“Hansen’s most recent editorial has received sharp criticism for the over-reach of his claims about climate science. But what the media isn’t covering is an unprecedented call for an environmental trade war with America’s largest trading partner. Let’s hope they catch up to that aspect of the story.”

In a recent editorial assault on Canada’s oil-sands, climate activist extraordinaire James Hansen (NASA) has basically declared war on Canada’s economy (not to mention our own). Hansen wrote:

Global warming isn’t a prediction. It is happening. That is why I was so troubled to read a recent interview with President Obama in Rolling Stone in which he said that Canada would exploit the oil in its vast tar sands reserves “regardless of what we do.”

He goes on to suggest that the U.S. actually take actions against the interests of our neighbors to the north:

President Obama has the power not only to deny tar sands oil additional access to Gulf Coast refining, which Canada desires in part for export markets, but also to encourage economic incentives to leave tar sands and other dirty fuels in the ground.

This is truly astonishing: a high ranking official at NASA has taken to the pages of the New York Times to lobby the President of the United States to physically embargo Canada’s oil, and impose economic sanctions against Canada to force them to eschew tar-sand development and export.

Writing with a group of scientists (including Peter Gleick of pilfered-Heartland documents infamy), Hansen urges President Obama to block the Keystone pipeline that would move tar-sand oil to the Gulf, and find ways to avoid developing the resource:

The tar sands are a huge pool of carbon, but one that does not make sense to exploit. It takes a lot of energy to extract and refine this resource into useable fuel, and the mining is environmentally destructive. Adding this on top of conventional fossil fuels will leave our children and grandchildren a climate system with consequences that are out of their control. It makes no sense to build a pipeline system that would practically guarantee extensive exploitation of this resource.

When other huge oil fields or coal mines were opened in the past, we knew much less about the damage that the carbon they contained would do to the Earth’s climate system and to its oceans. Now that we do know, it’s imperative that we move quickly to alternate forms of energy—and that we leave the tar sands in the ground.

And Hansen is not alone. Climate activist Bill McKibben (350.org) is right there with him:

“The tar sands of Canada are the second largest pool of carbon on Earth, only after the Saudi Arabian oil fields. We plumbed those Saudi Arabian oil fields 70 years ago, when no one had heard of global warming.

If we do the same kind of thing, make the same kind of investment, produce the same volume of oils from Canada, then as Jim Hansen at NASA – our leading climate scientist – put it not long ago, it will be essentially game over for the climate. That’s about as strong language as you’re likely to get from a scientist, and it’s a reminder that we need to leave carbon in the ground.”

The crusade even has a song on YouTube:

Leave the tar sands in the ground;

The coal under mountaintops

Cuz we need clean air in our lungs;

and clean water in our cups.

Yes we can say no tar sands;

this pipeline points to hell

and true homeland security;

is something you don’t sell.

But as Bruce Carson, Executive Director of the Canada School of Energy and the Environment points out in the journal Policy Options, that would be unbearably painful for Canada:

The energy sector represents the largest single private investor of capital in Canada and continues to attract the single largest slice of foreign direct investment, and these investments are spread across the country. The energy sector is a major economic driver for Canada, accounting for 6.8 percent of Canada’s GDP in 2008 and directly employing 276,000 persons, or about 1.9 percent of total direct employment in Canada. In 2007, oil exports alone generated nearly $70 billion for the Canadian economy.

The Canadian Energy Research Institute (CERI) estimates that the oil sands industry alone will add 3 percent to Canada’s GDP by 2020 and will create, during the period to 2020, 5.4 million person years of employment, 44 percent of which will be outside Alberta. Currently the oil sands industry contributes toward 112,000 jobs across Canada and, according to CERI, over the next 25 years it is expected to contribute over 11 million person years of employment to Canada and $1.7 trillion to the Canadian economy.

It would feel pretty bad on our end too:

• Trade between the United States and Canada is huge and growing. Total trade between the two countries was worth $676 billion in 2008 — more than one million dollars a minute.
• Canada is the biggest export market for U.S. products. Moreover, Canada ranked Number 1 in 35 states as the leading export market for goods in 2008, and Number 2 in 11 others.
• Trade creates jobs in the U.S. More than 8 million U.S. jobs depend on trade with Canada. That’s 4.4% of total U.S. employment — 1 in 23 American jobs depends on free and open trade with Canada.

And the anti-Canada crusade is particularly shocking when you consider that Canada and the U.S. are a common market when it comes to energy:

Canadians and Americans share the closest energy relationship in the world. Energy infrastructure—including oil and gas pipeline networks and electricity grids—is tightly integrated. Canada is the United States’ largest and most secure supplier of oil, natural gas, electricity and uranium.

In 2009:

• Canada provided energy exports to the U.S. valued at $76.27 billion, while Canada’s energy imports from the U.S. totaled almost $11.5 billion.
• Recent data indicates that Canada supplies the U.S. with 9% of its total energy demand.
• Canada exported almost 2.5 million barrels per day of crude oil and refined products to the United States.
• Canada provided 87% of all U.S. natural gas imports, representing 12% of U.S. consumption.
• Canada and the United States share an integrated electricity grid and supply almost all of each other’s electricity imports.
• Hydroelectric power, a clean, renewable source, accounts for nearly two-thirds of Canada’s electricity generation, and is a significant component of Canada’s electricity exports to the United States.
• Canada supplied approximately one-third of the uranium used in U.S. nuclear power plants.

Hansen’s most recent editorial has received sharp criticism for the over-reach of his claims about climate science. But what the media isn’t covering is an unprecedented call for an environmental trade war with America’s largest trading partner. Let’s hope they catch up to that aspect of the story.

“The way in which even a mature, supposedly quite ‘drilled out’ region—such as the United States—continues to add oil and gas reserves confirms the crucial influence of technological change and questions whether the very notion of fixed stocks and exhaustibility has much value in resource supply analysis. After all, industry operators do not regard their reserves as nonrenewable: they will invest in exploration and development to create new capacity.”

- G. C. Watkins, “The Hotelling Principle: Autobahn or Cul de Sac?,” The Energy Journal, Vol. 13-1, 1992, pp. 22-23.

The gains in U.S. crude oil production in just the past four years have been impressive. Here is where those gains are coming from.

U.S. crude oil production, after sinking to levels not seen since the mid-1940s, rose more than half a million barrels per day between 2007 and 2011. That size of increase has not been witnessed in the U.S. for more than forty years.

