“The Permian Basin is a story about combining the various talents of independents, majors, and service companies in using advancing technologies to sustain the lifespan of existing fields, to tap into zones that were previously uneconomic or inaccessible, and to increase the Permian’s proven reserves in a remarkable fashion.”

The Permian region, in western Texas and extending into southeastern New Mexico, has been one of North America’s major oil and natural gas producing regions for nearly a century. What makes the Permian stand out, besides its size, is its huge diversity. Rather than a single play, it is a collection of regional conventional and unconventional plays, producing from a variety of geological formations covering a wide area in more than a dozen productive formations.

Permian wells produce in depths ranging from a few hundred feet to tens of thousands of feet. While conventional exploration and production continues, horizontal drilling and multistage hydraulic fracturing (in both vertical and horizontal wells) are opening up a new, more unconventional chapter.

The Permian accounts for about two-thirds of crude oil production in Texas and nearly 15 percent of that of the entire U.S. It also accounts for more than a quarter of U.S. rig activity.

According to a 1995 assessment by the U.S. Geological Survey (USGS), the Permian had more than 100 billion barrels of oil in place. The key, of course, is how much of that can be recovered commercially, a figure that has continued to grow with technological innovation.

The USGS’s 2007 estimate of technically recoverable reserves of 1.0 billion barrels of conventional oil and 1.3 billion barrels of unconventional oil likely vastly understates the Permian’s potential with current technology, as the evolution of horizontal drilling techniques and multi-stage fracturing has dramatically changed the prospects of the Permian.

Historic production will be exceeded, according to the Texas Railroad Commission. “The Permian Basin has produced over 29 billion barrels of oil and 75 trillion cubic feet of gas, and it is estimated by industry experts to contain recoverable oil and natural gas resources exceeding what has been produced over the last 90 years.”

Perceptions of conventional fields have changed, as well. A more recent USGS study in April 2012 finds that 18 existing conventional fields alone hold an estimated additional 2.7 billion barrels of oil that are technically recoverable from the Permian using enhanced recovery techniques.

What is the Permian?

The Permian Basin covers a region roughly 250 miles wide and 300 miles long, representing an area covered by the Permian Sea some 250–300 million years ago. Some of its most prominent subsurface features are the Midland Basin in the northeast, the Delaware Basin in the southwest, and the Central Basin Platform in between. These areas contain the Wolfcamp formation, a shale that is 1,500–2,600 feet thick at a depth of roughly one to three miles.

The overlying strata may differ between basins, but the Wolfcamp shale extends throughout most of the Permian, and is believed to be the source rock for oil and natural gas that has migrated over geologic time into the varied formations above. The roughly 7,000-10,000 feet of overlying formations contain untold numbers of structural and stratigraphic traps for oil and natural gas in many different zones, and thus many opportunities for conventional plays over the decades.

For much of its history, the conventional plays of the Permian – which together have yielded thousands of oil and natural gas fields in many different formations have been the target.

More recently, horizontal drilling and multi-stage hydraulic fracturing have greatly improved the economic prospects for the Wolfcamp and other shales. With the complex geology and multiple producing layers in the Permian, the term “stacked plays” is frequently heard. This means, simply, that wells target multiple producing zones, either in a single vertical well or with multiple horizontal wells, which may be both conventional and unconventional.

Although this increases the complexity of the project, the pursuit of multiple targets in a single well allows the recovery of oil and natural gas that might otherwise not be economic.

History: Back to the 1920s

The first commercial well in the Permian was in Mitchell County, on the eastern side of the Permian Basin. Spudded in 1921 and completed in 1923, the Santa Rita No. 1 well dramatically demonstrated the area’s potential, producing for nearly 70 years before it was capped in 1990.

This discovery set off further drilling activity, with several notable finds, including Yates Field (1926), which is still producing today, and is still one of the top 50 fields for proved oil reserves in the United States. A number of major fields discovered in the 1930s, such as Wasson, Slaughter, and Seminole are still producing today, and are still ranked by the Energy Information Administration among the top 20 in the U.S. for remaining proved reserves.

The application of more advanced geophysical techniques of the day, such as seismic surveys, and measuring tiny differences in gravity and magnetic force, helped to uncover structures that could not be discerned from surface features alone. For example, the structure of the Horseshoe Atoll, an ancient reef as much as 90 miles wide, was discovered in the 1940s, and has since yielded a dozen or more significant fields.

However, if there is any major play that has time and again been at the forefront of Permian developments, it is the Spraberry. Lying directly above the Wolfcamp in the Midland Basin, the Spraberry trend was initially developed in the 1940s.

Repeated phases of drilling have occurred there over the past several decades, cycling with profitability, as the producing fairway expanded to its current extent – about 150 miles long and up to 35 miles wide. Such interest continues to be justified by predictable reserves and high success rates – reportedly, it has often been difficult not to drill a producing well in the Spraberry.

Since its discovery, the Permian has had its ups and downs, with activity sloping downward through the 1960s and early 1970s, reviving with higher oil prices in the late 1970s and 1980s, dwindling again in the 1990s, and then roaring back in the 2000s.

Enhanced recovery techniques, which aim to recover more of the oil originally in place than can be produced by primary methods, have found major application in the Permian – first with waterflooding, and then beginning in the 1970s, with CO2 (carbon dioxide) projects.

Production in the Permian Basin reached about two million barrels per day in the early 1970s, declined to 850,000 barrels per day in 2007, but has since rebounded to 1.3 million barrels per day.

The Permian Today

In the late 1990s and early 2000s, lessons learned about new technologies in the Barnett Shale, a natural gas producing region in north central Texas, were applied in the Permian. For decades, operators had often drilled for the Spraberry and extended their vertical wells into the Wolfcamp to gain extra production.

In the late 1990s, as multi-stage hydraulic fracturing techniques were refined, producers increasingly saw the advantage of going even deeper and commingling more of the Wolfcamp intervals with the output of other productive zones. The simultaneous production of the Spraberry and Wolfcamp shales led to the “Wolfberry” nickname for this combination play.

On the Delaware Basin side of the Permian, in southwestern Texas and southeastern New Mexico, a similar vertical combination play has resulted from the commingling of the Bone Spring sands with the Wolfcamp, and given the nickname “Wolfbone.” The Avalon Shale and other discrete intervals are also the target of multiple horizontal wells, which take advantage of the same multi-stage fracturing technology used in the vertical Wolfberry and Wolfbone plays to unlock economic reserves.

The potential of multi-stage fracturing in both vertical and horizontal wells has recently attracted a revival of activity to the Permian. There are currently almost 500 rigs active in the region, which makes up more than a quarter of the U.S. total. Of the rigs active in the Permian, nearly 40 percent are drilling horizontal wells, particularly in the Delaware Basin, double the share of two years ago. Vertical drilling is still very strong – more than 6,000 Wolfberry wells have been drilled within the last 10 years, according to the Texas Railroad Commission.

