November 28, 2010

What if something can't compete? "viability" vs "competitiveness"

Chemical companies use oil as a feedstock to make plastics, glues, etc because it is still cheaper than alternatives. British coal has mostly been replaced by cheaper imports. Won't migration to alternatives raise prices and lower living standards?

Yes, but how much? There is a basic paradigm that's useful here: "viability" vs "competitiveness". In most industries a very small cost difference can make you uncompetitive. That means that slightly higher cost solutions will be avoided, which can give the impression that those solutions are higher cost than they are. OTOH, if changes in the business environment (or natural environment!) change the costs of alternatives for everyone, suddenly alternatives can become acceptable in that industry.

There is an analogy in sports: "winner takes all". Tiger Woods and Pete Sampras get all of the publicity and a lion's share of the prize money. The 200th best player in either sport gets no publicity or prize money. On the other hand, the 200th best player will mop the field/court with you or me just as fast as would Tiger or Pete.

So, for instance, recycled materials are in general slightly more expensive than virgin materials, plastic included. But, if oil becomes more expensive then recycled materials could suddenly become the standard. If something could be recycled with only 10% loss at each generation, that would reduce the consumption of virgin materials by 90%, with only a very small additional cost for the industry.

As another example, high sulfur Illinois Basin coal costs perhaps 2 cents per kWh to scrub. That's an enormous margin to power plant consumers, who are willing to pay for long-distance transport of lower-quality Powder-River coal. The net difference in cost might be only half of one penny per kWh, which is still an enormous margin to power plant consumers. On the other hand, let's assume power prices rise by one half penny around the globe (to eliminate questions of regional competition) - how much difference would it make to consumers to add a half penny per kWh? Sure, they'd notice it, but would the difference cause any factories to close their doors, or homeowners to not be able to pay their mortgages? No.

November 19, 2010

Is the average voter helpless over energy policy?

No. If voters were to usher in a government that made dramatic changes to our energy polices, I don't believe that the corporations that were affected would try to overthrow the government. And, if such a government campaigned on the basis of dramatic change, and therefore had a mandate to implement them, I don't think that lobbyists behind the scenes would succeed in preventing them.

On the other hand, I think it's clear that corporations try to manipulate voters in order to get their short-sighted way. And, it seems pretty clear that most voters aren't very good at resisting the disinformation and appeals to emotion that corporations use to achieve their goals:

"...The Tea Party movement, which is threatening to cause an upset in next month's midterm elections, would not be where it is today without the backing of that most traditional of US political supporters – Big Oil.

The billionaire brothers who own Koch Industries, a private company with 70,000 employees and annual revenues of $100bn (£62bn), used to joke that they controlled the biggest company nobody had ever heard of.

Not any more. After decades during which their fortune grew exponentially and they channelled millions of dollars to rightwing causes, Charles and David Koch are finally getting noticed for their part in the extraordinary growth of the Tea Party movement.

The two, 74-year-old Charles and David, 70, have invested widely in the outcome of the 2 November elections."

November 15, 2010

Resistance to Change - Yet More...

Corporations, focused on their fiduciary duty to their investors to maximize profit, are attacking government's ability to charge for external costs like pollution. "Pigovian" taxes just became much more difficult in California:

"It was the "sleeper" ballot initiative of California's election season: Few paid heed to Proposition 26, besides the oil, tobacco and alcohol companies that funneled millions of dollars into promoting it in the final weeks of the campaign.

Now, from the Capitol in Sacramento to the boardrooms of county supervisors and city councils, lawmakers and lobbyists are scrambling to assess the fiscal and political effects of the measure, one of the most sweeping ballot-box initiatives in decades. Proposition 26 reclassifies most regulatory fees on industry as "taxes" requiring a two-thirds vote in government bodies or in public referendums, rather than a simple majority.

Approved by voters 53% to 47% on Nov. 2, it is aimed at multibillion-dollar statewide issues such as a per-barrel severance fee on oil and a cap-and-trade system for greenhouse gases. It's also aimed at local ordinances that add fees on cigarettes to pay for trash pickup and on alcohol to fund education and law enforcement programs.

Last week, the American Chemistry Council warned Los Angeles County supervisors that a proposed ordinance banning plastic grocery sacks and imposing a 10-cent fee on paper bags falls under the voting requirements of Proposition 26.

"We think it was a fair way to go," said Allan Zaremberg, chief executive of the California Chamber of Commerce, the biggest contributor to the Proposition 26 campaign. "It clarifies what is a tax and what is a fee. Right now, the public doesn't want any taxes."

Some simple charges are exempt, such as fees for marriage and fishing licenses, restaurant health inspections and property assessments.

But environmentalists and health advocates said the initiative makes it nearly impossible in the current political climate to boost industry fees for cleaning up air, water and toxic waste pollution; for curbing smoking and alcohol abuse; or for enacting new programs.

"California just got a lot harder to govern," said Bill Magavern, California director of the Sierra Club.

