Tag Archives: Net Zero

Tangled Up In Green Industrial Policy II: Rewarding Idle Capital

06 Saturday Apr 2024

Posted by in Energy, Global Warming, Industrial Policy

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A week ago I posted about electrification and particularly EV mandates, one strand of government industrial policy under which non-favored sectors of the economy must labor. This post examines a related industrial policy: manipulation of power generation by government policymakers in favor of renewable energy technologies, while fossil fuels are targeted for oblivion. These interventions are a reaction to an overwrought climate crisis narrative, but they present many obstacles, oversights and risks of their own. Chief among them is whether the power grid will be capable of meeting current and future demand for power while relying heavily on variable resources: wind and sunshine.

Like almost everything I write, this post is too long! Here is a guide to what follows. Scroll down to whatever sections might be of interest:

  • Malinvestment: Idle capital
  • Key Considerations to chew on
  • False Premises: zero CO2? Low cost?
  • Imposed Cost: what and how much?
  • Supporting Growth: with renewables?
  • Resource Constraints: they’re tight!
  • Technological Advance: patience!
  • The Presumed Elephant: CO2 costs
  • Conclusion

Malinvestment

The intermittency of wind and solar power creates a fundamental problem of physically idle capital, which leaves the economy short of its production possibilities. To clarify, capital invested in wind and solar facilities is often idle in two critical ways. First, wind and solar assets have relatively low rates of utilization because of their variability, or intermittency. Second, neither provides “dispatchable” power: it is not “on call” in any sense during those idle periods, which are not entirely predictable. Wind and solar assets therefore contribute less value to the electric grid than dispatchable sources of power having equivalent capacity and utilization.

Is “idle capital” a reasonable characterization? Consider the shipping concerns that are now experimenting with sails on cargo ships. What is the economic value of such a ship without back-up power? Can you imagine them drifting in the equatorial calms for days on end? Even light winds would slow the transport of goods significantly. Idle capital might be bad enough, but a degree of idleness allows flexibility and risk mitigation in many applications. Idle, non–dispatchable capital, however, is unproductive capital.

Likewise, solar-powered signage can underperform or fail over the course of several dark, wintry days, even with battery backup. The signage is more reliable and valuable when it is backed-up by another power source. Again, idle, non-dispatchable capital is unproductive capital.

The pursuit of net-zero carbon emissions via wind and solar power creates idle capital, which increasingly lacks adequate backup power. That should be a priority, but it’s not. This misguided effort is funded from both private investment and public subsidies, but the former is very much contingent on the latter. That’s because the flood of subsidies is what allows private investors to profit from idle capital. Rent-enabled investments like these crowd out genuinely productive capital formation, which is not limited to power plants that might otherwise use fossil fuels.

Creating idle or unemployed physical capital is malinvestment, and it diminishes future economic growth. The surge in this activity began in earnest during the era of negative real interest rates. Today, in an era of higher rates, taxpayers can expect an even greater burden, as can ratepayers whose power providers are guaranteed returns on their regulated rate bases.

Key Consideration

The forced transition to net zero will be futile, but especially if wind and solar energy are the primary focus. Keep the following in mind:

