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Rejecting Fossil Fuels at Our Great Peril

18 Wednesday May 2022

Posted by pnoetx in Central Planning, Energy, Risk, Technology

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Bartley J. Madden, Biden Administration, Dan Ervin, Don Boudreaux, Electric Vehicles, Energy Mandates, Energy subsidies, EV Adoption, External Benefits, External Costs, Fossil fuels, Grid Stability, Intermittancy, Kevin Williamson, Markets, Power Outages, Price Controls, regressivity, Renewable energy, Russia Sanctions, SEC Carbon Mandate, Sustainability

The frantic rush to force transition to a zero-carbon future is unnecessary and destructive to both economic well-being and the global environment. I do not subscribe to the view that a zero-carbon goal is an eventual necessity, but even if we stipulate that it is, a rational transition would eschew the immediate abandonment of fossil fuels and adopt a gradual approach relying heavily on market signals rather than a mad dash via coercion.

I’ve written about exaggerated predictions of temperature trends and catastrophes on a number of occasions (and see here for a similar view from a surprising source). What might be less obvious is the waste inherent in forcing the abandonment of mature and economic technologies in favor of, as yet, under-developed and uneconomic technologies. These failures should be obvious when the grid fails, as it does increasingly. It is often better to leave the development and dispersion of new technologies to voluntary decision-making. In time, advances will make alternative, low- or zero-carbon energy sources cost effective and competitive to users. That will include efficient energy storage at scale, new nuclear technologies, geothermal techniques, and further improvements in the carbon efficiency of fossil fuels themselves. These should be chosen by private industry, not government planners.

Boneheads At the Helm

Production of fossil fuels has been severely hampered by the Biden Administration’s policies. The sanctions on Russian oil that only began to take hold in March have caused an additional surge in the price of oil. Primarily, however, we’ve witnessed an artificial market disruption instigated by Biden’s advisors on environmental policy. After all, neither Russian oil imports nor the more recent entreaties to rogue states as Iraq and Venezuela for oil would have been necessary if not for the Administration’s war on fossil fuels. Take a gander at this White House Executive Order issued in January 2021. It reads like a guidebook on how to kill an industry. In a column this weekend, Kevin Williamson quipped about “the Biden administration’s uncanny ability to get everything everywhere wrong all at once.” That was about policy responses to inflation, but it applies to energy in particular.

Scorning the Miracle

Fossil fuels are the source of cheap and reliable energy that have lifted humanity to an unprecedented level of prosperity. Fossil fuels have given a comfortable existence to billions of people, allowing them to rise out of poverty. This prosperity gives us the luxury of time to develop substitutes, not to mention much greater safety against the kind of weather extremes that have always been a fact of life. The world still gets 80% of its energy from fossil fuels. These fuels are truly a miracle, and we should not discard such valuable technologies prematurely. That forces huge long-term investments in inferior technologies that are likely to be superseded in the future by more economic refinements or even energy sources and methods now wholly unimagined. There are investors who will still wish to pursue those new technologies, perhaps with non pecuniary motives, and there are a few consumers who really want alternatives to fossil fuels.

Biden’s apparent hope that his aggressive climate agenda will be a great legacy of his presidency is at the root of his intransigence toward fossil fuels. His actions in this regard have had a profoundly negative psychological effect on the oil and gas industry. Steps such as cancellations of pipeline projects are immediately impactful in that regard, to say nothing of the supplies that would have ultimately flowed through those pipelines. These cancellations reinforce the message Biden’s been sending to the industry and its investors since his campaign: we mean to shut you down! Who wants to invest in new wells under those circumstances? Other actions have followed: no new federal oil and gas leases, methane restrictions, higher drilling fees on federal land, and a variety of climate change initiatives that bode ill for the industry, such as the SEC’s mandate on carbon disclosures and the Federal Reserve’s proposed role in policing climate impacts.

