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On Why Does Politics Keep Getting in the Way of Pricing Carbon? - Part 1

Peter, no I'm not interested in reading hundreds or thousands of reports. You are right about that.

I am not unfamiliar with the energy industry. I was one of the first employees of the Solar Energy Research Institute, worked further on DOE solar development programs at JPL, was deployed to DOE headquarters for a time, and later had the Edison Electric Institute and several electric utility companies as consulting clients.

Yes the capital costs and infrastructure requirements of the "backbone" parts of the energy industry are massive and have slow turnover rates. I made the same point myself in a separate discussion elsewhere yesterday.

But the world economy and population are growing and new infrastructure is being built in many parts of the world, especially in the emerging economies. They have good reasons to leapfrog obsolete technology and embrace innovations.

I do not favor shutting down functional nuclear plants, as Germany is doing and some other countries are either planning to do or at least considering as an option. But many are coming to the end of their useful lifetimes and will need to be replaced. Better to replace them with something better, safer, cleaner and more appropriate to the modern world than just more of the same.

Your suggestion that doing so would take many decades is unconvincing. The feasibility of a molten salt thorium reactor was demonstrated at Oak Ridge NL over 50 years ago. The lack of investment in innovation and the inertia and resistance of an incumbent industry are not immutable parameters.

The analogy is admittedly limited, but I read recently that the engines of the Saturn V rocket that sent the Apollo spacecraft to the moon unleashed the power of something like 85 hydroelectric dams. Now obviously that was not a technology that feasible or designed for large-scale commercial deployment. But the Apollo program required a massive commitment of resources, talent, and infrastructure that went from the drawing board to successful completion with 10 years. 

The Manhattan Project had even greater infrastructure requirements. It took an abstract theory and turned it into usable products in less than four years. Admittedly, that degree of mobilization is only possible in a context of all-out war. Despite Jimmy Carter's invokation of "the moral equivalent of war" to counter the energy crisis of the 1970s, that kind of full mobilization is not possible or warranted in the absence of an imminent existential threat.

But that is no excuse for the paltry level of investment in innovation that has been common in the energy sector. There, as a share of profits, R&D investment is some 50 times lower than in innovative industries such as pharmaceuticals or IT. Even considerating that profit margins may only a third or less in energy than in those other sectors, the commitment to innovation still looks seriously deficient.

Across the economy as a whole, the rate of market penetration of innovations generally seems to have increased. See: http://j.mp/1s2iM7o

This is consistent with the way advanced information and communication technology has boosted innovation by (a) expanding the capacity for information sharing and collaboration globally and (b) amplifying the functional capabilities of a host of other products and systems by making them "smarter."

Precisely because of the long life cycles of backbone energy infrastructure you mention, building more of the same nuclear plants would be a barrier to innovation by reducing the size of the market available to be served by better alternatives. That is the sort of imposed inertia that ultimately bankrupted Kodak: It failed to shift its investments from more-of-the-same but still profitable film to emerging digital image technology until it was too late.

In any case, post-Fukushima, public attitudes and hence political momentum have turned against "nuclear power." I put that phrase in quotes because that dread and hostility are pegged to conventional, light-water nuclear technology -- which for over half a century has been allowed to define what nuclear power means. The only way to overcome that resistance is to offer a new technology that is different enough to warrant a different image and even a different label.

Consider, by analogy, that when GE introduced an alternative for peering inside the human body that used radio waves instead of x-rays, they first called it "nuclear magnetic resonance." But the public tendency to equate "nuclear" with lethal radiation made the new machines initially a hard sell. Of course the "nuclear" in this case referred to the nucleus of a living cell, not of an atom. But that was a nuance the public was not inclined to grasp. Once GE relabelled the innovation "magnetic resonance imaging" it sold like proverbial hotcakes.

I'm not suggesting that the nuclear renaissance some expected before Fukushima can be launched by semantic gimmicks. Simply selling "old wine in new bottles" won't fool anyone. A fundamentally different approach to producing power through atomic fission (or potentially fusion though not seemingly soon) will be needed. As I suggested earlier, that now seems more likely to happen in other countries than here, unless the US changes its thinking and can make a greater commitment to innovation.

