Rejecting Fossil Fuels at Our Great Peril

18 Wednesday May 2022

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

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 pnoetx 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 pnoetx in Energy, Environmental Fascism, Free markets, Uncategorized

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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 pnoetx 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 pnoetx in Big Government, Central Planning, infrastructure, Uncategorized

≈ 2 Comments

Tags

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 pnoetx in Climate science, Environmental Fascism

≈ 4 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 pnoetx 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.

The Futility and Falsehoods of Climate Heroics

01 Tuesday Jun 2021

Posted by pnoetx in Climate science, Environmental Fascism, Global Warming, Uncategorized

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Atmospheric Carbon, Biden Administration, Carbon forcing, Carbon Mitigation, Climate Change, Climate Sensitivity, ExxonMobil, Fossil fuels, global warming, Green Energy, Greenhouse Gas, IPPC, John Kerry, Judith Curry, Natural Gas, Netherlands Climate Act, Nic Lewis, Nuclear power, Putty-Clay Technology, Renewables, Ross McKitrick, Royal Dutch Shell, Social Cost of Carbon, William Nordhaus

The world’s gone far astray in attempts to battle climate change through forced reductions in carbon emissions. Last Wednesday, in an outrageously stupid ruling,a Dutch court ordered Royal Dutch Shell to reduce its emissions by 45% by 2030 relative to 2019 levels. It has nothing to do with Shell’s historical record on the environment. Rather, the Court said Shell’s existing climate action plans did not meet “the company’s own responsibility for achieving a CO2 reduction.” The decision will be appealed, but it appears that “industry agreements” under the Netherlands’ Climate Act of 2019 are in dispute.

Later that same day, a shareholder dissident group supporting corporate action on climate change won at least two ExxonMobil board seats. And then we have the story of John Kerry’s effort to stop major banks from lending to the fossil fuel industry. Together with the Biden Administration’s other actions on energy policy, we are witnessing the greatest attack on conventional power sources in history, and we’ll all pay dearly for it.

The Central Planner’s Conceit

Technological advance is a great thing, and we’ve seen it in the development of safe nuclear power generation, but the environmental left has successfully placed roadblocks in the way of its deployment. Instead, they favor the mandated adoption of what amount to beta versions of technologies that might never be economic and create extreme environmental hazards of their own (see here, here, here, and here). To private adopters, green energy installations are often subsidized by the government, disguising their underlying inefficiencies. These premature beta versions are then embedded in our base of productive capital and often remain even as they are made obsolete by subsequent advances. The “putty-clay” nature of technology decisions should caution us against premature adoptions of this kind. This is just one of the many curses of central planning.

Not only have our leftist planners forced the deployment of inferior technologies: they are actively seeking to bring more viable alternatives to ruination. I mentioned nuclear power and even natural gas offer a path for reducing carbon emissions, yet climate alarmists wage war against it as much as other fossil fuels. We have Kerry’s plot to deny funding for the fossil fuel industry and even activist “woke” investors, attempting to override management expertise and divert internal resources to green energy. It’s not as if renewable energy sources are not already part of these energy firms’ development portfolios. Allocations of capital and staff to these projects are usually dependent upon a company’s professional and technical expertise, market forces, and (less propitiously) incentives decreed by the government. Yet, the activist investors are there to impose their will.

Placing Faith and Fate In Models

All these attempts to remake our energy complex and the economy are based on the presumed external costs associated with carbon emissions. Those costs, and the potential savings achievable through the mitigation efforts of government and private greenies around the globe, have been wildly exaggerated.

