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Posts from — December 2011

Open-Ended Resourceship: Bring on 2012!

“If resources are not fixed but created, then the nature of the scarcity problem changes dramatically. For the technological means involved in the use of resources determines their creation and therefore the extent of their scarcity. The nature of the scarcity is not outside the process (that is natural), but a condition of it.”

- Tom DeGregori (1987). “Resources Are Not; They Become: An Institutional Theory.” Journal of Economic Issues, p. 1258.

The confounding of physics with economics has plagued a real-world understanding of mineral resource development. The phenomenon of entropy and the laws of thermodynamics rule in their domain. But there is no economic law analogous to the physical conservation of matter. There is no law of conservation of value; value is continually, routinely created by the market process. And this value creation does not deplete–just the opposite.

This insight reorients the peak-oil debate from pessimism about hypothetical future physical resources to here-and-now concerns over incentives and institutions–or the ability of a free market to create a robust energy future.

Market Entrepreneurship … Mineral ‘Resourceship’

Israel Kirzner in the Austrian-School tradition has emphasized the open-endedness of market entrepreneurship. “Entrepreneurial alertness [is] in principle inexhaustible,” Kirzner has stated, wholly rejecting the notion of a “potential stock of entrepreneurial alertness in a society as some quantity ‘available to be used by society’.” In the vernacular of the oil industry, there are no reservoirs of proved, probable, or speculative quantities for entrepreneurship.

The institutionalist conception of knowledge as the ultimate resource powerfully complements an Austrian theory of resources. Thomas DeGregori has defined resources as “a set of capabilities” and “finite but unbounded.” He restated and embellished the “resources are not, they become” thesis of his mentor Erich Zimmermann as follows: [Read more →]

December 29, 2011   2 Comments

F. A. Hayek on Conservation (beware of central planning with minerals too)

“Running out of resources” has been a common refrain among the intellectual class and policymakers since the beginning of the oil industry. L. C. Gray (1913) and Harold Hotelling (1931) cemented the fixity-depletion view of minerals that swept the economics profession; so did the presidency of Jimmy Carter, in the (regulatory-induced) troubled 1970s.

Remember the lament of James Schlesinger, the  first energy secretary for Carter’s new Department of Energy: “We have a classic Malthusian case of exponential growth against a finite source.” And the confident conclusion of Amory Lovins:

All oil and gas resources should be carefully husbanded—i.e. extracted as late and as slowly as possible. Our descendents will be grateful. We, too, shall need a long bridge to the future.

But when surplus conditions with oil and gas returned in the 1980s, the lost voices of Erich Zimmermann and M. A. Adelman, and the new voice of Julian Simon, found an audience.

Planned Conservation (Conservationism)

The depletionist worldview raised the question of what was the ‘right’ consumption profile, which inevitably involved government intervention to correct the alleged ‘market failure’ of overproduction/overconsumption. Enter F. A. Hayek (1899–1992), one of the century’s leading critics of government planning.

In The Constitution of Liberty (1960), Hayek evaluated “the necessity of central direction of the conservation of natural resources,” a view that was “particularly strong in the United States, where the ‘conservation movement’ has to a great extent been the source of the agitation for economic planning and has contributed much to the indigenous ideology of the radical economic reformers.” [1] [Read more →]

December 28, 2011   1 Comment

MasterResource Turns Three (4Q-2011 Activity Report)

The free-market energy blog MasterResource turns three years old today. On December 26, 2008, the blog started on the strength of several noted free market scholars buying into a ‘movement’ blog instead of an institution-specific one. A thank you at this reflective time goes to Ken Green (AEI), Marlo Lewis (CEI), and Jerry Taylor (Cato), in particular.

MasterResource views stand at 1.1 million. While not a megablog, ours is a high-quality contribution to the current energy debate–and a resource for the historical record (our extensive index categories number 380).

We have published approximately 914 posts from approximately 115 authors. Some are widely published; others are talented amateurs who have chosen to do what the ‘experts’ choose not to do: uncover the problems of politically correct energies. Comments from our loyal, sophisticated readership add substance to many of the in-depth posts.

And we have achieved critical mass; Google an energy-policy-related term with ‘MasterResource,’ and there we usually are! [Read more →]

December 26, 2011   7 Comments

European Energy Policy: Tramping in the Dark (Andrew MacKillop on the reality of failing public policy)

The European Energy Review has published a comprehensive article on the EU energy policy, entitled “Europe’s green energy chaos” by Andrew MacKillop (sometimes appearing as McKillop), an independent energy analyst and project advisor who has written on energy topics for over 35 years, and who worked for the European Commission’s Directorate-General of Energy as a policy expert in the 1980s.

EU policy can be summarized as 20-20-20 by 2020. Catchy isn’t it? It means 20% improvement in energy efficiency, 20% reduction in emissions, and 20% use of new renewable energy sources – all by 2020.

