In Act III, we search deeply within ourselves to discern if the protagonist provides answers to the modern vexations that ail us. Come let us listen to Friedman Milton as he disarms the protagonist.

Black and White–or Gray?

The Bradley Project seems to dichotomize the world into free market capitalism and political capitalism. To paraphrase George Orwell, free markets good; political markets bad.

I have no quarrel with Bradley’s conclusion that both energy generally and natural gas and electricity in particular have been victims of political capitalism in all its hoary forms. I disagree, however, with the Bradley Project’s hostility to addressing market failures.

The energy industry, more than any other industry I can think of, has some serious market failures in the classic sense defined by economists. For example:

· Market power problems in gas and electric transportation and distribution;

· Externalities in every supply option, including renewables;

· Public goods issues in basic research and some free rider problems;

· Information asymmetries in various industry segments (let a marketer try to get customer load information from a regulated utility).

Finding the right policy in light of these market failures, while not compromising market forces, is what makes energy policy so treacherous and complex.

Frankly, the economics profession has been asleep at the switch on this one. Electric and gas transportation has more similarities to highways, airports, movie theatres, the stock market, MF Global, and Microsoft Windows than it does to traditional commodities such as hamburgers, shirts, or cars.

Economic academic literature is replete with silo-based analysis on each of these network or coordination industries (I call them Plexus Functions) but completely fails to observe and thus offer a unifying theory of public policy on these types of assets and functions, which does exist, and will be the subject of a future article. But this is about the Bradley Project.

Bradley only minimally acknowledges these types of problems and offers little advice as to addressing them. The overwhelming impression one gets from his first two books is that any form of government intervention is adverse to capitalism, competition, and efficiency.

But sometimes a cigar is just a cigar, to quote Sigmund Freud. There is nothing wrong with a company pursuing profit by making rational adjustments to new government policies that promote efficiency.

Yes, Bradley will rebut that the U.S. has done a generally miserable job of implementing sound economic policy to efficiently address these failures. Rather, the result has been compounded government failures that dwarf the costs of the market failures. And he is right.

Good Middle-Way Government

But there is a third model between laissez-faire capitalism and political capitalism: sound implementation of coherent public policies to address market failures, with a strong recognition of the Public Choice-Government Failure implications of many interventions.

I will suggest two examples supporting this third model: natural gas reforms and clean air regulations.

The Reagan and Bush I Administrations did a terrific job between 1983 and 1992 of reforming natural gas regulation by putting in place sound, market-based policies that have resulted in tremendous benefits to America (truth-in-advertising: I worked on these reforms as an official in both Administrations).

We don’t have time to dwell on detail, but Bradley calls much of this reform “infrastructure socialism.” By that he means that we used very heavy-handed government power to force gas transmission systems and to some extent local distribution companies to adopt a common carriage obligation so that producers and customers could deal directly with each other rather than use these natural monopolists as intermediaries. This was called open access, or, more precisely, mandatory open access.

Chaos in natural gas markets would be an understatement as to the period from the winter of 1972/73 to around 1985. Yet radical, market-oriented reforms were implemented that promoted natural gas competition on both ends of the pipeline. These reforms have stood the test of time and natural gas has made an enormous contribution to energy, the environment, and the economy. It is today the one sharp arrow in our energy quiver.

Enron Reconsidered

Enron at its birth made responsible adjustments to the new regime and built a great natural gas company. There is nothing wrong with a business taking advantage of changes in government rules promoting competition and efficiency for its own profit, and that’s what Enron did in natural gas.

Paradoxically, Enron jumped the shark after its natural gas successes, ultimately leading to the debacle of bankruptcy. It did not have to end this way and would not have if Richard Kinder had replaced Ken Lay as chairman in 1997 as both men originally planned. (Bradley will undoubtedly cover this in his trilogy finale.)

Those of you who have grey hair remember the smog problems of the early 1970s. While it got off to a rocky start, amendments to the Clean Air Act now allow for SOx and NOx trading that promotes efficient internalization of an environmental externality. One might quibble, but it seems undeniable that we have made massive progress on air pollution in a cost-effective manner.

Power Crisis Ahead?

So what does government need to do? While very often in the news headlines, we will not have an oil crisis, a natural gas crisis, or a climate change crisis any time soon. So government need not focus action on any of these. Rather, to quote John Galt in Ayn Rand’s Atlas Shrugged, government should “get the hell out of my way.”

The electricity industry, however, is far more likely to be in crisis over the next decade, largely from six phenomena.

· First, generation options are being taken off the table at both the state and federal level. Try to build a coal or nuclear plant.

· Second, promotion of renewables and electric cars, not to mention increasing reliance on digital technology impose increased demand for electricity infrastructure.

· Third, much of this new demand exposes the reality that the function and technology of electric transmission has changed radically, but we still have a set of policies intended for the 19^th century. If Edison were to come back, he would recognize today’s electric industry. Radical reform of electric transmission policy is needed.

· Fourth, one aspect of this transmission policy is to significantly preempt much of current state jurisdiction over electricity. We did it in trucks, planes, railroads, and phones. While electricity may have been intrastate commerce in the 1920s, no one can deny that it is today interstate commerce.

· Fifth, at both the wholesale and retail levels we have an incomplete transition from a highly regulated model to a competitive model. This can only be fixed by national policy.

· Sixth, seriously distorted prices set by regulation. The best analogy I ever heard to promote an understanding of utility pricing related to beef (I heard it from former FERC Commissioner Nora Brownell, herself a former state regulator). Suppose the government dictated that filet mignon and ground beef be sold for the same price. Now think about the implications for supply of both beef products. That’s a near perfect explanation of paying the same for a kWh of electricity on the hottest day of the year and at 2 am in the fall or spring.

Electricity is ever more increasingly the central nervous system of the US economy. While it gets far less press, these challenges will prove intractable over the next decade.

California

In electricity, Enron was fully in the grip of self-interested political capitalism for most of its ventures from about 1990 on. My favorite example of this is the California electric reform legislation that almost cratered California’s economy and gave us Governor Schwarzenegger. It passed the California legislature unanimously by a vote of 114 to 0 and was signed by a Republican Governor.

Yet it was a disaster, and capitalism got much of the blame. So, in general, I agree with the Bradley Project’s point about the fall of Enron, not only the rise, being a result of the perils of political capitalism.

Conclusion

Why is it important to articulate the legitimacy of some intervention when there are serious market failures? Why not just argue that all such interventions always lead to inefficiency and calamity? Legitimacy. It is the calling card to be part of the debate. The economic theory on these issues is too sound to be ignored.

I have been vilified on many occasions by those with a more libertarian streak for my advocacy to adopt the framework of economists, rather than anti-government ideologues. Many may actually be correct that there are very few market failures worth correcting.

But their failure to admit that some might and have been successful often relegates them to academic theorists rather than advocates relevant to the real world market practicalities of the debate. Frankly, market advocates need all the help we can get.

In Act IV, we will conclude with the search for a hero.

The Bradley Project provides a sturdy worldview for thinking about energy policy. Today, I will critique both recent and historical energy policy by relying on Bradley’s framework for assessing the implications of political versus market capitalism. Tomorrow I will argue the legitimate role of government in energy markets and give an example where active government policy is needed.

Back to 1973

The modern era of energy policy began on October 17, 1973, the day that OPEC announced an oil embargo against the U.S. With very few exceptions, since that day, energy policy, on both sides of political aisle, deteriorated until finally, and literally, it fell off a cliff with the Obama Administration’s embrace of the “green economy” and its hostility to carbon energy.

We have had our share of “energy crises,” and I would agree with the Bradley Project that all have been self-inflicted by bad government policy advocated and adopted on a bipartisan basis, Democrats supporting distortions on a soft path and Republicans on a hard path.

Unfortunately, we are headed for more crises in energy markets. Washington makes two fundamental mistakes when it comes to energy policy. The first is it focuses on problems that don’t exist (today’s discussion). The second is it ignores problems that do exist (tomorrow’s discussion).

Washington’s Energy Meddling

The Bradley Project does an excellent job of providing the intellectual framework that shows that many of the things that Washington is focusing on are not problems. Here is a brief list:

· Severe curtailment of coal use by EPA; it is at best premature to adopt prohibitions on coal use for climate change purposes.

· Bailouts of car companies; we don’t need the government to own a car company to ensure that electric cars are produced or unions protected.

· Curtailment of oil and natural gas exploration and production by the Department of Interior; we can produce oil and gas in an environmentally responsible manner.

· Subsidies for ethanol; despite a robust global market for oil with no realistic suggestion of limited supplies, the application of comparative advantage, no environmental advantage, and an increase in food prices.

· Promotion of renewables by DOE in too many ways to list (offshore wind happens to be my favorite whipping boy); renewables cannot possibly fill the gap in our electricity needs, even at prices so high as to cause severe consumer dissatisfaction.

