A true stimulus

Unconventional oil and gas production added the equivalent of $1,200 to real household disposable income on in 2012. Since the poor spend relatively more on energy, this is clearly one of the best anti-poverty program going.  

The industry raised GDP by by $283 billion last year and was responsible for $74 billion in federal and state tax payments.

What a great program. It not only pays its own way but also pumps revenue into the treasury, more than $200 million a day. Revenue is expected to rise to $138 billion a year by 2025.

Fracking has been as close to a gift from God as I have ever seen. Imagine the trouble we would be in w/o it. It has been the single most important stimulus after what the Fed has been doing. And it keeps on coming, year after year.

I am not a big believer in one or two things “saving” the economy. But clearly the unexpected bonus from fracking helped lift us from recession and will do a lot to get the economy finally back on track. Revenue from fracking can pay for a lot of mistakes, such as Solyndra.

Let’s just not let them screw it up.

On a related item, I was learning from a UC Santa Barbara study that energy exploration has REDUCED natural oil seepage into the ocean by about half. An article starts, “Next time you step on a glob of tar on a beach in Santa Barbara County, you can thank the oil companies that it isn’t a bigger glob.”

Wood: sustainable fuel of the past/future

It is an exciting time to be in the biofuels industry and all forest owners are now in. In the last five years, the situation for forest producers in the southern U.S. had changed dramatically. Within easy driving distance (and so market distance) of my farms, three pellet mills have recently opened. Couple this with a probable return of demand for structural timber, plus the decision of utilities like Dominion Power to substitute wood chips for some coal and things are looking good.

I participated in an online seminar about the growing demand for wood pellets, sponsored by “Biomass Magazine” and learned some interesting things. Wood pellets represent an old technology. People use them for home heating. It has not been a very sexy part of the market because, unlike solar, wood pellet use tended to be concentrated among poorer parts of the population, especially ordinary folks in rural areas. The most important reason for this was availability. Wood pellets are bulky and so shipping them far from the forests they came from was cost prohibitive and unlike solar or wind power, which would also be cost prohibitive w/o subsidies, pellets got few breaks from governments. But that has changed.

The European Union wants to get 20% of its power generation to renewables by 2020. There is no way this can be done by ramping up solar and wind, even in the most optimistic scenarios. Only woody biomass can get them to their targets. Even in Germany, with its enormous subsidies for solar and wind power, 38% of non-fossil fuel energy is generated by wood & in Europe as a whole, about half of all renewable power comes from various incarnations of wood (sticks, chips, pellets or sawdust). In fact, good old-fashioned wood has been the chief beneficiary of renewable energy mandates and its role will grow for at least another quarter century. Europe consumed 13 million tons of wood pellets in 2012 and demand is expected to rise to 25m-30m a year by 2020.

The big practical advantage of wood is that it can be used in existing power generators and substituted for coal w/o major renovations and with only two caveats. The big differences between wood and coal have to do with its energy density and reaction to water. Wood is only about 2/3 as energy dense as coal, so more bulk is required. Coal is also essentially waterproof. It can get rained on for days and still burn just as well. Wood has to be kept dry. These disadvantages can be addressed. The bigger “problem” for the Europeans is that they cannot produce enough wood to meet their own energy demand. American forests have come to the rescue.

The southern U.S. sustainably produces enough wood every year to fuel as many generator plants as the Europeans are likely to convert to wood in the next twenty-five years. We have several advantages in being the big suppliers. Logistically, it is inexpensive and easy to move wood pellets from the eastern U.S. to Europe. Our forests are near roads and railroads that lead to ports that can take bulk cargoes. Once on board ship, it is about a ten day voyage to Europe. Sea transportation is efficient and cheap. Another important reason is that American forests are managed for sustainability.

Most of our forests have third party certification through organizations such as the American Tree Farm System, the world’s oldest third party certification & the Sustainable Forestry Initiative, the biggest forest certification program in the U.S..