And now, Democrats are contemplating a move that would make gasoline even more scarce: price controls. As Don Boudreaux says in a recent letter to The Hill:

“Progressives incessantly threaten to tax and regulate carbon fuels into oblivion. These threats cannot but reduce investors’ willingness to fund each of the many steps – from exploration through refining to transporting gasoline to market – that are necessary to keep energy prices low. One reality reflected by today’s high prices at the pump is this hostility to carbon fuels generally and to petroleum especially. And gasoline price controls would only make matters worse by further reducing the attractiveness of investing in the petroleum industry: Why invest in bringing products to market if the prices at which you’re allowed to sell are dictated by grandstanding politicians?”

The kicker is that all these policies are futile in terms of their actual impact on global carbon concentrations, let alone their highly tenuous link to global temperatures. The policies are also severely regressive, inflicting disproportionate harm on the poor, who can least afford such an extravagant transition. Biden wants the country to sacrifice its standard of living in pursuit of these questionable goals, while major carbon-emitting nations like China and India essentially ignore the issue.

Half-Baked Substitution

Market intervention always has downsides to balance against the potential gains of “internalizing externalities”. In this case, the presumed negative externalities are imagined harms of catastrophic climate change from the use of fossil fuels; the presumed external benefits are the avoidance of carbon emissions and climate change via renewables and other “zero-carbon” technologies. With those harms and gains in question, it’s especially important to ask who loses. Taxpayers are certainly on that list. Users of energy produced with fossil fuels end up paying higher prices and are forced to conserve or submit to coerced conversion away from fossil fuels. Then there are the wider impediments to economic growth and, as noted above, the distributional consequences.

Users of immature or inferior energy alternatives might also end up as losers, and there are likely to be external costs associated with those technologies as well. It’s not widely appreciated that today’s so-called clean energy alternatives are plagued by their need to obtain certain minerals that are costly to extract in economic and environmental terms, not to mention highly carbon intensive. And when solar and wind facilities fail or reach the end of their useful lives, disposal creates another set of environmental hazards. In short, the loses imposed through forced internalization of highly uncertain externalities are all too real.

Unfortunately, the energy sources favored by the Administration fail to meet base-load power needs on windless and/or cloudy days. The intermittency of these key renewables means that other power sources, primarily fossil-fuel and nuclear capacity, must remain available to meet demand on an ongoing basis. That means the wind and solar cannot strictly replace fossil fuels and nuclear capacity unless we’re willing to tolerate severe outages. Growth in energy demand met by renewables must be matched by growth in backup capacity.

A call for “energy pragmatism” by Dan Ervin hinges on the use of coal to provide the “bridge to the energy future”, both because there remains a large amount of coal generating capacity and it can stabilize the grid given the intermittency of wind and solar. Ervin also bases his argument for coal on recent increases in the price of natural gas, though a reversal of the Biden EPA’s attacks on gas and coal, which Ervin acknowledges, would argue strongly in favor of natural gas as a pragmatic way forward.

Vehicle Mandates

The Administration has pushed mandates for electric vehicle (EV) production and sales, including subsidized charging stations. Of course, the power used by EVs is primarily generated by fossil fuels. Furthermore, rapid growth in EVs will put a tremendous additional strain on the electric grid, which renewables will not be able to relieve without additional backup capacity from fossil fuels and nuclear. This severely undermines the supposed environmental benefits of EVs.

Once again, mandates and subsidies are necessary because EV technology is not yet economic for most consumers. Those buyers don’t want to spend what’s necessary to purchase an EV, nor do they wish to suffer the inconveniences that re-charging often brings. This is a case in which policy is outrunning the ability of the underlying infrastructure required to support it. And while adoption of EVs is growing, it is still quite low (and see here).

Wising Up

Substitution into new inputs or technologies happens more rationally when prices accurately reflect true benefits and scarcities. The case for public subsidies and mandates in the push for a zero-carbon economy rests on model predictions of catastrophic global warming and a theoretical link between U.S. emissions and temperatures. Both links are weak and highly uncertain. What is certain is the efficiency of fossil fuels to power gains in human welfare.

