Tag: energy

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Gas $1.97 a gallon and Falling: Not so Good

Below – unrelated to my post below is a picture of my thinned pines, a food plot and the tall trees from the SMZ in the background.

I bought gas at BP in Petersburg, just south of Richmond and paid only $1.97 a gallon.  That was below the price I saw advertised on the electronic board at Pilot.  They were offering regular at $2.03, but when I passed going home around nine hour later the price had dropped to $1.99.   I have never seen anything like that before, but it is not all good.

High prices encourage conservation and alternatives.  Low prices do the opposite.   We had a chance to do the right thing in the 1990s and we blew it.  The right thing, BTW, is to raise taxes on gasoline as the price goes down.   We need to keep the prices high to put a floor under conservation and alternatives and to drop the floor out from under despots and potentates who control much of the world’s oil.    I know that I could never run for political office with a “raise the gas price” platform, but it is the right thing.  

Countries like Venezuela, Iran & Russia depend on high oil prices to fund their adventures.  It is probably better if they don’t get them.   I am not enthusiastic about any sort of taxes, but gas taxes serve the salutary purpose of dampening demand for oil.   There is no painless way to a more independent energy future.  We use oil for a very logical reason: it is cheap.  But the price we pay does not reflect the price of sending cash to despots in the most unstable parts of the world.  Nor does it include the mitigation of the greenhouse gases it puts into the air.  

It gets worse.  Not only does cheap oil keep us from a more independent energy future, it also leads – paradoxically – to high energy prices.   The oil despots, IMO, drop prices periodically in order to drive alternatives to bankruptcy and make conservation look like a dumb idea.   I know this sounds like a silly conspiracy theory and it is the only one I suspect might be true.  The solution is simple, but not easy.

I drive and I use gas.  That is how I know the prices.  I understand that we will be using oil for a while to come.  I am not advocating quitting cold turkey, but it would help to get the incentives right and price is one of the biggest incentives I know.   Of course, I can say all this because I won’t be running for office.

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Unpopular Thoughts on Energy

I was reading the new book by Tom Freidman called “Hot, Flat and Crowded” re new green industries.  Freidman says that President Bush should have imposed a stiff tax on imported oil right after 9/11.  There would have been support for the sacrifice and the tax would have taken money out of the pockets of many people who don’t like us and probably avoided the crisis we face today.  I agree on this point.  Now we see oil prices falling from their highs and I am afraid we are about to fall into a trap of cheap oil – again.  Below are some things I wrote a while back with some updates.   

Most conspiracy theories are as nutty as the people who believe in them and I hate to be associated with those guys in any way, but I think that there is a glaring example that we all see but don’t notice. There is the periodic lowering of oil prices.The oil market is not free. Governments control most crude oil and often oligarchs and despots control these governments. They make decisions based more on political than economic factors. Market forces constrain the their choices and they cannot completely ignore the forces of supply in demand, but they have stumbled on a kind of a whipsaw strategy to earn higher profits than the market would pay them in the long run by LOWERING prices in series of short terms.

We have seen this happen twice already and I am afraid we will get a third dose of it within a couple of years.   Already oil prices are dropping.  We foolishly welcome the cheap fuel and end up paying more in the long run. How does this work?Somewhere around $60-70 a barrel (adjusted for inflation) alternatives become competitive with oil and the higher the price goes, the more investment flows into alternatives. We saw that happen in the late 1970 until the early 1980s and we are see it happening now to an even greater extent. The problem with most alternatives is that there is a significant up-front investment. This includes research and development costs as well as capital investment in things like solar panels that might take several years to pay off.

When energy prices are high, investments in solar, wind or hybrid vehicles pays off quickly. When energy prices are low, such investments pay off slowly or maybe not at all.High energy prices provide a de-facto subsidy to alternative energy. Unstable energy prices make all energy investment uncertain.

Last year I attended a forestry convention where the theme was alternative energy from forestry residue (wood chips etc). The speakers were visionaries, talking about the great potential for alternative energies. Some of the guys around me looked skeptical. When I talked to them, it turned out that several had tried such things in the 1980s but lost their investments in the 1990s when the price of oil dropped through the floor. They recalled a similar, although smaller, such fluctuation in the middle of the 1970s. They were not going to jump on this bandwagon this time.It is true that market forces cause the price of oil to fluctuate. As prices rise, there is more exploration and development which naturally brings the prices down. But manipulation by governments greatly exacerbates market cycles and makes them pernicious. People like Hugo Chavez, Mahmoud Ahmadinejad or Vladimir Putin are not friends of free market democracy and are not enthusiastic about alternative energy sources that will cut into their profits and political power. They exercise their power to destabilize the energy market and make it a hostile environment for alternatives.

We are not helpless but our choices are limited. We cannot decree cheaper energy in the short run, but we can use market power against those who would keep us dependent on oil. The ironic way to lower energy prices and develop alternatives to oil in the long run is to make sure energy prices stay high in every short run.We cannot allow brief episodes of low prices to periodically destroy progress in alternatives and conservation. This happened in the 1990s. We foolishly welcomed these low prices and thought that the good times would roll forever.

Let’s scr*w the despots and declare independence from oil addiction. (Those who want to include American oil companies in this crowd, feel free to do so.) What we need to do is tax carbon and keep the price of oil up when it is coming down. It could be enacted in a simple fashion. Today the price of oil is high and we don’t think it will ever come down very far. Experience indicates this is mistaken. As oil prices come down, we should impose countervailing taxes to keep the drop from destroying our efforts to develop alternatives and invest in conservation strategies.Nothing works better or faster than price.  People talk a lot about raising fuel standards.  High prices do that naturally.   Otherwise raising standards doesn’t work, since people just drive more.   There just is no easy way to do this. 