· Promotion of natural gas and electric vehicles; gasoline (and diesel) will be the consumers’ fuel of choice for mobility for the rest of our lifetimes.

· Increasing miles per gallon regulations for cars, the so-called CAFE Standards (Corporate Average Fuel Economy Standards); there is no shortage of oil that justifies such coercive and anti-consumer policies.

· Energy conservation and efficiency subsidies and mandates; if markets function properly consumers need no special subsidy or mandate to choose the least-cost energy option.

· Alarmist concern about shale oil and natural gas; we now know we have supplies of oil and natural gas that were literally beyond our comprehension even five years ago.

The Bradley Project provides the intellectual framework that shows the idiocy of these bipartisan policy positions. Well-functioning energy markets render all these efforts a waste of time, money, and intellectual energy. A pox on both their houses.

The Project is also helpful on the second point: that government is not focusing on problems on which they should focus. Of these, there are two varieties: repealing bad interventions into energy markets and enacting good interventions.

Repeal/Reform Areas

The list of “laws on the books” that should be repealed or reformed is again too long for complete explication here. But here are a few that leap to mind:

· The crazy patchwork of energy supply and conservation subsidies;

· The Price-Anderson Act that limits the liability of electric utilities for nuclear energy damages;

· The process of approving new nuclear facilities;

· States that have adopted moratoria on coal plants;

· Access limits on ANWR exploration;

· State and Federal ownership of energy facilities;

· Presidential authorization of facilities that relate to energy imports and exports, like the Keystone XL Pipeline recently disapproved by the Obama Administration;

· CAFE’s impact on the technology of mobility;

· Requirements in more than 20 states that utilities must have a certain percentage of their generation that must come from renewable energy (Renewable Portfolio Standards or RPS);

· A completely superfluous program of cap-and-trade in 10 northeastern states, the so-called RGGI Project; and

· The implications for corporate paralysis caused by Sarbanes-Oxley and Dodd-Frank.

Again, the Bradley Project provides much grist for the mill as to the idiocy of many of these “on the books” laws that promote waste and inefficiency and impede economic growth. America has real problems, but these ain’t them!

Now we get to the good stuff, disagreement. Are there things that the government should be paying attention to but isn’t?  Thus my third act tomorrow.

“Edison to Enron … [is] the second part of a three-volume series on the history of American energy, told through the distinction between productive and predatory capitalism.  Bradley is a very much underrated economic historian, largely because of his ‘amateur’ [nonacadmic] status, but there is a remarkable amount of learning in his books.”

- Tyler Cowen, ‘What I’ve Been Reading,’ Marginal Revolution, November 15, 2011.

Last Friday afternoon in our nation’s capital, Robert L. Bradley, Jr., a prominent figure in the esoterica of energy markets, unveiled the Project on which he has labored for a decade before a full room at the American Enterprise Institute. Kenneth Green moderated, and comments were provided by Stephen Hayward and yours truly. My formal remarks follow.

The Project

Enter stage right, our protagonist with The Bradley Project. He has three arrows in his quiver, a trilogy of books that will be the authoritative commentary on American political capitalism and energy policy inspired by the rise and fall of Enron (where Bradley worked for 16 years).

He artfully aims his first arrow, (Capitalism at Work: Business, Government, and Energy) a political economy text that forges a path for his second onslaught (Edison to Enron: Energy Markets and Political Strategies), a history text that applies the economic principles of Book 1 to the natural gas and electric industries from their 19^thcentury inception to about 1985.

Both books are dense and lengthy–but very readable. Bradley tackles the vast literature behind subjects and provides hundreds of pages of documentation. For the most serious scholars (are there many anymore?), he provides Internet appendices per chapter, no less than 52 for Book 1 and 74 for Book 2. The extra mile seems to have been run in virtually all instances.

His actions set the economic, political, and historical stage for his yet unleashed third arrow, a text that will mine the Enron debacle and its aftermath for trenchant insights that will help both academics and energy professionals better understand what happened but more importantly, develop insight for the future regarding the nexus of politics and the market economy.

· Act I (today): the Bradley Project is brilliantly conceived, brilliantly executed, and will stand the test of time.

· Act II (tomorrow): his perspective pierces the veil that hides the excrescence that passes as the current sorry state of energy policy.

· Act III (Saturday): dare we venture that there is such a thing as sound government intervention, heretical as that may be in this crowd.

· Act IV (Sunday): the future or, who is John Galt?

Best, Worst of Times

After almost 30 years as a market advocate in energy policy, I thought I knew something about economics, but now I know more thanks to Book 1. I thought I knew something about the gas and electric industries, but now I know more thanks to Book 2.

Bradley has done something truly historical and extraordinary. His most compelling pronouncement – and historical contribution — is the inaccuracy of much of the criticism blaming deregulation or competition on dysfunctions in energy markets.

The real culprit is political capitalism, by which he means the use of the political process to gain competitive advantage. He is thus quite critical of the policies implemented and the corporations that advocate on behalf of the public interest as camouflage for their own self-interest. Enron’s enthusiasm for global warming is a prime example. But his points could not be timelier in light of the protestations of the Occupy Movement in opposition to capitalism.

It is obvious to any serious analyst that much of the critique from the Occupy Movement is well founded in that it criticizes past policy that has protected wealth from the consequences of market outcomes. The Movement goes off the rails however in blaming capitalism rather than the clowns in Washington for adopting policies that created the risks of crisis and then bailed out the wealthy participants who fell into the government’s traps. It is in vilifying the outcomes of bad policy that the Tea Party Movement and the Occupy Movement find common ground. These Movements diverge, however, on the cure for what ails us.

Book 1, Capitalism at Work, is a comprehensive journey through the great names of market economics over several centuries. One should understand the theory of capitalism before using it as a scapegoat. All I can say is that I have never found such a readable history of economics/political economy in a single book.

Given that I run a program funded by a BB&T Grant for the Moral Foundations of Capitalism at Randolph Macon College, I especially liked his first three chapters, on Adam Smith, Samuel Smiles, and Ayn Rand respectively, where he concentrates on the moral defense for capitalism, rather than just relying on its success as a societal organizing model. His use of the Enron debacle as a continuing case study to ground many of his points is very insightful and helpful to understanding the application of these principles in the real world.

Book 2, Edison to Enron, applies the principles derived from Book 1 to the most comprehensive histories of the natural gas and electric industries that I have read. I have been a natural gas and electric expert for more than 30 years and yet I found a treasure trove of fascinating stories about these industries that I had never known. Given the criticality of two industries to our economy and our future prosperity, he has provided an indispensable compendium of insight and information. It is both academically robust yet written in a readable style that makes the history gripping.

Book 3, Enron and Ken Lay: An American Tragedy, surveying the business history of the company, the court trials of Enron executives, and the post-Enron world (Enron writ large!) is a brilliant. Wait a minute, he hasn’t written Book 3 yet! Anyway, I can’t wait to see the movie.

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Ken Malloy is founder and Executive Director of CRISIS & Energy Markets! (caem!), a pro-free market think tank; a Senior Fellow with the Ocean State Policy Research Institute (OSPRI); and adjunct professor at Randolph-Macon College. At Randolph-Macon, he teaches law and economics relating to energy and environment and directs the Capitalism Matters! program.

Ken was formerly the CEO of the Center for the Advancement of Energy Markets, which he founded in 1999 to promote competition in electricity markets. Ken was named by Public Utilities Fortnightly as one of five “Energy Innovators: Ringing in an Age of Enlightenment.”  For four years, the Center produced the nationally recognized Retail Energy Deregulation Index (RED Index), a report card on 67 international jurisdictions’ electric competition policies, as well as many other studies and reports.

“The forcings that drive long-term climate change are not known with an accuracy sufficient to define future climate change.”

- James Hansen, “Climate Forcings in the Industrial Era,” Proceedings of the National Academy of Sciences, October 1998, p. 12753.

“In view of the immense power of natural weather and climate fluctuations and the great buffering capacity of the Earth, especially the ocean, it is easy to be skeptical about whether small anthropogenic changes of atmospheric composition can have important practical impacts.”

- James Hansen et al., “How Sensitive Is the World’s Climate?,” National Geographic Research & Exploration, 9(2): 1993, p. 157.

“Climate is always changing. Climate would fluctuate without any change of climate forcings. The chaotic aspect of climate is an innate characteristic of the coupled fundamental equations describing climate system dynamics.”

- James Hansen et al., “How Sensitive Is the World’s Climate?,” National Geographic Research & Exploration, 9(2): 1993, p. 143.