The first thing to understand about the climate “science” relied upon by the environmental left is that it is almost exclusively model-dependent. In other words, it is based on mathematical relationships specified by the researchers. Their projections depend on those specs, the selection of parameter values, and the scenarios to which they are subjected. The models are usually calibrated to be roughly consistent with outcomes over some historical time period, but as modelers in almost any field can attest, that is not hard to do. It’s still possible to produce extreme results out-of-sample. The point is that these models are generally not estimated statistically from a lengthy sample of historical data. Even when sound statistical methodologies are employed, the samples are blinkingly short on climatological timescales. That means they are highly sample-specific and likely to propagate large errors out-of-sample. But most of these are what might be called “toy models” specified by the researcher. And what are often billed as “findings” are merely projections based on scenarios that are themselves manufactured by imaginative climate “researchers” cum grant-seeking partisans. In fact, it’s much worse than that because even historical climate data is subject to manipulation, but that’s a topic for another day.

Key Assumptions

What follows are basic components of the climate apocalypse narrative as supported by “the science” of man-made or anthropomorphic global warming (AGW):

(A) The first kind of model output to consider is the increase in atmospheric carbon concentration over time, measured in parts per million (PPM). This is a function of many natural processes, including volcanism and other kinds of outgassing from oceans and decomposing biomass, as well absorption by carbon sinks like vegetation and various geological materials. But the primary focus is human carbon generating activity, which depends on the carbon-intensity of production technology. As Ross McKitrick shows (see chart below), projections from these kinds of models have demonstrated significant upside bias over the years. Whether that is because of slower than expected economic growth, unexpected technological efficiencies, an increase in the service-orientation of economic activity worldwide, or feedback from carbon-induced greening or other processes, most of the models have over-predicted atmospheric carbon PPM. Those errors tend to increase with the passage of time, of course.

(B) Most of the models promoted by climate alarmists are carbon forcing models, meaning that carbon emissions are the primary driver of global temperatures and other phenomena like storm strength and increases in sea level. With increases in carbon concentration predicted by the models in (A) above, the next stage of models predicts that temperatures must rise. But the models tend to run “hot.” This chart shows the mean of several prominent global temperature series contrasted with 1990 projections from the Intergovernmental Panel on Climate Change (IPCC).

The following is even more revealing, as it shows the dispersion of various model runs relative to three different global temperature series:

And here’s another, which is a more “stylized” view, showing ranges of predictions. The gaps show errors of fairly large magnitude relative to the mean trend of actual temperatures of 0.11 degrees Celsius per decade.

(C) Climate sensitivity to “radiative forcing” is a key assumption underlying all of the forecasts of AGW. A simple explanation is that a stronger greenhouse effect, and increases in the atmosphere’s carbon concentration, cause more solar energy to be “trapped” within our “greenhouse,” and less is radiated back into space. Climate sensitivity is usually measured in degrees Celsius relative to a doubling of atmospheric carbon.

And how large is the climate’s sensitivity to a doubling of carbon PPM? The IPCC says it’s in a range of 1.5C to 4.5C. However, findings published by Nic Lewis and Judith Curry are close to the low end of that range, and are those found by the author of the paper described here.

In separate efforts, Finnish and Japanese researchers have asserted that the primary cause of recent warming is an increase in low cloud cover, which the Japanese team attributes to increases in the Earth’s bombardment by cosmic rays due to a weakening magnetic field. The Finnish authors note that most of the models used by the climate establishment ignore cloud formation, an omission they believe leads to a massive overstatement (10x) of sensitivity to carbon forcings. Furthermore, they assert that carbon forcings are mainly attributable to ocean discharge as opposed to human activity.

(D) Estimates of the Social Cost of Carbon (SCC) per ton of emissions are used as a rationale for carbon abatement efforts. The SCC was pioneered by economist William Nordhaus in the 1990s, and today there are a number of prominent models that produce distributions of possible SCC values, which tend to have high dispersion and extremely long upper tails. Of course, the highest estimates are driven by the same assumptions about extreme climate sensitivities discussed above. The Biden Administration is using an SCC of $51 per ton. Some recommend the adoption of even higher values for regulatory purposes in order to achieve net-zero emissions at an early date, revealing the manipulative purposes to which the SCC concept is put. This is a raw attempt to usurp economic power, not any sort of exercise in optimization, as this admission from a “climate expert” shows. In the midst of a barrage of false climate propaganda (hurricanes! wildfires!), he tells 60 Minutes that an acceptable limit on warming of 1.5C is just a number they “chose” as a “tipping point.”

