Tag: energy

Preparing for Life as a Light Bulb Black Marketeer

 I’ve decided the time has come to become an entrepreneur – as a black market operator.

Come next January, 100-watt incandescent light bulbs will be illegal, courtesy of Congress and President George W. Bush.  Lower wattages will be banned the following year.  As usual, politicians in Washington believe they know best and are determined to inconvenience the public in the name of saving energy.

No matter that incandescent lights offer a softer light and are a better value than fluorescent bulbs if turned on only briefly.  And no matter that breaking a fluorescent light will spill mercury, creating what in any other circumstance would be considered to be a biohazard.

There are other consequences of the coming prohibition.  Notes Tim Carney of the Washington Examiner:

  • Citing this law, GE has closed its incandescent light plant in Virginia. For the coming years, while they’re still legal, Americans will be buying their GE incandescents from Mexico. This probably means less efficient manufacturing and more shipping.
  • GE makes its CFLs in China. The factories are likely dirtier and less efficient, and certainly there will be more shipping costs.
  • Because of the warm-up time for CFLs and the knowledge that they use less energy, people are more likely to leave them on for longer, I imagine.
  • In northern latitudes, incandescents’ inefficiency is not wasted. Think about it: in Alaska, summer nights are very short and winter nights are very long. That means a vast majority of light-bulb time happens in the winter. The incandescents waste energy in the form of heat, but if it’s cold, that added heat slightly reduces your need to use a furnace.
Of course, it’s hard to decide how many bulbs to buy.  What would be a lifetime supply of 100 watt lights?

And why stop there?  I could become an incandescent bulb pusher once the prohibition takes effect.  I don’t think drug prohibition makes any sense, but I have no desire to get into that market.  Customers and competitors are an ugly lot and I really don’t want to go to prison.  But selling light bulbs – now there’s something I could do!

I’d be even happier, however, if the new Congress dropped the coming prohibition.  Fluorescent bulbs often are a wise choice, but not always.  A supposedly free society should leave at least a few choices to people – like deciding which light bulbs to use.

Kerry and Lieberman Unveil Their Climate Bill: Such a Deal!

I see that my colleague Sallie James has already blogged on the inherent protectionism in the Senate’s long-awaited cap-and-tax bill.  A summary was leaked last night by The Hill.

Well, we now have the real “discussion draft” of  “The American Power Act” [APA], sponsored by John Kerry (D-NH) and Joe Lieberman (I-CT).  Lindsay Graham (R-SC) used to be on the earlier drafts, but excused himself to have a temper tantrum.

So, while Sallie talked about the trade aspects of the bill, I’d like to blather about the mechanics, costs, and climate effects. If you don’t want to read the excruciating details, stop here and note that it mandates the impossible, will not produce any meaningful reduction of planetary warming, and it will subsidize just about every form of power that is too inefficient to compete today.

APA reduces emissions to the same levels that were in the Waxman-Markey bill passed by the House last June 26.  Remember that one – snuck through on a Friday evening, just so no one would notice?  Well, people did, and it, not health care, started the angry townhall meetings last summer.  No accident, either, that Obama’s approval ratings immediately tanked.

Just like Waxman-Markey, APA will allow the average American the carbon dioxide emissions of the average citizen back in 1867, a mere 39 years from today.  Just like Waxman-Markey, the sponsors have absolutely no idea how to accomplish this.  Instead they wave magic wands for noncompetitive technologies like “Carbon Capture and Sequestration” (“CCS”, aka “clean coal”), solar energy and windmills, and ethanol (“renewable energy”), among many others.

Just like Waxman-Markey, no one knows the (enormous) cost.  How do you put a price on something that doesn’t exist?  We simply don’t know how to reduce emissions by 83%.  Consequently, APA is yet another scheme to make carbon-based energy so expensive that you won’t use it.

This will be popular!  At $4.00 a gallon, Americans reduced their consumption of gasoline by a whopping 4%.  Go figure out how high it has to get to drop by 83%.

Oh, I know. Plug-in hybrid cars will replace gasoline powered ones. Did I mention that the government-produced Chevrolet Volt is, at first, only going to be sold to governments and where it is warm because even the Obama Administration fears that the car will not be very popular where most of us live.  Did I mention that the electric power that charges the battery most likely comes from the combustion of a carbon-based fuel? Getting to that 83% requires getting rid of carbon emissions from power production.  Period.  In 39 years. Got a replacement handy?

Don’t trot out natural gas.  It burns to carbon dioxide and water, just like coal.  True, it’s about 55% of the carbon dioxide that comes from coal per unit energy, but we’ll also use a lot more more electricity over the next forty years.  In other words, switching to natural gas will keep adding emissions to the atmosphere.