July 29, 2014    View Comment    

On Why Does Politics Keep Getting in the Way of Pricing Carbon? - Part 1

Durwood, fertility levels below replacement levels in nearly all industialized countries mean declining population, not just declining rates. Indigenous low fertility may be offset by immigration. But as immigrants become more prosperous and urbanized, their fertility rates tend to regress toward the same lower levels.

The social status of women is a key factor. When women's rights are respected and they gain more equal opportunities, fertility declines. The global trend seems to be in the direction of female equality, though some cultures resist it, sometimes violently. The expansion of communications via cell phones, the Internet and such seems to boost the modernization of social attitudes and behavior.

Human existence has been precarious for thousands of years. And yet here we are. It is possible to imagine a variety of apocalyptic scenarios, not all implausible. But Malthusian pessimism and the gloomy scenarios of "Limits to Growth" have continually been proven wrong. Indur Goklany's book, The Improving State of the World, demonstrates that it is possible to point many indicators that the human condition is getting better, not worse.

Of course, as they say on Wall Street, "prior performance is no guarantee of future results." The financial crash of 5+ years ago gave a hint of how tenuous the sinews of modern civilization may be. There are big problems that need big solutions. But I see no particular need to believe that the capacities for innovation and progress are exhausted. Necessity may not always be the mother of invention, but it usually stimulates fertility.

July 28, 2014    View Comment    

On Why Does Politics Keep Getting in the Way of Pricing Carbon? - Part 1

Peter, I am not expert about the status of the nuclear industry. The UK document you point to expresses a tactically cautious view re UK near-term interests that may be right or wrong. I don't know enough about conditions there to judge. But it does not reject the thorium cycle and indeed notes that since others are pursuing it, the UK should keep its hand in to some extent, lest it be left behind.

I also don't know enough about what's going on in Oz to judge how the US NRC may or may not influence decisions there.

I do believe that encouraging more-of-the-same flawed light-water reactor construction is more likely to pose a barrier to innovation than to encourage it.

As near as I can tell, the flaw in US policy is that it is not sufficiently committed to encouraging domestic innovation in nuclear power technology. That impression seems reinforced by a recent report in Fortune:

The GAO account cites a report from the DOE’s own Nuclear Energy Advisory Committee noting  that “the United States risks falling behind other countries—such as Japan, Russia, China, South Korea, and France—that are actively working to deploy and commercialize advanced reactors.”

Regarding the NRC, the Fortune article notes this:

One problem is that the Nuclear Regulatory Commission’s focus on conventional reactor safety deters innovation. DOE’s Lyons noted in a June 6 letter to the GAO that “the NRC’s lack of engagement in this area has resulted in significant delay in their delivery of several major regulatory documents which were promised to DOE for delivery in 2013.”

Regulators in other countries could take a more adaptive approach including in Canada where startups including Terrestrial Energy, Northern Nuclear, and Thorium Power Canada are developing reactors. Russia is planning a domestic energy future around fast reactors. China could outpace them all.

So the indications are that other countries -- if not the UK and Australia -- are indeed moving ahead in developing and deploying alternative nuclear designs, evidently not hindered by the US NRC or DOE.

 

July 28, 2014    View Comment    

On Why Does Politics Keep Getting in the Way of Pricing Carbon? - Part 1

Peter, yes, the Kyoto treaty was ill-conceived and a failure.

Yes, wholesale rejection of nuclear power is foolish. Alternative nuclear technologies, especially molten salt reactors (MSR) and the thorium fuel cycle promise to be much safer and cleaner, with the potential to "burn" the stores of dangerous nuclear waste. Aside from hydroelectric power, which has the potential to be substantially increased, nuclear is the only significant option to provide baseload power with low carbon emissions.

But new, more advanced nuclear power generation is more likely to develop in other countries than in the US. Not only does the US present regulatory barriers to innovation. The incumbent nuclear power industry is a potent lobby against change.

As for "free" markets, keep in mind that the nuclear power industry was created by government fiat and large subsidies. It otherwise might not exist at all, or if it did would likely have a very different form. Unfortunately, the Eisenhower administration's Atoms for Peace initiative -- rooted more in geopolitics than economics -- promulgated a military nuclear power technology that was understood by many at the time and since to be inappropriate for large-scale civilian application.

