Cassandras Feel An Urgent Need To Crush Your Lifestyle

12 Thursday Jan 2023

Posted by Nuetzel in Climate science, Environmental Fascism

Tags

Atmospheric Aerosols, Capacity Factors, Carbon Emissions, Carbon-Free Buildings, Chicken Little, Climate Alarmism, Coercion, Electric Vehicles, Elon Musk, Extreme Weather Events, Fossil fuels, Gas Stoves, Judith Curry, Land Use, Model Bias, Nuclear power, Paul Ehrlich, Renewable energy, rent seeking, Sea Levels, Settled Science, Solar Irradience, Solar Panels, Subsidies, Temperature Manipulation, Toyota Motors, Urban Heat Islands, Volcanic activity, Wind Turbines

Appeals to reason and logic are worthless in dealing with fanatics, so it’s too bad that matters of public policy are so often subject to fanaticism. Nothing is more vulnerable on this scale than climate policy. Why else would anyone continue to listen to prognosticators of such distinguished failure as Paul Ehrlich? Perhaps most infamously, his 1970s forecasts of catastrophe due to population growth were spectacularly off-base. He’s a man without any real understanding of human behavior and how markets deal efficiently and sustainably with scarcity. Here’s a little more detail on his many misfires. And yet people believe him! That’s blind faith.

The foolish acceptance of chicken-little assertions leads to coercive and dangerous policy prescriptions. These are both unnecessary and very costly in direct and hidden ways. But we hear a frantic chorus that we’d better hurry or… we’re all gonna die! Ironically, the fate of the human race hardly matters to the most radical of the alarmists, who are concerned only that the Earth itself be in exactly the same natural state that prevailed circa 1800. People? They don’t belong here! One just can’t take this special group of fools too seriously, except that they seem to have some influence on an even more dangerous group of idiots called policymakers.

Judith Curry, an esteemed but contrarian climate expert, writes of the “faux urgency” of climate action, and how the rush to implement supposed climate mitigations is a threat to our future:

“Rapid deployment of wind and solar power has invariably increased electricity costs and reduced reliability, particularly with increasing penetration into the grid. Allegations of human rights abuses in China’s Xinjiang region, where global solar voltaic supplies are concentrated, are generating political conflicts that threaten the solar power industry. Global supply chains of materials needed to produce solar and wind energy plus battery storage are spawning new regional conflicts, logistical problems, supply shortages and rising costs. The large amount of land use required for wind and solar farms plus transmission lines is causing local land use conflicts in many regions.”

Curry also addresses the fact that international climate authorities have “moved the goalposts” in response to the realization that the so-called “crisis” is not nearly as severe as we were told not too long ago. And she has little patience for delusions that authorities can reliably force adjustments in human behavior so as to to reduce weather disasters:

“Looking back into the past, including paleoclimatic data, there has been more extreme weather [than today] everywhere on the planet. Thinking that we can minimize severe weather through using atmospheric carbon dioxide as a control knob is a fairy tale.”

The lengths to which interventionists are willing to go should make consumer/taxpayers break out their pitchforks. It’s absurd to entertain mandates forcing vehicles powered by internal combustion engines (ICEs) off the road, and automakers know it. Recently, the head of Toyota Motors acknowledged his doubts that electric vehicles (EVs) can meet our transportation demands any time soon:

“People involved in the auto industry are largely a silent majority. That silent majority is wondering whether EVs are really OK to have as a single option. But they think it’s the trend so they can’t speak out loudly. Because the right answer is still unclear, we shouldn’t limit ourselves to just one option.”

In the same article, another Toyota executive says that neither the market nor the infrastructure is ready for a massive transition to EVs, a conclusion only a dimwit could doubt. Someone should call the Big 3 American car companies!

No one is a bigger cheerleader for EVs than Elon Musk. In the article about Toyota, he is quoted thusly:

“At this time, we actually need more oil and gas, not less. Realistically I think we need to use oil and gas in the short term, because otherwise civilization will crumble. One of the biggest challenges the world has ever faced is the transition to sustainable energy and to a sustainable economy. That will take some decades to complete.”

Of course, for the foreseeable future, EVs will be powered primarily by electricity generated from burning fossil fuels. So why the fuss? But as one wag said, that’s only until the government decides to shut down those power plants. After that, good luck with your EV!

Gas stoves are a new target of our energy overlords, but this can’t be about fuel efficiency, and it’s certainly not about the quality of food preparation. The claim by an environmental think tank called “Carbon-Free Buildings” is that gas stoves are responsible for dangerous indoor pollutants. Of course, the Left was quick to rally around this made-up problem, despite the fact that they all seem to use gas stoves and didn’t know anything about the issue until yesterday! And, they insist, racial minorities are hardest hit! Well, they might consider using exhaust fans, but the racialist rejoinder is that minorities aren’t adequately informed about the dangers and mitigants. Okay, start a safe-use info campaign, but keep government away from an embedded home technology that is arguably superior to the electric alternative in several respects.

Renewable energy mandates are a major area of assault. If we were to fully rely on today’s green energy technologies, we’d not just threaten our future, but our immediate health and welfare. Few people, including politicians, have any awareness of the low rates at which green technologies are actually utilized under real-world conditions.

“Worldwide average solar natural capacity factor (CF) reaches about ~11-13%. Best locations in California, Australia, South Africa, Sahara may have above 25%, but are rare. (see www.globalsolaratlas.info, setting direct normal solar irradiance)

Worldwide average wind natural capacity factors (CF) reach about ~21-24%. Best off-shore locations in Northern Europe may reach above 40%. Most of Asia and Africa have hardly any usable wind and the average CF would be below 15%, except for small areas on parts of the coasts of South Africa and Vietnam. (see www.globalwindatlas.info, setting mean power density)”

Those CFs are natural capacity factors (i.e., the wind doesn’t always blow or blow at “optimal” speeds, and the sun doesn’t always shine or shine at the best angle), The CFs don’t even account for “non-natural” shortfalls in actual utilization and other efficiency losses. It would be impossible for investors to make these technologies profitable without considerable assistance from taxpayers, but they couldn’t care less about whether their profits are driven by markets or government fiat. You see, they really aren’t capitalists. They are rent seekers playing a negative-sum game at the expense of the broader society.

There are severe environmental costs associated with current wind and solar technologies. Awful aesthetics and the huge inefficiencies of land use are bad enough. Then there are deadly consequences for wildlife. Producing inputs to these technologies requires resource-intensive and environmentally degrading mining activities. Finally, the costs of disposing of spent, toxic components of wind turbines and solar panels are conveniently ignored in most public discussions of renewables.

There is still more hypocritical frosting on the cake. Climate alarmists are largely opposed to nuclear power, a zero-carbon and very safe energy source. They also fight to prevent development of fossil fuel energy plant for impoverished peoples around the world, which would greatly aid in economic development efforts and in fostering better and safer living conditions. Apparently, they don’t care. Climate activists can only be counted upon to insist on wasteful and unreliable renewable energy facilities.

Before concluding, it’s good to review just a few facts about the “global climate”:

1) the warming we’ve seen in forecasts and in historical surface temperature data has been distorted by urban heat island effects, and weather instruments are too often situated in local environments rich in concrete and pavement.

2) Satellite temperatures are only available for the past 43 years, and they have to be calibrated to surface measurements, so they are not independent measures. But the trend in satellite temperatures over the past seven years has been flat or negative at a time when global carbon emissions are at all-time highs.

3) There have been a series of dramatic adjustments to historical data that have “cooled the past” relative to more recent temperatures.

4) The climate models producing catastrophic long-term forecasts of temperatures have proven to be biased to the high side, having drastically over-predicted temperature trends over the past two- to three decades.

5) Sea levels have been rising for thousands of years, and we’ve seen an additional mini-rebound since the mini-ice age of a few hundred years ago. Furthermore, the rate of increase in sea levels has not accelerated in recent decades, contrary to the claims of climate alarmists.

6) Storms and violent weather have shown no increase in frequency or severity, yet models assure us that they must!

Despite these facts, climate change fanatics will only hear of climate disaster. We should be unwilling to accept the climatological nonsense now passing for “settled science”, itself a notion at odds with the philosophy of science. I’m sad to say that climate researchers are often blinded by the incentives created by publication bias and grant money from power-hungry government bureaucracies and partisan NGOs. They are so blinded, in fact, that research within the climate establishment now almost completely ignores the role of other climatological drivers such as the solar irradiance, volcanic activity, and the role and behavior of atmospheric aerosols. Yes, only the global carbon dial seems to matter!

No one is more sympathetic to “the kids” than me, and I’m sad that so much of the “fan base” for climate action is dominated by frightened members of our most youthful generations. It’s hard to blame them, however. Their fanaticism has been inculcated by a distinctly non-scientific community of educators and journalists who are willing to accept outrageous assertions based on “toy models” concocted on weak empirical grounds. That’s not settled science. It’s settled propaganda.