  • The demand for electricity is expected to soar, and soon! Policymakers have high hopes for EVs, and while adoption rates might fall well short of their goals, they’re doing their clumsy best to force EVs down our throats with mandates. But facilitating EV charging presents difficulties. Lionel Shriver states the obvious: “Going Electric Requires Electricity”. Reliable electricity!
  • Perhaps more impressive than prospects for EVs is the expected growth in power demand from data centers required by the explosion of artificial intelligence applications across many industries. It’s happening now! This will be magnified with the advent of artificial general intelligence (AGI).
  • Dispatchable power sources are needed to back-up unreliable wind and solar power to ensure service continuity. Maintaining backup power carries a huge “imposed cost” at the margin for wind and solar. At present, that would entail CO2 emissions, violating the net zero dictum.
  • Perhaps worse than the cost of backup power would be the cost borne by users under the complete elimination of certain dispatchable power sources. An imposed cost then takes the form of outages. Users are placed at risk of losing power at home, at the office and factories, at stores, in transit, and at hospitals at peak hours or under potentially dangerous circumstances like frigid or hot weather.
  • Historically, dispatchable power has allowed utilities to provide reliable electricity on-demand. Just flip the switch! This may become a thing of the past.
  • Wind and solar power are sometimes available when they’re not needed, in which case the power goes unused because we lack effective power storage technology.
  • Wind and solar power facilities operate at low rates of utilization, yet new facilities are always touted at their full nameplate capacity. Capacity factors for wind turbines averaged almost 36% in the U.S. in 2022, while solar facilities averaged only about 24%. This compared with nuclear power at almost 93%, natural gas (66%), and coal (48%). Obviously, the low capacity factors for wind and solar reflect their variable nature, rather than dispatchable responses to fluctuations in power demand.
  • Low utilization and variability are underemphasized or omitted by those promoting wind and solar plant in the media and often in discussions of public policy, and no wonder! We hear a great deal about “additions to capacity”, which overstate the actual power-generating potential by factors of three to four times. Here is a typical example.
  • Wind and solar power are far more heavily subsidized than fossil fuels. This is true in absolute terms and especially on the basis of actual power output, which reveals their overwhelmingly uneconomic nature. From the link above, here are Mitch Rolling and Isaac Orr on this point:
    • “In 2022, wind and solar generators received three and eighteen times more subsidies per MWh, respectively, than natural gas, coal, and nuclear generators combined. Solar is the clear leader, receiving anywhere from $50 to $80 per MWh over the last five years, whereas wind is a distant second at $8 to $10 per MWh …. Renewable energy sources like wind and solar are largely dependent on these subsidies, which have been ongoing for 30 years with no end in sight.”
  • The first-order burden of subsidies falls on taxpayers. The second-order burdens manifest in an unstable grid and higher power costs. But just to be clear, subsidies are paid by governments to producers or consumers to reduce the cost of activity favored by policymakers. However, the International Monetary Fund frequently cites “subsidy” figures that include staff estimates of unaddressed externalities. These are based on highly-simplified models and subject to great uncertainty, of course, especially when dollar values are assigned to categories like “climate change”. Despite what alarmists would have us believe, the extent and consequences of climate change are not settled scientific issues, let alone the dollar cost.
  • Wind and solar power are extremely land- and/or sea-intensive. For example, Casey Handmer estimates that a one-Gigawatt data center, if powered by solar panels, would need a footprint of 20,000 acres. 
  • Solar installations are associated with a significant heat island effect: “We found temperatures over a PV plant were regularly 3–4 °C warmer than wildlands at night….”
  • Wind and solar power both represent major hazards to wildlife both during and after construction.
    • In addition to the destruction of habitat both on- and offshore, turbine blades create noise, electromagnetism, and migration barriers. Wind farms have been associated with significant bird and bat fatalities. Collisions with moving blades are one thing, but changes to the winds and air pressure around turbines are also a danger to avian species.
    • There is a strong likelihood that offshore wind development is endangering whales and dolphins.
    • Solar farms present dangers to waterfowl. These creatures are tricked into diving toward what they believe to be bodies of water, only to crash into the panels.
  • The production of wind and solar equipment requires the intensive use of scarce resources, including environmentally-sensitive materials. Extracting these materials often requires the excavation of massive amounts of rock subject to extensive processing. Mining and processing rely heavily on diesel fuel. Net zero? No.
  • Wind and solar facilities often present major threats of toxicity at disposal, or even sooner. A recent hail storm in Texas literally destroyed a solar farm, and the smashed panels have prompted concerns not only about solar “sustainability”, but also that harsh chemicals may be leaking into the local environment.
  • The transmission of power is costly, but that cost is magnified by the broad spatial distribution of wind and solar generating units. Transmission from offshore facilities is particularly complex. And high voltage lines run into tremendous local opposition and regulatory scrutiny.
  • When wind turbines and solar panels are idle, so are the transmission facilities needed to reach them. Thus, low utilization and the variability of those units drives up the capital needed for power and power transmission.
  • There is also an acute shortage of transformers, which presents a major bottleneck to grid development and stability.
  • While zero carbon is the ostensible goal, zero carbon nuclear power has been neglected by our industrial planners. That neglect plays off exaggerated fears about safety. Fortunately, there is a growing realization that nuclear power may be surest way to carbon reductions while meeting growth in power demand. In fact, new data centers will go off-grid with their own modular reactors.
  • At the Shriver link, he notes the smothering nature of power regulation, which obstructs the objective of providing reliable power and any hope of achieving net zero.
  • The Biden administration has resisted the substitution of low CO2 emitting power sources for high CO2 emitting sources. For example, natural gas is more energy efficient in a variety of applications than other fuel sources. Yet policymakers seem determined to discourage the production and use of natural gas.

False Premises

Wind and solar energy are touted by the federal government as zero carbon and low-cost technologies, but both claims are false. Extracting the needed resources, fabricating, installing, connecting, and ultimately disposing of these facilities is high in carbon emissions.

The claim that wind and solar have a cost advantage over traditional power sources is based on misleading comparisons. First, putting claims about the cost of carbon aside, it goes without saying that the cost of replacing already operational coal or natural gas generating capacity with new wind and solar facilities is greater than doing nothing.

The hope among net zero advocates is that existing fossil fuel generating plant can be decommissioned as more renewables come on-line. Again, this thinking ignores the variable nature of renewable power. Dispatchable backup power is required to reliably meet power demand. Otherwise, fluctuating power supplies undermine the economy’s productive capacity, leading to declines in output, income, health, and well being. That is costly, but so is maintaining and adding back-up capacity. Costs of wind and solar should account for this necessity. It implies that wind and solar generating units carry a high cost at the margin.

Imposed Costs

A “grid report card” from the Mackinac Center for Public Policy notes the conceptual flaw in comparing the levelized cost (à la Lazard) of a variable resource with one capable of steady and dispatchable performance. From the report, here is the crux of the imposed-cost problem:

“… the more renewable generation facilities you build, the more it costs the system to make up for their variability, and the less value they provide to electricity markets.”

A committment to variable wind and solar power along with back-up capacity also implies that some capital will be idle regardless of wind and solar conditions. This is part of the imposed cost of wind and solar built into the accounting below. But while back-up power facilities will have idle periods, it is dispatchable and serves an insurance function, so it has value even when idle in preserving the stability of the grid. For that matter, sole reliance on dispatchable power sources requires excess capacity to serve an insurance function of a similar kind.

The Mackinac report card uses estimates of imposed cost from an Institute for Energy Research to construct the following comparison (expand the view or try clicking the image for a better view):

The figures shown in this table are somewhat dated, but the Mackinac authors use updated costs for Michigan from the Center of the American Experiment. These are shown below in terms of average costs per MWh through 2050, but the labels require some additional explanation.

The two bars on the left show costs for existing coal ($33/MWh) and gas-powered ($22) plants. The third and fourth bars are for new wind ($180) and solar ($278) installations. The fifth and sixth bars are for new nuclear reactors (a light water reactor ($74) and a small modular reactor($185)). Finally, the last two bars are for a new coal plant ($106) and a natural gas plant ($64), both with carbon capture and storage (CCS). It’s no surprise that existing coal and gas facilities are the most cost effective. Natural gas is by far the least costly of the new installations, followed by the light water reactor and coal.

The Mackinac “report card” is instructive in several ways. It provides a detailed analysis of different types of power generation across five dimensions, including reliability, cost, cleanliness, and market feasibility (the latter because some types of power (hydro, geothermal) have geographic limits. Natural gas comes out the clear winner on the report card because it is plentiful, energy dense, dispatchable, clean burning, and low-cost.