I know what I am saying is deeply unpopular, especially this week when thoughts of the Great Depression are on so many minds.  We all like lower gas prices; we just cannot have them in the long run, but consistent and sustained higher prices in the short term will lead to lower price in the long run and it will help us break the hold foreign despots.  Wouldn’t it be great if Chavez, Ahmadinejad and Putin had less money?   A higher tax on oil will also help do that.  I generally don’t like taxes, but this is one we need.The oil pushers have fooled us at least twice. I am sure there are more examples, but there are two big ones I can recall. Let’s not give them a third shot.

Today’s Problems are Yesterday’s Solutions

Since we cannot always be right, we must be flexible and robust. As new information becomes available or conditions change, even the best decisions must be revisited and sometimes overturned. The ethanol debacle is a good example of both this idea and the pernicious effects government intervention in fouling up and calcifying the change and innovation mechanism.
Don’t burn fuel; grow it! What a great bumper sticker and the idea that a renewable, home-grown energy could replace dirty imported fossil fuels undeniably attractive. The devil is in the details, the execution & the fine tuning. Cf. a good article from last year.

First, let’s be clear. We do NOT have an energy crisis or even an energy problem in the real sense. We have a mix of energy choices. As we make different choices, options and consequences change. It is not a problem in the usual sense. Problems can be solved. This one is unsolvable. No breakthrough will save us. If it did, we would just expand our “needs” to encompass the new possibilities, as we did in the past. We can, however, manage the situation and change our energy mix. Nobody knows, because it is currently unknowable, what the optimal energy mix will be ten years from now. Some of the information we need to understand the upcoming situation and make sound decisions must be developed through trial and experimentation. Some sources and technologies that seem very promising today will prove unsuitable. They will need to be altered or abandoned w/o too much heartache or recrimination.

Wisdom lies not in knowing the best future, which is unknowable at current levels of technology & information. The appropriate solutions literally have not yet been developed. The best choices of 2025 are perhaps still not invented. Wisdom lies in having a system that can develop alternatives, smoothly transition from one option to another and easily course correct when appropriate. We need a system that allows people to imagine and innovate and then develop innovations into useful solutions. Fortunately, we have such a system.

This is something only the market can do. Government’s role is to point in the general direction of options that are politically acceptable. Within that broad constraint, however, government has no business picking winners of losers and it has no capacity to manage or micro manage the process. The more detailed instructions that politicians and bureaucrats give to those developing solutions, the less likely they are to succeed. The ethanol debacle is a good example. Government rule and subsidies are locking us into a technology and feed source that is proving a mistake. It is a QWERTY solution. (If you don’t know what a QWERTY solution is, take a look at your keyboard. This keyboard was designed to SLOW typists in the time of mechanical typewriters so they would not jam. Does your computer jam?)

The fundamental strength of the market is NOT its ability to choose the right choice. Rather it is the ability to try many solutions simultaneously, experiment and change course rapidly and smoothly. This is almost exactly the opposite of the skill set government bureaucrats and planners bring to the table and it is usually anathema to politicians trying to win votes. (Why didn’t they dump the ethanol subsidies last year?)

Ethanol from abundant American corn seemed a great idea. It was well worth the experiment and certainly some ethanol will be made profitably from corn in the future. It was NOT a bad decision, but unfolding events, new information and developing technologies over took it. The market can and to some extent is turning away, but the power of politics will prop up this sick horse for years to come. People in developing countries will go to bed hungry because of the good policies of the U.S. and Europe. Sometimes things go wrong BECAUSE of not in spite of our best efforts and every solution has the potential to become a problem. When condition change, we should change our minds too.

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Energy too Good to Be True?

Reposting article from an old blog. Oil shale.

We have more of it than anybody else; much of the rest lies under friendly places like Canada & Brazil. With new innovations it to be produced @$25/barrel w/o a big surface footprint AND it is extracted by injecting CO2 into sequestration right back where the oil came from. How elegant, efficient & perfectly balanced AND it is American. We have found the Tao of energy.   

I am not an engineer, so those who know better please write me back and curb my enthusiasm, but let me summarize. Please listen to the whole thing and make your comments. The Q&A cleared up many of my doubts.

Oil shale is an old resource and extracting it is an old technology. Pioneers heading crossing the vast expanses of the west used the oil for axle grease and we all recall the oil shale related debacles such as Tea Pot Dome in the 1920s and the synfuels program of the late 1970s. Back in those days, there was no way to make the oil shale into useable fuel w/o an unacceptable ecological and economic cost. In 1980, they had to literally dig the shale out of the ground, release the oil with lots of water, then dump the slag all over the previously verdant hills and the dirtywater into the heretofore pristine rivers of the Rocky Mountains. We can all be grateful that synfuels crashed and nothing burned.

Why have we not used oil shale before?

We tried. We did. It used to cost too much and make too much of a mess, but new technologies allow the liquefaction of the oil below ground, producing no slag and requiring no water, AND it requires the injection of CO2. The CO2 stays down there were the oil was. It is more environmentally benign than almost any other extraction method because it not only extracts cleanly, but it also sequesters CO2. Maybe we could even sink more than we bring up.