One of the newest plays gaining attention is the Cline Shale, though at this stage, much remains uncertain. The Cline underlies the Wolfcamp in the Midland Basin and extends farther north and east across the Eastern Shelf, with an extent of about 70 miles wide and 140 miles long. The target zone for oil production ranges from about 200 to 500 feet thick. Some producers are developing it in combination with the Wolfcamp. While the potential technically recoverable reserves for the Cline are still uncertain, they could be extremely large, and with an API gravity around 40 degrees, a good quality crude can be expected.

Permian Players

The Permian Basin also tells a story of the synergy between major and independent producers. The earlier days of the Permian were dominated by majors, but as the majors moved out from the 1970s through the 1990s to pursue opportunities abroad and offshore, the independents moved in to find new ways to keep the Permian productive.

With the Permian’s quickening pace of both unconventional and conventional plays, the majors have been coming back, along with overseas companies seeking joint venture opportunities. Meanwhile, master limited partnerships (MLPs) have enabled long-term cash flow from developed producing properties to be transformed into an efficient financing and asset ownership vehicle, thereby freeing producing companies to continue to focus on developing new reserves.

Enhanced recovery techniques have also played a prominent role in extending Permian resources. Typically, primary production may leave 80 to 90 percent of oil unrecovered. More oil can be recovered with secondary recovery via waterflooding, but may still leave 50 to 70 percent of the oil trapped. Tertiary recovery using CO2 flooding to further increase the productive life of existing fields has been extensive in the Permian. In fact, more than half of the CO2 projects in the U.S. are found in the Permian.

Infrastructure has also been, and continues to be, integral in moving increased production to market. Reversal of the Longhorn Pipeline, expansion of the Permian Express Pipeline, the proposed BridgeTex Pipeline, and the soon-to-be-operational West Texas Gulf Pipeline are just some of the projects aiming to move more Permian output eastward to Gulf Coast refineries instead of Cushing, Okla.

Projects like these, along with those such as the reversal of the Seaway Pipeline between Cushing and the Houston area, are all designed to ease the buildup of crude at Cushing that has been spurred by the Bakken’s success and the increasing availability of Canadian crude. The expansion of natural gas processing capacity has also been a priority in the Permian.

Bringing in the Future

The Permian’s revival is unlocking known, but previously uneconomic reserves —and this is just the beginning. One key has been finding the right technological approach with the ability to take advantage of multiple productive zones, both conventional and unconventional, in the same well. Technological improvements are also key. The industry must continue to improve drilling and completion efficiencies, management of water use, optimal staffing of operations, and cost reduction in a region with a long history of oil and natural gas production, while also remaining sensitive to impacts on local communities.

The Permian contrasts with plays such as the Bakken, Haynesville or Fayetteville, due to its long history as a major, established producing region. Rather than being something totally new, the Permian’s long history is the story of an “old” basin that has yet again been revived by new technologies, new geologic understanding, and new market environments.

The Permian Basin is a story about combining the various talents of independents, majors, and service companies in using advancing technologies to sustain the lifespan of existing fields, to tap into zones that were previously uneconomic or inaccessible, and to increase proven reserves in a remarkable fashion.

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Fred Lawrence is vice president of economics & international affairs at the Independent Petroleum Association of America (IPAA). He wishes to thank Steve London, Brad Wall, Matthew Thompson, Nancy Turner, Robert Ready, Chip Minty, and Kyle Rose for their contributions to this study.

“The claim that wind projects in the U.S. are achieving 30% average capacity factors nationally [are] … not meaningful when considering that state RPS mandates are based on local resources. For states like New York and Pennsylvania, where average capacity factors are in the low- to mid- 20% range, many more wind turbines and related infrastructure (transmission) will be needed to meet RPS mandates than originally forecasted, resulting in increased costs and impacts.

Couple this with the fact that wind production in most states is seasonal with summer months producing at half that of winter months and also concentrated during periods of low demand (night time) — much of the energy arrives as excess energy making it less useful.”

This week, the U.S. Department of Energy announced it was revisiting the conclusions of its 2008 report, 20% Wind Energy by 2030.

The study, produced in cooperation with the American Wind Energy Association (AWEA) and other stakeholders, explored a modeled energy scenario in which wind could supply 20% of the nation’s electricity by 2030. DOE made clear in the report that the 20% scenario was neither a prediction nor a goal, but, for wind proponents, the study served as the foundation for ongoing advocacy.

20% wind power by 2030 became a call to action and more. Absent a national renewables standard, AWEA heralded the 20% as a de facto mandate for wind.

The industry insists it’s on track to reach 20% wind (up from 4% today), but such claims are neither realistic nor wise. Despite explosive growth in new wind installations in the last five years alone, [1] challenges to further development have become more evident and will ultimately limit wind’s expansion.

An Unpopular Wind

Since 2008, thousands of turbines have been sited in communities across the U.S. As more towers were erected, public acceptance of the massive facilities started to drop.

Earlier this year, both New Hampshire and Vermont sought statewide moratoria on wind farm development until the impacts could be better understood. Law suits are now pending against proposed and operating wind facilities in at least six state courts as well as at the federal level. [2] Ohio , North Carolina, and others are revisiting their renewables mandates after wind has failed to deliver lower energy prices and jobs.

And this week, the reality of big wind splashed across media screens worldwide when AP reported that in Wyoming “a soaring golden eagle slams into a wind farm’s spinning turbine [about once a month] and falls, mangled and lifeless, to the ground.”

The public is increasingly wary of the wind industry’s tactics and so is Congress. The 1-year, $12 billion extension of the wind production tax credit (PTC) secretly added to the Fiscal Cliff bill in January underscored how unpopular wind energy is on Capitol Hill. The PTC would likely not survive a floor vote.

Wind’s Lack of Capacity

According to DOE’s 2008 report, U.S. demand for electricity would reach 5.8 billion megawatt-hours (MWh) by 2030. [3] In order for wind to satisfy 20% (or 1.16-billion MWh) of this demand , 305,000 MW of installed wind operating at an annual average capacity factor of 43.4% would be needed. Yet, few existing wind plants in the U.S. come close to producing at this level.

The 2011 Wind Technologies Market Report “found that average capacity factors have been largely stagnant among projects built from 2006 through 2010″ [4] at around 30%. In 2011, wind speeds improved raising the average capacity factor to 33%.

We examined 2012 monthly wind production data for 450+ operating wind plants in 34 states representing more than 40,000 MWs of installed capacity. All projects we looked at were in service for the entire year of 2012. The map below (clearer picture here) offers key insight into the effectiveness of wind at meeting demand by state.

Only three states, Nebraska, South Dakota, and Oklahoma achieved average capacity factors over 40%. Most states, including California, produced at under 30%.

Regional variations in production were also pronounced with the lowest average capacity factors[4] found on both the east and west coasts and the highest capacity factors, by state, found in the mountain and plain regions, correlating closely with NREL wind maps.

The claim that wind projects in the U.S. are achieving 30% average capacity factors nationally may be accurate but not meaningful when considering that state RPS mandates are based on local resources. For states like New York and Pennsylvania, where average capacity factors are in the low- to mid- 20% range, many more wind turbines and related infrastructure (transmission) will be needed to meet RPS mandates than originally forecasted. resulting in increased costs and impacts.

