A free-market energy blog

Part I yesterday addressed the drivers and flawed approaches to current energy policy in many developed Western countries. Part II today describes the rational approaches necessary to best position us to withstand all challenges/threats that face us, both known and unknown.

Time frames are an important consideration in assessing the various elements of sensible and feasible energy policy programs. Here are the periods used in this discussion, which are nominal in nature:

• Short term (Up to about 10 years) – In this time frame, major radical changes in our energy infrastructures are not advisable and should be avoided, because energy is so intrinsically bound up in everything we do. Ill-advised, extensive tinkering with these is dangerous to our well-being. Best use must be made of reliable and powerful energy sources which are consistent with existing energy infrastructures and uses. Sufficient, sound R&D initiatives must be established. This is largely an initiation period.
• Medium Term (approximately next 30 years) – This period should ensure improvements in: (1) the best practices across the fuel life-cycle; and (2) technologies for existing energy infrastructures. R&D is important to the success of this but should also be at least equally directed to new technologies needed in the longer term. This is a transition period.
• Long Term (beyond approximately 40 years) – This period is the realistic time frame for new technologies to start to make major, fundamental changes to existing energy infrastructures. It is a period of fulfilment of energy policies and programs put in place starting today.

In general terms, these time frames put activities and developments roughly into the first and second half of the 21^st century. It is emphasized that these are not rigid boundaries, but realistic expectations of developments. Pleasant surprises are always possible and could change some aspects. It also best positions our societies to meet unpleasant surprises against which reliable, extensive and powerful energy sources are the best defense. [Read more →]

For well-being, present and future, including overall governance, health and medical care, financial, economic, human rights, equality, peace, security and liberty, etc.,[1] we have to stop playing political games with energy policy in the developed countries in the West and turn to sound approaches.

In particular, Europe must withdraw from its desperate and destructive attempts at regaining some measure of world ‘leadership’, which it deservedly lost in the 20th century as a result of succumbing to dangerous extremist policies in many areas, including political, social, judicial, economic, military and international matters.

Europe’s ”leadership” conceit includes questionable, radical energy policies, particularly in electricity systems, to ”de-carbonize” the world with “new” (really ancient) renewables. This futility is wasting resources on a grand scale as is now beginning to be realized (here and here).

Unfortunately this may be a case of too little too late unless we act now to get off this lemming-style dash to catastrophe, energy being the master resource. We face more than one such ‘cliff’ today, and any that can be avoided must be.

This cannot be stated too strongly. It is not an argument from a special interest point of view or in support of any specific economic theory, not to say that any of these is necessarily invalid. It is from the perspective of what is best for mankind, and based on the work of internationally respected energy experts.[2] I repeat a disclosure statement which I have stated before.[3]

The case for the current flawed energy policies (primarily focussed on electricity) in the West is based on issues surrounding climate change, 21^st century industrial development (jobs), fossil fuel and nuclear concerns, and energy independence/security. The following is a necessarily brief overview of very complex matters, but should serve to provide an instructive, broad context.

Part I today addresses the drivers and flaws of current energy policies in many developed Western countries. Part II tomorrow deals with sensible approaches, which are quite evident, but apparently politically impossible within most Western democracies. [Read more →]

It is the second most famous term in the history of economics after Adam Smith’s metaphor invisible hand. It describes the competitive market process in the real world. It was coined in 1942 by the famous, iconoclastic Austrian-American economist Joseph Schumpeter, who would reminisce:

I set out to become the greatest lover in Vienna, the greatest horseman in Austria, and the greatest economist in the world. Alas, for the illusions of youth…. As a horseman, I was never really first rate.

“Creative Destruction” …

The best businesses rise to the top in consumer-driven markets. Less competitive firms contract and even disappear. Creative destruction is the process whereby the bad is eliminated, the better replaces the good, and past performance gives way to new strategies and victors. No firm is forever, and financial loss is a characteristic of capitalism, as is the more used term profit.

Protesting against the textbook “perfect competition” model, under which a multitude of price-taking firms were optimally efficient at equilibrium rest, Schumpeter focused on the real world of change. “[C]apitalist reality, he said, is “the new commodity, the new technology, the new source of supply, the new type of organization … which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.”

He famously continued: [Read more →]

“Tension in the room mounted. The old man … pleaded with the [California] planning commission to protect his pigeons from ‘the Cuisinarts of the air’. The arrow went straight home, sending up a roar from the audience. A new image had been created, and the cameras flashed it across the country. Although often credited to staging by Cerrell and Associates, the term was conceived by the Sierra Club.”

- Paul Gipe, Wind Energy Comes of Age (New York: John Wiley & Sons, 1995, p. 450.