Proposition 26's TV campaign attacking "hidden taxes" caught many public interest groups unprepared. Hyper-focused on Proposition 23, the unsuccessful effort to suspend the state's global warming regulations, they were unable to pivot in time.

Environmentalists, unions and the Democratic Party scrambled to raise $6.6 million to fight Proposition 26, but proponents outspent them by 3 to 1."

November 2, 2010

Do we need oil?


Again, there is this puzzling assumption that oil can't be replaced, that it is somehow magically necessary for industrial/modern civilization. Oil has been cheap and convenient for the last 100 years, but the industrial revolution started without it, and modern civilization certainly will continue without it.  The idea that oil is necessary is an argument against solutions to Climate Change, and an argument for "drill, baby, drill".

• 130 years ago, kerosene was needed for illumination, and then electric lighting made it obsolete. The whole oil industry was in trouble for a little while, until someone (Benz) came up the infernal combustion engine-powered horseless carriage. EVs were still better than these noisy, dirty contraptions, which were difficult and dangerous to start. Sadly, someone came up with the first step towards electrifying the ICE vehicle, the electric starter, and that managed to temporarily kill the EV.

Now, of course, oil has become more expensive than it's worth, what with it's various kinds of pollution, and it's enormous security and supply problems.

• 40 years ago oil was 20% of US electrical generation, and now it's less than .8%.

• 40 years ago many homes in the US were heated with heating oil - the number has fallen by 75% since then.

• US cars increased their MPG  by 60% from about 1976 to about 1991.

• 50% of oil consumption is for personal transportation - this could be reduced by 60% by moving from the average US vehicle to something Prius-like. It could be reduced by 90% by going to something Volt-like. It could be reduced 100% by going to something Leaf-like. These are all cost effective, scalable, and here right now.

I personally prefer bikes and electric trains. But, hybrids, EREVs and EVs are cost effective, quickly scalable, and usable by almost everyone.

Sensible people won't move to a new home to reduce commuting fuel consumption. That would be far, far more expensive than replacing the car. It makes far more sense to buy an EV and amortize the premium over 10 years at a cost of about $1,000 per year (much less than their fuel savings), versus moving to a much higher cost environment (either higher rent or higher mortgage).

• As Alan Drake has shown, freight transportation can kick the oil-addiction habit relatively easily.

We don't need oil (or FF), and we should kick our addiction to it ASAP.

The only reason we haven't yet is the desperate resistance from the minority of workers and investors who would lose careers and investments if we made oil and other FFs obsolete. 

All of the various kinds of EVs (hybrids, PHEVs and pure EVS) would be much farther advanced if it weren't for resistance from the automotive and oil industries.  The first PHEV was demonstrated more than 100 years ago.  Very large and reliable EREVs were developed 100 years ago in the form of diesel submarines.  This isn't new stuff, and it would be far more useful and cheaper if we had started to really push them 40 years ago, when US oil fields clearly showed their limits.

Gas should be priced at European levels (say, around $7 per gallon), to reflect it's real costs.  If it were, EVs in their various incarnations would be obviously cost effective, and consumers would have demanded them long ago.

Some might ask, what about our current debt problems?

Debt is a symbol, a marker - what matters is the underlying productive capability of our economy, which will be just fine. Could we screw up the management of our economy, and go into a depression? Sure. But it's not likely.

Don't these transitions take 50 years?

The transition from kerosene to electricity for illumination took roughly 30 years. The US transition away from oil-fired generation took very roughly 20 years. The transition away from home-heating oil was also faster than 50 years (though uneven).

The fast transition from steam to diesel locomotive engines is illustrative. There were a few diesel locomotives in use in the U.S. during World War II but steam dominated in 1945. However, the steam locomotives had been very heavily used during World War II, and they all wore out at approximately the same time the first few years after 1945. When steam locomotives wore out, they were invariably replaced by diesel in the mid 1940s. By 1949, almost all steam locomotives were gone. There were still some steam locos made in the late 40's, and they were still in service in the 50's but dwindling. The RR's also relegated the steamers to branch line and switcher use - replacing the most used lines with diesel first as you would expect. Cn rail retired its last steam engine in 1959.

Other, very slow transitions are not a good guide to the future. For instance, the transition from coal to oil could be very slow, because there was no pressure - it was a trade up, not a replacement of a scarce resource. Many transitions occurred because something new & better came along - but the older system was still available and worked just fine. Oil may become very expensive very fast and that would provide us an incentive to switch over much more quickly.

On the other hand, we can point to many energy transitions that were sideways or down. The early transition from wood to coal in the UK was a big step down: harder to find and transport, dirtier - a pain in every way. Coal's only virtue was it's abundance. The transition from EVs to ICEs took a while - only when ICEs started to electrify did they become competitive. And, of course, we hid the external costs of oil from consumers: freeways (built by "engine" Charley Wilson after he went from President of GM to Secretary of Defense), pollution, overseas wars, etc. I'd argue that ICEs were never better than EVs - they just appeared that way.