Couple this with the fact that wind production in most states is seasonal with summer months producing at half that of winter months and also concentrated during periods of low demand (night time) — much of the energy arrives as excess energy making it less useful.

The Role of Government Subsidies

More than half of the installed wind in the U.S. when measured in megawatts was built under the Section 1603 grant program which imposed no performance criteria on projects. Instead, the program substituted government largess for private investment, but with no accountability. Developers were rewarded for building turbines even in areas with marginal winds. The race to place projects in service before the end of 2012 was more about collecting 1603 grant money than producing quality wind facilities. Wind performance data for 2013 and 2014 will reveal how much this will be a factor in lowering capacity factors.

Conclusion

The DOE is now stating that its revised report on wind energy will study U.S. energy policy as opposed to promoting it. “We want to deal in the realities [of the technology] and we also want to be sensitive to the concerns of the DOE’s sister agencies,” said Jose Zayas, the DOE’s director of the wind and water power technologies office.

Such would be a deviation from DOE’s aggressive promotion of wind energy. It’s essential the Department of Energy provide independent and comprehensive analysis that acknowledges the limitations and risks of relying on largely unpredictable and non-dispatchable energy sources. The public deserves answers and not unrealistic advocacy.

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[1] At the end of 2007, installed wind in the U.S was about 16,500 MW. At the end of 2012, wind installations were at 60,000 MW.

[2] New York, Nevada, Washington, Michigan, Maine, California.

[3] Given the precipitous decline in electricity demand since 2008, these figures will likely be throttled back in any revised study by DOE.

[4] Some of the reduced performance could be tied to transmission curtailment but this information is not publicly available.

“[A]s my father liked to tell me, ‘Son, a fool with a plan can beat a genius with no plan any day.’ Right now, when it comes to America and our effort to achieve greater energy security, we’re a foolish nation without a plan.

If it were up to me, America’s energy plan would have ….”

- T. Boone Pickens, “Leadership Absent on Energy Plan,” Omaha World-Herald, May 1, 2013.

“The curious task of economics is to demonstrate to men how little they really know about what they imagine the can design.”

- F. A. Hayek, The Fatal Conceit: The Errors of Socialism (1988), p. 76.

T. Boone Pickens, the author and marketer of three national energy plans (see yesterday’s post), is a “man of system,” to use Adam Smith’s phrase from the mid-18th century.

Pickens’s grandiose scheme to use the powers of government to implement wind-for-natural-gas in  electrical generation and natural-gas-for-oil in transportation (Pickens I) inspired Carl Pope, then head of the Sierra Club, to state back in 2008: “To put it plainly, T. Boone Pickens is out to save America.” [1] Plans II and III dropped wind (when business Boone did) to just push natural gas in the transportation market.

To plan or not plan–that is the wrong question in the realm of human action. Purposeful human action is planning. A central plan enforced by government (which by definition has a legal monopoly on the initiation of force) precludes planning on the individual and group level done by voluntary means.

Thus T. Boone Pickens has fundamentally misconstrued the question of planning which is who will plan: the market through private property, voluntary exchange, and the rule of law or government through its “experts” and legal monopoly on coercion.

Early Warming: Adam Smith

One of the oldest fallacies of economics is that the only plan is the central plan, devised by experts and implemented by common-good government.

Adam Smith warned against the “man of system” in The Theory of Moral Sentiments (1759) presciently recognizing that the quest to correct alleged market failure was prone to two other types of error: analytic failure (expert error) and government failure. In his words:

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamored with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it.

He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.

If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder. [2]

Hayek on Planning

Perhaps more than any other 20th century intellectual, F. A. Hayek differentiated between coercive planning and market planning by individuals and groups of individuals–and why the latter was preferential.

Some salient Hayek quotations follow:

“The argument for liberty is not an argument against organization, which is one of the most powerful tools human reason can employ, but an argument against all exclusive, privileged, monopolistic organization, against the use of coercion to prevent others from doing better.” [3]

“The more the state ‘plans’ the more difficult planning becomes for the individual.” [4]

“It is because every individual knows little and, in particular, because we rarely know which of us knows best best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it.” [5]

“All political theories assume, of course, that most individuals are very ignorant. Those who plead for liberty differ from the rest in that they include among the ignorant themselves as well as the wisest. Compared with the totality of knowledge which is continually utilized in the evolution of a dynamic civilization, the difference between the knowledge that the wisest and that the most ignorant individual can deliberately employ is comparatively insignificant.” [6]

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account.” [7]

“Our faith in freedom does not rest on the foreseeable results in particular circumstances but on the belief that it will, on balance, release more forces for the good than for the bad.” [8]

Conclusion

On one level, the Pickens plans can be criticized in specific energy terms (such as fighting the ghosts past of Arab OPEC oil in his “energy security” case for government-sponsored natural gas transportation).

But on a another level, the idea that the market is “planless” compared to government planning is both wrong and dangerous. The danger is that “planning” is the open sesame for big government and a slippery slope to serfdom. “From the saintly and single-minded idealist to the fanatic is often but a step,” warned Hayek. [9]

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[1] Carl Pope, Sierra Club. Quoted in Dean Calbreath, “Pickens Pitches Plans to Shift U.S. Away From Oil,” San Diego Union Tribune, June 25, 2008.

[2] Adam Smith, The Theory of Moral Sentiments (1759), VI. II. 42.

[3] Hayek, The Constitution of Liberty (1960), pp. 88–89.

[4] Hayek, The Road to Serfdom (1944), p. 114.

[5] Hayek, The Constitution of Liberty (1960), p. 82.

[6] Ibid.

[7] Hayek, The Fatal Conceit: The Errors of Socialism (1988), p. 76.

[8] Hayek, The Constitution of Liberty (1960), p. 83.

[9] Hayek, The Road to Serfdom (1944), p. 62.

That starts to talk about a plan. He’s going to fund something to start something…. Make a plan … and do something different.

And low and behold, Pickens is crusading with yet another energy plan, his third in the last six years. As before, his animus is against Big Oil (see Appendix) and his fondness for personal dollars.

Pickens Plan III proposes that the federal government sell oil from the Strategic Petroleum Reserve (SPR) to jump-start the costly transition from oil to natural gas to fuel transportation. We don’t know the details yet, but T. Boone in March began pushing his new plan in the national media and local press.

Pending a legislative proposal with the specifics, two points can be made. First, the federal government should not be in the business of picking fossil-fuel winners. Second, the idea of selling federal oil should be elevated to a national debate to privatize the SPR to both reduce the federal budget and demote Washington from the day-to-day energy market.

Old and New Plans

In a March Politico editorial, Pickens introduced his new idea of selling federal oil to underwrite the (costly) refueling equipment needed to entice truckers and motorists to switch to natural gas. In his words: “Use SPR funds to build the infrastructure necessary to support true competition in the transportation fuels marketplace.”

But if this changeover was really economic, why shouldn’t Pickens’ own Clean Energy Fuels Corporation take the risk and reap the rewards? A company map shows that this company is already in the thick of things, SPR oil aside.

