I caught Boone Pickens on Bloomberg television last week extolling the praises of natural gas. But, oddly, when asked, he downplayed windpower, explaining that it was priced at the margin and, as such, would be unusable and unprofitable until natural gas rises to $6/tcf.
Is this the same Boone Pickens who was gloating over his huge wind project from Texas to the Montana, or thereabouts, only a few years ago? How he had contracted for large windfarms of tall turbines to produce cheap electricity?
I believe it is.
It's understandable that Pickens would shelve a project which is no longer economically feasible. But what I find troubling is how sure Pickens was at the time that his wind project was a surefire success. That alternative energy was the way to go. He didn't suggest how tenuous the project's economics apparently were.
Now, with the Marcellus shale deposit and fracking having added incredible capacity to America's natural gas supply, the price of that commodity won't be rising anytime soon. And, with it, according to Pickens, wind power won't be economically competitive for, well, decades.
Showing posts with label Energy Policy. Show all posts
Showing posts with label Energy Policy. Show all posts
Saturday, October 22, 2011
Wednesday, June 08, 2011
Invisible Economic Red Tape
I've read and collected several recent editorials from the Wall Street Journal which, taken together, provide a clearer picture of how our government is strangling the US economy and perverting energy policy in ways which aren't hitting the front pages of the nation's newspapers, nor the headlines of the conventional broadcast network news programs.
Item One
A Journal staff editorial from the Memorial day weekend contends,
"The regulatory tax on Americans is now larger than the income tax."
It cites two Lafayette College economists, in a study "sponsored by the Small Business Administration" as finding that federal regulatory compliance costs the US $1.7T annually. So much for Cass Sunstein's little piece claiming that regulatory burdens are shrinking.
In one incredible passage, the editorial notes,
"In one case, the (CTFC) lawyers even insisted that the only costs they needed to count were what a company would have to spend to find out if a rule applied to it, but not the costs of actually complying with the rule."
Item Two
Nick Schulz of the American Enterprise Institute reviewed the book Great Again by Henry R. Nothhaft.
Schulz writes,
"Nothhaft is not one of those professional declinists.....a veteran Silicon Valley entrepreneur who is the CEO of.....Tessera."
The review describes one California company being forced to pay a state 'use' tax of $1MM on top of the $10MM it paid for the German production equipment.
Nothhaft recounts how a prior startup which he took public spent $3MM on Sarbanes-Oxley compliance, far in excess of the bill's average estimated $91K.
America's tax rates are also excoriated. With reductions in many European national rates and the Chinese competing aggressively with low tax rates, including special low rates for semiconductor manufacturers, one venture capitalist explains that his firm won't even bother trying to start those kind of ventures in the US anymore. They'll choose China instead.
Item Three
Yesterday's lead staff Journal editorial detailed how the current administration is implementing a sort of 'pocket veto' of Alaskan oil exploration, production, and usage of the North Slope pipeline.
What the average American doesn't know is that, once the pipeline no longer pumps oil, it must be dismantled. Well, the original North Slope fields are aged and pumping about a third of their peak production. This results in slow-moving oil that causes damage to the pipeline.
Meanwhile, although the Bush administration auctioned leases for one section of the North Slope expected to contain more oil than the original find, the Obama administration has allowed green anti-oil lawyers to block development of the leases, leading to Shell to shut down said attempts at development. ANWR remains off limits, as does at least one other large block of almost-proven tens of billions of oil reserves.
The net result is to silently shut down Alaska's potential oil production and, in the process, force the owners of the pipeline to dismantle it, making subsequent construction in this age of greater environmental obstructions, nearly impossible.
So much for government's solutions to spending hundreds of billions on Arab oil. And for removing regulatory constraints on the American economy.
Item One
A Journal staff editorial from the Memorial day weekend contends,
"The regulatory tax on Americans is now larger than the income tax."
It cites two Lafayette College economists, in a study "sponsored by the Small Business Administration" as finding that federal regulatory compliance costs the US $1.7T annually. So much for Cass Sunstein's little piece claiming that regulatory burdens are shrinking.
In one incredible passage, the editorial notes,
"In one case, the (CTFC) lawyers even insisted that the only costs they needed to count were what a company would have to spend to find out if a rule applied to it, but not the costs of actually complying with the rule."
Item Two
Nick Schulz of the American Enterprise Institute reviewed the book Great Again by Henry R. Nothhaft.
Schulz writes,
"Nothhaft is not one of those professional declinists.....a veteran Silicon Valley entrepreneur who is the CEO of.....Tessera."
The review describes one California company being forced to pay a state 'use' tax of $1MM on top of the $10MM it paid for the German production equipment.
Nothhaft recounts how a prior startup which he took public spent $3MM on Sarbanes-Oxley compliance, far in excess of the bill's average estimated $91K.
America's tax rates are also excoriated. With reductions in many European national rates and the Chinese competing aggressively with low tax rates, including special low rates for semiconductor manufacturers, one venture capitalist explains that his firm won't even bother trying to start those kind of ventures in the US anymore. They'll choose China instead.
Item Three
Yesterday's lead staff Journal editorial detailed how the current administration is implementing a sort of 'pocket veto' of Alaskan oil exploration, production, and usage of the North Slope pipeline.
What the average American doesn't know is that, once the pipeline no longer pumps oil, it must be dismantled. Well, the original North Slope fields are aged and pumping about a third of their peak production. This results in slow-moving oil that causes damage to the pipeline.
Meanwhile, although the Bush administration auctioned leases for one section of the North Slope expected to contain more oil than the original find, the Obama administration has allowed green anti-oil lawyers to block development of the leases, leading to Shell to shut down said attempts at development. ANWR remains off limits, as does at least one other large block of almost-proven tens of billions of oil reserves.
The net result is to silently shut down Alaska's potential oil production and, in the process, force the owners of the pipeline to dismantle it, making subsequent construction in this age of greater environmental obstructions, nearly impossible.
So much for government's solutions to spending hundreds of billions on Arab oil. And for removing regulatory constraints on the American economy.
Tuesday, April 12, 2011
"From Nixon to Obama"
That was the title of a staff editorial in last Thursday's edition of the Wall Street Journal. It's ironic, because every time I've heard some pundit wail about the lack of a US energy policy, I think back to my youth, watching Nixon unveil his "Project Independence," or whatever it was called, which promised US energy independence by, I believe, 1980. Back then, it seemed like a good idea, and 1980 seemed a long way off.
Since this isn't my political blog, I'll leave aside the parts of the editorial dealing with the president's lies involving current energy options.
Rather, it occurred to me that something which eight presidents have promised over more than 40 years may well be something that isn't going to, and shouldn't, happen.
For example, the new, promising, large-scale US energy source is shale oil. In Canada, tar sands oil has made remarkable progress in terms of being affordable and reasonably environmentally friendly.
How would the US Department of Energy have foreseen these developments 40 years ago? Aside from dedicating a substantial amount of what could be food supply for animals or people, and thus driving up food prices, how has ethanol beneficially affected the US?
When you subsidize a specific technology, you'll get a lot more of it, regardless of its standalone economic rationale.
Better, it would seem, for the federal government to simply offer a standing bid for energy on a btu or some other energy-equivalent basis, relative to markets, and declining over time. Thus, any new energy source developer would have maximal knowledge of the size and duration of federal subsidies for its products. If, over some timeframe during which it would qualify for subsidies, it cannot improve the economics of its energy source to make economic sense on its own, it would die.
But the US has never done this. Instead, whole industries have grown up around technology-specific subsidy boondoggles, like wind, solar and ethanol. I learned this weekend that GE actually owns a substantial portion of a Texas wind farm. Somehow, the company has managed to wade into the federal subsidy trough to a degree it has kept hidden from the general public. It doesn't simply sell wind turbines. It seems to be making some more money, or garnering extra subsidies, by dint of its unpublicized ownership position. And, of course, having that position goes a long way to explain GE's large-scale involvement with alternative energy. Nevermind that most of them can't compete without subsidies, meaning that taxpayers are funding uneconomic projects which provide corporate welfare.
Over 40 years after Nixon's first bogus federal energy policy, I not only remain sceptical of such efforts. I'm more jaded and pretty much disbelieve that any of these campaigns will do US consumers and taxpayers any good whatsoever. There's always a corporate boondoggle angle to them. Whenever the public sector, with its ability to coerce via laws, enters into the economic arena, you can bet that favors will be bought and sold. That uneconomic decisions will be made due to graft, corruption and the usual things which occur when government funding are available through hard-to-measure programs.
Just the fact that government departments are choosing wind and ethanol, while casting doubt on natural gas, coal and shale oil, makes me sense that the reverse is probably the way we ought to go. But with as few directed subsidies and laws as possible.
Let's face it. Our best and brightest don't generally work in Washington. Not for long, anyway. And, if and when they do, it's typically to be in a position to be hired afterward for much more money by firms with which they had dealings, and probably dispensed favors, when they were in government.
In that sense, the only energy source I can see always being favored in Washington should be solar, i.e., sunlight , transparency and total public disclosure of energy policy subsidies and deals.
Since this isn't my political blog, I'll leave aside the parts of the editorial dealing with the president's lies involving current energy options.
Rather, it occurred to me that something which eight presidents have promised over more than 40 years may well be something that isn't going to, and shouldn't, happen.
For example, the new, promising, large-scale US energy source is shale oil. In Canada, tar sands oil has made remarkable progress in terms of being affordable and reasonably environmentally friendly.
How would the US Department of Energy have foreseen these developments 40 years ago? Aside from dedicating a substantial amount of what could be food supply for animals or people, and thus driving up food prices, how has ethanol beneficially affected the US?
When you subsidize a specific technology, you'll get a lot more of it, regardless of its standalone economic rationale.
Better, it would seem, for the federal government to simply offer a standing bid for energy on a btu or some other energy-equivalent basis, relative to markets, and declining over time. Thus, any new energy source developer would have maximal knowledge of the size and duration of federal subsidies for its products. If, over some timeframe during which it would qualify for subsidies, it cannot improve the economics of its energy source to make economic sense on its own, it would die.
But the US has never done this. Instead, whole industries have grown up around technology-specific subsidy boondoggles, like wind, solar and ethanol. I learned this weekend that GE actually owns a substantial portion of a Texas wind farm. Somehow, the company has managed to wade into the federal subsidy trough to a degree it has kept hidden from the general public. It doesn't simply sell wind turbines. It seems to be making some more money, or garnering extra subsidies, by dint of its unpublicized ownership position. And, of course, having that position goes a long way to explain GE's large-scale involvement with alternative energy. Nevermind that most of them can't compete without subsidies, meaning that taxpayers are funding uneconomic projects which provide corporate welfare.
Over 40 years after Nixon's first bogus federal energy policy, I not only remain sceptical of such efforts. I'm more jaded and pretty much disbelieve that any of these campaigns will do US consumers and taxpayers any good whatsoever. There's always a corporate boondoggle angle to them. Whenever the public sector, with its ability to coerce via laws, enters into the economic arena, you can bet that favors will be bought and sold. That uneconomic decisions will be made due to graft, corruption and the usual things which occur when government funding are available through hard-to-measure programs.
Just the fact that government departments are choosing wind and ethanol, while casting doubt on natural gas, coal and shale oil, makes me sense that the reverse is probably the way we ought to go. But with as few directed subsidies and laws as possible.
Let's face it. Our best and brightest don't generally work in Washington. Not for long, anyway. And, if and when they do, it's typically to be in a position to be hired afterward for much more money by firms with which they had dealings, and probably dispensed favors, when they were in government.
In that sense, the only energy source I can see always being favored in Washington should be solar, i.e., sunlight , transparency and total public disclosure of energy policy subsidies and deals.
Wednesday, April 06, 2011
The Economics of Electric Vehicles
Margo Thorning's editorial in an edition of last month's Wall Street Journal, entitled Pull the Plug on Electric Car Subsidies, assembled a useful set of data concerning the economics of electric vehicles.
Going back to 1832, Ms. Thorning noted the invention of the first electric car in Scotland by Robert Anderson. She mentions the first American electric vehicle making its appearance in 1907, then writes,
"Since that time Americans have seen tremendous innovations in everything from air travel to microwaves, yet there has been little progress converting consumers to vehicles powered by rechargeable batteries."