The other big problem was/is price. Price volatility has always been a problem in an industry where investments must be made based on price estimates 5-7+ years from today. Middle Eastern oil is almost free. There was (and remains) no way that oil shale can compete with oil from the Middle East when they are pumping flat out. There is still the danger that the sheiks, despots, potentates and dictators who control so much of the world’s exportable oil will open the pumps to kill innovations in oil shale before it gets off the ground. Oil shale needs minimum prices about $25/barrel. Big oil producers with lots of fixed cost capacity can undercut that anytime they want. It would not be the first time and the dirty business actually wins them accolades from consumers.

How can we avoid this fate? Keeping the price of oil artificially high is nearly impossible over any long periods of time (and imagine the political problem is high prices became U.S. policy) and it takes only a short time for low prices to destroy alternative investments. It happened in the 1990s and it can happen again. The author suggests a simple expedient. President Bush wants to fill the strategic oil reserve. Why not commit to fill it with oil produced from oil shale. This will provide a market floor to the shale and insure that investments made are not too risky. Once the infrastructure is in place, we can tell those foreign potentates to go to hell, as shale oil can free us from foreign oil for a generation – long enough for us to develop viable alternatives to hydrocarbons.

Here is some more background on oil shale from Rand and a CRS report on oil shale. The Rand report is mildly critical. The author addressed some of the concerns, BTW. Some general industry background on oil shale is here.
Posted by Jack at March 9, 2007 5:30 PM
CommentsComment #211249

Jack, I’ve mentioned this before but I’ve heard an extremely interesting lecture given by a professor Albert Bartlett about energy use and the coming crisis. It is relevant to issues like oil shale development and ethynol production. Neither one is viable from what I have heard, (although I will read the links you have provided). Canada produces @ a million barrels a day from oil shale but it is economical only because they are using on-site natural gas in the process, gas that would otherwise go to waste. It costs energy to produce energy. This equation has nothing to do with the price we pay retail, even if we were able and willing to pay $10 a gallon for fuel produced from shale, if it costs 1.1 units of energy to extract 1 unit net, it’s going to stay in the ground.
Also, estimates in number of years of supply from a given source invariably assumes no growth in demand; very unrealistic.Posted by: charles Ross at March 9, 2007 6:33 PMComment #211253

Charles

I think if we do not subsidize it (but give it that floor to protect from wild swings) the market will sort out whether or not it is viable re inputs.

I really do not know. It seemed too good to be true and such things often are. Listen to the lecture. He updates some of the info in the articles. He is talking about a new developing technologies.Posted by: Jack at March 9, 2007 6:41 PMComment #211263

More good reason for a tariff on imported oil to keep the price at about 60$ a barrel. I think it would be a politically viable plan as energy independance is important for geopolitical reasons.
I would rater see the SPR used like the Federal Reservedoes to control inflation. They buy heavily when prices fall and sell heavily when prices inflate.Stability is the key to any alternate industry capitalization. The Saudis have already said they are willing to drop oil prices to fend off alternatives. Our friends.
PS Denmark is getting half their power now from offshore wind. Tidal pumping is getting big in Scotland etc. .Posted by: BillS at March 9, 2007 7:59 PMComment #211394

If we can get enough of our own oil out of the ground to tell the Arabs to shove theirs where the sun don’t shine I’m all for it.
But wouldn’t $25 a barrel compared to $65 a barrel lower gas prices? And sense your for high gas prices why are you for this?Posted by: Ron Brown at March 10, 2007 8:09 PMComment #211402

Oil shale? call me ignorant but that is rock right? Well I guess if you can get it through the hose, y’know..(Second thought, call me beligerant)

self serve shovels? Shale gas station?

Maybe the future is firewood—we got all these damn trees, right? Call Rand about all these freakin’ trees we found.Posted by: Servitudinal at March 10, 2007 9:16 PMComment #211404

Why do republicans hate the bio-deisel idea so much?—is it the messenger (dems)? Or the influential big-oil dinars that flow so rapidly into the RNC warchest that gears you off in such directions? Thine own holy-cow partyline are thine own nemesis.

A year or so back there were a group of highschool kids that created a GTO that ran on refined soy fuel I recall reading. It can be done.Posted by: Servitudinal at March 10, 2007 9:27 PMComment #211406

Another idea—genetically modify insects to give off highly flamable bug-sh*t. Let’s face it thirty years from now we’re friggin’ Amish with the way the two parties are going, I don’t see any avenues of greater advent in the way of motor or energy resource technology.Posted by: Trident at March 10, 2007 9:48 PMComment #211424

Generally, you have to strip mine shale so I’m not sure how viable this will be. Virginia has plenty of shale, Jack. Perhaps you’d like to donate your wooded estate for a good cause. 🙂

Seriously, I’d rather use the natural gas to provide relatively clean power than to extract carbon-rich (i.e. – dirty) petroleum.Posted by: American Pundit at March 11, 2007 12:04 AMComment #211428

AP

Listen to the talk. That is the big innovation. Back in 1980 you had to bring the shale to the surface. That is what made the big mess. The new system extracts the oil underground AND injects CO2, which sequesters it right when the oil came from. That is what is so interesting.

