The Power and the Money

It is hard to get Manuel Bartlett to understand things when his paycheck depends on him not understanding it

Manuel Bartlett is the corrupt head of CFE, Mexico’s state electricity company. He hates renewables. So he’s trying to kill it with the support of Mexico’s president. From the man himself: “Wind and photovoltaic (plants) don’t pay the CFE for the backup. Do you think it’s fair for the CFE to subsidize these companies that don’t produce power all day? That’s not a free market, it’s theft!”

Do his arguments make sense?

Let’s unpack them. The first argument is that any firm feeding electricity into the grid should pay to transmit the electricity. The second argument is that renewables aren’t on all the time, so somebody has to have backup generators in place and that somebody should get paid. 

The first argument makes little sense. Cenace, the organization that runs the grid (owned by CFE) charges rates to feed in power. Maybe they should be higher for everyone, maybe not, but it isn’t a reason to discriminate.  

There is a technical argument that intermittent power sources raise transmission costs. That technical arguments have been solved. First, the more intermittents you have on the grid, the more predictable it is. Second, weather forecasts are pretty good these days. Third, getting “reactive power“ into the grid when needed is not particularly expensive or difficult. ERCOT, the Texas grid operator, found that you needed capacity about 0.1% of intermittent capacity to maintain grid stability. Internationally, there’s no relationship between the penetration of intermittent power sources and grid stability. Why? Well ... natural gas plants go offline all the time! California’s crisis in 2015 was caused by a leak at a gas storage facility in Aliso Canyon. 

So that’s a nothingburger. But what about the fact that somebody has to keep the lights on when the sun isn’t shining and the wind isn’t blowing? 

That could be a problem. Dispatchable power sources (i.e., ones you can turn on and off at will) suffer cycling costs, the same way that turning a lightbulb on and off every few minutes will raise power use and lower lightbulb life. It’s certainly a problem for CFE! The good news for CFE is that CCGT natural gas plants have relatively low cycling costs. The bad news is that you’ll run them less because solar and wind will eat their lunch during sunny and windy times. CFE will be able to charge a little more but that won’t make up for the loss of business and there will be some increase in cycling costs. 

In short, Bartlett’s argument comes down to the fact that cheap solar and wind isn’t just cheaper than burning hydrocarbons, it also raises the cost of burning hydrocarbons.

But so what? 

Imagine: A cheap airline comes in on a popular route. It steals away passengers from legacy airlines. The legacy airlines’ costs rise b/c they have stranded assets (unused planes) and high fixed costs. So prices on routes operated only by the legacy carriers rise a bit. Would you for that ban low-cost airlines? Or throw a tax on them? Or limit their landing slots? If your answer is no, then you think Bartlett is full of it. 

Yes, CFE has a mandate to keep the lights on. No, it’s not like they’d just turn off their power plants at night if that mandate didn’t exist. They want to make money. Prices will go up for baseload power and CFE will stay in business. It is remotely possible that Mexican electricity consumers will wind up paying so much for baseload power that net electricity prices will rise. Well, remotely possible other than the fact that it hasn’t happened anywhere else. (A decade ago Spain and Germany ran into problems with rising electricity costs because they oversubsidized solar power. But solar power was a lot more expensive back then.)  

The whole thing makes me sad, because I thought AMLO could have been a great president. Instead he’s bad for the Mexicans alive today and very bad for everyone who will be alive in the future. Future generations will revile him. The only reason he won’t be reviled around the world is because Mexico is small and George W. Bush and Donald Trump will outshine him as historical global warming villians.

Once upon a time, back in 2008, I sarcastically joked that (then citizen) AMLO’s terrible energy policy would be good for the world because it would lead Mexico to produce less hydrocarbons and that’s a good thing. What I never expected is that AMLO wouldn’t just want to hobble private hydrocarbon production, he’d also try to hobble anyone who wants to produce electricity without setting anything on fire. 

Anyway, there you have it. Bartlett’s argument has nothing to do with Mexican consumers, who will benefit from cheap solar and wind. Nor does it have to do with keeping the lights on, which is easy to do. It’s just about keeping out cheap competition to benefit CFE. 

The real question is why he feels so strongly about helping CFE and burning Mexican oil. Any answers to that would be greatly appreciated .... 

Energía solar en la madre patria

Spain, you might have heard, is a sunny place.

Strangely, the designers of Spain’s early renewable policies did not realize this. They established a feed-in tariff, in which utilities have to buy all generated renewable electricity at a fixed price. They set the price based on German policy. But Spain, remember, is sunnier. And the cost of solar power was plummeting. The cost to utilities grew all out of control.

The Socialists pulled off the first walk-back in 2010, when they limited the feed-in tariff to the first quarter-century of a plant’s life and tossed in a  €0.55 per megawatt-hour grid access charge. They were sued, but the investment tribunals found for Madrid.

Then Rajoy gets elected. Rajoy’s gotta Rajoy, and subsidies had hit €3.5 billion, so in December 2012 he reformed the system again. He repealed the feed-in tariff, but made the repeal retroactive. Combine that with a 7% electricity tax, and he managed to push a bunch of solar producers into the red. Spain got sued again, but this time the investment tribunals forced the government to cough up damages. 

Lest you think that the People’s Party would relent, they went yet one better in 2015 and slapped a tax on anyone who installed solar panels. OK, not technically a tax, technically a grid access fee. But effectively a tax. In addition, the law banned anyone with solar panels over 100 kW from selling electricity at all. 

But now Rajoy is out and Pedro Sánchez is prime minister. Moreover, solar power costs less than one-sixth of what it did when Spain began subsidizing it. Noises are being made about repealing the sun tax. At the very least, the sunny country might let market forces rip. Solar costs are down 41% since 2013. (See left: the dotted line is 20¢ U.S. per kilowatt-hour.)

Still, low costs can be a problem for solar producers, especially in Spain, where most renewable producers need to sell on the spot market. When the sun is shining, solar installations can bid the cost down to zero if there are enough of them. They can even drive it negative, if conventional producers are willing to pay customers to take their electricity in order to avoid spinning down their plants. 

So market forces will not be enough without a market redesign making it easier for solar producers to sign long-term contracts with off-takers. It is not merely a matter of removing the burdens the People’s Party placed on the industry. I have no idea how much thought the Socialists have put into this problem or whether their rickety surprise coalition is prepared to enact reforms.

We can hope. 

Environmental disasters are hard to stop, even in the Netherlands

The rash of earthquakes afflicting Oklahoma is old news. The cause appears to be backwash from fracking operations being pumped into old abandoned oil and gas wells. Lubricated rocks slip, and thus earthquakes where none were before. 

But now Groningen, in the Netherlands, is suffering from quakes! I am kind of embarrassed to learn about this now, since I was only recently in Groningen. (Disclosure: I am a Dutch citizen, passport and everything. Yes, I am also a U.S.A. veteran and short and olive-skinned and Spanish-speaking. ¿Tienes algún problema con eso? Daar heb ik geen moeite mee.) 

For those on the wrong side of the paywall: these quakes appear to be due to the rapid depletion of the Groningen gasfield to the east of the city. A 3.6 earthquake in 2012 wrecked thousands of homes (as you might imagine, Dutch houses are not built for tremors); on January 8th of this year another 3.4 did likewise. From the Financial Times:

Gert-Jan Veldink was at home when a 3.4-magnitude earthquake struck the northern tip of the Netherlands last month. First came the tremors, then the chimney broke and floor-to-ceiling cracks appeared in the hallway. Later, an engineer confirmed his 200-year-old farmhouse was filled with carbon monoxide from a damaged gas pipe. “The quake hit our house with all its force,” says Mr Veldink, an academic from the small town of Kiel-Windeweer, near Groningen, the regional capital. “If there’s another earthquake the same as before then the roof will collapse.”

Labor Party politicians estimate the number of houses that need rebuilding at around 90,000. The fields are operated by NAM, a 50-50 joint venture between Royal Dutch Shell and ExxonMobil. NAM has paid out about 80,000 claims, although their value is unknown.

The field has been in operation since 1959, but number of quakes started rising around the turn of the century. For an amazing visualization, click here.

Since 2013, production has fallen precipitously, but the number and intensity of the quakes has remained steady. The implication is that the ground has already been weakened; the number of quakes will fall slowly even if production stops immediately. Of course, if production doesn’t stop, then the quakes will get worse ...

Why does the government let production continue? The industry is highly taxed, with the Dutch state taking 80% of revenues. But that amounts to only 0.8% of total public revenue, down from 5% in 2013. In addition, the Dutch state is highly centralized and subsoil resources are not owned by the surface title-holder, so there is not much of a local lobby pushing for more production the way there would be in most of the United States. 