She begins by quoting Consumer Reports reviews which trashed Chevy's Volt as inefficient as both an electric and gasoline car. In terms of cost, she reveals that the Nisan Leaf's battery costs $20,000, yet still only provides an 80-mile range under optimal, which is to say, temperate weather conditions. Drive it in hot or cold weather, and that range shrinks dramatically. The charging unit for such a vehicle varies between $1-2,000. Of course, using an electric vehicle merely transfers energy usage from gasoline to our mostly coal-fired power grid.
Surprisingly, Thorning contends that you'd need $300/bbl oil, along with an electric car battery costing 25% of the current $20,000, to make an electric vehicle cost-competitive.
Thorning then ticks off the various government subsidies to try to sway consumers to buy electrics. There's the $7,500 tax credit, as well as credits for "installing charging stations in homes and businesses and for building battery factories and upgrading the electric grid."
Citing the current administration's goal of one million electric vehicles driven by 2015, she estimates this will result in a $7.5B federal subsidy.
Having read this piece last month, then reading Paul Ryan's editorial in yesterday's Wall Street Journal in support of the House GOP's 2012 budget, I have to wonder whether these subsidies will survive the next two years of federal spending fights.
And, in that environment, with such reliance by Ford, GM, Nissan et.al. on federal largess to market these cars, whether those auto makers are due for a nasty surprise, having sunk so much capital into designing and producing electric vehicles.
I saw Alan Mulally show a new Ford Explorer on CNBC's morning program yesterday. The amount of digital technology in a new car, including various remote cameras and warning systems, certainly distinguishes such a car from one that is just five years old. But those systems are hardly so novel as to be a barrier to competition.
That means all the major car makers will be designing and selling better cars with more useful safety/electronics systems without prices for them rising out of control.
So where will the payoff ultimately come for Ford, GM and the other competitors for electric vehicle design and production that ultimately makes no economic sense? Wages aren't rising, and unemployment is still high. Federal spending is now under more scrutiny than at any time that I can recall in my life.
With Thorning's informative editorial as evidence, does anyone really think the money being poured into electric vehicles is actually going to make an adequate return for these firms any time soon?
Going back to 1832, Ms. Thorning noted the invention of the first electric car in Scotland by Robert Anderson. She mentions the first American electric vehicle making its appearance in 1907, then writes,
"Since that time Americans have seen tremendous innovations in everything from air travel to microwaves, yet there has been little progress converting consumers to vehicles powered by rechargeable batteries."
She begins by quoting Consumer Reports reviews which trashed Chevy's Volt as inefficient as both an electric and gasoline car. In terms of cost, she reveals that the Nisan Leaf's battery costs $20,000, yet still only provides an 80-mile range under optimal, which is to say, temperate weather conditions. Drive it in hot or cold weather, and that range shrinks dramatically. The charging unit for such a vehicle varies between $1-2,000. Of course, using an electric vehicle merely transfers energy usage from gasoline to our mostly coal-fired power grid.
Surprisingly, Thorning contends that you'd need $300/bbl oil, along with an electric car battery costing 25% of the current $20,000, to make an electric vehicle cost-competitive.
Thorning then ticks off the various government subsidies to try to sway consumers to buy electrics. There's the $7,500 tax credit, as well as credits for "installing charging stations in homes and businesses and for building battery factories and upgrading the electric grid."
Citing the current administration's goal of one million electric vehicles driven by 2015, she estimates this will result in a $7.5B federal subsidy.
Having read this piece last month, then reading Paul Ryan's editorial in yesterday's Wall Street Journal in support of the House GOP's 2012 budget, I have to wonder whether these subsidies will survive the next two years of federal spending fights.
And, in that environment, with such reliance by Ford, GM, Nissan et.al. on federal largess to market these cars, whether those auto makers are due for a nasty surprise, having sunk so much capital into designing and producing electric vehicles.
I saw Alan Mulally show a new Ford Explorer on CNBC's morning program yesterday. The amount of digital technology in a new car, including various remote cameras and warning systems, certainly distinguishes such a car from one that is just five years old. But those systems are hardly so novel as to be a barrier to competition.
That means all the major car makers will be designing and selling better cars with more useful safety/electronics systems without prices for them rising out of control.
So where will the payoff ultimately come for Ford, GM and the other competitors for electric vehicle design and production that ultimately makes no economic sense? Wages aren't rising, and unemployment is still high. Federal spending is now under more scrutiny than at any time that I can recall in my life.
With Thorning's informative editorial as evidence, does anyone really think the money being poured into electric vehicles is actually going to make an adequate return for these firms any time soon?
Monday, February 21, 2011
What Lesson Did the Phone Wars Provide for Energy Policy?
Holman Jenkins, Jr. in last Wednesday's edition of the Wall Street Journal, provided a very concise view of the evolution of mobile telephony in the US and Europe. He discussed how the US eschewed the unified, monolithic European GSM mobile standard. And how Nokia, one of the originators of that standard, is nearly dead, while Apple and Google, thanks to the US indecision on such a standard, flourished with new approaches.
Isn't this a commentary on government's unwanted, unnecessary intrusion in sectors where competing private solutions drive better ultimate solutions?
Jenkins describes the process as messy and inefficient, but, in the end, delivering superior results. Nokia has run into the arms of Microsoft, having fallen on hard times after initially leading in the GSM standards setting process. Jenkins ended his piece,
"The lesson for the new Nokia and everyone else is an old one: Nobody knows anything, and there's no substitute for messy, wasteful competition as a finder of solutions to problems we didn't even kow we needed solutions for. Whether the mobile world will settle into one proprietary or many proprietary ecosystems is far from decided."
Interestingly, from my reading of Amity Schlaes' The Forgotten Man several summers ago, those cries of how competition is so messy and wasteful are the very same arguments that FDR and his minions used to seize control of so much of American business. They decried the waste and inefficiency of free market competition, only to stifle innovation and mismanage the economy for most of the 1930s.
There's a larger lesson here. Right now, and in a technologically intensive sector- energy.
Doesn't Jenkins' illustrative tale of the mobile phone sector over the past few years suggest that we are making a horrific mistake by acceding to demands for monolithic, command-economy directives to subsidize and produce certain energy- wind, solar, ethanol- without subjecting them all to real, fair economic forces?
What ever happened to price as a market signal? As gasoline prices rise, largely silently, above $3/gallon, pundits predict a weakening of the US economy. So be it.
I wrote this post back in the summer of 2008 after reading a WSJ piece on Air Force experimentation with synfuel for jet aircraft. We have lots of coal and a known, reliable process to liquify that energy source to burn instead of gasoline or jet fuel.
If you worry about sending dollars abroad to buy oil, then promote synfuels. If you're simply worried about carbon emissions, then admit that you want to turn the US standard of living back about 110 years.
But this government system of choosing energy source winners is going to end badly. Market forces may entail some initial waste and inefficiency, but the result is the best solution, with much less long term waste and inefficiency, while satisfying consumer needs and desires. The latter of which is the point.
Not to have government dictate what consumers want, and how they'll get it.
Isn't this a commentary on government's unwanted, unnecessary intrusion in sectors where competing private solutions drive better ultimate solutions?
Jenkins describes the process as messy and inefficient, but, in the end, delivering superior results. Nokia has run into the arms of Microsoft, having fallen on hard times after initially leading in the GSM standards setting process. Jenkins ended his piece,
"The lesson for the new Nokia and everyone else is an old one: Nobody knows anything, and there's no substitute for messy, wasteful competition as a finder of solutions to problems we didn't even kow we needed solutions for. Whether the mobile world will settle into one proprietary or many proprietary ecosystems is far from decided."
Interestingly, from my reading of Amity Schlaes' The Forgotten Man several summers ago, those cries of how competition is so messy and wasteful are the very same arguments that FDR and his minions used to seize control of so much of American business. They decried the waste and inefficiency of free market competition, only to stifle innovation and mismanage the economy for most of the 1930s.
There's a larger lesson here. Right now, and in a technologically intensive sector- energy.
Doesn't Jenkins' illustrative tale of the mobile phone sector over the past few years suggest that we are making a horrific mistake by acceding to demands for monolithic, command-economy directives to subsidize and produce certain energy- wind, solar, ethanol- without subjecting them all to real, fair economic forces?
What ever happened to price as a market signal? As gasoline prices rise, largely silently, above $3/gallon, pundits predict a weakening of the US economy. So be it.
I wrote this post back in the summer of 2008 after reading a WSJ piece on Air Force experimentation with synfuel for jet aircraft. We have lots of coal and a known, reliable process to liquify that energy source to burn instead of gasoline or jet fuel.
If you worry about sending dollars abroad to buy oil, then promote synfuels. If you're simply worried about carbon emissions, then admit that you want to turn the US standard of living back about 110 years.
But this government system of choosing energy source winners is going to end badly. Market forces may entail some initial waste and inefficiency, but the result is the best solution, with much less long term waste and inefficiency, while satisfying consumer needs and desires. The latter of which is the point.
Not to have government dictate what consumers want, and how they'll get it.
Tuesday, December 28, 2010
On Scepticism & EPA Policy Support by Utilities
The lead staff editorial in one of last week's Wall Street Journal editorials teaches scepticism when one hears private sector support for EPA energy policies.
Specifically, the EPA is issuing new pollutant rulings aimed at coal-fired plants. The intended result is to force the mothballing of large amounts of comparatively inexpensive existing electricity generation capacity.
Guess who the supportive private sector utility execs are? Why, the leaders of predominantly non-coal-fired utilities, of course. Folks who have bet on other technologies, like John Rowe of Exelon. NextEra, a wind- and solar-power generator, is also lining up behind the EPA.
Clearly, one has to take private sector endorsements of government policy with a grain of salt. They are unlikely to be altruistic or without an agenda.
Instead, we see the age-old game of one group of executives getting behind a political issue and piling on those who are less-advantaged.
This is hardly the way our society should be allocating capital or choosing winners and losers in the energy generation sector.
Specifically, the EPA is issuing new pollutant rulings aimed at coal-fired plants. The intended result is to force the mothballing of large amounts of comparatively inexpensive existing electricity generation capacity.
Guess who the supportive private sector utility execs are? Why, the leaders of predominantly non-coal-fired utilities, of course. Folks who have bet on other technologies, like John Rowe of Exelon. NextEra, a wind- and solar-power generator, is also lining up behind the EPA.
Clearly, one has to take private sector endorsements of government policy with a grain of salt. They are unlikely to be altruistic or without an agenda.
Instead, we see the age-old game of one group of executives getting behind a political issue and piling on those who are less-advantaged.
This is hardly the way our society should be allocating capital or choosing winners and losers in the energy generation sector.
Thursday, December 23, 2010
Boone Pickens' Wind Plans Go Horribly Awry
There have been two recent editorials in the Wall Street Journal regarding the folly of wind power as a major component of US energy policy. A lead staff editorial on 23 December discussed a number of questionable aspects of federal wind power energy policy. The 23 December piece, by Robery Bryce, entitled A Wind Power Boonedoggle, lampooned Boone Pickens' vaunted alternative energy policy, announced 30 months ago, featuring wind power.
I wrote posts here, here and here concerning Pickens' "policy." Now it seems his extensive wind farm investments have fallen afoul of the low price of natural gas.
Bryce wrote in his editorial,
"The Dallas-based entrepreneur, who has relentlessly promoted his "Pickens Plan" since July 4, 2008, announced earlier this month that he's abandoning the wind business to focus on natural gas.
Two years ago, natural gas prices were spiking and Mr. Pickens figured they'd stay high. He placed a $2 billion order for wind turbines with General Electric. Shortly afterward, he began selling the Pickens Plan. The United States, he claimed, is "the Saudi Arabia of wind," and wind energy is an essential part of the cure for the curse of imported oil.
Voters and politicians embraced the folksy billionaire's plan. Last year, Senate Majority Leader Harry Reid said he had joined "the Pickens church," and Al Gore said he wished that more business leaders would emulate Mr. Pickens and be willing to "throw themselves into the fight for the future of our country."
Alas, market forces ruined the Pickens Plan. Mr. Pickens should have shorted wind. Instead, he went long and now he's stuck holding a slew of turbines he can't use because low natural gas prices have made wind energy uneconomic in the U.S., despite federal subsidies that amount to $6.44 for every 1 million British thermal units (BTUs) produced by wind turbines. As the former corporate raider explained a few days ago, growth in the wind energy industry "just isn't gonna happen" if natural gas prices remain depressed."
