Topic: Energy and Environment

The Value of Books

At MasterResource, a free-market energy blog, Alex Epstein posts a glowing tribute to the 1996 Cato book Oil, Gas, and Government by Robert L. Bradley, Jr. (who happens to be a co-blogger at MasterResource). Oil, Gas, and Government is surely the longest book Cato ever published, and nobody knows better than I do—well, Rob Bradley does—how much work went into researching, writing, editing, and publishing it.

In these days of blogs and tweets, we’re used to consuming information in very small bites. But one of the fundamental roles of think tanks is to produce long-form research, not just talking points and congressional briefings. And Oil, Gas, and Government is very long form—1,997 pages in two volumes. (We told him nobody wanted to read a 2,000-page book, so he stopped at 1997.) It’s a tremendous and comprehensive achievement, as Epstein explains:

While recently researching energy history for a writing project, I was reminded of how valuable—and underrated—Robert Bradley’s Oil, Gas, and Government: The U.S. Experience is. While there are countless books covering the history of energy from one angle or another, very few, in my experience, can be counted on for precision and accuracy.

The majority of books I read that reference early petroleum history, for example, tell a radically oversimplified narrative of petroleum replacing whale oil. However, if one reads Harold Williamson and Arnold Daum’s definitive two-volume The American Petroleum Industry, one learns about a far more intricate and interesting progress, including the one-time dominance of camphene, a turnpentine-based illuminant that preceded petroleum–or the story of “coal oil,” which was once believed to be the illuminant of the future. (I discuss this history in my essay Energy at the Speed of Thought: The Original Alternative Energy Market.)

What distinguishes Williamson and Daum—and Oil, Gas, and Government—is the systematic use of primary sources. For a researcher, this certainly makes life more difficult as it is far easier to use popular accounts as a jumping off points.

But the researchers who undergo this difficult task give the rest of us an enduring resource. Williamson and Daum present the essential technological and economic history of the industry through the 1950s, with exact quantitative data and contemporaneous images throughout. Bradley’s book gives us the essential political and political-economic history of the oil and gas industry through the 1980s, with painstaking attention to detail.

Bradley’s introduction, incidentally, gives a valuable overview of the merits and shortcomings of various popular histories. Not surprisingly, Williamson and Daum receive high praise and are referenced throughout Oil, Gas & Government.

Bradley’s 2,000-page opus may be daunting for some, but if you ever need historical context on today’s developments, from offshore drilling to natural gas policy, this is the resource to consult.

Earlier this year, for example, I was wondering about the history of eminent domain in the oil industry, and Oil, Gas, and Government covered it comprehensively-–including this memorable passage about how Standard Oil created pipelines without using eminent domain:

Right-of-way was obtained by dollars, not legal force. Pipe was laid deep for permanence, and only the best equipment was used to minimize leakage. Storage records reflected “accuracy and integrity.” Innovative tank design reduced leakage and evaporation to benefit all parties. Fire-preventions reflected “systematic administration.” The pricing strategy was to prevent entry by keeping rates low. While these business successes may not have benefited certain competitors, they benefited customers and consumers of the final products.

The book does not need to be read cover-to-cover, though I have found it immensely rewarding to do so. Any chapter stands on its own, almost as an encyclopedia entry, though one will find references to intriguing concepts or history discussed elsewhere in the book.

Oil, Gas, and Government has an additional benefit: Bradley’s theoretical examination of certain important issues in petroleum policy. Most notable is his discussion of a “homestead” theory of property rights in oil. Under this theory, the individual who creates value by discovering a reservoir is the primary rights-holder, so long as he has made proper arrangements for any given surface access point.

Under traditional theory, every person whose land happens to be above a given reservoir, whether they do anything or not, is a rights-holder with a right to “capture” as much oil as they can once someone else has discovered it. When I first read Bradley’s account many years ago my reaction was “Of course—this is the only way to do it.”

I write all of this because I think the energy community would be served by possessing more copies of this book—along with Williamson and Daum—and, owing to its length and its age (nearly 20 years old) it does not get the attention it deserves. In our age of quick communication, where even medium-sized books seem on the wane, the old-styled treatise has a storied place in our understanding of history to better inform the present and imagine the future.

Copies still available!