The source of that large gain certainly did not occur in the federal offshore, which, with 2011’s unusually sharp drop of nearly 240,000 barrels per day netted an increase of just under 30,000 barrels per day over the four-year period. It was onshore (including state waters) where production r0se from a 2007 low of 3.7 million barrels per day to 4.3 million barrels per day, a surge of some 570,000 barrels per day.

This increase does not even include the jump in the nation’s output of natural gas liquids (NGLs), which reached a record 2.18 million barrels per day in 2011 – an increase of 400,000 barrels per day since 2007.

NGLs and crude oil increases together yield a gain of nearly 1 million barrels per day in just four years – an increase of nearly 15 percent. And these increased barrels mean increased jobs. According to the Bureau of Labor Statistics, the number of Americans now employed in oil and gas development and support activities has grown by more than 100,000 in five years – from 344,000 jobs in mid-2007 to 454,100 in March 2012.

Zeroing in on Crude Gains

The accompanying chart breaks out crude oil production’s increases and declines for major states and federal offshore regions. Texas and North Dakota clearly stand out as major forces behind the increase, with 373,000 b/d and 296,000 b/d gains, respectively, between 2007 and 2011. But 15 other states (including a 40,000 barrels per day net rise for the Gulf’s federal offshore) collectively account for another 200,000 barrels per day.

Based on Energy Information Administration (EIA) data, liquids production from federal leases rose less than 60,000 barrels per day over this period. On the other hand, more than 90 percent of the increase in liquids output came from non-federal lands. When all oil, natural gas, and NGL production from federal leases are combined, the total (on a BTU basis) dropped nearly 9 percent and, from 2003, by more than 20 percent. Applaud the initiatives on private and state lands for leading the energy production drive: combined production of oil, NGLs, and natural gas on non-federal lands jumped 26 percent from 2007 to 2011.

Rising Stars

Texas and North Dakota are the two states with the largest increases. They contain the plays with the highest rig counts, and together have added tens of thousands of direct jobs in the oil and gas industry over the past four years. A future article will look at the other states also contributing to the increase in U.S. crude oil production, since advances in technology are producing a continental resurgence.

NORTH DAKOTA

North Dakota’s production has surged an impressive 240 percent over the past four years, thanks to developments in the Williston Basin, which includes the Bakken and the Three Forks plays. Throughout the 1990s and early 2000s, crude oil production in North Dakota plodded along at less than 100,000 barrels per day, sourced from about 3,000 wells. But thanks to independents’ efforts in deploying horizontal drilling and fracturing technology, production moved past the 100,000 barrels per day mark in 2006, averaged over 400 thousand barrels per day in 2011, and most recently has reached nearly 560,000 barrels per day, producing from over 6,000 wells.

North Dakota has replaced California as the third largest producing state after Texas and Alaska. Currently, around 200 rigs are active in the state, almost all drilling horizontally. Compare that with 40 rigs in 2007. The Bakken has been covered in previous articles, including the dramatic changes in its estimated technically recoverable reserves and infrastructure challenges.

TEXAS

Though holding on to its title as the largest producing state, Texas’ production steadily declined from the 1970s through the middle of the last decade. Then, production leveled off for a few years and rose modestly by 65 thousand barrels in 2010. But 2011’s increase of nearly 290,000 barrels per day made the change of course unmistakable, a volumetric increase the size of which had not been seen in that state for more than half a century. By early 2012, Texas production was reaching 1.7 million barrels per day. While Texas has many plays, two of special significance are the Eagle Ford in southwestern Texas and the Permian in western Texas and parts of New Mexico.

Production in the Eagle Ford counties averaged only about 3,000 barrels per day as recently as 2009, but reached nearly 140,000 barrels per day in 2011. Last year’s increase alone, at over 100,000 barrels per day, accounted for roughly a third of the year’s entire increase in Texas crude oil production. The rapidity of the rise for Eagle Ford can be seen in projections by some for April 2012 of over half a million barrels per day (Bentek projection as cited by EIA). Currently, more than a quarter of all active rigs in Texas are at work in the Eagle Ford.

The Permian Basin has been a target of oil and gas exploration and development since the first well was drilled in 1921, and currently hosts 65,000 producing oil wells – about 40 percent of all oil wells producing in Texas. However, because of technological advances, estimates of technically recoverable reserves there have grown significantly, and activity has picked up. Still, there are challenges, including water management in a region with many competing water needs and the danger of a dunes sagebrush lizard listing under the Endangered Species Act, which would impose restrictions on development.

America’s Evolving, Bountiful Resources

U.S. gains in crude oil production, though especially strong in some regions, have been widespread among many key producing states. Technological advances in which independents have played a significant part have been game changers across a broad spectrum of American resource plays. Look for future Declaration of Independents pieces to cover other important regions.

Less than a year ago, I reported a positive reversal in U.S. liquids production through 2010. Add another 300,000 barrels per day to American liquid production for 2011 annual average. So far in early 2012, the trend, if anything, has accelerated; U.S. liquids production in January and February has already been beating the 2011 average by an additional 660,000 barrels per day.

This has helped U.S. import dependence drop from 50.4 percent in January 2010 to just under 40 percent in February 2012. This demonstrates that oil and natural gas resources, at least the economically and technically recoverable kind, are not a static figure, but can evolve dramatically when technological advances and human ingenuity come into play.

———————-

Julia Bell is Manager of Public & Industry Affairs at the Independent Petroleum Association of America (IPAA) in Washington, D.C. This article was produced by IPAA’s economics team of Frederick Lawrence and Ron Planting.

“This may be less a rebranding than a full-scale retreat. The message that the climate is falling around mankind’s head … has failed to gain much political traction across the nation. In the process, the environmental movement has lost much of its luster and credibility.”

National environmental groups, conceding that global warming has lost much of its heat as a political issue, are now engaged in what the political online magazine Politico describes as a “rebranding.” Says Politico, “There’s been a change in climate for Washington’s greenhouse gang, and they’ve come to this conclusion: To win, they have to talk about other topics, like gas prices and kids choking on pollutants.”

For the power business, this could turn out to be a positive development. It might expunge carbon dioxide from the regulatory libretto and refocus the ongoing opera bouffe on familiar themes. Perhaps we can drop the self-reverential handwringing about “carbon footprint” and worry about real, tangible, legally defined nasties such as SO_x, NO_x, and rocks.

Full Retreat?

This may be less a rebranding than a full-scale retreat. The message that the climate is falling around mankind’s head, pushed by environmental groups and former Vice President Al Gore for more than a decade, has failed to gain much political traction across the nation. In the process, the environmental movement has lost much of its luster and credibility.