So much for predicting the rise of one energy source by hoping for scarcity of another. And it's sort of funny, because, separately, Pickens has been stumping for natural gas-powered vehicles. So I guess one windfall threw another of his energy bets for a big loss.
Bryce went on to note how well-subsidized wind power has been,
"Despite wind's lousy economics, the lame duck Congress recently passed a one-year extension of the investment tax credit for renewable energy projects. That might save a few "green" jobs.
But at the same time that Congress was voting to continue the wind subsidies, Texas Comptroller Susan Combs reported that property tax breaks for wind projects in the Lone Star State cost nearly $1.6 million per job. That green job ripoff is happening in Texas, America's biggest natural gas producer.
Today's low natural gas prices are a direct result of the drilling industry's newfound ability to unlock methane from shale beds. These lower prices are great for consumers but terrible for the wind business. Through the first three quarters of 2010, only 1,600 megawatts of new wind capacity were installed in the U.S., a decline of 72% when compared to the same period in 2009, and the smallest number since 2006. Some wind industry analysts are predicting that new wind generation installations will fall again, by as much as 50%, in 2011."
According to Bryce, Pickens is moving his wind turbines to Canada, where mandatory alternative energy legislation requires utilities to buy power he'll generate up there with his new toys.
All of this makes you wonder just how much of Pickens' vaunted plan was a way to drive federal subsidies for his investment strategies, doesn't it?
Meanwhile, in the earlier Journal staff editorial, the writers note how much less efficient wind power is, in terms of megawatts/worker production. It "takes at least 25 times more workers to produce a kilowatt of electricity from wind as from coal."
The cost to taxpayers for each wind-related energy job was estimated at $475K in the editorial. There's no way private industry could accommodate such expensive job-creating investments. Only government, taxpayer-funded subsidies would be so foolishly squandered.
I think the larger story here is that Pickens' wind-based defeat exposes his eagerness to benefit his investors at the explicit expense of taxpayer subsidies, while never effectively responding to charges that his alarm over the US oil import bill is unjustifiable on purely economic bases.
I wrote posts here, here and here concerning Pickens' "policy." Now it seems his extensive wind farm investments have fallen afoul of the low price of natural gas.
Bryce wrote in his editorial,
"The Dallas-based entrepreneur, who has relentlessly promoted his "Pickens Plan" since July 4, 2008, announced earlier this month that he's abandoning the wind business to focus on natural gas.
Two years ago, natural gas prices were spiking and Mr. Pickens figured they'd stay high. He placed a $2 billion order for wind turbines with General Electric. Shortly afterward, he began selling the Pickens Plan. The United States, he claimed, is "the Saudi Arabia of wind," and wind energy is an essential part of the cure for the curse of imported oil.
Voters and politicians embraced the folksy billionaire's plan. Last year, Senate Majority Leader Harry Reid said he had joined "the Pickens church," and Al Gore said he wished that more business leaders would emulate Mr. Pickens and be willing to "throw themselves into the fight for the future of our country."
Alas, market forces ruined the Pickens Plan. Mr. Pickens should have shorted wind. Instead, he went long and now he's stuck holding a slew of turbines he can't use because low natural gas prices have made wind energy uneconomic in the U.S., despite federal subsidies that amount to $6.44 for every 1 million British thermal units (BTUs) produced by wind turbines. As the former corporate raider explained a few days ago, growth in the wind energy industry "just isn't gonna happen" if natural gas prices remain depressed."
So much for predicting the rise of one energy source by hoping for scarcity of another. And it's sort of funny, because, separately, Pickens has been stumping for natural gas-powered vehicles. So I guess one windfall threw another of his energy bets for a big loss.
Bryce went on to note how well-subsidized wind power has been,
"Despite wind's lousy economics, the lame duck Congress recently passed a one-year extension of the investment tax credit for renewable energy projects. That might save a few "green" jobs.
But at the same time that Congress was voting to continue the wind subsidies, Texas Comptroller Susan Combs reported that property tax breaks for wind projects in the Lone Star State cost nearly $1.6 million per job. That green job ripoff is happening in Texas, America's biggest natural gas producer.
Today's low natural gas prices are a direct result of the drilling industry's newfound ability to unlock methane from shale beds. These lower prices are great for consumers but terrible for the wind business. Through the first three quarters of 2010, only 1,600 megawatts of new wind capacity were installed in the U.S., a decline of 72% when compared to the same period in 2009, and the smallest number since 2006. Some wind industry analysts are predicting that new wind generation installations will fall again, by as much as 50%, in 2011."
According to Bryce, Pickens is moving his wind turbines to Canada, where mandatory alternative energy legislation requires utilities to buy power he'll generate up there with his new toys.
All of this makes you wonder just how much of Pickens' vaunted plan was a way to drive federal subsidies for his investment strategies, doesn't it?
Meanwhile, in the earlier Journal staff editorial, the writers note how much less efficient wind power is, in terms of megawatts/worker production. It "takes at least 25 times more workers to produce a kilowatt of electricity from wind as from coal."
The cost to taxpayers for each wind-related energy job was estimated at $475K in the editorial. There's no way private industry could accommodate such expensive job-creating investments. Only government, taxpayer-funded subsidies would be so foolishly squandered.
I think the larger story here is that Pickens' wind-based defeat exposes his eagerness to benefit his investors at the explicit expense of taxpayer subsidies, while never effectively responding to charges that his alarm over the US oil import bill is unjustifiable on purely economic bases.
Monday, October 18, 2010
Electric Cars- Yes or No?
This morning's Wall Street Journal, being the immediate post-weekend edition, was characteristically light on news. So the edition's major Marketplace section focus on electric/hybrid cars was not surprising.
What was surprising is the evolving split between auto makers concerning growth for the pure electrics. Ford's management is reticent about jumping into the segment, foreseeing greater opportunity in hybrids.
Meanwhile, Nissan's Carlos Ghosn predicts fast growth for the vehicles, worrying aloud "that this market is going to grow too fast" and require additional investment in plants."
It's always exciting to see two such divergent views on the potential growth of a product/market segment.
Reading the entire article, I was struck by how heavily dependent the vehicles are on massive federal government subsidies. The most commonly stated number is $7,500/car. That's a shockingly high offset. One wonders, with the current US fiscal situation, and the prospect of an imminent change in party control of Congress, how long such a staggering per/vehicle subsidy will remain in effect.
Then there's the risks of mistakes in calculating range for an electric-only vehicle. And the need for one's travel patterns to precisely match the vehicles' recharging requirements. While hybrids may gain favor, the electric-only vehicles are seen, by most of the industry personnel interviewed in the piece, as being confined to market for "short-distance commutes."
It appears that you have GM and Nissan pushing the EVs, as electric-only vehicles are called, for short, while Ford, Toyota and various suppliers see a much less robust future for them, even ten years out.
Given GM's notoriously tin ear for consumer sentiments and preferences, it almost makes you side with Ford and Toyota, doesn't it?
What was surprising is the evolving split between auto makers concerning growth for the pure electrics. Ford's management is reticent about jumping into the segment, foreseeing greater opportunity in hybrids.
Meanwhile, Nissan's Carlos Ghosn predicts fast growth for the vehicles, worrying aloud "that this market is going to grow too fast" and require additional investment in plants."
It's always exciting to see two such divergent views on the potential growth of a product/market segment.
Reading the entire article, I was struck by how heavily dependent the vehicles are on massive federal government subsidies. The most commonly stated number is $7,500/car. That's a shockingly high offset. One wonders, with the current US fiscal situation, and the prospect of an imminent change in party control of Congress, how long such a staggering per/vehicle subsidy will remain in effect.
Then there's the risks of mistakes in calculating range for an electric-only vehicle. And the need for one's travel patterns to precisely match the vehicles' recharging requirements. While hybrids may gain favor, the electric-only vehicles are seen, by most of the industry personnel interviewed in the piece, as being confined to market for "short-distance commutes."
It appears that you have GM and Nissan pushing the EVs, as electric-only vehicles are called, for short, while Ford, Toyota and various suppliers see a much less robust future for them, even ten years out.
Given GM's notoriously tin ear for consumer sentiments and preferences, it almost makes you side with Ford and Toyota, doesn't it?
Friday, June 18, 2010
Oil Drilling Leases, Liability & US Government Thuggery
I wrote this post earlier this week discussing Congress' and the administration's implicit roles in the BP undersea gusher disaster.
I wrote, in part,
"How is it that the same administration and Congress that looks elsewhere for the cause of the recent financial crisis, while overlooking their own complicated regulatory schemes and agencies, can repeat the act in the energy arena?
Whatever regulatory processes exist would seem to have been deemed appropriate by Congress. If the MMS was 'captured' by industry participants, then Congress' legislation pertaining to the agency must have allowed for that.
If we are to believe the president, nobody has ever tried to find alternative, renewable energy sources, despite the immense payoff which would accrue to the first person or company to patent such discoveries.
How is the US supposed to remain competitive if the only way to bring new energy sources to market is to subsidize them with government money? By definition, they'll be uncompetitive on a cost basis. Otherwise, those discoveries would already be providing said energy.
It's disappointing to see an administration and Congress so totally ignorant of economics that they believe that nobody has tried to find profitable renewable energy sources, and, thus, are only awaiting government handouts to make such ideas a profitable reality."
Throughout the past few days, as I've listened to dozens of pundits exclaim on various aspects of the Gulf oil disaster, I've formulated some questions and thoughts of my own.
Suppose the US were starting from scratch in the area of extracting minerals, metals and valuable liquids and gases, e.g., oil and natural gas, from our land and the sea and seabed which we control. What questions would we, as a nation, confront as we sought to enjoy economic benefits from the extraction of said natural resources?
Certainly we would seek to sell leases and licenses to explore for valuable resources and extract them. We'd probably want to hold said lessees liable for any damage they caused through their operations, and to return the land, water or seabeds to acceptable, near-original condition.
To assure ourselves that any lessee could fulfill his obligations not to cause unwarranted external costs to others, including our nation, by failing to finish restoring sites and removing unwanted structures, etc., we'd probably require some sort of bond or insurance in an amount considered adequate by knowledgeable professionals.
So far, this seems reasonable, doesn't it?
But what about that liability clause? If a lessee encounters some situation, whether accidental or by poor management, that creates a disaster on the scale of BP's Gulf rig gusher, do we seriously expect to hold that company totally responsible for every penny of expense related to the problem?
The US does not exist in a vacuum. There are deposits of virtually all of our natural resources located in other countries, on other continents. Many other countries offer far less onerous regulatory environments than those which currently exist in the US.
As tempting as it would be for the US to insist on carte blanche, unlimited liability assumption by its natural resource lessees, competitive realities could easily cause such a policy to result in no lessees whatsoever.
Even an honest, scrupulous adherence to a rule of law that mandated unlimited liability could leave the US with no firms interested in the assumption of such unlimited liability, against very limited revenues and profits from such leases.
But in reality, it's much worse than that.
Our country's president has just mugged BP, shaking it down, as Representative Joe Barton correctly observed, for $20B. Completely abrogating the rule of law in the process.
What global energy or mining company will now wish to risk its solvency by bidding for and operating under a US lease to explore and exploit natural resources?
Against the unlimited, company-killing risks now apparent for operating in the US, any company would be considering much higher tangible exploration and production costs anywhere else in the world.
It's all well and good to want a pristine environment. It sounds reasonable to expect a natural resources exploration and production firm to pay for every dime of damage they cause to the environment.
But in a competitive global economy, it's foolish and naive to actually demand that.
The result is far more likely to be an exodus of global mining and energy firms, and the jobs and capital that accompany them.
The administration's recent extortion of BP to the current- not necessarily final- tune of $20B, and Congress' vilification of BP and its CEO, before final conclusions regarding the rig failure are known, seem to be at odds with a desire to foster economic expansion, job creation and risk taking in America.
And it doesn't stop at extractive industries. If one administration is capable of illegally shaking down a private company for cash, outside or due process channels, who's to say that administration, or another one, won't trample due process rights on any matter of business operation? Perhaps, next, it will be a food processor. Or a trucking firm. Maybe, again, finance?
Nobody really knows. Once extortion becomes an established, accepted practice by government, no business is safe.
Those of us who are citizens may not wish to move overseas to ply our trades. But others who live overseas may think seriously about continuing to do business here, or commencing operations on US shores.
