Wednesday, April 25, 2018

Decarbonization: It Ain’t That Easy

By Daniel Raimi and Alan J. Krupnick of Resources for the Future.

"This week, the New York Times published an editorial entitled “Earth, Wind, and Liars” by economist Paul Krugman. In it, Krugman argues that the costs of renewable energy—wind in particular—have fallen so dramatically that “…there is no longer any reason to believe that it would be hard to drastically “decarbonize” the economy. Indeed, there is no reason to believe that doing so would impose any significant economic cost.”

While we share Krugman’s enthusiasm for the rapidly declining costs of wind, solar, energy storage, and other low- or zero-carbon technologies, the op-ed leaves readers with the impression that decarbonization would be cheap and easy if it weren’t for entrenched fossil fuel interests impeding government policy. We disagree.

While it’s certainly true that some in Washington, not least the Trump administration, have pursued policies aimed at slowing or reversing the recent reductions in US greenhouse gas emissions, there are still numerous economic and societal barriers to rapid decarbonization.

Economic Barriers

The energy system is enormous, and it changes slowly. Globally, fossil fuels currently provide 81 percent of global primary energy. In the United States, the number is 80 percent. While wind and solar have grown rapidly in recent years, they together account for just 1 percent of the global energy supply, and in the United States just 2 percent. Even if they grow rapidly, the sheer scale of the energy system means that even the most rapid transition would take many decades.

Figure 1. Shares of Primary Energy Consumption

Sources: US Energy Information Administration (US) and the International Energy Agency (world)
Second, the growth in renewables we’ve seen to date has been supported by government subsidies, both in the United States and internationally. That’s not to say that renewables aren’t becoming more cost competitive, but in many parts of the United States and the world, fossil fuels continue to offer the lowest cost option for electricity generation, even with subsidies. This is particularly true in the United States, where the shale revolution will likely provide a low-cost supply of natural gas for decades to come.

And it is not like wind and solar come free of environmental concerns. The sheer size of wind and solar installations needed to underpin our electricity system is significant. According to MIT’s Future of Solar Energy study, solar to power one-third of the US 2050 electricity demand would require 4,000 to 11,000 square kilometers (for context, Massachusetts’s area is 27,000 square kilometers). Wind farms take more land for the same power—66,000 square kilometers, although only a small portion of that is actually disturbed by installations (TheEnergyCollective has an insightful discussion on this topic). Even for relatively modest (from a national perspective) proposals—such as Texas’s goal for 14 to 28 gigawatts of new solar by 2030—there are concerns about habitat fragmentation, loss of endangered species and other impacts on the environment.

Krugman also forgets to mention nuclear power, which is responsible for about 20 percent of electricity generation in the United States. Nuclear plants are aging fast, with many retirements and few new reactors planned. The more that retire, the more other sources will have to fill in, upping CO2 emissions or creating a greater burden on renewables.

Keep in mind, decarbonization isn’t just about electricity. Achieving steep cuts in greenhouse gas emissions will require large reductions from the transportation, industrial, and heating sectors which, in 2017, accounted for 62 percent of US primary energy consumption. While some of these energy services can be electrified via passenger vehicles, electric home heating, and other means, wind and solar is no replacement for fossil fuels in certain industrial and transportation applications (to his credit, Krugman acknowledges the impracticality of electrifying air travel). And despite years of subsidies, the percentage of electric vehicles in the fleet remains miniscule.

Indeed, consumption of petroleum products internationally is galloping ahead. This year alone, global demand for oil is set to grow by about 1.5 million barrels per day. This growth isn’t driven by lobbyists on Capitol Hill, but instead by strong economic growth, spurred by developing countries in Asia.

Societal Barriers—Distributional Effects

Setting aside the technological hurdles of decarbonization, it is important to remember that reducing GHG emissions will have winners and losers. While the aggregate economic effects may be relatively small (as RFF researchers have shown), the distributional effects of such a massive shift have political and social impacts that can’t be wished away.