Next, the Sun

The Obama administration has acted to protect Americans from cheap access to solar energy, imposing tariffs of 31 percent and even 250 percent on solar cells and panels imported from China.

As I noted previously, this case echoes one of the most famous documents in the history of free-trade literature, Bastiat’s famous ”Candlemakers’ Petition.” In that parody, the French economist and parliamentarian imagined the makers of candles and street lamps petitioning the French Chamber of Deputies for protection from a most dastardly foreign competitor:

You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.

We come to offer you a wonderful opportunity… .

We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival … is none other than the sun.

For after all, Bastiat’s petitioners noted, how can the makers of candles and lanterns compete with a light source that is totally free? Chinese solar panels aren’t free, but they’re inexpensive enough to be attractive to American buyers.

Any source that supplies solar panels to American consumers and businesses is a competitor of the American industry. And any source that can deliver any product cheaper than American companies is a tough competitor. Domestic producers will no doubt gain by imposing a tariff on their Chinese competitors. But companies that install solar power will lose, by having to pay higher prices for panels.

Businesses would always prefer a world without competitors. If they can’t outcompete their rivals in the marketplace, they may be tempted to ask the government for protection. And our “antidumping” laws actually invite such complaints. But economists agree that consumers, and the businesses that use imported products, lose more on net than producers gain. Protectionism is a bad deal for the American economy. And in this case, a bad deal for anyone who wants to see more solar energy in the United States.

More on “antidumping” laws here.

Googling Around DC

The Google car is in Washington, DC, and the Antiplanner managed to hitch a ride around downtown. My host, Anthony Lavandowski–sometimes driving, sometimes just sitting in the driver’s seat–answered a number of questions about the car.

The Cato Institute’s David Boaz stands next to the Google Prius. In addition to the spinning laser sensor on top of the car, note the infrared sensors in the front bumper (there’s a similar one in the center of the back bumper). The laser sensor finds nearby objects while the infrared sensors can detect objects much further away. Click on any photo for a larger view.

He said the car and hardware cost about $100,000, but Google has just a handful of them. When they go into mass production, he estimated an ordinary car could be retrofitted for a couple of thousand dollars. Some cars already have many of the sensors the Google car uses, so the cost of retrofitting such cars would be much lower.

Inside the car are more sensors, including a camera next to the rear-view mirror that detects traffic signals. The “driver” of the car is a desktop computer in the trunk; the laptop only allows the operators to monitor what the car sees.

As we threaded through downtown DC traffic, he noted that the car relies on GPS for only the most general purposes. Mainly it relies on the information it senses and its built-in knowledge of the area. For example, Google programs the location and height of every traffic signal the car might encounter so it knows where to look for the signals.

The small white boxes are pedestrians; the larger boxes are other motor vehicles. Anthony is pointing to a traffic light. Other lines show traffic lanes and crosswalks. The upper righthand corner gives the current status, including the legal speed limit and traffic signal.

People don’t like the idea of robots killing people, Anthony wryly noted as the car lurched to a halt when a pedestrian crossed in front of us, so Google programmed the car to drive extra cautiously. He promised they would eventually reprogram the brakes so the stops wouldn’t be so abrupt. Someone honked when several other vehicles took advantage of the car’s good nature to merge in front of us; eventually, they’ll probably program the car to be a bit more aggressive in such situations.

I asked him what they did about the fact that most drivers drive 5 to 10 mph over speed limits. The car has two modes, he said. If you’re going 75 mph and you put it in one mode, it will maintain that speed where it is safe to do so, slowing down as appropriate for curves, traffic, and other appropriate reasons. If you put it in the other mode, it will strictly obey all traffic laws, getting into the righthand lane if everyone else is going faster. No doubt they will eventually have “plus-5-mph” modes or whatever to take into account that many roads are signed for slower than the speeds people actually drive.

Anthony told me a couple of surprising things. No state actually outlaws driverless cars, he said; traffic codes were written before anyone conceived of self-driving cars, so the laws only require that a licensed driver be in the driver’s seat, not that they actually be operating the car. Google’s goal is to get the states to affirmatively recognize that driverless cars exist and eventually may operate without a licensed driver. Nevada and Florida have already passed such laws and Google hopes California will soon follow.

