March 26, 2014

If Climate Change is uncertain, should we wait to address it?

No, that would be a mistake.

The unspoken assumption here is that the proposed remedies are materially damaging to human economy or society, so we should wait.

That is misinformation, which comes primarily from the industries that are resisting change. In fact, the proposed remedies (efficiency, electrification of transportation, etc.) would have both short term and long term economic benefits. For instance, car makes have fought desperately against increases in the CAFE regulation, when such improvements would save consumers enormous amounts of money over the lifetimes of their vehicles.

Oil is very expensive compared to the alternatives. New land-based windpower is cheaper than new US coal plants (because they scrub sulfur, mercury, etc). The UK is finding windpower expensive only because they’re not willing to install land based wind turbines – apparently they’d rather spend a lot more money putting turbines out to sea. Of course, if fossil fuel interests weren’t encouraging such astroturf, the UK would have a more sensible policy.

The problem is that the cost falls on a narrow part of society (investors and workers in industries that emit CO2), and the benefits are much more widely spread. If you’ve invested your life’s work (or your money) in oil or coal (or internal combustion engines, etc.) then you’re going to fight the transition away from fossil fuels. That’s easy to understand, and one can have compassion for those who are caught in such a bind. Still, the larger society can’t avoid the transition. Ideally, the larger society would find a way to soften the blow. But, the blow must come, and the sooner the better.

The cost of a transition away from fossil fuels is, in fact, much smaller than the cost of staying with them. Even the immediate, obvious costs of fossil fuels are higher than the costs of alternatives. But, those who benefit from fossil fuels wish to misinform us on this topic, purely to protect themselves.

The cartoon in this reputable economist's blog is worth a 1,000 words:

February 24, 2014

Are anti-Climate Change arguments are just part of group/follower thinking?

Yes, I think so.

First, because Climate Change really is the scientific consensus, and it's the international consensus: even oil exporters like Russia and Saudi Arabia concede that it's valid.  China concedes it too, and they're working harder on it than the US.  China has more than enough scientific expertise to independently review climate science, and plenty of motive to disagree, yet they don't.

2nd, there's a really obvious difference between political parties in the US: the Democrats follow the scientific and world consensus, and Republican's don't. There aren't any leaders of the Republican party that are willing to support Climate Change.

3rd, the republican rank and file generally agree with their leadership.  Now, you can't really argue that those republican followers have all read all of the Climate Change science and come to an independent opinion - it's quite obvious that most of those who hold anti-Climate Change opinions are doing so because of they identify as part of a group that holds that idea. There's a striking correlation with other anti-science ideas as well: most republicans don't believe in evolution.

So, ask yourself,  Do I hold this idea just because I belong to a  group that believes it?    Do *any* of my friends disagree with me?  Do any of the websites I like to read disagree with me?

February 21, 2014

Climate Change - the Tribal debate

There's a fascinating debate about Climate Change going on over at (their 1st post for 2/17/14) – it’s like watching warring tribes in Papua New Guinea.

Climatology is relatively new – not like astronomy or biology – but it seems to provide a new intellectual litmus test. In the past, one could identify someone who was unable to rise above their tribe's beliefs to think scientifically by asking them if they thought the earth was round, or if evolution was valid. Now, one can identify them by their inability to agree that Climate Change is a serious problem.

In the future, if I read a comment on Econbrowser by someone who appears to be guided by ideology, I can confirm (or disprove) my suspicion by referring back to these comments and seeing where they stood.

December 17, 2013

Why does the "ever growing size of government" meme live on, when it should have died, long ago?

Because people like the Koch brothers want to cripple government, to prevent regulation.

The Kochs know that their oil refining business would be hurt by proper accounting for the cost of pollution (and pigovian taxes based on those costs). Proper accounting can only be forced by government.

Polluters fund think tanks and media outlets that spread the idea that government, regulation and taxes are inherently bad, because those things threaten their business model.

August 13, 2013

Are Electric Vehicles better?

Yes.  The Tesla Model S is much better, and much cheaper than it's luxury competitors.

For $70k you get 0-60 in 4.2 seconds, and better handling and luxury.

And, the gas savings can reduce the effective price of the car from $70k to well below the $30k price tag for all new cars.  That's because most luxury cars get terrible MPG - one owner profiled below is saving $5k  per year.

