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

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

≈ Leave a comment

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

≈ Leave a comment

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

≈ Leave a comment

Tags

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

≈ 2 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

≈ Leave a comment

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.

April 22: Happy Human Achievement Day!

21 Sunday Apr 2019

Posted by pnoetx in Free markets, Free Trade, Human Welfare, Uncategorized

≈ Leave a comment

Tags

Disease, Don Boudreaux, Earth Day, Fossil fuels, Free Markets, Human Ingenuity, Human Progress, Literacy, Marion Tupy, Paul Driessen, Poverty

By way of celebrating human ingenuity, I’ll be driving 600 miles on Monday in a beautiful sedan powered by high-octane fuel. I’ll be clothed in incredibly comfortable fibers and have access to a great variety of listening amusements via satellite. The celebration will continue when I arrive home. I’ll enjoy the comfort of climate-control, electric power, modern plumbing, a refrigerator and pantry full of agricultural bounty, delicious wine, and even more incredible access to entertainment and intellectual pursuits. But it’s not just the goods and technology I’ll celebrate. I’ll also raise a glass to the fabulous, free-market institutions that have made all this possible, effectively allowing us to trade with specialized producers all around the world at low cost, and at prices that signal the true scarcities of resources… ill-considered tariffs aside.

In honor of mankind’s great achievements, I bring you additional testimony from Don Boudreaux, who provides some juicy tidbits to mark our progress. Here is more from Marion Tupy at humanprogess.org. And one more link is from Paul Driessen, who last Thanksgiving wrote of the the many developments since 1800 that have drastically improved human well being, including the ability to exploit fossil fuels that are extremely clean-burning and efficient relative to primitive energy sources.

What riches we enjoy today! Contrary to the claims of doomsayers, busybodies, and self-appointed enforcers of an austere existence, our prospects for continued improvement in human standards of living are excellent. The long arc of technological progress has made the effective abundance of resources greater and more sustainable than ever. As the many charts in Tupy’s article demonstrate, long-term trends in real incomes, poverty, literacy, longevity and the incidence of disease are quite favorable. We owe all that to the spread of human ingenuity, freedom, and voluntary exchange. That’s truly progressive!

A Carbon Tax Would Be Fine, If Only …

01 Friday Mar 2019

Posted by pnoetx in Environment, Global Warming, Taxes

≈ Leave a comment

Tags

A.C. Pigou, Carbon Dividend, Carbon Tax, Climate Change, Economic Development, External Cost, Fossil fuels, Green New Deal, IPCC, John Cochrane, Michael Shellenberger, Pigouvian Tax, Quillette, Renewable energy, Revenue Neutrality, Robert P. Murphy, Social Cost of Carbon, Warren Meyer, William D. Nordhaus

I’ve opposed carbon taxes on several grounds, but I admit that it might well be less costly as a substitute for the present mess that is U.S. climate policy. Today, we incur enormous costs from a morass of energy regulations and mandates, prohibitions on development of zero-carbon nuclear power, and subsidies to politically-connected industrialists investing in corn ethanol, electric cars, and land- and wildlife-devouring wind and solar farms. (For more on these costly and ineffective efforts, see Michael Shellenberger’s “Why Renewables Can’t Save the Planet” in Quillette.) Incidentally, the so-called Green New Deal calls for a complete conversion to renewables in unrealistically short order, but with very little emphasis on a carbon tax.

The Carbon Tax

Many economists support the carbon tax precisely because it’s viewed as an attractive substitute for many other costly policies. Some support using revenue from the tax to pay a flat rebate or “carbon dividend” to everyone each year (essentially a universal basic income). Others have pitched the tax as a revenue-neutral replacement for other taxes that are damaging to economic growth, such as payroll taxes or taxes on capital. Economic growth would improve under the carbon tax, or so the story goes, because the carbon tax is a tax on a “bad”, as opposed to taxes on “good” factors of production. I view these ideas as politically naive. If we ever get the tax, we’ll be lucky to get much regulatory relief in the bargain, and the revenue is not likely to be offset by reductions in other taxes.