The effects of the recent treatment of BP on long term US economic health could be truly enormous, unanticipated and unintended consequences.
Before I finish this post, consider one other dimension- global political-financial issues. For example, this hypothetical.
Suppose next Monday morning, you read that financially crippled, value-depressed BP has sold itself to a consortium of Chinese banks, a Chinese sovereign fund, and Chinese mining interests. Later in the week, you read that the Chinese foreign ministry, at the behest of BP's new owners, have announced that they will renege on the $20B fund, and, further, demand US cessation of all criminal and civil penalties against the BP operations, on penalty of China selling its US debt obligations?
What would be the US response to such actions?
The recent trend toward sovereign control of minerals and metals production is a fact. The Chinese have been engaged in a battle over control of iron ore production for the past year. This hypothetical would simply be an extension of that trend. But the implications would be staggering.
Dealing with private firms in the area of unexpected environmental disasters is one thing. The prospect of facing a major sovereign creditor which owns a major oil firm with substantial interests in the US, with global economic and military ambitions which are at odds with ours would be catastrophic.
I wrote, in part,
"How is it that the same administration and Congress that looks elsewhere for the cause of the recent financial crisis, while overlooking their own complicated regulatory schemes and agencies, can repeat the act in the energy arena?
Whatever regulatory processes exist would seem to have been deemed appropriate by Congress. If the MMS was 'captured' by industry participants, then Congress' legislation pertaining to the agency must have allowed for that.
If we are to believe the president, nobody has ever tried to find alternative, renewable energy sources, despite the immense payoff which would accrue to the first person or company to patent such discoveries.
How is the US supposed to remain competitive if the only way to bring new energy sources to market is to subsidize them with government money? By definition, they'll be uncompetitive on a cost basis. Otherwise, those discoveries would already be providing said energy.
It's disappointing to see an administration and Congress so totally ignorant of economics that they believe that nobody has tried to find profitable renewable energy sources, and, thus, are only awaiting government handouts to make such ideas a profitable reality."
Throughout the past few days, as I've listened to dozens of pundits exclaim on various aspects of the Gulf oil disaster, I've formulated some questions and thoughts of my own.
Suppose the US were starting from scratch in the area of extracting minerals, metals and valuable liquids and gases, e.g., oil and natural gas, from our land and the sea and seabed which we control. What questions would we, as a nation, confront as we sought to enjoy economic benefits from the extraction of said natural resources?
Certainly we would seek to sell leases and licenses to explore for valuable resources and extract them. We'd probably want to hold said lessees liable for any damage they caused through their operations, and to return the land, water or seabeds to acceptable, near-original condition.
To assure ourselves that any lessee could fulfill his obligations not to cause unwarranted external costs to others, including our nation, by failing to finish restoring sites and removing unwanted structures, etc., we'd probably require some sort of bond or insurance in an amount considered adequate by knowledgeable professionals.
So far, this seems reasonable, doesn't it?
But what about that liability clause? If a lessee encounters some situation, whether accidental or by poor management, that creates a disaster on the scale of BP's Gulf rig gusher, do we seriously expect to hold that company totally responsible for every penny of expense related to the problem?
The US does not exist in a vacuum. There are deposits of virtually all of our natural resources located in other countries, on other continents. Many other countries offer far less onerous regulatory environments than those which currently exist in the US.
As tempting as it would be for the US to insist on carte blanche, unlimited liability assumption by its natural resource lessees, competitive realities could easily cause such a policy to result in no lessees whatsoever.
Even an honest, scrupulous adherence to a rule of law that mandated unlimited liability could leave the US with no firms interested in the assumption of such unlimited liability, against very limited revenues and profits from such leases.
But in reality, it's much worse than that.
Our country's president has just mugged BP, shaking it down, as Representative Joe Barton correctly observed, for $20B. Completely abrogating the rule of law in the process.
What global energy or mining company will now wish to risk its solvency by bidding for and operating under a US lease to explore and exploit natural resources?
Against the unlimited, company-killing risks now apparent for operating in the US, any company would be considering much higher tangible exploration and production costs anywhere else in the world.
It's all well and good to want a pristine environment. It sounds reasonable to expect a natural resources exploration and production firm to pay for every dime of damage they cause to the environment.
But in a competitive global economy, it's foolish and naive to actually demand that.
The result is far more likely to be an exodus of global mining and energy firms, and the jobs and capital that accompany them.
The administration's recent extortion of BP to the current- not necessarily final- tune of $20B, and Congress' vilification of BP and its CEO, before final conclusions regarding the rig failure are known, seem to be at odds with a desire to foster economic expansion, job creation and risk taking in America.
And it doesn't stop at extractive industries. If one administration is capable of illegally shaking down a private company for cash, outside or due process channels, who's to say that administration, or another one, won't trample due process rights on any matter of business operation? Perhaps, next, it will be a food processor. Or a trucking firm. Maybe, again, finance?
Nobody really knows. Once extortion becomes an established, accepted practice by government, no business is safe.
Those of us who are citizens may not wish to move overseas to ply our trades. But others who live overseas may think seriously about continuing to do business here, or commencing operations on US shores.
The effects of the recent treatment of BP on long term US economic health could be truly enormous, unanticipated and unintended consequences.
Before I finish this post, consider one other dimension- global political-financial issues. For example, this hypothetical.
Suppose next Monday morning, you read that financially crippled, value-depressed BP has sold itself to a consortium of Chinese banks, a Chinese sovereign fund, and Chinese mining interests. Later in the week, you read that the Chinese foreign ministry, at the behest of BP's new owners, have announced that they will renege on the $20B fund, and, further, demand US cessation of all criminal and civil penalties against the BP operations, on penalty of China selling its US debt obligations?
What would be the US response to such actions?
The recent trend toward sovereign control of minerals and metals production is a fact. The Chinese have been engaged in a battle over control of iron ore production for the past year. This hypothetical would simply be an extension of that trend. But the implications would be staggering.
Dealing with private firms in the area of unexpected environmental disasters is one thing. The prospect of facing a major sovereign creditor which owns a major oil firm with substantial interests in the US, with global economic and military ambitions which are at odds with ours would be catastrophic.
Wednesday, September 30, 2009
About Extractive Industries: Peter Maass' Book "Crude World"
Last Wednesday's Wall Street Journal had a fascinating review of "Crude World," a book about the oil industry by Peter Maass.
Robert D. Kaplan, the reviewer, provides a very clear sense of what is newly observed in Maass' book. That is, as Kaplan writes,
"Oil, corrupts, Mr. Maass says, because it is an "extractive" industry. The computer business and other industries actually design and produce something, but oil is simply taken out of the ground. Thus power lies in the hands of the king, dictator or prime minister who controls the real estate and with whom all sorts of unsavory deals can be struck. Extractive industries "do most of their business in compromise-inducing countries," Mr. Maass explains. "The problem is not that extractive industries have lower principles than other industries. The problem is that they must have better principles"- something that shareholders do not necessarily encourage. Because the number of oil fields on the planet is finite, and the oil in many of them is difficult to extract, the industry is governed by a zero-sum and aggressive realism of the bleakest sort." "
For me, it's a very illuminating statement of fact that I confess to not having understood prior to reading Mr. Kaplan's review.
Elsewhere in his review, Kaplan relates Maass' observations that "Oil, he seems to say, exaggerates the worst human tendencies." By that, he means the rulers of oil-rich countries confiscate the wealth for themselves, leaving most of their countries' citizens to starve. As an example, Kaplan notes that Nigeria has earned $400 billion from oil, but 9 out of 10 Nigerians live on "less than $2 a day, and one out of five children dies before his fifth birthday."
It certainly explains why oil multi-nationals come under such heavy fire for ethics issues and producing wealth that somehow never benefits the entire countries from which they extract the oil. The same, of course, seems to go for basic mining companies, as well.
This is a fascinating aspect of the structure for extractive industries that I hadn't really grasped before. No matter what the scale of competitors, and it usually evolves to few and massive, the behaviors always seem to end up the same. And now Mr. Maass has explained why.
Robert D. Kaplan, the reviewer, provides a very clear sense of what is newly observed in Maass' book. That is, as Kaplan writes,
"Oil, corrupts, Mr. Maass says, because it is an "extractive" industry. The computer business and other industries actually design and produce something, but oil is simply taken out of the ground. Thus power lies in the hands of the king, dictator or prime minister who controls the real estate and with whom all sorts of unsavory deals can be struck. Extractive industries "do most of their business in compromise-inducing countries," Mr. Maass explains. "The problem is not that extractive industries have lower principles than other industries. The problem is that they must have better principles"- something that shareholders do not necessarily encourage. Because the number of oil fields on the planet is finite, and the oil in many of them is difficult to extract, the industry is governed by a zero-sum and aggressive realism of the bleakest sort." "
For me, it's a very illuminating statement of fact that I confess to not having understood prior to reading Mr. Kaplan's review.
Elsewhere in his review, Kaplan relates Maass' observations that "Oil, he seems to say, exaggerates the worst human tendencies." By that, he means the rulers of oil-rich countries confiscate the wealth for themselves, leaving most of their countries' citizens to starve. As an example, Kaplan notes that Nigeria has earned $400 billion from oil, but 9 out of 10 Nigerians live on "less than $2 a day, and one out of five children dies before his fifth birthday."
It certainly explains why oil multi-nationals come under such heavy fire for ethics issues and producing wealth that somehow never benefits the entire countries from which they extract the oil. The same, of course, seems to go for basic mining companies, as well.
This is a fascinating aspect of the structure for extractive industries that I hadn't really grasped before. No matter what the scale of competitors, and it usually evolves to few and massive, the behaviors always seem to end up the same. And now Mr. Maass has explained why.
Wednesday, September 02, 2009
Daniel Yergin On The Future of Oil
Daniel Yergin, the esteemed oil analyst, wrote a wonderful editorial in Monday's Wall Street Journal. In it, he reminded us why oil, for all its problems, will still be with us as the world's dominant energy source, for some time to come. Meaning decades.
He noted, in his piece,
"Why this debate about the single most important source of energy—and a very convenient one—that provides 40% of the world's total energy? There are the traditional concerns—energy security, diversification, political risk, and the potential for conflict among nations over resources. The huge shifts in global income flows raise anxieties about the possible impact on the global balance of power. Some worry that physical supply will run out, although examination of the world's resource base—including a new analysis of over 800 oil fields—shows ample physical resources below ground. The politics above ground is a separate question.
But two new factors are now fueling the debate. One is the way in which oil has taken on a second identity. It is no longer only a physical commodity. It has also become a financial asset, along with stocks, bonds, currencies and the rest of the world's financial portfolio. The resulting price volatility—from less than $40 in 2004, to as high as $147.27 in July 2008, back down to $32.40 in December 2008, and now back over $70—has enormous consequences, and not only at the gas station and in terms of public anger. It makes it much more difficult to plan future energy investments, whether in oil and gas or in renewable and alternative fuels. And it can have enormous economic impact; Detroit was sent reeling by what happened at the gas pump in 2007 and 2008 even before the credit crisis. Such volatility can fuel future recessions and inflation."
So much for two key reasons why Americans might wish for oil to be less important than it is. But then Yergin goes on to analyze the likelihood of such change,
"But are big cuts in world oil usage possible? Both the U.S. Department of Energy and the International Energy Agency project that global energy use will increase almost 50% between 2006 and 2030—with oil still providing 30% or more of the world's energy.
The reason is something else that is new—the globalization of demand. No longer are the growth markets for petroleum to be found in North America, Western Europe and Japan. The United States has already hit "peak gasoline demand."
The demand growth has now shifted, massively, to the fast-growing emerging markets—China, India and the Middle East. Between 2000 and 2007, 85% of the growth in world oil demand was in the developing world. This shift continues: This year, more new cars have been sold in China than in the United States. When economic recovery takes hold, what happens in emerging countries will be the defining factor in the path for overall consumption.
There are two obvious ways to temper demand growth—either roll back economic growth, or find new technologies. The former is not acceptable. Thus, the answer has to lie in technology. The challenge is to find alternatives to oil that can be economically competitive—and convenient and reliable—at the massive scale required."
Yet, whatever the breakthroughs, the actual impact on fuel use for the next 20 years will be incremental due to the time it takes to get large-scale mass production up and running and the massive scale of the global auto industry.