Pickens Plan II, also with Clean Energy Fuels Corp. in mind, centered around a $65,000 tax credit to convert 18-wheelers from diesel to natural gas. The New Alternative Transportation to Give Americans Solutions Act of 2011 (Nat Gas Act) died last year, so a new Plan was needed. Given sequestration and the budget crisis, Pickens cleverly identified a dormant federal revenue source to fund his pet project, this time going from the demand side to the supply side.

Big Oil Mantra

Pickens Plan III, like Pickens II, is right out of the 1970s.[1] As T. Boone wrote recently in the Omaha World-Herald:

Right now, when it comes to America and our effort to achieve greater energy security, we’re a foolish nation without a plan…. Free marketers will tell you they don’t want government picking winners and losers [but] … we’re choosing OPEC oil.”

Government programs to insulate U.S. consumers from imported oil, and OPEC supply in particular, are perennial failures. The multi-billion-dollar SPR public investment, based on the same argument, has scarcely born fruit. And Pickens ignores an emerging new world order with petroleum, with the U.S. at the forefront, that makes his case weaker by the week.

Conclusion

“To put it plainly, T. Boone Pickens is out to save America,” stated Carl Pope of the Sierra Club in the heady Pickens Plan I days. Pope is now retired, and successor Michael Brune has had the Sierra Club declare war on natural gas and go all-in with windpower (the Cuisinarts of the Air).

Two plans later, Pickens is playing small ball. But the business icon continues to profess allegiance to real capitalism (“When it comes to free markets, I count myself as a true believer and a champion,” he states).

But the Texas energy notable is an example of a capitalist against capitalism. His repeated calls for from-your-pocket-to-mine energy subsidies bring to mind a harsh verdict by the late Milton Friedman: “The two greatest enemies of free enterprise in the United States … have been, on the one hand, my fellow intellectuals and, on the other hand, the business corporations of this country.”

Indeed, one wishes for the old T. Boone who took a stand against oil tariffs in 1986 when most independent producers (and independent refiners) favored protectionism. One longs for the prior Boone who once proudly stated: “The government doesn’t step up and say, ‘Now, how much do you need for giving it a try, fella?’ That’s why America is so far superior to the rest of the world’s economies.”

May Pickens III go the way of Plans I and II. And may T. Boone henceforth live up to his own words (circa 1987):

I believe the greatest opportunity lies in a free marketplace. There are powerful forces afoot trying to restrict that freedom in the interests of the vested and already wealthy. I am talking about a relatively small collection of corporate executives who would use the engine of American commerce for their own narrow ends.

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Appendix: The “Monster” of Big Oil

A review of T. Boone Pickens career in energy offers an explanation of why he has spent tens of millions of dollars of his own money on anti-oil messaging. Here is what I wrote in my Wall Street Journal review back in 2008:

Why is Mr. Pickens pushing this energy plan so hard, aside from the supposed good of the nation? The most obvious reason is that his Clean Energy Fuels Corp. — invested heavily in natural-gas dispensing stations — would be a big winner. Mr. Pickens also has on the drawing board a $10-billion wind-power project — “the biggest deal of my career.”

Another reason, one suspects, is a desire to reclaim the kind of folk-hero status that Mr. Pickens lost after Mesa’s fall. He might become the “greenest” energy man since Ken Lay was at Enron and Lord John Browne rebranded the “BP” of British Petroleum to mean “beyond petroleum.”

A third reason is less obvious. Mr. Pickens refers to Big Oil as “the monster.” Why such an animus toward an industry that has been at the forefront of the American dream? As it turns out, both Mr. Pickens and his father (a failed independent) spent unhappy years at Phillips Petroleum. During the takeover battles with Big Oil, Boone was professionally and personally smeared and was ultimately denied his dream job: running an integrated major. He also links Mesa’s fall to overdrilling by the cash-flush majors.

I invite historians or Mr. Pickens himself to challenge his interpretation. It is important because no oilman in history has personally spent the time and money on such a crusade.

[1] In 2008, T. Boone proposed to erect multitudinous wind turbines to generate electricity in order for displaced natural gas to replace gasoline and diesel in the transportation market. Pickens Plan I did not get off the political ground, and Pickens crusade evaporated when his $10 billion wind power project stalled.

Instead of a science-based approach, our energy and environmental policies are typically written by those who stand to economically or politically profit from them. As a result, anything genuinely science-based in these policies is usually inadvertent and accidental.

A key element of AWED’s efforts is public education. Towards that end, every 3 weeks we put together a newsletter to balance what is found in the mainstream media about energy and environmental matters. We appreciate MasterResource for their assistance in publishing this information.

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A fascinating technical study at Phys.org concludes that turbines have adverse consequences to grid stability. For example:

“wind turbines do not only transfer wind intermittency to the grid, but they also amplify it… The data also shows that wind power intermittency does not only affect the output of individual turbines, as previous research has shown, but it also extends to entire wind farms, which has not been observed before.”

Watch this great (short) video about entitlement.

More reports about greed energy economics:

Court: Turbines Have Reduced Property Values

MLP: more BS about “leveling the playing field”

Renewable MLPs and REITs

Fix or repeal the PTC

Senator Stabenow and Representative Pompeo spar over PTC

Two submissions to the U.S. Tax Committee re PTC: here and here

Wind Industry Seeks another Extension of Tax Credit

Wind Industry sees Carbon Tax as Best Policy

$11 Million per green job created

Ending Economic Malaise

They’re Not Wind Farms, They’re Tax Farms

More reports about turbine health matters:

Vermont Legislators hear about some turbine health effects

Health Unit Hears Results of Turbine Study

Cutting the Spin (please vote on the poll)

More reports about turbine wildlife matters:

Avian expert testifies before House Ways and Means Committee

Maryland wind project confronts Navy and Eagles

Condor Killers Won’t be Prosecuted

Miscellaneous energy reports:

The Coming Crisis in Electricity Generation

Hansen: Nuclear Power Saves Lives

A Chinese study concludes “China’s wind power system is not sound”

Assault on Energy

Green Tech Can Backfire

FAA blocks a wind project for a NY town

The Dark Side of U.S. Energy Independence

Arkansas Legislators Reject Renewable Mandate

Turbine Roadblocks in New Hampshire

So Much Wind— a handbook for anti-wind groups

New Renewable Energy Technologies: a monstrous boondoggle?

EIA Offers New Information for Consumers

Dr. Soon’s video about the Realities of CO2

AWEA Names New CEO

Some recent manmade global warming articles of interest

Please consider contributing to this good cause

Dr. Curry’s Congressional Testimony about AGW

It’s Not About The Climate

In Defense of Carbon Dioxide

A Big Day for Transparency on Capitol Hill

Comments on the 2013 Draft National Climate Assessment

Greenland Glacier Melting— not what you have been told

US Temperatures over the last 100+ years— not what you think

Extreme Weather Events— now LESS frequent

Science is Being Corrupted to the Point of Fraud

If you don’t like a book – burn it!

