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Posts from — February 2011

The Case Against Section 1603 Grants ($5 billion easy pieces)

Congress is rightfully concerned about closing the huge, systemic budget deficit. In this climate, eliminating Section 1603 grants for politically correct renewable energy should be considered an easy target.

By way of background, this particular subsidy came about due to persistent pressure from lobbying groups like American Wind Energy Association (AWEA). Their main argument is that these grants will promote jobs and economic benefits. Of course, as lobbyists this is what they are paid to say. But in these times of more focused financial prudence, we need to critically look at such expenditures in a more objective light — especially since we are talking about some five billion dollars.

The 1603 Grants should be cancelled entirely. In my view the best way to see how ineffective these expenditures are is to consider what the alternatives are for this same money. In other words, if the U.S. Congress wants to subsidize the energy business (a matter that is beyond the realm of these brief comments), then the real question is: Are 1603 Grants the most effective way to do this? If not, then they should be defunded.

Claim One: Jobs

1) If the Five Billion was spent on other, more reliable forms of energy (e.g. gas, nuclear or geothermal) it is very likely that MORE jobs would be created.

2) Numerous independent reports have concluded that the cost per job that these and similar grants generate is VERY high.

3) Some independent studies have concluded that when we look at the big picture, that there is actually a net job LOSS from subsidizing renewables. One of the key reasons for this is that the electricity produced by renewables is higher than our conventional sources, which leads to business and consumer cut backs. There is no such job loss for building economic forms of power generation; quite the opposite. [Read more →]

February 28, 2011   23 Comments

The False Promise of Green Energy (new Cato book packs a punch)

By Andrew P. Morriss, William T. Bogart, Roger E. Meiners, Andrew D. Dorchak

“This new work [289 pages] offers an outstanding, nearly unprecedented evaluation of claims by green energy and green jobs proponents that we can improve the economy and the environment, almost risk free, by spending billions of dollars on what are ultimately false promises.”

Energy affects everything we do. The late Julian Simon coined the term “the master resource” to describe energy’s crucial role in our economy. Nearly half of energy we use is used indirectly in the production of food, medicines, and consumer goods.

This is important because anything that increases the price of energy will also increase the prices of goods that use energy indirectly. Thus, if energy costs were to increase because of forced use of more expensive renewable energy, not only would the price of electricity rise, but so would the price of food, medicines, and consumer goods, such as cotton t-shirts. Those price increases would disproportionately affect the poorest.

The False Promise of Green Energy looks at the realities of energy production and use in the United States and the rest of the world versus the promises of green jobs’ advocates. The data in our book strongly suggests that green-job proponents have been peddling an unrealistic vision of energy production and use and are suggesting measures that will require either dramatically increasing the cost of energy or significantly cutting its use.

Either and both would reduce living standards. The impacts globally would be even worse, as increasing energy use generally, and increasing use of electricity in particular, is an important way to improve the quality of life for people in developing economies.

Picking Losers

The best way to encourage development of new technologies is not for the government to select some favored ones and subsidize them. Governments love to do this, because it allows politicians to hand out money to special interests. [Read more →]

February 25, 2011   14 Comments

Unconventional Gas Riles and Refigures the World Energy Market: The Oil Market (Part III)

Author’s note: No, I have not been in a cave for the past two weeks.  The impacts of unconventional gas on energy markets will be measured in months and years, not in days and weeks.  There is essentially nothing that current unconventional gas production can do to moderate crisis-driven escalation of oil prices and oil-linked LNG prices in the next few weeks.

In Part I and Part II of this series, the impacts of unconventional gas discoveries in the U.S., Australia, Canada and elsewhere were explored.  Gas-to-gas competition was seen as a powerful force for price moderation.

U.S. shale gas discoveries and production from coal bed methane (CBM) have already provided great benefits for energy consumers in the Atlantic Basin.  Gas-to-gas competition – shale v. LNG – has led to interesting market outcomes and investments.  Gone are the panic days of encouraging any and all LNG regasification plants in the US in the fear that the US might “lose out” to others on the LNG bonanza.

Now, the U.S. is quickly moving toward overall sufficiency in gas supplies with investments in two-way (regasification and liquefaction) LNG plants now firmly on track in Texas and Louisiana.

Other markers of the sea change in gas markets include proposals for another two-way LNG plant in Canada and investments in gas-to-liquids production in British Columbia.