James Hansen has been at the forefront of the alarmist wing of climate scientists regarding the human influence on global climate from 1988 until today. But at least earlier in his career he showed some humility in the face of the enormous complexity of his subject–and the limitations of his own mind. The above three quotations from the 1990s indicate as much. (1)

Humility is out. This NASA scientist has taken a ‘Greenpeace’ approach to the environment. He KNOWS both the problem and the answer to the problem, bringing to mind F. A. Hayek’s warnings about intellectuals who claim to know social problems so well that WE (the world) must adapt their coercive solutions. Beware of what Hayek called The Fatal Conceit.

Dr. James Hansen’s latest communication, Cowards in Our Democracies: Part 1 (January 27, 2012), (parsed in red below) is interspersed by my comments (in green). My critique will continue with Hansen’s just published Part II in the near future.

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(Hansen) The threat of human-made climate change and the urgency of reducing fossil fuel emissions have become increasingly clear to the scientific community during the past few years. 

(Bradley) No! Scientific evidence for anthropogenic global ‘lukewarming’ as an alternative to catastrophic warming is gaining currency in both theory and fact. The science is not settled, much less in favor of alarmism. Notoriously complex feedback effects are where the action is, and to pretend that we know the answers, much less in alarmist form, is not only anti-science but also chilling.

Are you ‘drinking your own whiskey,’ so to speak. ‘Smoking your own dope’? The human influence on climate may well be net beneficial at the lower warming scenarios where we also have the benefits of CO2 fertilization.

Yet, at the same time, the public seems to have become less certain about the situation.  Indeed, many people have begun to wonder whether the climate threat has been concocted or exaggerated.

The public is burnt out on neo-Malthusian (false) alarmism. Paul Ehrlich’s The Population Bomb … Stephen Schneider’s global cooling fears. John Holdren’s warming and cooling fears. The running-out-of-resources fears….

If you really feared the future, why not embrace the incredible bread machine of market capitalism as the best way approach? Why energy and climate statism for miniscule climate changes rather than a wealth-is-health approach? Your grandchildren might just thank you!!

Public doubt about the science is not an accident.  People profiting from business-as-usual fossil fuel use are waging a campaign to discredit the science.  Their campaign is effective because the profiteers have learned how to manipulate democracies for their advantage.

Please Sir, there are many of us in this business who are just as well motivated and well intentioned (and intellectually grounded) as you are and who see  the problem quite differently than you do. If you demean your opponents in this way, should some of them demean you as a publicity hound who has grown rich off of the alarmist industry? 

The scientific method requires objective analysis of all data, stating evidence pro and con, before reaching conclusions.  This works well, indeed is necessary, for achieving success in science.  But science is now pitted in public debate against the talk-show method, which consists of selective citation of anecdotal bits that support a predetermined position.

The contrarians questioning climate alarmism have worked hard against politically correct, government-funded science and should be commended, not deprecated.

Why is the public presented results of the scientific method and the talk-show method as if they deserved equal respect?  A few decades ago that did not happen.  In 1981, when I wrote a then controversial paper (http://pubs.giss.nasa.gov/abs/ha04600x.html) about the impact of CO2 on climate, the science writer Walter Sullivan contacted several of the top relevant scientific experts  in the world for comments.  He did not mislead the public by dredging up and highlighting contrarian opinion for the sake of a forced and unnatural “balance”.

Politicized science deserves a spanking. Climategate 1 and Climategate 2 (and probably more releases to come) show what a sorry state your side of the debate is in. My experiences with ‘moderate’ Gerald North of Texas A&M, a distinguished climate scientist in his own right, gives me more pause to your black-white view of the nature of the climate alarm.

Today most media, even publicly-supported media, are pressured to balance every climate story with opinions of contrarians, climate change deniers, as if they had equal scientific credibility. Media are dependent on advertising revenue of the fossil fuel industry, and in some cases are owned by people with an interest in continuing business as usual.

The media has been very pro-alarmist in years and decades past, but, thankfully, the media reports both sides of the story now. When you keep crying wolf, and the wolf does not show up, expect more and more skepticism, not less. Don’t kill the messenger–look in the mirror and beware of group-think with your group.

Fossil fuel profiteers can readily find a few percent of the scientific community to serve as mouthpieces — all scientists practice skepticism, and it is not hard to find some who are out of their area of expertise, who may enjoy being in the public eye, and who are limited in scientific insight and analytic ability.

By making such statements, you are throwing your support behind the poor behavior re Climategate. Plenty of skeptics exist within the “consensus” community, but their skepticism is shouted down by other community members.

With influential self-appointed gatekeepers of both science and discourse ruling the roost, opposing evidence is suppressed. Despite the best intension of the gatekeepers, such practices slow the advancement of scientific understanding, not enhance it. Closed science is unreliable science.

Distinguished scientific bodies such as national science academies, using the scientific method, can readily separate charlatans and false interpretations from well-reasoned science.  Yet it seems that our governments and the public are not making much use of their authoritative scientific bodies.  Why is that?

As you alluded to earlier, a recent poll shows that “global warming” lies last on a list of 21 potential “top priorities” that American’s think that the Obama Administration ought to be focused on. It should be of little wonder to anyone paying attention that “economy” and “jobs” are at the top of the list.

Fossil-fuel supported global warming “charlatans” are not the reason why, but I can only think the situation would be worse if climate alarmists pushing for tighter controls(taxes) on traditional energy had more influence.

I believe that the answer, and the difficulty in communicating science to the public, is related to the corrosive influence of money in politics and to increased corporate influence on the media. It is a tragic and frustrating situation, because when all the dots in the climate-energy story are connected it becomes clear that a common-sense pathway exists that would solve energy needs, stimulate the economy, and protect the future of young people.

That, sir, is an argument for the separation of government and science, and the separation of economics and politics. How about free-market capitalism rather than political capitalism?

As I discussed in “Storms of My Grandchildren”, a gradually rising carbon fee should be collected from fossil fuel companies, a gradually rising carbon fee should be collected from fossil fuel companies, with the money distributed uniformly to legal residents.  This would stimulate the economy, making it more efficient by putting an honest price on fuels, incorporating their costs to society.

Are you assuming one world government to implement what you see as the solution to a ‘market failure’? Do you see the current political impasse for climate policy as a form of realistic ‘government failure’ that must be compared to ‘market failure’ before advocating climate taxation? 

Remember this:

“We have at most ten years—not ten years to decide upon action, but ten years to alter fundamentally the trajectory of global greenhouse emissions.”

- James Hansen, “The Threat to the Planet,” New York Review of Books, July 13, 2006.

Is it time for adaptation instead of mitigation by your own reckoning with time running out?

“Captains of industry” told me they would prefer such a course with knowledge of a steadily rising carbon price, which would stimulate innovations in efficiency and clean energies.

Captains of industry–or of crony capitalism?  Ken Lay? James Rogers? T. Boone Pickens? Jeffrey Immelt? Who else?

Despite the obstacles presented by the role of money in politics and by the huge advertising campaigns of the fossil fuel industry, the urgency of addressing the climate-energy issue demands that we do the best that we can to inform the public.

And what about the much larger budgets of anti-market, pro-statism environmental groups that just might not like more lives and better living? Can you question their motivations and results too? What if these same groups funded human needs or the arts and sciences instead of promoting climate alarmism?

One of the things we can do is try to expose how the public and our democracies are being manipulated for the benefit of those profiting from the public’s fossil fuel addiction.

History, anyone? Can you take the time to appreciate how the world’s “fossil fuel addiction” enabled the industrial revolution to allow the quality and quantity of human life to reach undreamt levels?

What is your real agenda if it is not affordable, reliable energy for the masses to tame nature and live better lives? And might you have your own addiction … to yourself as Scientist-King?

For that purpose I provided the witness statement below in support of an effort to reveal the name of the seed funder of the Global Warming Policy Foundation (GWPF) in the UK. GWPF is “successful” in casting doubt on the reality and significance of human-made climate change.

The newsletters of Benny Peiser, Director of GWPF, can be quite entertaining and sometimes include useful references.  He pings the impracticality and costliness of an energy approach that relies excessively on renewable energies.  But ultimately his purpose seems to be to persuade the public that climate science is flawed.

I don’t know if GWPF is supported by the fossil fuel industry, but it seems to me that the public has the right to know.  Ultimately, I hope and believe, the public will be able to appreciate how our democracies are being twisted by people with money for their own purposes.  But that requires freedom of information.

If your agenda is supported by wind or solar companies, or by anti-growth neo-Malthusian monied foundations, would that be just as bad?

And remember Enron. Enron was the leading U.S. company behind climate alarmism. Was this a good thing–or maybe not?

Finally, does a business have a right to fight against government coercion that interferes with its profitability, particularly when the supposed bad is carbon dioxide?

One final thought, Sir. Alarms in the mission of restricting economic and personal freedom deserve critical scrutiny–please don’t kill the messenger.

