Topic: Energy and Environment

Energy Subsidies vs. Energy Progress

If we did a poll of free market economists about federal programs that are the most wasteful and ridiculous, energy subsidies would be near the top of the list. It’s not just that energy subsidies make no sense in economic theory, but also that there are so many news stories highlighting the folly that it’s hard to see why policymakers persist in wasting our money.

From the Washington Post on Friday:

The Department of Energy failed to disclose concerns about a green-technology company that won $135 million in federal funding but ended up filing for bankruptcy in September, according to a watchdog report released this week. DOE Inspector General Gregory Friedman noted that the firm, San Francisco-based Ecotality, is still due to receive $26 million from the agency for testing electric vehicles.

The Energy Department awarded the firm $100 million in 2009 Recovery Act funding for that initiative, in addition to a combined $35 million from a separate program to help pay for testing vehicles

Ecotality is among a number of failed firms that received stimulus funding through an Obama administration initiative to support green-technology companies during the recession. Solyndra, a Silicon Valley-based solar-panel maker, stands as perhaps the most high-profile example. The business collapsed after receiving more than a half-billion dollars in Recovery Act money. Other examples include Beacon Power , a Massachusetts-based company that received at least $39 million from the federal government, along with Michigan-based battery manufacturers LG Chem and A123, which landed grants worth $150 million and $249 million, respectively.

On Sunday, the Washington Post profiled the economic chaos, central planning, and wasteful lobbying generated by federal mandates for cellulosic ethanol:

Congress assumed that it could be phased in gradually, but not this gradually. This year refiners were supposed to mix about one billion gallons of it into motor fuel. So far, there has been hardly a drop. More than a dozen companies have tried and failed to find a profitable formula combining sophisticated enzymes and the mundane but costly and labor-intensive job of collecting biomass.

To reach the ethanol goals set by Congress, the government came up with a byzantine implementation plan. Each gallon of renewable fuel has its own 38-character number, called a “renewable identification number,” to track its use and monitor trading. There are different types of these RINs for different biofuels, including corn-based ethanol, cellulosic ethanol and biodiesel.

In February of each year, refiners who fail to provide enough renewable fuel to the blenders who mix ethanol and gasoline must buy extra RIN certificates. When companies have extra credits for renewable fuels, the RINs can be banked and sold in later years. If there are not enough renewable fuels overall, the price of RINs rises — and provides an incentive to produce more.

And in a related story on ethanol, the Post found:

Five years ago, about a dozen companies were racing to start up distilleries that would produce enough cellulosic ethanol to meet the congressionally mandated target of 16 billion gallons a year by 2022 … The Agriculture Department provided a $250 million loan guarantee for the Coskata plant. Today, most of the dozen contenders have gone out of business or shelved their plans.

Federal subsidies and mandates for ethanol and other energy activities are sadly causing the diversion of billions of dollars of capital to uneconomic uses. That’s the bad news.

But there is good news on the energy front, which comes from far outside of Washington. The Wall Street Journal last weekend profiled “the little guys,” the market entrepreneurs, who were behind the shale energy revolution:

The experts keep getting it wrong. And the oddballs keep getting it right. Over the past five years of business history, two events have shocked and transformed the nation. In 2007 and 2008, the housing market crumbled and the financial system collapsed, causing trillions of dollars of losses. Around the same time, a few little-known wildcatters began pumping meaningful amounts of oil and gas from U.S. shale formations. A country that once was running out of energy now is on track to become the world’s leading producer.

The resurgence in U.S. energy came from a group of brash wildcatters who discovered techniques to hydraulically fracture—or frack—and horizontally drill shale and other rock. Many of these men operated on the fringes of the oil industry, some without college degrees or much background in drilling, geology or engineering.

Thank goodness for the oddballs. And thank goodness for the market system that channels the brashness into creating growth for all of us, not just the favored few getting handouts from Washington.

