Showing posts with label Alternative energy. Show all posts
Showing posts with label Alternative energy. Show all posts
Friday, July 22, 2016
Energy infrastructure options essential to Massachusetts economy
A six-member conference committee is hashing out the details of an extensive energy bill now in two separate bills S. 2400 and H. 4385. The Beacon Hill Institute does not advocate for or against any piece of legislation. However, the Institute provides economic analysis of current proposals related to its research portfolio. Some key observations are in order.
The debate over hydropower from Quebec, natural gas or other renewables such as offshore wind and solar is absolutely critical if the Commonwealth is able to meet the goals outlined in the Global Warming Solutions Act. Everyone wants to reduce greenhouse gas emissions but that goal requires hard thinking, particularly since both coal and nuclear power plants will be closing down. Debates about pipelines generate much heat and little light and ignore the pressing need for reliable, cost-effective sources of energy.
Section 30, would amend current law by adding the following language: “Nothing in this section shall be construed to authorize the department to review and approve a contract for natural gas pipeline capacity filed by an electric company.”
To foreclose on possible construction of energy infrastructure, the direct intent of Section 30, would be shortsighted. In fact, the new language would pose severe economic consequences to the Commonwealth of Massachusetts, which already faces competitive disadvantages on energy costs. According to the Institute’s 2014 State Competitiveness Index, Massachusetts ranks first for having the conditions in place that provide for a high level of per capita income and continued growth. But energy has been a persistent disadvantage for Massachusetts since the Institute began ranking states in 2001. Last year in a sub-index that measures infrastructure Massachusetts ranked 44th when considering electricity prices per kilowatt hour. High-tech manufacturing could use the break in the form of competitively priced energy.
Some energy realism is in order. It is clear from the current economic and climate change literature that natural gas is essential to meeting the goals of a cleaner environment in both the short and long term. The state needs to preserve its options to build such facilities.
ISO-New England, which manages the region’s power grid, notes “wind and solar energy have been expanding dramatically though it will be several years before they generate a significant portion of the region’s electricity.” That means natural gas remains essential. By 2022, natural gas is expected to generate 55% of electricity.
In 2012, the ISO studied a scenario whereby 28 dirty plants would be retired. The grid operator found that “approximately 6,000 MW of resources would need to be replaced, repowered or retained to satisfy both generation and transmission reliability requirements. Given current trends, the majority of replacement resources would be natural gas-fired generation.”
The ISO report diplomatically highlights the shortcomings of renewables saying the “reliable large-scale integration of these resources presents challenges for grid planning and operation.” These include variability, (lack of wind and sun), issues “behind the meter” which make it difficult to forecast demand, and transmission limitations. These shortcomings inherent in renewables make Section 16 of the bill, which would double the state’s Renewable Portfolio Standards, all the more harmful.
Closing the door on natural gas would be a policy mistake.
Friday, August 19, 2011
BHI’s response to TP’s Climate Progress blogger Michael Conathan’s critique of NJ wind farm study
-- This post was written by Paul Bachman, Director of Research, Beacon Hill Institute, August 19, 2011.
On TP's Climate Progress blog, Michael Conathan, claims that Beacon Hill Institute's recent cost-benefit analyses of offshore wind energy in New Jersey are slanted. Conathan alleges that the BHI study "misses the mark on both sides of the ledger by dramatically overstating the costs and underestimating the economic benefits of offshore wind."
It is actually Mr. Conathan that "misses the mark" in his critique of the BHI study. Mr. Conathan makes baseless claims, reports only partial data and relies on irrelevant studies with no economic value or relevance to offshore wind power in New Jersey. We address his individual critiques below.
Mr. Conathan: "The study dramatically underestimates the economic savings realized from the environmental benefits by assuming a static price for the valuation of reduction of greenhouse gasses - which will inevitably rise over time. "
BHI response: Mr. Conathan bases his claim on speculative assumptions about the future regulations of greenhouse gas emissions and other variables. He assumes that the U.S. government will impose a cap-and-trade system, a carbon tax, or a restrictive E.P.A. regulatory regime. This action by the federal government would raise the cost of greenhouse emissions and in turn the price of coal and other fossil fuels, while at the same time raising the benefits of wind power. However, these greenhouse gas regulations are not even a remote possibility in the current political and economic environment.
Let us take a look at the recent history of CO2 prices over time. The IntercontinentalExchange INC. which runs the Chicago Climate Exchange and Chicago Climate Futures Exchange has decided to shut both down due to a lack of legislative interest. "The U.S. has not enacted carbon cap-and-trade legislation and changes to the EPA acid rain program have reduced trading activity," ICE said in its notice. "Accordingly, volumes are down substantially and the exchange is operating at a loss." It appears that IntercontinentalExchange INC. does not share Mr. Conathan's view that the price of greenhouse gas emissions will inevitably rise over time.