As a measurement exercise, more realistic climate sensitivities yield much lower SCCs. McKitrick presents a chart from Lewis-Curry comparing their estimates of the SCC at lower climate sensitivities to an average of earlier estimates used by IPCC:

High levels of the SCC are used as a rationale for high-cost carbon abatement efforts. If the SCC is overstated, however, then costly abatements represent waste. And there is no guarantee that spending an amount on abatements equal to the SCC will eliminate the presumed cost of a ton’s worth of anthropomorphic warming. Again, there are strong reasons to believe that the warming experienced over the past several decades has had multiple causes, and human carbon emissions might have played a relatively minor role.

Crisis Is King

Some people just aren’t happy unless they have a crisis over which to harangue the rest of us. But try as they might, the vast resources dedicated to carbon reduction are largely wasted. I hesitate to say their effort is quixotic because they want more windmills and are completely lacking in gallantry. As McKitrick notes, it takes many years for abatement to have a meaningful impact on carbon concentrations, and since emissions mix globally, unilateral efforts are practically worthless. Worse yet, the resource costs of abatement and lost economic growth are unacceptable, especially when some of the most promising alternative sources of “clean” energy are dismissed by activists. So we forego economic growth, rush to adopt immature energy alternatives, and make very little progress toward the stated goals of the climate alarmists.

Texas Cold Snap Scarcity: Don’t Blame Markets!

18 Thursday Mar 2021

Posted by pnoetx in Electric Power, Price Mechanism, Renewable Energy, Shortage

≈ 3 Comments

Tags

Blackouts, Electric Reliability Council of Texas, ERCOT, February Cold Spell, Federal Energy Subsidies, Fixed-Rate Plans, Fossil fuels, Interconnection Agreements, Market Efficiency, Price Ceilings, Price Gouging, Renewable energy, Shortages, Solar Power, Supply Elasticity, Texas, Variable-Rate Plans, Wind Power, Winterization

People say the darnedest things about markets, even people who seem to think markets are good, as I do. For example, when is a market “too efficient”? In the real world we tend to see markets that lack perfect efficiency for a variety of reasons: natural frictions, imperfect information, taxes, subsidies, regulations, and too few sellers or buyers. In such cases, we know that market prices don’t properly reflect the true scarcity of a good, as they would under the competitive ideal. Nevertheless, we are usually best-off allowing market forces to approximate true conditions in guiding the allocation of resources. But what does it mean when someone asserts that a market is “too efficient”.

Not long ago I posted about the failure of Texas utility planners to maintain surge capacity. Instead, they plowed resources into renewable energy, which is intermittent and unable to provide for reliable baseline power loads. That spelled disaster when temperatures plunged in February. Wind and solar output plunged while demand spiked. Even gas- and coal-fired power generation hit a pause due to a lack of adequate winterization of generators. The result was blackouts and a huge jump in wholesale power prices, which are typically passed on to customers. The price to some consumers rose to the ceiling of $9/kwh for a time, compared to an average winter rate of 12c/kwh. A bill in the Texas Senate would reverse those charges retroactively.

I cross-linked my post on a few platforms, and a friendly commenter opined that the jump in prices occurred because “markets were too efficient”. For a moment I’ll set aside the fact that what we have here is a monopoly grid operator: “market efficiency” is not a real possibility, despite elements of competition at the retail level. There is, however, a price mechanism in play at the wholesale level and for retail customers on variable rate plans. Prices are supposed to respond to scarcity, and there is no question that power became scarce during the Texas cold snap. Higher prices are both an incentive to curtail consumption and to increase production or attract product from elsewhere. So, rather than saying the “market was too efficient”, the commenter should have said “power was too scarce”! Well duh…

If anything, the episode underscores how un-market-like were the conditions created by the Texas grid operator, the ironically-named Electric Reliability Council of Texas (ERCOT): it allowed massive resources to be diverted to unreliable power sources; it skimped on winterization; it failed to arrange interconnection agreements with power grids outside of Texas; and it charged customers on fixed-rate plans too little to provide for adequate surge capacity, while giving them no incentive to conserve under a stress scenario. ERCOT can be said to have created a situation in which power supply was highly inelastic, which means that a normal market force was short-circuited at a time when it was most needed.