Wind and Solar Power: Brittle, Inefficient, and Destructive

03 Thursday Nov 2022

Posted by Nuetzel in Environment, Nuclear power, Renewable Energy, Uncategorized

≈ 1 Comment

Tags

@MartialData1, @Mining_Atoms, B. F. Randall, Baseload Power, Blake Lovewall, Carbon Credits, Carbon Sink, Dispatchable Power, Fossil fuels, Greenwashing, Grid Stability, Intermittency, Land Use, Martian Data, Nuclear power, Plant Life Cycle, Polysilicons, Renewable energy, Solar Power, Turbine Blades, Wind Power, Zero-Carbon

Just how renewable is “renewable” energy, or more specifically solar and wind power? Intermittent though they are, the wind will always blow and the sun will shine (well, half a day with no clouds). So the possibility of harvesting energy from these sources is truly inexhaustible. Obviously, it also takes man-made hardware to extract electric power from sunshine and wind — physical capital— and it is quite costly in several respects, though taxpayer subsidies might make it appear cheaper to investors and (ultimately) users. Man-made hardware is damaged, wears out, malfunctions, or simply fails for all sorts of reasons, and it must be replaced from time to time. Furthermore, man-made hardware such as solar panels, wind turbines, and the expansions to the electric grid needed to bring the power to users requires vast resources and not a little in the way of fossil fuels. The word “renewable” is therefore something of a misnomer when it comes to solar and wind facilities.

Solar Plant

B. F. Randall (@Mining_Atoms) has a Twitter thread on this topic, or actually several threads (see below). The first thing he notes is that solar panels require polysilicon, which not recyclable. Disposal presents severe hazards of its own, and to replace old solar panels, polysilicon must be produced. For that, Randall says you need high-purity silica from quartzite rock, high-purity coking coal, diesel fuel, and large flows of dispatchable (not intermittent) electric power. To get quartzite, you need carbide drilling tools, which are not renewable. You also need to blast rock using ammonium nitrate fuel oil derived from fossil fuels. Then the rock must be crushed and often milled into fine sand, which requires continuous power. The high temperatures required to create silicon are achieved with coking coal, which is also used in iron and steel making, but coking coal is non-renewable. The whole process requires massive amounts of electricity generated with fossil fuels. Randall calls polysilicon production “an electricity beast”.

Greenwashing

The resulting carbon emissions are, in reality, unlikely to be offset by any quantity of carbon credits these firms might purchase, which allow them to claim a “zero footprint”. Blake Lovewall describes the sham in play here:

“The biggest and most common Carbon offset schemes are simply forests. Most of the offerings in Carbon marketplaces are forests, particularly in East Asian, African and South American nations. …

The only value being packaged and sold on these marketplaces is not cutting down the trees. Therefore, by not cutting down a forest, the company is maintaining a ‘Carbon sink’ …. One is paying the landowner for doing nothing. This logic has an acronym, and it is slapped all over these heralded offset projects: REDD. That is a UN scheme called ‘Reduce Emissions from Deforestation and Forest Degradation’. I would re-name it to, ‘Sell off indigenous forests to global investors’.”

Lovewall goes on to explain that these carbon offset investments do not ensure that forests remain pristine by any stretch of the imagination. For one thing, the requirements for managing these “preserves” are often subject to manipulation by investors working with government; as such, the credits are often vehicle for graft. In Indonesia, for example, carbon credited forests have been converted to palm oil plantations without any loss of value to the credits! Lovewall also cites a story about carbon offset investments in Brazil, where the credits provided capital for a massive dam in the middle of the rainforest. This had severe environmental and social consequences for indigenous peoples. It’s also worth noting that planting trees, wherever that might occur under carbon credits, takes many years to become a real carbon sink.

While I can’t endorse all of Lovewall’s points of view, he makes a strong case that carbon credits are a huge fraud. They do little to offset carbon generated by entities that purchase them as offsets. Again, the credits are very popular with the manufacturers and miners who participate in the fabrication of physical capital for renewable energy installations who wish to “greenwash” their activities.

Wind Plant

Randall discusses the non-renewability of wind turbines in a separate thread. Turbine blades, he writes, are made from epoxy resins, balsa wood, and thermoplastics. They wear out, along with gears and other internal parts, and must be replaced. Land disposal is safe and cheap, but recycling is costly and requires even greater energy input than the use of virgin feedstocks. Randall’s thread on turbines raised some hackles among wind energy defenders and even a few detractors, and Randall might have overstated his case in one instance, but the main thrust of his argument is irrefutable: it’s very costly to recycle these components into other usable products. Entrepreneurs are still trying to work out processes for doing so. It’s not clear that recycling the blades into other products is more efficient than sending them to landfills, as the recycling processes are resource intensive.

But even then, the turbines must be replaced. Recycling the old blades into crates and flooring and what have you, and producing new wind turbines, requires lots of power. And as Randall says, replacement turbines require huge ongoing quantities of zinc, copper, cement, and fossil fuel feedstocks.

The Non-Renewability of Plant

It shouldn’t be too surprising that renewable power machinery is not “renewable” in any sense, despite the best efforts of advocates to convince us of their ecological neutrality. Furthermore, the idea that the production of this machinery will be “zero carbon” any time in the foreseeable future is absurd. In that respect, this is about like the ridiculous claim that electric vehicles (EVs) are “zero emission”, or the fallacy that we can achieve a zero carbon world based on renewable power.

It’s time the public came to grips with the reality that our heavy investments in renewables are not “renewable” in the ecological sense. Those investments, and reinvestments, merely buy us what Randall calls “garbage energy”, by which he means that it cannot be relied upon. Burning garbage to create steam is actually a more reliable power source.

Highly Variable With Low Utilization

Randall links to information provided by Martian Data (@MartianManiac1) on Europe’s wind energy generation as of September 22, 2022 (see the tweet for Martian Data’s sources):

“Hourly wind generation in Europe for past 6 months:
Max: 122GW
Min: 10.2GW
Mean: 41.0
Installed capacity: ~236GW”

That’s a whopping 17.4% utilization factor! That’s pathetic, and it means the effective cost is quintuple the value at nameplate capacity. Take a look at this chart comparing the levels and variations in European power demand, nuclear generation, and wind generation over the six months ending September 22nd (if you have trouble zooming in here, try going to the thread):

The various colors represent different countries. Here’s a larger view of the wind component:

A stable power grid cannot be built upon this kind of intermittency. Here is another comparison that includes solar power. This chart is daily covering 2021 through about May 26, 2022.

As for solar capacity utilization, it too is unimpressive. Here is Martian Data’s note on this point, followed by a chart of solar generation over the course of a few days in June:

“so ~15% solar capacity is whole year average. ~5% winter ~20% summer. And solar is brief in summer too…, it misses both both morning and evening peaks in demand.”

Like wind, the intermittency of solar power makes it an impractical substitute for traditional power sources. Check out Martian Data’s Twitter feed for updates and charts from other parts of the world.

Nuclear Efficiency

Nuclear power generation is an excellent source of baseload power. It is dispatchable and zero carbon except at plant construction. It also has an excellent safety record, and newer, modular reactor technologies are safer yet. It is cheaper in terms of generating capacity and it is more flexible than renewables. In fact, in terms of the resource costs of nuclear power vs. renewables over plant cycles, it’s not even close. Here’s a chart recently posted by Randall showing input quantities per megawatt hour produced over the expected life of each kind of power facility (different power sources are labeled at bottom, where PV = photovoltaic (solar)):

In fairness, I’m not completely satisfied with these comparisons. They should be stated in terms of current dollar costs, which would neutralize differences in input densities and reflect relative scarcities. Nevertheless, the differences in the chart are stark. Nuclear produces cheap, reliable power.

The Real Dirt

Solar and wind power are low utilization power sources and they are intermittent. Heavy reliance on these sources creates an extremely brittle power grid. Also, we should be mindful of the vast environmental degradation caused by the mining of minerals needed to produce solar panels and wind turbines, including their inevitable replacements, not to mention the massive land use requirements of wind and solar power. Also disturbing is the hazardous dumping of old solar panels from the “first world” now taking place in less developed countries. These so-called clean-energy sources are anything but clean or efficient.

Fiscal Foolishness a Costly Salve For Midterm Jitters

05 Friday Aug 2022

Posted by Nuetzel in Fiscal policy, Inflation

≈ 2 Comments

Tags

Alternative Minimum Corporate Tax, Brad Polumbo, Carried Interest, Chuck Schumer, CMS, Drug Price Controls, Eric Boehm, Fossil fuels, Green Energy, Inflation Reduction Act, IRS, Joe Biden, Joe Manchin, Kyrsten Sinema, Lois Lerner, Medicare Part D, Obamacare Subsidies, Private equity, Stock Buybacks, Sweat Equity, Tax Burden, Tax Enforcement, Tax Incidence, Wharton Economics, William C. Randolf

The “Inflation Reduction Act” (IRA) is about as fatuous a name for pork-barrel spending and taxes as its proponents could have dreamt up! But that’s the preposterous appellation given to the reconciliation bill congressional Democrats hope to approve. Are we to believe that Congress suddenly recognizes the inflationary effects of governments deficits? Well, the trouble is the projected revenue enhancements (taxes) and cost savings are heavily backloaded. It’s mostly spending up front, which is exactly how we got to this point. There are a number of provisions intended to increase domestic energy production in the hope of easing cost-push, supply-side price pressures. However, provisions relating to fossil fuel production are dependent on green energy projects in the same locales. So, even if we get more oil, we’ll still be pissing away resources on wind and solar technologies that will never be reliable sources of power. Even worse, the tax provisions in the bill will have burdens falling heavily on wage earners, despite the Administration’s pretensions of taxing only rich corporations and their shareholders.