On the other hand, EVs are better right now. They have better driving performance (better acceleration, better handling), and lower total lifecycle costs.

Unfortunately, we have more than 50 years worth of things we can burn for electricity. Fortunately, it doesn't look like we will. For instance, coal consumption in the US dropped 9% last year, about half of that due to loss of market share.

The transition from heating with wood to heating with coal took a lot more than fifty years. Electrification of the U.S. from small beginnings in the late nineteenth century to finishing rural electrification during the Great Depression took at least forty years.

Sure. These involved an enormous amount of infrastructure. On the other hand, EV/EREV/HEVs are manufactured on the same assembly lines as ICE vehicles, and roughly 75% drivers in the US have access to an electrical plug where they park.

Alan Drake would tell you: We transformed transportation before, in just twenty years. From 1897 to 1916, over 500 cities, towns and villages built streetcar lines. In several richer rural areas, vast networks of interurban rail lines were built. This was a nation with very limited "advanced technology", a half rural, half urban population and 3% to 4% of the real GDP of today.

If we mobilized all our resources as we did in World War II with the single objective of getting off fossil fuels as fast as possible, wouldn't the transition still take at least twenty years, and probably longer than that?

Some things much easier than that. A transition to EVs requires only a change within the automotive industry (for most drivers).  Slashing coal consumption involves pretty straightforward ramping up of wind energy.  75% reductions in fuel consumption by road transportation and coal consumption for electrical generation would be ambitious, but doable.

But are we actually seeing any replacements of oil?

Consumption in the US has fallen by more than 15% since it's recent peak in 2007 (while GDP has risen by 3%), and it continues to fall. Production has risen (both C&C and all liquids), and net imports have fallen by 38% since their peak in 2005.

Didn't past transitions occur in a environment of growth, when making new investments was a good idea, and banks would lend?

The transition from horses to rail occurred mostly during the Long Depression from 1873-1890. The move from horses to tractors and automobiles continued at a very good speed during the depression, as did general electrification and business investment. The transition away from oil for electrical generation accelerated during the 1979-1981 recession(s), and CAFE standards rose.

Even at the depth of the Great Recession car sales were at least 60% of normal. Even with currently high oil prices car sales have recovered to about 14M per year, which is pretty strong. And finally, used cars were and are still turning over very 3 years, giving high-mileage/low income drivers an opportunity to switch to a more efficient vehicle.

Isn't this expensive?

EVs and their cousins (hybrids, plug-ins, EREVs, etc) don't require any more steel than ICE's, and they already have overall Total Cost of Ownership equal to or lower than ICE vehicles. We're making ICE's without a problem, and EVs aren't any harder. Wind turbines and solar panels really don't consume that much in the way of resources.  Making long-haul trucks and coal plants prematurely obsolete is, of course, somewhat expensive, but the US has a big output gap (IOW, we have a lot of unemployed manufacturing and construction workers and empty manufacturing plants, waiting for something to do), and really, it would cost a lot less than another oil war.

Isn't "wasted" use of fuel is someones job providing a good or service? won't reducing fuel consumption cost jobs?

I'm thinking of the 50% of overall liquid fuel consumption that goes to personal transportation.  That could be reduced easily without anyone losing their job.

Chevy Volts take as much labor to manufacture as vehicles that use 10x as much fuel. No problem there.

The average vehicle gets resold every 3 years: there's plenty of opportunity for higher mileage drivers to move to high MPG vehicles, even if they drive used.

Doesn't expanded rail mean wasteful & expensive extra handling?

Inter-modal container handling is well tested and is pretty efficient. More importantly, current distribution patterns were shaped under cheap oil. With higher oil prices the optimal mix of rail & truck has shifted sharply towards rail.

Alan Drake indicates that the clearest indicator of this is that Class I RRs are investing 18% of their GROSS revenues into capital projects. This is far higher than any other industry. The number of multi-modal transfer projects are exploding. Just 7 years ago, no Walmart distribution center was served by rail. Several new ones are. The number of factories and warehouses served by rail are expanding.

What about an emergency loss of oil supplies?

Carpooling works nicely: about 10% of all commuting is done via carpooling, more than mass transit and 3x as much as is done via commuter rail. Commuting is free, fast, and highly scalable, given that the average car only has about 1.15 passengers. Double that, and reduce overall fuel consumption by 25%. It could be done in weeks or months.

Isn't carpooling inconvenient and slow?

Yes, it's not an ideal long-term strategy. OTOH, it would work; it's bigger than bus & rail already; it's really cheap; it would eliminate congestion, which is why there are HOV lanes; and smart phones and modern telecom are making carpooling much easier. 

The point is that we could reduce oil consumption very quickly, if we wanted to. If the alternative were really economic doom, carpooling wouldn't seem so bad, would it?