Our proposed national energy slogan is “All of the Sensible” (in contrast to the absurd “All of the Above”). Once legislators have grasped that concept, the foolishness of the “leveling the playing field” idea also becomes apparent. (Should the 18-wheeler trucks and golf cart playing field be leveled?) Additionally we should be using the term “unreliables” when speaking of renewables. Please pass these on. [U.S. citizens should make sure to get up-to-speed with what is on our PTCFacts.Info pages, as the PTC is still an important political issue.]

Please pass this information on to other open-minded, science-oriented people. If you know anyone who would like to periodically like to get AWED emailings, please email me.

Thank you for your support.

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Some other recent AWED newsletters at MasterResource:

April 23, 2013

April 1, 2013

March 11, 2013

February 18, 2013

January 21, 2013

“There is no evidence that government scientists and engineers are better at forecasting the future and know how the future will play out better than the scientists and engineers in private companies. Technocrats ignore the fact that private companies also hire scientists and engineers, (not to mention MBA’s and economists) and make investments based on their outlook for the future.”

The technocracy movement that arose in the early part of twentieth century advocated turning over the reins of governmental decision making to scientists, engineers and other “technocrats”. It was argued that the expertise of technocrats would result in better decisions than those made by private companies.

The idea of technocracy was embedded in the concept of central planning and was heralded by Thorstein Veblen and embraced by the Soviet Union. In the early years of the Great Depression the movement enjoyed renewed popularity, the belief being that technical, rational and apolitical expertise could revive the economy.

As an aside, one of the advocates of technocracy was M. King Hubbert who later developed his theory of Peak Oil production. Hubbert also proposed that energy certificates be issued to replace conventional money. These certificates could be divided equally among all members of a North American continental “technate.” Hubbert went on to become a geoscientist at Shell Oil.

A Comeback in Energy

Interest in the technocracy movement waned as the 1930s wore one, but surprisingly it is making a comeback in the area of energy. The Obama administration’s belief that the government can pick winning energy technologies is something that has a lineage reaching back to the technocracy movement.

Despite F. A. Hayek’s explanation as to how markets transmit information and coordinate decision making by individuals in the private sector, many in the current administration, along with its supporters, believe that Nobel Prize winning scientists like Secretary of Energy Steven Chu are better positioned to put the economy on the “correct” path to the future and do so faster than the market.

The problem with technocracy goes beyond the Hayekian information problem faced by central planners. Those making governmental investment commitments have little “skin in the game.” They are not risking their money or the money of investors who voluntarily opt to take on a risk.

Rather, they are risking the taxpayers’ money because the latter are unwittingly forced to become investors in government projects. The incentive structure faced by government decision makers thus is different than that faced by private companies.

Those investing in private companies and ventures can assess the risks they face. They have access to investment analyses and ratings by agencies like Moody’s and Standard & Poor’s. If a company is publicly held, investors can readily find measures of risk like Betas. What does the taxpayer have? They have the assertion that Stephen Chu and other scientists are better positioned than private companies to pick which technologies to underwrite.

Past as Prologue

The government has intervened in energy markets before. Aside from price and allocation controls on oil and price controls on natural gas, the government gave us the Power Plant and Industrial Fuel Use Act of 1978, which was premised on the view of experts that we were running out of natural gas and thus its use should be limited. Thus, the Fuel Use Act restricted the use of natural gas for industrial uses and by new power plants for electricity generation. Mercifully, this law was administratively and legislatively weakened and finally repealed in 1987. U.S. natural gas production went on to smash the previous record high, set in 1973, in 2011. The record was broken again in 2012.

The government picked another “winning” strategy when it established the Synthetic Fuels Corporation in 1980 with the goal of producing two million barrels of liquid fuel per day within five years. Alas, this winning strategy was done in by the subsequent decline in oil prices that began two years later and an administration that took a dimmer view of having the government pick winners. The Corporation was abolished in 1985.

Back to the (Predictable) Failure

Ignoring previous experience, the federal government got back into the energy investment business in 2009 and some were downright giddy. Susan Kraemer gushed that Stephen Chu finally put “the nail in the coffin of those who say the government can’t pick winners and losers”:

So picking winners to invest in on behalf of the public good makes sense. At least initially, they need government support. Now it looks as if our own government is getting as smart as the Japanese government was back in the ’90’s. Kudos to our new DOE. Today, I’m proud to be an American.

This exuberance came before Solyndra (recipient of a $535 million loan) went bankrupt. Fisker Automotive (recipient of a $529 million loan) recently laid off 75 percent of its staff and reportedly is on the verge of filing for bankruptcy. Tesla, another electric car producer and the recipient of a $465 million loan, claims to be turning a profit selling cars at prices ranging from $49,900 to $180,000. While Tesla purchasers like Leonardo DiCaprio are benefiting from the government’s support of Tesla, one can question whether the loan is in the public interest.

(As an aside, one can opt instead to lease a Tesla for $500 per month. Unfortunately for Tesla, analysts are questioning the reality of this lease price, claiming the true cost is much greater. On the plus side according to Tesla, the company reportedly reached “full profitability” during the latest quarter, although its statement didn’t specify what “full profitability” meant. It appears Tesla set the bar wherever it wanted to and declared victory.)

Market Discipline … Political Fad

A company in the private sector requires its investment projects to generate a return equal to or greater than the hurdle rate it establishes as a filtering device. Hurdle rates typically are linked to a company’s weighted average cost of raising capital and include the cost of issuing equity and selling debt. A risk factor may be added to the weighted average cost of capital that takes account of a project’s specific risk.

Companies will be forced by the discipline of market forces to scale back or even the pull the plug on investments which do not perform as expected. As Armen Alchian argued in his classic article, “Uncertainty, Evolution and Economic Theory,” companies that do not respond quickly will not maximize profits and thus eventually will be weeded out of the market by the competitive process.

The recourse to a subsidy or a low interest government loan is not an option for companies that rely on private financing. Further, these companies have no protection from competitors that enter the market offering new products or technologies (witness Betamax vs. VCR; VCR vs. DVD; DVD vs. streaming, Apple iPhones vs. Samsung Galaxy or Nokia Lumia, etc., etc.).

Such is not the case for government ventures. The government is able to “tap” into (or should I say “pick”) the pockets of taxpayers to keep a project going. Kraemer indicated that government support might be needed, “at least initially,” but the length of this initial period is left to anyone’s guess. Like government agencies that rarely are subject to “sunsetting,” a governmentally funded project can be kept alive simply because it is in the interest of politicians to underwrite projects that bring jobs to their districts.

Finally, there is no evidence that government scientists and engineers are better at forecasting the future or know how the future will play out better than the scientists and engineers in private companies. Technocrats ignore the fact that private companies also hire scientists and engineers, (not to mention MBA’s and economists) and make investments based on their outlook for the future.

The criticism leveled at this is that private investment decisions are guided by the profit motive. But what guides the scientists and engineers hired by government or who work for firms that are underwritten by the government? Is it simply their confidence in their vision? And, is there any evidence that their visions of the future are better than those coming from the private sector?