Most of the wood used for pellets comes from “round wood,” i.e. stems too small to be used for lumber and or residue from logging operations. Some of this was/is used for pulp and paper, but that market has been declining.

Let me make the point that healthy forests MUST be thinned. If the trees grow too close together, you invite insect pests and all the trees grow more slowly and are not as healthy. There has never been a time since the last ice age when North American forests were not “managed” by humans. Native Americans regularly burned forests and so forests in Virginia in 1607 tended to be more open, i.e. fewer trees per acres and less understory, than they are today. We have learned to manage forests much better in recent decades, using good thinning techniques and proper use of fire. Most pine ecosystems are fire dependent and trees like oak and hickory require some fire in order to regenerate. Intelligent thinning of trees and some grazing can substitute for fire in some cases and is desirable where fire dangers are high.

Strong markets and sustainable forestry are mutually supportive. Forest owners rarely can afford to do good management if they cannot find a market for their forest products. If you just “let it grow” it will grow poorly, invaded by exotic bugs and invasive species, and be prone to disastrous fires, as well as devastating insect attacks.

Our goal is to protect biodiversity, preserve wildlife habitat & safeguard water quality while we sustainably harvest our trees and promptly regenerate the forests. To do that, we need help from markets and reasonable public policies. I don’t know enough about the relative value of pellets versus coal in an economic sense to voice a strong opinion. But in the ecological world, it is a great initiatives, not only or even primarily because it replaces a polluting fuel like coal, but because it helps us manage our forests the way they should be managed, the way we want to manage.

BTW – Americans forests sequester about 12% of the CO2 produced U.S. industry, cars and homes. Well managed forests do it better, not only in the wood, but also in soils.  Wood is good.

New environmental solutions

It is amazing how fast America is switching over to natural gas.  I read today that railroads are considering changing from diesel to natural gas, which is cheaper and cleaner. Power plants are quickly substituting natural gas for coal.  All this is helping the U.S. reduce its carbon emissions while becoming less and less dependent on imported oil.  U.S. carbon emissions have been reduced by 13% in the last five years and we are down to 1994 levels.  If this goes on much longer, the U.S. will reach its Kyoto goals w/o having ratified the treaty thanks mostly to natural gas.

I have written about this natural gas boom many times before.   It is as close to a gift from God as it is possible to get in the energy world.  Natural gas is clean, abundant and American.  Better yet, it is widely distributed in the U.S., so the prosperity will be widely shared.

Another interesting permutation is genetically modified food.  They are also reducing CO2 emissions by improving land use.  And now investors are looking for ways to adapt to global warming and many environmentalists are embracing nuclear power as a sure way of delaying global warming.

I think it is very interesting that the solutions of many of our environmental problems come from sources that many of the traditionalists neither expect nor even much like.   CO2 emissions are reduced by the use of a fossil fuel extracted in a new and more efficient way.  Land use is improved by the use of genetically modified crops, the nemesis of many ostensibly green consumers.  Nuclear power may save the world and the free enterprise system will help us adapt to changes.

Forced to buy imaginary fuel

A circuit court vacated the EPA’s cellulosic ethanol mandate that required firms to blend cellulosic ethanol with gasoline or face fines. The problem with this mandate was that zero cellulosic ethanol was produced and firms could not blend it. They were being fined for not doing what could not be done. Even Kafka would be surprised at the brazenness.

The rule originated in a 2007 law that elevates hope over reality. They wanted a fuel that could be produced inexpensively from a waste product. Who wouldn’t. So they figured that they could mandate into existence by government fiat and ruled that refiners MUST blend cellulosic ethanol into gasoline. They created a market for an unavailable product in the belief that they could call it into existence, more or less in the manner of creating wine from water.

This miracle failed to happen. Lots of people talk about cellulosic ethanol, but nobody has been able to make it in any quantity. Or maybe, put another way, it makes much more sense to blend in Jack Daniels or Jim Beam and burn that in our cars and trucks. At least those products are available.