The first priority of the Obama administration and its Democratic majority in Congress after the 2008 presidential election—cap-and-trade legislation—not only failed, but crashed and burned around the heads of the Democratic Party. The regulatory overreach gave the Republicans the political equivalent of heat-seeking missiles, and the GOP has used these weapons to punish Democrats. Take a look at this graphic from the Gallup polling organization to see what has been happening to support for environmental causes.

Behind the Failure

Why did the political message of man-made global warming fail? Aside from the fundamental problems involved in an issue that contained at least as much hype, non sequitur, and unstated political agenda as it did science, the doctrine of manmade global warming has a serious message debility. It doesn’t connect directly to the lives of the people it is alleged to affect. Climate change—which is historically the rule and not exceptional—happens very slowly. People do not experience climate discretely, as they do their economic circumstances.

So the climate catastrophists tried to focus on things that average folks do experience. All they could come up with that touches most people is weather, which, as Mark Twain famously noted, is something that everybody talks about but nobody does anything about. People do experience it. So the message of why we need to stop producing carbon dioxide, a conventionally harmless, even necessary and life-giving gas, switched to preventing extreme weather. Every hurricane, tornado, snowstorm, drought, flood, and famine became living evidence of the malign hand of man on the climate, according to the green liturgy.

But that hasn’t worked, either, in large part because it is totally bogus. Blaming every extreme weather event on the handiwork of man vitiates any science that is behind global warming. In focusing on weather extremes, the environmental groups rendered their hypothesis of manmade global warming unfalsifiable. In short, it stopped being science and became faith, one that few Americans were prepared to accept.

Alarmist Reset

So it’s retreat, or rebranding, or whatever euphemism one might choose. You could also call it “back to basics,” in that the green groups say they are going to resume talking about asthma, public health, and the old messages of the pre-climate change days.

The Natural Resources Defense Council’s Heather Taylor told Politico, “We’re going to talk a lot about the health implications of dirty air.” American University public relations professor Matthew Nisbet, who advises green groups on messaging, wrote recently:

In a polarized America, if you are going to build support for candidates in the Midwest and other battleground states that will back legislation on climate change during the next Congress, you have to switch focus to emphasize public health and economic resilience, goals realized through incremental actions like eliminating coal plants and boosting fuel efficiency.

Politico described the new tactic as “a bit of bait and switch: Help elect global warming fighters by basing campaigns on kitchen-table issues.”

Less Politics Ahead?

Whatever the reason for the retreat, it is good news for those in the power industry who face persistent regulatory challenges to their operations. The move back to basics puts the regulatory debate back on common and familiar ground: real pollution, not the faux version represented by benign carbon dioxide.

It’s old whine in even older bottles. That’s probably a good thing for the regulatory debate.

———————————-

Kennedy Maize is executive editor of MANAGING POWER magazine.

A consensus of the world’s leading scientific bodies and governments has proved that our current way of life, in which individuals can produce, consume, and procreate as they choose, is unsustainable and self-destructive. We must, therefore give the government the power it needs to end the threat that we pose to ourselves.

This is, of course, the central narrative of the Green movement’s call for a ban (partial or total) on the lifeblood of industrial civilization, hydrocarbons, in the name of preventing global warming.

To many Americans, this narrative seems airtight. The “consensus” of “science” is portrayed as a virtually unanimous collection of ruthlessly objective minds all independently arriving at the same inexorable conclusion from the same unambiguous data.

But if they read Merchants of Despair by Robert Zubrin, they will not only learn some of the fallacies of the global warming narrative in particular, they will see that this exact narrative of a “scientific” claim that freedom is unsustainable has been used in the past to promote coercive population control and eugenics policies, killing millions and bringing misery to millions more.

They will also see that the “scientific consensuses” of the past–that the earth can only hold so many people, or that freedom of procreation leads to a disastrous design in the gene pool–were utter pseudo-science. And, most importantly, they will understand how this was possible: the “scientists” in question were steeped in and corrupted by a deeply false philosophy–the same philosophy underlying the Green movement today.

“Anti-Humanism”

Pulling no punches, Zubrin calls this philosophy “anti-humanism.” Its “fundamental thesis” is “that human beings are pathogens whose activities need to be suppressed in order to protect a fixed ecological order with interests that stand above those of humanity.”

Every word of this characterization is crucial. “Pathogens” captures two crucial common philosophical views about human beings. One is the view that man is irrational and destructive by nature. The other is collectivism–individuals are defined by their membership in some collective order: the society, the race, the ecosystem, “with interests that stand above those of humanity.”

Thinkers of any field who internalize and maintain this view will invariably, when looking at human action, interpret any problem (real or not) as an inevitable consequence of leaving irrational individuals free, and have little moral hesitation in applying “solutions” that coercively punish these morally insignificant individuals “whose activities need to be suppressed.”

The story Zubrin tells bears this out.

The population control advocate, following the theories first popularized by Thomas Malthus, says that free individuals will inevitably procreate beyond their means, and so the government must decide who gets to have children and even who gets to live. The eugenicist, misapplying the theory of evolution by natural selection (which, tragically, Darwin himself did to some degree), says that free individuals will inevitably procreate to contaminate the quality of the gene pool, and therefore must be forcibly sterilized or, in the most consistent, Nazi interpretation, eliminated entirely.

The “environmentalist,” applying pseudo-scientific ideas of the ecosystem as a fragile stasis that man disrupts, rather than as a dynamic system of competition that he must strive to prevail in, says that free individuals will inevitably destroy their environment in their quest to improve it.

Theory and Practice

The book is an incredibly ambitious blend of theory and practice. Zubrin takes ideas from the minds of theoreticians (such as Thomas Malthus) to the policy recommendations of intellectuals to the brutal practice of politicians. We see how Thomas Mathus’s “scientific” idea that population, uncoerced, would rise disastrously was used by the British government to inflict unnecessary suffering during the Irish potato famine and later food shortages in India.

We see how coercive population control is shamefully present in America’s history, from bankroller John Rockefeller III to political advocate Adlai Stevenson to the incentives for forced sterilization in US foreign aid programs. Fundamentally, we see how easy it is, when the government declares itself the arbiter of science, for a false scientific theory to hold a deadly intellectual monopoly that can cow the public into submitting to atrocities.

Merchants of Despair is an inspiration for free-market energy advocates to better understand, expose, and counter the anti-human philosophical premises that have led to so much destruction. If the public understands that today’s “scientific” bullying is a repeat of a deadly pattern, a pattern driven by wrong ideas,  the view of the Green movement will change radically. And if we offer a positive alternative, one that exalts the capacity of the free, individual human mind to solve problems, we will succeed.