“I once believed in the Sierra Club, until the CLUB ( an insular bunch of activists who aren’t looking at the entire picture but only at their own agendas) started fully supporting [windpower] …. Everything the environmentalists (including myself for 20 years) have worked so hard to protect, is now being destroyed or in jeopardy. Wind factories are industrial projects.”

- Jen Gilbert, Dear Sierra Club (Canada): I Resign Over Your Anti-Environmental Wind Support (June 7, 2011).

I am reminded of the Sierra Club’s all-too-brief War on Wind whenever I read either a piece by Carl Pope, former executive director and chairman of the Left environmental group, or more recent Sierra Club fare pretending that industrial wind turbines are “green.”

Pope’s Huffington Post piece last week, “The Lessons of the Battle Over Tax Increases for the Wind Industry,” praised the one-year extension of the Production Tax Credit (PTC) for new wind construction on purely economic grounds. “Cheapness is not the only economic advantage wind and solar bring to the electricity sector,” he opined. “They are already generating huge numbers of new jobs and supply chains.”

Wind Economics

Cheaper? What about the high up-front infrastructure costs required to turn such a dilute energy source into electricity? According to the U.S. Energy Information Administration (EIA), wind-generated electricity is substantially more expensive than  power generated from natural gas, and solar is much more expensive than windpower. [Read more →]

I am writing in response to your recent article by Richard Mertens, “Wind Energy: Boom Sputters as Industry Tax Credit is Set to Expire.” This piece describes the plight of wind-industry workers and their families in the face of political uncertainty with the Production Tax Credit at risk. The implicit assumption of Mr. Mertens is that these jobs are worthy for a better environment and for a more sustainable energy future.

Please consider a very different view: that this industry is an artificial construct of cronyism; squanders resources at the expense of consumers and taxpayers; and toys with workers and their families who continually find themselves at the mercy of temporary political majorities.

Being a Christian myself, I am not sure how supporting a business that is based on mistruths and bilks taxpayers and ratepayers out of billions of their hard-earned dollars can in any way be considered “Christian.” The industrial wind scam is the furthest thing from being “Christian” that one could ever imagine – and I say that based on my own personal experience of dealing with the wind industry over the past 10 years. [Read more →]

It took a last minute change to a highly controversial bill and the last vote of the 112th Congress for Big Wind to eke out one more extension to the Production Tax Credit (PTC). With the dust now settling, it has become clear: President Obama rammed through the extension without debate or compromise.

Initial Negotiations

Following the November 6 presidential election, the wind industry anticipated a quick vote on the PTC that would provide a multi-year extension and remove the issue from the larger fiscal cliff negotiations. That did not happen and with 60+ tax provisions due to expire at the end of 2012 many parties are vying for the same dollars. With December 31 fast approaching, the likelihood of an extension was becoming more uncertain by the day.

On Thursday, December 21, just prior to Christmas and a full six weeks after the election, Speaker Boehner and House Republicans gave up trying to negotiate a fiscal cliff package with the White House and passed a bill that addressed spending cuts sufficient to avoid the sequester. Nothing in the House bill hinted at a PTC extension.

Harry Reid now had two bills on his desk — the bill passed by the House on December 21 and the Senate finance committee tax-extender bill from August that was never scheduled for a floor vote. Reid knew he did not have the votes to pass either bill. He needed to come up with a compromise proposal that would also raise revenue and still pass both Chambers.

By this time, wind lobbyists had parked themselves in the Senate for one last push. And why not? The time and money spent to sway the outcome in the industry’s favor would pay off in billions. [Read more →]

A recent study commissioned by the National Association of Manufacturers critically assessed the U.S. Environmental Protection Agency’s cost- benefit analysis with respect to six key regulations: Utility MACT, Boiler MACT, Coal Combustion Residuals, the Cross-State Air Pollution Rule, Cooling Water Intake Structures, and Ground-Level Ozone. The NAM study details the significant differences between EPA’s cost estimates and those of industry sources, while highlighting problems and inconsistencies with EPA’s methodology. Most importantly for manufacturers, the study estimates the impact of EPA rules on the manufacturing industry, directly and through indirect macroeconomic effects.

A key finding of the report is that “the annual compliance costs for all six regulations range from $36 billion to $111.2 billion (by EPA estimates) and from $63.2 billion to $138.2 billion (by industry estimates).” Notably, the study was picked up in the trade press and recognized by the House Energy and Commerce Committee, which reiterated the study’s finding that “major new EPA rules could cost manufacturers hundreds of billions of dollars and eliminate millions of American jobs.”

Textbook Regulation: Forgetting Government Failure

The NAM study acknowledges significant gains in air and water quality in the United States since the creation of the EPA but contends that federal regulators are up against steeply diminishing returns.