Cellulosic ethanol has been a big disappointment. It should work. It is such a good idea and it would solve so many of our problems. It is a magical solution to our energy needs. The problem with magic is that there is no such thing. As a tree farmer, cellulosic ethanol could be a big deal for me and I have studied the cellulosic ethanol equation in significant depth. I don’t believe it can EVER work, even if a technology is developed that easily converts wood wastes to ethanol. The problem is physical bulk. Raw materials such as forestry waste and corn husks are bulky and they are spread all over the place. Simply gathering it together is a challenge. The problem is moving them to a plant where they could be converted to ethanol and storing them.

If you want to make energy out of wastes such as this, the solution is to burn them directly. Dominion Power is converting some of their coal burning power stations to accept wood chips. This makes sense and I plan to sell chips. It is not as exciting because it is old tech, but it will always be better to convert to energy with fewer steps.

The problem with government experiments is that they cannot easily admit that the experiment has shown it cannot be done. Ethanol from cellulose was a nice idea that was proven impractical by experiment and experience. Give up and move along. There are things we just cannot have, not matter how much we all agree that it should be possible.

Unexpected Energy Future

I turned 18 the same year of the Arab oil embargo. Oil prices went way up and we thought the age of inexpensive energy was gone forever. What an unexpected change! The technology of fracking today has essentially created new energy that will last my lifetime and that of my children. And the natural gas is much cleaner than the coal or oil it replaces, a gift from God, with an assist from a stubborn American.

George Mitchell graduated from the Texas A&M as a petroleum engineer. His father was an illiterate Greek goat herder who had the good sense to move to America. George was so poor that he was almost kicked out of school for non-payment of tuition. One of his professors told him that if he wanted to drive a Chevy, he should work for Humble Oil (later Exxon) but if he wanted to drive a Cadillac, he should go into business for himself. George saw himself as more a Cadillac type of guy.

In 1982, Mitchell Energy was in danger of not having enough gas to supply its clients. In those days, experts thought gas would soon run out. Mitchell looked for new sources. He knew there was a lot of gas trapped in the Barrett shale in Texas, but nobody could get it out at a price anybody could pay. He invested $6million and had to put up with twenty years of ridicule from his friends for throwing money away on something that would not work.

It wasn’t until 1998 that Mitchell came up with a permutation of hydraulic fracturing that worked. (Fracking was not a new technology; it just had not been applied in this particular way before.) The way was open to the bright, happy future we now see before us.
Mitchell lived to see his dream work. He is still alive, now 93 years old.

You never know what’s going to work. Mitchell could have ended up wrong and ridiculed, as many dreamers do. Most big ideas fail. That is why we need lots of options and try lots of things.

Of course, this is not the work of only one man. Lots of researchers, investors and workers were involved. (BTW – Mitchell “gave back” contributing $44.5 million to A&M and $159 million to universities and research organizations.) Government provided incentives to unconventional energy. But I wonder if it would have happened w/o Mitchell. There is no such thing as destiny. Things do not have to happen the way they do. Fracking could have remained a “stupid and impractical” idea. That is what most experts thought at the time.

After the fact lots of things look obvious, but they could have gone other ways. There are myriad examples of people sitting on great opportunities w/o using them, ever. So thank you George. Well done.

The energy world turned upside down

I continue to be amazed at how different the energy future is today than it looked only a few years ago. The U.S. could soon become a net exporter of energy and we will almost certainly be the world’s biggest oil & gas producer by 2020. There is even good environmental news in this mix. Our CO2 emissions are dropping. We are beating all those people who gave us a hard time about rejecting Kyoto and doing it with none of the pain they told us we would have to accept.

Just about nobody predicted this happy outcome. (If you claim that you did, you must be very rich by now and if you are not you are lying.) Back in 2000, experts told us that we had around 11 years of natural gas reserves if we continued to use it at the current rate. Now we have a couple centuries of the stuff. There is no such thing as peak oil or peak gas except as a theoretical construction as useful as the number of angels that can dance on a pin head. .

