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On Obama 2014 Budget Energy Proposals: Stuck in A Timewarp
So far from finding this record to be evidence in favor of government energy programs I think that it suggests the exact opposite. For $90 billion the highlights are:
- A toy for wealthy people who want show how earth friendly they are (Tesla)
- 18 power generation projects, which have "a low risk of default because they were required to have buyers for their power output." In other words they will make money because government has decided to burden rate payers by requiring them by mandate to pay high electric rates for renewable power production;
- Buy recommendations for companies engaged in solar power; but what would the recommendation be without feed-in tariffs, RPS mandates, and so on. It's hardly encouraging when companies are a "buy" based on government largesse;
- 5000 charging stations for EVs that are uneconomic even with government support at every level, and that haven't succeeded in convincing consumers they are worth buying;
- Grants to build up an industry from the ground up that has no particular rationale except one that exists in the minds of government planners--notwithstanding the fact that government has never succeeded in creating a new energy technology that could survive without continuing subsidies.
- While I have more sympathy with smart grid investments, I think there are still institutional issues relating to the smart grid that will impede progress regardless of the federal money lavished on the program.
In any case, overall I think that the $90 billion has not been well spent. True, Solyndra is an exception, but as I've noted before, avoiding bankruptcy is a very low bar especially for companies taking advantage of mandates, subsidies and feed-in tariffs. Unfortunately with respect to government energy policy, waste, distortion and hubris are still the rule.
On Obama 2014 Budget Energy Proposals: Stuck in A Timewarp
"After four years in office, it's reasonable to expect an administration to have learned what works and what doesn't." Four years? How about four decades. As I say in my new book, "Policy failures are not a recent phenomenon. Nevertheless, for the last forty years it appears that policymakers have learned nothing from the past.That policy has always failed has seemed irrelevant to each new Congress, to each new presidential administration, to each new agency head. It is as if officials are saying that they know their ideas will fail but they will pursue them anyway because they cannot think of anything else to do."
On How Resource Limits Lead to Financial Collapse
For all its evocation of history, I find this post to be rather ahistorical, There was, most economic historians believe, a major discontinuity in world history. Beginning with the Industrial Revolution nations began to enjoy the possibility of continuous economic growth. Malthus was not wrong in 1799 looking backward; as Gregory Clark has argued in his book A Farewell to Alms, the world did face Malthusian crises on a regular basis, and Malthus was right in looking forward and saying all things equal there'll be another one. But at just that moment things were no longer equal. By the standards of the past there should be no way we can feed and clothe 6+ billion people; we should have had mass starvation and epidemics years ago.
But the standards of the past are, well, passed. As Nobel-Prize winning economist Douglass North has noted, until the 19th century long-run economic growth was essentially unknown, and examples of past failures of temporarily prosperous states--2000 years ago in some cases--are extremely problematic to apply today. Rome, for example, grew rich not because of superior production but because of its ability to wage war and extract tribute from conquered peoples. But when supply lines became too long, further conquest was forestalled and Rome began a long term decline.
The main feature that has distinguished the last 200 years has been increasing productivity--the ability to make more with less. Ms. Tverberg worries about the rising price of energy, but in fact we now produce a dollar of GDP with more than 50 percent less energy than we did in 1973. Why? We increased productivity and efficiency and continue to do so. This makes real energy costs much lower than they would be in a world of stagnation.
Much of this is from the benefits of technological change. The fear expressed above that automation leads to recession and joblessness is simply not supported by the facts of the modern world. Fears of this kind reflect a view of labor as a fixed quantity and that technological change that substitutes capital for labor means a net loss of jobs. In fact technology changes the composition of labor but generally in the aggregate creates jobs. A few hundred thousand operators lost their jobs with advances in telecommunications in the 1980s and 90s but telecoms added on net millions of employees because of these changes.
This is not to say that there aren't dangers ahead with respect to our economic future. We will need to confront fiscal problem and we may have periods of low growth and recession. At the same time, parallels with Egypt and Syria are entirely beside the point. These are failed states that have never created the institutions needed for long term economic success or for political stability.
Finally, I would add that catastrophism has been a good way to sell airport paperbacks but every catastrophe scenario of the past 50 years has looked silly in retrospect. Malthusians say it's just a matter of time before they are right. Maybe but from my viewpoint it doesn't seem anywhere near at hand.
On Defining Success Downward?
I agree that R&D leads to many dead ends and that it is within the scope of government to fund R&D. And I endorse the idea that the DOE should "encourage early stage R&D projects" and maintain continuity of funding. But I think John Miller expresses the problem well in his comment above.
So much of recent energy policy has been aimed not at research but at commercialization. As Larry Summers admitted in an email the government is poor at venture capital but all too many of the billions spent have gone to making commercial successes of alternative energy technologies that are not commercially viable.