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Donald A. Norman is Senior Economist and Council Director of Manufacturers Alliance for Productivity and Innovation (MAPI) in Washington, DC. At MAPI, Norman directs the CFO and Financial Councils; writes on economic and energy issues; and coordinates the quarterly Business Outlook Survey.

Norman was previously Research Manager at the American Petroleum Institute and a staff economist at the Federal Trade Commission.

Before coming to Washington D.C., Norman taught economics at the University of California at Santa Barbara and at the California State University at Long Beach. He is the author of numerous papers dealing with energy issues, industrial organization and antitrust. He received his B.A. and Ph.D from UCLA and holds an MBA from George Mason University.

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The Ontario Green Energy and Green Economy Act (herein the GEA) was passed in May 2009 with the purpose of addressing environmental concerns and promoting economic growth inOntario. Its centerpiece is a schedule of subsidized electricity purchase contracts called Feed-in-Tariffs (FITs) that pro­vide long-term guarantees of above-market rates for power generated by wind turbine farms, solar panel installations, bio-energy plants and small hydroelec­tric generators. Development of these power sources was motivated in part by a stated goal of closing the Lambton and Nanticoke coal-fired power plants.

This report investigates the effect of the GEA on economic competi­tiveness in Ontario. It focuses on three questions:

(1) Will the GEA mater­ially improve environmental quality inOntario?

(2) Is it a cost-effective plan for accomplishing its goals?

(3) Are the economic effects on households and leading economic sectors likely to be positive? The answer to each question is unambiguously negative. The specific findings of the report are as follows.

It is unlikely the Green Energy Act will yield any environmental improve­ments other than those that would have happened anyway under policy and technology trends established since the 1970s. Indeed, it is plausible that adding more wind power to the grid will end up increasing overall air emissions from the power generation sector.

As of 2009, air quality in Ontario had improved considerably compared to the 1960s, and showed no tendency to be getting worse. A confidential 2005 cost-benefit analysis for the provincial government, often cited by the Province as a defense of the GEA, in fact predicted that the closure of the coal-fired power plants would yield such tiny effects on air quality as to be unnotice­able in most places.

Because of the fluctuating nature of wind and solar power, adding renew­able capacity to the grid requires additional backup power from natural gas plants. Because Ontario currently has a surplus of base-load generating capacity, further additions to base-load in the form of wind or solar power may require removing a nuclear plant from operation and replacing it with a combination of renewable and gas-fired generation, yielding a net increase in air emissions.

The plan implemented under the Green Energy Act is not cost effective. It is currently 10 times more costly than an alternative outlined in a con­fidential report to the government in 2005 that would have achieved the same environmental goals as closing the coal-fired power plants.

The province’s continued reliance on the confidential 2005 “DSS” analysis in defense of the GEA is misleading since that report did not consider or rec­ommend use of wind or solar energy as a replacement for coal. The analysis by DSS Management Consultants actually shows that a relatively low-cost retrofit option for the coal plants was available that would have yielded envi­ronmental improvements (including reductions in greenhouse gases) effec­tively equivalent to those of closing the plants, at about one tenth the current cost of the GEA, and one seventieth what it will cost if the Province follows its stated plans to completion.

The focus on wind generation is especially inefficient because pro­duction peaks when it is least needed and falls off when it is most needed. Surplus power is regularly exported at a considerable financial loss. On average, due to daily and seasonal wind patterns in Ontario, a 1% increase in wind power production coincides with a 1% reduction in consumer power demand. Eighty percent of Ontario’s generation of electricity from wind power occurs at times and seasons so far out of phase with demand that the entire output is surplus and is exported at a substantial loss. The Auditor-General of Ontario estimates that the province has already lost close to $2 billion on such exports.

Data from the Independent Electricity System Operator shows Ontario now loses, on average, $24,000 per operating hour on such sales, totaling $200 million annually. The loss rate will continue to grow with every new wind turbine installation because the mismatch between the timing of wind-powered generation and Ontario electricity demand is structural.

The wind-power grid is also inherently inefficient due to the fluc­tuating nature of the power source. Output of Ontario’s wind turbines is below one fifth of rated generating capacity about half the time, and below one third of the rated capacity about two thirds of the time. Because of the unreliability of output, 7 MW of rated wind energy are needed to provide a year-round replacement of 1 MW of conventional power generating cap­acity. Consequently, the cost of achieving the provincial targets for renewable energy in the coming years will be much higher than currently acknowledged.

The Green Energy Act will not create jobs or improve economic growth in Ontario. Its overall effect will be to increase unit production costs, dimin­ish competitiveness, cut the rate of return to capital in key sectors, reduce employment, and make households worse off.

The claim by the government of Ontario that 50,000 jobs will be created by the GEA was a guess without any basis in formal analysis, and the Province has since admitted both that the vast majority of any GEA-related jobs will be temporary and that the figure of 50,000 does not account for offsetting perma­nent job losses caused by increases in the price of electricity under the GEA.

Electricity costs for large users in Ontario were moderate compared to surrounding jurisdictions as recently as 2008, but have since risen almost to the highest level in our comparison group. Further price increases of 40% to 50% are forecast, in large part to pay for costs incurred under the GEA. These will result in Ontario being at or near the top end of North American electricity costs over the next few years. Such price increases, were they to occur, would strongly affect the unit cost of production in mining and manu­facturing and, to a smaller extent, forestry. I estimate they will drive down the rate of return to capital in manufacturing in Ontario by 29%, in mining by about 13%, and in forestry by about 0.3%, leading to a net loss of investment and employment in the province.

Provincial efforts to shield these industries through energy subsidy pro­grams only transfer the costs onto households, who are already dealing with increases in the price of residential electricity because of GEA-related initia­tives. There would also be uncertainty as to whether the Province will remain committed to such subsidy measures in the face of its ongoing budget deficit. There are additional costs to households in regions afflicted with new wind turbine installations arising from lost property values, degradation of the rural environment, and increased health and stress problems. Were these to be taken into account, the overall cost burden of the GEA would be even higher.

“No matter whose carbon dioxide emissions estimate is used, the climate impact of the oil transported by the pipeline is too small to measure or carry any physical significance. In deciding the fate of the Keystone XL pipeline, it is important not to let symbolism cloud these facts.” [1]

Climate change results from a variety of factors, both human and natural. The primary concern raised over the pipeline involves the carbon dioxide emissions that will result from the production and use of the oil that the pipeline will carry. It is the potential climate change from these emissions that will be the focus of my testimony.

In its Draft Environmental Impact Statement, the State Department finds, and I think that there is broad agreement on this point, that a barrel of oil produced from the Canadian tar sands carries about a 17 percent carbon dioxide emissions premium compared to the average barrel of oil finding its way into the U.S. market.

Disagreement: EPA vs. State Department

The disagreement between the State Department, the Environmental Protection Agency, and several environmental groups, involves how many new carbon dioxide emissions this 17 percent premium results in when considering the 830,000 barrels of oil that the pipeline will carry each day when operating at full capacity.

The State Department concludes that the economy of the tar sands oil is such that it will come to market one way or another whether or not the Keystone XL pipeline is ever built. It thus finds virtually no additional carbon dioxide emissions resulting from the project.