The energy center of gravity is moving to the Americas. I look forward to the day, not far off, when a big Middle Eastern oil producer threatens our energy supply and we tell him to go F himself. I already take pleasure in the disorder and confusion of OPEC.

Americans are lucky people. It has been said that there was a special providence for drunkards, fools, and the United States of America. Maybe so. I have found that when people are especially lucky (or unlucky) over an extended period of time, it usually has something to do with their attitudes or behaviors. This energy bonanza is a good example. Although there are plenty of naysayers even in the U.S., Americans generally embrace the progress. We are “lucky” because we are flexible and take advantage of unexpected opportunities. May this national characteristic never change.

This is an unbelievably good situation. All we need do to take advantage of this is to say “yes” and ignore the troglodytes and luddites who want to proclaim the anti-scientific “precautionary principle.”

BTW – speaking of anti-scientific activities, did you hear about the pinheads in Italy who sentenced six scientists to prison terms for not predicting a deadly earthquake? You can rest assured that behavior like this makes you unlucky.

U.S. CO2 Emissions Drop to Twenty Year Low

Mostly as a result of the inexpensive American natural gas, U.S. CO2 emissions dropped to 1992 levels. We are also driving less. We reached “peak gasoline”in 2006 and from now on will use less. See the chart below.  I wrote about this here, here & here, among other places.

The interesting thing is that the U.S. is now the world leader in reducing emissions w/o those muscular measures called for in Kyoto. We are doing better than everybody else because of market forces. They really do work also in environmentalism.  

This is not really new news, but here probably is the first place you are reading about this. Back when the U.S. was the “word’s bigger polluter” we had updates every day.

There was an interesting paragraph in the report of the drop. Bold italic are mine. “Many of the world’s leading climate scientists didn’t see the drop coming, in large part because it happened as a result of market forces rather than direct government action against carbon dioxide, a greenhouse gas that traps heat in the atmosphere.” 

Those international experts who claimed that the U.S. “had no plan” just don’t understand how planning works. We have the most superb, sublime and subtle planning mechanism in the world – the free market – and we have the we have the worlds most intelligent, involved and imaginative planners too – the American people. That is why we always beat the centralized planners in practice, if not in theory. 

One more thing from the AP article – “How much further the shift from coal to natural gas can go is unclear. Bentek says that power companies plan to retire 175 coal-fired plants over the next five years. That could bring coal’s CO2 emissions down to 1980 levels. “

We have achieved in environmentalism much more than I dreamed of when I was a bit of a radical environmentalist in the 1970s. We exceeded all the predictions. If anyone had told me back then of the U.S. in 2012, I would not have believed them. I was similiarly pleasantly surprised by how fast we brought down “acid rain” or closed the “ozone hole”. Now we are doing the same with CO2. It is easy to underestimate the imagination and power of freedom. I used to read the writings of the socialists of the early part of the last century. They made bold predictions about how good things could be if we abandoned the free market and went with planning. We have greatly exceeded their slow-moving dreams. We have the best planning system, even if it is too hard for some dreamers to understand.

U.S. New World Leader in Reducing CO2 Emissions

The U.S. has been criticized for not ratifying the Kyoto Treaty to limit greenhouse gas emissions. Yet according to the latest International Energy Agency (IEA) report CO2 emissions in the United States in 2011 fell by 92 Mt, or 1.7% … US emissions have now fallen by 430 Mt (7.7%) since 2006, the largest reduction of all countries or regions.

One of the biggest reasons for the relative the drop is the widespread substitution of cleaner natural gas for coal and oil. I have written before about the vast reserves of American natural gas made available by new technologies, which is the biggest single positive energy development in my lifetime. The mild winter helped this year, but previous winters were cold. The economic downturn meant less consumption, but the downturn hit our European friends harder, and their emissions increased, evidently w/o regard for their signing of the protocols.