Presumably if there was oil shale under my working forest, they could extract it w/o significant damage and I could make more money than Jed Clampet. That is not my business, however. My land grows trees and provides wood, clean water, fresh air and wildlife habitat. People really should appreciate tree farmers more.Posted by: Jack at March 11, 2007 12:34 AMComment #211484

Jack,
your story about the Alberta oil shale and sands is appropriate and timely. As you state correctly, making crude out of shale is nothing new but the economics of the process have always been very unattractive in competition with the exploitation of conventional till recently.
Although I have an engineering background one does not have to be a petroleum engineer to understand the basics of the shale oil or oil sands process to appreciate the industry’s challenges.
It’s my understanding that CO2 has been used in the past as a pressurizing agent to bring oil to the surface, but it’s not the only one. But sequestration is a different issue entirely, as I understand it, because it either needs to bind itself, chemically to some subterranean substance, or it gets stored far below the surface in a salt dome or similar cavity.
These are expensive operations and together with water treatment and waste treatment adds major costs to the process.
But I think you are on the money with a price of $25-30/barrel of crude as a bottom cost to make shale and sand oil economic.
My view about the projected crude oil cost/barrel is that the demand for oil will continue to increase at a good rate, mostly due to China and India growing so rapidly. And since economic development is critically coupled to the cost and availability of energy I see no reason that the cost of oil will drop by anything more than 20 or 25% and then only if we have a serious depression.
The world has enormous remaining reserves of oil but they will not do anybody any good if they cannot be developed because of overly strict or ill conceived environmental constraints. It is really time for the USA to develop the ANWAR deposits more aggressively together with multiple continental shelf options available right now.
FredPosted by: Fred Engel at March 11, 2007 4:32 PMComment #211539

Oil shale — it is too good to be true.

One, the CO2 used does not counterbalance the carbon removed. If the literature is correct, the replacement occurs at around a 1:2 ratio.

Two, Engel brings up the more serious problem (presuming one is interested in reducing atmospheric carbon)—sequestration. The CO2 will slowly rise to ground surface and be released into the atmosphere.

Three, the costs (including energy consumption) required for the industrial production, transportation, and use of CO2 are quite sizeable.

Four, the costs of making oil shale extraction financially viable from a business perspective are not small and would be better invested in the development of non-fossil fuels technologies which can produce more efficient fuels with fewer negative consequences for the atmosphere.


I installed solar panels on my home 4-1/2 years ago. They provide 100% of the electrical power for my all-electric home (with a heat pump for heating & cooling). I broke even at the 3-1/2 year point even though living in Chicago which is not known for an over abundance of sunlight. Of the many benefits, not getting a monthly electric bill is my favorite.Posted by: Allen at March 12, 2007 10:53 AMComment #211717

The CEO of JetBlue has asked that government place a floor on oil, at which point a subsidy would kick in to prevent OPEC from undercutting coal and driving it out of business, as they did once before. That makes more sense that subsidizing farmers to grow corn and grass to inefficiently make ethanol. We have enough coal reserves to satisfy our needs. Why not?Posted by: Clay Barham at March 13, 2007 12:49 PMComment #211942

Clay,
I certainly agree with you that we should encourage the use of more coal, clean coal that is, slurry and hi-temp combustion, but more importantly we should take the clamps off drilling for more oil in North America, anywhere, and go all out on natural gas and nuclear energy plants. That would transfer a large part of our energy use to electric from particularly oil. What will it take for the country to start doing that very soon? More clear thinking, strong character politicians?
FredPosted by: Fred Engel at March 14, 2007 1:31 PMComment #211964

Fred,

The environmental impact of oil exploration for extremely narrow returns is why not.

jack,

I read up on the shale oil / syncrude plan. It looks like a push by Shell to get corporate welfare to pony up on some far off scheme with a questionable 10+ year ROI. Since big oil and Bush Co has the credibility of Tommy Flanagan, I’ll wait a few years until a truly unbiased and respectable opinion develops.Posted by: Dave1-20-2009 at March 14, 2007 3:40 PMComment #212066

Jack,
I can’t quite see it your way and do not consider our modern oil companies as willfully polluting the environment. Some foreign firms is a different kettle of fish. As a matter of fact, the upstream part of the industry is very localized (for instance, at ANWAR they want the equivalent of 2 acres out of 1500 for their drilling and storage activities with everybody looking over rtheir shoulders)but pipelines are vulnerable and downstream refineries occasionally have accidents. Which industry doesn’t have bad days? Furthermore, looking over their annual reports, they are neither undercapitalized nor typically marginal players. Returns are good. What they cannot control is market process, that’s another organization’s privilege.In my view there is no good reason to go slow on the production and use of oil as long as it can we made a readily available. After all, can you think of any other energy source as practical as a gallon of gasoline or diesel fuel?
I am all for growing parallel energy sources and products but carbohydrates will be hard to beat for a long time.
FredPosted by: Fred at March 15, 2007 9:06 AMComment #212089

Fred,

Sorry for not being thorough. I was not talking profit when I said returns. I meant that my current understanding is the maximum ANWR extraction rate would be pretty small in terms of our overall usage and the environmental impact would huge (e.g Prudhoe had an average reported spill rate of more than one spill a day and the required seismic testing just to verify 10+ year old studies is permanently damaging to the tundra by itself). Saying “bad days” for disasters that impact local conditions for years is unbecoming.Posted by: Dave1-20-2009 at March 15, 2007 1:04 PMComment #212328

Dave, thanks for your response.
I looked over my own notes and some relevant references (the latest from 2005) and came up with the following:
Alaska produced 315 million barrels of crude that year, or about 860,000 gallons per day. The USA used approximately 20 million gallons per day in toto,two third of which is imported from all kinds of places and total domestic production was about 5 million barrels including Alaska. Hence today, Alaska produces about 4% of our national requirements. But opening the ANWR area judiciously would raise that amount to about 8%, so it’s certainly very worthwhile.