Supporting Growth

Growth in the demand for power cannot be met with variable resources without dispatchable backup or intolerable service interruptions. Unreliable power would seriously undermine the case for EVs, which is already tenuous at best. Data centers and other large users will go off-grid before they stand for it. This would represent a flat-out market rejection of renewable investments, ESGs be damned!

Casey Handmer makes some interesting projections of the power requirements of data centers supporting not just AI, but AGI, which he discusses in “How To Feed the AIs”. Here is his darkly humorous closing paragraph, predicated on meeting power demands from AGI via solar:

“It seems that AGI will create an irresistibly strong economic forcing function to pave the entire world with solar panels – including the oceans. We should probably think about how we want this to play out. At current rates of progress, we have about 20 years before paving is complete.”

Resource Constraints

Efforts to force a transition to wind and solar power will lead to more dramatic cost disadvantages than shown in the Mackinac report. By “forcing” a transition, I mean aggressive policies of mandates and subsidies favoring these renewables. These policies would effectuate a gross misallocation of resources. Many of the commodities needed to fabricate the components of wind and solar installations are already quite scarce, particularly on the domestic U.S. front. Inflating the demand for these commodities will result in shortages and escalating costs, magnifying the disadvantages of wind and solar power in real economic terms.

To put a finer point on the infeasibility of the net zero effort, Simon P. Michaux produced a comparative analysis in 2022 of the existing power mix versus a hypothetical power mix of renewable energy sources performing an equal amount of work, but at net-zero carbon emissions (the link is a PowerPoint summary). In the renewable energy scenario, he calculated the total quantities of various resources needed to achieve the objective over one generation of the “new” grid (to last 20 -30 years). He then calculated the numbers of years of mining or extraction needed to produce those quantities based on 2019 rates of production. Take a look at the results in the right-most column:

Those are sobering numbers. Granted, they are based on 2019 wind and solar technology. However, it’s clear that phasing out fossil fuels using today’s wind and solar technology would be out of the question within the lifetime of anyone currently living on the planet. Michaux seems to have a talent for understatement:

“Current thinking has seriously underestimated the scale of the task ahead.”

He also emphasizes the upward price pressure we’re likely to witness in the years ahead across a range of commodities.

Technological Breakthroughs

Michaux’s analysis assumes static technology, but there may come a time in the not-too-distant future when advances in wind and solar power and battery storage allow them to compete with hydrocarbons and nuclear power on a true economic basis. The best way to enable real energy breakthroughs is through market-driven economic growth. Energy production and growth is hampered, however, when governments strong-arm taxpayers, electricity buyers, and traditional energy producers while rewarding renewable developers with subsidies.

We know that improvements will come across a range of technologies. We’ve already seen reductions in the costs of solar panels themselves. Battery technology has a long way to go, but it has improved and might some day be capable of substantial smoothing in the delivery of renewable power. Collection of solar power in space is another possibility, as the feasibility of beaming power to earth has been demonstrated. This solution might also have advantages in terms of transmission depending on the locations and dispersion of collection points on earth, and it would certainly be less land intensive than solar power is today. Carbon capture and carbon conversion are advancing technologies, making net zero a more feasible possibility for traditional sources of power. Nuclear power is zero carbon, but like almost everything else, constructing plants is not. Nevertheless, fission reactors have made great strides in terms of safety and efficiency. Nuclear fusion development is still in its infancy, but there have been notable advances of late.

Some or all of these technologies will experience breakthroughs that could lead to a true, zero-carbon energy future. The timeline is highly uncertain, but it’s likely to be faster than anything like the estimates in Michaux’s analysis. Who knows? Perhaps AI will help lead us to the answers.

A Presumed Elephant

This post and my previous post have emphasized two glaring instances of government failure on their own terms: a headlong plunge into unreliable renewable energy, and forced electrification done prematurely and wrong. Some would protest that I left the veritable “elephant in the room”: the presumed external or spillover costs associated with CO2 emissions from burning fossil fuels. Renewables and electrification are both intended to prevent those costs.

External costs were not ignored, of course. Externalities were discussed explicitly in several different contexts such as the mining of new materials, EV tire wear, the substitution of “cleaner” fuels for others, toxicity at disposal, and the exaggerated reductions in CO2 from EVs when the “long tailpipe” problem is ignored. However, I noted explicitly that estimates of unaddressed externalities are often highly speculative and uncertain, and especially the costs of CO2 emissions. They should not be included in comparisons of subsidies.

Therefore, the costs of various power generating technologies shown above do not account for estimates of externalities. If you’re inclined, other SCC posts on the CO2 “elephant” can be found here.

Conclusion

Power demand is expected to soar given the coming explosion in AI applications, and especially if the heavily-subsidized and mandated transition to EVs comes to pass. But that growth in demand will not and cannot be met by relying on renewable energy sources. Their variability implies substantial idle capacity, higher costs, and service interruptions. Such a massive deployment of idle capital would represents an enormous waste of resources, but the sad fact is it’s been underway for some time.

In the years ahead, the net-zero objective will prove representative of a bumbling effort at industrial planning. Costs will be driven higher, including the cost inflicted by outages and environmental damage. Ratepayers, taxpayers, and innocents will share these burdens. Travis Fisher is spot on when he says the grid is becoming a “dangerous liability” thanks to wounds inflicted by subsidies, regulations, and mandates.

As Charles Glasser put it on Instapundit:

“The National Electrical Grid is teetering on collapse. The shift away from full-time available power (like fossil fuels, LNG, etc.) to so-called ‘green’ sources has deeply impacted reliability.”

“Also, as more whale-killing off-shore wind farms are planned, the Biden administration forgot to plan for the thousands of miles of transmission lines that will be needed. And in a perfect example of leftist autophagy, there is considerable opposition from enviro-groups who will tie up the construction of wind farms and transmission lines in court for decades.”