The Numbers

The IRA (itself an irritating acronym) would add $433 billion of new federal outlays through 2031 (*investments*, because seemingly every federal outlay is an “investment” these days). At least that’s the deal that Chuck Schumer and Joe Manchin agreed to. As the table below shows, these outlays are mostly for climate initiatives, but the figure includes almost $70 billion of extended Obamacare subsidies. There is almost $740 billion of revenue enhancements, which are weighted toward the latter half of the ten-year budget window.

The deal reduces the federal budget deficit by about $300 billion over ten years, but that takes a while… somewhat larger deficits are projected through 2026. I should note that the Congressional Budget Office has issued a new score this week that puts the savings at a much lower $102 billion. However, that “new” score does not reflect the changes demanded by Kyrsten Sinema (R-AZ).

Spending

Budget projections are usually dependent on assumptions about the duration of various measures, among many other things like economic growth. For example, the increased Obamacare subsidies are an extension, and the scoring assumes they end in 2026. It’s hard to believe they won’t be extended again when the time comes. Over ten years, that would cut the deficit reduction roughly in half.

The bill is laden with green energy subsidies intended to reduce CO2 emissions. They will accomplish little in that respect, but what the subsidies will do is enrich well-healed cronies while reducing the stability of the electric grid. Tax credits for electric vehicles will be utilized primarily by wealthier individuals, though there are tax credits for energy-efficient appliances and the like, which might benefit a broader slice of the population. And while there are a few provisions that might address supplies of fossil fuels and investment in nuclear energy, these are but a sop to Joe Manchin and misdirection against critics of Joe Biden’s disastrous energy policies.

Revenue

Should we be impressed that the Democrats have proposed a bill that raises revenue more than spending? For their part, the Democrats insist that the bill will impose no new taxes on those with taxable incomes less than $400,000. That’s unlikely, as explained below. As a matter of macroeconomic stability, with the economy teetering on the edge of recession, it’s probably not a great time to raise taxes on anyone. However, Keynesians could say the same thing about my preferred approach to deficit reduction: cutting spending! So I won’t press that point too much. However, the tax provisions in the IRA are damaging not so much because they depress demand, but because they distort economic incentives. Let’s consider the three major tax components:

1. IRS enforcement: this would provide about $80 billion in extra IRS funding over 10 years. It is expected to result in a substantial number of additional IRS tax audits (placed as high as 1.2 million). Democrats assert that it will raise an additional $400 billion, but the CBO says it’s likely to be much lower($124 billion). This will certainly ensnare a large number of taxpayers earning less than $400,000 and impose substantial compliance costs on individuals and businesses. A simplified tax code would obviate much of this wasteful activity, but our elected representatives can’t seem to find their way to that obvious solution. In any case, pardon my suspicions that this increase in funding to enforce a Byzantine tax code might be used to weaponize the IRS against parties harboring disfavored political positions. Shades of Lois Lerner!

2. Carried Interest: Oops! Apparently the Democrat leadership just bought off Kyrsten Sinema by eliminating this provision and replacing it with another awful tax…. See #3 below. The next paragraph briefly discusses what the tax change for carried interest would have entailed:

The original bill sought to end the favorable tax treatment of “carried interest”, which is earned by private equity managers but is akin to the “sweat equity” earned by anyone making a contribution to the value of an investment without actually contributing a proportionate amount of capital. I’ve written about this before here. Carried interest income is taxed at the long-term capital gains tax rate, which is usually lower than tax rates on ordinary income. This treatment is really the same as for any partnership that allocates gains to partners, but populist rhetoric has it that it is used exclusively by nasty private equity managers. Changing this treatment for private equity firms would represent gross discrimination against firms that make a valuable contribution to the market for the ownership control of business enterprises, which helps to discipline the management of resources in the private sector.

3. Tax on Corporate Stock Buy-Backs: it’s not uncommon for firms to use cash they’ve generated from operations to repurchase shares of stock issued in past. Unaccountably, Democrats regard this as a “wasteful” activity designed to unfairly enrich shareholders. However, it is a perfectly legitimate way for firms to return capital to owners. The tax would create an incentive for managers to choose less efficient alternatives for the use of excess funds. In any case, the unrestricted freedom of owners to empower managers to repurchase shares is a fundamental property right.

A tax on corporate stock buybacks can result in the triple taxation of corporate profits. Profits are taxed at the firm level, and if the firm uses after-tax profits to repurchases shares, then the profits are taxed again, and further, any gain to shareholders would be subject to capital gains tax. This is one more violation of the old principle that income should be taxed once and only once.

The proposed excise tax on buy-backs now added to the IRA is *expected* to raise more revenue than the carried interest revision would have, but adjustments to behavior have a way of stymying expectations. Research has demonstrated that firms who buy back their shares often outperform their peers. But again, there are always politicians who wish to create more frictions in capital markets because firms and investors are easy political marks, and because these politocos do not understand the key role of capital markets in allocating resources efficiently between uses and across time.

4. Corporate taxes: Imposing a minimum tax rate of 15% on corporate book income above $1 billion is a highly controversial part of the IRA. While supporters contend that the burden would fall only on wealthy shareholders, in fact the burden would be heavily distributed across lower income ranges. First, a great many working people are corporate shareholders through their individual or employer-sponsored savings plans. Second, corporate employees shoulder a large percentage of the burden of corporate taxes via reduced wages and benefits. Here’s Brad Polumbo on the incidence of the corporate tax burden:

“William C. Randolph of the Congressional Budget Office found that for every dollar raised by the corporate tax, approximately 70 cents comes out of workers’ wages. Further confirming this finding, research from the Kansas City Federal Reserve concluded that a 10% increase in corporate taxes reduces wages by 7%.”

This again demonstrates the dishonesty of claims that no one with an income below $400,000 will be taxed under the IRA. In addition, almost 50% of the revenue from this minimum tax will come from the manufacturing sector:

As Eric Boehm states at the last link, “So much for improving American manufacturers’ competitiveness!” Incidentally, it’s estimated that the bill would cause differential increases in the effective corporate tax on investments in equipment, structures, and inventories. This is not exactly a prescription for deepening the stock of capital or for insulating the American economy from supply shocks!

5. Medicare Drug Prices: A final source of deficit reduction is the de facto imposition of price controls on certain prescription drugs under Medicare Part D. A small amount of savings to the government are claimed to begin in 2023. However, the rules under which this will be administered probably won’t be established for some time, so the savings may well be exaggerated. It’s unclear when the so-called “negotiations” with drug companies will begin, but they will take place under the threat of massive fines for failing to agree to CMS’s terms. And as with any price control, it’s likely to impinge on supply — the availability of drugs to seniors, and it is questionable whether seniors will reap any savings on drugs that will remain available.

Do Words Have No Meaning?

The IRA’s vaunted anti-inflationary effects are a pipe dream. A Wharton Study found that the reduction in inflation would be minuscule:

“We estimate that the Inflation Reduction Act will produce a very small increase in inflation for the first few years, up to 0.05 percent points in 2024. We estimate a 0.25 percentage point fall in the PCE price index by the late 2020s. These point estimates, however, are not statistically different than zero, thereby indicating a very low level of confidence that the legislation will have any impact on inflation.”

Over 230 economists have weighed in on the poor prospects that the IRA will achieve what its name suggests. And let’s face it: not even the general public has any confidence that the IRA will actually reduce inflation:

Conclusion

The Inflation Reduction Act is a destructive piece of legislation and rather galling in its many pretenses. I’m all for deficit reduction, but the key to doing so is to cut the growth in spending! Reducing the government’s coerced absorption of resources relative to the size of the economy prevents “crowding out” of private, voluntary, market-tested activity. It also prevents the need for greater tax distortions that undermine economic performance.

The federal government has played host to huge pandemic relief bills over the past two years. Then we have Joe Biden’s move to forgive student debt, a benefit flowing largely to higher income individuals having accumulated debt while in graduate programs. And then, Congress passed a bill to subsidize chip manufacturers who were already investing heavily in domestic production facilities. All the while, the Biden Administration was doing everything in its power to destroy the fossil fuel industry. So now, Democrats hope to follow-up on all that with a bill stuffed with rewards for cronies in the form of renewable energy subsidies, financed largely on the backs of the same individuals who they’ve sworn they won’t tax! The dishonesty is breathtaking! This crowd is so eager to do anything before the midterm elections that they’ll shoot for the nation’s feet!

Rejecting Fossil Fuels at Our Great Peril

18 Wednesday May 2022

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

≈ 2 Comments

Tags

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!

Markets Deal With Scarcity, Left Screams “Price Gouging”

11 Monday Apr 2022

Posted by Nuetzel in Antitrust, Environmental Fascism, Oil Prices

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Antitrust, Barack Obama, central planning, ESG Scores, FDR, Fossil fuels, Gas Prices, Green New Deal, Intermittancy, Joe Biden, Keystone Pipeline, Lawrence Summers, Oil Prices, Oil Profits, OPEC, Power Grid, Price Gouging, Profit Margins, Profiteering, Renewable energy, Strategic Petroleum Reserve, Ukraine Invasion, Vladimir Putin, West Texas Intermediate

Democrats claim profiteering by oil companies is responsible for the sustained rise in oil prices since Joe Biden’s inauguration (really, his election). That’s among the more laughable attempts at gaslighting in recent memory, right up there with blaming market concentration for the sustained increase in inflation since Biden’s inauguration. At a hearing this week, congressional Democrats, frightened by the prospect of a beat-down just ahead in the mid-term elections, couldn’t resist making “price-gouging” accusations against oil producers. These pols stumble over their own contradictory talking points, insisting on more oil production only when they aren’t hastily sabotaging oil and gas output. Their dishonestly is galling, but so is the foolishness of voters who blindly accept the economic illiteracy issuing from that side of the aisle.