Which leaves three reasons to keep production going, albeit at a capped level. First, there are legitimate worries that lowering production caps would lead to big variations in monthly production, since NAM would want to sell more in the winter when prices are high. That could lead pressure to fluctuate, making earthquakes worse.

Of course, a total shutdown would solve that problem, but that brings us to the other two problems: 

1. The Netherlands still relies on natural gas for heat and light. Shutting Groningen, at least in the short term, means more imports from Russia. Nobody likes Russia. In fact, Dutch politicians dislike Russia so much that they see votes in lying about their knowledge of Russian “plans to expand the country’s borders and create a ‘Great Russia’ that would include Belarus, Ukraine, the Baltic countries and possibly Kazakhstan.”
2. Lobbying and legal issues. Even with the high government take, NAM makes a lot of money from the gas fields. They will not take it lying down.

So there you have it. Conventional gas production is causing earthquakes in the Netherlands. But even as wind power gets cheaper and more reliable, nobody can quite figure out how to shut it down.

Godspeed to Houston and some urban policy questions about the flood

I like Houston. I always have. It is a hideous city, way too car-dependent, and has a climate designed to get me to hate it. But I have friends there and I like Texans. I really like Texans. Which is weird, when you think about it. I am from Brooklyn, and somebody just released a (sadly terrible, I can report) movie in which Texas quite literally invades Brooklyn.

Please help, either with your money or your time.

Remember, Texans are American, sometimes despite themselves. I have two very good friends in Houston and many others in greater Austin. One them told me, to my honest shock, that his kids have to say a pledge of allegiance to the State of Texas at school every day. Really, they do, although ironically that only dates back to 2003. Honor the Texas flag; I pledge allegiance to thee, Texas, one state under God, one and indivisible. Should I ever wind up moving to Houston (which I would do if my wife were not utterly opposed) I have to admit that I would insist that my children not say the Texas pledge. 

The U.S. is a republic worth allegiance. Any given state, not so much. Plus, America might be better off if Texas were split up. 

Self-referential intro over, there are two important policy questions about this storm.

The first, of course, is how much it is due to global warming. Right now, it appears as if the flooding has exceeded the 500-year-watermark. 

That implies the storm was unlikely. But it does not tell us how much less unlikely such storms have become as temperatures have risen. Heavy precipitation is up in the United States, but that is circumstantial evidence. What do climate scientists have to say?

The second is whether urban policies have contributed to the disaster. As Market Urbanism has pointed out, there is some very stupid commentary trying to link the disaster to Houston’s lack of zoning. That is dumb. Inasmuch as zoning has anything to do with anything, the lack thereof has allowed for taller structures to be built, which right now is saving lives and property.

But even though Houston is unzoned, American and Texan policies contribute to sprawl and the paving over of open space that might have otherwise absorbed rainfall. For example:

1. Minimum parking requirements;
2. State subsidies for roads and sewer hookups;
3. Property taxes that tax land values and structures at equal rates, discouraging intensive use of land.

And that in addition to the problem that floodplains are a classic example of a public good. Leaving the land open reduces the impact of floods on developed land, but the owner bears the cost while other property owners reap the benefits.

That said, what I do not know is how much policies have contributed to sprawl. Nor do I know how much sprawl has contributed to the damage from flooding. Sure, both have made the storm worse, but significantly worse? I do not know. But if such storms are becoming more common, then there is a lot riding on the answer to those questions.

Does anyone have any evidence?

But for now, while I wait for the internet to point me in the direction of answers (hah) Godspeed to the people of East Texas on their path through this storm. Again, please help, with money or time.

This “news” is striking, even for Politico

Politico reports that President Trump “has come through on three big asks” for California. That was an interesting headline! So I read the story. And it turns out that the “three big asks” are disaster declarations. 

Think about that. It is newsworthy that President Trump didn’t set what’s left of his presidency on fire out of pure spite. And make no bones about it: denying disaster assistance to a state experiencing natural disasters would sink his presidency right quick. Not to mention the shot-in-the-arm it would give to that fundamentally ridiculous secession movement. 

Yet it was and remains plausible that he would do such a thing. What a goddamned time we live in.

The border tax and climate change

I am opposed to a 20% tariff aimed at Mexican manufactured goods. I am more ambivalent about the 20% border adjustment tax (BAT) floated by the Trump administration. In fact, I may support it. 

The basic idea is simple. U.S. companies would pay a 20% income tax. Companies could deduct domestically-sourced inputs from their income but not imported goods or services. Those imports would then, in effect, have to be at least 20% cheaper than equivalent domestic competitors. 

The idea is to make the U.S. corporate income tax look like a value-added tax (VAT). If a corporation in Mexico buys an input from overseas, it pays the Mexican VAT on the purchase. If it sells something domestically, then it also pays the Mexican VAT. But if it sells something to a company in France, then it does not pay the Mexican VAT ... but the French buyer will pay the French VAT. Under the BAT, if a corporation in the U.S. buys an input from overseas, then it pays the U.S. BAT on the purchase. Ditto it pays the BAT on all earnings from domestic sales. But if it sells something to a French buyer, then it will not pay the U.S. BAT ... but the French buyer will pay the French VAT.  

As it stands, the BAT will apply to oil imports. So an American refinery that buys foreign crude would have to pay the 20% BAT on those purchases! Right now, WTI trades around $54 per barrel. A refinery using American crude would pay $54; a refinery using imported crudes at a similar grade would pay $65. American oil prices would rise, world oil prices would fall.

And that is good for the world! Higher U.S. oil prices mean less U.S. oil consumption. Moreover, the burden will fall particularly on dirtier forms of oil. Most American crude oil imports (60% in 2015) are heavy grades. Almost half of that consists of heavy crudes from Canada, which  release about significantly more carbon during the production process than other grades of oil. (So much so that the Section 526 of the Energy Security Act of 2007 theoretically banned U.S. federal agencies from purchasing it, although that has had no concrete effect.)

Lower world prices will, of course, stimulate more world consumption. But there are two wrinkles that will reduce that impact. First, transport links lock in most Canadian output to American markets. Last year, the Trudeau government approved an expansion of the Trans-Mountain pipeline from 300,000 to 890,000 bpd, which would allow Canada to divert as much as 28% of its current U.S.-bound exports to other markets. But that will take a long time and is a drop in the bucket of world production. Second, American refineries are optimized to use heavy crudes. They will switch away, but slowly, even if the cost of their primary input rises. Finally, inasmuch as world prices do fall, that will discourage foreign exploration and development, keeping some carbon in the ground for the long-run. 

Winners:

1. Our children;
2. American heavy oil plays, of which there are not many outside Alaska;
3. American light tight oil plays (hooray!);
4. Andrés Manuel López Obrador (see below).

Losers:

1. American oil consumers, who will likely see prices rise about 30₵ per gallon;
2. Refiners who use imported crude oil—although not by very much;
3. Canadian, Ecuadorean, Venezuelan and Mexican heavy oil producers, who are locked into the U.S. market;
4. Mexican consumers, who rely on gasoline produced in the United States from Mexican heavy crude.

As far as energy is concerned, this does not strike me as a bad policy, even if it will impact Mexico quite seriously. At 2015 prices, a 20% BAT would have raised about $2.0 billion from Mexican crude oil imports, although most of that burden would fall on American consumers. The real hit for Mexico is that the increase in U.S. gasoline prices will be passed on to either Mexican consumers or the Mexican government. Inasmuch as the Peña administration hands Mexican voters a second gasolinazo, then it will be another fillip for AMLO’s chances in the 2018 elections.

So a good policy for energy: a net plus for domestic production and a net plus for decarbonization. Probably pretty good Harley-Davidson, as well.

But as far as other products markets are concerned, I’m still undecided as to whether the BAT is a good idea. Thoughts?

Liberals against carbon taxes ... seriously

There are some interesting contests out there this year that do not involve a fat crybaby! With ColoradoCare sinking in the polls (for understandable reasons) all eyes turn to the other Washington for initiatives worthy of the great laboratories of democracy. There we have Proposition 732, the brainchild of the same economist who gave you this presentation. Prop 732 would:

1. Impose a $15 per ton carbon tax in 2017 and $25 in 2018;
2. Raise the tax thereafter at the rate of inflation+3.5% until it reaches $100 per ton (2048 at current inflation);
3. Cut the state sales tax from 6.5% to 5.5%;
4. Cut the business and occupation (B&O) tax on manufacturers or research from 0.484% to 0.001% of gross receipts;
5. Raise the sales-tax refundable credit for low-income families rises from 10% of the federal EITC to 25%. For a family of four earning $40,000 per year, that would come to about $500, up from $200. For the same family at the poverty line ($24,000) the credit would be almost $800, up from a little over $300.