The new status car: Tesla

It's happening in the parking structures at Gold Coast high-rises, in front of the Lycee Francais school in Buena Park, in suburban garages and in the reserved spaces at hospital parking lots: The usual suspects—BMW, Audi and Lexus—are being replaced by the Tesla Model S.

The Model S, which began delivery late last year and lists for about $70,000, comparable with other luxury sports cars, is a sleek, all-electric sedan that blends sports car zip (0 to 60 in 4.2 seconds) with a luxury car feel. The motor is three times as efficient as a gasoline engine and produces zero emissions.

This isn't your father's midlife crisis car. “It's a game-changer,” says Joel Baer, a 44-year-old commodities trader from Deerfield. “Forget that it's electric, it's still the best car I've ever driven—the best handling, the fastest, the quietest and with the most storage.”

Local owners—Tesla says there are about 100—say it lives up to the hype. Many have become evangelists for the brand.

“It isn't just for the nutty environmentalist like me,” says Ron Saslow, 47, chairman and CEO of Chicago-based dental instrument manufacturer Hu-Friedy Mfg. Co. LLC. He's a Model S owner and an early adopter—he bought Tesla's debut car, the Roadster, for $100,000 in 2008.

“This car can substitute for virtually any car in (the luxury) category,” he says. “The people who have BMWs or Audis or Mercedes sedans are the ones who are starting to switch over.”

Illinois Senate President John Cullerton, D-Chicago, bought the car “totally based on the fact that there are no emissions,” he says. For him, the luxury styling was a bonus.

“It's the fastest golf cart I've ever driven,” says Gold Coast resident Mark Ladd, 43, CEO of Chicago-based mobile-gaming startup LyteShot LLC. “You depress the accelerator and it automatically speeds up. You don't have to wait for a passing gear or for the engine to catch up. Within the first 10 days of owning the car, I managed to get myself a ticket.”


Environmental concern motivated Jason Ebel, 41, co-owner of Warrenville-based Two Brothers Brewing Co., to buy the car. He received his Model S, No. 88, in October. Vehicle identification numbers are low for this relatively new company, and there's a sense of pride among owners with low numbers. “It is certainly the best all-around car I have ever owned,” says Mr. Ebel, who installed a free public charging station at the brewery.

Robert Tseitlin, 31, vice president of operations at Chicago's Zeit Fine Jewelry and a city resident with two small children, uses the Tesla as a recreational vehicle. “It's definitely a head-turner,” he says. “It kind of looks like a Maserati.”

The elimination of the combustion engine and transmission tunnel means more cargo space, including a second trunk under the hood, and an oversized back seat without the hump.

A 17-inch dashboard touch screen controls navigation and Web browsing—there are almost no buttons in the car. It allows Tesla to push software upgrades to the vehicle without a visit to the shop. “It's like a car that keeps evolving,” Mr. Ladd says.

Mr. Baer drives downtown from Deerfield every weekday and shuttles his kids to activities. He did the math on his Model S, which cost $78,000 with the options he chose. After the $7,500 federal tax credit and the $4,000 tax credit from the state, the car was $67,500.

“I had a (Porsche) Cayenne before this that got maybe 15 miles to the gallon—so I'll save myself about $6,000 a year in gas,” he says. “It will cost me about $3,000 to charge the car for six years. It's not really as expensive as people think it is.”

Tesla, based in Palo Alto, Calif., reported an operating profit in the second quarter and revenue of $405 million, up from $26.6 million a year ago.

The Model S starts at $69,900, with a $10,000 price difference between two battery options—a 60 kilowatt-hour battery earns 208 miles to the charge and an 85 kwh battery earns about 265 miles.
“It's like a phone,” says Mr. Saslow, who commutes from Highland Park to his Avondale office. “If you really don't pay attention to it you can run out of charge, but you don't because when you have a chance you plug it in.”

Like many Tesla owners, Mr. Baer had a 220-volt outlet installed in his garage, which offers about 30 miles per hour of charge. The battery takes about seven hours to charge fully. The car also can charge, more slowly, on a regular 110-volt plug. But that's adequate for city dwellers like Mr. Tseitlin, who uses the Tesla as a second car.

In any case, superchargers, which can juice up a battery halfway in 30 minutes, are becoming more common. In late June, Tesla put the first Midwest supercharger in downstate Normal, unveiled with a press conference featuring Mr. Cullerton and his Tesla.