Break It Then Blame It

Those who level “price gouging” charges at oil companies are often the same people seeking to eliminate fossil fuel consumption by making those energy choices unaffordable. The latter is a bad look this close to mid-term elections, so they follow the playbook I described recently in “Break the Market, Blame It, Then Break It Some More“. And this post is instructive: “House Dem: Big Oil is profiteering by, er … doing what we demanded”.

Not only have the Democrats’ policies caused oil prices to soar; for many years they’ve been undermining the stability of the power grid via forced conversion into intermittent renewable energy sources like wind and solar, all while preventing the expansion of safe and carbon-free nuclear power generation. It’s ironic that these would-be industrial planners seem so eager to botch the job, though failure is all too typical of central planning. Just ask the Germans about their own hapless efforts at energy planning.

As economist Lawrence Summers, former Treasury Secretary under Barack Obama, said recently:

“Look, the net effect of the things the administration talks about in terms of micro policies to reduce inflation, this gouging talk is frivolous, nonserious, and utterly ineffectual. A gas price holiday would, ultimately, push up prices by raising demand. … The student loan relief … is injecting resources into the economy at a hundred billion dollar a year annual rate when the economy needs to be cooled off, not heated up. … The administration could be much more constructive than it has been with respect to energy supply.”

The market functions to allocate scarce resources. When conditions of scarcity become more acute, the market mechanism responds by pricing available supplies to both curtail use and incentivize delivery of additional quantities. That involves the processing of vast amounts of information, and it is a balancing at which the market performs extremely well relative to bumbling politicians and central planners, whose actions are too often at the root of acute scarcities.

Antitrust Nonsense

Of course, the Democrats have seized upon the inescapable fact that soaring oil prices cause profits to soar for anyone producing oil or holding stocks of oil. But oil company profits are notoriously volatile. Margins were negative for most of 2020, when demand weakened in the initial stages of the pandemic. And now, some companies are bracing for massive write-downs on abandoned drilling projects in Russia. The oil and gas business is certainly not known for high profit margins. Short-term profits, while they last, must be used to meet the physical or financial needs of the business.

The threats of antitrust action by the Biden Administration are an extension of the price-gouging narrative, even if the threat reflects an injudicious grasp of what it takes to prove collusion. It takes a fertile imagination to think western oil companies could successfully collude on pricing in a market dominated by the following players:

Fat chance. In any case, it’s a global market, and it’s impossible for western oil producers to dictate pricing. Even the OPEC cartel has been unable to dictate prices, not to mention keeping it’s members from violating production quotas. But if a successful conspiracy among oil companies to raise prices was possible, one would guess they’d have done it a lot sooner!

Nor is it possible for the oil majors to dictate prices at the pump, because retail prices are set independently. While the cost of crude oil is only about 54% of the cost of refined gas at retail, fluctuations in prices at the pump correlate strongly with crude oil prices. Here is a ten-year chart of daily price data, where the blue line is the price of West Texas Intermediate crude oil and the orange line is the average price of regular gas in the U.S.:

Here are the same two series for 2022 year-to-date:

Coerced Scarcity

Again, oil prices have been under upward pressure for over a year until a break in early March, following the steep run-up in the immediate wake of the Ukraine invasion. First there was Biden’s stultifying rhetoric, before and after the 2020 election, assisted by radical members of Congress. Then there were executive orders halting drilling on federal lands, killing the Keystone pipeline, efforts to shut down several other existing pipelines, and the imposition of regulatory penalties on drillers. In addition, unrest in certain parts of the Middle East curtailed production, compounded this year by the boycott on Russian oil (which, as a foreign policy matter, was far too late in coming).

However, existing facilities have been capable of squeezing out more oil and gas. Lo and behold, supply curves slope upward, even in the short-run! Despite all of Biden’s efforts to cripple domestic oil production, higher crude prices have brought forth some additional supplies. Biden’s raid on the Strategic Petroleum Reserve has also boosted supply for now, but its magnitude won’t help much, and it must be replaced for use during real U.S. national emergencies, which the war in Ukraine is not, as awful as it is.

That said, investing in new drilling capacity is not wise given the political climate created by Biden and the Democrats: they have been quite clear that they mean to crush the fossil fuel industry. For some time, the oil companies have been busy investing cash flows in “green” initiatives in an effort to bolster their ESG scores, a dubious exercise to say the least. Arguably, in this policy environment, the most responsible thing to do is to return some of the capital over which these firms are stewards to its rightful owners, many of whom are middle-class savers who hold oil stocks in their 401(k) funds. That approach is manifest in the recent stock buybacks and dividend payments oil companies have announced and defended before Congress.

Conclusion

A forced shutdown of fossil fuel energy was much ballyhooed by the Left as a part of Joe Biden’s agenda. Biden himself bought into the “Green New Deal”, imagining it might win him a vaunted place alongside FDR’s legacy in American history. The effort was unwise, but Biden is trying to hang onto the narrative and maintain his punitive measures against American oil companies. All the while, he begs OPEC producers to step up production, bending a knee to despots in countries such as Iran and Venezuela. Why, it’s as if their fossil fuels are somehow cleaner than those extracted in the U.S! The feeble Biden and congressional Democrats are proving just how mendacious they are. They can rightfully blame Vladimir Putin for the recent escalation in oil prices, but they bear much responsibility themselves for the burden of high gas prices, energy bills, and the unnecessary, ongoing scarcity victimizing the American public.

Break the Market, Blame It, Then Break It Some More

28 Sunday Nov 2021

Posted by Nuetzel in Energy, Environmental Fascism, Free markets, Uncategorized

≈ 2 Comments

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Antitrust, Asymmetric Information, Build Back Better, Capital Controls, central planning, Endangered Species Act, Energy Policy, Externalities, Fossil fuels, Fracking, FTC, Government Failure, Green New Deal, Greenbook, Hart Energy, Industrial Policy, Industry Concentration, Joe Biden, Keystone XL Pipeline, Knowledge Problem, Line 5 Pipeline, Mark Theisen, Market Failure, Monetary policy, OPEC, Price Gouging, Principles of Economics, Quotas, Regulatory Overreach, Stephen Green, Strategic Petroleum Reserve, Subsidies, Tariffs, Taxes, The Fatal Conceit

Much of what is labeled market failure is a consequence of government failure, or rather, failure caused by misguided public intervention, not just in individual markets but in the economy more generally. Misguided efforts to correct perceived excesses in pricing are often the problem, but there are myriad cases of regulatory overreach, ham-handed application of taxes and subsidies for various enterprises, and widespread cronyism. But it is often convenient for politicians to appear as if they are doing something, which makes activism and active blame of private enterprise a tempting path. The Biden Administration’s energy crisis offers a case in point. First, a digression on the efficiency of free markets. Skip the next two sections to get straight to Biden’s mess.

Behold the Bounty

I always spent part of the first class session teaching Principles of Economics on some incredible things that happen each and every day. Most college freshmen seem to take them for granted: the endless variety of goods that arrive on shelves each day; the ongoing flow of services, many appearing like magic at the flick of a switch; the high degree of coincidence between specific wants and all these fresh supplies; the variety and flow of raw materials and skills that are brought to bear; the fantastic array of sophisticated equipment deployed to assist in these efforts; and the massive social coordination necessary to accomplish all this. How does it all happen? Who collects all the information on what is wanted, and by whom? On the feasibility of actually producing and distributing various things? What miracle computer processes the vast set of information guiding these decisions and actions? Does some superior intelligence within an agency plan all this stuff?

The answer is simple. The seemingly infinite set of knowledge is marshaled, and all these tasks are performed, by the greatest institution of social cooperation to ever emerge: decentralized, free markets! Buying decisions are guided by individual needs and wants. Production and selling decisions are guided by resource availability and technology. And all sides react to evolving prices. Preferences, resources, and technology are in a constant state of flux, but prices react, signaling producers and consumers to make individual adjustments that correct larger imbalances. It is tempting to describe the process as the evolving solution to a gigantic set of dynamic equations.

The Impossible Conceit

No human planner or government agency is capable of solving this problem as seamlessly and efficiently as markets, nor can they hope to achieve the surplus welfare that redound to buyers and sellers in markets. Central planners or intervening authorities cannot possess the knowledge and coordinating power of the market mechanism. That doesn’t mean markets are “perfect”, of course. Things like external costs and benefits, dominant sellers, and asymmetric information can cause market outcomes to deviate from the competitive “ideal”. Inequities can arise from some of these imperfections as well.

What can be much worse is the damage to market performance caused by government policy. Usually the intent is to “correct” imperfections, and the rationale might be defensible. The knowledge to do it very well is often lacking, however. Taxes, subsidies, regulations, tariffs, quotas, capital controls, and manipulation of interest rates (and monetary and credit aggregates) are very general categories of distortion caused by the public sector. Then there is competition for resources via government procurement, which is frequently graft-ridden or price-insensitive.

Many public interventions create advantages for large sellers, leading to greater market concentration. This might best serve the private political power of the wealthy or might convey advantages to investments that happen to be in vogue among the political class. These are the true roots of fascism, which leverages coercive state power for the benefit of private interests.

