chrome, nickel, tin and tungsten and the period was ten years. By 1990, all five metal were below their inflation-adjusted price level in 1980. Ehrlich lost the bet and sent Simon a check for $576.07. Prices of the metals chosen by Ehrlich fell so much that Simon would have won the bet even if the prices hadn’t been adjusted for inflation.
I would bet that Milan will win this bet. Of course, he is likely to be so stupidly rich by 2036 that it won’t matter at all.
The bet is really something of a bagatelle. The result is far more important to both Tristan and I than $500.
How old will you be when this bet matures?
Ah, yes. That famous wager is here described.
i dunno. i think i’m on tristan’s side for this one…but only marginally.
that being said, i hope that you’re right, you crazy kid.
m.
The unit should really be watt-hours or kilowatt-hours, since that is how electricity is billed.
According to StatsCan, electricity prices climbed 6.2% between June 2005 and June 2006. Starting from an unusual high point (because of Iraq, Lebanon, etc) will probably work to your advantage.
Based on 2.5% mean inflation and 3% mean real economic growth, the following should be true:
$500 in 2006 dollars will be $1048 in 2036 dollars
The Canadian economy, worth $1.035 trillion in 2006, will be worth $2.512 trillion 2006 dollars in 2036. What will be 5.270 trillion 2036 dollars.
Based on a population growth rate of 0.88% (CIA World Factbook) and a 2006 population of 33,100,000 (Ibid), the population of Canada in 2036 should be 43,050,000.
Given no change in the distribution of wealth the per-capita wealth would thus be $58,354 2006 dollars. That compares with $34,000 in 2005.
Obviously, these are all very rough approximations based on single pieces of data. That said, they give some indication of how much things can change in 30 years, even based on modest rates of change.
There is a raging battle today about the size of fossil fuel reserves and resources, with “peakists” claiming we are already at or near peak production of both oil and coal because the amounts of economically recoverable fuels in the ground are more limited than the fossil fuel industry has admitted. Evidence that reserves and resources have been overstated is strong. But it is also clear that, absent a price on carbon emissions, as the price of energy rises the amount of economically extractable fossil fuels increases, including unconventional fossil fuels. Regardless of reserve and resource uncertainties, we know that there are enough fossil fuels to destroy the planet as we know it, if their CO2 is released into the atmosphere.
US average electricity price, all sectors combined, EIA
Faced with a challenge from Mr Simon, Mr Ehrlich selected five metals—copper, chromium, nickel, tin and tungsten—whose prices he thought would rise in real terms over the following ten years. Mr Simon bet that prices would fall. It is clear in retrospect that Mr Ehrlich showed bad timing, since the late 1970s saw a cyclical zenith for commodity prices. But Mr Simon also had history on his side: real commodity prices fell steadily throughout the 20th century.
Mr Simon duly won the bet. The economic boom of the 1980s and 1990s also contradicted Mr Ehrlich’s wilder claims—that a billion people would starve to death and that, by 1985, America would be trapped in an “age of scarcity”.
But what if Mr Ehrlich had taken up Mr Simon’s 1990 offer to go “double or quits” for any future date? All five have risen in price since the rematch was proposed. Furthermore, Jeremy Grantham of GMO, a fund-management group, points out that Mr Ehrlich would have won the original bet were it recalculated today (he is still alive; Mr Simon died in 1998). An equally weighted portfolio of the five commodities is now higher in real terms than the average of their prices back in 1980 (see chart).
“This history shows us that while private utilities sometimes claim otherwise, economically rational electricity pricing has never occurred. It simply does not exist. Despite current reliance on economic arguments to justify their hostility to clean energy policies, utilities themselves have often resisted changes that would bring electricity policy in line with economic principles. Instead of favoring economic principles, like all businesses, utilities favor their bottom line: profit.”
Stokes, Leah Cardamore. Short Circuiting Policy: Interest Groups and the Battle Over Clean Energy and Climate Policy in the American States. Oxford University Press, 2020. p. 71
“This regulatory bargain between private utilities and state PUCs [public utility commissions] led to incredible reductions in the price of electricity over time. Although contemporary electricity debates focus on rising prices—particularly with reference to renewables—the larger secular trend over the past century is falling prices. As Vaclav Smil (2003) demonstrates, electricity prices declined 98% over the twentieth century. In 1902, when the first electricity pricing data are available, the national average price was 16 ¢ /kWh, equivalent to $2.50 /kWh in 1990 dollars (Smil 2003). In 2017 the average price for residential electricity in the United States was a mere 8 ¢ /kWh in 1990 dollars.12 The most dramatic price declines happened between 1900 and 1920, precisely when PUCs and monopolistic regulation were unfolding across the United States. But price declines continued through the 1960s due to technological and managerial innovation, giving governments little reason to re-examine the regulatory consensus (Joskow & Schmalensee 1983).”
Stokes, Leah Cardamore. Short Circuiting Policy: Interest Groups and the Battle Over Clean Energy and Climate Policy in the American States. Oxford University Press, 2020. p. 78
12. US EIA, “Average Retail Price of Electricity to Ultimate Customers by End-Use Sector,” Electric Power Monthly, June 24, 2018.
Smil, V. (2003) Energy at the Crossroads: Global Perspectives and Uncertainties. Cambridge, MA: MIT Press.
Joskow, P. L., & Schmalensee, R. (1983) Markets for Power: An Analysis of Electrical Utility Deregulation. Cambridge, MA: MIT Press.