While Zubrin has done us an invaluable service in compiling this narrative, much more work is needed on the part of professionals in our field to perform a philosophical and historical evisceration of the anti-human Green movement. Zubrin is not a professional historian or philosopher (though he is highly knowledgeable about both fields) a fact that comes out in his exaggeration of certain thinkers’ views.

For instance, Zubrin portrays Thomas Malthus as an unapologetic advocate of population control, by using certain quotes taken out of context. For example, Malthus said, when discussing Ireland, “this population should be swept from the soil.” But the relevant part of the sentence in context is “this population should be swept from the soil into large manufacturing and commercial Towns.” While Malthus popularized the finite-resources premise behind population control, and should be held responsible accordingly, he himself resisted these implications of his ideas.

Zubrin makes a similar mistake in the portrayal of Charles Darwin as an advocate of eugenics. Darwin held certain false beliefs that partially inspired the eugenics movement, but he himself explicitly rejected eugenic measures.

But whatever the book’s flaws, the overall narrative is both valid and sorely needed in today’s culture. Zubrin has performed an invaluable service by providing the essential progression by which bad fundamental ideas shape science and policy, and I, for one, am inspired to continue the important work he has started. I hope many others are, too.

You can buy Merchants of Despair here. To hear my interview/discussion with Zubrin about the book on Power Hour, including some interesting disagreements, go here.

The idea that wind, which represents less than 3% of total electricity generation in the country after huge taxpayer benefits and state mandates, could threaten the continued use of fossil fuels in electric generation is fantasy. It  demonstrates a general ignorance about wind energy’s purpose and its limited contribution to our energy portfolio.

While we might forgive a newspaper editor’s misunderstanding of the complexities of renewable energy policy, it’s quite another thing to see the same level of ignorance on display on Capitol Hill by the very people tasked with understanding and voting on these policies.

Last month, the House Subcommittee on Select Revenue Measures invited fellow House members to speak on behalf of bills they introduced or co-sponsored that would extend more than sixty expiring tax provisions, including the PTC. Of the nearly thirty witnesses who testified, one-third pressed for immediate extension of the credit.

Representatives Bass and Welch from New England, Deutch of Florida, Reichert of Washington and others repeatedly echoed the same AWEA talking points about job creation, the need to reduce reliance on fossil fuel, risks of climate change and, my favorite, economic opportunity for their state.

Like the Times, they touted the importance of the U.S. remaining a strong global clean energy market.

And like the Times, not one of those advocating for the PTC had a clue about the role of the subsidy in the power market or the likely outcome if the subsidy were to expire. Either that, or political expediency ruled the day and they didn’t care.

PTC and RPS Policy Links

In the early 1990s, following enactment of the PTC, there was no demand for wind power. States did not have renewable mandates and by time the Asian Financial crisis hit, oil prices collapsed taking with them any financial incentive to install costly renewables. When energy prices recovered somewhat, there was an uptick in wind development but it was concentrated in four states with renewable programs — California, Iowa, Minnesota and Texas.

In the years 2000, 2002, and 2004, the PTC expired and wind development stalled, but in that same period, energy prices were fluctuating, the 9/11 terrorist attack shocked the US economy, and we slipped into recession. Claims that expiration of the PTC alone caused wind development to stall are overly simplistic. In fact, given available data, it’s impossible to isolate the PTC’s affect. Some energy experts maintain the PTC was largely irrelevant in those years.

After 2004, the subsidy may have contributed to growth, but so did State policies mandating renewables.[1].

When states adopted Renewable Portfolio Standards (RPS) [2] as a means of addressing climate change, wind installations showed marked growth. Legislators believed claims made by wind proponents that wind, with no fuel costs, would protect ratepayers from dramatic swings in fuel prices, and eventually stabilize and lower energy prices. In return, they envisioned a transition to more renewables, the decommissioning of older fossil plants and cleaner air.

But wind is an unpredictable, non-dispatchable resource that’s built long distances from load and largely delivers energy at a time of day and year when least needed. With high upfront costs and fewer hours to spread the cost over, wind cannot compete with reliable, lower-priced fossil and nuclear generation. It’s inherently a low-value resource, that demands above market prices.

The PTC subsidizes project capital costs by providing an outside revenue stream [3] for investors and project owners. The credit, in turn, artificially shields ratepayers from the true price of wind power.

Yet, federally subsidizing wind is not enough to incite utilities to buy.

RPS policies created demand for wind [4] by establishing non-competitive segments of the power market for qualifying renewables. Today, over half of the states have RPS policies which apply to more than 50 percent of total U.S. electricity load.

Life after the PTC: No Free Lunch

The PTC and RPS combined provide the wind industry a market for its energy and a means of shielding ratepayers from the true cost of their product. But the PTC disproportionately benefits ratepayers in States with renewable mandates by distributing the high cost of wind to taxpayers at large.

Some complain that Americans are double-paying for wind — once through above-market energy prices and again in their taxes—but this is not true. In fact, we are paying the true price of wind allocated in both the rate-base and the tax-base. If the PTC were to expire, people living in Georgia, Wyoming and other states with no RPS policies would rightfully be relieved of subsidizing policies enacted in other states. But what would happen in states with mandates?

Existing wind projects that are still collecting the PTC would not be impacted, but proposals for new wind would be under pressure to significantly lower their capital costs and improve their production numbers in order to account for the lost federal revenue. In addition, the value of the renewable energy credits would likely increase, thus placing even more upward pressure on renewable energy prices. Legislatures will be forced to confront the real cost of wind power and evaluate whether the policy will ever deliver on goals originally envisioned.

The AWEA insists the PTC is an effective tool to keep electricity rates low. In fact, it is nothing more than a cost imposed on all taxpayers in order to accommodate development of a politically well-connected, high-priced, low-value resource that cannot meet our electric capacity needs.

[1]Wind also benefited from rising natural gas prices (over $5 per million BTU) making wind power contracts an attractive way to displace higher-cost natural gas generation.

[2]RPS policies mandate utilities supply a minimum percentage of their customer load with electricity from qualified renewable sources.

[3] The open-ended subsidy of 2.2¢/kWh in after-tax income represents a pre-tax value of approximately 3.7¢/kWh.. The PTC is tied to the Consumer Price Index (CPI) and therefore is scaled each year. Today, the PTC costs US taxpayers $1.5 billion per year.