First, lower income households will bear the largest relative burdens of the higher energy costs that are likely as a result of climate policies. While there are ways of mitigating these unequal impacts, they require difficult trade-offs.

Second, consider the effects of the downturn in Appalachian coal mining, where an entire region has struggled to cope with an energy transition. Now apply a similar logic to the hundreds of communities around the country that are, or have become, heavily reliant on oil and gas extraction as their economic base. Cities like Midland, Texas, or Williston, North Dakota, recently bursting at the seams because of the shale boom, would face fundamental challenges in a world devoid of fossil fuels. Is it any wonder that politicians representing these regions fight for the economic engine that underlies the wellbeing of their regions?

Providing assistance to the individuals and communities negatively affected by climate policies has been an important component of past legislative efforts, and must be acknowledged as a complex and daunting challenge in and of itself.

What to Do

This post has argued that deep decarbonization won’t be easy, and that fossil fuel companies and the policymakers who support them are far from the only impediment to achieving long-term climate goals. In the face of these myriad challenges, there are a variety of technological and policy measures that can ease the transition towards a low-GHG future.

On the technological side, entrepreneurs are pursuing a variety of strategies with large-scale potential. This includes new nuclear technologies, which can provide reliable electricity while substantially reducing the risks of older generation light-water reactors. It includes carbon capture, utilization, and sequestration (CCUS), which has the potential to reduce GHG emissions while continuing to enable fossil fuel consumption. It includes carbon dioxide removal (CDR), which can remove CO2 directly from the atmosphere, reducing the harm caused by emissions from decades past. It includes pursuing ever greater energy density of batteries at lower costs to make electric cars and energy storage more attractive. And, yes, it absolutely includes continued investment in renewables. Solar power, in particular, offers enormous potential to scale and provide electricity, and also perhaps liquid fuels.

To lay the path for decarbonization, policymakers can provide a variety of incentives. While subsidies to renewables and other technologies have been the instrument of choice in the United States in recent years, a more efficient strategy would put a price on greenhouse gas emissions and, possibly, subsidize stages of the development process that are resistant to such incentives. Such an approach could provide a roadmap for the investors of today, while laying the groundwork for the future technologies we can only dream about. In sum, we can see the path forward, but in the words of D'Angelo “it ain't that easy.”"

If Solar And Wind Are So Cheap, Why Are They Making Electricity So Expensive?

By Michael Shellenberger. He is President of Environmental Progress, a research and policy organization. 
"Over the last year, the media have published story after story after story about the declining price of solar panels and wind turbines.

People who read these stories are understandably left with the impression that the more solar and wind energy we produce, the lower electricity prices will become.

And yet that’s not what’s happening. In fact, it’s the opposite.

Between 2009 and 2017, the price of solar panels per watt declined by 75 percent while the price of wind turbines per watt declined by 50 percent

And yet — during the same period — the price of electricity in places that deployed significant quantities of renewables increased dramatically.

Electricity prices increased by:

What gives? If solar panels and wind turbines became so much cheaper, why did the price of electricity rise instead of decline?

Electricity prices increased by 51 percent in Germany during its expansion of solar and wind energy.
One hypothesis might be that while electricity from solar and wind became cheaper, other energy sources like coal, nuclear, and natural gas became more expensive, eliminating any savings, and raising the overall price of electricity.

But, again, that’s not what happened.

The price of natural gas declined by 72 percent in the U.S. between 2009 and 2016 due to the fracking revolution. In Europe, natural gas prices dropped by a little less than half over the same period.

The price of nuclear and coal in those place during the same period was mostly flat.
Electricity prices increased 24 percent in California during its solar energy build-out from 2011 to 2017.

Another hypothesis might be that the closure of nuclear plants resulted in higher energy prices.
Evidence for this hypothesis comes from the fact that nuclear energy leaders Illinois, France, Sweden and South Korea enjoy some of the cheapest electricity in the world.