But let’s look a little closer at the concept of the carbon tax, and I beg my climate-skeptic friends to stick with me for a few moments and keep a straight face. The tax is a way to attach an explicit price to the use of fuels that create carbon emissions. The emissions are said to inflict social or external costs on other parties, costs which are otherwise ignored by consumers and businesses in their many decisions involving energy use. The carbon tax is a so-called Pigouvian tax: a way to “internalize the externality” by making fossil fuels more expensive to burn. The tax itself involves no prohibitions on behavior of any kind. Certain behaviors are taxed to encourage more “desirable” behavior.

Setting the Tax

But what is the appropriate level of the tax? At what level will it approximate the true “social cost of carbon”? Any departure from that cost would be sub-optimal. Robert P. Murphy contrasts William D. Nordhaus’ optimal carbon tax with more radical levels, which Nordhaus believes would be needed to meet the goals of the United Nation’s Intergovernmental Panel on Climate Change (IPCC). Nordhaus won the 2018 Nobel Prize in economics for his work on climate change. Whatever one might think of the real risks of climate change, Nordhaus’ clearly recognizes the economic downsides to mitigating against those risks.

Nordhaus has estimated that the social cost of carbon will be $44/ton in 2025 (about $0.39 per gallon of gas). He claims that a carbon tax at that level would limit increases in global temperature to 3.5º Celsius by 2100. He purports to show that the costs of a $44 carbon tax in terms of reduced economic output would be balanced by the gains from limiting climate warming. Less warming would require a higher tax with fewer incremental rewards, and even more incremental lost output. The costs of the tax would then outweigh benefits. For perspective, according to Nordhaus, a stricter limit of 2.5º C implies a carbon tax equivalent to $2.50 per gallon of gas. The IPCC, however, prescribes an even more radical limit of 1.5º C. That would inflict a huge cost on humanity far outweighing the potential benefits of less warming.

A Carbon Tax, If…

Many economists have come down in favor of a carbon tax under certain qualifications: revenue-neutrality, a “carbon dividend”, or as a pre-condition to deregulation of carbon sources and de-subsidization of alternatives. John Cochrane discusses a carbon tax in the context of the “Economists’ Statement on Carbon Dividends” (Cochrane’s more recent thoughts are here):

“It’s short, sweet, and signed by, as far as I can tell, every living CEA chair, every living Fed Chair, both Democrat and Republican, and most of the living Nobel Prize winners. … It offers four principles 1. A carbon tax, initially $40 per ton. 2. The carbon tax substitutes for regulations and subsidies and (my words) the vast crony-capitalist green boondoggle swamp, which is chewing up money and not saving carbon. 3. Border adjustment like VAT have [sic] 4. ‘All the revenue should be returned directly to U.S. citizens through equal lump-sum rebates.'”

Rather than a carbon dividend, Warren Meyer proposes that a carbon tax be accompanied by a reduction in the payroll tax, an elimination of all subsidies, mandates, and prohibitions, development of more nuclear power-generating capacity, and contributions to a cleanup of Chinese and Asian coal-power generation. That’s a lot of stuff, and I think it exceeds Meyer’s normal realism with respect to policy issues.

My Opposition

Again, I oppose the adoption of a carbon tax for several reasons, despite my sympathy for the logic of Pigouvian taxation of externalities. At the risk of repeating myself, here I elaborate on my reasons for opposition:

Government Guesswork: First, Nordhaus’ estimates notwithstanding, we do not and cannot know the climate/economic tradeoffs with any precision. We can barely measure global climate, and the history of what measures we have are short and heavily manipulated. Models purporting to show the relationship between carbon forcing and global climate climate change are notoriously unreliable. So even if we can agree on the goal (1.5º, 2.5º, 3.5º), and we won’t, the government will get the tradeoffs wrong. I took the following from a comment on Cochrane’s blog, a quote from A.C. Pigou himself:

“It is not sufficient to contrast the imperfect adjustments of unfettered enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any State authority will attain, or even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure, and to personal corruption by private interest. A loud-voiced part of their constituents, if organized for votes, may easily outweigh the whole.”