Energy Vampires

Now we have the curious case of the Biden Administration and it’s purposeful disruption of energy markets in an effort to incentivize a hurried transition from fossil fuels to renewable energy. As I described in a recent post on stagflation,

“… Biden took several steps to hamstring the domestic fossil fuel industry at a time when the economy was still recovering from the pandemic. This included revoking permits for the Keystone pipeline, a ban on drilling on federal lands and federally-controlled waters in the Gulf, shutting down production on some private lands on the pretext of enforcing the Endangered Species Act, and capping methane emissions by oil and gas producers. And all that was apparently just a start.

As Mark Theisen notes, when you promise to destroy a particular industry, as Joe Biden has, by taxing and regulating it to death, who wants to invest in or even maintain production facilities? Some leftists with apparent influence on the administration are threatening penalties against the industry up to and including prosecution for ‘crimes against humanity’!”

In addition to killing Keystone, there remains a strong possibility that Biden will shut down the Line 5 pipeline in Michigan, and there are other pipelines currently under federal review. Biden’s EPA also conducted a purge of science advisors considered “too friendly” to oil and gas industry. This was intertwined with a “review” of new methane rules, which harm smaller, independent oil and gas drillers disproportionately.

Joe Biden’s “Build Back Better” (BBB) legislation, as clumsy in policy as it is in name, introduces a number of “Green New Deal” provisions that would further disadvantage the production and use of fossil fuels. Hart Energy provides descriptions of various tax changes that appeared in the Treasury’s so-called “Greenbook”, a collection of revenue proposals, many of which appear in the BBB legislation that recently passed in the House. These include rollbacks of various deductions for drilling costs, depletion allowances, and recovery rules, as well as hikes in certain excise taxes as well as taxes on foreign oil income. And all this while granting generous subsidies to intermittent and otherwise uneconomic technologies that happen to be in political favor. This is a fine payoff for cronies having invested significantly in these rent seeking opportunities. While the bill still faces an uphill fight in the Senate, apparently Biden has executive orders, held in abeyance, that would inflict more pain on consumers and producers of fossil fuels.

Biden’s energy policies are obviously intended to reduce supplies of oil, gas, and other fossil fuels. Prices have responded, as Green notes:

“Gas is up an average of 57% this year, with corresponding increases of 44% for diesel and a whopping 60% for fuel oil.”

The upward price pressure is not limited to petroleum: electricity rates are jumping as well. Consumers and shippers have noticed. In fact, while Biden crows about wanting “the rich” to pay for BBB, his energy policies are steeply regressive in their impact, as energy absorbs a much larger share of budgets among the poor than the rich. This is politically suicidal, but Biden’s advisors have chosen a most cynical tact as the reality has dawned on them.

Abusive Victim Blaming

Who to blame? After the predictable results of cramping domestic production and attacking fossil fuel producers, the Biden team naturally blames them for rising prices! “Price gouging” is a charge made by political opportunists and those who lack an understanding of how markets allocate scarce resources. More severe scarcity means that prices must rise to ration available quantities and to incentivize those capable of bringing forth additional product under difficult circumstances. That is how a market is supposed to function, and it mitigates scarcity!

But here comes the mendacious and Bumbling Buster Biden. He wants antitrust authorities at the FTC to investigate oil pricing. Again from Stephen Green:

“… the Biden Administration has decided to launch a vindictive legal campaign against oil producers in order to deflect blame for the results of Biden’s policies: Biden’s Solution to Rising Gas Prices Appears to Be Accusing Oil Companies of Price Gouging.”

There’s nothing quite like a threat to market participants to prevent the price mechanism from performing its proper social function. But a failure to price rationally is a prescription for more severe shortages.

Biden has also ordered the Strategic Petroleum Reserve (SPR) to release 50 million barrels of oil, a move that replaces a total of 2.75 days of monthly consumption in the U.S. The SPR is supposed to be drawn upon only in the case of emergencies like natural disasters, so this draw-down is as irresponsible as it is impotent. In fact, OPEC is prepared to offset the SPR release with a production cut. Biden has resorted to begging OPEC to increase production, which is pathetic because the U.S. was a net exporter of oil not long ago … until Biden took charge.

Conclusion

Properly stated, the challenge mounted against markets as an institution is not that they fall short of “perfection”. It is that some other system would lead to superior results in terms of efficiency and/or equity. Central planning, including the kind exercised by the Biden Administration in it’s hurried and foolish effort to tear down and remake the energy economy, is not even a serious candidate on either count.

Granted, there is a long history of subsidies to the oil and gas sector. I cannot defend those, but the development of the technology (even fracking) largely preceded the fruits of the industry’s rent seeking. At this point, green fuels receive far more subsidies (despite some claims to the contrary). Furthermore, the primacy of fossil fuels was not achieved by tearing down competing technologies and infrastructure. In contrast, the current round of central planning requires destruction of entire sectors of the economy that could otherwise produce efficiently for the foreseeable future, if left unmolested.

The Biden Administration has adopted the radical green agenda. Their playbook calls for a severe tilting of price incentives in favor uneconomic, renewable energy sources, despite the economy’s heretofore sensible reliance on plentiful fossil fuels. It’s no surprise that Biden’s policy is unpopular across the economic spectrum. His natural inclination is to blame a competitive industry victimized by his policy. It’s a futile attempt to avoid accountability, as if he thinks doubling down on the fascism will help convince the electorate that oil and gas producers dreamt up this new, nefarious strategy of overcharging customers. People aren’t that dumb, but it’s typical for the elitist Left presume otherwise.

Bill Gates, Wayward Climate Nerd

17 Wednesday Nov 2021

Posted by Nuetzel in Climate, Energy

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Abortion, Anti-Vaxers, Battery Technology, Bill Gates, Carbon Capture, Carbon Concentration, Carbon Efficiency, Carbon Emissions, CO2, David Solway, Fossil fuels, Gates Foundation, Green Premium, Health and Fertility, Hydrogen Power, Industrial Policy, Kaya Identity, Lockdowns, Median Voter, Natural Gas, Net Zero Carbon, Non-Pharmaceutical interventions, Nuclear power, Power Storage, Renewable energy, Reproductive Health Services, Solar Power, TED Talks, Thomas Malthus, Vaccine Passports, Wind Power, World Health Organization

Bill Gates’ considerable philanthropic efforts through the Gates Foundation are well known. Much of the foundation’s activity has focused on disease control and nutrition around the globe. Education reform has also been a priority. Many of these projects are laudable, though I’m repulsed by a few (see here and here). During the coronavirus pandemic, Gates has spoken approvingly of Non-Pharmaceutical Interventions (lockdown measures), which are both coercive and ineffective (and see here). He has earned the enmity of anti-vaxers, of course, though I’m not anti-vax as long as the jabs are voluntary. The Gates Foundation funded the World Health Organization’s effort to provide guidance on digital vaccine passports, which is a de facto endorsement of discrimination based on vaccination status. His priorities for addressing climate change also raise some troubling issues, a few of which I address below.

Squeezing Policy from a Definition

Gates put a special Malthusian twist on a TED Talk he did back in 2010 using an equation for carbon dioxide emissions, which he’s reprised over the years. It gained a lot of notice in 2016 when a few sticklers noticed that his claim to have “discovered” the equation was false. The equation is:

CO2 = P x S x E x C,

where P = People, S = Services per person, E = Energy per service, and C = CO2 per energy unit.

This equation first appeared as the so-called Kaya Identity in a scientific review in 2002. Such an equation can be helpful in organizing one’s thoughts, but it has no operational implications in and of itself. At one level it is superficial: we could write a similar identity for almost anything, like the quantity of alcohol consumed in a year, which must equal the population times the ounces of alcohol per drink times the number of drinks per person. At a deeper level, it can be tempting to build theories around such equations, and there is no question that any theory about CO2 must at least preserve the identity.

There’s an obvious temptation to treat an equation like this as something that can be manipulated by policy, despite the possibility of behavioral links across components that might lead to unintended consequences. This is where Gates gets into trouble.

Reality Checks

As David Solway writes, Gates’ jumped to the conclusion that population drives carbon emissions, reinforcing a likely perspective that the human population is unsustainable. His benevolent solution? A healthier population won’t breed as fast, so he prescribes more vaccinations (voluntary?) and improved health care. For good measure, he added a third prong: better “reproductive health services”. Let’s see… what share of the 0.9 -1.4 billion reduction in world population Gates prescribed in 2016 would have come from terminated pregnancies?

In fact, healthier people might or might not want more children, but lower child mortality in the developing world would reduce certain economic incentives for high fertility. Another reliable association is between income and child bearing: an increase in “services per person” is likely to lead to smaller families, but that wasn’t given any emphasis by Gates. Income growth is simply not part of the narrative! Yet income growth does something else: it allows us to more easily afford the research and investments required for advanced technologies, including cleaner energy. These things take time, however.

Solway points to other weaknesses in Gates’ interpretation of the Kaya Identity. For example, efforts to slow population growth are not reliably associated with “services per person”, fuel efficiency, or carbon efficiency. In other words, carbon emissions may be powerfully influenced by factors other than population. China is a case in point.

Centralized industrial and social planning is generally ill-suited to advancing human well being. It’s especially suspect if the sole objective is to reduce carbon emissions. But Gates knows that lowering emissions without a corresponding drop in real income requires continuing technological advances and/or more efficient decisions about which technologies to deploy. He is a big advocate of developing cheap hydrogen power, which is far from a reality. He is also excited about carbon capture technologies, which are still in their infancy.