- A mandate for 36 billion of biofuels is not R&D; in fact the current mandated level is not R&D eitther
- A tax credit of $7500 for electric cars is not R&D
- The all-electric car production facility in Tennessee that Sec. Chu touted is not R&D
- Production subsidies for wind are not R&D
- RPS mandates are not R&D; indeed a mandate is itself antithetical to real research but the administration is all for upholding the ethanol mandate and seeks a national RPS, and so on
I have heard various arguments about why the government needs to support commercialization of new energy technologies. Often the claim is market failure, but for the last forty years (including the last four) government failure with respect to energy has been far more evident.
On Energy Policy as the Solution to Climate Change
It's hard to think of an approach more wrongheaded than the one John Kerry recommended and that is endorsed in this post. Consider the last energy bill that was touted as a big step toward a solution for energy and CO2 mitigation. That one, passed in late 2007, backed by most Republicans and Democrats (including President Bush and Senator Obama), has saddled us with the Renewable Fuel Standard, which has done little to reduce CO2 emissions and has produced many unanticipated bad effects. That seems inevitable when energy policy is supposed to be a cure-all. I have a more radical idea: How about an energy policy that deals with energy and a climate policy that deals with climate?
On Would a North American Energy Pact Lead to Energy Independence?
Your comment gets to the real problem with the notion of "energy independence." Richard Nixon initially said that it meant complete self-sufficiency; Gerald Ford thought it meant the U.S. energy supply would be "invulnerable" and a Ford administration official told Congress the U.S. would be energy independent by 1985 and in later years would do even better than that!? Looking at the history of the energy conversation in the U.S. it becomes clear that "energy independence" can mean almost anything whether the proposal is U.S. energy independence, North American energy independence, or Western Hemisphere energy independence. In fact, energy independence has become essentially meaningless but is still touted by politicians from Maine to Hawaii because it has had political traction--not because it is anything that policymakers really expect to achieve (whatever they think it means). .
As for your conclusion to leave oil trading to the market, I couldn't agree more.
Peter Z. Grossman
On Would a North American Energy Pact Lead to Energy Independence?
John:
Thanks for your thoughtful comments on my post, but actually I want the opposite of energy isolationism. Isolationism is precisely what "energy independence" advocacy is about I am delighted that Canada and Mexico provide us with so much of our energy resources and hope it continues. What I oppose is our government enlisting Canada and Mexico in a political arrangement to "solve" our energy dilemmas. If our ties with Canada and Mexico grow through market activities that's great. If they grow mainly by political declaration, that could create many potential problems, including access to the energy resources we will need in future years.
Peter
On Is Energy Independence Undesirable?
I appreciate the comments and recognize on some issues there can be differences of opinion. But we should all be clear about the facts. It is suggested above that 1970s price controls post dated the Arab oil embargo. That is simply incorrect. In fact, when the embargo struck the U.S. had had price controls in effect for two years. Just a couple months prior to the embargo, (the summer of 1973) President Nixon announced the fourth phase of controls aimed primarily at the oil market. (Natural gas price controls had actually been in place since the mid-1950s.) The embargo did reduce supplies but the shortages in the US were the result of controls. Indeed, effectively world supply had returned close to normal just after the first of the year 1974, but due to controls the longest, angriest gas lines were in late February 1974--specifically the last week, since costs could not be passed along to consumers (according to the rules of Phase IV controls) until after the first of the next month. In other words, as world supply improved our gas lines initially got longer. Price controls on oil were not removed until January 1981 and played a major part in the 1979 gas lines as well. It is clear that once the controls were removed, market disruptions (the Iran-Iraq war; the invasion of Kuwait and the first Gulf War, etc.) led only to higher prices not the shortages that price (and I'd add allocation) controls had created. My forthcoming book, US Energy Policy and the Pursuit of Failure, recounts this history.
Peter Z. Grossman
On Obama 2014 Budget Energy Proposals: Stuck in A Timewarp
Goodness I guess I have some gaps in my knowledge of history. I can't recall the government programs for television, dishwasher or personal computer commercialization. Nor do I recall the government assistance programs at the outset for the development of the steam turbine, the incandescent light, the internal combustion engine (or the automobile that it powered), or the process of refining crude oil.
As for R&D, as the last chapter of my new book shows, I have always been strong supporter of energy R&D and that advancements can come from both public and private R&D efforts. But government-sponsored commercialization efforts for EVs are not R&D, nor are RPS standards or mandates that force consumption of such things as biofuels.
Early adopters are a part of the process of technological diffusion but they usually are responding to a product not a tax rebate or subsidies. Let's see what happens if all government benefits for EVs, wind, solar, and yes, for fossil fuels and nuclear power, too, are removed. If there continues to be a wave of early adoptions of EVs (or other new technologies) leading to more widespread diffusion I'll be the first to applaud that success.