Political Hazards: Second, we won’t get the hoped-for political horse trade made explicit in the “Economists’ Statement …” discussed above. As a political matter, the setting of the carbon tax rate will almost assuredly get us a rate that’s too high. Experiences with carbon taxes in Australia, British Columbia, and France have been terrible thus far, sowing widespread dissatisfaction with the resultant escalation of energy prices.

Economic Growth: Neither is it a foregone conclusion that a revenue-neutral carbon tax will stimulate economic growth, and it might actually reduce output. As Robert P. Murphy explains in another post, the outcome depends on the structure of taxes prior to the change. The substitution of the carbon tax will increase output only if it replaces taxes on a factor of production (labor or capital) that is overtaxed prior to the change. That undermines a key selling point: that the carbon tax would necessarily produce a “double dividend”: a reduction in carbon emissions and higher economic growth. Nevertheless, I’d allow that revenue neutrality combined with elimination of carbon regulation and “green” subsidies would be a good bet from an economic growth perspective.

Overstated Risks: Finally, I oppose carbon taxes because I’m unconvinced that the risk and danger of global warming are as great as even Nordhaus would have it. In other words, the external costs of carbon don’t amount to much. Our recorded temperature history is extremely short and is therefore not a reliable guide to the long-term nature of the systemic relationships at issue. Even worse, temperature records are manipulated to exaggerate the trend in temperatures (also see here, here and here). There is no evidence of an uptrend in severe weather events, and the dangers of sea level rise associated with increasing carbon concentrations also have been greatly exaggerated. Really, at some point one must take notice of the number of alarming predictions and doomsday headlines from the past that have not been borne out even remotely. Furthermore, higher carbon concentrations and even warming itself would be of some benefit to humanity. In addition to a greener environment, the benefits include more rapid economic growth, improved agricultural yields, and a reduction in the salient danger of cold-weather deaths.

Economic Development: The use of fossil fuels has helped to enable strong growth in incomes in developed economies. It has also given us energy alternatives such as nuclear power as well as research into other alternatives, albeit with very mixed success thus far. And while a carbon tax would create an additional incentive to develop such alternatives, a U.S. tax would not accomplish much if any global temperature reduction. Such a tax would have to be applied on a global scale. Talk about a political long-shot! Increasing the price of carbon emissions also has enormous downsides for the less developed world. These fragile economies would benefit greatly from development of fossil fuel energy, enabling reductions in poverty and the income growth necessary to someday join in the prosperity of the developed economies. This, along with liberalization of markets, is the affordable way to bring economic success to these countries, which in turn will enable them to consider the energy alternatives that might come to fruition by that time. Fighting the war on fossil fuels in the underdeveloped world is nothing if not cruel.

Electric Cars: EPA Serves Up Green Kool-Aid To Pair With Subsidies

03 Tuesday Oct 2017

Posted by pnoetx in Environment, Subsidies, Technology

≈ Leave a comment

Tags

Coyote Blog, Electric Cars, Energy Efficiency, Energy Losses, Environmental Protection Agency, EPA, Eric Schmidt, Fossil fuels, MPG Conversion Factor, MPGe, Storage Density, Tesla, Transmission Losses, Warren Meyer

Electric cars don’t save much energy over gas-burners if at all, at least for now. Warren Meyer’s recent Coyote Blog post on this topic is aptly titled “Why Is It So Hard To Get Even Smart People To Think Clearly On Electric Vehicle Efficiency“. Meyer begins by quoting the following tweet from Google smarty Eric Schmidt, which typifies the general level of public awareness regarding the supposed energy savings from electric cars produced by Tesla and many others:

“Electric motors are the unsung hero of clean energy – the latest are 97% efficient, vs. 45% for internal combustion.“

Meyer emphasizes these major points:

the efficiency with which source fuels are converted to physical work via electric and gas-burning cars is more comparable than Schmidt’s tweet suggests;
differences in energy density weigh heavily in favor of fuel-burning vehicles.
the so-called miles-per-gallon equivalent (MPGe) calculated by the U.S. Environmental Protection Agency (EPA) is a sham.