The big stumbling block about ANWR is the concern by environmentalists that the whole ANWR area would be affected. That is patently just not so. The total ANWR area is about, 1,500,000 acres. The oil companies have asked permission for operations in a very small area of 2000 acres, that is the equivalent of 2 acres out of 1500. I do not see that as a problem but some people just don’t want any oil drilling at all. But they do expect somebody to find enough oil to keep their local pumps supplied. Oil, like evrything else that isn’t fruits or nuts, doesn’t grow on trees.
One has to find it and drill holes.

I am sympathetic with anyone’s concern about the environment but people do make a mistake now and then, usually not deliberately either. Sometimes they even lose their lives, like 40,000 people annually lose their lives in car accidents, certainly not deliberately. That’s why I always have a problem with self righteous people immediately claiming conspiracies, malicious intent, careless behavior etc. etc. Nevertheless, none of that should stand in the way of utilizing the earth’s resources in a responsible manner to support our and any other country and its people in a long term attempt to try to see if we can live more humanely together and more so than other societies in the past. But I’m getting off the subject.

As far as oil spills are concerned, I am aware of 3 substantial ones over the past 15 years as far as Alaska is concerned, of which the Exxon Valdez of course was by far the largest. Two of these accidents had nothing to do with oil exploration or processing, or Alaska as far as I remember. The third one was a leak in a pipeline that wasn’t noticed for 5 days. Now that upsets me, because as a former engineer that shows a failure in maintenance procedures and for that a head should roll. But even that is no reason to condemn the use of carbohydrates.

I do not know where one spill/day at Prudhoe Bay comes from but if a gasket is changed in a pipeline or a valve is replaced at a tank and spills 30 or 40 gallons of crude in the process I would call that maintenance and certainly not an oil spill in the same category as accidents. Any more than you would call dropping some gasoline from the hose when you fill your tank is an ecological disaster. In my opinion it is necessary for us to maintain our common sense about things.

But whether we like it or not, we do need more oil and lots of it while it will give us the time to develop better and even more ecologically responsible, energy sources. If we lose the energy supply race our whole country will go down the tubes and not just the USA.
Posted by: Fred at March 16, 2007 2:38 PM

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Notes on Energy

From some old files

January 11, 2006

Raise Taxes

Government interventions usually crash on the concept of price. Prices are not accidental. They not only regulate supply and demand, but also contain information about scarcities and expectations that allow everyone to make sound decisions. Governments cannot permanently lower prices without creating shortages. But they can create inefficiencies and scarcities that push prices higher. Sometimes this might be an appropriate use of government power.

In today’s WSJ an article called “The Upside of the Oil Curse” talked about the benefits of high oil prices. Our experience with the first energy crisis shows how well prices work. For all the talk about conservation and alternatives energy intensity improved by little before the 1973 price spikes. In the 1970s and early 1980s, energy efficiency improved remarkably (2.7% a year). Progress slowed after prices fell, dropping to 1.6% a year from 1986-2002. We just saw progress again when prices rose recently. SUVs sat on the lots; hybrids sold in hours. Prices work.High prices encourage conservation and alternatives like nothing else. In fact, the oil barons and OPEC potentates fear high prices for this very reason. The problem is that oil prices will drop again and will be low about the same time investments in new energy sources could be expected to pay off, so smart money is slower to make such investments.

I know that many of you are saying that prices will never come down. A brief look at the history of oil prices shows why this is not true. In the early 1980s, nobody thought the price would ever come down, yet by 1998 oil was only about $10 a barrel. So what can we do to prevent this happening again? We should provide a floor to oil prices. When oil drops to around $45 or $50 a barrel (in today’s dollars), and it will, we should tax it back up. (We might have a chance to pass such a tax now, since it seems so impossible that lower prices would ever happen.) This tax would have the advantage of being counter cyclical. It is one of the few times when government can influence prices for good. Maybe a good tax is not always an oxymoron.

August 11, 2006  

Higher Gas Prices Doing Their Good Thing

I am in favor of higher gas prices even if it means raising taxes. As I wrote in the linked sources, price is the surest and fastest way to alternative energy sources and conservation. A recent Pew Study shows how this works. There is some time lag, but it is quick.

We missed a big opportunity in the 1990s. Gas prices were at an all time low (real dollars) in 1998. We should have taxed gas then to reduce demand. Instead, we convinced ourselves that $1 a gallon gas was normal and bought SUVs.We will never run out of oil, but the cost in environmental and geopolitical terms may become too high. Why do we continue to use oil? Because it is cheap. Even at today’s prices, gas is cheap. We are still paying less for gas than our grandfathers did in the 1930s.

I apologize to all of you who have heard this from me before (I have linked to some of the other posts), but it must be repeated all the time. If you want conservation and alternative energy, you have to tolerate higher energy prices. You do not get a free lunch. But the good news is that with the proper conservation and energy efficiency, your total bill can be reduced. You just gotta do it because you are responsible for energy use.My fear is that many people prefer fixing blame to finding solutions. I heard an interesting program on NPR. It was Lester Brown, Founder of Earth Policy Institute, fretting about a surge in ethanol production. He advocated ethanol when it was not really practical. Now he has second thoughts. Maybe it is a kind of market phobia. Brown prefers wind power. Good idea. I agree, but we know that wind power has limits and its enemies. The best bet for our energy future is nuclear power, which emits no greenhouse gases. Of course, nuclear power has its detractors. This is the truth and everything else a lie: all forms of energy come with costs. Cheaper forms of energy often come with significant external costs. “Clean” energy requires large capital investment. Often our favorite form of energy is difficult to get. We have to make choices among options, none of which will produce an ideal outcome. One thing is certain, you cannot have energy that is cheap, plentiful, clean and trouble free all at the same time. So make your choices and be realistic.