My firm, IHS CERA, projects that with aggressive sales volumes and no major bumps in the road (unusual for new technologies), plug-in hybrids and pure electric vehicles could constitute 25% of new car sales by 2030. But because of the slow turn-over of the overall fleet, gasoline consumption would be reduced only modestly below what it would otherwise be. Thereafter, of course, the impact could grow, perhaps very substantially.
But, in the U.S., at least for the next two decades, greater efficiency in the internal combustion engine, advanced diesels, and regular hybrids, combined with second-generation biofuels and new lighter materials, would have a bigger impact sooner. There is, however, a global twist. If small, low-cost electric vehicles really catch on in the auto growth markets in Asia, that would certainly lower the global growth curve for future oil demand."
Again, Yergin points out that developments in, well, the developing countries, e.g., India and China, will have more impact on oil demand than will what happens onshore in America. Precisely because of our mature demand for automobiles, any new, rapid incursion by electrically-powered vehicles won't likely happen in the US. I am presuming that Yergin believes that any draconian federal action to mandate against new gasoline-powered cars will simply result in Americans holding on to the ones they already have for longer, thus further increasing average vehicle life, and reducing turnover. Especially at current prices for electric vehicles, and the non-existent infrastructure for recharging them.
He noted, in his piece,
"Why this debate about the single most important source of energy—and a very convenient one—that provides 40% of the world's total energy? There are the traditional concerns—energy security, diversification, political risk, and the potential for conflict among nations over resources. The huge shifts in global income flows raise anxieties about the possible impact on the global balance of power. Some worry that physical supply will run out, although examination of the world's resource base—including a new analysis of over 800 oil fields—shows ample physical resources below ground. The politics above ground is a separate question.
But two new factors are now fueling the debate. One is the way in which oil has taken on a second identity. It is no longer only a physical commodity. It has also become a financial asset, along with stocks, bonds, currencies and the rest of the world's financial portfolio. The resulting price volatility—from less than $40 in 2004, to as high as $147.27 in July 2008, back down to $32.40 in December 2008, and now back over $70—has enormous consequences, and not only at the gas station and in terms of public anger. It makes it much more difficult to plan future energy investments, whether in oil and gas or in renewable and alternative fuels. And it can have enormous economic impact; Detroit was sent reeling by what happened at the gas pump in 2007 and 2008 even before the credit crisis. Such volatility can fuel future recessions and inflation."
So much for two key reasons why Americans might wish for oil to be less important than it is. But then Yergin goes on to analyze the likelihood of such change,
"But are big cuts in world oil usage possible? Both the U.S. Department of Energy and the International Energy Agency project that global energy use will increase almost 50% between 2006 and 2030—with oil still providing 30% or more of the world's energy.
The reason is something else that is new—the globalization of demand. No longer are the growth markets for petroleum to be found in North America, Western Europe and Japan. The United States has already hit "peak gasoline demand."
The demand growth has now shifted, massively, to the fast-growing emerging markets—China, India and the Middle East. Between 2000 and 2007, 85% of the growth in world oil demand was in the developing world. This shift continues: This year, more new cars have been sold in China than in the United States. When economic recovery takes hold, what happens in emerging countries will be the defining factor in the path for overall consumption.
There are two obvious ways to temper demand growth—either roll back economic growth, or find new technologies. The former is not acceptable. Thus, the answer has to lie in technology. The challenge is to find alternatives to oil that can be economically competitive—and convenient and reliable—at the massive scale required."
Mr. Yergin has basically alerted us to the fact that the marginal uses of oil will now be determined by other countries, not the US. Our own management of demand no longer will determine world prices.
Zeroing in on oil's role in energy even further, Yergin observes,
"For oil, the focus is on transportation. After all, only 2% of America's electricity is generated by oil. Until recently, it appeared that the race between the electric car and the gasoline-powered car had been decided a century ago, with a decisive win by the gasoline-powered car on the basis of cost and performance. But the race is clearly on again.Yet, whatever the breakthroughs, the actual impact on fuel use for the next 20 years will be incremental due to the time it takes to get large-scale mass production up and running and the massive scale of the global auto industry.
My firm, IHS CERA, projects that with aggressive sales volumes and no major bumps in the road (unusual for new technologies), plug-in hybrids and pure electric vehicles could constitute 25% of new car sales by 2030. But because of the slow turn-over of the overall fleet, gasoline consumption would be reduced only modestly below what it would otherwise be. Thereafter, of course, the impact could grow, perhaps very substantially.
But, in the U.S., at least for the next two decades, greater efficiency in the internal combustion engine, advanced diesels, and regular hybrids, combined with second-generation biofuels and new lighter materials, would have a bigger impact sooner. There is, however, a global twist. If small, low-cost electric vehicles really catch on in the auto growth markets in Asia, that would certainly lower the global growth curve for future oil demand."
Again, Yergin points out that developments in, well, the developing countries, e.g., India and China, will have more impact on oil demand than will what happens onshore in America. Precisely because of our mature demand for automobiles, any new, rapid incursion by electrically-powered vehicles won't likely happen in the US. I am presuming that Yergin believes that any draconian federal action to mandate against new gasoline-powered cars will simply result in Americans holding on to the ones they already have for longer, thus further increasing average vehicle life, and reducing turnover. Especially at current prices for electric vehicles, and the non-existent infrastructure for recharging them.
He closes with this passage,
"As to the next 150 years of petroleum, we can hardly even begin to guess. For the next 20 years at least, the unfolding economic saga in emerging markets will continue to make oil a global growth business."
Daniel Yergin doesn't write in the Journal very often, but he never disappoints with the quality and focus of his insights. In this editorial, he reminds us, with factual support, why oil will be powering American vehicles for the next several decades. And why, regardless of our energy policies for the next few years, other countries will have greater impact on the larger issues of vehicular power sources than will Americans for the future.
It puts the current federal government preoccupation with energy policy, cap-and-tax, and other related matters in a whole new light, doesn't it?
If you thought those initiatives were misguided and pointless before, you probably are even more convinced of that position after reading Yergin's thoughts.
Friday, August 28, 2009
Going Green Goes Bust: Ethanol Businesses In Crisis
Back in late 2007, I wrote this post concerning Congress and energy policy. In that piece, I quoted an article which read, in part,
In its efforts to set the U.S. on the road toward energy independence, Congress may be constructing a detour.The House and Senate have passed separate energy bills and are now working on combining the two into final legislation that could come up for a vote by the end of the year.Both bills are designed to lessen American reliance on foreign oil, in part by mandating far greater use of corn-based ethanol and so-called cellulosic ethanol, which is made from biomass like grasses and wood chips. The Senate bill also calls for higher fuel-economy standards.Here's the catch: Anything that creates uncertainty about demand for gasoline over the long term means less incentive for refiners in the U.S. to expand their capacity. And that means greater reliance on gasoline imports in the near term, at least until ethanol becomes a mainstream fuel. And that, of course, is the opposite of energy independence."
It was thus with some amusement that I read an article in yesterday's Wall Street Journal entitled, "Turmoil in Biofuels Threatens Green Energy Revolution."
Without going into massive detail, the piece notes that several factors have recently coincided to derail the holy grail of replacing oil with ethanol-based fuels for transportation.
Specifically, oil's price decline to the neighborhood of $70/barrel, and a global recession, have completely changed the assumptions initially governing the US government's alternative energy subsidies.
Thus, many of the once-touted green energy initiatives are going bankrupt. Ethanol isn't being produced in the quantities imagined only two years ago.
One of the howlers is that the sanctimonious Silicon Valley mogul, Vinod Khosla, unwittingly backed a scam in which Cello Energy of Alabama produced fuel from conventional petroleum sources and claimed it was green-based. A rather damning passage in the Journal's piece states,
"This year, Khosla representatives took samples of diesel produced at the new Cello plant and sent them off for testing. The results showed no evidence of plant-based fuel: Carbon in the diesel was at least 50,000 years old, marking it as traditional fossil fuel. The EPA wasn't told about the test, and continued to rely on Mr. Boykin's original claims when it asserted in the Federal Register in May that Cello could produce 70% of the cellulosis fuel targets set by Congress that are due to take effect next year."
One other rather comic effect of the biofuel producers' sudden financial woes is the looming prospect of a government bailout of this new sector. Because the current administration made alternative energy such a showcase issue, it may be politically necessary for this third major bailout. It's ironic, of course, because it was thanks to government mandates and subsidies that anyone took this form of energy production seriously in the first place.
I love economics in part because it can't be fooled. Governments can subsidize and legislate to distort returns and costs. But even such actions have costs, and these, too, have to be borne by voters. Eventually, horrendously expensive, wasteful government programs become apparent.
Some, like the dairy and sugar industries' shameful subsidies, continue because the costs/consumer are so small, while the benefits/producer are so large.
But in the case of alternative energy, there are huge new investments and uncertain scaling up of new energy production technologies. And, of course, as the Journal article notes, we still have the distressing fact that if all current US vegetable and animal fat output were used to produce ethanol, it would provide only 7% of diesel fuel used in the country.
The economics are simply against long-term usage of large amounts of vegetable-based energy. It's not as powerful per unit of volume as petroleum, and never will be. You could more easily and efficiently liquefy coal than you can convert foodstuffs into transportation fuel.
Perhaps in this recent era of federal bailouts and massive deficits, the green energy sector will be one too many sectors to save. Especially as it may not be well-enough established to have the political clout on its own to sway federal legislators.
In its efforts to set the U.S. on the road toward energy independence, Congress may be constructing a detour.The House and Senate have passed separate energy bills and are now working on combining the two into final legislation that could come up for a vote by the end of the year.Both bills are designed to lessen American reliance on foreign oil, in part by mandating far greater use of corn-based ethanol and so-called cellulosic ethanol, which is made from biomass like grasses and wood chips. The Senate bill also calls for higher fuel-economy standards.Here's the catch: Anything that creates uncertainty about demand for gasoline over the long term means less incentive for refiners in the U.S. to expand their capacity. And that means greater reliance on gasoline imports in the near term, at least until ethanol becomes a mainstream fuel. And that, of course, is the opposite of energy independence."
It was thus with some amusement that I read an article in yesterday's Wall Street Journal entitled, "Turmoil in Biofuels Threatens Green Energy Revolution."
Without going into massive detail, the piece notes that several factors have recently coincided to derail the holy grail of replacing oil with ethanol-based fuels for transportation.
Specifically, oil's price decline to the neighborhood of $70/barrel, and a global recession, have completely changed the assumptions initially governing the US government's alternative energy subsidies.
Thus, many of the once-touted green energy initiatives are going bankrupt. Ethanol isn't being produced in the quantities imagined only two years ago.
One of the howlers is that the sanctimonious Silicon Valley mogul, Vinod Khosla, unwittingly backed a scam in which Cello Energy of Alabama produced fuel from conventional petroleum sources and claimed it was green-based. A rather damning passage in the Journal's piece states,
"This year, Khosla representatives took samples of diesel produced at the new Cello plant and sent them off for testing. The results showed no evidence of plant-based fuel: Carbon in the diesel was at least 50,000 years old, marking it as traditional fossil fuel. The EPA wasn't told about the test, and continued to rely on Mr. Boykin's original claims when it asserted in the Federal Register in May that Cello could produce 70% of the cellulosis fuel targets set by Congress that are due to take effect next year."
One other rather comic effect of the biofuel producers' sudden financial woes is the looming prospect of a government bailout of this new sector. Because the current administration made alternative energy such a showcase issue, it may be politically necessary for this third major bailout. It's ironic, of course, because it was thanks to government mandates and subsidies that anyone took this form of energy production seriously in the first place.
I love economics in part because it can't be fooled. Governments can subsidize and legislate to distort returns and costs. But even such actions have costs, and these, too, have to be borne by voters. Eventually, horrendously expensive, wasteful government programs become apparent.
Some, like the dairy and sugar industries' shameful subsidies, continue because the costs/consumer are so small, while the benefits/producer are so large.
But in the case of alternative energy, there are huge new investments and uncertain scaling up of new energy production technologies. And, of course, as the Journal article notes, we still have the distressing fact that if all current US vegetable and animal fat output were used to produce ethanol, it would provide only 7% of diesel fuel used in the country.