Operators of modern cars aren’t really driving them, he noted. When the operator turns the wheel or put a foot on the brake, the car gets a signal and then responds to that signal using built-in software. In some situations, many cars will override the signals they get from the operators for safety reasons. Self-driving cars just introduce one more layer of software between the operator and the car.

I asked him whether liability laws would be a barrier. Automakers probably won’t bring self-driving cars to market under current laws, he speculated–but those laws won’t stop Google. He promised that Google would stand by its software: If a self-driving car is involved in an accident, the car will have a record of what other vehicles involved were doing up to the accident. If the other vehicle is at fault, the record will prove it, and if Google’s car is at fault, Google would pay the cost and fix the problem so it won’t happen again.

So the main thing left is improving the systems so the they are ready for prime time. The car I rode in has detailed information about Washington DC built in–but it can’t drive itself back to California without a lot of new data entry and programming. Perhaps one of the reasons why Google photographs all the streets in the country is to help build the database for its driverless cars. Despite the need for more work, seeing the car in action makes it seem much closer to reality.

Quantum Leap by Ban Ki-moon

I happened to hear some of the comments by United Nations Secretary General Ban Ki-moon in Washington today. The comments regarded the Secretary General’s “Sustainable Energy for All” initiative.

It was a classic of bureaucratic speechmaking, as it was chock-full of the catch-phrases that are popular in internationalist circles. As a student of bureaucracy, I had a chuckle.

Here are a few roughly transcribed highlights. (These appear between 2:17 and 2:23 on the C-SPAN tape).

I have a high-level group of eminent experts and visionary thinkers…

Our challenge is to join forces and overcome the barriers to bring our efforts to scale. We will need to scale-up successful examples of clean energy and energy efficient technologies… We must make a quantum leap…

My Sustainable Energy for All initiative will bring together key stakeholders in an effort to create transformative change in the world’s energy systems. By leveraging the global convening power of the United Nations, it will introduce new public-private partnerships by fostering the necessary enabling conditions, including to mitigate risk and to promote large-scale investment. And by engaging a broad range of stakeholders, the initiative will mobilize innovative solutions and bold commitments…

Next week in London, the clean energy ministerial meeting will receive our action agenda on 11 areas—very concrete areas for how we can end this poverty. We must rally behind these priorities. I am very excited we are joining hands with the clean energy ministerial to promote game-changing initiatives such as the global lighting and energy access partnerships

…renewed political commitment to sustainable energy…

…concrete deliverables…

…produce a powerful outcome document…

The Post: Not Even Loans for High-Speed Rail

The Washington Post is somewhat of a bellwether of public opinion on high-speed rail. Back in 2009, when President Obama first proposed to build a high-speed rail network, Post editorial writers were all for it as a way of reducing congestion. Then in 2010, the paper published an op-ed by a National Geographic travel writer who argued that the “benefits of high-speed rail have long been apparent to anyone who has ridden Japan’s Shinkansen trains or France’s TGV.”

By 2011, though, the Post was having second thoughts. In January of that year, the paper argued that the nation should “hit the brakes” on the California high-speed trains, the only true high-speed rail project in Obama’s plan (since Florida dropped out). (This editorial led to a letter expressing the opposite view from Secretary of Transportation Ray LaHood.)

In February 2011, the Post argued that joining China, France, and Japan in a high-speed rail race would be joining “a race everyone loses.” Then in May, the Post again hammered the California project in light of new reviews questioning both the claimed costs and benefits of the project. “Somebody, please, stop this train” the paper added that November.

Yesterday, the Post even opposed just loaning federal money to a private high-speed rail company. A private company wants a $4.9 billion loan to help build a rail line from southern California to Las Vegas. But the memories of Solyndra and other solar companies getting federal loans, giving huge amounts of money to executives, and then going bankrupt may be too recent. The Post even understands opportunity costs, noting that, “As for jobs, any that the Vegas train creates will come at the expense of alternative uses of the money,” a reality not always recognized by journalists.

The Nevada group, which is backed by Senate Majority Leader Harry Reid, may get its money, although that money would come from a fund that has never been used for this kind or size of project before. But any expectation by Californians that D.C. pundits will support more federal funding for even a modified high-speed rail plan must be considered wildly optimistic.