In the U.S., shale gas production has led to investment in new gas separation facilities and a revival of moribund petrochemical firms.

Australia’s exploitation of its CBM resources has created investments in more than 14 million tonnes/y (mtpa) for export to Asian markets.

In China, India, Poland and elsewhere, drilling is firming up new supplies of shale gas and CBM.

Even the U.S. government has entered the fray, with its Global Shale Gas Initiative.  The program aims to assist countries in identifying shale gas resources and the technology to produce it.

Where will it end?

Will the Gas-to-Gas Party Be So Much Fun That Oil Joins In?

The short answer is no, or at least not yet.  However, detailed investigations of the impacts of unconventional gas on energy markets in the US, Indonesia and elsewhere indicate that eventually the unconventional gas bonanza will “leak” into markets where gas can act as a near substitute for refined oil products. [Read more →]

February 24, 2011   6 Comments

Conflict Resolution in Climate Science: Should the IPCC Be Disbanded? (Some thoughts from an outsider)

Editor Note: This paper was prepared for the “Reconciliation in the Climate Change Debate” workshop held by the Institute for the Protection and Security of the Citizen, European Commission in Lisbon, Portugal (January 26—28, 2011).

I am an “outsider” to the field of climatology in two respects: by professional training I am an economist, and as regards my research I am in dispute with proponents of some elements of what is commonly called the “consensus” scientific position.1

With regards to my economics background, I note that economists routinely undertake scientific research on matters of acute political controversy, yet the field remains generally congenial and productive; whereas the policy controversies connected to climate research have resulted in seriously disrupted and damaged collegiality in climatology. Why the difference between the two fields? I suggest attention be paid to two reasons: the habit on the part of climate and meteorological societies to issue “expert statements” on behalf of members, and the role of the IPCC.

The Key to Intellectual Freedom in Economics: No Society Statements

I am a member of the American Economic Association (AEA) and the Canadian Economic Association (CEA). The AEA Constitution commits it to (emphasis added):

The encouragement of perfect freedom of economic discussion. The Association as such will take no partisan attitude, nor will it commit its members to any position on practical economic questions.

Likewise the CEA constitution forbids issuing statements:

The Association has for its object the advancement of economic knowledge through the encouragement of study and research… and the furtherance of free and informed discussion of economic questions. The Association as such will not assume a  partisan position upon any question of practical politics nor commit its members to any position thereupon.

Economists believe that freedom of discussion requires a prohibition on our major societies issuing position statements. There is wisdom in this! Individual experts can speak for themselves if they desire. Official “society” statements put words in peoples’ mouths, imposing groupthink and conformity and fostering bitterness on the part of those who find themselves with no voice. They silence and marginalize members who disagree with some or all of the statement, demoting them to second-class citizens in their own profession, regardless of their numbers or credibility as scientists. [Read more →]

February 23, 2011   9 Comments

California Climate Rethink? CARB’s AB 32 Implementation Plan Under Fire

A California superior court recently issued a tentative decision against the California Air Resources Board (CARB) for failing to comply with environmental law pursuant to the implementation of AB 32, California’s global warming law.

The tentative decision directs CARB to rewrite its documentation pursuant to the California Environmental Quality Act (CEQA), and to cease implementation of the AB 32 Scoping Plan until the violation is corrected. The decision is based on violations of process, not the scientific or economic substance of either the CEQA documentation or the scoping plan as critics of climate alarmism would have liked.

Reactions to the tentative finding have ranged from “no big deal” to “hallelujah.” But it is a big deal; CARB’s implementation of AB 32 hangs in the balance, at least for the time being.

Will CARB convince the trial judge to change his decision–or flaunt the order even if unchanged? Rest assured if the decision becomes final, CARB will appeal.

Will CARB admit, maybe, that mistakes were made and work to improve their own process and analyses, rather than just push the blame elsewhere?

Comments from both parties were just submitted. We will see what transpires, but it is wishing too much for a mea culpa from CARB. [Read more →]

February 22, 2011   3 Comments

Subsoil Privatization for Energy Sustainability (Is Middle Eastern unrest the first step?)

[This post by Guillermo "Billy" Yeatts (see profile at the end of the post) originally appeared at MasterResource on April 30, 2010. It is reprinted in response to the move of the Middle East toward more open, democratic, and modern societies. Can private ownership of oil and gas assets be far beyond?]