The economics are simply against long-term usage of large amounts of vegetable-based energy. It's not as powerful per unit of volume as petroleum, and never will be. You could more easily and efficiently liquefy coal than you can convert foodstuffs into transportation fuel.
Perhaps in this recent era of federal bailouts and massive deficits, the green energy sector will be one too many sectors to save. Especially as it may not be well-enough established to have the political clout on its own to sway federal legislators.
Thursday, July 16, 2009
Exxon Blinks On Alternative Energy
In a scene very reminiscent of the 1970s- and isn't much of our political economy these days?- Exxon announced a strategic reversal on alternative energy sources.
Yesterday's Wall Street Journal reported that Exxon is pairing with esteemed biologist J. Craig Venter to research the use of algae to clean greenhouse gases and secrete oil.
Honestly, reading that last part, it sounds like a sci-fi novel.
And maybe- just maybe, if we are lucky- it is.
Because the last time Exxon appeared to abandon its primary business, oil exploration and refining, and jumped into something else, it wasted billions of dollars. According to the Journal article, this time, it seems to be anteing up only $600MM. Truly a pittance for the oil giant.
Some historical context is required to properly understand what's happening here.
Back in the 1970s, when the Clean Air Act Extension and high oil prices put pressure on oil companies, Exxon launched Exxon Enterprises. EE was a holding entity which oversaw startup planning for all sorts of non-oil businesses, including solar energy panels, a fax machine business, and various other electronic office products initiatives. The thinking was to use Exxon's enormous revenues to fund so-called replacement technologies, such as electronic office equipment, to replace oil used in commuting and travel, and solar, to replace depleting and expensive oil.
I consulted to one of the EE businesses as part of the Wharton Applied Research Center when I was a graduate student. In a hilarious activity straight out of Joseph Heller's Catch-22, our mission was to help the management of Exxon Solar Energy to forecast a developing market of sufficient size to secure follow-on budgetary funding to continue the business effort. The furthest thing from our charter was to actually create any product. We were brought in to simply play a paper-shuffling game of justifying the unit's existence to corporate for a few more years. The stories we heard of oil executives jumping ship from the New York headquarters to work out in Florham Park, NJ, were many and rich. Suffice to say, there was a whole lot of ticket-punching going on, but nobody believed in the longevity of the businesses.
As it happened, a year later, I was working at AT&T in Morristown, just a stone's throw from EE. In short order, Lee Raymond, the now-retired CEO of Exxon, was brought in to wind down the whole mess and stanch the incredible losses emanating from Florham Park.
Raymond observed that oil wasn't going away, while Exxon would never amount to much in these new areas. He presided over the selling off or closing of all the EE business efforts.
In truth, EE had served its purpose. During a period of hysteria over high oil prices and Arab control over much of the world's crude, Exxon had successfully deflected some public criticism, and appeared to be spending money on diversification in order to seem to be 'solving' the problems associated with high oil costs.
Once Reagan was in office and the publicity crisis had passed, Raymond, a rising 'go to' guy at the firm, was brought in to restore sanity.
I think that's what's occurring now, too.
Rex Tillerson is no fool. I loved the Journals reference to Tillerson's snide remark about alternative energy, i.e., that he expected to be driven to his funeral in a car powered by gasoline or diesel fuel. And he will be.
But, for now, it's once again time to show public humility at being in the oil business.
Who better with whom to partner than noted scientist Venter, on a project that sounds like something out of pure science fiction.
Imagine- an algae that consumes greenhouse gases and spews out usable energy. Can it get any wilder, more perfect, or safe?
I can just see Tillerson and other senior Exxon execs around a conference room table one-upping each other on what the alternative energy project should have as its aim, and roaring with laughter at the final result.
How many years will it be before any real progress is made on this wild-algae chase? Well, Daniel Nocera's work on fuel cells has consumed about a decade, and he figures he has at least half that time, again, to go before perfecting his work.
Who knows how long Exxon can manage to make this tilt at an enormous windmill take? Most likely, long enough to see a return of either the Oval Office or at least one chamber of Congress to Republican control.
In the meantime, this far-fetched, impossible-sounding quest will soldier on, consuming a trickle of Exxon profits, while reaping huge publicity gains.
Don't ever underestimate Exxon management.
Yesterday's Wall Street Journal reported that Exxon is pairing with esteemed biologist J. Craig Venter to research the use of algae to clean greenhouse gases and secrete oil.
Honestly, reading that last part, it sounds like a sci-fi novel.
And maybe- just maybe, if we are lucky- it is.
Because the last time Exxon appeared to abandon its primary business, oil exploration and refining, and jumped into something else, it wasted billions of dollars. According to the Journal article, this time, it seems to be anteing up only $600MM. Truly a pittance for the oil giant.
Some historical context is required to properly understand what's happening here.
Back in the 1970s, when the Clean Air Act Extension and high oil prices put pressure on oil companies, Exxon launched Exxon Enterprises. EE was a holding entity which oversaw startup planning for all sorts of non-oil businesses, including solar energy panels, a fax machine business, and various other electronic office products initiatives. The thinking was to use Exxon's enormous revenues to fund so-called replacement technologies, such as electronic office equipment, to replace oil used in commuting and travel, and solar, to replace depleting and expensive oil.
I consulted to one of the EE businesses as part of the Wharton Applied Research Center when I was a graduate student. In a hilarious activity straight out of Joseph Heller's Catch-22, our mission was to help the management of Exxon Solar Energy to forecast a developing market of sufficient size to secure follow-on budgetary funding to continue the business effort. The furthest thing from our charter was to actually create any product. We were brought in to simply play a paper-shuffling game of justifying the unit's existence to corporate for a few more years. The stories we heard of oil executives jumping ship from the New York headquarters to work out in Florham Park, NJ, were many and rich. Suffice to say, there was a whole lot of ticket-punching going on, but nobody believed in the longevity of the businesses.
As it happened, a year later, I was working at AT&T in Morristown, just a stone's throw from EE. In short order, Lee Raymond, the now-retired CEO of Exxon, was brought in to wind down the whole mess and stanch the incredible losses emanating from Florham Park.
Raymond observed that oil wasn't going away, while Exxon would never amount to much in these new areas. He presided over the selling off or closing of all the EE business efforts.
In truth, EE had served its purpose. During a period of hysteria over high oil prices and Arab control over much of the world's crude, Exxon had successfully deflected some public criticism, and appeared to be spending money on diversification in order to seem to be 'solving' the problems associated with high oil costs.
Once Reagan was in office and the publicity crisis had passed, Raymond, a rising 'go to' guy at the firm, was brought in to restore sanity.
I think that's what's occurring now, too.
Rex Tillerson is no fool. I loved the Journals reference to Tillerson's snide remark about alternative energy, i.e., that he expected to be driven to his funeral in a car powered by gasoline or diesel fuel. And he will be.
But, for now, it's once again time to show public humility at being in the oil business.
Who better with whom to partner than noted scientist Venter, on a project that sounds like something out of pure science fiction.
Imagine- an algae that consumes greenhouse gases and spews out usable energy. Can it get any wilder, more perfect, or safe?
I can just see Tillerson and other senior Exxon execs around a conference room table one-upping each other on what the alternative energy project should have as its aim, and roaring with laughter at the final result.
How many years will it be before any real progress is made on this wild-algae chase? Well, Daniel Nocera's work on fuel cells has consumed about a decade, and he figures he has at least half that time, again, to go before perfecting his work.
Who knows how long Exxon can manage to make this tilt at an enormous windmill take? Most likely, long enough to see a return of either the Oval Office or at least one chamber of Congress to Republican control.
In the meantime, this far-fetched, impossible-sounding quest will soldier on, consuming a trickle of Exxon profits, while reaping huge publicity gains.
Don't ever underestimate Exxon management.
Thursday, July 09, 2009
Boone Pickens' Energy "Plan" A Year Later
I saw Boone Pickens on CNBC Tuesday morning. He was there to mark the one-year anniversary of his non-plan national "energy plan."
Suffice to say, Boone was crowing about Congressional legislation including natural gas. But he begged off commenting on 'cap and trade.'
This seems totally disingenuous to me. He claimed he isn't an expert on that topic, so he refused to comment whatsoever on the bill.
Personally, I don't think that dog hunts. Pickens is smart enough to judge whether or not distorting the prices of energy sources via political machinations is a wise thing.
And nobody has yet explained how we know when we spend "too much" on any one good that requires foreign exchange.
In an unrelated article, for example, I read one pundit ask why spending what the US spends on healthcare is "too much," but continuing to pump dollars into union-run schools isn't?
It's still the same with energy. While it may be unwise to leave so many dollars in the hands of unfriendly powers, that's different than buying a fairly-valued commodity input in the market, to use to create value in the US.
Lastly, if Pickens isn't smart enough to have any opinion on 'cap and tax,' why should we believe he's intelligent enough to propose a sound energy policy/plan?
He can't have it both ways. Either he has informed opinions on energy policy in general, or he doesn't. It can't be a pick and choose thing. Even for Pickens.
Suffice to say, Boone was crowing about Congressional legislation including natural gas. But he begged off commenting on 'cap and trade.'
This seems totally disingenuous to me. He claimed he isn't an expert on that topic, so he refused to comment whatsoever on the bill.
Personally, I don't think that dog hunts. Pickens is smart enough to judge whether or not distorting the prices of energy sources via political machinations is a wise thing.
And nobody has yet explained how we know when we spend "too much" on any one good that requires foreign exchange.
In an unrelated article, for example, I read one pundit ask why spending what the US spends on healthcare is "too much," but continuing to pump dollars into union-run schools isn't?
It's still the same with energy. While it may be unwise to leave so many dollars in the hands of unfriendly powers, that's different than buying a fairly-valued commodity input in the market, to use to create value in the US.
Lastly, if Pickens isn't smart enough to have any opinion on 'cap and tax,' why should we believe he's intelligent enough to propose a sound energy policy/plan?
He can't have it both ways. Either he has informed opinions on energy policy in general, or he doesn't. It can't be a pick and choose thing. Even for Pickens.
Thursday, July 02, 2009
Cap & Trade Details
In reply to this recent post concerning the lack of apparent equity market reaction to Friday's stealth passage by the House of a 'cap and trade' bill, a reader wrote this note to me,
"Re your post on your Reasoned Skeptic blog on the cap and trade bill, I'd be interested in you doing a blog post on your thoughts on allowing a border tax adjustment for imports from countries with lax carbon standards. You may have noticed that the House bill includes a border adjustment provision; it was slipped in late last week, despite arguments against one from the Obama administration. If you're not familiar with border adjustment, attached are comments by Representative Inglis arguing for border adjustment, and slides by AEI on carbon border adjustment (14-18 re border adjustment and carbon; 1-13 re background on border adjustments)."
To be honest, no, I did not know this. I have yet to read the detailed article from last weekend's Wall Street Journal, and this sort of fine point isn't necessarily gleaned from televised coverage, little as there was, given the weekend news cycle and my own aversion to viewing such weekend coverage.
The reader sent me two attachments discussing how such a proposed 'carbon equalization' regime would work, which I appreciated. Suffice to say, as I expected, after quite a bit of dense, mind-numbing detail on these schemes, both documents admitted to the two things I had already guessed, prior to reading them.
First, the sheer implementational difficulties of such a regime are represent real obstacles to their successful operation. Think months'-long delays, if not years, as complicated carbon-usage forms are completed, submitted, and then overwhelm some federal department charged with administration of the whole mess.
That's the optimistic view. The reality, as with our recent experience with mortgage finance 'liar loans,' is likely to be wholesale fraud, deceit, and the employment of various 'consultants' to complete applications in such a manner as to gain favorable treatment, knowing the ability of government to investigate each application and enforce penalties for fraud will be de minimis.
Then there's the real problem- a GATT-based challenge at the WTO. This sort of issue was my first instinct in believing this importation-adjustment process to be practically unenforceable.
To get to the plainly-written crux of the matter, this will come down to a question of whether it's legal, in the context of world trade agreements, for one country to enforce its pollution penalties on producers in other countries importing into the first country.
Similar to the phenomenon of labor-intensive, low-value-added work moving to low-labor-cost countries around the world, despite various attempts of high-wage countries to stop it, it's logical to expect high-carbon-cost countries to lose employment, GDP and tax revenues from both to low-carbon-cost countries, irrespective of attempts to stop this flow.