Celebrate Human Achievement Saturday Night

Environmentalist groups and celebrities are celebrating “Earth Hour” Saturday night. They ask that you turn your lights out for an hour, to call attention to global warming.

Folks at the Competitive Enterprise Institute suggest that “this sends the wrong message—to plunge us all into darkness as a rejection of technology and human achievement.” In fact, they point out that it’s Earth Hour every night in North Korea, where people lack basic freedoms, as well as affordable, reliable access to many human achievements, such as electricity. Check out this famous photo of environmentally conscious North Koreans observing Earth Hour all night, every night.

CEI rejects the rejection of technology. They have declared the hour between 8:30 and 9:30 on Saturday, March 31, to be “Human Achievement Hour.” To join the celebration, just turn your lights on and enjoy the human achievement of light when we want it.

I’ll be celebrating Human Achievement Saturday night. However, I do expect the lights to go out all over Louisville about 8:30 on Saturday night, as the Kentucky Wildcats shred the Louisville Cardinals in the Final Four.

Obama’s Energy Repackaging: Not the Problem but Not the Solution Either

A too little-noted aspect of Obama rhetoric is the incessant repetition of outlandish claims. Energy is a major example. He repeats so often that reiteration of the defects is desirable. Whatever he may say, Obama is actually devoted only to the proposition that global warming is such a threat that the United States should rapidly move away from its reliance on fossil fuels. The basic implementation plans have undergone a major change after the 2009 fiasco of the Waxman-Markey bill. That bill proposed an extremely convoluted program to limit greenhouse-gas emissions. A core element was setting caps on such emissions, allocating them to energy-users, and allowing those users to buy and sell the rights. Government allocation of any valuable rights is always an invitation to unseemly battles for shares. At best, dubious vote-seeking allocations arise. At worse, bribery prevails. The combination of controversial meting out of quotas and the mess of additional regulations imposed by the bill led first to House of Representative passage only through arm-twisting. Next, fear of a similar fight caused the Senate not to consider either Waxman-Markey or various Senate alternatives.

Obama has since turned to his typical response. He has devised a public presentation of limited dubious ideas that supposedly allow the United States both to maintain fossil-fuel use as long as necessary and transition to non-fossil energy. He repeats these frequently. With the rise of gasoline prices, Obama has tried radically to change the form of presentation. Given the inherent defects of his stated objectives and the disparity between them and his actions, Obama has turned to an outrageously vituperative effort to claim that he has presented a vision of the truth that only politically motivated opponents reject. He vainly hopes that the public cannot see past his innocence about current prices to his guilt in wanting higher energy prices that he does cause.

He and Secretary of Energy Steven Chu are also trying to defuse their prior candid admissions that they wanted higher energy prices. Their current statements at best recognize that events beyond their control caused the increases and try to evade the reality that their goals also would produce higher energy prices. Suddenly, the widely available record is ignored. A quick Google search confirms that Obama admitted that cap and trade would cause electricity prices to skyrocket and bankrupt the coal industry. Similarly Chu did say “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” They have not backed off from seeking to implement these goals.

Obama’s March 15, 2012 speech kicked off this new packaging. He claimed “What I just said about energy, by the way, is not disputed by any energy expert. Everybody agrees with this.” Obama would have been right if he had only said “There is no such thing as a quick fix when it comes to high gas prices. There’s no silver bullet. Anybody who tells you otherwise isn’t really looking for a solution – they’re [sic] trying to ride the political wave of the moment.” It is agreed both that developing energy substitutes is time consuming and likely to increase energy costs intolerably.

However, he goes on to argue “So if we don’t develop other sources of energy, if we don’t develop the technology to use less energy to make our economy more energy-efficient, then we will always be dependent on foreign countries for our energy needs.” That is disputed at both ends. Dependence on foreign oil is no more undesirable than dependence on other foreign commodities. Removing energy imports would leave the indirect impact of oil instability on our trading partners in other commodities. It is generally believed by advocates of action on global arming that policies that do not include China and India are doomed to failure. Some fear that the proposed alternatives are so unattractive that crash effort are needed to develop alternatives. Obama’s statements of goals (which appear in every energy speech and are reiterated excessively in this one) make things worse

So we can’t have an energy strategy for the last century that traps us in the past. We need an energy strategy for the future – an all-of-the-above strategy for the 21st century that develops every source of American-made energy. Yes, develop as much oil and gas as we can, but also develop wind power and solar power and biofuels. Make our buildings more fuel-efficient. Make our homes more fuel-efficient. Make our cars and trucks more fuel-efficient so they get more miles for the gallon. That’s where I want to take this country.