After more than 40 years of improvement in air and water quality, further progress is still possible. But how much more? What would be the benefits? And at what cost? Economics is about making the best use of scarce resources, and public policy formulation must heed its implications: policy decisions may produce economic benefits, but they also impose costs. Economics also teaches the theory of diminishing marginal returns, which holds that even though an additional unit of input may generate more output, there is a point beyond which the addition to total output from each new increment of input begins to decline. These economic concepts are relevant to the public’s understanding of the implications of these emerging EPA regulations.

Or, as Julian Simon put it when he discussed the trade-offs of dealing with pollution: [Read more →]

“Once these hidden costs [of windpower] are included and subsidies are excluded, wind generation is not close to being competitive with conventional generation sources such as natural gas, coal or nuclear.”

- George Taylor, quoted below.

“However, to meet the 33% RPS, technical studies show ramp rates may triple, which is not possible for the [California] ISO’s conventional generation as configured today.”

- Clyde Loutan (Senior Advisor, CaISO), “How Intermittent Renewables Impact CallSO.”

George Taylor and I have published a new study for the American Tradition Institute (ATI) that finds that on a full cost basis, wind electricity is nearly twice as expensive as what is typically reported. “The Hidden Costs of Wind Electricity” provides an analysis of three major costs that past estimates have ignored.

“The costs that have been left out of previous reports are the costs of paying for the fossil-fired plants that must balance wind’s variations, the inefficiencies that wind imposes on those plants, and the cost of longer-distance transmission,” said Taylor in ATI’s press release.  “Once these hidden costs are included and subsidies are excluded, wind generation is not close to being competitive with conventional generation sources such as natural gas, coal or nuclear.”

Adding a conservative estimate of the hidden but real costs to the Energy Information Administration’s (EIA’s) and the Office of Energy Efficiency and Renewable Energy’s most recent generation-cost reports increases wind’s projected cost from 8 cents to 15 cents per kilowatt-hour (kWh).

AWEA’s Rebuttal: Misdirection I

Taylor and I summarized our findings in the Washington Times opinion-page editorial, “Blow off wind-production tax credit” (December 19, 2012). We described the Production Tax Credit (PTC) as a bad deal, imposing additional costs on consumers and taxpayers with no offsetting benefits.

Unsurprisingly, AWEA spokesman David Ward repeated some industry falsehoods in rebuttal to our piece. His assertions (in blue) are followed by my rebuttal. [Read more →]

The story of hydraulic fracturing (frac’ing) is one of the most important stories of our time. It needs to be told far and wide–and certainly by our top talent in Hollywood.

The true story of frac’ing is utterly inspiring. A band of renegade oil and gas executives, engineers, and rig-workers developed a technology that could transform worthless rock into wondrously abundant and affordable energy–enough to improve the lives of every single American. Frac’ing gives some states the cheapest electricity in the world, a boon to our manufacturing. It gives us the oil and gas that run our farms, warm our homes, and fuel our fun.

Whatever ways frac’ing technology has been misused–and for a pervasive technology there are shockingly few instances–our basic attitude toward the industry should be one of gratitude. And the most grateful of all should be the landowners who, thanks to the ingenuity of the frac’ing industry, now have the opportunity to participate in and benefit from a torrent of wealth creation miles beneath their feet.

A good, honest movie about frac’ing would inspire hope and inspire gratitude.

Promised Land, Hollywood’s first take on frac’ing, is neither good nor honest–it is a shameful smear-job by writer-actors Matt Damon and John Krasinski.

[Read more →]

Imagine you live nearby a pharmaceutical factory. Decade after decade, it creates wealth and jobs in your area by producing life-saving products. Then, one day, there is a fire at the factory, damaging a component upon which half the output depends. The company puts out the fire soon as possible so that no nearby residents are likely to suffer any long-term health consequences.

Obviously, the appropriate response to such a situation would to be to both investigate the cause of the fire and to let the company fix the damage as soon as possible, so it can get back to its important work.

This also should have been the response of the residents of Richmond, California, to last year’s fire at the local Chevron oil refinery, because oil refineries are no less valuable than pharmaceutical factories. In fact, they produce the amazingly versatile materials of which pharmaceuticals–and thousands of other crucial products–are made.

Oil refineries transform oil, an essentially useless natural substance made largely of dead plants, into fuel and synthetic materials–into the fuel that drives a firetruck to your home, into the hose that allows the firefighter to save your home, into the flame-retardant jacket that allows the firefighter to survive his dangerous job.

Unfortunately, our educational system does not teach the value of oil refineries. Thus, ever since a fire at Chevron’s Richmond, California, refinery last August, the company has been pilloried by the local community to the point that it has not been allowed, reports the New York Times, “to rebuild a critical unit damaged in a major fire in August. Chevron says it wants to complete repairs this month at the refinery, where production has been cut in half since the fire. Not so fast, the city says.” [Read more →]