I just don't believe a lot of complicated US law involving various carbon-usage adjustments is going to fly. Before it's sorted out, the economic uncertainty and resulting loss of jobs and economic activity from the US to poorer, 'dirtier' countries, will probably cause a serious rethink of the whole idea.
"Re your post on your Reasoned Skeptic blog on the cap and trade bill, I'd be interested in you doing a blog post on your thoughts on allowing a border tax adjustment for imports from countries with lax carbon standards. You may have noticed that the House bill includes a border adjustment provision; it was slipped in late last week, despite arguments against one from the Obama administration. If you're not familiar with border adjustment, attached are comments by Representative Inglis arguing for border adjustment, and slides by AEI on carbon border adjustment (14-18 re border adjustment and carbon; 1-13 re background on border adjustments)."
To be honest, no, I did not know this. I have yet to read the detailed article from last weekend's Wall Street Journal, and this sort of fine point isn't necessarily gleaned from televised coverage, little as there was, given the weekend news cycle and my own aversion to viewing such weekend coverage.
The reader sent me two attachments discussing how such a proposed 'carbon equalization' regime would work, which I appreciated. Suffice to say, as I expected, after quite a bit of dense, mind-numbing detail on these schemes, both documents admitted to the two things I had already guessed, prior to reading them.
First, the sheer implementational difficulties of such a regime are represent real obstacles to their successful operation. Think months'-long delays, if not years, as complicated carbon-usage forms are completed, submitted, and then overwhelm some federal department charged with administration of the whole mess.
That's the optimistic view. The reality, as with our recent experience with mortgage finance 'liar loans,' is likely to be wholesale fraud, deceit, and the employment of various 'consultants' to complete applications in such a manner as to gain favorable treatment, knowing the ability of government to investigate each application and enforce penalties for fraud will be de minimis.
Then there's the real problem- a GATT-based challenge at the WTO. This sort of issue was my first instinct in believing this importation-adjustment process to be practically unenforceable.
To get to the plainly-written crux of the matter, this will come down to a question of whether it's legal, in the context of world trade agreements, for one country to enforce its pollution penalties on producers in other countries importing into the first country.
Similar to the phenomenon of labor-intensive, low-value-added work moving to low-labor-cost countries around the world, despite various attempts of high-wage countries to stop it, it's logical to expect high-carbon-cost countries to lose employment, GDP and tax revenues from both to low-carbon-cost countries, irrespective of attempts to stop this flow.
I just don't believe a lot of complicated US law involving various carbon-usage adjustments is going to fly. Before it's sorted out, the economic uncertainty and resulting loss of jobs and economic activity from the US to poorer, 'dirtier' countries, will probably cause a serious rethink of the whole idea.
Friday, June 26, 2009
More "Green Energy" Lies
There's a group named "Repower America" which has been running a series of deceptive ads on cable television for the past few months.
Here's one of them from a few months ago.
They take a craggy-faced actor and dress him up to appear like a real, wizened, concerned old geezer who knows what's right for America, by gosh!
The current ad features the same 'old crag face,' this time alleging that we are borrowing billions to pay for our gasoline. That new ways are necessary, and, of course, the oft-repeated canard that wind and solar power will create lots of new, 'good-paying' jobs.
Of course, what none of these commercials tell you is that the infrastructure expense and effort, not to mention consumer tradeoffs to accept electric cars, are enormous. As I explained, with the help of a Wall Street Journal article, in this recent post, you just cannot feasibly replace locomotion-focused carbon-based energy with a few windmills and solar panels. The author noted,
"The latest data from the U.S. Energy Information Administration show that total solar and wind output for 2008 will likely be about 45,493,000 megawatt-hours. That sounds significant until you consider this number: 4,118,198,000 megawatt-hours. That's the total amount of electricity generated during the rolling 12-month period that ended last November. Solar and wind, in other words, produce about 1.1% of America's total electricity consumption."
The conversion of electricity into oil terms is straightforward: one barrel of oil contains the energy equivalent of 1.64 megawatt-hours of electricity. Thus, 45,493,000 megawatt-hours divided by 1.64 megawatt-hours per barrel of oil equals 27.7 million barrels of oil equivalent from solar and wind for all of 2008.Now divide that 27.7 million barrels by 365 days and you find that solar and wind sources are providing the equivalent of 76,000 barrels of oil per day. America's total primary energy use is about 47.4 million barrels of oil equivalent per day.
Of that 47.4 million barrels of oil equivalent, oil itself has the biggest share -- we consume about 19 million barrels per day. Natural gas is the second-biggest contributor, supplying the equivalent of 11.9 million barrels of oil, while coal provides the equivalent of 11.5 million barrels of oil per day. The balance comes from nuclear power (about 3.8 million barrels per day), and hydropower (about 1.1 million barrels), with smaller contributions coming from wind, solar, geothermal, wood waste, and other sources.
Here's another way to consider the 76,000 barrels of oil equivalent per day that come from solar and wind: It's approximately equal to the raw energy output of one average-sized coal mine." "
After you build some windmills, where are the jobs? And won't ending the use of coal, oil and natural gas put tens of thousands of miners, pipeline workers, refinery workers and drillers out of work? Most of which, I'd guess, make more than a mundane job in a factory producing solar panels or windmill parts.
Finally, I didn't borrow any money to fill my gas tank this week. So I don't know where the people who put the words into ol' crag face's mouth get their facts.
Probably, they are using the following specious logic. America sells debt to investors around the globe. America imports many things. One of those things is oil.
Let's just assume, and say, that all that borrowed money via T-bills is used to pay for imported oil.
Simple, huh? Wrong, but simple and, to the uninformed, scary and powerful.
But you could point to anything and say it is the source of our trade flow imbalances. I noted this in my critique of Boone Picken's flawed arguments in this prior post.
"Repower America" makes deceptive ads and claims on so many levels, it's disgusting. Let's hope people see through the lies and misleading inferences in their commercials.
Here's one of them from a few months ago.
They take a craggy-faced actor and dress him up to appear like a real, wizened, concerned old geezer who knows what's right for America, by gosh!
The current ad features the same 'old crag face,' this time alleging that we are borrowing billions to pay for our gasoline. That new ways are necessary, and, of course, the oft-repeated canard that wind and solar power will create lots of new, 'good-paying' jobs.
Of course, what none of these commercials tell you is that the infrastructure expense and effort, not to mention consumer tradeoffs to accept electric cars, are enormous. As I explained, with the help of a Wall Street Journal article, in this recent post, you just cannot feasibly replace locomotion-focused carbon-based energy with a few windmills and solar panels. The author noted,
"The latest data from the U.S. Energy Information Administration show that total solar and wind output for 2008 will likely be about 45,493,000 megawatt-hours. That sounds significant until you consider this number: 4,118,198,000 megawatt-hours. That's the total amount of electricity generated during the rolling 12-month period that ended last November. Solar and wind, in other words, produce about 1.1% of America's total electricity consumption."
The conversion of electricity into oil terms is straightforward: one barrel of oil contains the energy equivalent of 1.64 megawatt-hours of electricity. Thus, 45,493,000 megawatt-hours divided by 1.64 megawatt-hours per barrel of oil equals 27.7 million barrels of oil equivalent from solar and wind for all of 2008.Now divide that 27.7 million barrels by 365 days and you find that solar and wind sources are providing the equivalent of 76,000 barrels of oil per day. America's total primary energy use is about 47.4 million barrels of oil equivalent per day.
Of that 47.4 million barrels of oil equivalent, oil itself has the biggest share -- we consume about 19 million barrels per day. Natural gas is the second-biggest contributor, supplying the equivalent of 11.9 million barrels of oil, while coal provides the equivalent of 11.5 million barrels of oil per day. The balance comes from nuclear power (about 3.8 million barrels per day), and hydropower (about 1.1 million barrels), with smaller contributions coming from wind, solar, geothermal, wood waste, and other sources.
Here's another way to consider the 76,000 barrels of oil equivalent per day that come from solar and wind: It's approximately equal to the raw energy output of one average-sized coal mine." "
After you build some windmills, where are the jobs? And won't ending the use of coal, oil and natural gas put tens of thousands of miners, pipeline workers, refinery workers and drillers out of work? Most of which, I'd guess, make more than a mundane job in a factory producing solar panels or windmill parts.
Finally, I didn't borrow any money to fill my gas tank this week. So I don't know where the people who put the words into ol' crag face's mouth get their facts.
Probably, they are using the following specious logic. America sells debt to investors around the globe. America imports many things. One of those things is oil.
Let's just assume, and say, that all that borrowed money via T-bills is used to pay for imported oil.
Simple, huh? Wrong, but simple and, to the uninformed, scary and powerful.
But you could point to anything and say it is the source of our trade flow imbalances. I noted this in my critique of Boone Picken's flawed arguments in this prior post.
"Repower America" makes deceptive ads and claims on so many levels, it's disgusting. Let's hope people see through the lies and misleading inferences in their commercials.
Friday, May 22, 2009
The Business of Going Green
Bjorn Lomborg wrote a scathing editorial in yesterday's Wall Street Journal entitled "The Climate-Industrial Complex." The occasion is this weekend's World Business Summit on Climate Change in Copenhagen.
His use of the hyphenated term is a direct and explicit reference to outgoing president Dwight Eisenhower's use of the term "military-industrial complex."
Rather than worry about the unholy alliance of large defense contractors, the Pentagon and members of the House Armed Services and Appropriations Committees, as in olden times, Lomborg spotlights today's new unholy alliance.
That would be people like Al Gore, on whom Lomborg focuses, climate-change-friendly legislators and government administrators, and their collaborating corporate partners, such as Duke Energy. I'm a little surprised he omitted GE. Maybe they aren't attending the summit, although it's almost impossible to believe they would miss such an obvious public trough at which to feed, isn't it?
Lomborg writes in his editorial,
"Naturally, many CEOs are genuinely concerned about global warming. But many of the most vocal stand to profit from carbon regulations. The term used by economists for their behavior is "rent-seeking."
American electricity utility Duke Energy, a member of the Copenhagen Climate Council, has long promoted a U.S. cap-and-trade scheme. Yet the company bitterly opposed the Warner-Lieberman bill in the U.S. Senate that would have created such a scheme because it did not include European-style handouts to coal companies. The Waxman-Markey bill in the House of Representatives promises to bring back the free lunch.
U.S. companies and interest groups involved with climate change hired 2,430 lobbyists just last year, up 300% from five years ago. Fifty of the biggest U.S. electric utilities -- including Duke -- spent $51 million on lobbyists in just six months.
The massive transfer of wealth that many businesses seek is not necessarily good for the rest of the economy. Spain has been proclaimed a global example in providing financial aid to renewable energy companies to create green jobs. But research shows that each new job cost Spain 571,138 euros, with subsidies of more than one million euros required to create each new job in the uncompetitive wind industry. Moreover, the programs resulted in the destruction of nearly 110,000 jobs elsewhere in the economy, or 2.2 jobs for every job created."
That Spanish statistic is pretty chilling, and provides context for all those green energy ads you see touting the job creating power of wind or solar energy. Something you certainly don't hear about, eh?
Lomborg concludes his piece with these observations,
"The World Business Summit will hear from "science and public policy leaders" seemingly selected for their scary views of global warming. They include James Lovelock, who believes that much of Europe will be Saharan and London will be underwater within 30 years; Sir Crispin Tickell, who believes that the United Kingdom's population needs to be cut by two-thirds so the country can cope with global warming; and Timothy Flannery, who warns of sea level rises as high as "an eight-story building."
Free speech is important. But these visions of catastrophe are a long way outside of mainstream scientific opinion, and they go much further than the careful findings of the United Nations panel of climate change scientists. When it comes to sea-level rise, for example, the United Nations expects a rise of between seven and 23 inches by 2100 -- considerably less than a one-story building.
There would be an outcry -- and rightfully so -- if big oil organized a climate change conference and invited only climate-change deniers.
The partnership among self-interested businesses, grandstanding politicians and alarmist campaigners truly is an unholy alliance. The climate-industrial complex does not promote discussion on how to overcome this challenge in a way that will be best for everybody. We should not be surprised or impressed that those who stand to make a profit are among the loudest calling for politicians to act. Spending a fortune on global carbon regulations will benefit a few, but dearly cost everybody else."