This Bartley J. Madden quote sums up a philosophy of progress that is commendable for firms, and probably no less for public policymakers:

“Keep in mind that innovation is the key to sustainable progress that jointly delivers on financial performance and taking care of future generations through environmental improvements.”

Madden genuflects to the “sustainability” crowd, who otherwise don’t understand the importance of trusting markets to guide innovation. If we empower those who wish to crush private earnings from existing technologies, we concede the future to central planners, who are likely to choose poorly with respect to technology and timing. Let’s forego the coercive approach in favor of time, development, and voluntary adoption!

Electric Vehicle Fueling Costs in the Real World

31 Sunday Oct 2021

Posted by pnoetx in Electric Vehicles, Renewable Energy

≈ 1 Comment

Tags

Anderson Economic Group, Biomass, Charging Time, Commercial Power Rates, Deadhead Miles, Dispatchable Capacity, Disposal Costs, Electric Vehicles, EVangelists, Fast Chargers, Fueling Cost, Intermittency, Internal Combustion Engines, Joe Biden, Nuclear Energy, Opportunity cost, Phantom Drain, Power Failures, Power Grid, Recharging Costs, Renewable Power, Thermal Energy

While the photo above exaggerates, honest electric vehicle (EV) owners will tell you that “refueling” is often not cheap or convenient. However, less jaded EV drivers and enthusiasts seem to view recharging costs through an oversimplified economic lens. A realistic accounting involves a variety of cost factors, including the implicit cost of the time needed to recharge when away from home. An analysis recently published by Anderson Economic Group (AEG) provides a thorough comparison of the costs of fueling EVs relative to vehicles powered by internal combustion engines (ICEs).

Promoting the Narrow Focus

AEG notes the shortcomings of most cost studies quoted by “EVangelists” (not AEG’s term):

“Many commonly-cited studies of the cost of driving EVs include only the cost of electric power for EVs, but compare this with the total cost of fueling an ICE vehicle. Moreover, many presume drivers can routinely charge at favorable residential rates, ignoring the much higher costs of the commercial chargers EV drivers must use when they are away from a residential charger (if they have one).”

The kind of incomplete assays to which AEG refers can lead to statements like the following, from none other than Joe Biden:

“When you buy an electric vehicle, you can go across America on a single tank of gas, figuratively speaking. It’s not gas. You plug it in.”

Well no, it’s not a single tank of “gas”. You still have to stop, plug into a source of power mostly generated by fossil fuels, and it might take a while to get back on the road.

Cost Categories

The AEG report concludes that vehicles powered by ICEs are far cheaper to fuel on average than EVs. The analysis considers several categories of fueling costs including:

  • Gasoline Prices vs. Commercial & Residential Power Rates: EV drivers recharging away from home often pay more costly commercial rates.
  • Registration Taxes: applied at EV charging stations, but bundled in fuel price for ICEs;
  • EV Charging Equipment: upgraded “Level 2” chargers are generally “encouraged” at purchase of an EV;
  • Deadhead Miles: usage costs on fueling/charging runs; there are far fewer EV charging stations than gas stations in the U.S., which can lead to costly “excursions”;
  • Charging/Refueling Time: much higher for EV drivers away from home;

Direct Costs

AEG performed their analysis using electric rates, gas prices, and other cost factors as of mid-2021. They did so for six “representative” vehicle classes: entry level, mid-priced and luxury EVs and ICEs. Direct monetary costs account for the first four factors listed above; they do not include the time costs of refueling.

AEG calculates that the direct monetary costs of driving 100 miles in a mid-priced ICE vehicle is $8.95, while the cost in a mid-priced EV using a high proportion of commercial charging is $12.95, about 50% more. The direct cost in a luxury ICE is $12.60, but for a luxury EV it is $14.15 (12% more) for mostly home charging and $15.52 (23% more) for mostly commercial charging.

In addition, AEG finds that the direct cost of EV fueling is far more variable than ICE fueling. This is due to widely varying rates for commercial and residential power, including time-of-day variation, differences in charger efficiency, and the varied structure of pricing at different commercial charging stations.