When publicized, the EU plan was (properly) criticized by the Economist and Dieter Helm, the chairman of the ad-hoc committee established by the EU to provide expert advice. MacKillop’s critical analysis of the current problems of government-heavy energy policy is spot on.

Government Planning in the Name of Markets

The EU energy plan inverts free markets and industrial government planning as discussed by MacKillop:

The climate and energy package makes heavy use of the notion that by preventing pipelines, power transmission lines and electric power stations being controlled by one company or entity, even if this entity is publicly owned and accountable to all democratic procedures for its control, will enable a “free market” that will create an upsurge in activity by small businesses who will gain entrance to the market. The usual way this notion is sold to voters and to the public is the claim this will automatically produce cheaper energy and more jobs, with additional climate and environment protection frills thrown in as needed.

In reality, the climate and energy package favours large industrial conglomerates in the energy sector and, as we know, Europe’s energy market liberalisation since 1996 has coincided with some of the largest energy price rises for final consumers in recent history. [Read more →]

December 23, 2011   6 Comments

A Tale of Three Pipelines (Part II: Remembering Nixon’s Trans-Alaska Pipeline Delay)

In yesterday’s post, I discussed how the (near-) universal protection of property rights made possible “industry at the speed of thought” in the 19th century. Unfortunately, in the 20th century, property rights became gradually and then completely subordinate to a supposedly “higher” concern: government’s protection of “the environment.”
 
Now, if the human environment is one’s concern, then the way to protect it is through private property rights. Property rights enable each individual to optimize his own environment, developing and preserving as best promotes his well-being. Twentieth- and twenty-first century concern with “the environment” amounted to placing the non-human environment–untouched nature–over property rights and the human environment.
 
Instead of “industry at the speed of thought,” we have “industry at the speed allowed by environmentalists.” And as the story of the Trans Alaskan Pipeline delay in the 1970s illustrates, that can be a deadly slow speed. The pipeline was a vital source of domestic oil. As I wrote in the Wall Street Journal last year: [Read more →]

December 22, 2011   1 Comment

A Tale of Three Pipelines (Part I: Remembering Tide-Water Pipe Line)

Consider: the Tide-Water Pipe Line Company … built an “impossible” [crude-oil] pipeline in three months. And it was open for business in May 1879–a mere six months after the company was formed. In today’s American industry, in six months it can be difficult to get permission to lay down mats to teach Yoga on; a state of the art industrial project is inconceivable.
If oil is the lifeblood of a mobile civilization, then oil pipelines are its arteries.
TransCanda’s Keystone XL pipeline, a potential source of highly secure Canadian oil for U.S. refineries all the way to the Texas Gulf Coast, was proposed back in 2008. Despite the fact that pipelines are the safest way of transporting oil, and that this proposed pipeline went to borderline bizarre lengths to prevent the slightest momentary oil leakage, TransCanada endured more than three years of dealing with the “green” regulatory establishment–wrangling with permits, environmental impact statements, secondary environmental impact statements, and the like.

Like thousands of other businesses that deal with this “green” gauntlet, they knew that at any stage a hostile bureaucrat could undo billions in investment, not to mention future Americans’ ability to withstand disruptions in the world oil market.

Then, finally, when the pipeline decision was sent to the highest authority, President Obama, for approval, he casually announced that he would delay a decision by 18 months. [Read more →]

December 21, 2011   4 Comments

Al Gore Reinvention? (From ‘climate change’ to ‘sustainable capitalism’)

“Business that is everything to everyone is not anything at all in itself.”

 - Elaine Sternberg,  Just Business: Business Ethics in Action. Oxford University Press, 2000, p. 33.

No doubt his handlers have given Al Gore the word: go easy on climate warming (aka climate change). The issue has little traction. You are the wrong voice for the cause. Solyndra. Climategate 2.0. Winter snows…. Not now, Al.

Take it up a notch! they must be telling him. Think bigger. Subsume the issue…. And so Gore’s new piece in the Wall Street Journal barely mentions his pet issue of (man-made) climate change but something much larger and amorphous.

“A Manifesto for Sustainable Capitalism,” coauthored with David Blood, calls for “abandoning short-term economic thinking for ‘sustainable capitalism’.” Such is code for that subjective, holistic, anything goes doctrine of corporate social responsibility, which I elsewhere questioned as follows:

The discipline of business ethics should be reoriented around a more sophisticated understanding of capitalism proper. Business ethicists should also respect methodological individualism given that in both the primary and final analyses, businesses do not act, individual businessmen and businesswomen do. Because corporate social responsibility (CSR) speaks to the elusive whole more than to the parts, much business-ethics thinking has become prone to a central- and social-planning mentality.