Finally, if the US alone increased its nuclear power capacity, the impact on global climate would me minimal. The same would need to be done globally. In that regard, you greatly exaggerate the potential of US leadership. There is little or no evidence that the rest of the world is influenced by US attempts to lead. Other countries conform to US policies only to the extent it serves their self-interest. But others will pursue their self-interests regardless of US actions.

July 27, 2014    View Comment    

On Why Does Politics Keep Getting in the Way of Pricing Carbon? - Part 1

Durwood, many of your observations are sound -- other than your utopian (dystopian?) proposal to somehow exterminate a majority of the human population.

First, contrary to you conclusion (5), anticipating scarcity and developing alternatives is far more technically feasible than your population control idea. Indeed both those things are happening; they just may need some boosting.

Second, there is no "we" to make some collective choice, assuming people would even agree to what you propose, which is unlikely. 

Third, as economies develop, the well-known "demographic transition" is taking place. Fertility rates are falling in most countries, and in most of the richer countries are below replacement level. So populations are on track to decline over the next century or so without any draconian intervention.

 

July 27, 2014    View Comment    

On Why Does Politics Keep Getting in the Way of Pricing Carbon? - Part 1

Peter, per Jesse's comment, #3 seems to resemble the status quo.

Except, a truly "free" energy market does not exist. OPEC skews global oil prices. Governments own, regulate, and subsidize various components of the energy system.

The attempt to create an ideally free global energy market would be just about as utopian as efforts to impose a global carbon tax.

My recent book, Energy Innovation, starts from the recognition that energy policy is a "mess" or "wicked problem" in the terms used by system scientists. In such a tangle of coupled, interactive problems, a simple attempt to solve any one tends to compound others. There are no analytical solutions to a mess, but there may be practical measures to manage the mess and achieve better results.

Related to that, you are right that there is a need to accelerate innovation to create new technologies that can make clean energy cheap enough to compete with fossil fuels without subsidies, and attractive enough for poorer countries and regions to adopt.

But your suggestion that the rich countries should develop such technology and sell it to the poor is flawed for several reasons. First, the poor need to be able to afford what the rich want to sell; a mercantilist approach such as what you suggest would work against that and in any case be unacceptable to developing countries. Second, you presume that the rich have a monopoly on knowledge and talent; actually developing countries have much to contribute. Third, there is the need for effective technology to fit local social, economic, and ecological conditions. A simple but relevant example: There are obvious reasons why McDonalds cannot sell hamburgers in India. To take advantage of that large market, it needed indigenous partners to help develop products and marketing strategies that fit local requirements.

So creating alternative energy systems that can work globally requires an open science and open innovation process that engages collaboration of people in developed and developing regions.

My "Plan B" in the book takes such an approach. For details, see: http://j.mp/NrgInnov.

July 27, 2014    View Comment    

On Why Does Politics Keep Getting in the Way of Pricing Carbon? - Part 1

Good observation, Peter. Complements what I said earlier.

Of course the reason the analysis you present shows that carbon pricing is unlikely to work is because it is politically unrealistic. As you note, it presumes a degree of political conformity that has proven effectively impossible to achieve, and that is no more likely to be attained in the foreseeable future.

July 26, 2014    View Comment    

On Why Does Politics Keep Getting in the Way of Pricing Carbon? - Part 1

Nice survey of the conundrum, Jesse.

Let me point out for all that Resources for the Future and the Petersen Institute for International Economics have hosted interesting workshops/seminars where multiple analysts have chewed over the carbon pricing problems.

A summary of a workshop "Fiscal Reform and Climate Protection: Considering a U.S. Carbon Tax"sponsored by RFF and PIIE (no recordings unfortunately) is here: http://j.mp/1w90Zho.

This page has access to a report by RFF on The Role of a Carbon Tax in Tax Reform and Deficit Reduction as well as audio and video (link was broken today but may be restored) of a seminar discussing it: http://j.mp/UqRuLG.