[4] Wiser, R., Namovicz, C., Glelecki, M., Smith, R., Renewables Portfolio Standards: A Factual Introduction to Experience from the United States http://eetd.lbl.gov/ea/ems/reports/62569.pdf  Some states allow out-of-state generation to count toward their RPS requirements. Renewable capacity built in a non-RPS state may be used to meet another state’s mandate.

The following was published at Econlib (Library of Economics and Liberty by Rob Bradley with the editorial help of David R. Henderson.

A website project of Liberty Fund, Econlib offers concise, online classical-liberal scholarship for “students, teachers, researchers, and aficionados of economic thought.”

Mineral resources, not synthetically producible in human time frames,1 are fixed in the earth. As each is mined, less supply remains, suggesting that cost and, thus, price must increase as production cumulates.

Yet, for virtually all minerals, the opposite seems to be true: As more is mined, more is discovered to be mined. Prices and costs do not inexorably rise. What was high-cost yesterday has become lower-cost, undercutting the perennial complaint that “the easy stuff has been found.” Overall, there seems to be little difference between minerals and general goods and services.

The mineral paradox is explainable if we recognize that human ingenuity in market settings is the ultimate resource, as Julian Simon stated. Entrepreneurial discovery is open-ended. Applied to minerals, resourceship can and does find supply that, before, no one knew existed—or that no one considered exploitable. But incentives and, thus, institutions can make all the difference between potential and plenty.

Static Theory vs. Reality

“[Economic theory is] plainly inadequate for an industry in which the indefinite maintenance of a steady rate of production is a physical impossibility, and which is therefore bound to decline,” wrote Harold Hotelling in 1931 in the most cited article in the history of mineral economics.2 Yet today, over eighty years later, Hotelling’s static, formalistic framework has some real-world explaining to do.

Petroleum, the inspiration for Hotelling’s analysis and the mineral that Simon called “the most counterintuitive case of all,”3 is an example of an expanding “depletable” resource. The first estimate of proved crude oil reserves worldwide, made in 1944, was 51 billion barrels.

Today, that number is 1.4 trillion barrels, and cumulative production in the last 66 years has been twenty times the original estimate.4  Natural gas and coal proved reserves have also increased several-fold despite decades of production.5  Reserves of tin, copper, iron ore, lead, and zinc were also higher in 2000 than in 1950, despite the fact that production in the half century in between substantially exceeded reserves in 1950.6

The story would be similar for other minerals, from bauxite to uranium.

Solving the Paradox

The expansionist view of mineral resources is often associated with Julian Simon, who won the most famous wager in the history of economics regarding the future scarcity of minerals. Simon and Paul Ehrlich agreed that if resources were to become scarcer in the future, their prices, adjusted for inflation, would rise. At Simon’s invitation, in 1980, Paul Ehrlich et al. chose five minerals: chrome, copper, nickel, tin, and tungsten. If, in 1990, the prices of the minerals had risen, Simon would pay; if the prices had dropped, the consortium would pay.

Simon won resoundingly. The prices of most of the picked minerals had fallen in dollar terms between 1980 and 1990, and each fell in inflation-adjusted terms—despite 822 million more people consuming “depletable” resources.7

In the annals of the history of economic thought, Erich Zimmermann, of the Institutionalist school of economics, not Simon, got there first with what he called a functional theory of resources.

According to Zimmermann, resources are not known, fixed things; they are what humans employ to service wants at a given time. Human “appraisal” turns the “neutral stuff” of the earth into resources. What are resources today may not be tomorrow, and vice versa.8

Zimmermann wrote:

Resources are highly dynamic functional concepts; they are not, they become, they evolve out of the triune interaction of nature, man, and culture, in which nature sets outer limits, but man and culture are largely responsible for the portion of physical totality that is made available for human use.9

Zimmermann concluded: “Knowledge is truly the mother of all resources.”10

The functional or real-world theory clearly distinguished between the natural scientific and social scientific views of resources. “To the physicist the law of the conservation of matter and energy is basic,” Zimmermann stated. “The economist, however, is less interested in the totality of the supply than in its availability.”11  He warned: “To those who are used to view resources as material fixtures of physical nature, this functional interpretation of resources must seem disconcerting” because “it robs the resource concept of its concreteness and turns it into an elusive vapor.”12

Physical to functional; objective to subjective; absolute to relative; static to dynamic; one- to multi-dimensional: Orthodox economists ignored the real world in their quest to remake their discipline into a “hard” science based on mathematical relationships. Economists embraced deterministic ideas of known, fixed resources that enabled them to calculate the “optimal” extraction rate of a “depletable” resource.13

But this determinism came at the expense of understanding the dynamic nature of real-world resources. This explains why, time and again, economists have fallen short of finding a “depletion signal” in the empirical record, breeding false worries about “peak oil” or peak minerals in general.

Back in the 1970s, Hotelling’s framework captured the thinking of the economics profession and policymakers. “We have a classic Malthusian case of exponential growth against a finite source,” stated economist and Department of Energy secretary James Schlesinger. “[I]n five years’ time we may have chewed up most of the possibility of further expansion of oil production.”

Paul Samuelson called for a “Manhattan Project” to counter dwindling oil and gas.14  And at Resources for the Future, once a bastion of resource optimism, depletionism was de rigueur.15

Government Barriers

Resources grow with improving knowledge, expanding capital, and capitalistic policies—including privatization of the subsoil—that encourage market entrepreneurship. Resource availability decreases with war, revolution, strife, nationalization, taxation, price controls, and restrictions on access.

Man is the creator of resources, but man-qua-government can destroy and immobilize resources. Such was the lesson of America’s energy crisis in the 1970s, and it remains the lesson today with international petroleum statism.

The Institutionalist perspective of Zimmermann again comes into play: “Laws, political attitudes, and government policies, along with basic geological and geographical facts, become the strategic factors in determining which oil fields will be converted by foreign capital from useless ‘neutral stuff’ into the most coveted resource of modern times.”16

Resource economists, therefore, should focus upon institutional factors and change to explain and quantify changes in resource scarcity. Not only a country’s geological makeup, but also its legal framework and even its people’s customs, can explain the abundance or paucity of mineral development.

Conclusion

How big is the mineral-resource glass? Is it half-full or half-empty? Given the resourceship and the cascading nature of human knowledge and invention, these are the wrong questions to ask. It is not how big or how full the glass is; from a business/economics perspective, there is no glass. Thus: “Discoveries, like resources, may well be infinite: the more we discover, the more we are able to discover.”17

Should we dismiss the term “exhaustible” to describe mineral resources, as energy economist M. A. Adelman has suggested?18 Doing so would be in the tradition of Ludwig von Mises, who stopped short of assigning any special economic meaning to mineral resources.19

A methodological lesson emerges from this story. Sixty years ago,Friedrich A. Hayek expressed the following thought about the advancement of good economics: “It is probably no exaggeration to say that every important advance in economic theory during the last hundred years was a further step in the consistent application of subjectivism.”20

Hayek’s insight can be particularly appreciated in reference to mineral economics. The “fixed” character of minerals has been a siren song to economists who saw less when there was really more. The mineral economist should never forget that what resources come from the ground ultimately depend on the resources in the mind.