Anyway, just for fun, I plugged the APA emissions reduction schedule into the Model for the Assessment of Greenhouse-gas Induced Climate Change (MAGICC – I am not making this up), which is what the United Nations uses to estimate the climatic effects of various greenhouse-gas scenarios.

I’ve included two charts with three scenarios. One is for 2050 and the other for 2100.  They assume that the “sensitivity” of temperature to a doubling of atmospheric carbon dioxide is 2.5°C, a number that many scientists think is too high, given the pokey greenhouse-effect warming of the planet that has occurred as we have effectively gone half way to a doubling already. The charts show prospective warming given by MAGICC.

The first scenario is “business-as-usual”, the perhaps too-optimistic way of saying a nation without APA.  The second assumes that only the US does APA, and the third assumes that each and every nation that has “obligations” under the UN’s Kyoto Protocol on global warming does the same.

As you can plainly see,  APA does nothing, even if all the Kyoto-signatories meet its impossible mandates.  The amount of warming “saved” by 2100 is 7% of the total for Business-as-Usual, or two-tenths of a degree Celsius. That amount will be barely detectable above the year-to-year normal fluctuations.  Put another way, if we believe in MAGICC, APA – if adopted by us, Europe, Canada, and the rest of the Kyotos – will reduce the prospective temperature in 2100 to what it would be in 2093.

That’s a big if.  Of course, we could go it alone. In that case, the temperature reduction would in fact be too small to measure reliably.

I’m hoping these numbers surface in the “debate” over APA.

So there you have it, the new American Power Act, a bill that doesn’t know how to achieve its mandates, has a completely unknown but astronomical cost, and doesn’t do a darned thing about global warming.  Such a deal!

Earth Day Links

Today is the 40th anniversary of Earth Day, a time to highlight and discuss ways to work toward a cleaner planet. Cato’s energy and environment research promotes policies that would help protect the environment without sacrificing economic liberty, goals that are mutually supporting, not mutually exclusive.

  • Why we should thank capitalism for environmental gains: “It is businessmen — not bureaucrats or environmental activists — who deserve most of the credit for the environmental gains over the past century and who represent the best hope for a Greener tomorrow.”
  • Finding the right balance: “Today, America’s environment is cleaner—and Earth Day has indeed helped ensure that. …We should renew our promise to keep the environment clean—without adding to human misery or stalling improvements in the human condition.”

Washington Rakes in the Money

The Washington Post launches a new weekly today, Capital Business, covering business in the Washington area. The cover of the first edition is striking:

As the cover line exults, “There’s a wave of government money headed our way – bringing opportunities in health care, green energy, cybersecurity and education.” Of course, it’s not actually “government money” – it’s money taxed or borrowed from those who produce it in the 50 states and then sprinkled liberally around the Washington area, which now contains 6 of the 10 richest counties in America.

If the Capital Business cover image had a few more arms, it would look like the logo for this year’s Cato University, “Confronting Grasping Government”:

Atomic Dreams

Last week I was on John Stossel’s (most excellent) new show on Fox Business News to discuss energy policy – in particular, popular myths that Republicans have about energy markets.  One of the topics I touched upon was nuclear power.  My argument was the same that I have offered in print: Nuclear power is a swell technology but, given the high construction costs associated with building nuclear reactors, it’s a technology that cannot compete in free markets without a massive amount of government support.  If one believes in free markets, then one should look askance at such policies. 

As expected, the atomic cult has taken offense. 

Now, it is reasonable to argue that excessive regulatory oversight has driven up the cost of nuclear power and that a “better” regulatory regime would reduce costs.  Perhaps.  But I have yet to see any concrete accounting of exactly which regulations are “bad” along with associated price tags for the same.  If anyone out there in Internet-land has access to a good, credible accounting like that, please, send it my way.  But until I see something tangible, what we have here is assertion masquerading as fact.

Most of those who consider themselves “pro-nuke” are unaware of the fact that the current federal regulatory regime was thoroughly reformed in the late 1990s to comport with the industry’s model of what a “good” federal regulatory regime would look like.  As Oliver Kingsley Jr., the President of Exelon Nuclear, put it in Senate testimony back in 2001:

The current regulatory environment has become more stable, timely, and predictable, and is an important contributor to improved performance of nuclear plants in the United States.  This means that operators can focus more on achieving operational efficiencies and regulators can focus more on issues of safety significance.  It is important to note that safety is being maintained and, in fact enhanced, as these benefits of regulatory reform are being realized.  The Nuclear Regulatory Commission – and this Subcommittee – can claim a number of successes in their efforts to improve the nuclear regulatory environment.  These include successful implementation of the NRC Reactor Oversight Process, the timely extension of operating licenses at Calvert Cliffs and Oconee, the establishment of a one-step licensing process for advanced reactors, the streamlining of the license transfer process, and the increased efficiency in processing licensing actions.