What I take away from these protracted discussions, along with Jesse's present assessment, is that pricing carbon via tax or otherwise is one of those academic nostrums that seems to make eminent sense in theory but that has little to no feasibility in the real, contemporary world.

I confess, BTW, that I have not been immune to propounding such idealized fixes myself. In the 1970s, my paper proposing a renewable resources trust fund, financed via a tax on fossil fuels as well as other nonrenewable resources, was a finalist for the Mitchell Prize. (Lost out to John Holdren.) It was later published in a book: http://j.mp/1qcCXxY

My young brain was still partly saturated in those days with the welfare economics I had studied extensively in graduate school. Live and learn, as they say.

One thing I learned, particularly from subsequent experience working in/for government, is that internalizing externalities is far easier said than done.

In this particular instance, the case for pricing carbon stands on shaky legs, even before considering dynamic political resistance.

For one thing, it presumes that the "social cost of carbon" -- on climate -- can be known and measured. Without getting into an exhaustive deconstruction of the substantial, inherent uncertainties in climate science and models, the fact is that measuring the tangible impacts of carbon -- that is, GHG and other industrial effluents, some which are not even carbon -- is extemely difficult and unreliable. Projecting climate trends and therefore impacts into the future is even more unreliable, and effectively impossible at the granular regional or local levels at which tangible effects would have to be assessed.

Related to those uncertainties is the dilemma of iatrogrenic illness. That is the treatment that winds up doing more harm than the disease it aimed to cure.

A carbon tax by itself solves nothing, nor is it intended to. Its rationale is to skew markets so that alternative, "carbon-free" energy sources achieve price parity or superiority to conventional fossil fuel options. Those alternatives are in effect medications that proponents think the body politic needs to take to "cure" the disease of AGW. The carbon tax is sort of a sugar coating aimed to make the medicine more palatable -- by making the candy, food, etc. people now are ingesting taste worse.

But there is, in reality, little clinical experience to "prove" that those recommended medications are both safe and effective. Indeed, as Miller, Cloete, and others have demonstrated repeatedly in this forum, the efficacy of many of those prescribed treatments is not so clear, while they come with their own negative side effects, or "externalities."

Related to that is the possibility that the cure for one malady may actually increase the patient's vulnerability to another, equally or more debilitating one. In economic terms, this might be construed as opportunity costs. This is not merely a hypothetical problem.

Consider, by analogy, the chemotherapy treatment that effectively destroys cancer tumors, but so damages the immune system that the patient is crippled or killed by infectious disease. That the consequences may be unintended does not make them more tolerable.

Actually, the Copenhagen Consensus Centre has sponsored multiple analyses by leading economists to remind the public and politicians that budget priorities come with opportunity costs -- a fiscal version of iatrogenic illness. Starting with the reality that governments/economies have only limited discretionary funds to invest in solving a multiplicity of problems, the CCC analyses have assessed what the relative benefits and costs would be of a fixed amount of money -- say, $70 billion -- allocated among several alternative programs aimed at improving social welfare.

Among other things, these analyses have shown that "climate protection" schemes aimed at inducing lower GHG emissions have much higher costs and yield much lower benefits than do several other ways of making the world better off. In particular, they show it is (or would be) more cost-effective to invest in solving problems associated with AGW "externalities" directly -- e.g., by reducing the incidence of malaria by providing mosquito nets and also investing in vaccine development in the near term -- than by curtailing global warming decades in the future, thereby marginally curbing the conjectured spread of malaria or other "social costs" much later rather than ameliorating such problems now.

Putting all that aside, we come to the imposing problems of implementing the proposed internalization scheme. In Jesse's assessment (among others) the supposed "willingness to pay" already seems far too small compared to the behavior-changing prices required. I suggest that the survey data used to gauge such willingness likely overstate it considerably. The simple reason, as sages through the ages have noted, is that "talk is cheap." Social scientists know, actually, that survey respondents will commonly say things they think are socially/politically acceptable that they don't really mean. New Year resolutions, not to mention marital vows, are among the many intentions people express that more or less exceed subsequent behavioral implementation.