Actually the facts are a little worse than that and demonstrate the unexpected results of rules aimed at making things greener. Some of our European friends are resisting the use of natural gas widely available on the old continent because of the same fracking techniques that are revolutionizing energy in the Americas. With gas unavailable at the very low prices we are currently enjoying in America, when harder economic times come, people turn to coal, which is still cheaper.

Germany is also trying to phase out nuclear energy and shuttered eight of its 17 reactors after the Japanese disaster in 2011. These plants had total 12.3 gigawatts (GW) of capacity. Coal will step into this breach too. How much? To put this in perspective, the increased average annual emissions are the equivalent of 2.8 million U.S. cars. German use of coal will rise 13.5% in 2012 . Ironically, carbon “caps” have served as a floor rather than a ceiling. As the recession slowed energy demand, German industries and utilities were free to increase their use of dirtier fuels essentially to compensate for the decline.

Meanwhile rising energy costs are biting German consumers. These are all self-inflicted wounds and there are fears that electricity could become a luxury in Germany. But I digress.

The bottom line is that detailed rules never can anticipate all the circumstances that could make them obsolete and even counterproductive. I doubt anybody thought that measures meant to decrease carbon use could end up encouraging its use while driving up energy prices. Meanwhile who would have suspected that the U.S. would be the country that most reduced its CO2 emissions despite (because of?) its failure to sign onto Kyoto?

An Environmental Reformation

The story is big the news, the retraction, not so much. Consider this news story – “The Environmental Protection Agency has dropped its claim that an energy company contaminated drinking water in Texas, the third time in recent months that the agency has backtracked on high-profile local allegations linking natural-gas drilling and water pollution.” reference  

I think that the unlocking of our vast natural gas reserves is the best ecological & environmental story in years. Yet it has drawn heavy criticism, sometimes justified, often ignorant, mostly based on outdated narratives. Consider the wildly inaccurate documentary “Gasland”. It won all kinds of awards and is very compelling. Scientists think it is bunk and research has disproved most of the claims, but – hey – it makes a better drama when you can light water on fire.

It seems to me that very much of the mythology centered on environmental extremism is based around the keystone myth that nature w/o humans is somehow clean, benign and perfect. It is not. Many toxins appear in the natural world. Arsenic is present in natural water in many areas. Gas and oil have seeped out of the ground since before the ancestors of men (although Chrissy informs me perhaps not women – no logic there) descended from trees.

The idea of perfect nature apart from man is not merely wrong; it is pernicious because it impedes decision making based on sound & practical ecological principles. The attack on gas is a good example. Natural gas extraction and use is more ecologically benign than any of the alternatives currently available at the scale that it could currently replace. Yet purists reject it because it is not perfect. They make the perfect the enemy of the good. Purists are pains in the ass.

This is not a new problem. A century ago, various revolutionaries argued the efficacy of reforming capitalism. Some radicals fought against measures that would improve life for ordinary people on the theory that conditions had to become so bad that they would provoke the world revolutions predicted in Marxist theology. When the Marxist nightmare ran out of steam, people with a puritan/revolutionary bent had to look for other causes. The environment was a perfect home for them.

One of the big weaknesses of Marxism was that they claimed to speak for the workers, but the workers could speak for themselves. What they said, usually contradicted Marxist mythology. The advantage of “speaking for nature” is that nobody can really ask trees, rocks or animals what they really think. Unlike Marxists, environmental revolutionaries have no ostensible constituency that can contradict them.

We don’t need an environmental revolution, but we could use a reformation. As with most things, real progress is achieved in the middle ground, where we can be pragmatic enough to make compromises. A sound environmental policy requires – not allows requires – that we sometimes kill animals, cut trees and even pave land. If done correctly, it can create benefits all around. And if we don’t make it possible for honest people to make a profit doing these things, the field will be left to dishonest operators acting outside the law.