Since 2010, California closed one nuclear plant (2,140 MW installed capacity) while Germany closed 5 nuclear plants and 4 other reactors at currently-operating plants (10,980 MW in total).

Electricity in Illinois is 42 percent cheaper than electricity in California while electricity in France is 45 percent cheaper than electricity in Germany.

But this hypothesis is undermined by the fact that the price of the main replacement fuels, natural gas and coal, remained low, despite increased demand for those two fuels in California and Germany.

That leaves us with solar and wind as the key suspects behind higher electricity prices. But why would cheaper solar panels and wind turbines make electricity more expensive?

The main reason appears to have been predicted by a young German economist in 2013. 

In a paper for Energy Policy, Leon Hirth estimated that the economic value of wind and solar would decline significantly as they become a larger part of electricity supply. 

The reason? Their fundamentally unreliable nature. Both solar and wind produce too much energy when societies don’t need it, and not enough when they do. 

Solar and wind thus require that natural gas plants, hydro-electric dams, batteries or some other form of reliable power be ready at a moment’s notice to start churning out electricity when the wind stops blowing and the sun stops shining.

And unreliability requires solar- and/or wind-heavy places like Germany, California and Denmark to pay neighboring nations or states to take their solar and wind energy when they are producing too much of it.

Hirth predicted that the economic value of wind on the European grid would decline 40 percent once it becomes 30 percent of electricity while the value of solar would drop by 50 percent when it got to just 15 percent.

Hirth predicted that the economic value of wind would decline 40% once it reached 30% of electricity, and that the value of solar would drop by 50% when it reached 15% of electricity.
In 2017, the share of electricity coming from wind and solar was 53 percent in Denmark, 26 percent in Germany, and 23 percent in California. Denmark and Germany have the first and second most expensive electricity in Europe.

By reporting on the declining costs of solar panels and wind turbines but not on how they increase electricity prices, journalists are — intentionally or unintentionally — misleading policymakers and the public about those two technologies.  

The Los Angeles Times last year reported that California’s electricity prices were rising, but failed to connect the price rise to renewables, provoking a sharp rebuttal from UC Berkeley economist James Bushnell.  

“The story of how California’s electric system got to its current state is a long and gory one,” Bushnell wrote, but “the dominant policy driver in the electricity sector has unquestionably been a focus on developing renewable sources of electricity generation.”

Part of the problem is that many reporters don’t understand electricity. They think of electricity as a commodity when it is, in fact, a service — like eating at a restaurant.

The price we pay for the luxury of eating out isn’t just the cost of the ingredients most of which which, like solar panels and wind turbines, have declined for decades.

Rather, the price of services like eating out and electricity reflect the cost not only of a few ingredients but also their preparation and delivery.

This is a problem of bias, not just energy illiteracy. Normally skeptical journalists routinely give renewables a pass. The reason isn’t because they don’t know how to report critically on energy — they do regularly when it comes to non-renewable energy sources — but rather because they don’t want to.

That could — and should — change. Reporters have an obligation to report accurately and fairly on all issues they cover, especially ones as important as energy and the environment. 

A good start would be for them to investigate why, if solar and wind are so cheap, they are making electricity so expensive."

Tuesday, April 24, 2018

Protecting U.S. Dredgers Kills Jobs: The Foreign Dredge Act of 1906 has stifled competition in the seaport industry

By Nancy McLernon in The WSJ. She is president and CEO of Organization for International Investment. Excerpts:
"The Foreign Dredge Act was an effort to protect America’s fledgling shipbuilding and seaport industries so they could compete with old-world rivals. The law survives, mostly unchanged, and international companies remain in Washington’s regulatory drydock."

"The problem is that U.S. dredging companies simply aren’t capable of meeting demand. The four largest free-market dredging companies, all based in Belgium or the Netherlands, could complete the U.S. projects for half the estimated cost and a third of the time—if Washington allowed them to compete. In the past decade, these companies have invested $15 billion in new dredgers, while the entire U.S. market invested only $1 billion. The European equipment is larger than any American company’s and handles more than 90% of the world’s open-bid dredging projects.