Think Enron! As I wrote in this rebuttal letter published yesterday in the Journal:

Al Gore and David Blood’s “A Manifesto for Sustainable Capitalism” (12/14/11) reminded me of nothing so much as Enron Corporation, whose demise ten years ago is still the topic of debate and learning.

“We believe that incorporating environmental and social considerations into the way we manage risk, govern our projects, and develop products and services will help us maintain our competitive advantage,” Ken Lay stated Gore-like. “As we move forward, we will leverage our intellectual capital and innovative capabilities to promote sustainable business practices around the world.” [Read more →]

December 20, 2011   8 Comments

Enron Romm: History Should Not Forget

It is a common refrain in headlines at Joe Romm’s Climate Progress:

Smearing and innuendo is hardly fair play. But in this case, Joe Romm has something embarrassing to hide. Just as Koch Industries might be his least favorite company, Enron was his darling company.

Specifically, Romm was not only a cheerleader of Enron (Enron is “a company I greatly respect,” Romm would say). He was also an unpaid consultant and collaborator with the infamously fraudulent division, Enron Energy Services (EES), purveyor of energy efficiency service in (gamed) long-term contracts.

It is timely to reestablish the linkage between Joe Romm and once-mighty Enron Corporation, a company which went bankrupt ten years ago this month. Perhaps this history will help the combustible Romm to deal with the arguments more and funding links less. (Besides, would he like for his critics to bring in the funding link between George Soros and Center for American Progress?)

Some Romm Enron Quotations

“I hope there is something in [my book] Cool Companies Mr. Lay can refer to. I’m sorry Enron isn’t in it, but if you have any good case studies, I would love to use them as I talk to the media and Fortune 500 companies. Feel free to use my personal email.”

- Email communication from Romm to Enron, June 6, 1999. [Read more →]

December 19, 2011   11 Comments

Scientific Communication: Preach or Engage? (Judith Curry vs. AGU climate bias)

“Reducing greenhouse gas emissions is going to cost a lot (both in terms of dollars and effort), and it is going to produce few if any demonstrable climate results for decades to come (if ever).” 

The scientific community—or especially that part of it which holds the opinion that not enough is being done to mitigate potential climate change—is struggling with why the general public (and hence policymakers) are not heeding their call to action on global warming.

In a recent post, I pointed to one reason: the fast diminishing role that any U.S.-side mitigation would have in curbing greenhouse gas emissions enough to measurably affect global climate. This is a classic bang-for-the-buck evaluation. Reducing greenhouse gas emissions is going to cost a lot (both in terms of dollars and effort), and it is going to produce few if any demonstrable climate results for decades to come (if ever).

In short, a mitigation (versus a wealth-is-health adaptation strategy) is a tough sell given even the most alarming climate change projections, and becomes nearly impossible under more modest climate change scenarios.

The role of climate change science has been, and continues to be, in arbitrating between the potential climate outcomes. And although there are some who argue that the science no longer matters as far the politics go, a lot of other scientists who make at least a partial living studying climate and climate change (including myself) would like to think otherwise.

And many of us have taken the additional step of not only producing science, but also translating our results (and that of others) into more layman’s terms, describing what implications the results have on the bigger picture of climate change, and then suggesting what, if anything, should be done about it. With mixed success (depending on who you ask). [Read more →]

December 16, 2011   7 Comments

Solar Subsidies: Misdirecting Industry and Consumers

“Solar subsidies are a placebo which is giving the general public a sense of security about our energy future and is robbing the motivation of those entrepreneurs that could actually address our energy problems.”

“In the near term, perhaps our bigger concern than climate change is anthropogenic energy policy.”

In a recent Economist on-line debate, the affirmative motion “This house believes that subsidizing renewable energy is a good way to wean the world off fossil fuels” was surprisingly defeated.

In his closing remarks, the moderator softened his strident opposition to the negative case, even admitting that “subsidizing renewable energy, is wasteful and perhaps inadequate [to address
climate-change concerns].”

Beyond the Climate Debate

The debate, indeed, reopened the question whether anthropogenic greenhouse-gas forcing was a serious planetary environmental concern. But such focus short-changed what I think is the more important question for the Economist. Not only are the renewable-energy subsidies (such as for solar) wasteful and potentially insufficient, they are outright diabolical if indeed there is a looming environmental crisis.

I am not evaluating whether anthropogenic global warming is real and potentially cataclysmic; I’m arguing that if there is a valid concern about the enhanced greenhouse gas effect, not only will the subsidies not solve the problem, but may very well prevent or postpone a legitimate solutions.

Grid Solar: Radically Uneconomic, Intermittent

I’ve written before about why on-grid solar power is absurdly uneconomic and has almost no hope of becoming a viable alternative to current generation technology–or even competitive with other more viable renewable technologies. I’m asking the reader to accept this position for the sake of understanding the potential implication of my claim. [Read more →]

December 15, 2011   4 Comments