October 30, 2006

Oil Getting Too Cheap (again)

The price of crude oil tumbled 3.9% today. This is good news for the economy but it presents both a challenge and an opportunity. We need higher fuel prices to encourage conservation and the development of alternatives. I have advocated this many times.  As the price approaches $55 a barrel, it is time to think of ways to keep the price of fuel from falling. I advocate a tax on oil to keep the prices up. The big oil companies obviously are not up to the job. Where is price gouging when you need it? You can see why I can never run for elected office. I suppose we could tax only foreign oil. It is always popular to stick it to someone else.Seriously, anyone who cares about a cleaner environment, getting out from under the influence of foreign despots and improving our long-term economic prospects should appreciate this point of view. Unfortunately, driving cheap trumps these concerns for many.

November 15, 2006

Energy Independence Too – Alternatives

We have been here before. Harry Truman started the first big alternative fuels project. President Carter promised that the U.S. would never again import as much foreign oil as it did in 1977. Twenty-nine years later, President Bush warned about our addiction to oil (BTW more than in 1977). What did we learn? Cheap oil trumps policy promises and alternatives. Sowaddawedo?First, we need to recognize that the problem is political, social and economic, but not really technical. This is important, because we keep on trying to apply the technical solutions and they never work. We use oil because it is cheap. We use foreign oil because it is even cheaper. We want to continue to use oil because it supports the lifestyles we enjoy at a price we accept. Unless we change part of that equation, we will always come up with the same answer – more oil.

Before going on, let me break the problem down into two parts. The one part is oil as an environmental problem. The second part is FOREIGN oil as an economic and geopolitical problem. They are separable. You could solve one and not the other. For example, foreign oil can be replaced by American oil from ANWAR, oil shale from Utah, Colorado & Wyoming or from oil sand from Alberta (yes a foreign country but nearby and generally stable). This oil will cost a little more in terms of dollars and a lot more in terms of environment, but we can achieve reasonable energy independence in this way. This is not the way to go, IMO.Oil use as an environmental threat is the bigger challenge. Remember why we use oil, but then figure in the external costs. This makes oil less of a good deal.

Rand Corporation has recently released a study indicating that falling costs of ethanol, wind power and other forms of renewable energy could allow them to supply 25% of U.S. energy by 2025 at little or no additional expense. (Renewables currently account for only 6% of our energy, and about half of that comes from hydroelectric dams.) This assumes that the price of oil does not decline by very much. Low cost oil (reaching its lowest point in 1998) has destroyed hopes for alternatives before. So let’s make sure the prices do not drop very much.Once they get started, renewables have a big constituency, especially in farm states. The most promising, IMO, is ethanol from wood chips. I admit a personal interest in that. Also interesting are various ways to make methane from manure and other wastes. Read more about these things here.

Promising as all this is, read the number very carefully – 25%. That is the optimistic scenario. That still means 75% has to come from someplace else. We will still be using oil, coal and gas for a long time. The most promising large scale clean alternative is nuclear (the French get 78% of the electric power from nukes; we get about 20%). We might be able to squeeze a little more out of energy conservation. If we just build smarter we can save money, be comfortable and help the environment at the same time. A sustainable resource house, BTW, need not be built out of straw or sticks and it can be very attractive and comfortable.

So let’s address the energy problem, but let’s address the right one in the right way. Recognize that we have the energy mix we have today because it is what we chose and what we continue to choose. We need not blame others or talk about the stupidity of past generations. We chose what we have and that means we have the choice to choose alternatives too.

September 03, 2005

We can never run out of oil

Katrina hit our oil infrastructure hard. Coming at a time of already tight supply, this will mean higher prices and talks of the end of oil. But this too will pass and if we don’t repeat the price control debacles of the 1970s it will pass quickly.

We almost ran on of oil on many occasions. The first time was just after WWI; Many of us remember the last time in the 1970s. Of course we never ran out of oil. We never run out of anything. What we really mean is that we don’t have a particular resource at a price we are willing to pay. By the time we reach this price with oil, we will have moved to different energy sources.The long term is too uncertain to predict, but we have a good handle on the short and medium runs. In the near term prices will rise. In the medium term, we can expect a drop in oil prices. Why? During the low prices of the 1980s and 1990s, we invested less in energy. It takes many years for an investment to begin to produce results. Much of the capacity that will be available very soon was planned and begun back in 2001 or 2002. What is being started now will be ready in 2008 or 2010. This supply will be supplemented by the development of alternatives and conservation provoked by today’s high prices.

Cheap gas will be upon us by 2008.

The prospect of cheap oil is not something I eagerly anticipate. The longer the price stays high, the faster we will develop alternatives. I would like nothing more than to reduce the grip of oil on our country. Each price spike makes us less dependent, but the subsequent drop takes off the edge. A higher tax at the pump is one of the few taxes I approve, especially if it replaces other taxes. As the price comes back down we should offset at least some with a higher gas tax. But we won’t have to think about that for a couple of years.

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Energy Independence Too – Alternatives

We have been here before. Harry Truman started the first big alternative fuels project. President Carter promised that the U.S. would never again import as much foreign oil as it did in 1977. Twenty-nine years later, President Bush warned about our addiction to oil (BTW more than in 1977). What did we learn? Cheap oil trumps policy promises and alternatives. Sowaddawedo?