(1) Previous posts on James Hansen at MasterResource can be found here.

The Impact of Decreased Drilling Permit Approvals on Gulf of Mexico Businesses found that 41% of businesses are not making a profit. Other statistics of decline:

* 76% have lost cash reserves

* 27% of businesses have lost more than half of their cash reserves

* 50% of businesses have laid off employees as a result of the moratoria

* 39% of businesses have retained workers but reduced salaries and/or hours

* 46% of businesses have moved all or some of their operations away from the Gulf of Mexico

82% of business owners have lost personal savings as a result of the permit slowdown

* 13% of business owners have lost all of their personal savings as a result of the slowdown

Even if the current administration’s anti-energy policies are reversed, this study demonstrates that there is an opportunity cost in terms of lost business that will never be recovered. As the Pelican Institute has previously reported, over 10 oil rigs have already left the Gulf and more could leave soon in the absence of a reasonable regulatory environment that allows for robust energy production on the part of those companies with a proven safety record.

Additional information was given in yesterday’s press release:

NEW ORLEANS — Today, Greater New Orleans, Inc., the economic development agency for the 10-parish Greater New Orleans region, released a study titled The Impact of Decreased Drilling permit Approvals on Gulf of Mexico Businesses. This research initiative was prepared to determine the effects of the Federal Deepwater Drilling Moratorium, as well as the ongoing impacts of the decreased approval rate for deep- and shallow-water drilling permits, on small and mid-sized businesses in Louisiana.

“Offshore service and supply companies are the core of the oil and gas industry in Louisiana,” said Lizette Terral, President, New Orleans Region, J.P. Morgan Chase Bank. “These small- and mid-sized companies are dependent on activity in the Gulf for their business, and as a result they have been disproportionally hurt by the ongoing permit slowdown.”

In response to this slowdown GNO, Inc. conducted a survey of companies in the oil and gas support sectors to gauge the impacts of the permit approval rate on businesses with operations in Louisiana. The survey included 102 respondents which conduct or offer assistance to exploration and production in the Gulf of Mexico.

Participants in the survey represented small, medium, and large offshore supply and service companies in numerous industries. Answers provided included details on the revenue, cash reserves, employment, business plans, and personal finances of their respective companies.

The release concluded:

“Small- and mid-sized companies are the hidden victims of the permit moratorium and ensuing slowdown,” said Michael Hecht, President and CEO of GNO, Inc. “While global companies can simply shift their assets, these Louisiana companies—through no fault of their own—have endured significant, and now documented, financial hardships.”

Through this study, GNO, Inc. has determined that the federal moratorium and the permit slowdown created significant negative “unintended consequences” for local businesses. While larger companies have deep cash reserves and the ability to shift assets outside of the country, Louisiana businesses dependent on the Gulf of Mexico for business have experienced significant financial hardship.

[For further information on the report, contact Matt Wolf of Greater New Orleans, Inc.]

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

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

The European Commission’s (EC) just-published Energy Roadmap 2050 (Roadmap) updates its last analysis (which I criticized here) of EU forced-energy-transformation projects to 2020 , as well as  scenarios reducing greenhouse gas emissions to 80-95% below EU 1990 levels by 2050. The forecast is stated (postmodernism?) as coincident with the need for energy security and affordability.

As one should ”follow the money” when it comes to political capitalism, one should “follow the assumptions” when it comes to any roadmap pertaining to a post-carbon-based energy world.

1. Renewables The share of renewable energy sources is projected to be 75% in gross final energy consumption and 97% in electricity consumption by 2050. Electricity is projected to provide a substantially increased share of final energy demand reaching almost 40% by 2050 versus just over 20% today. A chart on page 5 of Roadmap shows renewable targets of 40–60% versus the above-75% as reported on page 4.

Either way the renewables portion is unrealistically high.

2. Costs The costs involved are substantial. Cumulative grid investments alone could be 1.5 to 2.2 trillion Euros between 2011 and 2050 according to the Roadmap. Remember much of this will have to be front-loaded to provide the infrastructure to theoretically support the projected deployment of renewable energy sources, and could easily be under-estimated given the uncertainties of such long term projections.

To this must be added an amount in the same order of magnitude for the renewable generation plants. Then there is also the additional cost of duplicate capacity of conventional generation plants required to compensate for wind’s unreliable and erratic behavior. These very high costs are consistent with those I previously described here and here.

Interestingly, as part of the process, the EC saw fit to establish an ad hoc Advisory Group (Group) to provide independent, expert advice on the proposed Roadmap. The following is a brief review of this energy policy approach in terms of the Group’s report published in December 2011.

Ad Hoc Advisory Group for Expert Advice

The composition of the Advisory Group appears to be appropriately diverse, which it should be. From their report:

By the very nature of the Group’s membership, views on major aspects of the Energy Roadmap inevitably differed, sometimes strongly.

I am not familiar with most of the members, but I note the presence of David MacKay, the Chief Scientific Advisor to the Ministry of Energy and Climate Change in the UK. He is noted for his very rational book Sustainable Energy – Without the Hot Air. The Group chairman, Dieter Helm, holds a number of advisory board appointments in Britain and Europe. During 2011, he was a special advisor to the European Commissioner for Energy. Some earlier comments by Helm critical of EU energy policy can be seen here.

The Group made nineteen recommendations couched in reasonable-sounding general terms that would be expected from such a well qualified, high-level, diverse committee on a very politically charged subject.

The Group’s report shows about the same number (by my count) of caveats, the presence of which should give pause to anyone in the consideration of the EC’s revolutionary plan to overhaul energy systems. The use of the term “revolutionary” is not my characterization of the European energy policy: it is the EC’s own description in its “Background Paper”.

Among the more notable caveats are:

The IEM [Internal Energy Market] and the climate change package confront Europe with an enormous challenge, the scale of which is yet far from apparent to the general public (who will have to pay for the investments) and indeed to many governments. (p. 6 – emphasis added).

These enormous investments must be achieved whilst ensuring security of supply and protecting and enhancing the competitiveness of the European economy – in other words, all three objectives (decarbonisation, security of supply, and competitiveness) need to be met simultaneously (p. 7 – the emphasis is in the original text).

The price implications for consumers would need to be communicated and part of the role of the Roadmap should be to engage with the public on the full costs and implications of the radical transformation that decarbonisation implies (p. 4).

Summary of Caveats

The caveats extend across a number of categories and the following is a generalization of their impact.

1. Picking Winners

The Roadmap is very oriented to picking winners for reduced carbon technologies, specifically renewables and energy efficiency, over the period projected.

Given the period of four decades, a host of uncertainties, new technologies and changes in the nature of the European economy and society as a whole are likely to play out in ways that it would be foolish for anyone to try to predict.

There were very strong differences between members of the Group on the extent to which the Commission should be technology-specific in the Roadmap, especially in respect of renewables and energy efficiency.

There were very strong differences of opinion on the issue of additional intermediate targets. Some members expressed support for a rolling forward of the renewables and energy efficiency targets, highlighting impacts on investors and infrastructure implications. Others argued against such targets, highlighting the problem of “picking winners”, the need to take account of technical change, the role of gas, and the problems of lobbying and capture.

The issue of intermediate targets is an important one. If implemented, it would further reinforce in the ongoing policy direction the questionable approach of picking winners.

Also, the use of the term “Roadmap” was pointed out as a misleading characterization.

Some members of the Group considered the term “Roadmap” as overused, with various organisations giving the term very different meanings. The importance of considering a range of possible transition paths to decarbonisation has the corollary that there is no one single ‘Roadmap’, but rather many” (emphasis is in the original text).

A significant problem with picking winners, and thus relying substantially on their success, is the consequence of having restricted options in the event of their failure to deliver. This is particularly true in the critical energy sector, especially electricity, where long lead times are unavoidable for virtually all alternatives.

2. Coincidence of Objectives

As a reminder, these are decarbonisation, security of supply, and competitiveness. From the Oxford Concise Dictionary: coincidence – a remarkable concurrence of events or circumstances without apparent causal connection.

From the Group report:

Some members of the Group considered that intermittent renewable technologies may, if developed to a substantive or dominating share of the energy market and not complemented by appropriate measures, create issues in respect of security of supply, and for many members of the Group the problem of carbon leakage remains a substantive one, if other countries do not follow the EU’s lead.

The first part of the quote speaks to very valid concerns about the security of supply.

The second speaks to competitiveness, as “carbon leakage” refers to the negative impact of low-carbon policies on EU industries’ competitiveness leading to the export of industrial production to other countries that do not have equivalent carbon restrictions. The EU avoids the carbon emissions, but imports the related products from carbon producing industries elsewhere.