These international companies have succeeded in their home markets and elsewhere. If they could set up operations in the U.S., they would bring world-class training and techniques and other benefits in addition to the needed capital. Opening the dredging market would spark an infrastructure boom that would result in thousands of new, unionized dredging jobs for Americans.

The real jobs jackpot, however, would come from having the ports deepened in the next five years. This accelerated modernization would create more than 1.5 million new American jobs in port construction, services, manufacturing, warehousing, trucking, logistics and more. Radically slicing export costs would spur manufacturing."

How Bad Is the Government’s Science?

Policy makers often cite research to justify their rules, but many of those studies wouldn’t replicate

By Peter Wood and David Randall in The WSJ. Mr. Wood is president of the National Association of Scholars. Mr. Randall is the NAS’s director of researc. Excerpts:

"The biggest newsmakers in the crisis have involved psychology. Consider three findings: Striking a “power pose” can improve a person’s hormone balance and increase tolerance for risk. Invoking a negative stereotype, such as by telling black test-takers that an exam measures intelligence, can measurably degrade performance. Playing a sorting game that involves quickly pairing faces (black or white) with bad and good words (“happy” or “death”) can reveal “implicit bias” and predict discrimination.

All three of these results received massive media attention, but independent researchers haven’t been able to reproduce any of them properly. It seems as if there’s no end of “scientific truths” that just aren’t so. For a 2015 article in Science, independent researchers tried to replicate 100 prominent psychology studies and succeeded with only 39% of them.

Further from the spotlight is a lot of equally flawed research that is often more consequential. In 2012 the biotechnology firm Amgen tried to reproduce 53 “landmark” studies in hematology and oncology. The company could only replicate six. Are doctors basing serious decisions about medical treatment on the rest? Consider the financial costs, too. A 2015 study estimated that American researchers spend $28 billion a year on irreproducible preclinical research.

The chief cause of irreproducibility may be that scientists, whether wittingly or not, are fishing fake statistical significance out of noisy data. If a researcher looks long enough, he can turn any fluke correlation into a seemingly positive result. But other factors compound the problem: Scientists can make arbitrary decisions about research techniques, even changing procedures partway through an experiment. They are susceptible to groupthink and aren’t as skeptical of results that fit their biases. Negative results typically go into the file drawer. Exciting new findings are a route to tenure and fame, and there’s little reward for replication studies."

"A deeper issue is that the irreproducibility crisis has remained largely invisible to the general public and policy makers. That’s a problem given how often the government relies on supposed scientific findings to inform its decisions. Every year the U.S. adds more laws and regulations that could be based on nothing more than statistical manipulations.

All government agencies should review the scientific justifications for their policies and regulations to ensure they meet strict reproducibility standards. The economics research that steers decisions at the Federal Reserve and the Treasury Department needs to be rechecked. The social psychology that informs education policy could be entirely irreproducible. The whole discipline of climate science is a farrago of unreliable statistics, arbitrary research techniques and politicized groupthink."

Monday, April 23, 2018

Are Private Companies More Efficient Than NASA?

See Stargazers See a Business Plan by Randall Stross, a professor of business at San Jose State University. He reviewed two books for The WSJ. Excerpts:
"Both books show how SpaceX and Blue Origin have been impressively creative in reducing design and production costs far below what NASA and defense contractors are accustomed to. SpaceX builds its rockets horizontally, for example, so that it can use ordinary warehouse space instead of building expensive “high bay” space. SpaceX and Blue Origin are similar in their approach to reusability as well, constructing rockets, not planes, that rely on retropropulsion for landing. By flipping the descending rocket so that the nose points upward, and by switching on the rocket engine in the final stage, a cushion of hot gas provides a gentle landing.

Practical reusability also entails reducing the need for extensive refurbishing after each flight, something that SpaceX seems to have achieved. The space shuttle did not. After each flight, it required 1.2 million procedures and many months before it was ready to fly again."