Some hope to finesse that barrier by proposing a revenue-neutral tax that would either be refunded or reallocated to yield no increase in the overall tax burden. But the political palatability of that scheme hinges on the public's trust that that promise would be kept, that it's not a bait-and-switch finagle or other kind of manipulative deception, and moreover that the initiative will yield the promised benefits.

But those assumptions don't conform to the harsh political context that exists today. Consider that we recently observed the 50th anniversary of the passing of the landmark Civil Rights Act during Lyndon Johnson's administration. At that time, surveys showed that some 70% of the American public trusted government to do the right thing most of the time. In the course of the subsequent Vietnam War, that degree of public trust eroded down to around 30%. Today, expressed public trust not only in government but many other institutions is at historic lows. And not just in the US but most of the world as well.

The endemic cynicism resonates with the old joke about the three biggest lies: (1) That was my wife. (2) The check is in the mail. (3) I'm from the government and I'm here to help you.

Moreover, recent Pew Trust survey research shows that the political polarization that has calcified government into gridlock is intensifying in the US: Voters are migrating toward more rigid, intransigent Left and Right ideological positions. This ominously recalls Yeats: "Things fall apart, the center cannot hold."

Finally, while I am sincerely looking forward to the next parts of Jesse's essay, and his proposals, we need to consider whether it is realistic to expect the US federal government to do anything about much of anything for the foreseeable future. It really seems not.

Nor is that just personal pessimism. It is the view that seems to have taken hold among the most passionate, committed political activists. Tuesday's Washington Post reported this:

Code Pink activists have gone through the cost-benefit analysis and determined that making a scene outside of the Capitol isn’t worth it. Congress, it seems, has gotten so pathetic that even the protesters aren’t bothering to show up.

There is more here: http://j.mp/1kej2QE

 

 

July 25, 2014    View Comment    

On New EPA Carbon Regulation: What will the Impacts be on Consumer Power Costs?

This is a brilliant reality check by John Miller. 

My only criticism is that -- per Journalism 101 -- he buried the lead: "Consumers should probably expect their power costs to at least double within the next 15 years."

I would have liked to see that and the final paragraph summarized right at the beginning.

July 17, 2014    View Comment    

On Competent Leaders Need to Understand the Science of Sustainability

Obama was echoing a theme posed by Jonathan Chait in New York Magazine in an article titled "Why Do Republicans Always Say 'I'm Not a Scientist'?":

Asked by reporters yesterday if he accepts the scientific consensus that greenhouse gas emissions contribute to global warming, John Boehner demurred on the curious but increasingly familiar grounds that he is not a scientist. “Listen, I’m not qualified to debate the science over climate change,” the House Speaker said. ...

This particular demurral seems to be in vogue for the Grand Old Party. Florida governor Rick Scott (“I’m not a scientist”) and Senator Marco Rubio (“I’m not a scientist. I’m not qualified to make that decision.”) have both held up their lack of scientific training as a reason to withhold judgment on anthropogenic global warming.

This criticism might have more credibility if it also acknowledged how commonly climate activists dismiss the arguments of politicians, analysts, and even scientists who dare to openly challenge some of the desperate claims made in the name of "climate science." Consider just a few examples:

Why has there been such a buzz about FiveThirtyEight and Roger Pielke Jr.? Likely because Pielke has a history of climate claims which have been criticized by scientists -- not the type of hire many of us expected by the FiveThirtyEight team. Dr. Pielke, a political scientist (not a climate scientist), was recently called out by Dr. John Holdren for statements he made to congress on droughts.--  John Abraham, in Huffington Post http://j.mp/1rusBh8 

You all do realize that this guy isn't even a climate scientist, he's an economist. It's sad that they can't even find scientists that discount AGW to try to "debunk" the consensus. -- comment on report that Richard Tol had resigned in protest from an IPCC panel. http://j.mp/1rutXse

The BBC received a well-organized deluge of complaints — some of them, inevitably, from those with a vested interest in renewable energy — accusing me, among other things, of being a geriatric retired politician and not a climate scientist, and so wholly unqualified to discuss the issue.-- Nigel Lawson, Global Warming Policy Foundation http://j.mp/1ruvPkN  