Again from the Group report:

The problem of carbon leakage is not limited to [competition from] China, India and the US. Leakage to countries on the EU’s borders was specifically mentioned, and in this context the importance of the ECT [European Energy Community Treaty] was emphasised. In the absence of appropriate policies and measures, energy intensive industries on Europe’s borders could evade the carbon reduction costs, and export their products back into the EU. Additionally, higher carbon electricity generation could be generated just outside Europe and then fed back in as and when the European-wide electricity grids develop.

3. Electricity Grid Changes

Much of the projected changes to the EU electricity grid are claimed to accommodate volatile renewable electricity production. I have previously commented on the folly of justifying such investments on this basis here. As noted above, the grid “upgrades” could also be taken advantage of by neighbouring countries to facilitate their export of more conventional generation to and within the EU. This would help somewhat to offset the risk to security of supply inherent in the EU electricity policies, but undermines one of the intended objectives of the Roadmap – decarbonization.

It is questionable what such networks will contribute. With wind and solar massively implemented across Europe, the grid “upgrades” provide nothing close to claimed geographic “smoothing” of their electricity production. As a result there is no realistic opportunity to tame their inherent unreliability and volatility by moving unwanted renewables production between different areas.

Also, any added “intelligence” could be used to inappropriately control use by customers. Apart from this undesirable rationing of electricity to accommodate the volatility of new renewables, there are increased severe cyber security risks and other problems associated with this approach as previously described here and here.

Further:

In respect of a number of European dimensions, members of the Group drew particular attention to first, the extent to which infrastructure was more cost effective if developed for the internal market as a whole. Insufficient attention has been paid to modelling a European electricity and gas transmission network linked to pan-European production sites (super grids), rather than solely considering links between the member states. Such modelling and the recognition of the impacts of technical change for grids should be explicit in the Roadmap and its role in implementing the IEM should be emphasised….

Second, the gains to security from interconnection, and hence the creation of considerable Europe-wide portfolio effects from new infrastructure, should be explicitly modelled in the Roadmap….

Third, the key role transmission plays in facilitating the development of renewables and support, given their intermittency and their locations (frequently not coincidental with the major load centres), should be incorporated into the scenarios and their implications.

4. PRIMES Model Issues

The PRIMES model was developed for forecasting, scenario construction and policy impact analysis up to the year 2030. It is a simulation used mainly to analyse, for example, impacts of carbon emission trading and of renewable and energy efficiency policies on energy markets within each of the 27 Member States. One obvious comment about this model is: what are the implications of extending this methodology further into a 2050 timeframe?

It should be stressed that it was not the job of the Group to comment on and critique in detail the PRIMES model, but rather to consider how it fed into the scenarios and the Roadmap.

The Group expressed a number of concerns about the model and its use.

Members of the Group raised a host of questions, and as a result a number of key points emerged. Essentially what matters is the assumptions that feed into the modelling of the scenarios, and the Group stressed the need for the Commission to be very explicit about these assumptions, as well as testing sensitivity to changes in these exogenous variables….

The Group was concerned about the transparency of the PRIMES work, and in particular the property rights in the algorithms and detailed internal workings of the model. Whilst assumptions were published, the model remains the private property of the National Technical University of Athens. The consequence is that independent parties cannot replicate the results. This is a commercial matter for the Commission, but members of the Group pointed out that it does have obvious consequences for the credibility of the Roadmap.

5. Incompleteness of Modelling Scenarios

By its nature the modelling process appears to have contributed to pre-determining outcomes.

There was also concern about the extent to which the scenarios chosen might be interpreted as the main or only ones the Commission was considering. Criticism was also made of the possible interpretations of the titles given to the scenarios, and that these might encourage the public debate to focus on particular technologies rather than the broader policy framework. By separating out scenarios, common themes may be lost….

The Group was concerned that under each scenario the implications for security of supply and competitiveness might not be fully explored….

A number of members expressed more general scepticism about the methodology, and in particular the wider tendency to structure the energy policy around these scenarios rather than a wider framework of policy.

6. Broader Energy Planning Needed

Extending the last quote above:

Members raised the question of domain, and the extent to which the Roadmap should focus on energy in the wider sense, rather than place too much emphasis on electricity. The view was expressed that decarbonisation of electricity was more straightforward than other energy sources and uses, and that the Roadmap should explicitly recognise all these other energy dimensions, rather than focussing exclusively on electricity. The role of transport – and in particular the electrification of transport – was emphasised by the Group, with significant consequences for the design and expansion of the electricity networks and almost complete decarbonisation of electricity production. The rationale for separate Roadmaps for transport and energy was therefore questioned, as was the provision of separate finances for the two sectors in the EU’s budgetary arrangements. Recognition of the wider role of the oil and gas sectors in the Roadmap and the avoidance of too narrow an emphasis on the electricity sector was stressed.

7. Market Considerations

In the Background Paper the Roadmap is claimed to be necessary to allow market forces to function.

The Group drew attention to the fact that most of the current low carbon technologies (notably wind and solar) were being supported outside the market, hence reducing the scope and role of the IEM due to be completed by 2014.

Helm has previously commented on this with respect to the 2020 energy policy as follows:

This is where the collision comes with the unbundling and competition agenda. To effect this radical climate change package, electricity systems need to be radically reformed. This requires planning and coordination. It also requires that the planning and coordination integrate generation, networks and supply. But it is at the core of the competition and unbundling agenda that systems are disaggregated and that policy is replaced by market prices and contracts. These two policy approaches—and the two separate EU packages—need to be reconciled.

Also in this category is the view on carbon pricing. The Group appears to acknowledge the need for some aspect of this.

The Group agreed that a carbon price was one necessary and crucial element in the transition, though there were different views as to how central it should be. Some members placed great emphasis on this market-based mechanism, and in particular its role in avoiding picking technological “winners”. Others viewed the role of the carbon price as one component in a package of technology-driven measures.

I personally question the use of carbon pricing because of the complexity of this issue. I suggest that it is fraught with considerable unintended consequences.

Also the EUETS (EU Emissions Trading System) was reviewed as a market-based mechanism.

Members of the Group considered the possible flaws in the EUETS design and some members of the Group expressed a considerable degree of scepticism about the future role of the EUETS. Others regarded the EUETS as central to EU climate change policy….

An alternative under consideration is to give special treatment under the EUETS to energy intensive industries facing international competition. Notwithstanding the appeal to some lobbyists and its broader political appeal, this approach has a number of obvious drawbacks, not only weakening the EUETS, but also implying higher reductions (and less permits) for the rest of industry.

Also from Helm elsewhere, the following:

So whilst a price of carbon is at the core of the package via the EU ETS, the politicians are reluctant to let the market sort out the cheapest option. Wind has its role, but it is not cheap. And it is a mature technology too, so it does not merit special ‘infant industry’ protection.

8. Assumption That Other Countries Will Follow the EC Lead

This is a critical assumption, which emphasizes the questionable foundation of the EC energy policy. The quote from the Group below should not be looked at in the limited geographic context as indicated.

“The Roadmap is being prepared on the assumption that other countries will play their part in addressing what is a global and not just a European problem. The implication is that the Roadmap will influence energy policy beyond the EU’s borders – in the Balkans, North Africa, Eastern Europe, South East Europe and the Caspian states. One member, stressing the importance of universal global access to electricity, regarded this as a core issue for the Roadmap.” (Emphasis is in the original text)

Conclusions

I do not see how one can overlook the cumulative effect of the many concerns raised for such a massive, revolutionary change in the vital area of energy:

• Bureaucrats picking winners involving massive investments
• Lack of general understanding of the challenges by the EU citizens and many affected governments of the implications, including costs
• Questionably coincident objectives
• Selected scenarios that pre-determine outcomes versus establishing a policy framework
• Questionable modelling within this flawed context of selected scenarios
• Dichotomy of intentions to foster a market approach and centrally determined solutions
• Incomplete global context considerations

One is reminded that, for at least the past 100 years, significant elements in Europe have a notable record of extremist, failed initiatives in many areas, including judicial, political, economic, racial and military affairs. The current EU energy policies should be seen as another example of questionable extremism.

This panel of independent experts has provided sufficient warning.

‘Wow!’ I thought. That depletes the EL supply-side strategy, leaving just industrial wind and distributed (micro-solar)–and maybe a little biomass.

I was reminded of this when I read a recent article in ClimateWire (sub. req.), by Lacey Johnson, “Boom in Solar Panels injects NIMBY Battles into Neighborhoods.”

The story begins with Barbara Katz, whose hilltop home in historic north Baltimore, amid roaming wildlife, was threatened by her neighbor’s plan to install a 600-panel solar array. Johnson reports:

“My initial reaction was, ‘Oh my gosh, this is going to be an eyesore,’” remembers Katz, who was confronted by a plan for more than 600 ground-based solar panels on her neighbors’ lawn. “No one would want this in their backyard. It looks like it’s an industrial park.”