Meanwhile, better alternatives to wind and solar have been routinely discouraged. The substantial reductions in carbon emissions achieved in the U.S. over the past 15 years were caused primarily by the substitution of natural gas for coal in power generation. Much more of that is possible. The Biden Administration, however, wishes to prevent that substitution in favor of greater reliance on high-cost, unreliable renewables. And the Administration wishes to do so without adequately backing up those variable power sources with dispatchable capacity. Likewise, nuclear power has been shunted aside, despite its safety, low risk, and dispatchability. However, there are signs of progress in attitudes toward bringing more nuclear power on-line.

Industrial policy usually meets with failure, and net zero via wind and solar power will be no exception. Like forced electrification, unreliable power fails on its own terms. Net zero ain’t gonna happen any time soon, and not even by 2050. That is, it won’t happen unless net zero is faked through mechanisms like fraudulent carbon credits (and there might not be adequate faking capacity for that!). Full-scale net-zero investment in wind and solar power, battery capacity, and incremental transmission facilities will drive the cost of power upward, undermining economic growth. Finally, wind and solar are not the environmental panacea so often promised. Quite the contrary: mining of the necessary minerals, component fabrication, installation, and even operation all have negative environmental impacts. Disposal at the end of their useful lives might be even worse. And the presumed environmental gains … reduced atmospheric carbon concentrations and lower temperatures, are more scare story than science.

Postscript: here’s where climate alarmism has left us, and this is from a candidate for the U.S. Senate (she deleted the tweet after an avalanche of well-deserved ridicule):

Tangled Up In Green Industrial Policy: Joe Biden’s Electrification

28 Thursday Mar 2024

Posted by in Government Failure, Industrial Policy, Liberty

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Industrial policy allows government planners to select favored and disfavored industries or sectors. It thereby bypasses and distorts impersonal market signals that would otherwise direct scarce resources to the uses most valued by market participants. Instead, various forms of aid and penalties are imposed on different sectors in order to accomplish the planners’ objectives, This includes interventions in foreign trade and attempts to steer technological development. Industrial policy often comes under the guise of enhanced national security. Of course, it can also be used to reward cronies. And it has a poor record of accomplishing its objectives and avoiding unintended consequences.

The Sausage Factory

The executive and legislative branches of the U.S. government are loaded with economic interventionists, regardless of party affiliation. In an age of (Chevron) judicial deference to “experts” within the administrative state, it is not uncommon for legislative language to give abundant leeway to those who implement policy within the executive branch (though a couple of upcoming Supreme Court decisions might change that balance). Increasingly, bills are stuffed so full of provisions that lawmakers find it all but impossible to read them in full, let alone make an accurate assessment of their virtues, drawbacks, and internal contradictions.

Even worse is the fact that bills are, in great part, written by relatively youthful legislative staffers with little real world experience in industry, and who harbor the naive belief that whatever is wished, government can make it so. But their work also proceeds under guidance from lawmakers, administration officials, consultants, and lobbyists who have their own agendas and axes to grind. This is how industrial policy is promulgated in the U.S., and it is through this ugly prism that we must view environmental policy.

The Left dictates environmental and energy policy in several states, especially California, where energy costs have soared under renewable energy initiatives. California households now pay almost triple the rate per kilowatt-hour paid in Washington, and more than double what’s paid in Oregon. Something similar may happen in New York, which has highly ambitious goals for renewable energy even as the costs of the state’s offshore wind projects are out of control. These and other state-level “laboratories” are demonstrating that a renewable energy agenda can carry very high costs to the populace. The same is true of the painful experience in Germany with its much-heralded Energiewende.

Net Zero

The Left is also pulling the strings within the federal bureaucracy and the Biden Administration. The objective is an industrial policy to achieve “net zero” CO2 emissions, a practical impossibility for at least several decades (unless it’s faked, of course). Nevertheless, that policy calls for phasing out the use of fossil fuels. Under this agenda, mandates and subsidies are bestowed upon the use of renewable electric power sources, while restrictions and penalties are imposed on the production and use of fossil fuels. A subsequent post on the subject of power generation will address this prototypical failure of central planning.

Electrification

Here, I discuss another key objective of our industrial planners: electrify whatever is not electrified in order to advance the net zero agenda. Of course, for some time to come, more than half of electric power will be generated using fossil fuels (currently about 60%, with another 18% nuclear), so the policy is largely a sham on its face, but we’ll return to that point below. The EV tailpipe is very long, as they say.

Electrification means, among other things, the forced adoption of electronic vehicles (EVs). President Biden’s EPA has issued rules on auto emissions that are expected to require, by 2032, that 60% or more of cars and light trucks sold will be EVs. The USA Today article at the link offers this rich aside:

“…the original proposal — which was always technology-neutral in theory, meaning automakers could sell any cars and light-duty trucks they wanted as long as they hit the fleetwide reductions….”

Technology neutral? Hahaha! We aren’t forcing you to choose technologies as long as you meet our technological requirements!

EV Doldrums

Anyway, the EPA’s targets are completely impractical, partly because the value for drivers is lacking. Not coincidentally, the market for EVs seems to have chilled of late. Hertz has soured on heavy use of EVs in its fleet, and Ford has announced reductions in EV production. The new UAW agreements will make it difficult for some domestic producers to turn a profit on EVs. Fisker is just about broke. Apple has cancelled development of its EV, and several other automakers have reduced their production plans. Toyota was the first producer to raise the red flag on the breakneck transition to EVs in favor of a measured reliance on hybrids. Of course, there are other prominent voices cautioning against rapid attempts at electrification in general.

To be fair, some EVs are marvelous machines, but they and their supporting infrastructure are not yet well-suited to the mass market.