ERCOT‘s mismanagement of power resources is partly a result of incentives created by the federal government. The installation of wind and solar power generation came with huge federal subsidies, which distort the cost of the energy they produce. Thus, not only were incentives in place to invest in unreliable power sources, but ERCOT forced electricity produced by fossil fuels to compete at unrealistically low prices. This predatory pricing forced several power producers into bankruptcy, compromising the state’s baseline and surge capacity.

There are plenty of distortions plaguing the “market” for electric power in Texas, all of which worsened the consequences of the cold snap. This was far from a case of “market efficiency”, as the comment on my original post asserted.

The very idea that markets and the price mechanism are “ruthlessly efficient” is a concession to those who say high prices are always “unfair” in times of crises and shortages. We hear about “price-gougers”, and the media and politicians are almost always willing to join in this narrative. Higher prices help to ease shortages, and they do so far more quickly and effectively than governments or charities can provide emergency supplies (unless, of course, a monopoly grid operator leaves the state more vulnerable to stress conditions than necessary). Conversely, price ceilings only serve to exacerbate shortages and the suffering they cause. So let’s not blame markets, which are never “too efficient”; sometimes the things we trade are just too scarce, and sometimes they are made more scarce by inept planners.

Renewables and Preempted Prosperity

10 Wednesday Jul 2019

Posted by pnoetx in Central Planning, Renewable Energy

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Tags

carbon Sensitivity, David Middleton, Economic Cost of Carbon, Fossil fuels, Intermittancy, John Barry, Los Angeles Eland Project, Martin Heidegger, Matt Ridley, Michael Schellenberger, Murray Bookchin, Renewable energy

Coerced conversion to renewable energy sources will degrade human living conditions. That’s certainly true relative to a voluntary conversion actuated by purely private incentives. It’s likely to be true even in an absolute sense, depending on the speed and severity of the forced transition. A coerced conversion will mean lower real incomes during the transition (one recent estimate: $42,000 total loss per U.S. household to transition by 2030), and the losses will continue after the transition, with little redeeming improvement in environmental conditions or risk.

The Reality

There are several underpinnings for the assertions above. One is that the sensitivity of global temperatures to carbon forcings is relatively low. We know all too well that the climate models relied upon by warming alarmists have drastically over-estimated the extent of warming to date. The models are excessively sensitive to carbon emissions and promote an unwarranted urgency to DO SOMETHING… with other people’s money. There is also the question of whether moderate warming is really a bad thing given that it is likely to mean fewer cold-weather fatalities, increased agricultural productivity, and significant reforestation.

Another underpinning is that the real economics of renewable energy are vastly inferior to fossil fuels and will remain so for some time to come. Proponents of renewables tend to quote efficiencies under optimal operating conditions, free of pesky details like the cost of installing a vast support infrastructure and environmental costs of producing components. Solar and wind energy are tremendously inefficient in terms of land use. One estimate is that meeting a 100% renewable energy target in the U.S. today would require acreage equivalent to the state of California. And of course rare earth minerals must be mined for wind turbines and solar panels, and fossil fuels are needed to produce materials like the steel used to build them.

But the chief renewable bugaboo is that the power generated by wind and solar is intermittent. Our ability to store power is still extremely limited, so almost all surplus energy production is lost. Therefore, intermittency necessitates redundant generating capacity, which imposes huge costs. When the winds are calm and the sun isn’t shining, traditional power sources are needed to meet demand. That redundant capacity must be maintained and kept on-line, as these facilities are even costlier to power up from a dead start.