First, Schmidt’s tweet is accurate only if the discussion is confined to simple conversion of energy to physical work performed by the respective engines. The tweet ignores energy losses that occur prior to that conversion: electricity must be generated with far less than 100% efficiency, mainly by burning coal and natural gas. In an earlier Forbes article, Meyer compares this situation to a distorted comparison of two refrigerator installers:

“In both cases the customer lives in a fourth floor walkup. The first installer finds the refrigerator has been left on the street. He has to … haul the appliance up four flights of stairs. After that, relatively speaking, the installation is a breeze. The second installer finds his refrigerator has thoughtfully been delivered right to the customer’s door on the fourth floor. He quickly brings the unit inside and completes the installation. So who is a better installer?“

The fact is that both gas-burning and electric vehicles rely heavily on fossil fuels. And, in addition to losses in the generation process, there are other losses of energy attributable to electric cars: transmission of power involves a significant energy loss, as does charging batteries and storage itself. Meyer considers only the extra losses from production and transmission of electricity in the following comparison:

“We take 97% times 90% transmission efficiency times 50% electricity production efficiency equals 43.6%. This is actually less than his 45% figure. By his own numbers, the electric motor is worse….“

Meyer qualifies this comparison, as some of his assumptions are of the “best outcome” variety, but contrary to Schmidt’s assertion, gasoline and electric engines are reasonably comparable in terms of energy efficiency.

Some contend, however, that power losses in electricity transmission are much larger than the 10% Meyer assumes (see the comments on his post). Battery charging involves a loss of perhaps 20%. And a replacement for a Tesla battery, post 8-year warranty, is $8,000 – $12,000, an additional storage “cost” that is virtually non-existent for gas-powered vehicles. Beyond a certain point in its life, that cost will have an impact on a Tesla’s resale value. Moreover, some contend that the production of electric vehicles is more energy-intensive, putting them in an energy efficiency hole right from the get-go.

Meyer then takes up the notion of storage density as an explanation for why early experiments with electric cars were essentially abandoned:

“15 gallons of gasoline weighs 90 pounds and takes up 2 cubic feet. This will carry a 40 mpg car 600 miles. The Tesla Model S 85kwh battery pack weighs 1200 pounds and will carry the car 265 miles (from this article the cells themselves occupy about 4 cubic feet if packed perfectly but in this video the whole pack looks much larger). We can see that even with what Musk claims is twice the energy density of other batteries, the Tesla gets 0.22 miles per pound of fuel/battery while the regular car can get 6.7. More than an order of magnitude, that is simply an enormous difference…“

Meyer notes in the Forbes article that the EPA calculates its MPG conversion factor for electric vehicles by dividing BTU’s in a gallon of gas by the BTUs in a kilowatt hour: 33.7 KwH per gallon. Thus, the EPA multiplies an electric car’s miles per KwH by 33.7 to arrive at the so-called MPG equivalent: MPGe. But as we’ve seen above, the conversion factor ignores the generation and transmission of electricity required at the front end, and the associated energy losses that occur before a single KwH is released by a Tesla battery.

Despite what we hear from the EPA, Tesla, and other interests today, electric cars have not really overcome these disadvantages, at least not yet. The EPA’s MPGe estimates are vastly inflated. Perhaps if they were accurate, these vehicles would not have to rely so heavily on taxpayer subsidies to be competitive. By extension, the presumed environmental benefits of electric cars are nonexistent at this stage of development. I’m certain that Eric Schmidt and many other smart people are capable of understanding these nuances, but they might be too busy tripping over their politics to bother.