A Tangled Web

Here are some drawbacks of EVs that have yet to be adequately addressed:

  • They are expensive, even with the rich-man’s subsidy to buyers paid by the government and carbon credit subsidies granted to producers.
  • Costly battery replacement is an eventuality that looms over the wallets of EV owners.
  • EVs have limited range given the state of battery technology, especially when the weather is cold.
  • There presently exist far too few charging stations to make EVs workable for many people. In any case, charging away from home can be extremely time consuming and the charges vary widely.
  • The purchase and installation of EV chargers at home is a separate matter, and can cost $4,000 or more if an upgrade to the service panel is necessary. Installed costs commonly range from $1,175 to $3,300, depending on the type of charger and the region.
  • EVs are much heavier than vehicles powered by internal combustion engines. As a result, EV tire wear can be a surprising cost causer and pollutant.
  • Used EVs are not in demand, given all of the above, so resale value is questionable.
  • Battery fires in EVs are extremely difficult to extinguish, creating a new challenge for emergency responders.
  • Reliance on EVs for local emergency services would be dangerous without duplicative investment by local jurisdictions to offset the down-time required for charging.
  • For decades to come, the power grid will be unable to handle the load required for widespread adoption of EVs. A rapid conversion would be impossible without a great expansion in generating and transmission capacity, including transformer availability.
  • Domestically we lack the natural resources to produce the batteries required by EVs in a quantity that would satisfy the Administration’s goals. This forces dependence on China, our chief foreign adversary.
  • The mining of those resources is destructive to the environment. Much of it is done in China due to the country’s abundance of rare earth minerals, but wherever the mining occurs, it relies heavily on diesel power.
  • Joel Kotkin points out that China now hosts the world’s largest EV producer, BYD. Biden’s mandates might very well allow China to dominate the U.S. auto market, even as its own CO2 emissions are soaring,,
  • Producers of EVs earn carbon credits for each vehicle sold, which they can sell to other auto producers who fall short of their required mix of EVs in total production. Tesla, for example, earned revenue of $1.8 billion from carbon credit sales in 2022. But note again that these so-called zero-emission vehicles use electricity generated with an average of 60% fossil fuels. Thus, the scheme is largely a sham.

The push for EVs has been hampered by the botched rollout of (non-Tesla) charging stations under a huge Biden initiative in the Infrastructure Investment and Jobs Act. Progress has been bogged down by sheer complexity and expense, including the cost of bringing adequate power supplies to the chargers as well as the difficulty of meeting contracting requirements and operating standards. This is exemplary of the failures that usually await government efforts to engineer outcomes contrary to market forces.

Electric Everything?

Like EVs, electric stoves have drawbacks that limit their popularity, including price and the nature of the heat needed for quality food preparation. In addition to autos and stoves, wholesale electrification would require the replacement or costly reconfiguration of a huge stock of business and household capital that is now powered by fossil fuels, like gas furnaces, tractors, chain saws, and many other tools and appliances. This set of legacy investment choices was guided by market prices that reflect the scarcity and efficiency of the resources, yet government industrial planners propose to lay much of it to waste.

Central Planning: a False Conceit

John Mozena quotes Adam Smith on the social and economic hazards of rejecting the market mechanism and instead accepting governmental authority over the allocation of resources:

“All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.”

And Arnold Kling gives emphasis to the disadvantages faced by even the most benevolent central planner:

“As Ludwig von Mises and Friedrich Hayek pointed out during the socialist calculation debate, central planners lack the information that is produced by markets. By over-riding market prices and substituting their own judgment, regulators incur the same loss of information.”

Advocates of EV industrial policy have failed to appreciate the large gaps between the technology they are determined to dictate and basic consumer requirements. These gaps are along such margins as range, charging time, tire and battery wear, and perhaps most importantly, affordability. The planners have failed to foresee the massive demands on the power grid of a forced replacement of the internal combustion auto stock with EVs. The planners elide the true nature of EV-driven emissions, which are never zero carbon but instead depend on the mix of power sources used to charge EV batteries. Finally, EV mandates show that the industrial planners are oblivious to other environmental burdens inherent in EVs, whatever their true carbon footprint might be.

Continue reading →

Carbon Credits Are Still Largely Fake

06 Wednesday Mar 2024

Posted by in Climate, Renewable Energy

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About a year ago I wrote about the sketchy nature of carbon credits (or “offsets”), which are purchased by people or entities whose actions generate CO2 emissions they’d like to offset. Those actions would include Taylor Swift’s private air travel, electric power generation, and many other activities whose participants wish to have “greenwashed”.

One short digression before I get started: see those black clouds of CO2 in the image above? Well, carbon dioxide doesn’t really look like that. In fact, CO2 is transparent. Trees breathe it! Visually, it’s less obvious than the greenhouse gas known as water vapor in those puffy white clouds, but virtually every image you’ll ever see on-line depicting CO2 emissions shows dark, roiling smoke. I just hate to spoil the scary effect, but there it is.

Back to carbon credits, which help fund projects that offset CO2 emissions (at least theoretically), such as planting new forest acreage (which would absorb CO2 … someday) or preventing deforestation. Other types of offset activities include investment in renewable energy projects and carbon capture technology. So, for example, if a utility’s power generation emits CO2, the creation or preservation of some amount of forested acreage can serve as a carbon sink adequate to offset the utility’s emissions. Net zero! Or so the utility might claim.

If only it were that simple! Paul Mueller explains that the incentive structure of these arrangements is perverse. What if credits are sold on the basis of supposed efforts to preserve forests that were never at risk to begin with? In fact, the promise of revenue from the sale of credits may be a powerful incentive to falsely present forested lands as targets for development. For that matter, cutting forestland for lumber makes more sense if it can be replanted immediately in exchange for revenue from the sale of carbon credits. And newly planted acreage won’t lead to absorption of much CO2 for many years, until the trees begin to mature. Then there are the risks of forest fires or disease that could compromise a forest’s ultimate value as a carbon sink.