A second supercharger will open in northern Illinois later this year, and by the fall, Tesla plans to have nearly a dozen Midwest stations. By the end of the year, the company says it will have enough free superchargers for Tesla owners to drive cross-country.

Tesla sells direct to consumers rather than through dealerships, much to the chagrin of traditional car dealers, who have sued the company in some states. Showrooms with just a few models on display are in Old Orchard Mall and Oakbrook Mall; a service center is on Grand Avenue in West Town. “It's kind of like going into an Apple store and buying an iPhone or iPad,” says Mr. Tseitlin, who ordered his in March.

Every car is made to order in Fremont, Calif., with buyers customizing everything from paint color to sound system upgrades. The cars are delivered about 60 days later, either to the customer's house, to a Tesla showroom or to the service center, where an employee spends up to three hours going over features with the owner.

The service center also offers house calls, but since electric cars have fewer parts, this translates into less maintenance. There's no carburetor, muffler, fan belt, spark plug or oil changes.

Mr. Saslow already has put down a deposit on the Model X, an SUV making its debut in 2014. It has third-row seating that can be accessed through the back and falcon-wing doors that, unlike the DeLorean—whose doors opened out and up—open up and then stretch out like a wing. That allows drivers to park in tight spots and still open the door.

The Model X price tag has not yet been released, but Tesla’s plans to debut a sedan at $30,000 by 2016 might just push the electric car into the mainstream. Mr. Saslow hopes so. “I want everyone in the world to have a car similar to this,” he says. “It's mind-boggling how great the performance is, and it eliminated my gas usage.”

March 30, 2013

Is our economic model based on cheap energy?

Not really.

First, both the US and other developed countries got that way with "moderately expensive" energy, not cheap energy. Oil and electricity have been cheap in the US in the post-WWII period, but energy was rather higher in years before that: coal and electricity cost much more, adjusted for inflation. The US, and other countries, succeeded quite well in growing strongly even when energy was much more expensive, whether it was coal or oil.

Wind power is quite affordable (if perhaps not quite as dirt cheap as US post-WWII oil and electricity prices), scalable, high-E-ROI, etc, etc. So are nuclear, and solar even if they aren't quite as cheap at the moment (coal is also plentiful and cheap, unfortunately), so I see no reason to expect energy to ever be more than "moderately expensive".

The fact that energy pre-WWII was a much higher portion of GDP means that it was a much heavier burden on the economy. If wind and solar are a little more expensive, that means that the wind/solar sector has to be a little larger than otherwise to power the rest of the economy. This analysis suggests that this is not a big deal: that sector would still be a much smaller portion of the economy than pre-WWII.

Second, fossil fuels aren't nearly as cheap as they seem. Pollution is an unrecognized, external cost. So are the military costs we're seeing currently of roughly $500B per year. Those pollution costs aren't sustainable (especially CO2), but unfortunately the military costs of security for oil supplies probably are (in fact, many corporate interests are quite comfortable with them...). Not that they don't entail many costs to the economy, including diverting scarce scientific and engineering talent away from creating new products, and growing the economy. Moving away from oil and other fossil fuels will actually be much cheaper in the long-run than BAU.

Finally, let's assume that Business As Usual involved spending about 5% of our economic activity (perhaps measured by GDP) acquiring energy. If the cost of acquiring energy doubles, then we have to dedicate another 5% to that activity. GDP might go down by 5% quickly, in case we'd have a deep recession. Or, it might happen over time - if it took 10 years, then we'd see a reduction in economic growth of .5% per year, for 10 years. After that transition was complete, economic growth would continue. So, a reduction in "net energy" has a significant impact, but it's not TEOTWAWKI.

Does unusually strong growth since 1945 show the value of cheap energy in that period?

No, US growth was faster before 1945, using moderately expensive, non-oil energy:

1800-1900: 4.13%
1900-1945: 3.53%
1945-2000: 3.17%

"real GDP" at

February 19, 2013

How high could oil prices rise?

I think prices will stay in a range of $100-125 for quite a while: Saudi Arabia would reduce production if prices were to fall below $100, and consumption would fall if prices rose above around $125. 

When oil went from $20 to $100, US oil imports dropped in half. $2/liter fuel in Europe has been the primary reason (geology and history the 2nd) that personal fuel consumption is only 18% of the US and Canada.  If fuel were properly priced in the US at, say, $7/gallon, the US would reduce fuel consumption very quickly.