It’s certainly possible that the industry left some desirable reforms undone, but it seems relevant to me that the Nuclear Energy Institute – the trade association for the nuclear energy industry and a fervent supporter of all these government assistance programs – does not complain that they’re being unfairly hammered by costly red-tape.

For the most part, however, the push-back against the arguments I offered last week has little to do with this.  It has to do with bias.  According to a post by Rod Adams over at “Atomic Insights Blog,” I am guilty of ignoring subsidies doled-out to nuclear’s biggest competitor – natural gas – and because Cato gets money from Koch Industries, it’s clear that my convenient neglect of that matter is part of a corporate-funded attack on nuclear power.  Indeed, Mr. Adams claims that he has unearthed a “smoking gun” with this observation.

Normally, I would ignore attacks like this.  This particular post, however, offers the proverbial “teachable moment” that should not be allowed to go to waste.

First, let’s look at the substance of the argument.  Did I “give natural gas a pass” as Mr. Adams contends? Well, yes and no; the show was about the cost of nuclear power, not the cost of natural gas.  I did note that natural gas-fired electricity was more attractive in this economic environment than nuclear power, something that happens to be true.  Had John Stossel asked me about whether gas’ economic advantage was due to subsidy, I would have told him that I am against natural gas subsidies as well – a position I have staked-out time and time again in other venues (while there are plenty of examples, this piece I co-authored with Daniel Becker – then of the Sierra Club – for The Los Angeles Times represents my thinking on energy subsidies across the board.  A blog post a while back about the Democratic assault on oil and gas subsidies found me arguing that the D’s should actually go further!  Dozens of other similar arguments against fossil fuel subsidies can be found on my publications page).  So let’s dispose of Mr. Adams’ implicit suggestion that I am some sort of tool for the oil and gas industry, arguing against subsidies here but not against subsidies there.

Second, let’s consider the implicit assertion that Mr. Adams makes – that natural gas-fired electricity is more attractive than nuclear power primarily because of subsidy.  The most recent and thorough assessment of this matter comes from Prof. Gilbert Metcalf, an economist at Tufts University.  Prof. Metcalf agrees with a 2004 report from the Energy Information Administration which contended that preferences for natural gas production in the tax code do little to increase natural gas production and thus do little to make natural gas less expensive than it might otherwise be.  They are wealth transfers for sure, but they do not do much to change natural gas supply or demand curves and thus do not affect consumer prices.  Prof. Metcalf argues that if we had truly level regulatory playing field without any tax distortions, natural gas-fired electricity would actually go down, not up!  Government intervention in energy markets does indeed distort gas-fired electricity prices.  It makes those prices higher than they otherwise would be!

The Energy Information Administration (EIA) identified five natural gas subsidies in 2007 that were relevant to the electricity sector (table 5).  Only two are of particular consequence.  They are:

  • Expensing of Exploration and Development Costs – Gas producers are allowed to expense exploration and development expenditures rather than capitalize and depreciate those costs over time.  Oil and gas producers (combined) took advantage of this tax break to the tune of $860 million per year.  How much goes to gas production rather than to oil production is unclear.
  • Excess of Percentage over Cost Depletion Deferral – Under cost depletion, producers are allowed to make an annual deduction equal to the non-recovered cost of acquisition and development of the resource times the proportion of the resource removed that year.  Under percentage depletion, producers deduct a percentage of gross income from resource production.  Oil and gas producers (combined) take advantage of this tax break to the tune of $790 million per year.  How much goes to gas production rather than to oil production is unclear. 

Even if we put aside the fact that these subsidies don’t impact final consumer prices in any significant manner, it’s useful to keep in mind the fact that the subsidy per unit of gas-fired electricity production – as calculated by EIA – works out to 25 cents per megawatt hour (table 35).  Subsidy per unit of nuclear-fired electricity production works out to $1.59 per megawatt hour.  Hence, the argument that nuclear subsidies are relatively small in comparison with natural gas subsidies is simply incorrect.