Renewables like wind and solar power play a large part in Gates’ vision. Those technologies cannot deliver a reliable flow of power, however, without either adequate backup capacity or a dramatic advance in battery technology. Gates over-promotes wind and solar, but I give him credit for acknowledging their intermittency. He attempts to come to grips with it by advocating nuclear backup, but it’s just not clear that he has integrated the incremental cost of the necessary backup capacity with other direct costs of these renewables… not to mention the considerable environmental costs imposed by wind and solar (see the “back-to-nature” photo at the top for a cogent illustration). Power storage at scale is still a long way off, and its cost will be significant as well.

We could deploy existing energy technologies to greater advantage with respect to carbon efficiency. We’ve already reduced CO2 emissions in the U.S. by substituting natural gas for less carbon-efficient fuels, but the Biden Administration would rather discourage its use. Gates deserves credit for recognizing the huge role that nuclear energy can play in providing zero-carbon power. Despite that, he still can’t quite bring himself to admit the boneheadedness of heavy reliance on intermittent renewables.

Bill’s “Green Premium”

Gates seems to have deemphasized the Kaya Identity more recently. Instead, his focus has shifted to the so-called “green premium”, or the incremental cost of using zero-carbon technology relative to a traditional source. Needless to say, the premium is large for truly zero-carbon sources, but Gates emphasizes the importance of using the green premium to guide development even in the here and now.

That’s fine, but it’s not clear that he gives adequate consideration to cases in which emissions, while not eliminated, can be reduced at a negative incremental cost via appropriate substitution. That describes the transition to natural gas from other fuels. This is something that markets can do without the assistance of ham-handed interventionists. Gates prefers nuclear power and says natural gas is “not a real bridge technology” to a zero carbon future. That’s short-sighted and reflects an absolutist mindset that ignores both the economic and political environment. The thinking is that if it’s not zero emissions, it’s not worth doing.

Gates emphasizes the need to sharply reduce the range of green premia on various technologies to achieve net-zero carbon emissions by 2050. But the goal of net-zero emissions 2050 is based on the highly unlikely proposition that global catastrophe awaits failing net-zero. In fact, the predicted consequences of doing nothing are based on drastic and outdated carbon growth scenarios and rudimentary carbon-forcing models that have proven to be severely biased to the upside in terms of predicting global temperature trends.

The idea that 2050 is some kind of “deadline” is a wholly arbitrary determination. Furthermore, the absolutism with which such goals are stated belies a failure to properly assess the true costs and benefits of carbon-based energy. If we so much as accept the notion that fossil fuels have external costs, we are then expected to accept that zero carbon emissions is optimal. This is not “science”; it is doctrine propped-up by bizarre and false scare stories. It involves massive efforts to manipulate opinion and coerce behavior based upon shoddy forecasts produced by committee. Even carbon capture technology is considered “problematic” because it implies that someone, somewhere, will use a process that emits CO2. That’s a ridiculous bogeyman, of course, and even Gates supports development of carbon capture.

Conclusion

I’ve never felt any real antipathy for Bill Gates as a person. He built a fortune, and I used his company’s software for most of my career. In some ways I still prefer it to macOS. I believe Gates is sincere in his efforts to help humanity even if his efforts are misdirected. He seems to reside on the less crazy end of the spectrum of climate alarmists. He’s putting a great deal of his private resources toward development of technologies that, if successful, might actually lead to less coercion by those attempting to transform private energy decisions. Nevertheless, there is menace in some of the solutions to which Gates clings. They require concerted action on the part of central authorities that would commandeer private resources and abrogate liberty. His assertion that the world is over-populated is both dubious and dangerous. You can offer free health care, but a conviction that the population must be thinned can lead to far more radical and monstrous initiatives.

The “green premium” promoted by Gates is an indirect measure of how far we must go to achieve parity in the pricing of carbon and non-carbon energy sources, as if parity should be an objective of public policy. That proposition is based on bad economics, fraudulent analyses of trends in carbon concentrations and climate trends, and a purposely incomplete menu of technological alternatives. Yes, the green premium highlights various technological challenges, but it is also a direct measure of how much intervention via taxes or subsidies are necessary to achieve parity. Is that a temptation to policymakers? Or does it represent a daunting political barrier? It’s pretty clear that the “median voter” does not view climate change as the only priority.

Infrastructure Or Infra-Stricture? The Democrats’ $3.5 Trillion Reconciliation Bill

16 Thursday Sep 2021

Posted by Nuetzel in Big Government, Central Planning, infrastructure, Uncategorized

≈ 3 Comments

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Antonia Ocasio-Cortez, Bernie Sanders, Biden Administration, Budget Reconcilation Bill, Capital Gains, Civilian Climate Corps, Clean Energy, corporate income tax, dependency, Federal Reserve, Fossil fuels, Green Cards, infrastructure, Joe Manchin, Legal Permanent Residency, Paid Family Leave, Physical Investment, Productivity Growth, Social Infrastructure, Tax the Rich, Tragedy of the Commons, Universal Pre-School, Welfare State

The Socialist Party faithful once known as Democrats are pushing a $3.5 trillion piece of legislation they call an “infrastructure” bill. They hope to pass it via budget reconciliation rules with a simple majority in the Senate. The Dems came around to admitting that the bill is not about infrastructure in the sense in which we usually understand the term: physical installations like roads, bridges, sewer systems, power lines, canals, port facilities, and the like. These kinds of investments generally have a salutary impact on the nation’s productivity. Some “traditional” infrastructure, albeit with another hefty wallop of green subsidies, is covered in the $1.2 trillion “other” infrastructure bill already passed by the Senate but not the House. The reconciliation bill, however, addresses “social infrastructure”, which is to say it would authorize a massive expansion in the welfare state.

What Is Infrastructure?

Traditionally, public and private infrastructure are underlying assets that facilitate production or consumption in one way or another, consistent with the prefix “infra”, meaning below or within. For example, a new factory requires physical access by roads and/or rail, as well as sewer service, water, gas and/or electric supply. All of the underlying physical components that enable that factory to operate may be thought of as private infrastructure, which has largely private benefits. Therefore, it is often privately funded, though certainly not always.

Projects having many beneficiaries, such as highways, municipal sewers, water, gas and electrical trunk lines, canals, and ports may be classified as public infrastructure, though they can be provided and funded privately. Pure public infrastructure provides services that are non-rivalrous and non-excludable, but examples are sparse. Nevertheless, the greater the public nature of benefits, the greater the rationale for government involvement in their provision. In practice, a great deal of “public” infrastructure is funded by user fees. In fact, a failure to charge user fees for private benefits often leads to a tragedy of the commons, such as the overuse of free roads, imposing a heavier burden on taxpayers.

The use of the term “infrastructure” to describe forms of public support is not new, but the scope of government interventions to which the term is applied has mushroomed during the Biden Administration. Just about any spending program you can think of is likely to be labeled “infrastructure” by so-called progressives. The locution is borrowed somewhat questionably, seemingly motivated by the underlying structure of political incentives. More bluntly, it sounds good as a sales tactic!

$3.5 Trillion and Chains

Among other questionable items, the so-called budget reconciliation “infrastructure” bill allocates funds toward meeting:

“… the President’s climate change goals of 80% clean electricity and 50% economy-wide carbon emissions by 2030, while advancing environmental justice and American manufacturing. The framework would fund:
• Clean Energy Standard
• Clean Energy and Vehicle Tax Incentives
• Civilian Climate Corps
• Climate Smart Agriculture, Wildfire Prevention and Forestry
• Federal procurement of clean technologies
• Weatherization and Electrification of Buildings
• Clean Energy Accelerator”

The resolution would also institute “methane reduction and polluter import fees”. Thus, we must be prepared for a complete reconfiguration of our energy sector toward a portfolio of immature and uneconomic technologies. This amounts to an economic straightjacket.

Next we have a series of generous programs and expansions that would encourage dependence on government:

“• Universal Pre-K for 3 and 4-year old children
• High quality and affordable Child Care
• [free] Community College, HBCUs and MSIs, and Pell Grants
• Paid Family and Medical Leave
• Nutrition Assistance
• Affordable Housing”

If anything, pre-school seems to have cognitive drawbacks for children. Several of these items, most obviously the family leave mandate, would entail significant regulatory and cost burdens on private businesses.

There are more generous provisions on the health care front, which are good for further increasing the federal government’s role in directing, regulating, and funding medical care:

“• new Dental, Vision, and Hearing benefit to Medicare
• Home and Community-Based Services expansion
• Extend the Affordable Care Act Expansion from the ARP
• Close the Medicaid “Coverage Gap” in the States that refused to expand
• Reduced patient spending on prescription drugs”

Finally, we have a series of categories intended to “help workers and communities across the country recover from the COVID-19 pandemic and reverse trends of economic inequality.”

“• Housing Investments
• Innovation and R & D Upgrades
• American Manufacturing and Supply Chains Funding
• LPRs for Immigrants and Border Mangt. • Pro-Worker Incentives and Penalties • Investment in Workers and Communities • Small Business Support

I might suggest that a recovery from the pandemic would be better served by getting the federal government out of everyone’s business. The list includes greater largess and more intrusions by the federal government. The fourth item above, grants of legal permanent residency (LPR) or green cards, would legalize up to 8 million immigrants, allowing them to qualify for a range of federal benefits. It would obviously legitimize otherwise illegal border crossings and prevent any possibility of eventual deportation.