Whether through fraud, calamity, or mismanagement, the sad truth is that projects serving as a basis for credits have done far less to reduce deforestation than promised. On top of that, another issue plaguing carbon markets for some time has been double counting of offsets, which can occur under several circumstances. Ultimately, CO2 emissions themselves may have done more to promote the growth of forests than purchases of carbon credits, because CO2 gives life to vegetation!

Obviously, the purchase of offsets raises the incremental cost of any project having CO2 emissions. The incidence of this added cost is borne to a large extent by consumers, especially because power demand is fairly inelastic. The craziness of offset logic may even dictate the purchase of offsets when a plant emitting more CO2 (e.g., coal) is replaced by a plant emitting less (natural gas), because the replacement would still emit carbon!

Some carbon offsets help pay for the construction of renewable power facilities like wind and solar farms. These renewable power facilities contribute to the power supply, of course, but wind turbines and solar farms typically operate at a small fraction of nameplate capacity due to the intermittency of wind and sunshine. Thus, these offsets are far less than complete. And from that low rate of renewable utilization we can deduct another fraction: periods of actual utilization often occur when no one wants the power, and while utilities can sell that excess power into the grid, it doesn’t replace other power at those times and it therefore doesn’t contribute to reductions in CO2 emissions.

Claims of achieving net zero are very much in vogue in the corporate world, and for a few related reasons. One is that they help keep activists and protesters away from the gates. There are, however, plenty of activists serving on corporate boards, in the executive suite, and among regulators.

The purchase of carbon offsets by “socially responsible corporations” might put stakeholder pressure on competitors who are “insufficiently green”. That would help to compensate for the higher costs imposed by offsets. After all, carbon credits are not cheap. In fact, smaller competitors might struggle to fund additional outlays for the credits.

Finally, claims of carbon neutrality also help with another constituency: “woke” investors. “Achieving” net zero boosts a firm’s so-called ESG score, presumed to reflect soundness in terms of environmental (E) and social (S) responsibility, as well as the quality of internal governance (G). With firms jockeying for ESG improvements, they help keep the offset charade going.

There is no common standard for calculating ESG, and there is considerable variance in ESG scores across rating firms. This should be cause for great skepticism, but too many investors are vulnerable to suggestions that screening on ESGs can enable both social responsibility and better returns. Sadly, they are sometimes paying higher fees for the privilege. The ESG fad among these investors might have helped fulfill hopes of greater returns for a while, but the imagined ESG advantage may have faded.

Carbon credits or offsets are plagued by bad incentives that often lead to wasteful outlays if not outright fraud. At present, they generally fail to reduce atmospheric CO2 as promised and they contribute to higher costs, which are passed on to consumers. They also serve as an unworthy basis for higher ESG scores, which are something of a sham in any case.

There have been efforts underway to improve the quality and legitimacy of carbon offsets. Some of this is voluntary due diligence on the part of purchasers. The effort also includes various NGOs and regulators. Ultimately, the push for quality is likely to push the price of offsets upward dramatically. Perhaps offsets will become more credible, but they won’t come cheap. The cost of achieving net zero targets will largely come out of consumers’ pockets, and those net zeros will still be nominal at best.

Carbon Credits and Green Bonds Are Largely Fake

06 Monday Mar 2023

Posted by in Climate, Environment

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It doesn’t take much due diligence to reveal that certain green “commitments” are flimsy gestures at best. I discussed the poor economics of recycling mandates in a post a few days ago. Here I discuss two other prominent examples of fake virtue: so-called carbon offsets and green bonds. These are devices often utilized by private actors to assuage activists, gain favor with public policymakers., or simply to claim and promote themselves as “zero-footprint”. No doubt many well-intentioned people believe in the goodness of these instruments, blissfully ignorant of the underlying fakery. Of course, this is dwarfed by the broad flimsiness (and cost implications) of claims about climate catastrophe, which is what motivates carbon credits and most green bonds in the first place. The includes “commitments” made by various nations under the Paris Climate Accords, but that is a subject for another day.

Climate Credits

I mentioned Blake Lovewall’s interesting commentary on carbon credits recently. Purchasing these credits is a way of “greenwashing” activities that emit carbon dioxide. Also known as carbon offsets, this is a $2 billion market with growth fueled by a desire by businesses to appeal to environmental activists and “green” investors, and to boost their ESG scores. I’ll quote here from my own piece, which had as it’s main thrust the waste inherent in wind and solar projects (Lovewall quotes are in blue type):

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

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

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

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

Lovewall makes a strong case that carbon credits are a huge fraud. This was reinforced by a recent investigation conducted by the Guardian, Die Zeit and SourceMaterial, a “non-profit investigative journalism organization”, according to the Guardian. The investigation was based on independent research studies as well as interviews with various parties. They found that at least 90% of “rainforest credits” do not represent carbon reductions. Two studies found no abatement whatsoever in deforestation under the credits. Furthermore, the deforestation threats (absent credits) had been overstated by some 400%. The investigation also noted serious human rights violations associated with the offset projects. Rainforest credits are only one kind of carbon offset, but similar problems plague other types of credits as well, such as those earned by shuttering fossil fuel plants in developing countries desperately short on power generation.

That so much of the carbon credit market is fraudulent should infuriate climate change radicals. The findings also are a disgrace to participants in these markets, revealing that much of the “net zero” propaganda trumpeted by corporate PR organizations is a charade. Regrettably, it is motivated by an unnecessary panic over carbon dioxide emissions and their presumed role in global warming. Spending on environmental initiatives should be a warning flag for investors. The resources firms dedicate to those credits deserve careful scrutiny. The fascination with ESG scores is another sign that corporate managers have lost sight of their fundamental mission: to maximize shareholder value by serving their customers well.