The history of oil and gas production in Latin America has been characterized by a continuing tug of war between the state as owner of the subsurface (Spanish colonial tradition) and private producers in pursuit of profits. Private participation in the industry has been limited to brief periods and restricted to specific phases of oil and gas production.

The typical pattern is that foreign oil and gas companies are allowed into a country to locate and initiate production. Once oil is flowing, governments nationalize the companies’ facilities – with or without compensation – and hand them over to government-owned and operated monopolies.

Whether the oil or gas is produced by private corporations or by a government monopoly, it is almost always the government that receives most of the profits. All too often, the money is used to keep the heads of state in power.

In the United States, by contrast, individuals own and control much of the nation’s subsurface rights to energy and other minerals. The results are starkly different. While the oil and gas industry in the United States expanded quickly, bringing prosperity to many areas that were once underdeveloped or deserted, oil revenues in other countries have propped up corrupt governments with little or no benefits to the general welfare.

State ownership of the subsurface removes incentives for risk-taking, investment, and technological innovation. Farmers and ranchers are pitted against oil development. In Latin America, the prospect of an oil or gas discovery is a farmer’s worst nightmare. They reap no financial benefit from the discovery, but they do suffer land damage and the disruption to their lives from drilling and production operations. Consequently, a landowner’s incentive is to hide any mineral wealth his property might have and to fight any attempt to exploit such wealth. [Read more →]

February 21, 2011   No Comments

‘Losing the Future’ via Government Jobs: FDR’s New Deal; Obama’s New New Deal

“Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our natural resources.”

- Franklin D. Roosevelt (1933)

“[The 1930s Great Depression and today's Great Recession] were preceded by extraordinary expansions of bank credit, which fueled run-up’s in stock prices and real estate values…. The two economic crises also elicited similar (and equally counterproductive ) fiscal policy responses, combining substantial increases in federal spending, financed primarily by bollorwing, with higher taxes and more regulatory controls on the private sector.”

- William Shughard II, “The New Deal and Modern Memory,” Southern Economic Journal 2011, 77(3), p. 517.

The Green Jobs mantra coming from the White House is history in rhyme. FDR’s government jobs “to stimulate and reorganize the use of natural resources” is now government subsidies and mandates for more wind turbines and more solar panels. FDR expanded government jobs, taking resources away from the private sector to do it; Obama is fostering bubble industries ready to collapse when the public monies behind them do. (But is NOT all Obama: Texas Gov. George W. Bush helped the ailing U.S. wind industry more than anyone by signing the Enron Wind Corp.-sponsored state renewables manadate in 1989.)

FDR’s New Deal, and Hoover’s own ‘New Deal’ (Smoot-Hawley tariff, tax increases, high-wage guidelines), turned a depression into the Great Depression. And Bush/Obama, like Hoover/FDR eighty years before, has turned the recession into the Great Recession.

Obama is trying to pin an industrial renaissance and recovery on dilute energies that consumers have perennially rejected on grounds of extravagant cost and substandard reliability. The energy services from fossil fuels are what consumers demand, not that from wind, solar, and biofuels that are inferior in virtually every way. Energy density is an environment good–oil, gas, and coal win here too.

Worst still, Obama’s Energy Plan is Enron’s Energy Plan. Cap-and-trade, wind, solar, and engineering-over-economics energy efficiency: Ken Lay’s Enron did all of those things and lost money every year in each area. Yet this is the President’s “green’ dream for America today.

Here is Franklin D. Roosevelt’s inaugural address given in Washington, D.C. on March 4, 1933. [Read more →]

February 18, 2011   4 Comments

Unconventional Gas Riles and Refigures the World Energy Market: The Pacific and Asia (Part II)

In Part 1 of this series, the trends in U.S. unconventional gas output in were explored. The impacts on gas markets — $3–5/MMBtu — were noted. If unconventional gas puts pressure on LNG and Gazprom, can this supply and supplier turn to Asia as their new market? Maybe, and just for a while. (1)

1.1.1 Australia’s Experience with Coal Seam Gas

CSG accounts for almost 15% of Australia’s growing gas production, and as much as 30% of probable reserves. LNG plants based on CSG are slated to commence production in 2014, with production of 794 Bcf/y (~16.7 mtpa). Australia’s CSG is believed to occur roughly above shale gas basins, raising the possibility of further unconventional production. Figure 1 shows the CSG, conventional gas fields and transmission infrastructure in Australia’s Queensland State.