Johnson continues:

It takes a good deal of work — and regulations — to keep suburban communities looking picture perfect, and arrays of shiny solar panels don’t always fit the vision homeowners have for their neighborhoods. All over the country, citizens like Katz have begun organizing to block renewable energy projects, throwing a wrench into some peoples’ plans to “go green.”

She reports that while the U.S. solar industry enjoyed a business boom last year due to government subsidies and falling costs, this “good news for the environment” was also “an annoyance for residents who are invested in keeping up the traditional appearances of their surroundings.”

The NIMBY (“not in my backyard”) problem has gone from landfills and power lines to wind farms and residential solar arrays, Johnson adds. In response, the solar lobby wants to differentiate their product from blight. Homeowners associations should look at “”someone’s roof looking slightly different” from “painting your house yellow polka dots,” stated one solar installer.

But for Katz, the negative externality of micro-solar is about economics too:

“The whole backside of my house faces that — the kitchen, dining room, living room, bathroom and a lovely cut stone patio,” said Katz, who believes the panels would also destroy the ecosystem of birds and animals that pass through her yard. “The neighborhood is not opposed to renewable energy and being green,” she explained. “Folks who have signed the petition are doing so because they feel it will lower the property value of their homes.”

Johnson goes on to report that many states’ “solar/wind access” policies protecting homeowner solar or wind systems are often overruled by bylaws of homeowners associations and historic districts. In Aspen, Colorado, for example,

residents are required to notify their neighbors before installing any solar array larger than 200 square feet — barely half the size of a small rooftop. Homeowners are then subject to public hearings and could pay up to $500 for a residential solar review. The regulations were adopted by Pitkin County last summer, after a family 15 miles north of Aspen, in Snowmass, complained about a blinding glare reflecting off their neighbor’s panels.

Johnson’s piece continues:

“When I saw pictures, it was really bad,” admitted Mike Tierney, the owner of a local installation company, Aspen Solar. “It would be tough if it was my house and I had to look at it every day.” He said the regulations, which create extra paperwork and expense for his customers, have already taken a toll on his business.

Ending the piece on an optimistic note, Johnson describes new efforts by scientists and architects to make “smarter” solar technology such as solar shingles (a Dow Chemical project) to “make aesthetic problems, like glare, a thing of the past.”

But can this be done in any sort of a cost-effective manner? And if not, what does this say about the resource costs (think emissions) of the whole effort?

This, indeed, is the curse of dilute energy versus the dense energies of oil, gas, and coal. It is the curse of the sun’s (dilute) flow versus the (dense) stock of the sun’s work over the ages.

With the fossil-fuel era still young, on-grid solar might have to wait for another century, if not millennium.

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1. Christopher Flavin, Comments at a conference on the Department of Energy National Energy Modeling System (March 30, 1998, Washington, D.C.). Flavin would prefer distributed solar to distributed natural gas, however. Robert Bradley, “The Increasing Sustainability of Conventional Energy,” April 22, 1999, p. 10 & fn. 41).

Giberson is also a principal (with fellow energy expert Lynne Kiesling of Northwestern University) of the energy-centric Knowledge Problem, described as “Commentary on Economics, Information, and Human Action.”

A month ago, Giberson critically reviewed a study by the Breakthrough Institute that claimed, basically, that government energy activism crucially enabled the shale gas (and oil) revolution that is now sweeping much of the United States and many countries around the world.

“New Investigation Finds Decades of Government Funding Behind Shale Revolution,” announced Breakthrough on December 20, adding:

Breakthrough Institute research and interviews show the direct and sustained support federal agencies provided to the gas industry leading up to the modern natural gas revolution.

And virtually on the same day (Giberson was on holiday), a rebuttal came at Knowledge Problem (reprinted with separate comments at  Energy Collective) that is now part of the national debate.

On Tuesday night, the Breakthrough Institute trumpeted Obama’s mention under the headline “Obama’s Energy Revolution,” adding:

In his State of the Union, President Barack Obama referred to the findings of a Breakthrough Institute investigation, which found that 30 years of federal funding led to the shale gas revolution.

Given the high-stakes debate, MasterResource is pleased to repost, in its entirety, Giberson’s analysis–and his challenge for deeper research.  The debate is joined.

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In the Washington Post the folks at the Breakthrough Institute try to learn us some history about the shale gas boom. Maybe you think the shale gas boom was some big surprise suddenly made real after the decades-long work of a hard-headed oil and gas guy – George Mitchell – willing to spend millions of dollars on the crazy idea that hydrocarbons stuck in a rock could be produced economically, once the right mix of technologies could be brought to bear.

Wrong, says the Breakthrough Institute, credit the shale gas boom to the federal government.

They have their reasons:

• “Slick-water fracking, the technology that Mitchell used to crack the shale gas code, was adapted from massive hydraulic fracturing, a technology first demonstrated by the Energy Department in 1977.”
• “Mitchell learned of shale’s potential from the Eastern Gas Shales Project, a partnership begun in 1976 between the Energy Department’s Morgantown Energy Research Center and dozens of companies and universities ….”
• “Mitchell’s success depended on a revolution in monitoring and mapping technologies driven largely by government labs.”
• In 1991, Mitchell asked the publicly funded Gas Research Institute, then funded by a tax on gas production, and the Energy Department for help.”
• “Sandia National Labs provided Mitchell with many critical microseismic tools.”
• “Mitchell also benefited from 3-D imaging, which the Energy Department had long supported.”
• “The third critical technology was horizontal drilling and well installation …. In 1976, two government engineers … patented an early-stage directional drilling technology that became the precursor to horizontal drilling.”
• “A joint venture between the Energy Department and industry drilled the first horizontal Devonian shale well….

There are a few more similar points. The article pursues a larger goal – some statement concerning current energy policy support – but today I just want to consider how to assess the credit for technological advancement. (See tomorrow for part II.)

A fair analysis of credit and blame requires more than just a recounting of history, such as provided in the article, we need also to construct a counterfactual history for comparison. Should we reasonably believe that, but for the energy technology programs of the Department of Energy, we’d be unable to produce natural gas from shale? It would be difficult to do this analysis well, and the authors don’t attempt it here, but a full assessment calls for it.

A sketch of technology developments may be helpful. Note that fracturing as a well-stimulation technology started in Pennsylvania in the early 1860s. A few clever folk discovered dropping gunpowder down a well (later, dropping  liquid nitroglycerin)  often brought marvelous returns. Edward A. L. Roberts submitted a patent application for the process in 1864. Hydraulic fracturing technology was first developed by Standard Oil (Indiana) in the late 1940s.  In the 1960s, Project Gasbuggy had the federal government collaborating with the oil and gas industry to test a nuclear-weapon based fracturing technology on federal land in New Mexico. The Breakthrough Institute’s story picks up in the 1970s, but what the backstory reveals is a history of efforts to develop fracturing technology, funded privately in some cases and publicly in others. Department of Energy involvement may have shaped the direction of research, but I suspect its pool of research funds was merely convenient to technological advancement and not necessary. (More recently, GasFrac Energy Services of Alberta has pioneered a propane-based fracturing technology.)

Directional drilling, a precursor to horizontal drilling, first became practiced in the industry in the 1920s – well before “two government engineers … patented an early-stage directional drilling technology” in 1976. (See “Slanted Oil Wells,” published in Popular Science magazine in 1931.) As with hydraulic fracturing,  the industry found the technology quite useful in application and companies pursued technological advancements. Taxpayer funding may have been convenient support for the oil and gas industry, government research involvement may have shaped the direction of directional-drilling research, but the industry would have pursued the technology in any case.

So possibly the federal government’s involvement advanced by a few years the technologies that were finally blended in a sufficiently promising mix by George Mitchell. Even if we grant as much, it isn’t the whole of the shale gas boom that federal involvement gains credit for, just the added value that comes from shifting shale gas production forward by a few years. Of course, possibly the whole of the federal government’s involvement in the industry – tax policies, regulatory policies, antitrust policies, federal lands policy, and so on – could reasonably be counted as delaying technological advancement when compared against what would have happened under some more rational regime.

Admittedly, they were just writing an op-ed and I’m complaining that they didn’t do a dissertation’s worth of work to support it. Maybe my complaints are a little unfair.

Okay, here is an offer: I’ll admit my complaints are unfair if they admit that their analysis was insufficient to justify their conclusions.

“[D]emagogues and bad economists are presenting half-truths. They are speaking only of the immediate effect of a proposed policy or its effect upon a single group…. [The correction is] showing that the proposed policy would also have longer and less desirable effects, or that it could benefit one group only at the expense of all other groups.”

- Henry Hazlitt, Economics in One Lesson, p. 6.