He adds later the blatantly jingoistic and protectionist assertion, fortunately grossly in conflict with his actual foreign-policy posture:

We can’t allow ourselves to be held hostage to events on the other side of the globe. That’s not who we are. America controls its own destiny. We’re not dependent on somebody else.

His oil statements are selective. His noting of the positive steps taken to increase oil and gas drilling ignores his anti-drilling actions. No mention is made of the anti-coal measures involving restrictions on coal use and making some forms of mining more difficult emanating from the Environmental Protection Agency; indeed the speech makes no mention of coal. The alternative-energy and energy-efficiency goals are widely criticized as too intrusive, too slow moving, and too doubtfully efficacious.  At least two well-researched books argue that alternative energy in general will at best take many decades to become substantial contributors to energy supply. Ethanol, the biofuel now in use, at a minimum produces a stain on food supply and may raise rather than lower greenhouse gas emissions. Experts hold that alternatives such as cellulosics and algae are the only hope and disagree about when, if ever ,either will emerge as viable alternatives.

Mandated energy standards suffer at a minimum as paternalistic measures to impose the supposed values of the government on individuals. A key example is the decision (back in the George W. Bush administration) to offset consumer rejection of the inadequate light from energy efficient light bulbs by banning traditional incandescent bulbs.

Auto-efficiency standards on which Obama ranted at length have at least three drawbacks. First, they are a particularly obnoxious effort to impose standards. Good reasons exist for American to want large cars. (Obama who is always accompanied by a fleet of obvious gas guzzlers and helicopters to the Boeing 747 that is Air Force One makes himself particularly vulnerable in asking others to use more fuel-efficient cars.) Second, the main way to boost fuel efficiency is to make cars lighter and thus expose riders to greater safety risks.  Third, mileage standards are inferior to gasoline taxes in discouraging gasoline use. The tax makes every purchase of gasoline more expensive and thus clearly discourages gasoline consumption. A mileage standard raises the cost of the car itself. This fosters a delay in replacing lower mileage vehicles. Once the car is purchased, the higher mileage lowers the cost of driving. People drive more. Conceivably, that incentive could produce increases in gasoline use.
His further point that the low United States share in reserves makes energy independence impossible was unnecessary political posturing. At best, the numbers are one of the less satisfactory indicators that independence would be inordinately expensive.

Yet another constant is his attack on “subsidies” for the oil industry. This relates to tax benefits. Whether the term subsidy is the best is debatable but not central. What matters is the demagoguery of Obama’s tax proposals. Where the need is simplification and the total cessation of use of the Internal Revenue code for social engineering, Obama wants to give and take to increase such engineering. His actual oil proposals were buried in an annex to fiscal year 2011 budget. The vast majority of the tax changes came from removing oil from inclusion in a stupid provision to benefit manufacturing. The rest come from tax provisions that largely benefit smaller oil companies. More broadly, he argued that rather than eliminate equally unwise tax benefits to alternative energy only the modest offset for oil should be removed.

Obama, moreover, cannot refrain from adding a demonstrably misleading point “Ending these subsidies won’t bring down gas prices tomorrow.” Since he goes on to talk of other things, it might charitably be concluded that he was admitting the tax change was but another symbolic snipe at the U.S. oil industry to make politicians feel good. Given the tone of the speech, the alternative that he was trying to suggest that a tax increase would lower prices seems likely. Whatever the virtues of a tax change, taxing more is a disincentive and would raise oil prices (modestly to be sure, but then why bother with the tax change.)

His March 17, 2012 weekly speech (largely a recap of the earlier one) added the outrageous claim that traders manipulated oil prices but the Dodd-Frank bill would eliminate this.

Thus, the quickly refuted use of an urban legend about Rutherford B. Hayes and the revival of the flat-earth myth are just the most obvious of the misstatements to which Obama is devoted.