Oil consumption only decreased by about 10% when prices even though prices more than tripled from 2002 to 2012 ($30 to $100). Couldn't prices triple again?

Percentage increases aren't important. What's important is absolute increases, and their level compared to the substitutes. Below about $60/bbl there are no economic substitutes for oil, but as oil gets farther and farther above $60 substitutes become more and more obvious and pressing. In other words, this is not a linear function.

But don't we normally use the percent change when looking at consumer responses to a change in prices?

Sure, and that's just fine most of the time. The problem: that assumes a constant relationship: e.g., "10% increase in price causes 3% decline in consumption". I'm arguing that doesn't apply here. A doubling in price of oil from $20 to $40 is pretty trivial. A doubling from $100 to $200 is a very big deal. A doubling from $200 to $400 just won't happen unless the Persian Gulf is in flames, and even then it wouldn't last that long.

Why the difference?

Several reasons.
1st, $40 oil is small relative to income.

2nd, $40 oil is small relative to other costs, including oil production-related costs like refining, distribution, profit and taxes; and small relative to other consumer costs, such as vehicle depreciation.

3rd, $40 oil is cheaper than substitutes such as hybrids, plug-ins, carpooling, ethanol, CNG, online shopping, etc. As long as prices are below the price of substitutes, there will be no substitution.

Now, why haven't we seen more substitution since prices rose above $60?

1st, short term elasticity is much smaller than long-term. Oil prices haven't been high for very long, and Peak-Lite is something that didn't exist in the history of the oil industry until about 2005.

2nd Many consumers, such as long-distance truckers, don't have good "visibility". Many are *still* waiting to see if, say, natural gas prices stay low, and oil prices stay high. They have good reason, given historic volatility. Others have only recently decided that high prices are here to stay, and are still in the transition - taxis, for instance, will take several years to move fully to hybrids.

3rd, the oil industry has fought viciously to confuse the public about this issue. It has succeeded pretty well. Only prices staying high for a long time will break through that, and that delays the transition.

4th, R&D, and capital investments, take a while. Plug-ins (pure and EREV), for instance, only really took off in 2012, 7 years since 2005.

5th, change has many costs, including new infrastructure, new maintenance procedures, training of everyone involved, etc. As long as the savings from substitution are small, change won't happen. As the difference between oil prices and substitutes rises, the incentive gets larger until it breaks through. That's a non-linear relationship.

Still, you have to realize that things would change quickly if prices rose above about $150. The last time prices rose above $125 things started to change very quickly. Prices were above that level for 3 or four months only, but Industrial/Commercial users starting cutting back quite sharply, which is part of why oil prices dropped to $40 briefly, before KSA could cut back on production.

For instance,  container ships started slowing down: they can reduce fuel consumption by 50% by only slowing down by 20%. For another example, when oil prices rose in the 1970's Industrial consumers switched away from oil for process heat essentially overnight. There would be many short-term changes like that. There would also be sharp medium term changes: in the 70's the US got 20% of it's electricity from oil - that went to 5% relatively quickly, and now is about .7%.

That's the nice thing about decentralized markets: they are very flexible, and they can change things around in a million ways to optimize costs. Of course, markets are inhabited by humans who can make mistakes, as noted above, but when they get moving, don't get in their way or you'll be run down.

But, Europe still uses a lot of oil, half of US levels per capita.

Yes, because European I/C users aren't taxed as much as consumers. Consumers use 18% as much, while Industrial/Commercials actually use more than the US.

As the BRIC countries and other rapidly growing countries aspire to European levels of petroleum consumption, won't much more reduction of petroleum use will be needed?

Substitutes work as well for them as they do for OECD countries. The economics of batteries, for instance, are the same. Above about $80, electric transportation starts to be cheaper.When oil prices are at $100, the difference is only $20, which isn't enough to overcome the "friction" of change. But prices at $120 double that incentive, and prices at $160 quadruple it.

Just as importantly, BRIC countries still have some price controls/subsidies for fuel consumption, and those are on the edge of bankrupting the government or quasi-government entities that bear the burden of those subsidies. Those subsidies would have to be abandoned in the face of $200 oil, which would be dramatically raise consumer and I/C fuel costs For instance, India has recently had to abandon gasoline subsidies, and is on the precipice with diesel.