There are many analyses of the President’s address to the nation last night. As last year, Obama has opened himself up to ridicule and parody (see what MasterResource did).

For this year, in what could well be his last such speech, MasterResource presents timeless logic to unmask the fallacies spewed by our quick-fix, anti-market commander-in-chief.

“Green jobs’? The government-created ones for industrial windpower and for on-grid solar power?

Enter Henry Hazlitt, whose Economics in One Lesson, first published in 1946 and last revised in 1988 (Hazlitt died in 1993), exposes the fallacy of government-as-jobs-creator.

This excerpt is from chapter 1, “The Lesson,” of Hazlitt’s classic of 2oth century economic literature.

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Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics, or medicine — the special pleading of selfish interests.

While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.

In this lies almost the whole difference between good economics and bad. The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.

The distinction may seem obvious. The precaution of looking for all the consequences of a given policy to everyone may seem elementary. Doesn’t everybody know, in his personal life, that there are all sorts of indulgences delightful at the moment but disastrous in the end? Doesn’t every little boy know that if he eats enough candy he will get sick?

Doesn’t the fellow who gets drunk know that he will wake up next morning with a ghastly stomach and a horrible head? Doesn’t the dipsomaniac know that he is ruining his liver and shortening his life? Doesn’t the Don Juan know that he is letting himself in for every sort of risk, from blackmail to disease? Finally, to bring it to the economic though still personal realm, do not the idler and the spendthrift know, even in the midst of their glorious fling, that they are heading for a future of debt and poverty?

Yet when we enter the field of public economics, these elementary truths are ignored. There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way of economic salvation; and when anyone points to what the consequences of these policies will be in the long run, they reply flippantly, as might the prodigal son of a warning father: “In the long run we are all dead.” And such shallow wisecracks pass as devastating epigrams and the ripest wisdom.

But the tragedy is that, on the contrary, we are already suffering the long-run consequences of the policies of the remote or recent past. Today is already the tomorrow which the bad economist yesterday urged us to ignore. The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed.

From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

Nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson. Those fallacies all stem from one of two central fallacies, or both: that of looking only at the immediate consequences of an act or proposal, and that of looking at the consequences only for a particular group to the neglect of other groups.

It is true, of course, that the opposite error is possible. In considering a policy we ought not to concentrate only on its long-run results to the community as a whole. This is the error often made by the classical economists. It resulted in a certain callousness toward the fate of groups that were immediately hurt by policies or developments which proved to be beneficial on net balance and in the long run….

It is often sadly remarked that the bad economists present their errors to the public better than the good economists present their truths. It is often complained that demagogues can be more plausible in putting forward economic nonsense from the platform than the honest men who try to show what is wrong with it. But the basic reason for this ought not to be mysterious.

The reason is that the demagogues and bad economists are presenting half-truths. They are speaking only of the immediate effect of a proposed policy or its effect upon a single group. As far as they go they may often be right. In these cases the answer consists in showing that the proposed policy would also have longer and less desirable effects, or that it could benefit one group only at the expense of all other groups.

The answer consists in supplementing and correcting the half-truth with the other half. But to consider all the chief effects of a proposed course on everybody often requires a long, complicated, and dull chain of reasoning. Most of the audience finds this chain of reasoning difficult to follow and soon becomes bored and inattentive. The bad economists rationalize this intellectual debility and laziness by assuring the audience that it need not even attempt to follow the reasoning or judge it on its merits because it is only “classicism” or “laissez faire” or “capitalist apologetics” or whatever other term of abuse may happen to strike them as effective.

Obama, meet Henry Hazlitt–and please consider hiring new advisors as a first step toward repentance.

“The release of energy from splitting a uranium atom turns out to be 2 million times greater than breaking the carbon-hydrogen bond in coal, oil or wood. Compared to all the forms of energy ever employed by humanity, nuclear power is off the scale. Wind has less than 1/10th the energy density of wood, wood half the density of coal, and coal half the density of octane. Altogether they differ by a factor of about 50. Nuclear has 2 million times the energy density of gasoline. It is hard to fathom this in light of our previous experience. Yet our energy future largely depends on grasping the significance of this differential. “

- William Tucker, excerpted from his lecture, Understanding E=MC₂

William Tucker has powerfully explained how the future of technologically advanced civilizations depends upon a sophisticated ability to convert the highest energy densities into increasingly denser power performance, and in the process compacting the time and space necessary to do productive work.

In fact, Tucker wrote an excellent book about this, Terrestrial Energy: How Nuclear Energy Will Lead the Green Revolution and End America’s Energy Odyssey. In light of the excerpt from that book recently posted at Master Resource, I thought readers of this forum might find my review from two years ago (see below) of interest, particularly if they have not yet read Tucker’s book.

The Primacy of Energy Density

Rockefeller University’s Jesse Ausubel has demonstrated that the trend in energy usage continues along a decarbonizing trajectory. Improvements in technology combined with a communal desire to live longer and more healthfully have spurred this phenomenon. Given a choice, who wants to live in a town where thousands of chimneys cast off carbon by-products like sulfuric smoke and soot? Civilization will continue decarbonizing apace, whether this aligns with climate change alarmism, or not.

Connected to Ausubel’s idea is Vaclav Smil’s credible proposition that there is a fundamental societal chain reaction cascade involved with discovering energy densities, which then produce greater power densities, each generation of which leads to even greater energy/power densities, in ways similar to that described by Moore’s Law.

For the last 150 years, we have briskly moved beyond wood and wind, fire and horses to harness the energy within the electro-magnetic force that, among other things, generates electricity, which development continues and will become crucially important as science hones in on advancing the potential of nanotechnologies and the capacity of quantum computing, making our digital world seem quaint.

But to really get at energy densities that will empower planetary and interplanetary work, which is what the future will demand, we’ll require the energy of the greatest force we know, the strong nuclear force, the one that binds together the nucleus of atoms.

Of course, this initiative is well on its way, beginning with Einstein and Bohr more than a hundred years ago, continuing through the Manhattan Project, and made manifest contemporaneously by many nuclear power stations for the production of electricity, here and abroad. But…

Prometheus Bound

There are those who think nuclear power, with its vast density, is far too dangerous for the likes of mortals to use responsibly, similar to how the Greek gods felt about giving humanity fire. This has resulted in tightly bounding the Prometheus of nuclear technology in chains of such onerous regulation that the cost of the technology, in time and dollars, has, de facto, become prohibitive. It has also produced a quavering political atmosphere in the US that prompted President Jimmy Carter to outlaw the reprocessing of nuclear waste material, leading both to large stockpiles of the stuff that would otherwise not exist and recurrent political finger pointing about where and how to store it.

The nuclear industry does itself no favors when it nonsensically insists, for reasons of cupidity and political correctness, that renewables like wind are respectable players in the energy marketplace. For this idea gives succor to those who so dislike nuclear they would substitute wind for it, as is now the case with Angela Merkel’s Germany—a palpably bizarre outcome, where the German Colossus now seeks to be powered by the mythic giants of Spain’s greatest work of fiction, at a conservative cost of trillions of euros.

Recent events have only added to nuclear’s woes. New techniques for extracting Marcellus shale deposits have substantially reduced the cost of natural gas, leading to prices as low as $3 MMBtu. Many economists believe such a price leaves nuclear uncompetitive as a baseload source of power for electricity—despite having a national capacity factor approaching 95%.

Fukushima

And then there’s the Fukushima debacle. Although there are many who think the Fukushima nuclear event was a grand success story for the technology, because…

—Despite enduring one of the largest earthquakes ever recorded, eventuating in one of the worst tsunamis ever to hit Japan; despite decades of administrative dimwittery by Japanese nuclear bureaucrats; despite efforts by melodramatic media reports and fear mongering politicians; despite loopy projections from a medical journal that tied over 14,000 U.S. deaths to the Fukushima reactor (talk about bad science)—the Japanese Government, after screening over 160,000 people in the general population through March 2011 for radiation exposure, found no cases that affected overall health. None.

Virtually all the nearly 16,000 confirmed Japanese deaths were caused by the earthquake and tsunami. The Fukushima plant itself was antiquated and in need of upgrades—but no one wanted to spend the money. Still, radiation levels from the incident may prove not at all deleterious for people who were evacuated from the affected region and who wish to return.

U.S. Nuclear

Here in the U.S., the nation’s largest electricity grid, the PJM, has used nuclear power for nearly 40 percent of its electricity for many decades, without incident, or even much threat of incident. The US Navy’s nuclear fleet is the envy of the world.

Nonetheless, a climate of fear and new extraction techniques for energy densities appropriate for most contemporary power demand, leading to cheaper competitive fuels, will keep nuclear advances at bay for a time, at least in large parts of the West and certainly in the US.