The idea is to replace some of the state’s most onerous business taxes with carbon taxes, while subsidizing the poorest citizens to protect them from rises in their electricity and gasoline bills. According to the state fiscal impact statement, the net result would be a small tax cut: by 2021,  carbon tax revenues of $2.2 billion would replace lost B&O taxes of $470 million, lost sales taxes of $1.7 billion, and tax credits of $300 million, for a total tax cut of $250 million per year. For what it is worth, using the projections laid out in the impact statement, the loss would reach $620 million per year in 2048, when the carbon tax maxes out. 

In fact, revenue losses will be greater, if the carbon tax leads to greater-than-expected cuts in the use of fossil fuels. But this should be measured against total state tax revenues, which are currently around $19 billion and should reach $25 billion (nominal) by 2021. 

Okay, then! This sounds like a dream reform. Republicans get big cuts in taxes they hate and an overall tax cut. They also get rebates for the poorer GOP voters out in the eastern reaches of the state. Moreover, Washington has lots of hydropower (see picture). Including transport, it uses fossil fuels for only 53% of its energy. Power generators won’t like it, of course, but they can pass on most of the additional costs to consumers. Poorer consumers and industrial operations are protected. The middle class will lose economically, but help the environment.

Of course, I am sure most of you are now snorting. “Hah!” you think. “The GOP would never be so reasonable, not even up in deep blue Washington. And middle class people when push comes to shove won’t want to pay to save the environment. This is, like ColoradoCare, just a phantasm.”

You would be half right. There is opposition. Only ... and this is hard to believe ... it is not from the GOP or the middle class. The GOP is neutral. (Which is not to say that GOP voters are neutral; they oppose the initiative 48%-35%.) No, the goddamned opposition is from the Democrats. 

Whaaaaa? No, really. The Democrats are angry that there will be a net tax loss, no matter how small. They do not think that a carbon tax should be offset at all. The Sierra Club is angry that the revenues are not used to subsidize renewables. Other lefty groups are angry because ... oh, who knows? 

In short, with lukewarm Republican opposition, a carbon tax would sail through if the left supported it. But big groups do not, either because they have an anti-tax cut religion or because they want the revenues to buy their own pet rocks. How in the name of God you justify that position, I do not know. I invite a member of the Washington Sierra Club or Democratic Party to school me.

Why we can’t have nice things

 Environmental reviews in the United States have long passed the bounds of reasonableness. European countries, with far-better environmental protections, are still able to build large-scale infrastructure projects. The United States, not so much.

California is the biggest offender. But it is everywhere. The Purple Line is back in court over ... oh, man. A bridge is too big, and should be made smaller and more expensive. More vegetation needs to be planted between the tracks to reduce runoff. And, of course, we need to protect the Hay’s Spring and Kenk’s amphipod. 

I do not know how to build a political coalition to weaken the environmental laws. Democratic operatives tell me that they would in theory be open, but in practice do not trust the Republicans enough to start the process. Republicans tell me that they would obviously love to weaken the protections, but worry about a backlash from NIMBYs who like the laws for completely non-environmental reasons. But they dismiss Democratic worries as political piffle and say that if the Democrats would provide cover, their amendments would pass.

Either way, it is depressing. We have bad environmental laws that block needed projects for no public benefit, yet the political system is unable to reform them. One side fears losing the baby with the bathwater; the other dismisses those fears but says that a lot of their supporters like being able to throw dirty bathwater at people. Gaaaaaah.

Air pollution in Mexico

 OK, so when I flew into Mexico earlier this month I was astounded to see the brownish murk as my plane descended into the Valley of Mexico. The horizon disappeared, the mountains were invisible. After landing, the sky had a strange greyish tinge that persisted even when you looked straight up. My eyes watered. It was awful.

Back to the 1990s, I thought! The government declared a smog emergency, ultimately taking most cars off the road. By the time I flew out on the morning of Saturday, May 7th, the sky had gone back to a normal blue and you could see the mountains. Ozone levels had dropped from almost twice the safe limit (0.11 ppm) to “only” 2% above. 

But it took heroic measures. The cutback on the number of cars in circulation was herculean. 

Naturally, I wanted to see if things were really back to the 1990s. How bad was this smog emergency in historical perspective? Sadly, the data wasn’t easily available in one place. So I decided to get it. And after much looking, I managed to put together a complete series on the average maximum daily ozone reading for the Zona Metropolitana del Valle de México (ZMVM). That is to say, it takes the highest reading from all five metropolitan sectors for every day, then averages that across all the days of the month.  The data from 1992 to 2010 (save 2003) are from INEGI, with the caveat that they changed the calculations in 2006 in a way that I do not fully understand. The data from all the other years are taken from hourly readings downloaded from the Atmospheric Monitoring Board of the D.F. government. I had to write some annoying Excel code to extract the data that I wanted, so I wouldn’t bet the bank on it having no errors.

Caveats aside, the numbers give a good idea of the trend:

Air quality has deteriorated markedly in the last three years, with spikes in May 2013, March 2014, April 2015 and ongoing for this year. But ... things are still better than they were when I left to work with Uncle Sam in 2002. And that despite an almost threefold increase in the number of motor vehicles in the metro area since then. 

I was told several competing (but not necessarily exclusive) hypotheses. The obvious one is that the number of vehicles on the roads has finally outrun the decrease in smog per car. A complimentary one notes that congestion has markedly gotten worse with the increase in the number of vehicles ... and idling cars pump out more smog. Finally, the D.F. mayor decided to allow any car that could pass the smog check to get the coveted permission to hit the road every day of the week. It used to be that only newish cars could qualify; once the car got past a certain number of years, you could only drive it four weekdays out of five. That reform meant both that older cars could legally put out 25% more smog ... and, of course, some cars that should not have passed the smog check did with a little baksheesh. 

And then there is the climate change hypothesis, but that is really a worry for the future.

But the future is coming fast. Even if things aren’t really back to the 1990s, it is clear that the government is going to have to do something fairly soon. The roads may be becoming saturated, but there is still lots of room for the number of vehicles on the road to increase. Traffic isn’t going to get better. And 2016 isn’t a fluke: as the data show, things have been getting worse for three years now.

Sunny days in Mexico

 I lost a Cinco de Mayo post, straight from Mexico City. So while I try to recover it, let me talk about solar power. The title of this post is ironic, since last week in the D.F. was far from sunny, in the worst possible way.

The picture is from last November, not last week.

Background: Mexico recently passed a new environmental law. Details here. Last month, the Comisión Federal de Electricidad (CFE) bid on clean energy certificates. Basically, the bids were to buy 20 years of clean electricity. In concrete terms, that was for about 6.2 million megawatt-hours (MWh) per year for two decades. 

By itself, that is less-than-impressive. Mexico’s gross electricity production in 2015 came to about 299 million MWh. Total domestic sales came to about 212 million MWh. So six million more? Whatever.

But the amount ain’t the kicker. That was baked into the law. No, the kicker is everything else.

First, the CFE got offers for 102 million MWh. All that with a $71 per MWh price ceiling. (The price ceiling is a little complicated. Basically, CFE offered to pay a certain amount for the electricity plus a certain amount for a certificate insuring that the energy was green. The electricity had a price ceiling of $47 and the certificate a ceiling of $24. $47 + $24 = $71.)

Second, solar projects won 74% of the 5.4 million MWh ultimately bought. Projects here. That was unexpected!

Third, the average price for the solar bids was $50.7 per MWh ... without any subsidies! The lowest clocked in at $35; the highest at $68. We don’t have data on the cost of generation in Mexico, but we do know average retail prices (or at least we can calculate them from Sener data): $87 per MWh.

Now, don’t get too excited just yet. You can look up the wholesale price of electricity in the PJM region of the U.S. here. At this writing, it came to about $22 per MWh for PEPCO. But $51 is well-within the yearly range paid by American utilities. And it is within striking distance of the average $39 per MWh cost of your typical fossil steam plant in 2014, although natural gas prices were quite a bit higher then than now. (Coal, not so much.) 

Moreover, there are going to be problems in execution. These projects need to get up and running by 2018. Some may be late and some may wind up losing money.

But it is, overall, great news ... and a great source of data, since these projects are not subsidized. ¡Viva México!