——————-

Footnotes

1. Minerals are a large subset of natural resources, the latter including such things as air, water, and foodstuffs. If priced, resources are economic; if, at a zero price, more is demanded than supplied, they are not scarce and are noneconomic.

2. Harold Hotelling, “The Economics of Exhaustible Resources,” Journal of Political Economy, April 1931, p. 139. [pp. 137-75]

3. Julian Simon, “Introduction,” in Simon, ed., The State of Humanity(Cambridge, MA: Blackwell, 1995), p. 11.

4. Robert Bradley and Richard Fulmer, Energy: The Master Resource. Dubuque, IA, 2004, p. 88.

5. Institute for Energy Research, North American Energy Inventory, December 2011.

6. See Sue Anne Batey Blackman and William J. Baumol, “Natural Resources,” in David R. Henderson, ed., The Concise Encyclopedia of Economics. Indianapolis: Liberty Fund, 2008. Online at the Library of Economics and Liberty.

7. Robert Bradley, Capitalism at Work: Business, Government, and Energy. Salem, MA: M & M Scrivener Press, 2009, pp. 276-78.

8. Erich Zimmermann, World Resources and Industries: A Functional Appraisal of the Availability of Agricultural and Industrial Resources. New York: Harper & Brothers, 1933, p. 3; 1951, p. 14.

9. Ibid., pp. 814-15.

10. Ibid., p. 10.

11. Zimmermann, 1933, p. 45.

12. Ibid., 1933, p. 4.

13. J. A. Krautkraemer, “Nonrenewable Resource Scarcity,” Journal of Economic Literature, (1998) 36(4): 2065-2107.

14. Paul Samuelson, “Tragicomedy of the Energy Crisis,” Newsweek, July 2, 1979, p. 62.

15. Bradley, 2009, pp. 256-58.

16. Zimmermann, 1951, p. 16.

17. Julian Simon, The Ultimate Resource 2(Princeton: Princeton University Press, 1996), p. 82.

18. M. A. Adelman, “My Education in Mineral (Especially Oil) Economics.” Annual Review of Energy and the Environment22: 13-46 (1997), p. 26.

19. Robert Bradley, “Resourceship: An Austrian Theory of Mineral Resources,”Review of Austrian Economics, (2007) 20:63-90, pp. 71–72.

20. F. A. Hayek, The Counter-Revolution of Science: Studies on the Abuse of Reason, Glencoe, Illinois, The Free Press (1952), p. 31.

The public is coming to this view, not only energy realists. In the face of repeated efforts to extend (seemingly perpetual) wind energy subsidies by industry lobbyists, taxpayers and grass root environmentalists have said: ENOUGH.

Informed and inspired by a loose but growing national coalition of groups opposed to more giveaways with no scientifically proven net benefits, thousands of citizens called their senators and representatives – and rounded up enough Nay votes to run four different bills aground. For once, democracy worked.

A shocked American Wind Energy Association and its allies began even more aggressive recruiting of well-connected Democrat and Republican political operatives and cosponsors – and introducing more proposals like HR 3307 to extend the Production Tax Credit (PTC).

Parallel efforts were launched in state legislatures, to maintain mandates, subsidies, feed-in tariffs, renewable energy credits, and other “temporary” ratepayer and taxpayer obligations.

This “emerging industry” is “vitally important” to our energy future, supporters insisted. It provides “clean energy” and “over 37,000” jobs that “states can’t afford to lose.” It helps prevent global warming.

None of these sales pitches holds up under objective scrutiny, and their growing awareness of this basic reality has finally made many in Congress inclined to eliminate this wasteful spending on wind power.

Entitlement advocates are petrified at that possibility. Crony corporatist lobbyists and politicians have built a small army to take on beleaguered taxpayers, rate payers and business owners who say America can no longer afford to spend more borrowed money, to prop up energy policies that drive up electricity costs, damage the environment, and primarily benefit foreign conglomerates and a privileged few.

To confront the growing onslaught of wind industry pressure and propaganda, citizens should understand the fundamental facts about wind energy. Here are some of the top reasons for opposing further handouts.

Energy 101. It is impossible to have wind turbines without fossil fuels, especially natural gas. Turbines average only 30% of their “rated capacity” – and less than 5% on the hottest and coldest days, when electricity is needed most. They produce excessive electricity when it is least needed, and electricity cannot be stored for later use. Hydrocarbon-fired backup generators must run constantly, to fill the gap and avoid brownouts, blackouts, and grid destabilization due to constant surges and falloffs in electricity to the grid. Wind turbines frequently draw electricity from the grid, to keep blades turning when the wind is not blowing, reduce strain on turbine gears, and prevent icing during periods of winter calm.

Energy 201.Despite tens of billions in subsidies, wind turbines still generate less than 3% of US electricity. Thankfully, conventional sources keep our country running – and America still has centuries of hydrocarbon resources. It’s time our government allowed us to develop and use those resources.

Economics 101.It is likewise impossible to have wind turbines without perpetual subsidies – mostly money borrowed from Chinese banks and future generations. Wind has never been able to compete economically with traditional energy, and there is no credible evidence that it will be able to in the foreseeable future, especially with abundant natural gas costing one-fourth what it did just a few years ago. It thus makes far more sense to rely on the plentiful, reliable, affordable electricity sources that have powered our economy for decades, build more gas-fired generators – and recycle wind turbines into useful products (while preserving a few as museum exhibits).

Economics 201. As Spain, Germany, Britain and other countries have learned, wind energy mandates and subsidies drive up the price of electricity – for families, factories, hospitals, schools, offices and shops. They squeeze budgets and cost jobs. Indeed, studies have found that two to four traditional jobs are lostfor every wind or other “green” job created. That means the supposed 37,000 jobs (perpetuated by $5 billion to $10 billion in combined annual subsidies, or $135,000 to $270,000 per wind job) are likely costing the United States 74,000 to 158,000 traditional jobs, while diverting billions from far more productive uses.