The EPA contends that the State Department is too quick to reach such a conclusion. The EPA argues that without the pipeline, much of that oil will remain in the ground, and thus, while the existence of the pipeline won’t result in more oil being used in the U.S., it will result in a 17 percent emissions premium on the pipeline’s portion that oil.

The EPA gives this extra amount as 18.7 million metric tons of carbon dioxide per year.

Several environmental organizations take the view point that while the pipeline may not increase the amount of oil used in the U.S., the oil that it displaces from the U.S. market will be consumed by other countries as the global demand for oil continues to grow. They calculate that the pipeline will result in about 181 million metric tons of additional carbon dioxide per year.

In these terms, the differences among the groups appear large and contentious, and much of the protestation involving the Keystone XL pipeline focuses on these emissions numbers. But, these protests are largely misplaced.

“CO2 Emissions are Not Climate Change”

It is imperative to keep in mind that the end game is climate change. Carbon dioxide emissions are not climate change. They influence climate change, but they are not a measure of it.

Therefore, before any type of assessment as to the potential climate impact of the pipeline can be made, it is essential to translate carbon dioxide emissions into climate units—such as the global average temperature. In other words, how much global warming will the pipeline produce? Isn’t that, after all, what everyone wants to know?

Why is it then that such numbers are absent in discussions of the impacts of the pipeline?

It is not as if there is no good way of calculating them—that is precisely what climate models are designed to do. Climate models emulate the earth’s climate system and allow researchers to change various influences upon it—such as adding additional carbon dioxide emissions—and then see what happens in the computer simulations.

So why haven’t they been applied to predict the climate impact of the pipeline? Because, if they were, the answer would be exceedingly tiny.

One One-Hundred Thousandths of a Degree (rounded up)

For example, using a climate model emulator that was developed by the EPA, I find that in the case of the State Department’s analysis, as there are very few additional carbon dioxide emissions resulting from the pipeline, there is essentially no associated climate change. Under the EPA’s assumptions, the average temperature rise works out to less than 0.00001°C per year—that is one one-hundred thousandths of a degree. [2]

And even under the assumption that all Keystone XL oil is additional oil in the global supply, the extra warming is still less than one ten-thousandths of a degree per year.

In other words, if the pipeline were to operate at full capacity for the next one thousand years, it would raise the global average surface temperature by less than 1/10^th of a degree!

It is this information, not the information on carbon dioxide emissions, that is required to properly assess the climate change aspect of this or any other proposed project or regulation.

In these terms, the difference between the State Department’s Environmental Impact Statement and those of its critics all but vanish.

Conclusion

No matter whose carbon dioxide emissions estimate is used, the climate impact of the oil transported by the pipeline is too small to measure or carry any physical significance. In deciding the fate of the Keystone XL pipeline, it is important not to let symbolism cloud these facts.

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[1] Oral Statement: Joint Hearing, “Keystone XL Pipeline: Examination of Scientific and Environmental Issues,” U.S. House of Representatives, Committee on Science, Space, and Technology, Subcommittee on Energy and Subcommittee on the Environment (May 7, 2013). For the past 25 years, Knappenger has conducted research on climate and climate change, including the impact of potential human influences on climate.

[2] The exact number is closer to 0.0000055degC/yr.

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The full testimony of Mr. Knappenberger can be found here.

“The ‘bait’ for legislators is each gets to ‘bring home the bacon’ in the form of rebate checks to voters and huge new tax revenues for the federal government…. The ‘switch’ … is to propose baby steps for the first 10 years [versus what will be necessary] … in the out years.”

The “Climate Protection Act” (House) and Sustainable Energy Act” (Senate), are the latest, and perhaps the most onerous, in a series of legislative proposals that seek to tap the immense revenue stream promised by taxing carbon dioxide (CO2) emissions from  fossil-fuel burning.

So-called Boxer-Sanders will neither “protect” the climate nor protect consumers and taxpayers despite its start-small provisions and gentle rhetoric.

Bait …

Sen. Barbara Boxer (D-Calif.), chair of the Environment and Public Works Committee, recently signed on as a co-sponsor of Sen. Bernie Sanders’ (I-Vt.) “fee and dividend” carbon tax legislative proposal. The law would impose a “fee” on carbon emissions at their source and rebate a “dividend” to “legal residents of the U.S.” for a portion of the cost impact of the tax, along with other incentives. The legislation carefully substitutes the more benign “fee” in place of the more pejorative “tax,” which it is. The government will also slice off a healthy portion of the carbon tax revenue for its own use.

The legislative proposals enable collection of the tax beginning at $20 per ton of carbon or methane equivalent emissions, rising at a rate of 5.6% a year for 10 years (effectively a 72.4% compounded increase). The tax would be extracted at the point of sale as well as from fossil fuel importers. Sanders estimates his carbon tax plan would generate about $1.2 trillion in new government revenue over the first 10 years covered by the legislation, although the legislation is written with a much longer effective period in mind, through 2050.

The legislation also directs the government how to spend its newly collected bounty. A portion of the proceeds will be used for infrastructure improvements, about 60% would be distributed to residents in the form of rebates and other efficiency projects, and the balance, about 25% of the revenue, will go to the federal government for deficit reduction, which is a meaningless gesture unless matching expenditures are simultaneously curbed.

The scheme has a little something for almost everyone, no doubt intended to attract the necessary votes for passage.

… and Switch

The sales pitch obviously self-identifies as the old bait-and-switch scheme. The “bait” for legislators is each gets to “bring home the bacon” in the form of rebate checks to voters and huge new tax revenues for the federal government. For carbon control proponents, the bait is found in the Sanders/Boxer Climate Legislation summary: “setting a long-term emission reduction goal of 80 percent or more by 2050 as science calls for.”

For the rest of us, we are being asked to defer to the “experts” and believe that anthropogenic emissions cause an increase in global average ambient temperatures, an assumption that current facts don’t support (see my “Where’s the Warming?” Feb. 2013). This statement is a standard rhetorical device known as an argument from authority, certainly not the foundation upon which to build a multi-trillion-dollar tax structure.

The “switch” part of the scheme comes in two parts. The first part is found in the body of the legislation. Sanders’s response to the “crisis facing our planet [that] is much more serious than they [scientists] had previously believed” is to propose baby steps for the first ten years, when huge leaps in emissions reductions are required, if you believe the rationale for the legislation. Yet, over these 10 years the proposed carbon tax will have no discernible impact on global average temperatures, ostensibly the basis of the legislation.

The second part of the switch is what happens in the out years. Assuming emissions decrease by 20% during the first decade, the tax rate will necessarily skyrocket to achieve the overall goal of 80% reduction by 2050. Physics reminds us that the difficulty and cost of the last 20% will be exponentially higher than the relatively easy first 20% reduction. After a decade, the carbon tax will metastasize throughout the economy and the government will be addicted to the cash.