Mad Max is bullshit, people; disasters do in fact bring us together

 We have some unfinished posts fisking the World War Three novel Ghost Fleet. We are not fans of the book. And now one of the authors, August Cole, has posted this. 

“This” is a paean to Tom Clancy wargame in which there is a smallpox outbreak in New York City, after which society collapses and warlords take over. Or something. You can watch a trailer. 

Now, to be fair, Cole has nothing to say about whether a smallpox outbreak in New York would suddenly cause civilization to collapse into dog-eat-dog violence. He just thinks it’s useful to depict scenes of mass human suffering in video games because it will better prepare future soldiers for urban operations: 

“But scavenging in the confines of the New York subway system or winding up in a shootout with a local gang reinforces that your own worst enemy is all too familiar: fellow humans. The game lays bare how the odds are stacked against the survivors of such a calamity, and how even functional complex urban environments teeter and sway between chaos and order each day. Just as the novel World War Z by Atlantic Council senior fellow Max Brooks presents this uncomfortable truth through the premise of a zombie outbreak, this video game does so with close-quarters anarchy caused by catastrophic bio-terrorism ... The Division will appeal more broadly to gamers, given its formulaic progression of acquiring skills, weapons, and powers, which big studio games must incorporate in order to entice millions of players. That is also one of its strengths and perhaps greatest forms of utility in the defense realm: broad appeal. Megacity operations, be it relief or combat, will no longer be an abstract concept to young corporals or privates — or their commanding officers.”

I would like to point out here that there is remarkably little evidence that looting and unrest spike in disaster situations. The first paper of which I am aware pointed that out in 1968. A 2004 paper from the CDC reinforced the argument, showing that most looting involved necessary supplies rather than egregious attacks on other people or their property. “In contrast, researchers have found — at least in the immediate aftermath of disasters — that community resilience and unity, strengthening of social ties, selfhelp, heightened initiative, altruism, and prosocial behavior more often prevail. In short, when things are at their worst, disaster-stricken communities tend to rise to the occasion.”

This issue came up again in 2010, when preliminary reports of widespread disorder after the Chilean earthquake proved unfounded. The looting that did occur was easily controlled. No roving gangs taking over whole neighborhoods; for some numbers, we are talking about an increase in armed robberies from 52 in 2009 to 102 in the year of the earthquake. No houses were hit. It was not Mad Max. 

And again in the Philippines in 2013. Same general story.

In other words, I think our military would be very ill served if it were to promote training tools that gave soldiers the impression that organized violent gangs were going to be their main problem in post-disaster situations. 

Mexico sees silly environmental lawsuits as well

 By now, everyone is aware of the legal challenges to the Clean Power Plan in the United States. Well, Mexico also has a new environmental law (albeit one passed by their Congress, which is far more functional than ours). It is called the Energy Transition Act. The Act:

1. Mandates a clean electricity portfolio standard of 5% this year, rising to 25% by 2018, 30% by 2021, and 35% by 2024, 45% in 2036 and 60% by 2050, with clean energy being defined as emissions less than 100kg of carbon per MWh*;
2. Creates a market for clean energy certificates to meet the standard, which will be auctioned off beginning in 2016;
3. Adds some small mandates for rooftop solar and other distributed power sources;
4. Strengthens the Comisión Nacional para el Uso Eficiente de la Energía (CONUEE) by giving it the power to fine public entities and local governments (but will not set mandatory standards for the private sector).

This is a good law, but it ain’t bringing the revolution. First, consider this picture:

OK, that picture is of the Monument to the Revolution, and has nothing to do with this post, other than the word “revolution”. (But it is a good picture!) No, I mean consider this picture, from page 10 of the original bill:

Yup, electricity from fossil fuels is still expected to rise. It is probably a good thing that natural gas will replace fuel oil, but that depends on how much methane escapes into the atmosphere during the course of production and commercialization. 

Second, remember that only 21% of Mexico’s greenhouse gas production comes from electricity generation. (See page 60 for the 2006 estimate.)

And finally, the steel lobby has already managed to get an injunction against the law! You can read their policy arguments here. (Yes, they are bad arguments.) But they are now arguing that the law is unconstitutional.

I am not a lawyer (IANAL!) but I do not think that their case will hold up. Still, for all our differences, we share so many similarities with our southern neighbors, and throwing political disputes into the courts is one of them.

(Our courts work better, but at least Mexico has a national legislature that, you know, legislates.)

* Yes, Mexico is already at 24%. The law will not bind until 2018. 

Shocking Supreme Court stay on the Clean Power Plan

 I have no idea why I did not finish and publish the previous post. I am a bit annoyed at myself for failing to finish the post because today, in a partisan vote, the Supreme Court delayed implementation of the Clean Power Plan. (On the other hand, if you were a student in the seminar I taught at Hoover that summer, then you already know all about this!)

We do not know why the Republican justices decided to delay implementation. It could be worried about one of the first two arguments that I mentioned in the previous post. Or it could be that bit of bad drafting that I averred to but did not discuss. 

In 1990, Congress passed two contradictory versions of an amendment to Section 111(d) of the Clean Air Act. The House version said that the EPA could not regulate power plant emissions under this section if it had already regulated another pollutant from these plants. The Senate version allowed the EPA to issue rules on new pollutants even from plants that were already regulated. For those of you interested in the exact language:

• House version: rulemaking will proceed for “any air pollutant … not … emitted from a source category which is regulated under Section 112.” E.g., no future regulation of new pollutants from sources that are already regulated.
• Senate version: rulemaking will proceed for “any air pollutant . . . not included on a list published under . . . 112(b).” E.g., only certain specific pollutants are excluded from future regulation.

Congress, however, screwed up. Instead of choosing one version or the other, the conference committee somehow managed to insert both into the final bill. The “Section 112 exclusion,” therefore, is a contradictory mess. If you want to kill the Clean Power Plan, then you want to argue that the House language applies.

The requests for a stay can be found here. Most of them seem to hinge upon some version of the “beyond the fence” argument and the confused language of the Section 112 exclusion. 

Shades of King v. Burwell! For those of you unfamiliar with Supreme Court cases, King v. Burwell was an attempt to kill Obamacare that hinged upon a single badly-drafted line. 

The D.C. circuit rejected the applications for a stay of the plan, but now the Supreme Court has stepped in. We will have to see, but I feel pessimistic about the Clean Power Plan’s chances. Although the legal arguments presented in these last two posts are not particularly powerful, they are also far from specious.

Larry Tribe, on the other hand, has presented a specious case against the Plan based on the Fifth and Tenth Amendment. If you want to see an avowed liberal tie himself in weird knots in order to justify a conservative outcome because he is being paid to do so, go click the link. 

Unpublished post from August 14, 2015: Challenges to the Clean Power Plan

 I’m in Palo Alto, enjoying the lack of humidity and thinking about the Clean Power Plan. What else would you think about in California?

What might kill the plan in the courts? Well, I have been talking with some libertarian-leaning lawyers, and here is what they tell me. In order from least plausible to most:

1. The “wrong target” argument:  The Clean Power Plan (CPP) does not regulate power plant operators directly. Rather, it enjoins state governments to limit their overall CO2 emissions from all power plants. That is new; the regulations should be targeting the emitters directly. A challenge on these grounds seems unlikely to succeed; at worst it would force the federal government to write the state plans, which even now it will do if a state refuses to come up with a plan.
2. The “beyond the fence” argument: This is very similar to the above argument.  By imposing state-level limits, the CPP is acting “beyond the fenceline” of the power plants that it is regulating. After all, some power plants might not be affected at all, should a state decide to join one of the existing cap-and-trade systems. This argument is a little stronger, but does not seem to have much basis in either the Clean Air Act or in constitutional law.  
3. The fact that the law, like the Affordable Care Act, is terribly written and contains its own contradictions. 

Let me briefly unpack that last one. 

Carbon capture is hard

 Carbon capture and storage (CCS) is one of the holy grails to combat climate change. (Cheap utility-scale electric storage is another. Cheap and safe small-scale nuclear is the third.) In theory, it sounds easy. Take the exhaust from a big fossil fuel plant, extract the CO2, and send the CO2 somewhere besides the air.

The obvious rub is: where do you send the CO2? Fortunately, there are answers. CO2, for example, is useful in the secondary recovery of liquid hydrocarbons. (It can also be used for natural gas.) So you can site CCS-equipped coal plants near old oil fields and sell them the CO2. 