As was the case in the U.S., Australia’s development of its CSG occurred proximate to gas transmission infrastructure. The current CSG fields in Australia are just east of the Surat Basin gas fields, providing ready access to transmission and population centers.


Figure 1: Coal Seam Gas Resources and Infrastructure in Queensland, Australia

A peculiarity of unconventional gas, one that is shared with unconventional oil sources (shale oil, tar sands), is a long reserve lifetime. The unconventionals, at least using current technology, resemble mining or industrial operations more than they do traditional oilfield operations. This means moving a lot of material – water, overburden – and repeating the process continuously so as to maintain a constant rate of output. (1) [Read more →]

February 17, 2011   1 Comment

Unconventional Gas Riles and Refigures the World Energy Market: North America (Part I)

[Editor note: Part II tomorrow will summarize unconventional gas developments in Europe and Asia.]

In 2003 and again in 2005, Alan Greenspan, Chairman of the Federal Reserve Board, called on America’s governors and natural gas users to embrace vastly larger imports of methane energy. In his words: “North America’s limited capacity to import liquefied natural gas (LNG) has effectively restricted our access to the world’s abundant gas supplies.”

As he was speaking, a revolution was brewing under his feet. New methods of producing gas from unconventional resources–tight gas, coalbed methane (cbm) and shale gas–had greatly expanded the universe of gas resources available throughout the world.

By the end of that decade, the U.S., Australia and Canada would be able to book unconventional reserve additions in excess of annual production from all gas sources.

Production of Gas From Unconventional Sources: Experience in North America

So dynamic has been the process of conversion of unconventional resources into reserves for the three onshore options that unconventional gas production in 2010 accounts for about half of the US gas output and about 15% of Australia’s gas output. With output from traditional gas fields in North America declining it was believed that only vast imports of LNG, as much as 80 million tonnes per annum (mtpa), by some estimates, could meet the ongoing demand from the US. With imminent “shortages” on the horizon the general consensus was that the era of abundant hydrocarbon supply for the US was over. The alarm about US supplies was augmented with concern that Canada could no longer step in as a reliable supplier for the northern tier states.

What changed the North American supply picture, even as the worries about gas output reached a crescendo in 2005-2008, was the growing ability to produce gas from difficult geological structures at reasonable costs. The first of the unconventional resources to enter major production was tight gas. The key that unlocked this gas was hydraulic fracturing – pumping a water-sand mixture into the formation at very high pressures. So successful was this “fracking” that tight gas output has risen to roughly 25% of US gas production, about 5.2 tcf/y. Indeed, tight gas (see Figure 1) is no longer classified by the US Department of Energy (DOE) as unconventional. Even more important, the US service industry has learned to employ fracking as an ordinary, and quite cost effective tool. A strong support system of contractors, equipment suppliers, engineers and banks has developed in the US around fracking activities.

Without unconventional production U.S. gas output might be as low as 60% of current output, about 12–13 tcf. [Read more →]

February 16, 2011   9 Comments

Four Regulatory Fronts Against Coal Power (after the defeat of cap-and-trade)

Can the Republican House neuter the Obama Administration’s war against coal-fired power plants? I’m not optimistic, but coal is an plentiful, improving resource that will be hard to put and keep in the energy cellar.

The coal industry has been fighting on five key regulatory fronts during the past two years. The good news is that cap-and-trade of carbon dioxide (CO2), a back door energy tax, is defeated. The subject is kryptonite in Washington among Republicans and a surprising number of Democrats–and rightly so.

Cap-and-trade was defeated despite the clever Administration strategy to bribe stakeholders by making their support of the American Power Act economically worthwhile. Several major utilities (especially those with nuclear plants), most equipment manufacturers that sell to the industry, and even the Edison Electric Institute lined up in support of cap-and-trade legislation.

I was especially amused by the strong support from nuclear utilities—I’m sure it had nothing to do with the formula for allocating allowances that would have given them a windfall of hundreds of millions of dollars over time for sitting quietly on the sidelines. Thankfully, the Senate euthanized that legislation before it got much traction.

The Big Regulatory Four

Legislative control of CO2 is closed, perhaps for a decade or more, but this battle hardly ended the conflict. Instead, the Executive Branch has sidestepped Congress to put its full weight behind the regulate-to-death option. There are four fronts: [Read more →]

February 15, 2011   8 Comments