There are a few things we need to understand in our reformed environmentalism.
– Sustainable does NOT mean preserved unchanged. It means reasonably predictable and beneficial change.
    o Sustainable is better than natural and many natural systems are not sustainable.
– Renewable is better than recyclable, although both have their place.
    o The cost for most things in environmental terms is usually mostly concentrated in the energy it takes to move it. If you use less paper, it doesn’t really “save trees” but it may save energy.
    o It may require more energy to recycle than to throw out and renew.
– Nothing lasts forever. Sometimes we just need to let go. Panda bears, for example, are doomed. They may survive in zoos, due to the kindness of humans, but they are not fit (in the Darwinian sense) to survive in the wild.
– There is no environment in the world that is not influenced by humans. If we think we can “return to nature” we are abdicating our responsibility to be good stewards.

One more thing – natural gas is as good as it currently gets as a fuel we need at the scale we need to use it. It is not THE answer, since there is never a final answer, but it is the one we should be using for the next decade at least. That would be good environmental policy and good economic policy too.

Gas: the Simple Answer to Energy & Economy

The simple answer to our energy challenges & our lackluster economic performance are the vast energy reserves in gas and oil that new technologies have recently made available to us right here in America. This will even help keep us safer, since bad guys control much of the exportable oil and gas outside North America; the less we give them the better.

First let’s talk about our biggest challenge. Overcoming the old-fashioned ideas we learned in the 1970s. These were pessimistic times of shortages. Experts used pseudo-science terms like “peak oil” that frightened and impressed the credulous. Many thought up plans to “manage our decline.” We have less, they told us. President Jimmy Carter put on his sweater and told us to get used to it. 

The pessimists were right in the short term given their unimaginative straight line projections of resources used, obtained & projected. But they lacked the capacity to understand innovation or when they did they thought only in terms of big government investments and a managed energy economy. 

So let’s dispense with that. All those energy challenges that defeated Jimmy Carter and perplexed the pessimists have been overcome by human ingenuity. We have access to more oil and natural gas than we did in 1980 and it seems like we will have even more in the future. In the 1970s, government regulators controlled the price of natural gas and then outlawed the building of new power plants that used that clean fuel. This was logical based on their flawed information. As far as they thought, we ran out of natural gas about ten years ago and we would have, had we listened to those experts.

Supposed shortages of gas and oil playing into the world-view of some folks and they will scream when I assert they were way wrong, but they were/are. What we have today is far beyond any best-case energy scenario envisioned by the luddites of the 1970s.

Business Week has a cover story about natural gas and how it could bring the economy out of the doldrums. Cheap AMERICAN energy supplies would provide a real stimulus to the economy, one that will produce tax revenue rather than add to our debts. There are some environmental challenges, but fewer than with any of the other forms of energy we currently use on a large scale. They can be managed. 

The creation of a whole new world of energy using gas is a heroic story of individuals and small firms fighting against the experts, Federal regulators and powerful interests in places like the coal industry. They also had to fight the ridicule of experts who said that it could never be done. It is a story that shows exactly why big government programs in energy fail and often cause harm. They were going to do what they said couldn’t be done. And they did. Maybe that is why so many people STILL don’t get it. 

So let’s sum up. Technological advances have “created” vast new supplies of American natural gas that can stimulate millions of American jobs. The extraction and consumption of this fuel is more ecologically benign than any of the forms of energy it is likely to replace.  Similar technological advances have made available vast amounts of oil in Canada, but also in places like North Dakota, whose economy is booming with full employment. This will give us a North American alternative to oil from unstable places in the Middle East or Africa. So what do we do? We dither and oppose the infrastructure that will bring it to us. 

There may be no easy answers, but there are simple answers. The simple answer is to just say yes to inexpensive, available American energy, which will create American jobs, improve the quality of our air and help us pull free of the doldrums in our economy. What are we waiting for?

I have been noticing this for years. It just keeps getting better.