"Virgin Galactic and Blue Origin have trained their sights on space tourism, preparing to offer wealthy passengers the chance to experience microgravity. “Entertainment turns out to be the driver of technologies,” Mr. Bezos says, noting the barnstormers in the early days of aviation who would land in farmers’ fields and sell tickets for short rides. SpaceX need not tarry with such trifles. It seems tantalizingly close to being the first startup to supply reliable, reusable rocket technology to take U.S. astronauts up to their orbiting workplace. Most gratifying, it will mean an end to NASA’s generous payouts to hitch rides with the Russians."

The Interstate Tax Grab

WSJ editorial.
"Online commerce makes up less than 10% of retail sales, and a 2017 report by the Government Accountability Office said 87% to 96% of sales by the top 100 online retailers are taxed. Amazon collects sales tax on all customer purchases, as do Target , Walmart , Costco and Sears. The major exceptions are small businesses that sell on eBay and Etsy.
GAO estimates that untaxed online sales make up between 2% and 4% of state and local sales tax revenues. Sales tax growth has been robust in states with healthy economies. South Dakota’s sales tax revenues have grown more than 5% annually over the last five years. Between 2012 and 2017, state and local sales tax revenues grew by a quarter."

"Some 12,000 jurisdictions in the U.S. impose sales tax, twice as many as in 1992, often with disparate rules and rates. Illinois taxes Twix and Snickers at different rates. Twix is taxed at a lower rate because it includes flour and thus qualifies as “food.” Snickers is considered candy. In New Jersey, yarn is tax-exempt only if used for knitting. How are retailers supposed to divine a buyer’s purpose?

Installing and maintaining software to comply with 12,000 tax regimes could break small businesses. One business told GAO “they had just dealt with an expensive audit that lasted 3 years” and “do not have the resources to comply with similar audits from other jurisdictions.” Businesses that collect too little tax can face stiff penalties including jail time. If they collect too much, they get slapped with class-action lawsuits.

The Justice Department has filed a brief supporting South Dakota, taking the odd position that Quill should be overturned because online retailers benefit from government-built broadband. Seriously? According to Justice, businesses that operate a website have a “virtual” presence everywhere. The European Commission has invoked the same argument to impose a digital tax on Silicon Valley tech giants, which the Trump Administration has denounced as an extraterritorial tax grab.

If the Court were to adopt Justice’s virtual standard, there would be nothing to stop California from requiring remote retailers to post cancer warnings on coffee or potato chips advertised on their websites. This would vitiate the Commerce Clause."

Sunday, April 22, 2018

Medicaid Crowds Out K-12 Education

See Crowding Out K-12 Education: The real budget story behind those teachers strikes: Medicaid and public pensions. WSJ editorial: Excerpts:
"Medicaid has taken a growing toll on Oklahoma’s budget. In 2017 the health-care program that is supposedly for the poor consumed nearly 25% of the state’s general fund, up from 14% in 2008"

"Per-student funding declined by nearly 16% between 2008 and 2017. Class sizes have grown, particularly in rural districts. Ninety-six of the state’s 513 school districts hold class only four days a week.

Oklahoma teachers went a decade without a significant raise, and only three states pay less on average, according to the National Education Association. Depending on which grade they teach, Oklahoma educators’ mean annual pay lags around $1,000 to $3,000 behind the overall state mean of $43,340"

"In Kentucky the protests have been about pensions, not pay, but the same Medicaid crowding out is taking place. The Bluegrass State was one of the first Medicaid expansion states under ObamaCare. Some 22% of residents—more than two million people—are enrolled. In 2008 Medicaid spending in Kentucky was $4.9 billion, but by 2017 it was $9.9 billion. The federal government paid $7.7 billion of that sum last year, but the burden has already begun shifting to states."

"Kentucky’s public pension woes place it on par with New Jersey and Illinois, and teachers’ pensions are only 56% funded. Participants can draw full benefits as early as age 49, and some collect longer for more years than they’ve worked."