Environment 101. Industrial wind turbine projects require enormous quantities of rare earth metals, concrete, steel, copper, fiberglass and other raw materials, for highly inefficient turbines, multiple backup generators and thousands of miles of high-voltage transmission lines. Extracting and processing these materials, turning them into finished components, and shipping and installing the turbines and power lines involve enormous amounts of fossil fuel and extensive environmental damage. Offshore wind turbine projects are even more expensive, resource intensive and indefensible. Calling wind energy “clean” or “eco-friendly” is an extraordinary distortion of the facts.

Environment 201. Wind turbines, transmission lines and backup generators also require vast amounts of crop, scenic and wildlife habitat land. Where a typical 600-megawatt coal or gas-fired power plant requires 250-750 acres, to generate power 90-95% of the year, a 600-MW wind installation needs 40,000 to 50,000 acres (or more), to deliver 30% performance. And while gas, coal and nuclear plants can be built close to cities, wind installations must go where the wind blows, typically hundreds of miles away – adding thousands of additional acres to every project for transmission lines.

Environment 301. Sometimes referred to as “Cuisinartsof the air,” U.S. wind turbines also slaughter nearly half a million eagles, hawks, falcons, vultures, ducks, geese, bats and other rare, threatened, endangered and otherwise protected flying creatures every year. (This may be a very conservative number, as coyotes and turbine operator cleanup crews remove much of the evidence.) And yet, while oil companies are prosecuted for the deaths of even a dozen common birds, turbine operators have been granted a blanket exemption from endangered and migratory species laws and penalties. Now the US Fish and Wildlife Service is proposing a formal rule to allow repeated “takings” (killings) of bald and golden eagles by wind turbines – in effect granting operators a 007 license to kill.

Environment 401. Scientific support for CO2-driven catastrophic manmade global warming continues to diminish. Even if carbon dioxide does contribute to climate change, there is no evidence that even thousands of US wind turbines will affect future global temperatures by more than a few hundredths of a degree. Not only do CO2 emissions from backup generators (and wind turbine manufacturing) offset any reductions by the turbines, but rapidly increasing emissions from Brazil, China, India, Indonesia and other rapidly developing countries dwarf any possible US wind-related CO2 reductions.

Human Health and Welfare 101. Skyrocketing electricity prices due to “renewable portfolio standards” raise heating and air conditioning costs; drive families into fuel poverty; increase food, medical, school and other costs; and force companies to lay off workers, further impairing their families’ health and welfare. The strobe-light effect, annoying audible noise, and inaudible low-frequency sound from whirling blades result in nervous fatigue, headaches, dizziness, irritability, sleep problems, and vibro-acoustic effects on people’s hearts and lungs.

Land owners receive royalties for having turbines on their property, but neighbors receive no income and face adverse health effects, decreased property values and difficulty selling their homes. Once close-knit communities are torn apart.

Real World Civics 101. Politicians take billions from taxpayers, ratepayers and profitable businesses, to provide subsidies to Big Wind companies, who buy Made Somewhere Else turbines – and then contribute millions to the politicians’ reelection campaigns, to keep the incestuous cycle going.

It is truly government gone wild – GSA on steroids. It is unsustainable. It is a classic sWINDle.

Expect citizens to contact senators, congressmen, congressional committees, and state representatives to demand science-based energy policies. There are plenty of good reasons why.

___________

Paul Driessen is senior policy advisor for the Committee For A Constructive Tomorrow and Congress of Racial Equality and author or Eco-Imperialism: Green power – Black death.

The project, officially housed at this site, invites all citizens of the world to submit a six-word essay describing their feelings about Earth.

“Healthier families, cleaner communities, stronger America,” writes EPA Administrator Lisa Jackson in her own offering. Other submissions from within EPA include the existential (“Many Nations. One Planet. Our Home.”) and haikuesque admonishment (“Breathe; A Moment in Nature. Breathe!”)

Catalyzing conversation about environmental topics is certainly not out of bounds like a lot of other things the agency has been doing–and caught doing. But most people have concerns that go beyond the (improving) environment.

Many have legitimate concerns about the national economy, our struggle to create and sustain quality jobs, and the affordability of energy for businesses and families. Everyday concerns where progress has turned into regress.

It is these concerns that EPA needs to hear, especially since the agency is actively pursuing regulations and policies that have a tremendous impact on those issues.

Is EPA Listening?

Consider the suite of regulations currently in process at EPA, which together pose billions of dollars in new costs to American consumers and threaten the reliability of America’s power grid. Chief among these is Utility MACT, a new regulation that will negatively affect coal-fired power plants across the nation.

Proponents of a robust American power portfolio have pointed out that the potential of accelerated closures of coal-fired plants caused by Utility MACT could mean that power providers nationwide are forced to turn to other energy sources to replace the lost capacity, creating higher consumer costs.

In fact, this is already happening in Pennsylvania, Ohio and New Jersey, where GenOn Energy is shuttering eight plants due to “more stringent federal environmental regulations,” chief among those being Utility MACT. National studies have found that Utility MACT could shutter as much as 50,000 megawatts of capacity and cost as much as $300 billion nationwide.

Other EPA regulations such as the Cross-State Air Pollution Rule (also see here); Greenhouse Gas Regulations for Utilities stemming from Massachusetts vs. EPA (see here); and regulation of coal ash  as hazardous waste pose their own threats to affordability and reliability.

EPA’s choices are either to treat coal ash as a hazardous waste or let states decide how best to regulate the natural byproduct. The energy industry and consumer groups like PACE have made clear that EPA’s most stringent alternative – treating coal ash as hazardous waste – presents enormous logistical and financial challenges to the power sector. But is EPA listening?

Our Favorite Submissions … and Your Turn

The best outcomes for American energy policy are the product of rich and open conversation between stakeholders like power consumers and those setting important policy like EPA. That’s why PACE asked members of the public to submit their own six words for EPA.

Here are some of our favorites:

Stop making rules. Just enforce them.
Healthy communities begin with quality jobs
Cleanest air, water in 100 years
Wanted: practical, logical, feasible environmental policies
Full employment from science-based regulation
Balance of intelligent reason with stewardship?
EPA should listen to power consumers

Join the conversation. It’s easy. Directly submit here or email your response to me at lance@energyfairness.org.

Or simply submit your ideas as a comment to this post below.

So it was with interest that I read about Cato University 2012.  The July 29–August 3 seminar is a great opportunity for students  of liberty. The redone, spacious Cato Institute at 1000 Massachusetts Avenue, NW, will be the venue for the first time in many years.