So the Mississippi Power Company decided to build a CCS-equipped coal plant near some older oil fields in the state. Ignore, for the moment, whether anyone wants to try to extract oil from old Mississippi wells at current prices; you can still always pump the CO2 underground regardless.

Well, Mississippi Power just announced another $142 million overrun on the project, taking the cost up to $6.6 billion from a projected $2.9 billion. With a capacity of 582 MW, this may well be the most expensive power plant in the world. The recent overruns were due to problems with the coal gasifier unit which turns soft lignite into natural gas (well, synthetic natural gas, which sounds oxymoronic) and extracts carbon dioxide. Earlier problems had to do with linings on the tubes carrying gas heated to 1800 degrees. And before that they just plain underestimated the amount of tubing needed and the cost of installing it. A 2013 filing blamed overruns on “abnormally wet weather and lower-than-planned construction labor productivity.”

Nuclear power has not overcome similar problems.

So I would not bet on CCS to save us.

President Ted Cruz and the Clean Power Plan

 Actually, when I first presented this analysis out in Palo Alto, it was President Marco Rubio. And I still have a not-entirely-rational soft spot for my man from Miami. But right now the senator from Texas is looking slightly more likely. 

Not that it matters. First, Marco Rubio is a Republican, and one of the many sad things about the current Republican party is that they are all identical on the subject of carbon emissions. As in, they don’t care. Bush, Cruz, Kasich, Rubio, Trump no difference. 

Second, American regulatory law is set up to make it essentially impossible for an incoming president to repeal regulation short of changing the underlying  legislation. Agencies issue regulations because Congress realized that laws could not be written to cover every contingency as if they were simple algorithms. The big legislation governing the process is the Administrative Procedures Act of 1946, which deliberately slows down the rulemaking process to allow for comment periods ... which is when lobbyists work their magic. Sadly, the magic does not involve hanging out in hotel lobbies with expensive cigars. Rather, it involves “expert” testimony designed to influence the final rule. 

Presidents can order agencies to create rules or repeal them, but the latter is almost impossible given the administrative process. On the other hand, they have widespread authority to grant exemptions and slow walk implementation. So ...

President Rubio Cruz could:

1. Slow walk approval of state plans, or allow plans based on dubious assumptions to be approved;
2. Grant extensions to states with high concentrations of coal plants (KY and WV);
3. Allow Congress to overturn the existing plan via the Congressional Review Act of 1996. If the GOP gets a 60-seat majority of the Senate in ‘16, this trumps all else.

In other words, absent a filibuster-proof majority (or a GOP abolition of the institution) the options are limited. But they will be even more limited if the Obama adminstration manages to complete before January 2017 the rule governing what will happen should a state reject the Clean Power Plan. Right now, the plan is to default those states to a cap-and-trade system, the kind of thing that President McCain would have initiated. 

That would worsen the Rubio Cruz dilemma.

Consider the marginal firm under a cap-and-trade system where permits are allocated rather than auctioned. Before a cap-and-trade system, that firm was making $X per ton of CO2. Under cap-and-trade, the cost of carbon abatement = the price of a permit, call it $Y.

The firm will either spend $Y, reduce emissions and earn $Y from selling its permit … or it will just use its permit. It still makes $X.

That is for the marginal firm. Some firms will lose, because for those firms the cost per ton of abatement will be greater than $Y. They will need to pay the additional costs or buy more permits. But for a lot of firms, the cost of abatement will be less than $Y. And those firms will be better off under cap-and-trade than they were before: they will pay the cost of abatement and free up permits for sale. One the system is in place, they will mobilize to keep it in place. And that will wreck the politics of global warming denialism.

I suspect that a President Cruz might barrel ahead regardless. The good news is that Cruz will hurt his own re-election chances. Rubio or Trump is more likely to acquiesce to the political reality. 

The rub is that much depends on the ability of the Obama administration to get the rules out before January (more realistically, November) and that is by no means certain. 

In short:

1. A GOP president will likely do nothing if a cap-and-trade system comes in, unless he or she does not care about being re-elected in 2020.
2. If there is no cap-and-trade system, he or she will be able to do a lot of damage around the margins, but not destroy the reforms.
3. Unless we get 60 GOP senators, in which case all bets are off.

Is this helpful? I will change my blogging voice to suit; clarity is important.

The war on fuel efficiency continues

 It is true that as an abstract economic principle, the case for tightening fuel-efficiency standards in American cars will remain strong even if oil prices remain low. 

But this is a case where politics matters more. The rules are up for review in 2017. President Clinton will maintain them. President Rubio will not, although he may not weaken them by as much as people think for the simple reason that the automakers prefer national rules than the segmented market that would result if the feds loosened the 54.5 mpg-by-2025 target.

The basic problem is that California can set its own air-quality rule, which are then automatically followed by Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington. It does not set fuel-efficiency standards per se, but it can reject federal rules that are not consistent with its goals. If the feds loosen the 2025 standards, then California is likely to tighten its air-quality regulations in a way that effectively raises the fuel efficiency standards.

Auto companies will not like that. The upshot is that President Rubio would likely loosen the goals if oil prices remain low, but not abolish them altogether. 

Anyway, Saudi Arabia still seems to be aiming for low oil prices. Whether that is a sensible bet remains to be seen.

A depressing Thursday thought about global warming

 The Clean Power Plan proposed by the President is a very important step forward for climate change. According to the Energy Information Administration, the American power sector will emit almost half a gigaton less carbon into the atmosphere by 2024 than otherwise would have been the case. That is almost a quarter of all power-sector emissions!

Globally, the picture looks like this through 2021:

To be fair, the graph misses a full third of the reduction, which will happen in 2022-24. I guess that makes it better?

The problem is that electricity generation produces only 40% of the carbon dioxide emitted in the United States. 24% × 40% = 9.6%, which does not look as impressive. (And only 7.2% by 2021.) Add to that the fact that the United States is not the only country on the planet and things look even less impressive.

A start is better than nothing. But it is only a start.  

Not terrible news from Texas

 Fracking! It’s in the news all the time. The controversy never seems to dim.

There are a lot of false fears about fracking ... but three very real ones. The first is that when the frack fluid gushes back out of the ground it is a lot nastier than when it went in and the “flowback” needs to be disposed of somehow. The second is that it uses a lot of water. The third is earthquakes. (I doubt this is a surprise to most readers, but you never know.)

In fact, the earthquake problem is really a subset of the flowback disposal problem. Fracking production wells does not (we think) trigger earthquakes. But pumping the flowback back underground into abandoned old wells does lubricate the rocks and cause them to slip. The result is myriad small quakes. (Although a Richter 3 tremor can knock down poorly-built brickwork.) 

And now  Texas and New Mexico are starting to deal with the last two issues. The Texas Railroad Commission just ruled that disposal well operators must go back 100 years through U.S. Geological Survey data within a 5½-mile radius. If geologists judge that the well caused a quake, the TRC will shut it down.

Meanwhile, New Mexico is looking to imitate Texas in encouraging the reuse of flowback in new fracking operations, thus saving on the amount of freshwater needed. (“Encourage” may be too strong a word; Texas simply allowed companies to reuse frack fluid without a permit if they own a lease.) 

So, not terrible news from Texas.

If this is correct, the world is in very very big trouble unless Governor Hickenlooper finds a way to save us all

There is a debate about the amount of methane released into the atmosphere from natural gas drilling. A University of Texas study found rather little release. The thing about that study, however, is that it studied only nine companies. While the sites were randomly selected, those nine companies were not. (More here.)

A new study using aerial sampling found the opposite: lots of emissions from natural gas fields.

And nobody is looking at methane releases from tight oil fields, where much of the gas is flared.

But there is some good news. The companies studied in the U.T. report have been working with EDF and the government of Colorado to craft methane-emission regulations. Obviously, the companies are doing it because they already pretty-much comply, so why not try to stick it to lower-cost competitors? Thing is, that does not bother me. If appeals to monopolistic self-interest are what it takes to protect the environment, then that is what it takes to protect the environment. 

Hopefully, what Colorado has built can be taken national. Or global.

The recent public revelation of the fact that the big hydrocarbon companies already factor in a carbon price opens the way to build a similar coalition. It will not be easy, of course: right now, the companies may forego otherwise-profitable projects, but they still get to keep the notional carbon price. That said, if some way can be found to compensate the companies that already use an internal price, then a coalition for a carbon tax could be built ...

Is there an environmental upside to ever-increasing inequality?

No. There is not.

In fact, it is scary to me that rising wealth inequality at the top make it possible to consider buying out and shutting down the entire U.S. coal industry for environmental reasons. “Only” fifty billion dollars? Private wealthy individuals making social decisions of that magnitude? Frightening.