Screwing the Pooch

How many of those measures really sound like infrastructure? This bill goes on for more than 10,000 pages, so the chance that lawmakers will have an opportunity to rationally assess all of its provisions is about nil! And the reconciliation bill doesn’t stop at $3.5T. There are a few budget gimmicks being leveraged that could add as much as $2T of non-infrastructure spending to the package. One cute trick is to add certain provisions affecting revenue or spending years from now in order to cut the bill’s stated price tag.

A number of the bill’s generous giveaways will have negative effects on productive incentives. It’s also clear that some items in the bill will supplement the far Left’s educational agenda, which is seeped in critical theory. And the bill will increase the dominance of the federal government over not only the private sector, but state and local sovereignty as well. This is another stage in the metastasis of the federal bureaucracy and the dependency fostered by the welfare state.

Taxing the Golden Goose

But here’s the really big rub: the whole mess has to be paid for. The flip side of our growing dependency on government is the huge obligation to fund it. Check this out:

“American ‘consumer units,’ as BLS calls them, spent a net total of $17,211.12 on taxes last year while spending only $16,839.89 on food, clothing, healthcare and entertainment combined,”

Democrats continue to dicker over the tax provisions of the bill, but the most recent iteration of their plan is to cover about $2.9 trillion of the cost via tax hikes. Naturally, the major emphasis is on penalizing corporations and “the rich”. The latest plan includes:

increasing the corporate income tax from 21% to 26.8%;
increasing the top tax rate on capital gains from 20% to 25%;
an increase in the tax rate for incomes greater than $400,000 ($450,000 if married filing jointly)
adding a 3% tax surcharge for those with adjusted gross incomes in excess of $5 million;
Higher taxes on tobacco and nicotine products;
halving the estate and gift tax exemption;
limiting deductions for executive compensation;
changes in rules for carried interest and crypto assets.

There are a few offsets, including the promise of tax reductions for individuals earning less than $200,000 and businesses earning less than $400,000. We’ll see about that. Those cuts would expire by 2027, which reduces their “cost” to the government, but it will be controversial when the time comes.

The Dem sell job includes the notion that corporate income belongs to the “rich”, but as I’ve noted before, the burden of the corporate income tax falls largely on corporate workers and consumers. Lower wages and higher prices are almost sure to follow. This would deepen the blade of the Democrats’ political hari-kari, but they pin their hopes on the power of alms. Once bestowed, however, those will be difficult if not impossible to revoke, and the Dems know this all too well.

The assault on the “rich” in the reconciliation bill is both ill-advised and unlikely to yield the levels of revenue projected by Democrats. Like it or not, the wealthy provide the capital for most productive investment. Taxing their returns and their wealth more heavily can only reduce incentive to do so. Those investors will seek out more tax-advantaged uses for their funds. That includes investments in non-productive but federally-subsidized alternatives. Capital gains can often be deferred, of course. These penalties also ensure that more resources will be consumed in compliance and tax-avoidance efforts. The solutions offered by armies of accountants and tax attorneys will tend to direct funds to uses that are suboptimal in terms of growth in economic capacity.

What isn’t funded by new taxes will be borrowed by the federal government or simply printed by the Federal Reserve. Thus, the federal government will not only compete with the private sector for additional resources, but the monetary authority will provide fuel for more inflation.

Fracturing Support?

Fortunately, a few moderate Democrats in both the House and the Senate are balking at the exorbitance of the reconciliation bill. Senator Joe Manchin of West Virginia has said he would like to see a package of no more than $1.5 trillion. That still represents a huge expansion of government, but at least Manchin has offered a whiff of sanity. Equally welcome are threats from radical Democrats like Senator Bernie Sanders and Rep. Antonia Ocasio-Cortez that a failure to pass the full reconciliation package will mean a loss of their support for the original $1.2 trillion infrastructure bill, much of which is wasteful. We should be so lucky! But that’s a lot of pork for politicians to walk away from.

Infra-Shackles

The so-called infrastructure investments in the reconciliation bill represent a range of constraints on economic growth and consumer well being. Increasing the government’s dominance is never a good prescription for productivity, whether due to regulatory and compliance costs, bureaucratization of decision-making, minimizing the role of price signals, pure waste through bad incentives and graft, and public vs. private competition for resources. The destructive tax incentives for funding the bill are an additional layer of constraints on growth. Let’s hope the moderate Democrats hold firm, or even better, that the tantrum-prone radical Democrats are forced to make good on their threats.

Green Climate Policy Wreaks Poverty

03 Friday Sep 2021

Posted by Nuetzel in Climate science, Environmental Fascism

≈ 6 Comments

Tags

Assessment Report #6, Carbon Emissions, Cooling the Past, Deforestation, Democratic Republic of Congo, Diablo Canyon, Disparate impact, Economic Development, Energy Poverty, Fossil fuels, Hügo Krüger, Intergovernmental Panel on Climate Change, IPCC, Jennifer Marohasy, Jim Crow Environmentalism, Joel Kotkin, Judith Curry, Michael Schellenberger, Natural Gas, Net Zero Carbon, Nuclear power, Rare Earth Minerals, Regressive Policy, Remodeled Temperatures, Renewable energy, Steve Koonin

Have no doubt: climate change warriors are at battle with humanity itself, ostensibly on behalf of the natural world. They would have us believe that their efforts to eliminate the use of fossil fuels are necessary to keep our planet from becoming a blazing hothouse. However, the global temperature changes we’ve witnessed over the past 150 years, based on the latest Assessment Report (AR6) from the Intergovernmental Panel on Climate Change (IPCC), are well within the range of historical variation.

“Remodeled” History

Jennifer Marohasy posted an informative discussion of the IPCC’s conclusions last month, putting them into a broader climatological context and focusing in particular on measurement issues. In short, discussing “global” temperatures with any exactitude is something of a sham. Moreover, the local temperature series upon which the global calculations are based have been “remodeled.” They are not direct observations. I don’t think it’s too crude to say they’ve been manipulated because the changed records are almost always in one direction: to “cool” the past.

Judith Curry is succinct in her criticism of the approach to climate change adopted by alarmist policymakers and many climate researchers:

“In a nutshell, we’ve vastly oversimplified both the problem and its solutions. The complexity, uncertainty, and ambiguity of the existing knowledge about climate change is being kept away from the policy and public debate. The solutions that have been proposed are technologically and politically infeasible on a global scale.”

We need a little more honesty!

The Real Victims

I want to focus here on some of the likely casualties of the war on fossil fuels. Those are, without a doubt, the world’s poor, who are being consigned by climate activists to a future of abject suffering. Joel Kotkin and Hügo Krüger are spot-on in their recent piece on the inhumane implications of anti-carbon ideology.

Energy-poor areas of the world are now denied avenues through which to enhance their peoples’ well being. Attempts to fund fossil-fuel power projects are regularly stymied by western governments and financial institutions in the interests of staving off political backlash from greens. Meanwhile, far more prosperous nations power their economies with traditional carbon-based energy sources. Most conspicuously, China continues to fuel its rapid growth with coal and other fossil fuels, getting little pushback from climate activists. If you’re wondering how the composition of energy output has evolved, this time-lapse chart is a pretty good guide.

One of the most incredible aspects of this situation is how nuclear energy has been spurned, despite its status as a proven and safe solution to carbon-free power. This excellent thread by Michael Schellenberger covers the object lesson in bad public policy offered by the proposed closing of the Diablo Canyon nuclear plant in California.

In both the U.S. and other parts of the world, as Kotkin and Krüger note, it is not just the high up-front costs that lead to the rejection of these nuclear projects. The green lobby and renewable energy interests are now so powerful that nuclear energy is hardly considered. Much the same is true of low-carbon natural gas:

“Sadly, the combination of virtue-signaling companies and directives shaped by green activists in rich countries – often based on wildly exaggerated projections, notes former Barack Obama advisor Steve Koonin – make such a gradual, technically feasible transition all but impossible. Instead, it is becoming increasingly unlikely that developing countries will be able to tap even their own gas.”

Energy is the lifeblood of every economy. Inadequate power creates obstacles to almost any form of production and renders some kinds of production impossible. And ironically, the environmental consequences of “energy poverty” are dire. Many under-developed economies are largely dependent on deforestation for energy. Without a reliable power grid and cheap energy, consumers must burn open fires in their homes for heat and cooking, a practice responsible for 50% of child pneumonia deaths worldwide, according to Kotkin and Krüger.

Green Environmental Degradation

Typically, under-developed countries are reliant on the extraction of natural resources demanded by the developed world:

“The shift to renewables in the West, for example, has increased focus on developing countries as prime sources for critical metals – copper, lithium, and rare-earth minerals, in particular – that could lead to the devastation of much of the remaining natural and agricultural landscape. … Lithium has led to the depletion of water resources in Latin America and the further entrenchment of child labor in the Democratic Republic of the Congoas the search for cobalt continues.”

Unfortunately, the damage is not solely due to dependence on resource extraction:

“The western greens, albeit unintentionally, are essentially turning the Third World into the place they send their dirty work. Already, notes environmental author Mike Shellenberger, Africans are stuck with loads of discarded, highly toxic solar panels that expose both the legions of rag-pickers and the land itself to environmental degradation – all in the name of environmentalism.”