Implicit Time Cost

It should be obvious that the time costs of refueling EVs are more significant than for ICE vehicles. However, I believe AEG’s report might over-estimate the difference. They say:

“… it takes substantially longer to fuel EVs than for comparable ICE cars. Real world conditions often impose additional burdens, including these two:

  1. Driving and charging time: … it often takes about 20 minutes to drive to a reliable DC fast charger. It often takes another 20 to 30 minutes for the charging process to complete. Of course, this is for fast DC chargers. Slower L2 chargers are much more common …
  2. Recurrent reliability problems: EV drivers face recurring problems at chargers such as breakdowns, software bugs, delays in syncing the mobile application with the charger, charger output being significantly lower than advertised, and outright failures. This is in addition to the problem of vehicles blocking (or “icing”) EV charging spots.

Online forums are full of comments from drivers expressing frustration about these problems.”

All true, as far as it goes. The implicit value of this time depends on the driver’s opportunity cost. Whether valued at the minimum wage or at a much higher opportunity cost, AEG’s straightforward valuation of the time cost is five to six times as high for EV drivers than for ICE drivers, depending on the vehicle class. For EVs, the time cost AEG calculates can be more than $200 a month, or about $20 per 100 miles for a someone who drives 1,000 miles a month, versus about $4 for a similar ICE driver. Adding those values to the direct monetary costs (which AEG does not do) yields a total cost per 100 miles of $33 for a mid-priced EV versus about $13 for an ICE vehicle in that class. That’s 2.5 times more to fuel an EV than a comparable ICE vehicle!

However, I would discount the cost of EV fueling time, because many drivers can use this waiting time productively, whether performing certain work tasks remotely or simply enjoying it as an extension of their leisure time, reading or viewing/listening to content on their mobile devices, for example.

Other Qualifications

AEG acknowledges that their cost comparisons use commercial power rates to account for “free” chargers offered by some stores to shoppers and by some employers to workers as benefits. That’s because stores and employers compensate for that kind of service along pricing and other margins.

AEG does not account for “phantom drain” (the loss of EV battery power while not in use) and the costs of battery degradation over time. Nor do they attempt to quantify the use of battery power while charging takes place (which inflates charging time but also increases direct costs per mile).

I would also note that many of the EV cost disadvantages described by AEG are likely to diminish going forward. More charging stations are being added as the fleet of EVs grows. Battery technology is improving as well, and chargers will become faster on average. In addition, EV “engines” have far less complexity and fewer parts than ICEs, which undoubtedly confers maintenance cost advantages over a period of time.

The Green Itch

Finally, while some consumers might find that EVs scratch a certain green itch, these vehicles are not carbon neutral, as noted above. The vast bulk of the power they use comes from fossil fuels. Higher energy prices in general might or might not work to their advantage, but electric power availability is becoming less reliable as the push toward renewable power generation continues. As we have seen repeatedly, reliance on intermittent power sources has drastic consequences for users in the absence of adequate, dispatchable baseload capacity.

To put a somewhat finer point on the difficulties posed by the intermittency of renewable power, a great deal of EV charging is done at night, when solar panels are not harvesting energy. Wind turbines can harvest a greater proportion of their power at night, but they must be fairly tall to do so (the minimum height ranges from 30 to 100 meters, depending on local conditions). That requirement means that the manufacture and construction of these turbines and their towers is all the more carbon intensive. Furthermore, disposal of both solar panels and wind turbines at the end of their useful lives creates serious environmental issues that green energy advocates have been all too willing to ignore.

Ultimately, until our ability to store power at scale advances dramatically, the issue of renewable intermittency can only be dealt with via adequate baseload power. Growth in the number of EVs will require growth in the dispatchable capacity of the power grid, which means either more plants burning fossil fuels, nuclear power, hydroelectric, biomass, or thermal energy. The alternative is an increasing frequency of blackouts, which would drastically reduce the utility of EVs.

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