LA Hucksterism

These issues are typified by the unrealistic expectations of Los Angeles’ plan to replace 7% of the city’s power consumption with renewables. The cost predicted by LA regulators is slightly less than 2 cents per kilowatt hour for solar and even less for battery power, which are unrealistically low. For one thing, those are probably operating costs that do not account for capital requirements. The plan promises to provide power 16 hours a day at best, but it’s not clear that the 7% estimate of the renewable share takes that into account or whether the real figure should be 4.2% of LA’s power needs. The project will require 2,600 acres for solar panels, and if it’s like other solar plant installations, the stated capacity is based on the few hours of the day when the sun’s rays are roughly perpendicular to the panels. So it’s likely that the real cost of the power will be many times the estimates, though taxpayers will subsidize 30% or more of the total. And then there is the negative impact on birds and other wildlife.

The Question of Intent

Michael Schellenberger goes so far as to say that a degraded standard of living is precisely what many fierce renewable advocates have long intended. Modern comforts are simply not compatible with 100% renewable energy any time soon, or perhaps ever given the investment involved, but a target of 100% was not really intended to be compatible with modern comforts. In fact, the renewable proposition was often intermingled with celebration of a more austere, agrarian lifestyle. Schellenberger discusses the case of Martin Heidegger, an early anti-technologist who said in 1954 that modern technology “puts to nature the unreasonable demand that it supply energy....” Of course, Heidegger was not talking about the use of solar panels. Others, like Murray Bookchin, were ultimately quite explicit about the “promise” of renewables to dial-back industrial society in favor of an agrarian ideal. And here’s a quote from a new book by John Barry, Professor of “Green Political Economy” (!) at Queen’s University Belfast:

“The first question which serves as the starting point of this chapter is to ask if the objective of economic growth is now ecologically unsustainable, socially divisive and has in many countries passed the point when it is adding to human wellbeing?”

If that’s the question, the answer is no! The quote is courtesy of David Middleton. Green Professor Barry has one thing right, however: growing anything will be tough after crowding erstwhile farm and forest land with solar panels and wind turbines. But at least someone “green” is willing to admit some economic realities, something many alarmists and politicians are loath to do.

Welfare Loss

Involuntary actions always involve a welfare loss, as “subjects” must sacrifice the additional value they’d otherwise derive from their own choices. So it is that coerced adoption of renewables implies a starker outcome than zero economic growth. Objective measurement of all welfare costs is difficult, but we know that the adoption of renewables implies measurable up-front and ongoing economic losses. Matt Ridley notes that the impact of those losses falls hardest on the poor, whose energy needs absorb a large fraction of income. This, along with fundamental impracticality and high costs, accounts for the populist backlash against radical efforts to promote renewables in some European states. The politics of forced adoption of renewables is increasingly grim, but attempts to sell a centrally-planned energy sector based on renewables continue.

Ridley is rightly skeptical of carbon doomsday scenarios, but the pressure to curb carbon emissions will remain potent. He advocates a different form of intervention: essentially a carbon tax on producers with proceeds dedicated to new, competing sequestration or carbon capture technologies. Still coercive, the tax itself requires an estimate of the “economic cost of carbon”, which is of tremendously uncertain magnitude. The tax, of course, has the potential to do real harm to the economy. On the other hand, Ridley is correct in asserting that the effort to fund competing carbon-capture projects would leverage powerful market forces and perhaps hasten breakthroughs.

Mandated Misery

The attempt to force a complete conversion to renewable energy sources is meeting increasing political challenges as its cost is revealed more clearly by experience. Alarmists have long recognized the danger of economic damage, however. Thus, they try to convince us that economic growth and our current standards of living aren’t as good as we think they are, and they continue to exaggerate claims about the promise of renewable technologies. One day, some of these technologies will be sufficiently advanced that they will be economically viable without taxpayer subsidies. The conversion to renewables should be postponed until that day, when users can justify the switch in terms of costs and benefits, and do so voluntarily without interference by government planners.

Sacred Cow Chips

Tag Archives: Fossil fuels

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

Texas Cold Snap Scarcity: Don’t Blame Markets!

Renewables and Preempted Prosperity