James Taylor  — a professional denial propagandist. He not a climate scientist or even a scientist in any way. He’s a lawyer paid by the Heartland Institute to write climate change denial propaganda.-- blogger J. Jerrald Hayes http://j.mp/1ruwNgY  

Fox News and Fox Business Network frequently host Joe Bastardi to comment on climate change. But Bastardi, who is a weather forecaster, not a climate researcher, has made inaccurate claims about climate science on multiple occasions and is not seen by experts as a credible source of climate information.-- Media Matters http://j.mp/1ruxgj3  

...the rest comes from a retired TV weatherman named Anthony Watts (who's not a climate scientist), who runs the climate denier blog WattsUpWithThat. Watts was on Heartland's payroll last year for a $44,000 project to undermine climate change evidence gathered from weather stations, funded by Heartland's billionaire "anonymous donor," Barre Seid.-- Polluter Watch http://j.mp/1ruyieT  

Freeman Dyson isn't a climate scientist, and agnosia is only a cloak for denial. -- comment on Shaping Tomorrow's World blog http://j.mp/1ruAUta  

The frequency of these sorts of attacks may explain why some politicians and others opt to recuse themselves from engaging in arguments about climate-related science. In effect, they may be preempting the criticism by conceding it and using it as license for silence.

July 10, 2014    View Comment    

On Solar Energy at Grid Parity in Utah, a Coal State With No RPS

Kudos to Donovan, Wilson, and others here for thoroughly discrediting, once again, this "grid parity" canard.

June 27, 2014    View Comment    

On Barclays Just Threw Gasoline on the Fire that is the Battle Between Utilities and the Solar Industry

Kudos to Bob Meinetz and Nathan Wilson for exposing what are truly "absurd" arguments by Hinckley and friends.

In his rebuttal, Hinckley criticizes the pseudonymous Claven making "un-referenced assertions." 

Well.

Pause to consider a bit of history about Barclays, the source of Hinckley's iconoclastic "intelligence," and in particular its role in the recent LIBOR scandal:

In June 2012, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions, leading to the scandal.

More broadly, there is this in Barclays' pedigree:

The company has become embroiled in a number of controversial subjects such as aggressive investment trading, tax avoidance schemes and close relationships with large investors in the Middle East.

The shadows over Barclays' past don't necessarily invalidate the judgment of a single Barclays analyst, T.C. Koh. But they don't inspire blank-check confidence either.

Here's what the Wall Street Journal's Marketwatch had to say about Koh's call:

Does the building momentum for solar mean regulated electric utilities will be destroyed? In short: no way.

Even Koh made clear that his analysis of the sector was “too early,” and this trend can take a long time to hurt electric utilities. Many customers won’t be able to spend thousands of dollars up front to install a solar-generation system. It will take more than just matching or dipping slightly below the cost for electricity from a utility to get people to switch to solar.

Along the line of Wilson's assessment here, solar without storage still costs much more than cost-effective central generation, especially using increasingly abundant natural gas, and needed storage adds even more to the cost. Subsidies and other government market manipulations may make the prices of solar or other 'renewable' options seem lower than they really are. But the costs of those distortions eventually have to be paid by consumers-cum-taxpayers.

So solar may indeed pose a threat to the stability of the electric utility sector. But even when and where it does, it's naive to believe that utilities -- and notably their customers and hence voters -- won't fight back.

In fact, they already are starting to, in Europe and the US. As consumers and voters increasingly come to understand the costs that will befall them from undermining the grid system, they will likely become more inclined to support efforts to push back -- to counter or reverse the negative impacts of solar subsidies. In Arizona, as noted elsewhere in this venue, a movement is afoot in the state legislature to force solar adopters to pay the costs they impose by effectively freeloading on the grid to provide backup when needed. 

On a parallel track, there is a growing movement in several states to impose extra taxes on owners of hybrid or electric vehicles to help pay for roads they use but don't pay for through traditional fuel taxes.

Either the costs of systemic disruption get internalized, to be paid by those who cause the disruption, or the disruption will proceed toward socially very unhappy, even disastrous results. The California electricity crisis of 2000-2001, which started the state on a long downward spiral to prolonged bankruptcy, is a model of what can happen.

June 24, 2014    View Comment