Some would argue that the Foreign Tax Credit – a generally applicable credit available to corporations doing business overseas that allows firms to treat royalty payments to foreign governments as a tax that can be deducted from domestic corporate income taxes – should likewise be on the subsidy list.  The Environmental Law Institute calculates that this credit saves the fossil fuel industry an additional $15.3 billion.  There is room for debate about the wisdom of that credit, but regardless, it doesn’t appear as if the Foreign Tax Credit affects domestic U.S. prices for gas-fired electricity.     

The bigger point is that without government help, few doubt that the natural gas industry would still be humming and electricity would still be produced in large quantities from gas-fired generators.  But without government production subsidies, without loan guarantees, and without liability protection via the Price-Anderson Act, even the nuclear power industry concedes that they would disappear.

Now, to be fair, Prof. Metcalf reports that nuclear power is cheaper than gas-fired power under both current law and under a no-subsidy, no-tax regime.  His calculations, however, were made at a time when natural gas prices were at near historic highs that were thought to be the new norm in energy markets and were governed by fairly optimistic assumptions about nuclear power plant construction costs.  Those assumptions have not held-up well with time.  For a more recent assessment, see my review of this issue in Reasonalong with this study from MIT, which warns that if more government help isn’t forthcoming, “nuclear power will diminish as a practical and timely option for deployment at a scale that would constitute a material contribution to climate change risk mitigation.”

Third, Mr. Adams argues that federal nuclear loan guarantee program is a self-evidently good deal and implies that only an anti-industry agitprop specialist (like me) could possibly refuse to see that.  “That program, with its carefully designed and implemented due diligence requirements for project viability, should actually produce revenue for the government.”  Funny, but when private investors perform those due diligence exercises, they come to a very different conclusion … which is why we have a federal loan guarantee program in the first place. 

Who do you trust to watch over your money – investment bankers or Uncle Sam?  The former don’t have the best track record in the world these days, but note that the popular indictment of that crowd is that investment banks weren’t tight fisted enough when it came to lending.  If even these guys were saying no to nuclear power – and at a time when money was flowing free and easy – what makes Mr. Adams think that a bunch of politicians are right about the glorious promise of nuclear power, particularly given the “too cheap to meter” rhetoric we’ve heard from the political world now for the better part of five decades? 

Anyway, for what it’s worth, the Congressional Budget Office has taken a close look at this alleged bonanza for the taxpayer and judged the risk of default on these loan guarantees to be around 50 percent.  They may be wrong of course, but the risks are there, something Moody’s acknowledged last year in a published analysis warning that they were likely to downgrade the credit-worthiness of nuclear power plant construction loans.

Fourth and finally, Mr. Adams cites Cato’s skepticism about “end-is-near” climate alarmism as yet more evidence that we are on the take from the fossil fuels industry.  I don’t know if Mr. Adams has been following current events lately, but I would think that we’re looking pretty good right now on that front.  Der Spiegel – no hot-bed of “Big Oil” agitprop – sums up the state of the debate rather nicely in the wake of the ongoing collapse of IPCC credibility.  Matt Ridley – another former devotee of climate alarmism – likewise sifts through the rubble that is now the infamous Michael Mann “hockey stick” analysis (which allegedly demonstrated an unprecedented degree of warming in the 20th Century) and finds thorough and total rot at the heart of the alarmist argument.  Mr. Adams is perhaps unaware that our own Pat Michaels has been making these arguments for years and Cato has no apologies to make on that score. 

Regardless, ad hominem is the sign of a man running out of arguments.  There aren’t many here to rebut, but the form of the complaints offered by Mr. Adams speaks volumes about how little the pro-nuclear camp has to offer right now in defense of nuclear power subsidies.

I have no animus towards nuclear power per se.  If nuclear power could compete without government help, I would be as happy as Mr. Adams or the next MIT nuclear engineer.  But I am no more “pro” nuclear power than I am “pro” any power.  It is not for me to pick winners in the market place.  That’s the invisible hand’s job.  If there is bad regulation out there harming the industry, then by all means, let’s see a list of said bad regulations and amend them accordingly.  But once those regulations are amended (if there are indeed any that need amending), nuclear power should still be subject to an unbiased market test.  Unlike Mr. Adams, I don’t want to see that test rigged.

Thursday Links

  • A few things you might not know about rail travel: “Automobiles in intercity travel are as energy efficient as Amtrak. Cars are getting more energy efficient, while boosting Amtrak trains to higher speeds will make them less energy efficient.” The list goes on…
  • Quiz Time! Which was the only country in the 27-nation European Union to register economic growth without going through a recession last year? The answer might surprise you.

Wednesday Links

  • Is there a place for gay people in conservative politics? We’ll be discussing it today at Cato. Watch here live at 12 PM EST.