It is unlikely to happen. First, usually when somebody tries to buy a company they have to offer more than the current market capitalization. The reason is that the price represents the marginal seller of shares. When the demand for those shares goes up, as happens when you want to buy a controlling stake in a company at once, the price goes up. So even if the $50 billion number correctly represents the market capitalization of all current coal companies, the price to buy a controlling stake would be higher.

Second, there are other costs. Much of the assets will have very little realization value, but the debts will need to be paid. There may be other hidden costs: cleanup, for example.

Finally, if one group can bid for political reasons, another group can counterbid for political reasons. That will also serve to drive up the costs.

In short, it is a provocative idea, but having environmentally-conscious rich people buy out the coal industry is (a) terrifying in-and-of-itself; (b) more expensive than advertised; and (c) is a game that other more-evil rich people can play.

How deep red Nebraska (may have) killed the Keystone Pipeline

One of things I teach my students is that it is very important to know what you don’t know when operating in a foreign country. If you have a native-level understanding, great! Play the political game. But if you don’t, then it’s best to be completely hands-off (e.g., letting local partners do the work) or stay away.

The worst thing is to think you understand something you don’t.

This is a problem that Canadians often suffer.

Our case on the Keystone pipeline highlights this problem: TransCanada was prepared for national resistance to the pipeline, but never expected a problem with deep-red Nebraska. But they got one! Oh, boy, did they get one.

Our HBS case goes through that all in depth, but Karl Sigwarth, a former student, just sent me a great story in McLean’s that tells it all far more readably. (Cases, remember, are meant to be slightly cryptic!)

My favorite part:

Back in his office tower in Calgary, Alex Pourbaix, the affable, rosy-cheeked head of pipelines for TransCanada, still marvels at how a western Canadian oil company came to be so hated by ranchers in Nebraska.

“TransCanada didn’t just dream up the route out of thin air,” he insists. But Nebraska landowners could never understand why the company didn’t simply follow the route of the first Keystone project, along the far eastern edge of the state, out of the Sand Hills and away from the aquifer. The new path struck them as so illogical that some believed only secret ulterior motives could explain it. “What we’re really afraid of is that once the tar sands run out, they are going to be piping into the aquifer to get the water so that they can export the water to other areas of the country or overseas,” speculated one Nebraska farmer, Art Tanderup.

Pourbaix was amazed by the mistrust. “I don’t even know what to say to that.”

Now, heavy opposition to anything coming anywhere near the Ogalalla was super-predictable, as anyone who has ever read The Amazing Spider-Man knows:

You just don’t mess with anything iconic enough to make it into a comic book.

That’s serious advice, by the way. It was utterly ridiculous for TransCanada to be taken by surprise at the Nebraskan opposition. They could have avoided the whole damn thing by starting with the route they eventually chose. (The green line below, instead of the yellow.) That would have also gotten the route approved at the federal level before the opposition had a chance to mobilize.

But they were just too arrogant, failing to realize that their southern neighbor was in fact an entirely different country. No American would ever do that!

Global warming denial is alive and well, except in quiet rooms

The U.S. Chamber of Commerce just issued its new energy plan, an update to its 2008 plan. The 2008 document was favorable to hydrocarbons, but it included a call for reducing the environmental impact of energy consumption and investing more in climate science, as well as a call for the U.S. to lead on climate change.

The new plan, not so much. In fact, not at all. And why not? Well, Karen Harbert, CEO of the Chamber’s Institute for 21st Century Energy: “It is a different world in 2014 than it [was] in 2008: We are dealing from a hand of strength.”

At least she’s honest.

But it is strange, considering as the New York Times let the cat out of the bag: the big energy companies all assume a price on carbon emissions when assessing new projects. If the projects don’t make sense with a carbon price, then they don’t happen. In other words, they all assume a carbon tax, cap-and-trade system, or costly command-and-control regulation is coming.

But none of them want to admit that they plan for a carbon price! One colleague of mine recently completed a case on a large hydrocarbon project. The company refuses to release the case unless he removes all references to the fact that the company builds a carbon price into all its financial analyses ... even though the cat is out of the bag on the fact that all the major energy companies (and a lot of other ones) do just that.

WTF, you may ask? Well, the answer is simple. The Times is incorrect when it writes that the use of carbon pricing in boardrooms is part of “a deeper rift in the [Republican] party, as business-friendly establishment Republicans clash with the Tea Party.” It is not.

Rather, it represents the fact that the energy companies do not believe that the odds are against then in the fight against carbon emission restrictions ... but that they also believe that there is a chance that they win. Publicizing their internal use of a carbon price gives aid to their enemies who want to impose one. But ignoring the likelihood that one is coming will only hurt their shareholders. Thus, they build one in.

The similarity to the quiet rooms in which Mitt Romney believed that income inequality should be discussed is not a coincidence.

P.S. One implication that should not be drawn, however, is that a carbon price (or regulation) won’t affect CO2 production if companies are already taking it into account. There are two reasons why it will still matter. (1) The big companies aren’t the only CO2 emitters. (2) The big companies will only invest if the projects make sense with a carbon price; nonetheless, those projects will produce less if carbon prices or regulation raise the cost of their product.

Why America can’t have nice things and why I do not like most “environmentalists”

 What a week. First, I fall down a flight of external stairs (please don’t ask why) and then my computer dies. Poof, sput, goes black won’t restart. So while desperate efforts are made to recover my hard drive, I am working on a spare MacBook that we have lying around. It’s a pain, in the sense that Macs are a pain when you’re used to PCs, but it’s kind of nice to be unable to work on anything except this case on solar power that doesn’t require access to old files.

Which brings us to why America can’t have nice things. To really use renewables, you need long-distance power lines. The reason is twofold. First, the sun shines brightest and the wind blows longest and the rivers flow strongest in places far away from the people who need power. Second, the sun and wind are intermittant, so it helps to be able to use power from multiple locations.

Only America is full of bogus environmentalists who class esthetic outrages in the same place as actual environmental threats. In Chile, mostly American environmentalists managed to block the HidroAysén dam project by stalling approvals for the lines to move the power from the dams north to Santiago. One of their tactics (headed up by Douglas Tompkins, of North Face fame) was to purchase land along the route that of the power line.

The Northern Pass line would bring hydropower from Quebec to New England. Great! What’s not to like? The dams are already there. New England relies almost entirely on fossil fuels. So no problem, right?

Wrong. There are a------s out there. They want their views, or whatever. As in Chile, they have bought land in strategic areas to block the route. So on the 40 miles in New Hampshire that requires new land purchases, the developer has promised to bury eight miles of cable ... sending the cost from $200 million to $1.4 billion. And opponents’ response? “We are very happy they discovered the shovel, but if you can figure out how to bury eight miles, you can figure out how to bury 180.”

Here is a link to the Conservation Law Foundation. Click the link. Read the arguments. They do not make sense.

(Let me add that as with Cape Wind, Governor Patrick has taken the right side. I have my favored 2012 presidential candidate ready for you, although I don’t think he’ll run. The problem, for those readers unfamiliar with New England, lies in the rogue state of New Hampshire.)

I have fulminated about this pseudo-environmental NIMBY in California. It makes me angry. So hats off to my former student, Diana Rivera, who is doing right by America and trying to get the Grain Belt Express Green Line built in the midwest. Good luck and Godspeed to them!

Meanwhile, is there any way to end this NIMBYism without going back to the bad old days of wild freeway building? Which, to be honest, I am becoming increasingly willing to accept ...

Japan’s methane hydrates should not be developed, and likely won’t be, huzzah

I am in Panama! It is an awesome place. (Including the traffic at 5pm on a Monday. And the lack of sidewalks.) So, of course, I will talk about Japan.

A Japanese drilling ship, the Chikyu, recently extracted methane from hydrates 1,000 feet down in the Eastern Nankai Trough. Methane hydrates, aka clathrates, are deposits of natural gas trapped in ice. (OK, it’s not really ice, but what else would you call it?) They are not easy to extract. A good primer is here at Wonkblog.

How not easy to extract? Seriously not easy to extract. This blog likes cost numbers, and fortunately the Japanese consortium running the process provided them in 2008:

	¥ per m3	$ per MCF
Present construction costs	¥ 92	$ 33.98
Assumed conditions	¥ 46	$ 16.99
Volume 25% lower than expected	¥ 174	$ 64.27

“Assumed conditions” means a threefold drop in construction costs. Worse yet, costs are extremely sensitive to volumes; produce less than expected, and profits go out the window. The low price of $16.99, meanwhile, is more than Japan currently pays for liquified natural gas (LNG).