First, we need to recognize that the problem is political, social and economic, but not really technical. This is important, because we keep on trying to apply the technical solutions and they never work. We use oil because it is cheap. We use foreign oil because it is even cheaper. We want to continue to use oil because it supports the lifestyles we enjoy at a price we accept. Unless we change part of that equation, we will always come up with the same answer – more oil.

Before going on, let me break the problem down into two parts. The one part is oil as an environmental problem. The second part is FOREIGN oil as an economic and geopolitical problem. They are separable. You could solve one and not the other. For example, foreign oil can be replaced by American oil from ANWAR, oil shale from Utah, Colorado & Wyoming or from oil sand from Alberta (yes a foreign country but nearby and generally stable). This oil will cost a little more in terms of dollars and a lot more in terms of environment, but we can achieve reasonable energy independence in this way. This is not the way to go, IMO.

Oil use as an environmental threat is the bigger challenge. Remember why we use oil, but then figure in the external costs. This makes oil less of a good deal.

Rand Corporation has recently released a study indicating that falling costs of ethanol, wind power and other forms of renewable energy could allow them to supply 25% of U.S. energy by 2025 at little or no additional expense. (Renewables currently account for only 6% of our energy, and about half of that comes from hydroelectric dams.) This assumes that the price of oil does not decline by very much. Low cost oil (reaching its lowest point in 1998) has destroyed hopes for alternatives before. So let’s make sure the prices do not drop very much.

Once they get started, renewables have a big constituency, especially in farm states. The most promising, IMO, is ethanol from wood chips. I admit a personal interest in that. Also interesting are various ways to make methane from manure and other wastes. Read more about these things here.

Promising as all this is, read the number very carefully – 25%. That is the optimistic scenario. That still means 75% has to come from someplace else. We will still be using oil, coal and gas for a long time. The most promising large scale clean alternative is nuclear (the French get 78% of the electric power from nukes; we get about 20%). We might be able to squeeze a little more out of energy conservation. If we just build smarter we can save money, be comfortable and help the environment at the same time. A sustainable resource house, BTW, need not be built out of straw or sticks and it can be very attractive and comfortable.

So let’s address the energy problem, but let’s address the right one in the right way. Recognize that we have the energy mix we have today because it is what we chose and what we continue to choose. We need not blame others or talk about the stupidity of past generations. We chose what we have and that means we have the choice to choose alternatives too.

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Energy, Water & Food/Government, Science & Markets

Energy, water and food. Providing ourselves with these prosaic necessities is the challenge of the next decade. This is a worldwide challenge, so let’s look to good practices worldwide. Brazil has been working on alcohol fuel for four decades. Arid Australia is a leader in allocating scarce water resources. Although not currently the world leader, it might be India that soon leads the world in biotechnology.

Brazil provides an excellent example of the interaction of market forces, political will and good luck. Brazil’s military dictators stared the program back in 1975. There is some doubt whether a non-authoritarian government could have taken the initial steps to make it happen. Even with subsidies, favorable laws and official sponsorship, Brazil’s ethanol program languished and almost died in the very low oil price environment in the 1990s. The history of Brazilian ethanol once again confirms the necessity of a higher price of oil to encourage alternatives. When prices rose, the ethanol program once again made economic senses.

The lesson: Government intervention may be necessary to jump start an alternative energy program. A big change in infrastructure is something individual firms cannot handle alone. However, it is clear that the government can propose and encourage, but the market ultimately decides. Luck played a big role in Brazil. If the price spikes had come just a few years later, the Brazil energy program may well have been left for dead and very difficult to revive.

Fuel is important, but water is even more crucial to survival. Ironically, energy solutions such as Brazil’s use of sugar cane to make fuel will worsen water shortages. Unlike fuel, however, we do not produce water; we do not use it up. It is the ultimate renewing resource. What matters is quality and location. This renewing aspect has fooled us into thinking water is (or should be) free. Most water is not really allocated at all. In non-arid areas, we just assume there is enough water and even in arid ones, we generally give precedence to whoever is nearer or who was there first. This ensures that water is wasted. We have to stop treating water like a free good and begin to distribute it according to market principles.

This will seem very unjust. A long time ago, I watched the Milagro Beanfield War. It is natural to sympathize with the little guy, but if more people practiced his primitive methods it would drive everyone into poverty. He just wants to grow some beans – in the middle of the desert. He doesn’t know it, but he just wants to waste water, increase the salinity of his soil and ultimately make it useless. Only the free market (including rule of law, reasonable regulation & market mechanisms) will allow diverse decision making can achieve a fair result. You can still cheer for Joe Mondragon, but recognize that he is part of the problem.

The lesson: We have to look at the bigger picture and think of water as a regional, maybe even a world resource. If done properly, it can be done justly and gradually with most people given choices that improve their lives. If we pretend we can go on the old fashioned Milagro Beanfield way, everybody suffers and some people die.

But in the end we might have some great options from the science of biotechnology. Biotechnology can produce plants that require less water, fertilizer and energy to produce. But the connection is even more direct. Biotechnology is already contributing to the production of biofuels and may soon make the production of ethanol from cellulous faster and easier. Cellulous alcohol is the holy grail of liquid fuels. That would mean we could make fuel out waste products such as wood chips or stalks, or from easily grown and ecologically benign crops such as switchgrass.

Lesson: Paradigms change and we can make them change. If we think only about how things are today, we can never solve our problems. In fact, it is likely that today’s problems CANNOT be solved with today’s methods. We can do it. It requires a leap of faith, but it is a leap of faith in human intelligence and our ability to learn & adapt.