Battering the Poor In the West

Again, wealthy countries are in far better shape to handle the sacrifices required by the climate calamitists, but it still won’t be easy. In fact, lower economic strata will suffer far more than technocrats, managers, and political elites. The environmental left leans on the insidious lever of energy costs in order to reduce demand, but making energy more costly takes a far larger bite out of the budgets of the poor. In another recent piece, “Jim Crow Returns to California,” Kotkin discusses the disparate impact these energy policies have on minorities.

“This surge in prices derives from the state’s obsession — shared by the ruling tech oligarchs — with renewable energy and the elimination of fossil fuels. Yet as a recent Massachusetts Institute of Technology (MIT) report has shown, over-reliance on renewables is costly, because it requires the production of massive (and environmentally unfriendly) battery-storage capacity — the price of which is invariably passed on to the taxpayer.

This is not bad news for the tech oligarchs, who have been prominent among those profiting from ‘clean energy’ investments. But many other Californians, primarily those in the less temperate interior, find themselves falling into energy poverty or are dependent on state subsidies that raise electricity prices for businesses and the middle class. Black and Latino households are already forced to pay from 20 to 43% more of their household incomes on energy than white households. Last year, more than 4 million households in California (30% of the total) experienced energy poverty.”

Kotkin touches on other consequences of these misguided policies to minority and non-minority working people. In addition to jobs lost in the energy sector, a wide variety of wage earners will suffer as their employers attempt to deal with escalating energy costs. The immediate effects are bad enough, but in the long-run the greens’ plans would scale back the economy’s productive machinery in order to eliminate carbon emissions — net zero means real incomes will decline!

Energy costs have a broad impact on consumer’s budgets. Almost every product imaginable is dependent on energy, and consumer prices will reflect the higher costs. In addition, the “green” effort to curtail development everywhere except in high-density transit corridors inflates the cost of housing, inflicting more damage on workers’ standards of living.

Tighten Your Belts

These problems won’t be confined to California if environmental leftists get their version of justice. Be prepared for economic stagnation for the world’s poor and a sharply reduced standard of living in the developed world, but quite unnecessarily. We’ll all pay in the long run, but the poor will pay much more in relative terms.

Renewable Power Gains, Costs, and Fantasies

01 Thursday Jul 2021

Posted by Nuetzel in Electric Power, Renewable Energy

≈ 2 Comments

Tags

Baseload, Blackouts, California, Combined-Cycle Gas, Dispatchable Power, Disposal Costs, Dung Burning, Energy Information Administration, External Costs, Fossil fuels, Francis Menton, Germany, Green Propaganda, Interrmittency, Levelized Costs, Modern Renewables, Peak Demand, Plant Utilization, Renewable energy, Solar Power, Texas, The Manhattan Contrarian, Willis Eschenbach, Wind Power

“Modern” renewable energy sources made large gains in providing for global energy consumption over the ten years from 2009-19, according to a recent report, but that “headline” is highly misleading. So is a separate report on the costs of solar and wind power, which claims those sources are now cheaper than any fossil fuel. The underlying facts will receive little critical examination by a hopelessly naive press, nor among analysts with more technical wherewithal. Of course, “green” activists will go on using misinformation like this to have their way with policy makers.

Extinguishing Dung Fires

The “Renewables Global Status Report” was published in mid-June by an organization called REN21: Renewables Now. Francis Menton has a good discussion of the report on his blog, The Manhattan Contrarian. The big finding is a large increase in the global use of “modern” renewable energy sources, from 8.7% of total consumption in 2009 to 11.2% in 2019. The “modern” qualifier is critical: it distinguishes renewables that made gains from those that might be considered antiquated, like dung chips, the burning of which is an energy staple in many underdeveloped parts of the world. In fact, the share of those “non-modern renewables” declined from 11.0% to 8.7%, almost fully accounting for the displacement caused by “modern renewables”. The share of fossil fuels was almost unchanged, down from 80.3% in 2009 to 80.2% in 2019. Whatever the benefits of wind, solar, and other modern green power sources, they did not make much headway in displacing reliable fossil fuel energy.

I certainly can’t argue that replacing dung power with wind, solar, or hydro is a bad thing (but there are more sophisticated ways of converting dung to energy than open flame). However, I contend that replacing open dung fires with fossil-fuel or nuclear capacity would be better than renewables from both a cost and an environmental perspective. Be that as it may, the adoption of “modern renewables” over the ten-year period was not at the expense of fossil fuels, as might be expected if the latter was at a cost disadvantage, and remember that renewables were already given an edge via intense government efforts to subsidize and even require the use of wind and solar power.

The near-term limits on our ability to substitute renewables for fossil fuels should be fairly obvious. For one thing, renewable power is intermittent, so it cannot be relied upon for baseload generation. The chart at the top of this post demonstrates this reality, though the chart is “optimistic” in the sense that planners have to consider worst-case intermittency, not merely average production by time-of-day. Reliable power sources must be maintained in order to prevent the kinds of disasters like we saw in Texas last winter when demand spiked and output from renewables plunged. This is an area of considerable denialism: a search on “intermittent renewables” gets you an unending list of rosy assessments of energy storage technologies, and very little realistic commentary on today’s needs for meeting base-load or weather-induced demands.

While renewables account for about 29% of global electricity generation, there is another limit on adoption: certain jobs just can’t be done with renewables short of major advances in battery technology. As Menton says:

“Steel mills and tractor trailer trucks and airplanes powered by solar panels? Not happening. … I think these people really believe that if governments will just do the right thing and require airplanes to run on solar panels, then it will promptly happen.”

Cost and Intermittency

Again, we’d expect to see more rapid conversion to renewable energy, at least in compatible applications, as the cost of renewables drops relative to fossil fuels. And major components of their costs have indeed dropped, so much so that the U.S. Energy Information Administration (EIA) now says they are cheaper than fossil fuels in terms of the “levelized cost” of new electric generating capacity. That’s the average cost per megawatt-hour produced over the life of a new installation. The EIA’s calculations are distorted on at least two counts, however, as Willis Eschenbach ably explains here.

The EIA’s cost figures reflect a “capacity factor” that adjusts the megawatts produced to presumed “real world” conditions. It’s more like a utilization adjustment made necessary by a variety of realities (intermittency as well as other technical imperfections) that cause output to run lower than the maximum under ideal conditions. Eschenbach reports that the factors applied by the EIA for solar and wind, at 30% and 41%, respectively, are overstated drastically, which reduces their cost estimates by overstating output. For solar, he cites a more realistic value of 14%, which would more than double the levelized cost of solar. For wind, he quotes a figure of 30%, which would increase the cost of wind power by more than a third. That puts the cost of those renewables well above that of a “combined-cycle gas” plant, which uses exhaust from gas turbines to generate additional power via steam.

The true costs of renewables are likely much higher than nuclear power as well, based on earlier comparisons of nuclear to combined-cycle gas. The EIA does not report a cost for nuclear power, however, because the report is for new capacity, and no additions of nuclear capacity are expected.

The Cost of Back-Up Capacity

Eschenbach notes a second major problem with the EIA cost comparisons. As discussed above, the intermittency of solar and wind power means that their deployment cannot provide for base loads. Other “dispatchable” power technologies, on which production can be ramped up or down at discretion, must be available to meet power needs when renewables are off-line, as is frequently the case. The more we attempt to rely on renewables, the more significant the intermittency problem becomes, as Germany, Texas, and California are discovering.

How to account for the extra cost of dispatchable power required to smooth production or meet peak demand? Renewables are simply incapable of doing so reliably, and back-up capacity ain’t free! Meeting demand at all times requires equivalent dispatchable capacity in the power mix. It requires not just dispatchable baseload capacity, but surge capacity! Meeting long-term growth in demand with renewables implies that new back-up capacity is required as well, and the levelized cost should reflect it. After all, those costs won’t be saved by virtue of adding renewable capacity, unless you plan on blackouts. Thus, the EIA’s levelized cost comparisons of wind, solar and fossil fuel electricity generation are completely phony.

Conclusion

Growth in wind and solar power increased their contribution to global energy needs to more than 11% in 2019, but their gains over the previous ten years came largely at the expense of more “primitive” renewable energy sources, not fossil fuels. And despite impressive declines in the installation costs of wind and solar power, and despite low variable costs, the economics of power generation still favors fossil fuels rather substantially. In popular discussions, this point is often obscured by the heavy subsidies granted to renewables.

In truth, the “name-plate” capacities of wind and solar installations far exceed typical output, so installation costs are spread over less output than is widely believed. Furthermore, the intermittency of production from these renewable sources means that back-up capacity is still required, almost always from plants fired by fossil fuels. Properly considered, this represents a significant incremental cost of renewable power sources, but it is one that is routinely ignored by environmentalists and even in official reports. It’s also worth noting that “modern” renewables carry significant external costs to the environment both during the useful life of plant and at disposal (and see here). It’s tempting to say all these distortions and omissions are deliberate contributions to the propaganda in favor of government mandates for renewables.

Sacred Cow Chips

Tag Archives: Fossil fuels

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Rejecting Fossil Fuels at Our Great Peril

Markets Deal With Scarcity, Left Screams “Price Gouging”

Break the Market, Blame It, Then Break It Some More

Bill Gates, Wayward Climate Nerd

Green Climate Policy Wreaks Poverty

Renewable Power Gains, Costs, and Fantasies