Transit Spending Slows Urban Growth

Contrary to the claims of many transit advocates, regions that spend more money on transit seem to grow slower than regions that spend less. The fastest-growing urban areas of the country tend to offer transit service mainly to people who lack access to automobiles. Urban areas that seek to provide high-cost transit services, such as trains, in order to attract people out of their cars, tend to grow far slower.

Transit advocates often argue that a particular city or region must spend more on urban transit in order to support the growth of that region. To test that claim, I downloaded the latest historic data files from the National Transit Database, specifically the capital funding and service data and operating expenses by mode time series. These files list which urbanized area each transit agency primarily serves, so it was easy to compare these data with Census Bureau population data from 1990, 2000, and 2010.

The transit data include capital and operating expenses for all years from 1991 through 2011. I decided to compare the average of 1991 through 2000 per capita expenses with population growth in the 1990s, and the average of 2001 through 2010 per capita expenses with population growth in the 2010s. In case there is a delayed response, I also compared the average of 1990 through 2000 per capita expenses with population growth in the 2000s. Although it shouldn’t matter too much, I used GNP deflators to convert all costs to 2012 dollars.

MagLev: The Idea Whose Time Never Came

Superconducting magnetic levitation is the “next generation of transportation,” says a new rail advocacy group that calls itself The Northeast Maglev (TNEM). The group’s proposed New York-Washington maglev line has received attention from the Washington Post and Baltimore Sun. TNEM’s claims might have seemed valid 80 years ago, when maglev trains were first conceived, but today maglev is just one more superexpensive technology that can’t compete with what we already have.

Superconducting maglev train being tested in Japan. Wikimedia commons photo by Yosemite.

Maglev has all the defects of conventional high-speed rail with the added bonuses of higher costs and greater energy requirements. Unlike automobiles on roads, rails don’t go where you want to go when you want to go there. Compared with planes, even the fastest trains are slow, and modest improvements in airport security would do far more to speed travelers, at a far lower cost, than building expensive new rail infrastructure.

Current Wisdom: Observations Now Inconsistent with Climate Model Predictions for 25 (going on 35) Years

The Current Wisdom is a series of monthly articles in which Patrick J. Michaels and Paul C. “Chip” Knappenberger, from Cato’s Center for the Study of Science, review interesting items on global warming in the scientific literature that may not have received the media attention that they deserved, or have been misinterpreted in the popular press.  

 

Question: How long will the fantasy that climate models are reliable indicators of the earth’s climate evolution persist in face of overwhelming evidence to the contrary?  

Answer: Probably for as long as there is a crusade against fossil fuels.  

Without the exaggerated alarm conjured from overly pessimistic climate model projections of climate change from carbon dioxide emissions, fossil fuels—coal, oil, gas—would regain their image as the celebrated agents of  prosperity that they are, rather than being labeled as pernicious agents of our destruction.  

Just how credible are these climate models?  

In two words, “they’re not.”  

Everyone has read that over the past 10-15 years, most climate models’ forecasts of the rate of global warming have been wrong. Most predicted a hefty warming of the earth’s average surface temperature to have taken place, while there was no significant change in the real world.  

But very few  people know that the same situation has persisted for 25, going on 35 years, or that over the past 50-60 years (since the middle of the 20th century), the same models expected about 33 percent more warming to have taken place than was observed.  

Thanks to Natural Gas and Climate Change, U.S. Carbon Dioxide Emissions Continue Downward Trend

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

Carbon dioxide emissions in the United States from the production and consumption of energy have been on the decline since about 2005, after generally being on the rise ever since our country was first founded.

The decline in emissions between 2012 and 2011 was 3.8 percent, which, according to the Energy Information Administration (EIA) was the largest decline in a non-recession year since 1990 and the first time that carbon dioxide (CO2) emissions fell while the per capita economic output increased by more than 2 percent.  In other words, we are producingmore while emitting less carbon dioxide.