Green Bonds

Another suspicious form of “commitment” is embodied in the issuance of so-called “green bonds” to raise funds for environmental initiatives. This form of investing is so ostensibly “virtuous” that these bonds are demanded even with specific commitments that are quite “soft”. This just released study finds that green bonds offer little assurance of any positive environmental impact:

“… we find a concerning lack of enforceability of green promises. Moreover, these promises have been getting weaker over time. Green bonds often make vague commitments, exclude failures to live up to those commitments from default events, and disclaim an obligation to perform in other parts of the document. These shortcomings are known to market participants. Yet, demand for these instruments has been growing. We ask why green bond promises are so weak, while the same investors demand strong promises from the same issuers in other settings.”

Green bonds are “virtue ornaments” typically purchased by institutional investors with some sort of environmental or ESG objective. Apparently, earning returns is an afterthought. Unfortunately, these funds managers are usually investing on behalf of other people. While some of those clients might wholly support the environmental objectives, many others have no clue.

Fortunately, there are alternatives, and I’m tempted to say caveat emptor applies here. However, it really is a remarkable breach of fiduciary duty to manage funds based on objectives other than maximizing expected returns, or to in any way sacrifice returns in favor of “green” objectives. That is happening before our very eyes. Even clients who wish to invest funds for green objectives are being shaken down here. According to the research cited above, the green bond “commitments” are hardly worth the paper they’re written on.

Institutional investors go right along, scrambling to add green bonds to their portfolios. This helps drive down the effective cost of funds to the green bond issuers. Thus, highly speculative climate or environmental initiatives can be funded on the cheap. They do, however, produce lucrative opportunities for the climate crisis industry.

One More Time

People save to build wealth, typically for their retirement years. If that’s your objective, you probably shouldn’t invest in firms expending their resources on carbon credits. At best, the credits are a buy-off to activists. who are just as ignorant of the whole sham.

One might plausibly ask whether I should love carbon credits because they allow, at least, certain forms of beneficial economic activity to avoid challenge by crazies. Perhaps that’s true taking the world as it is, but my hope is that exposing various layers of climate hysteria and craziness is one way to change the world. The whole carbon credit enterprise enables extraction of still greater rents by climate change opportunists, to say nothing of human rights abuses taking place under the guise of these credits.

Like carbon offsets, green bonds promote fictitious virtue, They are another way in which green profiteers extract rents from well-meaning savers and investors, some of whom are unaware that ESG objectives are undermining their returns. Even if investors prefer to sacrifice returns in the pursuit of green goals, the initiatives thus funded often have no environmental merit, particularly when it comes to reducing carbon emissions. Despite the efforts of these bonds issuers to convince us of their green bona fides, their “commitments” to green results are usually flimsy.

HT: Green Fraud blog for the image above.

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Net Zero: It Ain’t Gonna Happen

15 Thursday Sep 2022

Posted by in Central Planning, Environmental Fascism, Renewable Energy

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A number of countries have targeted net zero carbon dioxide emissions, to be achieved within various “deadlines” over the next few decades. The target dates currently range from 2030 -2050. Political leaders around the world are speaking in the tongues favored by climate change fundamentalism, as Brad Allenby aptly named the cult some years ago. The costly net zero goal is a chimera, however. The effort to completely substitute renewables — wind and solar — for fossil fuels will fail without question. In fact, net zero carbon emissions is unlikely to be achieved anywhere in this century without massive investments in nuclear power. Wind and solar energy suffer from a fatal flaw: intermittency. They will never be able to provide for all energy needs without a drastic breakthrough in battery technology, which is not on the horizon. Geothermal power might make a contribution, but it won’t make much of a dent in our energy needs any time soon. Likewise, carbon capture technology is still in its infancy, and it cannot be expected to offset much of the carbon released by our unavoidable reliance on fossil fuels.

Exposing Green Risks

The worst of it is that net zero mandates will inflict huge costs on society. Indeed, various efforts to force conversion to “green” energy technologies have already raised costs and exposed humanity to immediate threats to health and well being. These realities are far more palpable than the risks posed by speculative model predictions of climate change decades ahead. As Joseph Sternberg notes at the link above, climate policies:

“… have created an energy system of dangerous rigidity and inefficiency incapable of adapting to a blow such as Russia’s partial exit from the European gas market. It’s almost inevitable that the imminent result will be a recession in Europe. We can only hope that it won’t also trigger a global financial crisis.”

Escalating energy costs are inflicting catastrophic harm on businesses large and small throughout the West, but especially in Europe and the UK. A Finnish economist recently commented on these conditions, as quoted by Walter Jacobson at the Legal Insurrection blog:

“I saw this tweet thread by Finnish economist and professor Tuomas Malinen:

I am telling you people that the situation in #Europe is much worse than many understand. We are essentially on the brink of another banking crisis, a collapse of our industrial base and households, and thus on the brink of the collapse of our economies.”

Jacobson also offers the following quote from Murtaza Hussain of The Intercept:

“If you turned the electricity off for a few months in any developed Western society 500 years of supposed philosophical progress about human rights and individualism would quickly evaporate like they never happened.”

Where’s the Proof of Concept?

This is not all about Russian aggression, however. We’ve seen the cost consequences of “green” mandates and forced conversion to wind and solar in places like California, Texas, and Germany even before Russia invaded Ukraine and began starving Europe of natural gas.

Frances Minton at the Manhattan Contrarian blog points to one of the most remarkable aspects of the singular focus on net zero: the complete absence of any successful demonstration project anywhere on the globe! The closest things to such a test are cited by Minton. One is on El Hierro in Spain’s Canary Islands, which has wind turbine capacity of more than double average demand, It also has pumped storage with hydro generators for more than double average demand. In 2020, however, El Hierro took all of its power from the combined wind/storage system only about 15% of the time. 2021 didn’t look much better. Diesel power is used to fill in the frequent “shortfalls”.