“In a time of political turbulence, a presidential election, ideological posturing, and so much more,” the announcement  reads, “our nation’s capital is the perfect setting for examining the roots of our commitment to liberty and limited government and for exploring the ideas and values on which the American republic was founded.”

Continuing:

A key feature of the Summer Seminar is the people. The enthusiasm and openness of the attendees is what really makes Cato University the one-of-a-kind event it is every year. Because we hope you’ll be able to join us in Washington, we wanted to be sure you had an early opportunity to learn the details and register.

The six-day seminar, which is highlighted by a Capitol Hill dinner with Senator Rand Paul (R-KY), features some top libertarian thinkers/talks as these:

• Tom Palmer: “The Science of Liberty,” “Origins of State and Government,” “Freedom in a Historical Perspective,” “Our Lives, Our Fortunes, and Sacred Honor.”
• Steve Landsburg: “The Greatest Story Ever Told: The Amazing Story of Economic Growth,” “Creating Wealth,” “How Markets Make Things Work,” “The Power of Incentives.”
  
• Robert McDonald: “Liberty and the American Experience, Part I,” “Liberty and the American Experience, Part II,” “George Washington and the Power of Restraint.”
  
• Daniel Griswold: “Understanding Public Policy — A Primer.”
  
• Roger Pilon: “The Constitution and the Rule of Law.”
  
• Robert A. Levy: “How the Supreme Court Subverted the Constitution.”
  
• Michael Cannon: “Limits on Government Power: Obamacare and the Constitution.”
  
• Christopher Preble and Malou Innocent: “To Provide for the Common Defense: Foreign Policy and the American Constitution.”
  
• Amy Sturgis: “Property Rights, American Indians and Reservation Socialism.”
  
• Mark Calabria: “Avoiding a Future Financial Crisis.”
  
• David Boaz: “Reclaiming Freedom.”

For further details on the 2012 seminar can be found here.

Let’s hope for a good turnout. The Cato event promises to not only educate libertarians on the deeper roots of an intellectual tradition, but also attract those who are looking for a new intellectual home.

May the best ideas win!

“Regulators who don’t approve smart stuff are by elimination reducing themselves to certificators of dumb stuff. When nuclear optimism peaked, backers said that its power would be “too cheap to meter.” The bill for the smart grid is turning out to be too confusing to meter, but like in the nuclear heyday, the momentum is irresistible.”

I have some kind words for the California Public Utilities Commission’s Division of Ratepayer Advocates (DRA), its in-house department charged with representing small consumers in rate proceedings.

DRA has long been agnostic about the benefits of smart meters. But with the release of “Case Study of Smart Meter System Deployment: Recommendations for Ensuring Ratepayer Benefits,” the issue of high costs relative to benefits is on the table.

Better late than never.

Complexity Unbound

DRA’s lightly redacted public version analyzes the gap between anticipation and reality in Southern California Edison’s “Advanced Metering Infrastructure” (AMI or SmartConnect) rollout program.

The numbers are interesting, but DRA’s big point is that the CPUC has hardly any idea about what it does or doesn’t know amid the hyper complexity of smart meter costs and benefits.

AMI is now the subject matter of lots and lots of dockets, many of which appear to have little to do with it. By actual count, the commission must track more than 130 different costs and 50 projected benefits, probably not all well-defined.

Remarkable Estimate

The basic value of AMI has long been far from certain. In a 2005 response to the commission’s request for a “business case,” SCE concluded that on balance it would not be cost-effective, save for some programs for customers who already had smart meters. The company came back in 2007, and this time the regulators authorized $1.63 billion for implementation on the basis of a remarkable estimate.

Specifically, over the 24-year duration of SCE’s program, the present value of net benefits would be the princely sum of $9.2 million. (Some other claimed benefits like reduced power theft were thrown out by agreement.) The commission authorized the $1.63 billion, but the business case includes another $1.58 billion of post-deployment costs not authorized but in the business case calculation.

DRA wrote page after page on the funding complexities, some already authorized in non-AMI dockets and some possibly duplicative. It concluded that it would be “practically impossible to track most post-deployment costs given the cost recovery processes adopted for SCE.” (at 25) The same, of course, holds for benefits (the meters are largely installed) that should be built into lower rates but don’t seem to be there yet. “(T)o the extent deployment period capital benefits are reflected in rates, these benefits appear to be much lower than forecasted in the business case.” (at 21)

To further complicate things, SCE’s claimed benefits include reduced generation investment, but its ongoing general rate case does not appear to include those reductions. After pointing out numerous funding requests in other areas that are really for AMI, DRA summarized that “(t)he full cost of SmartConnect will be more than double the $1.6 billion approved for deployment costs.” They hardly needed to note what that does to the $9 million.

What’s Up Now?

What’s being bought for the money is impossible to tell now, because the commission never asked for an explicit list of deliverables associated with those funds. DRA claims that SCE is loading deployment costs into higher rates but not yet booking benefits into reductions.

The company estimates savings during deployment at $35 million that hasn’t turned up in rates (actually, balancing accounts. Don’t ask.), while those rates already contain over $345 million in meter-related capital expenditures, 75 percent of the budgeted total.

Other benefits have also been slow to materialize. The business case projected over 386,000 customers enrolled in one or more demand-response programs by the end of 2010, but the company reported no participants while recording between $15 and $41 million in DR-specific costs.

Participation in the company’s Peak-Time Rebate program is 63 percent lower than estimated, customers taking time-of-use rates are less than 1 percent of the estimate and no customers have enrolled in the Critical-Peak Pricing program. (at 38).

Nuclear Power Redux

Has anyone noticed the similarities between smart metering and nuclear power?

The latter started with “turnkey” reactors built by outsiders and sold to utilities ready for operation, and the cost trends looked favorable. A variety of economic and political events ultimately put most nuclear projects in the hands of utilities that were unqualified to manage the complexities of construction, were regulated by agencies of questionable competence and knew that they could recover the bulk of their costs no matter what, save for a few imprudence proceedings. Booking smart meter costs before benefits materialize is just CWIP again.

Smart meters have become big for a reason: If utilities are going out of the generating business and into “electric services,” their managements need to rationalize some very big investment that will replace generation in rate base. Smart grid stuff is even better than nuclear because it is a technology whose possible outputs are limited only by the imagination, often hard to value and accompanied by an almost infinite list of potential cost addenda.

Conclusion

Regulators who don’t approve smart stuff are by elimination reducing themselves to certificators of dumb stuff. When nuclear optimism peaked, backers said that its power would be “too cheap to meter.” The bill for the smart grid is turning out to be too confusing to meter, but like nuclear in its heyday, the momentum is irresistible.