Still, breakthroughs happen. Maybe Japanese engineers can move beyond proof-of-concept tests to cost-effective methane extraction. What then?

Well, do not worry about the amount of methane that can be extracted and burned. That is entirely a red herring. The world has plenty of cheap conventional natural gas to burn between now and 2100. Unless the hydrates drop in price way more than anyone expects — say, down below $6 per MCF — then commercial exploitation will not cause the world to burn natural gas any faster than it would have otherwise. I very much fear global warming, and once natural gas has killed coal dead then natural gas will become the problem, but the hydrates won’t make a damned bit of difference unless you believe that we will be burning methane for power into the 22nd and 23rd centuries.

OK, so no worries in burning methane from hydrates. (More specifically: no additional worries than we currently have.) But do worry! I have been talking about this with my friend Will Baird out in California. The problem is that not all of that methane will be burned. Maybe not even most. Maybe even catastrophically little.

The Department of Energy reports that the Nankai Trough has 16 to 27 trillion cubic meters of methane hydrates. Methane is approximately 21 times more potent as a green house gas as CO2. If you were to dump all of the Nakai Trough's hydrates into the air at once, it would the equivalent 20 years worth of U.S. methane emissions all at once.

The good thing is that methane falls out of the atmosphere quickly. The bad thing is in the middle sentence of the above paragraph. A catastrophic emission of the Nankai hydrates would cause a short painful spike in temperatures ... and given how close the Earth is to climatological tipping points, it could push us over.

That probably won’t happen, but you’d be crazy not to think about it. What most likely would happen is that commercial exploitation would destabilize the deposits. The Japanese want to remove ice from under sediment. In a geologically inactive zone, that is mildly annoying, but, well, Japan is not in a geologically inactive zone. Even without the effect of quakes, if the Japanese use warm(er) water to melt and separate the gas from the ice, then surrounding ice could be destabilized. A catastrophic release may be unlikely, but the probability of large-scale methane releases is too high for comfort.

And some degree of methane release is inevitable. So far, we do not know what the capture ratio will be ... and we probably won’t until there is a commercial test.

But let me finish with two pieces of good news. First, the process is not likely to be economically competitive; we will probably therefore never have to worry about the environmental effects. Second, this is a government-funded project, so even if it is competitive there will be fewer vested interests insisting on development.

In short, the hydrates are scary if you want to leave this world to your grandchildren ... but the obstacles to development are high enough that they will likely not be developed.

From space, everyone can see you flare

Bakken oil development requires a lot of use of trucks and railroads. A typical horizontal well in North Dakota requires 1,100 inbound truck trips. Then you gotta move the stuff out. It is possible to build gathering facilities, of course, but trucks remain viable for short hauls. Over longer distances, railroads can be competitive. In short, you can have fast oil development without making much investment in specialized infrastructure.

The above is not true for natural gas. For natural gas, pipelines are the only game in town. You build gathering pipelines and processing plants or you don’t produce. No one will build a gathering infrastructure, of course, until they have some idea of how much gas it will carry.

Tight oil wells in the Bakken also produce associated natural gas. The problem, of course, is that you cannot know how much associated gas will be produced from a group of wells until oil production starts. So you need to start oil production before a gas infrastructure is in place.

Of course, if you have wells producing oil, you still need to do something with the associated gas. You could just vent it, but methane is nasty stuff on both the local and global level. So you set it on fire. That gives you CO2 –fine locally, but bad globally, albeit less bad than just venting methane.

In short, there is a chicken-and-egg problem: in an oil play, you need to waste a lot of natural gas before anyone will build the infrastructure needed to use it. In Texas, there is a lot of new drilling, but it is in places that have been drilled before and where a gas infrastructure exists. Texan oil producers, therefore, flare only 0.5% of their associated gas. (It is, however, getting bad in the Eagle Ford.)

In North Dakota, they flare 32% of the gas. That is why it suddenly looks from space as if a major new megalopolis has sprouted in North Dakota.

How big a problem is this? In economic terms, not that much. Losses from Bakken flaring came to $196 million in 2011, or 1.4% of the value of production.(In Texas the economic losses are even less, although you can also see the flaring in that arc running along the south of Texas below the San Antonio-Austin double plex.)

The CO2 problem is more serious, but as you can see below, the Financial Times estimates that Bakken oil is no worse than oil imported from Saudi Arabia:

In short, the flaring problem looks more dramatic than it is, in both economic and environmental terms. That is not a brief for doing nothing, either by private industry or government regulation ... there is money being left around on the table and this is a source of CO2 that is easy to fix. It is a brief for stating that compared to the Canadian tar sands there is nothing to see here. Well, there is ... but only from space. From Washington, not so much.

Pay no attention to the FBI cloud; solar has a sunny future

 The FBI just raided Solyndra, the bankrupt solar-cell company. What’s that about, and what does the bankruptcy and raid say about the future of solar power?

The answer: not very much, and not very much. The FBI is probing the company because it went bankrupt. Why, you ask? Well, Solyndra received a pledge of $535 million in loans from federal government. (The contract can be found here.) The company actually took out $527.8 million from the feds, and an additional $256 million from private creditors, including a $69.3 million loan from Argonaut Capital that had a higher priority than the federal loans. (See here for the details. The bankruptcy filing itself is here.) I should note here that Solyndra received its loan under a long-standing program that far predated the Recovery Act.) On paper the company has more than enough assets to make creditors whole; in reality, most of that consists of specialized capital goods designed to make cylindrical rooftop arrays. Since there isn’t a big market for cylindrical rooftop array-making machinery, the stuff is going to sell at a hefty discount.

Why did it go bankrupt? Well, solar modules have fallen 70% in price over the last few years. Solyndra targeted a cost of $2 per watt ... when prices already hit $1.50. That’s great for the industry (it’s even good for the American industry) but not-so-great for Solyndra’s risky gamble on cylindrical modules. The company turned out to need some incremental capital, and when it went to the markets said capital was not available. Bankruptcy resulted.

Here is the company’s statement. Note the bullshit about “regulatory uncertainty.” Why is it bullshit? It’s complete egregious embarrassing bullshit because the same sentence blames excess capacity and FALLING PRICES on regulatory uncertainty. Real regulatory uncertainty holds back investment, thereby reducing capacity, which reduces supply, and drives up prices. Sometimes, CEOs can really embarrass themselves, but I suppose it is an attempt at dog-whistling that the company likes the GOP too.

The new GOP-controlled Congress then went on a fishing expedition to look for wrongdoing with which they could embarrass the Obama administration. (In this particular case, I don’t blame them at all. If I were a congressperson of either stripe, I’d also want to investigate.) The FBI has gotten involved because Congress has accused Solyndra’s CEO, Brian Harrison, of failing to mention the company’s precarious state when he went for the funding. In fact, Harrison told reporters in March 2011 that the company would need no new financing, but that isn’t actionable.

Since this blog likes predictions, we predict that nothing will come of the criminal charges. Loan guarantees have a long history, start-ups have a long history of going bankrupt, and entrepreneurs have a long record of starry-eyed optimism until the very end. (Or even beyond.) The biggest risk is that other ventures will shun federal loans or loan guarantees out of fear of politicized criminal probes: in fact, Solar Millenium has already turned down a $2.1 billion guarantee.

What does the Solyndra collapse say about the future of the solar power industry? Nothing! First, the U.S. is a massive net exporter of solar power systems. In 2010, we had a net surplus of $1.8 billion in the sector, up from $723 million in 2009. We even retained a $539 million surplus with China. Basically, what we lose on the modules we make on module-making machinery and, surprisingly, ancilliary equipment. (E.g., everything from switches to water tanks.) The sector is growing fast, and I hate to say it, but federal financing has helped, what with the private capital markets still broken.

Solar power does face three problems. First and foremost, the weather. (And the fact that the Earth, you know, rotates.) This limits its use, unless somebody cracks the cheap storage problem. Second, NIMBY. They drive me nuts. Maybe the Californians can be justified — my co-blogger makes a case in comments — but not the people in New Jersey. Finally, Chinese subsidies. So far we’re hanging on, and China’s costs are increasing. But wow, they subsidize a lot. 

 

In the presence of increasing returns, those subsidies could have long-term welfare impacts: good in China, bad in the United States. It’s something to think about, and something to which this blog will likely return.

But right now, solar is doing fine, and Solyndra is interesting only in-and-of itself. Move along, nothing to see here.