Land Use

The land use requirements of a large scale transition to wind and solar are incredible, given projected technological capabilities. Ezra Klein explains:

“The center of our decarbonization strategy is an almost unimaginably large buildup of wind and solar power. To put some numbers to that: A plausible path to decarbonization, modeled by researchers at Princeton, sees wind and solar using up to 590,000 square kilometers – which is roughly equal to the land mass of Connecticut, Illinois, Indiana, Kentucky, Massachusetts, Ohio, Rhode Island and Tennessee put together. ‘The m footprint is very, very large, and people don’t really understand that,’ Danny Cullenward, co author of ‘Making Climate Policy Work’, told me.”

That’s a major obstacle to accelerating the transition to wind and solar power, but there are many others.

A Slap of Realism

Mark P. Mills elaborates on the daunting complexity and costs of the transition, and like land use requirements, they are all potential show stoppers. It’s a great article excepting a brief section that reveals a poor understanding of monetary theory. Putting that aside, it’s first important to reemphasize what should be obvious: shutting down production of fossil fuels makes them scarce and more costly,. This immediately reduces our standard of living and hampers our future ability to respond to tumultuous circumstances as are always likely to befall us. Mills makes that abundantly clear:

“… current policies and two decades of mandates and spending on a transition have led to escalating energy prices that help fuel the destructive effects of inflation. The price of oil, which powers nearly 97% of all transportation, is on track to reach or exceed half-century highs, and gasoline prices have climbed. The price of natural gas, accounting for 40% of all industrial energy use and one-fourth of global electricity, has soared past a decadal high. Coal prices are also at a decadal high. Coal fuels 40% of global electricity; it is also used to make 70% of all steel and accounts for half its cost of production.

It bears noting that energy prices started soaring, and oil breached $100 a barrel, well before Russia invaded Ukraine in late February. The fallout from that invasion has hardened, not resolved, the battle lines between those advocating for and those skeptical of government policies directed at accelerating an energy transition. …

Civilization still depends on hydrocarbons for 84% of all energy, a mere two percentage points lower than two decades ago. Solar and wind technologies today supply barely 5% of global energy. Electric vehicles still offset less than 0.5% of world oil demand.”

As Mills says, it surprises most people that today’s high tech sectors, such as electronic devices like phones and computers, and even drugs, require much more energy relative to product size and weight than traditional manufactured goods. Even the cloud uses vast quantities of energy. Yet U.S. carbon intensity per dollar of GDP has declined over the past 20 years. That’s partly due to the acquisition of key components from abroad, mitigation efforts here at home, and the introduction of renewables. However, the substitution of natural gas for other fossil fuels played a major role. Still, our thirst for energy intensive technologies will cause worldwide demand for energy to continue to grow, and renewables won’t come close to meeting that demand.

Capacity Costs

Policy makers have been deceived by cost estimates associated with additions of renewable capacity. That’s due to the fiction that renewables can simply replace hydrocarbons, but the intermittency of solar and wind power mean that demand cannot be continuously matched by renewables capacity. Additions to renewables capacity requires reliable and sometimes redundant backup capacity. At the risk of understatement, this necessity raises the marginal cost of renewable additions significantly if the hope is to meet growth in demand.

Furthermore, as Mills points out, renewables have not reached cost parity with fossil fuels, contrary to media hype and an endless flow of propaganda from government and the “green” investors seeking rents from government. Subsidies to renewables have created an illusion that costs that are lower than they are in reality.

So Many Snags

From Mills, here are a few of the onerous cost factors that will present severe obstacles to even a partial transition to renewables:

  • Even with the best battery technology now available, using lithium, storing power is still extremely expensive. Producing and storing it at scale for periods long enough to serve as a true source of power redundancy is prohibitive.
  • The infrastructure buildout required for a hypothetical transition to zero-carbon is massive. The quantity of raw materials needed would be far in excess of those used in our investments in energy infrastructure over at least the past 60 years.
  • Even the refueling infrastructure required for a large increase in the share of electronic vehicles on the road would require a massive investment, including more land and at much greater expense than traditional service stations. That’s especially true considering the grid enhancements needed to deliver the power.
  • The transition would place a huge strain on the world’s ability to mine minerals such as lithium, graphite, nickel, and rare earths. Mills puts the needed increases in supply at 4,200%, 2,500%, 1,900%, and 700%, respectively, by 2040. In fact, the known global reserves of these minerals are inadequate to meet these demands.
  • Mining today is heavily reliant on hydrocarbon power, of course. Moreover, all this mining activity would have devastating effects on the environment, as would disposal of “green” components as they reach their useful lives. The latter is a disaster we’re already seeing played out in the third world, where we are exporting much of our toxic, high-tech waste.
  • The time it would take to make the transition to zero carbon would far exceed the timetable specified in the mandates already in place. It’s realistic to admit that development of new mines, drastic alterations of land use patterns, construction of new generating capacity, and the massive infrastructure buildout will stretch out for many decades.
  • Given U.S. dependence on imports of a large number of minerals now considered “strategic”, decarbonization will require a major reconfiguration of supply chains. In fact, political instability in parts of the world upon which we currently rely for supplies of these minerals makes the entire enterprise quite brittle relative to reliance on fossil fuels.

Conclusion

The demands for raw materials, physical capital and labor required by the imagined transition to net zero carbon dioxide emissions will put tremendous upward pressure on prices. The coerced competition for resources will mean sacrifices in other aspects of our standard of living, and it will have depressing effects on other markets, causing their relative prices to decline.

For all the effort and cost of the mandated transition, what will we get? Without major investments in reliable but redundant backup capacity, we’ll get an extremely fragile electric grid, frequent power failures, a diminished standard of living, and roughly zero impact on climate. In other words, it will be a major but unnecessary and predictably disastrous exercise in central planning. We’ve already seen the futility of this effort in the few, small trials that have been undertaken, but governments, rent-seeking investors, and green activists can’t resist plunging us headlong into the economic abyss. Don’t let them do it!