We are standing at a crossroads where our provision of energy, water and food are radically changed. These three factors will be more completely integrated than every before. All change is difficult, but if done right this one will make all (or at least most) of us much better off and make our lifestyles more sustainable.

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Realists, Not Hysterical Hypocrites

The evidence for human induced global warming is less conclusive than proponents say, but it is impressive. Some argue that we need not act until the threat is imminent, but if we wait for it to fully and perhaps suddenly emerge, all actions, all words, and all recriminations may come too late. So what do we do?

If you look at the literature and even entries on other parts of this blog, you will see that a common response to the politics of global warming is to indignantly claim that it is the fault of Bush, Republicans, the U.S. or big corporations. The subtext is, “If only THEY weren’t so greedy, WE could address this problem.” The idea seems to be that if we would just sign on to Kyoto, or legislate properly, the problem would go away. It won’t.

Proper regulations and government incentives will be required. But these are means, not ends. Legislations by itself will do nothing. What is it that we want the legislation to do? There are several things that are required.

Raise the price of energy. Why do we depend on oil? We use oil because it is cheaper and easier to use than the alternatives. If there was a cheaper alternative, we would already be using it. One of the pernicious effects of cheap oil is that it preempts development of alternatives. Worse, the price of oil tends to drop as soon as alternative look promising and the would-be alternative producers are driven to bankruptcy. We need to guarantee a high price for oil and gas.A high energy price is the fastest way to encourage conservation. We saw that historically. Energy efficiency increased when prices were high in the 1970s and 1980s and flattened in the late 1980s and 1990s when oil was cheap. The presidents’ policies seemed to have little effect. We saw it recently when the prices went up after Katrina. Suddenly SUVs were out and hybrids were in. Price succeeds. Politics fails.

Go nuclear. It is a paradox that so many environmentalists oppose nuclear power. Nuclear power produces no greenhouse gas and no pollution. It is safe (nobody has ever been killed in an American nuclear power accident). And we don’t need to import anything from the Middle East. We can solve the waste problem or at least not using nuclear power is a greater risk.

Beyond that, a revived nuclear industry can be a growth and export industry for us.

Share technologies. The big polluters of the future are China, India and other developing countries. We need to partner with them to make sure they don’t go the dirty route. President Bush’s proposed deal with India and the Asia Pacific Partnership are good steps. Kyoto addressed the problems of the past and was outdated the day it was negotiated and the sooner everybody figures that out the better.

Encourage and protect biotechnology & nanotech. Biotech may make it easier to process cellulose (wood chips, switchgrass etc) into methanol. It may produce other forms of energy. Biotechnology and nanotechnology are the future. Don’t let a misguided precaution strangle innovation in the cradle. If/when climate change does occur, biotechnology will allow the rapid development of new varieties of crops suited to the new conditions.

I didn’t mention research into alternatives, because I don’t have to. If we do the things above, price and the market will encourage the changes. If you insist on putting some government money into R&D, that’s fine. Just don’t expect much.

So let’s cut the foolishness and get to work. The solution is not easy, but it is simple.

BTW – some of you might recognize the cadence in my initial post. I think the situations are parallel.

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Science Improving Nature

Big changes come on little cat feet to envelop us. Then we forget what life was like before. Polio, the scourge of childhood, disappeared like many other afflictions nobody much remembers. Most American kids don’t get cavities any more – amazing to those of us old enough to recall one cavity per dental visit was a great result. Change often comes in little packages, but it is compounding* and that makes a difference.

One recent great event that happened without our notice is biotechnology. If you are wondering whether you should use biotech products, forget it. I said happened, not happening. Almost all of you have eaten biotech foods, probably today. The cotton in your t-shirt was probably grown with the help of biotech. If you buy a new house you will be living in a partially bioengineered structure. Biotechnology will revolutionize the manufacture of medicines, the production of energy and the preservation of the environment.We have been cultivating biotech crops commercially for about ten years now. 400 million hectares (hectare = 2.47 acres) of genetically enhanced biotech crops have been grown. Farmers are adopting biotech crops faster than any crop varieties in the history of agriculture. Since their introduction in 1996, genetically enhanced biotech crop use has grown at a rate of more than 10% per year. In 2004 it was up to around 20%. The main crops carrying biotech genes are soybean (56%), maize (14%), cotton (28%), and canola (19%). Percentages are of the worldwide acreage for these crops. In the U.S., biotech soybean (herbicide resistant), maize (herbicide and insect resistant), and cotton (herbicide and insect resistant) account respectively for approximately 85%, 75%, and 45% of total acreage. 

Want renewable energy? We can talk about wind, solar AND biotech. Advances in biotechnology have enabled the production of large amounts of inexpensive cellulases that convert cellulose to simple sugars that that can be fermented into fuels such as ethanol. Biotechnology could enhance biomass yield density, improve processing of biomass feedstock and decrease the need for water, fertilizer, and pesticides. In other words, we can literally turn garbage into gasoline substitute.

This is really nothing new. We have been altering plants and animals since before we were fully evolved humans. But biotech can do it faster and with fewer unplanned side effects. We can use less fertilizer, less pesticide and we can do it with less work. Read the story of wheat.

A big innovation comes on little cat feet. It sits looking over our lives on silent haunches and then moves on (with apologies to Carl Sandburg). When it’s over we just think that is how it always was. But we are better off.

* Albert Einstein called compound interest the most powerful force in the universe.