NERA Carbon-Tax Study

NERA Economic Consulting has rigorously examined the potential effects of a carbon tax based on a more conservative 4% annual increase of the introductory $20/ton carbon tax rate, plus a projection of the large increase in the carbon tax rate necessary to achieve the 80% reduction by 2050 goal.

“Economic Outcomes of a U.S. Carbon Tax” concludes that a “carbon tax would have a devastating impact” on the economy due to higher prices for natural gas and electricity and other energy commodities causing “output in energy intensive industries [to] drop by as much as 15 percent and 7.7 percent in non-energy intensive sections,” according to National Association of Manufacturers Vice President Ross Eisenberg, quoting report findings.

For example, the report predicts the price of gasoline will be $14.57 per gallon in 2053, with $9.06 in tax, compared to $5.51 per gallon with no carbon tax baseline. NERA concluded that a carbon tax under an “80% reduction tax case” would cost the economy up to 20 million jobs by 2053 and would reduce wages about 7% and wage growth over 8% due to increased cost of energy.

Practice Patience

The most current U.S. EPA data shows that U.S. greenhouse gas (GHG) emissions were 11.8% less in 2012 than in 2005 (the proposed baseline year). The trend in emissions reductions already has a negative slope without a carbon tax. In fact, fuel switching from coal to gas will surely further depress GHG emissions in the coming years.

I counsel patience. Allow the economy to recover and encourage its continuing transition to domestic oil and gas production, and we’ll watch the carbon emissions continue to decline. A soft landing is always preferable to a crash and burn.

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Robert Peltier (Ph.D; PE) is editor-in-chief of POWER magazine. This post is a revised version of the May 1, 2013, Speaking of Power editorial.

“From all signs, the wind-energy field has reached that all-important turning point.”

- C. Flavin, Wind Power: A Turning Point (Worldwatch Institute: July 1981), p. 47.

Christopher Flavin, long associated with the Washington, DC-based Worldwatch Institute (see appendix below), was among the most thoughtful and prolific energy writer in the neo-Malthusian energy/environmentalist camp. His tone was positive, his writing clear, and his research well documented. Flavin’s work is scholarly compared to his (shrill) predecessor, Lester Brown, the founder of WorldWatch. Still, Flavin’s final products are little more than lawyer briefs for energy/climate alarmism.

Flavin is now paying the price for assuming alarmism to hype market-incorrect energies. He banked on wind and solar as primary energies despite the fact that they were dilute, intermittent, and environmentally invasive. Flavin pretty much forgot his early caution and warnings about windpower (see his introduction to Paul Gipe’s Windpower Comes of Age).

Flavin’s writings on the inevitability of windpower and the global warming issue inspired none other than Ken Lay, whose Enron invested in and lost money with solar, wind, and energy efficiency. That is a story for another time.

“Oil Short” World

Here is Flavin’s bio at the time of this piece, which reveals another spectacularly wrong prediction from the title of his then new book.

Christopher Flavin is a Senior Researcher with Worldwatch Institute and coauthor of Running on Empty: The Future of the Automobile in an Oil-Short World (W. W. Norton: 1979). His research deals with renewable energy technologies and policies. He is a graduate of Williams College where he studied Economics and Biology and participated in the Environmental Studies Program.

Williams College … Environmental Studies Program … Any chance that this student studied Julian Simon or market-process economics? Read Jevons’s  The Coal Question (1865) to understand the curse of diluteness and unreliability in the new fossil-fuel age? Very probably not, which leads the criticism to the professors whose own ignorance and biases lead to intergenerational problems.

Wind Hype Circa 1981

Wind Power: A Turning Point was published just as world oil markets were turning to surplus after repeal of price and allocation controls. 1981 was also eleven years before the enactment of the Production Tax Credit, which, along with state renewable mandates, fueled the artificial boom in evidence today.

The book begins:

Wind power may be a breath of fresh air on the world energy scene during the eighties. Already in 1981, wind energy is a rapidly expanding field with far more immediate potential than most people realize.

The ambitious and largely successful research and development efforts of the seventies gave rise to a variety off commercial ventures and utility programs to harness the wind. 

In many countries, substantial numbers of wind machines are being installed for the first time in over 50 years. Behind these developments are a wealth of recent studies showing wind power to be an eminently practical and potentially substantial source of electricity and direct mechanical power.”

The 56-page study ends:

The technology for harnessing the wind has come a long way in the last decade, but the progress made so far could be dwarfed by the advances in the next 10 to 15 years…. Cautious engineers and technocrats who earlier steered clear of “unconventional” technologies are now enthused about wind power. From rural development planners to utility executives, many people are now convinced that wind energy’s time has come.

If the impressive technical achievements of the recent past are matched by effective industry and government policies, wind power could develop very rapidly. From all signs, the wind-energy field has reached that all-important turning point.

Conclusion: Time to Recant?

It is entertaining and even humorous to bring up the “oil short world” and wind power’s “turning point” in today’s energy debate. Oil is more abundant than ever and growing in reserves and resources as technology improves. Wind power remains intermittent and government-dependent some decades after Flavin declared its tipping point reached.

But it is not funny that decades of government subsidy flowed from such early hype. The author made a difference, but not in a positive way for consumers, the taxpayers, and even the environment is concerned.

The opportunity now is for Mr. Flavin, in quasi-retirement, to not fade away “in denial” but to set the record straight and point us to an energy-rich world. That future is oil, gas, and coal–and other forms of energy that prove their niche in the marketplace in particular time and space (prominently including off-grid solar).

Such a reconsideration is timely given that global warming has “paused” (James Hansen), and climate sensitivity estimates are coming down. Meanwhile, the Hockey Stick I and II have been pummeled by Internet peer-review to remove the paleo argument characterizing 20th century warming as unprecedented. The climate alarm is losing steam, and crony energies increasingly face their de-subsidized day of market reackoning.

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Appendix: Current Flavin Biography (Worldwatch Institute)

Christopher Flavin is President Emeritus of the Worldwatch Institute, a Washington, D.C.-based international research organization focused on energy, resource, and environmental issues. Flavin is a leading voice on the potential for new energy technologies and strategies to replace fossil fuels—increasing energy security and avoiding dangerous climate change. He is co-author of three books on energy, including Power Surge: Guide to the Coming Energy Revolution, which anticipated many of the changes now underway in world energy markets.

Flavin is a founding member of the Board of Directors of the Business Council for Sustainable Energy and serves as a board member of the Climate Institute. He is on the Advisory Boards of the American Council on Renewable Energy and the Environmental and Energy Study Institute. He has participated in several historic international conferences, including the Earth Summit in Rio de Janeiro in 1992 and the Climate Change Conference in Kyoto Japan in 1997. He regularly provides strategy advice to government officials and business and NGO leaders around the globe.

Flavin is a regular co-author of the annual State of the World Report and speaks frequently to business, university, and policy audiences, testifies before national and state legislatures, and meets frequently with government and international leaders. Flavin has written for a range of popular and scholarly periodicals, including The New York Times, Technology Review, The Harvard International Review, and TIME Magazine. Flavin is a native of Monterey California and a cum laude graduate of Williams College, where he studied economics, biology, and environmental studies.