The Renewable Energy Jobs Hoax

30 Tuesday May 2017

Posted by pnoetx in Renewable Energy, Subsidies, Uncategorized

≈ Leave a comment

Tags

Fossil fuels, Government Subsidies, infrastructure, James Taylor, Job Creation, Jobs Objective, Marginal cost, Mark Zuckerberg, Renewable energy, Renewable Energy Subsidies, Tariffs, Tim Worstall

James Taylor at Forbes reveals the dishonest math behind the claim that renewable energy generates more jobs than “conventional energy”, i.e., fossil fuels. It’s a simple trick, as Taylor explains:

“… renewable energy advocates create the broadest possible definition of workers ‘supported’ by the solar power industry, falsely claim that the solar power industry ’employed’ all these workers, and then compare that to the narrowest possible definition of just a single segment of workers ‘directly’ employed in the ‘extraction’ component of the much larger natural gas industry.“

Taylor notes that, “In reality, renewable energy isn’t even in the same universe of job creation as conventional energy.” He goes on to cite the report on which these claims are based and picks it apart. The renewable energy job assertions are obviously self-intereseted, as rent seeking lobbyists know that the political class is dominated by easy marks for renewable energy wonder-stories.

Of course Taylor is correct that the claims about renewable energy jobs are false in the aggregate sense. However, it might or might not be true in the marginal sense, and that’s clearly the sense in which the claim is intended to be taken, despite the fact that the data used is not marginal in nature. If true, it’s not a selling point for renewable energy subsidies because “more jobs” represents a greater marginal cost.

And that brings us to an even more critical issue missed by Taylor: public policy should not be based on the objective of direct job creation. Jobs are a cost, not a benefit. We value the finished goods, not the inputs required to produce them. If you don’t quite get that, imagine two bids for the construction of new kitchen in your home. Same plans, same completion date, similarly brilliant customer reviews of the competing contractors. Without knowing the actual bids, if one contractor tells you it’s a three-man job and the other says it’s a four-man job, you’ll be pretty certain which bid you’ll want to accept.

Ah, but you say, that’s not a fair comparison, because I’m paying for it. Yes you are, just as taxpayers (and more generally society) must pay for the subsidies that lobbyists wheedle out of politicians. Or you say, Ah, but we want more renewable jobs because we want renewable energy, ’cause it’s just right. Maybe, maybe not, but if that’s so, then the idea that the cost is higher because more jobs are required per unit of energy is not a good rationale.

It’s often the case that public policy aimed at “creating jobs” is not accompanied by higher output, lower prices, or even… more jobs! For example, tariffs on foreign goods give an advantage to American producers, but at the cost of job losses in import industries and higher domestic prices that harm consumers more broadly, and thereby reduce jobs. When certain industries or firms are subsidized by the government, the taxpayer is harmed directly, not to mention suppliers of alternatives. This is true at the local and national levels: politicians love to talk about job creation when they offer incentives for new facilities or relocations to their jurisdictions, but these subsidies may put other local firms at a competitive disadvantage and leave taxpayers holding the bag for public services supplied to the recipient firm. When government undertakes large taxpayer-funded infrastructure projects, which might or might not boost productivity, the taxes are damaging and the projects are often poorly planned and lack effective cost controls. Jobs are not a reason to support such projects.

Similar points have been discussed in the past here on Sacred Cow Chips, with links to articles emphasizing the distinction between direct jobs created and economic welfare like this one. “Jobs” should never be a policy objective in and of itself. As Tim Worstall explains in a brief review of Mark Zuckerberg’s recent commencement address at Harvard, jobs simply are not the point! Policy must have a better rationale than the high cost of the labor input!