Why Oh Why Can’t We Have a Better Press Corps? New York Times Edition

 Credit for the post title to Brad Delong.

Far be it from me to say bad things about the natural gas industry. But I can say bad things about people who shill for the natural gas industry. Today in the New York Times the paper publishes something that it never ought to have allowed to see print (or screens): this op-ed by Robert Bryce. It is the worst sort of cant: rhetoric designed to mislead by sleight-of-hand.

The basic argument is as follows. Renewables should be free to be green. Renewables are not free. Therefore, we should build more CCGT plants and nuclear reactors.

That’s really the argument. There’s this bizarre red herring implying (falsely) that it takes so much energy to build the steel in a solar installation as to make it as carbon-emitting as a natural gas turbine. Then there’s a second implication that it would be possible to greatly expand the number of nuclear power plants in the country without building high-power lines. Followed by a completely bizarro-world claim that the U.S. is short of empty land, or that 129 square miles is a lot of territory. (I have written about this elsewhere, although Doug makes a good case in comments that normal EPA review should still apply. But that is nothing compared to Bryce, who claims that they should not be built at all.) There is, of course, no attempt at either cost or carbon accounting.

I should add, of course, that he misrepresents the environmentalist position on nuclear fission. Only in Germany are greens universally opposed to it. Straw man, there, and irrelevant to his argument, inasmuch as he has one.

If he were calling for conservation and downsizing of energy use, he would at least be consistent, if IMHO incorrect. (I think the costs of photoelectric, solar-thermal and wind are worth the benefits, but there are costs.) Thing is, he’s not calling for conservation. He’s calling for more gas-fired plants. WTF?

Disingenuous, at best.

A primer on radiation poisoning

 Radiation at the Fukushima Daiichi plant peaked around 400 millisieverts an hour, before falling back to 0.6. How bad was that?

The question turns out to be hard to answer. Why? Well, the total dose matters, but so does the rate. After all, DNA repairs itself, so getting exposure over a year and over a day are very different things. That said, there are some general rules about acute exposure that all radiologists know, and since I happen to be married to one, I figure I’ll put them up.

400 millisieverts an hour is enough to cause a transient sunburn over a period of 4-5 hours, although that won’t happen to everyone. (If you got 2,000 millisieverts in a matter of minutes, then you would start to burn.) After 10 hours, you might have some hair fall out 2 or 3 weeks later, but you’d have to sit out in it the radiation for almost a full day to lose the hair permanently.

The threshold for radiation-induced cataracts is about 12 hours at 400 millisieverts per hour, although symptoms might not show up for as long as 8 years. On the other hand, men would go sterile after 8 hours, and sperm counts would start to fall (definitely temporarily, but possibly permanently) after only 30 minutes exposure. (This is why men in careers that involve a lot of flying should probably consider freezing their sperm.)

Now, in theory an acute dose of 10,000 millisieverts is enough to kill you within a few weeks, by destroying the epithelial lining of the gastrointestinal tract. In practice, you’d need to get that dose very quickly: 25 hours unprotected inside the Fukushima Daiichi facility at current levels probably won’t be enough to kill you. But it is not something that you would want to try.

Cancer, well, that’s probabilistic, but your long-term risk would start rising after about five hours or so.

Whether this relieves or concerns is, I think, a matter of temperment. Given that the Yokosuka Naval Base appears to have detected a radiation level of less than a fiftieth of a millisievert per hour, redirecting naval vessels seems like a bit of an overreaction.

Robert Moses and solar power in California

 Americans of a certain age and predilection often like to say things just to be provocative. I am about to say something provocative, and I want to reassure you that it is not because I am trying to be provocative. It is because I am, at the end of the day, very old-fashioned.

So here it is: I love Robert Moses. I think neighborhoods like the one above, the ones he got built, are awesome. I know, I grew up in ‘em. It was a muscly ambitious society what threw up these buildings 5 years before I was born. It is a sad thing for the environment that we no longer build stuff like this.

Robert Moses, he got stuff built.

Which brings us to California and the future of the planet. The great state of California recently approved no less than nine solar-thermal power plants. They would produce collectively 4.2 gigawatts of power, or 4% of the state’s total generating capacity. Keep that up for twenty years, in a place that gets as much sun as regularly as the Mohave desert, and you could shove aside a big chunk of natural gas. I am a fan of natural gas when the alternative is coal or freezing in the dark; in the Golden State, the alternative is sunpower. The Schwarzenegger Administration set the stage with its energy laws, and the Bush Administration helped the goal along when it opened federal lands to development on 2006. (When the opposition does good things, I give credit, and the energy policy of the second Bush Administration was nothing less than a big improvement on the status quo.)

But ... now come the lawsuits. Protection of protected species. “Impacts to Native American culture.” The Sierra Club and the Cuña de Aztlán Sacred Sites Protection Circle Advisory Committee united with the Tea Party people to keep pumping CO2 into the atmosphere. The Sierra Club worries about Calico project and the desert tortoise. La Cuña de Aztlán fears for the impact of the Imperial Valley project on the Quechan tribe’s origin story. The Tea Party all the projects because they hate subsidies. There are reasonable worries over the Genesis Project’s diversion of Colorado River water ... or they would be reasonable if the way we currently use the river made any damn sense.

I cannot sum up my hostile reaction to the anti-solar opposition inside the American political spectrum. Where is our Robert Moses? Anyway, attempts to talk me down would be very welcome. Tell me why I shouldn’t be angry at these people.

U.S. ♥ Canada, Earth not so much

  Thoughts on cost overruns in the oil sands will be coming up quickly.  Right now, just the (belated) news that the U.S. government has approved the Alberta Clipper, a pipeline that will move crude from Hardisty, Alberta, to Superior, Wisconsin.   

So what is the environmental problem?  Well, aside from the problems with tailings pools and the like within Alberta, the oil sands release a boatload of carbon.  After all, in order to make the stuff you need to inject steam right into the ground.  That takes a lot of energy.  In other words, you need to burn a lot of stuff in order to get stuff you can burn. 

Dealing with that carbon will be Canada's problem.  If Waxman-Markey passes, it is quite possible that the U.S. will tax Canadian oil exports.  Even if that doesn't happen, the adjustment burden will fall north of the border, unless Canada and the U.S. get together on a combined cap-and-trade system.  Unless ... well ... unless both countries decide that it is just more important to have a big and growing share of North American oil consumption produced in North America, with the rents (such as they are) going mostly to the Province of Alberta. 

One reason why oil sands project run overbudget below the fold.  Full explanation still forthcoming, with the preview that the comment thread pretty much nailed the reasons. 

Expansion!

  In 2006, the Panamanian electorate voted in favor of a plan to expand the Panama Canal.  The reason was not that the Canal had reached full capacity:  in fact, by a back-of-envelop calculation done by myself and a fellow named Andrew Baldwin, the Panama Canal is at roughly half its maximum throughput in terms of the number of ships.  (The ACP, I should add, does not agree with us.)  Rather, the reason is that 35% of the planet’s commercial shipping consists of ships too large to fit through the current locks, and Panama wants a piece of that business.

The current locks measure 1,050 feet by 110 feet.  They can accomodate ships meausring up to 965 and 106 feet.  An expansion project started by the Americans in 1939 and abandoned in 1942 would have built a third set of locks measuring 1,200 feet by 140 feet, with 45 feet of depth.  The abandonment turns out to have been a great thing for the Panamanian economy:  the new project will build locks measuring 1,400 × 180 × 60, capable of accomodating ships up to 1,200 × 160.  (And to be honest, I suspect that will eventually be pushed up to 1,315 × 176.) 

How large is that?  Pretty f----n’ large.  The new notional Panamax will be 1,200 × 160.  The real new Panamax will be closer to 1,315 × 176.  Well, Malaccamax is 1,543 × 197.  Still not big enough for supertankers, but big enough to capture a lot of the new traffic.  (And Nimitz-class aircraft carriers, should it ever come to that.)  The plan is for the expansion to be finished by 2014.  (Uh huh.) 

The abandonment of the American project also turns out to be a great thing for the Panamanian ecology.  Every time one of the current lock chambers is filled, it drains 26.7 million gallons of fresh water from Lake Gatún.  The problem is that rainfall has been falling in Panama.  The American new locks would have increased that number to 40.8 million gallons for every ship to head through the new passages. 

So the new locks will recycle the water, pumping it out of the locks into reservoirs.  It should allow the Canal to use only 10.7 million gallons per lock crossing, despite the larger size of the locks.  

  

Questions or comments?