Lomborg's casual comment on the one-sided nature of the summit belies his concern. As many have suspected, the climate change crowd is no longer interested in either debate about the sources of any change, nor the sort of cost-benefit work regarding how it could even be affordably affected, as Lomborg has long and successfully demonstrated to be virtually impossible.
Instead, this 'unholy alliance' is moving full steam ahead to wring profits out of the climate scare for the early, chosen few businesses.
His use of the hyphenated term is a direct and explicit reference to outgoing president Dwight Eisenhower's use of the term "military-industrial complex."
Rather than worry about the unholy alliance of large defense contractors, the Pentagon and members of the House Armed Services and Appropriations Committees, as in olden times, Lomborg spotlights today's new unholy alliance.
That would be people like Al Gore, on whom Lomborg focuses, climate-change-friendly legislators and government administrators, and their collaborating corporate partners, such as Duke Energy. I'm a little surprised he omitted GE. Maybe they aren't attending the summit, although it's almost impossible to believe they would miss such an obvious public trough at which to feed, isn't it?
Lomborg writes in his editorial,
"Naturally, many CEOs are genuinely concerned about global warming. But many of the most vocal stand to profit from carbon regulations. The term used by economists for their behavior is "rent-seeking."
American electricity utility Duke Energy, a member of the Copenhagen Climate Council, has long promoted a U.S. cap-and-trade scheme. Yet the company bitterly opposed the Warner-Lieberman bill in the U.S. Senate that would have created such a scheme because it did not include European-style handouts to coal companies. The Waxman-Markey bill in the House of Representatives promises to bring back the free lunch.
U.S. companies and interest groups involved with climate change hired 2,430 lobbyists just last year, up 300% from five years ago. Fifty of the biggest U.S. electric utilities -- including Duke -- spent $51 million on lobbyists in just six months.
The massive transfer of wealth that many businesses seek is not necessarily good for the rest of the economy. Spain has been proclaimed a global example in providing financial aid to renewable energy companies to create green jobs. But research shows that each new job cost Spain 571,138 euros, with subsidies of more than one million euros required to create each new job in the uncompetitive wind industry. Moreover, the programs resulted in the destruction of nearly 110,000 jobs elsewhere in the economy, or 2.2 jobs for every job created."
That Spanish statistic is pretty chilling, and provides context for all those green energy ads you see touting the job creating power of wind or solar energy. Something you certainly don't hear about, eh?
Lomborg concludes his piece with these observations,
"The World Business Summit will hear from "science and public policy leaders" seemingly selected for their scary views of global warming. They include James Lovelock, who believes that much of Europe will be Saharan and London will be underwater within 30 years; Sir Crispin Tickell, who believes that the United Kingdom's population needs to be cut by two-thirds so the country can cope with global warming; and Timothy Flannery, who warns of sea level rises as high as "an eight-story building."
Free speech is important. But these visions of catastrophe are a long way outside of mainstream scientific opinion, and they go much further than the careful findings of the United Nations panel of climate change scientists. When it comes to sea-level rise, for example, the United Nations expects a rise of between seven and 23 inches by 2100 -- considerably less than a one-story building.
There would be an outcry -- and rightfully so -- if big oil organized a climate change conference and invited only climate-change deniers.
The partnership among self-interested businesses, grandstanding politicians and alarmist campaigners truly is an unholy alliance. The climate-industrial complex does not promote discussion on how to overcome this challenge in a way that will be best for everybody. We should not be surprised or impressed that those who stand to make a profit are among the loudest calling for politicians to act. Spending a fortune on global carbon regulations will benefit a few, but dearly cost everybody else."
Lomborg's casual comment on the one-sided nature of the summit belies his concern. As many have suspected, the climate change crowd is no longer interested in either debate about the sources of any change, nor the sort of cost-benefit work regarding how it could even be affordably affected, as Lomborg has long and successfully demonstrated to be virtually impossible.
Instead, this 'unholy alliance' is moving full steam ahead to wring profits out of the climate scare for the early, chosen few businesses.
Monday, May 11, 2009
How Greens Misunderstand Markets
Due to the fact that I have subscribed to Outside Magazine for years, I receive an unintended torrent of green-think. What was once primarily a monthly periodical about outdoor sports has morphed, over the years, into a cause-focused publication with offices now located in Santa Fe, New Mexico.
Thus, I happened to read a piece from the magazine's January issue concerning an MIT scientist named Daniel Nocera. His speciality is evidently having tuned up a rather well-known idea- the fuel cell.
Yes, the same fuel cell that powered the Apollo spacecraft to the moon and back what, nearly 40 years ago?
In Nocera's case, according to the magazine's glowing, fawning tribute, he adds a "chemical catalyst (cobalt and potassium phosphate) to plain water....splits the molecules using just a volt or so of electricity. Coming up with a scheme like this has been a holy grail of chemistry."
Well, not so fast. Nocera is quoted as saying he's actually still five years away from this approach actually working as promised. Details include non-trivial matters such as "a better way to compress hydrogen for storage and building a more efficient and inexpensive fuel cell."
Wow. Storing hydrogen in your basement? Or, what, next to the furnace? Sounds totally safe to me. Sure, I want a mini-Hindenburg in my house, don't you? While you're at it, bring in that gasoline can from the garage and park it next to the furnace or hot water heater, too.
I found it odd that the article gives one the impression that it's here, it works, and Nocera is a God of science and the green movement, but then informs us that it's really half a decade away, by the scientist's own, probably overly-optimistic estimate. And there is that nasty-sounding cobalt compound. Wonder how safe that is to store, transport and handle in every home in America, or around the globe?
But that's not what really got my attention.
After extolling how Nocera's approach will turn every home on the planet into an energy source by splitting water into hydrogen and oxygen during the day, using sunlight, then powering the home at night by reversing the fuel cell's process to reunite them and release energy, the article concludes,
"Moving forward, Nocera believes, is really a matter of commitment. If Americans could get serious about funding renewable energy- instead of "throwing money down the drain in stock markets"- the innovations would come.
"We went to the moon! Doesn't it seem easier to do what I'm doing here?" "
My use of bold in the quoted portion of the text in the prior paragraph is meant to highlight Nocera's, and Outside Magazine's evident misunderstanding of capital markets.
In the beginning of the article, much is made of private companies either funding Nocera's research, or wanting to partner with him. This is how the piece starts to portray him as a sort of environmental engineering Deity.
How, then, are we to square that initial positioning with Nocera's own rejection of capital markets? He clearly feels that money invested in equities is simply "throwing money down the drain in stock markets."
Hey genius! Guess what?
If ordinary investors don't buy equities of the companies attempting to partner with you, or funding your research, you're nowhere.
In fact, the article, has a sort of 'wink and a nod' attitude that Nocera knows best, and anyone lucky enough to be giving him research money or allowed to partner with him should just trust him to know best.
And being perched in a professorship at MIT seems ironic, because Nocera isn't taking any risks at all. Commercialization of his technology might be five years away, or it might be ten. Who knows? Nocera has a job and funding, either way.
Henry Ford did it the harder way. He built a prototype and went into business.
True innovation doesn't hide out in an academic ivory tower, where risks and failures go unpunished, breakthroughs are always just over the (funding) horizon, and failure actually provides you with a longer runway to play around on your pet project without having to deliver commercialized results.
I'd have a lot more respect for Nocera, and he'd probably have more credibility, if he dealt with MIT to get some control or interest in his IP, left the university, put his own money and career where his mouth is.
As it is, he asks rhetorically if what he's doing isn't easier than going to the moon? I don't know, is it?
More importantly, why isn't Nocera convincing equity investors in his own startup?
Oh, right. That's going to the 'stock market.' Bad! Bad! "Throwing money down the drain."
Nocera and Outside don't appear to buy into, much less understand, the concept of ideas competing for capital in free markets. If Nocera really wanted funding, he'd compete for investor money, promising more tangible progress and returns.
Instead, he seems to believe he should just be handed funds to continue to work at his pet fuel cell project, because, well, he says so. And he knows best.
This sort of antagonistic attitude to capital markets, which have the potential to fund innovation, won't get Nocera very far. For all we know, he's hiding some serious complications that, were he to try to commercialize his process via the equity capital route, would become known, and result in a funding failure.
That's why free capital markets are such a great tool. Money flows to those who present the most credible, profitable cases. Not just to those who privately think their idea is a social good, and maybe the best social good, so it must be funded.
Thus, I happened to read a piece from the magazine's January issue concerning an MIT scientist named Daniel Nocera. His speciality is evidently having tuned up a rather well-known idea- the fuel cell.
Yes, the same fuel cell that powered the Apollo spacecraft to the moon and back what, nearly 40 years ago?
In Nocera's case, according to the magazine's glowing, fawning tribute, he adds a "chemical catalyst (cobalt and potassium phosphate) to plain water....splits the molecules using just a volt or so of electricity. Coming up with a scheme like this has been a holy grail of chemistry."
Well, not so fast. Nocera is quoted as saying he's actually still five years away from this approach actually working as promised. Details include non-trivial matters such as "a better way to compress hydrogen for storage and building a more efficient and inexpensive fuel cell."
Wow. Storing hydrogen in your basement? Or, what, next to the furnace? Sounds totally safe to me. Sure, I want a mini-Hindenburg in my house, don't you? While you're at it, bring in that gasoline can from the garage and park it next to the furnace or hot water heater, too.
I found it odd that the article gives one the impression that it's here, it works, and Nocera is a God of science and the green movement, but then informs us that it's really half a decade away, by the scientist's own, probably overly-optimistic estimate. And there is that nasty-sounding cobalt compound. Wonder how safe that is to store, transport and handle in every home in America, or around the globe?
But that's not what really got my attention.
After extolling how Nocera's approach will turn every home on the planet into an energy source by splitting water into hydrogen and oxygen during the day, using sunlight, then powering the home at night by reversing the fuel cell's process to reunite them and release energy, the article concludes,
"Moving forward, Nocera believes, is really a matter of commitment. If Americans could get serious about funding renewable energy- instead of "throwing money down the drain in stock markets"- the innovations would come.
"We went to the moon! Doesn't it seem easier to do what I'm doing here?" "
My use of bold in the quoted portion of the text in the prior paragraph is meant to highlight Nocera's, and Outside Magazine's evident misunderstanding of capital markets.
In the beginning of the article, much is made of private companies either funding Nocera's research, or wanting to partner with him. This is how the piece starts to portray him as a sort of environmental engineering Deity.
How, then, are we to square that initial positioning with Nocera's own rejection of capital markets? He clearly feels that money invested in equities is simply "throwing money down the drain in stock markets."
Hey genius! Guess what?
If ordinary investors don't buy equities of the companies attempting to partner with you, or funding your research, you're nowhere.
In fact, the article, has a sort of 'wink and a nod' attitude that Nocera knows best, and anyone lucky enough to be giving him research money or allowed to partner with him should just trust him to know best.
And being perched in a professorship at MIT seems ironic, because Nocera isn't taking any risks at all. Commercialization of his technology might be five years away, or it might be ten. Who knows? Nocera has a job and funding, either way.
Henry Ford did it the harder way. He built a prototype and went into business.
True innovation doesn't hide out in an academic ivory tower, where risks and failures go unpunished, breakthroughs are always just over the (funding) horizon, and failure actually provides you with a longer runway to play around on your pet project without having to deliver commercialized results.
I'd have a lot more respect for Nocera, and he'd probably have more credibility, if he dealt with MIT to get some control or interest in his IP, left the university, put his own money and career where his mouth is.
As it is, he asks rhetorically if what he's doing isn't easier than going to the moon? I don't know, is it?
More importantly, why isn't Nocera convincing equity investors in his own startup?
Oh, right. That's going to the 'stock market.' Bad! Bad! "Throwing money down the drain."
Nocera and Outside don't appear to buy into, much less understand, the concept of ideas competing for capital in free markets. If Nocera really wanted funding, he'd compete for investor money, promising more tangible progress and returns.
Instead, he seems to believe he should just be handed funds to continue to work at his pet fuel cell project, because, well, he says so. And he knows best.
This sort of antagonistic attitude to capital markets, which have the potential to fund innovation, won't get Nocera very far. For all we know, he's hiding some serious complications that, were he to try to commercialize his process via the equity capital route, would become known, and result in a funding failure.
That's why free capital markets are such a great tool. Money flows to those who present the most credible, profitable cases. Not just to those who privately think their idea is a social good, and maybe the best social good, so it must be funded.
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