This situation won’t last. At the time I wrote my review of Tucker’s book, natural gas was relatively expensive, for a variety of reasons, some of it even related to the market. Shale gas is a game changer today. Nonetheless, in the longer term, I don’t think it will appreciably modify the ultimate lure of nuclear, given its vast energy density, so many times greater than oil.

Moreover, it’s unclear how long natural gas prices will remain at these present low levels. And it’s uncertain how long the supply will last. Perhaps another generation or so. Perhaps another century. It will eventually be depleted.

The mining of energy density is what produces greater power density machines, as was the case for coal, gas, and oil. This tandem will cascade very rapidly in the future, creating new expectations for power that can only be met by increasingly higher power density machines, which can only be fueled by increasingly higher density energies, etc.

As Tucker explains, the highest energy densities are found in an atomic nucleus via the strong force. Solar derivatives like fossil fuels and hydro will likely continue to provide the bulk of our power density needs for several generations to come. However, although the energy densities here complement the energy densities from various chemical reactions (rockets to the moon, for example), they still pale beside those of the strong force.

Breakthroughs for safer deployment of nuclear power will not be long in coming, though, whether they’ll be in the form of enhanced thorium reactors, which would do away with uranium or plutonium, or smaller, modular “micro” nuclear plants delivering about a third of the installed capacity of current units working at scale. There are already many designs for improved fast breeder reactors. Tucker provides a sampling of the possibilities. Both China and India remain committed to a nuclear future and continue to invest in research and development that may soon lead to safer fission processes.

Conclusion

If past is prologue, what the world of the future will want is greater prosperity enabled by the highest power densities. To obtain that prosperity, culture will fabricate responsive and increasingly interactive machines powered by high-energy concentrates. Sooner than later, technology will cross a threshold of expectations that only nuclear power can meet, accelerating at warp speed the ability to do more work in less time in smaller spaces. More power means greater productivity.

Which means more clothing, food, and shelter for the entire world. It also means future Mona Lisas created by people now mired in bone-crushing poverty, as well as the exploration for Martian water. And more time to sip new blends of lunar coffees while discussing Zeno’s Paradox.

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Award-winning journalist Bill Tucker begins this important book with a fair-minded review of the evidence that human activity is contributing to the greenhouse effect implicated in accelerating the warming of the earth. He concludes that, while the science remains provisional and somewhat equivocal, annually dumping 30 billion tons of CO₂ into the atmosphere is likely to have some impact on climate—enough for reasonable people to be sufficiently alarmed about the practice to want it stopped, or substantially reduced. How to achieve this goal effectively while enhancing, even extending, technology that preserves the energy requirements of modernity is the subject of the book.

Energy enables modern society by heating our homes and businesses, providing for vast transportation systems, and producing electricity. Transportation, mostly in the form of automobiles, produces over 30% of our nation’s CO₂ emissions. Consumption of electricity accounts for 39% of all energy use in the United States, which includes nearly a third of the energy produced for heating and a tiny fraction now involved in transportation. However, because more than 70% of the power for electricity comes from the burning of fossil fuels, with 50% from coal alone (20% from natural gas, 2.5% from petroleum), electricity production emits 36% of all the greenhouse gasses humans dump into the atmosphere, with coal-fired plants contributing 30% of the total.

Only two of the five conventional power sources, hydro and nuclear, produce “clean” power, emitting no CO₂. As Tucker documents, though, hydro, perhaps the most effective of all power sources and still generating 7% of the nation’s electricity power, has already developed most of the best hydro sites while fomenting significant environmental damage, with each dam typically degrading hundreds of miles of sensitive watershed habitat.

The Sierra Club has opposed hydro for most of its existence because of this reason, with its founder, John Muir, fulminating about the aesthetic loss to his valley when the redoubtable Hetch Hetchy Dam was built nearly a hundred years ago. Nuclear plants, which provide 20% of the nation’s electricity, also produce at high levels without polluting the environment, but fears about radioactivity and the storage of waste material, not to mention the possibility that nuclear materials may be diverted for terrorist purposes, have given the industry such a problematic reputation that no new nuclear facilities have been built in the country for nearly thirty years.

The ten electricity grids that produce and transmit electricity in the continental US are mandated to provide reliability at affordable cost with high security. Electricity demand is today very predictable, always existing at some basic level, atop of which, as human activity ebbs and flows, mid and peak demand levels occur; each demand cycle also contains continuous demand fluctuations, as people and businesses turn their appliances on and off. Grid operators match power with demand at a better than 99% accuracy, dispatching heavy duty generators like nuclear, large coal, and, where it is abundant, hydro, to engage basic demand (which consists of about 40%-50% of a day’s electricity consumption), then deploying highly reliable but smaller units to meet mid and peak demand periods, as well as rapidly-responsive generators to balance demand flux.

Terrestrial Energy is a marvelously told tale presenting the ineluctable case for expanding the role of electricity to more than 50% of our total energy use, with nuclear as the primary supplier for basic demand, replacing coal—in the process substantially reducing our production of greenhouse gasses and other pollutants. Tucker shows this is no fantasy, since France (and Sweden) has for years harnessed nuclear for this purpose, giving France the second-lowest level of CO₂ emissions in Europe (Sweden is first). With clean burning nuclear providing much of our electricity, battery-powered automobiles (assuming significant future improvements in their performance) and other transport can simply be recharged by plugging into the grid, thus also avoiding the CO₂ from our present fleet of internal combustion engines.

Tucker not only demonstrates how nuclear facilities achieve stunning performance, given that nuclear energy is two million times more potent than the energy contained in fossil fuels, which are in turn exponentially more powerful than renewable fuels; he also demythologizes the nattering, well-intentioned concerns about their safety. He summons the ghost of Carl Sagan: we’re all “star stuff,” with radioactive heat forged in supernova explosions, then settling over everything, including our own sinew, providing Earth’s internal heat that makes life on earth possible. He shows that radioactivity is as natural as air, and that radiation is merely energy in motion—it’s all around, and coursing through us every second. The issue of concern is one of dosage.

To determine “safe” levels, Tucker examines the effects of the accidents at Three-Mile Island and Chernobyl, and looks at epidemiological studies in the wake of the nuclear bombing of Japan, providing sober context for understanding, from a scientific perspective, what the health risks for nuclear really are. Even more intriguing, he cites several studies focusing upon hormesis—the idea that chronic low doses of radiation are beneficial, stimulating the immune system. As for “waste” material, Tucker proves the concern is a bagatelle, for nuclear fuel can be almost wholly reprocessed, as France does it.

For those seeking a preview about what the next several years may bring in terms of energy policy, go directly to Chapter 15, “The California Electrical Crisis.” California’s penchant for “renewables” mirrors the interest in those technologies today. Despite over 15,000 huge wind turbines and massive investments in solar technology, “the state found itself in the midst of an electricity shortage in 2000—something no other advanced nation has ever experienced.”

One consequence of more than 25 years of emphasizing renewables and conservation, following that coquettish pied piper of “soft energy,” Amory Lovins, is that Californians now pay among the highest prices for electricity in the nation, getting 41% of their electricity from expensive natural gas, while continuing to increase their carbon emissions. Tucker’s account ought to be the basis of a screenplay for a Monty Python full-length feature, with enough incompetence, venality, and wishful thinking to make the novelist/essayist Tom Wolfe happy.

Even in the United States of Amnesia, it should be enough to provide a lesson in precisely what not to do in the quest for an effective energy policy that drastically reduces CO₂.

Tucker could have been clearer about the limitations of today’s mainline “renewables”: wind and solar. Wind especially. For it’s incompatible with demand cycles, typically producing most when demand is least; its relentless skittering destabilizes the grid, making conventional generators work harder to balance it, with thermal consequences that largely subvert any CO₂ emissions offsets induced by wind energy; and it produces no effective capacity–prescribed levels of energy on demand–with the consequence that it can never take the place of any reliable conventional generators that do produce effective capacity, including coal. All conventional generators produce their rated capacities, or a desired fraction thereof, when dispatched to do so.

However, no one can be sure of how much wind (or solar) will be available at any future time. Neither wind nor solar can satisfy base or peaking demand, since they’re not dispatchable or dependable.

Any journalist who these days can gracefully weave together an accurate account of the reciprocal nature of the speed of energy (radiation), matter, time, and distance with Huber and Mills’ laws of efficiency deserves the greatest respect. He also makes use of such cultural treasures as Blondie at Tudbury’s and Jubilation T. Cornpone. Terrestrial Energy is an honest, even wise, undertaking in the best tradition of journalism in a democracy, for successful democracy insists upon an informed citizenry. It’s at risk when leaders base policy on hot air and hokum, as the recent California energy history suggests.

Those concerned about a better energy future should recommend this book to all in their circle, presenting it as well to politicians, policy wonks, environmental leaders, and media representatives. Three cheers for Bill Tucker.