 

Mayor Bloomberg Doesn’t Understand Economics

Mayor Bloomberg says New York City’s lack of affordable housing is a sign of a vibrant economy, because it proves people want to live there. Despite his reputation in the business world, he obviously doesn’t understand the laws of supply and demand.

“Somebody said that there’s not enough housing,” Bloomberg said on a radio show. “That’s a good sign.” Housing is only scarce, he said, because “as fast as we build, more people want to live here.”

In fact, as I showed in chaper 10 of my book, American Nightmare, as well as in this blog post, high housing prices do not prove that lots of people really find an area desirable. Instead, they are more a sign of government barriers to housing. In a nutshell, downward sloping demand curves means a few people may be willing to pay a high price for any good, but that doesn’t mean the public in general finds that good to be particularly valuable.

As reported by Virginia Postrel on Bloomberg’s own news service a few months ago, America’s elites have built an economic wall around places like New York City and California in order to make these areas more exclusive. Rent control in the city combined with New Jersey’s and Connecticut’s smart-growth policies have turned New York from a fairly affordable place to live as recently as 40 years ago to one that is completely unaffordable today.

Yes, Bloomberg’s city may be building some housing. But it obviously isn’t building enough to meet demand. In 1969, median housing prices in the New York urban area (including northern New Jersey) were just 2.6 times median family incomes, and 3.3 times in 1979. By 2005, they were 8.4 times. Thanks to the recession more than new housing, they were down to 5.3 by 2012–still way too high. But in New York City alone median prices were still 8.7 times median family incomes.

Here’s the surprise: Median family incomes in New York City were just 15 percent greater than in the city of Houston in 2012. But home prices were 284 percent greater. That’s not a sign that people are demanding to live there; it’s a sign of acute shortages.

Houston frets when its median home prices approach $150,000 and price-to-income ratios come close to 2.2. With New York City median prices approaching $480,000 and median values nearly nine times median incomes, Mayor Bloomberg should do more than pat himself on the back; he should recognize that the city is suffering from a major housing crisis.

Clean Coal Subsidies

The federal government has been subsidizing so-called clean coal for decades, and the hand-outs have resulted in one bipartisan boondoggle after another. 

Under Presidents Jimmy Carter and Ronald Reagan, for example, the government pumped $2 billion into the Synthetic Fuels Corporation, which supported efforts to convert coal into a gas fuel. The SFC collapsed in the mid-1980s in a spasm of gross mismanagement, conflicts of interest, and changing market conditions. 

Unfortunately, the government never seems to learn any lessons from the silliness of its energy subsidies. The latest installment of the long-running clean coal scam was highlighted by the Wall Street Journal yesterday: 

For decades, the federal government has touted a bright future for nonpolluting power plants fueled by coal. But in this rural corner of eastern Mississippi, the reality of so-called clean coal isn’t pretty. 

Mississippi Power Co.’s Kemper County plant here, meant to showcase technology for generating clean electricity from low-quality coal, ranks as one of the most expensive U.S. fossil-fuel projects ever—at $4.7 billion and rising. Mississippi Power’s 186,000 customers, who live in one of the poorest regions of the country, are reeling at double-digit rate increases. And even Mississippi Power’s parent, Atlanta-based Southern Co., has said Kemper shouldn’t be used as a nationwide model. 

One of just three clean-coal plants moving ahead in the U.S., Kemper has been such a calamity for Southern that the power industry and Wall Street analysts say other utilities aren’t likely to take on similar projects, even though the federal government plans to offer financial incentives.

Southern recently took $990 million in charges for cost overruns approaching $2 billion.

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Through various subsidies, the federal government had committed nearly $700 million for the Mississippi Power plant, though part of that was the $133 million that the utility will forfeit because of delays.

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Kemper’s cost, previously projected at around $2.9 billion, soon began to soar. Southern recently estimated the price tag at $4.7 billion.

For more on clean coal and energy subsidies, see Downsizing Government.