The exchange also lists prices for New Jersey RGGI futures contracts. On June 30, 2011 the price was $2.02 per metric ton for November 2016 delivery and on May 30, 2011 the price was $1.93 per metric ton. In our study we used a real price of $2.04 in 2011 dollars. Therefore, our price is well within the range of futures prices listed at that time. Moreover, if we inflate our current price using a 3.5% annual rate, our $2.04 2001 real price translates into a nominal price of $2.78 in 2020 and $3.92 in 2030. We, in fact, do account for his inevitable price increase over time.
Mr. Conathan: By BHI applies an absurdly high discount rate of 10 percent to the benefits when most economic studies use rates of 3-5 percent. The discount rate mistake alone could lead to underestimating the benefits of offshore wind by as much as 50 percent.
BHI Response: First, Mr. Conathan makes the mistake of comparing our 10 percent nominal discount rate with 3-5 percent real, or inflation-adjusted, discount rates. Using the same 3.5 percent inflation rate assumption as in the previous example would translate our nominal rate into a real discount rate 6.5 percent, not far off from his 3-5 percent range. If we use the recent annual CPI increase of 4.2%, our real discount rate becomes would be 5.8%. Moreover, the White house Office of Management and Budget recommend using this discount rate.
While Mr. Conathan rails against us for applying such as high discount rate to the benefits, he is silent about the fact that we apply the same discount rate to the costs of the project. Thus, if we are underestimating the benefits of the project by 50 percent, which we do not, then we would be underestimating the costs also.
Mr. Conathan: BHI also artificially inflates the costs of the project compared to fossil fuel generation by failing to account for the reality that as costs go up, people will reduce their consumption thereby partially offsetting the price increase.
BHI Response: Mr. Conathan is describing what is commonly known as a "rebound effect." It is often used to describe the consumers' behavior after the installation of energy efficiency equipment. For example, as consumers witness their winter heating bill drop after making energy efficiency changes, they respond by turning up the thermostat to a more comfortable temperature, and thus negate some of gains of the efficiency gains. However, Mr. Conathan thinks that there is a free lunch to reducing electricity consumption and fails to recognize the two factors in the wind power case. First, consumers incur a cost to reduce the amount of electricity they would have consumed in the absence of the higher price. Either consumers lose the benefit they derive from that electricity consumed, for example less time on one's IPad, or consumers make an energy efficiency investments to reduce their electricity consumption, which also has a cost of lost opportunity to spend the money elsewhere. Thus, our estimates of the price effects include these costs of the rebound effect and do not need to be adjusted.
Mr. Conathan: "Furthermore, the study estimates the cost of natural gas and coal based on historical prices rather than based on forecasts of future market conditions. While natural gas prices are difficult to predict, experts believe coal prices will rise in the future."
BHI Response: Here again Mr. Conathan believes that his and other "expert" assumption of future prices and regulatory regimes are more valid than ours. Only time will tell who is more accurate. However, what we do know is that forecasting future regulations, supply, demand, costs, prices and other variables is extremely difficult and uncertain, and that includes coal prices. This is why we conduct a sensitivity analysis to test the robustness of our assumptions and provide a range of estimates.
Mr. Conathan: "The BHI study entirely fails to account for the jobs that would be created by the wind farm. Meanwhile, according to a 2009 report by the European Wind Energy Association, the wind energy sector in Europe created more than 60,000 jobs from 2004-2008."
BHI Response: Mr. Conathan is wrong again. We report net jobs, which includes 2,400 jobs created in the construction, manufacturing and related industries. These jobs created are simply swamped by the jobs lost in the other sectors that suffer from the higher electricity costs.
Mr. Conathan cites a report from the European Wind Energy Association, hardy an unbiased source. The purpose of the report is to boast the positive employment effects of the industry. However, as an economic study, it makes nonsensical assertions and fails to look at the economy-wide effects of wind energy that is more expensive and less reliable than conventional energy. Manufacturing and other energy intensive industries facing higher costs can move production to lower cost locations or simply shut down.
For example, the study states that the "additional employment effect of including the higher cost (and higher employment per MW installed) of offshore capacity is estimated at 2,800 jobs…" The report associates higher costs and higher employment requirements with offshore wind with economic benefits. The report associates higher costs and less efficient energy sources with more employment in the wind energy industry. Using this logic, the wind power should not be placed just off the New Jersey coast, but rather in the middle of the ocean because it would create many more jobs to construct and maintain the turbines and transmission lines that are much further away from the energy consumer. This is the same logic that would insist that a canal should be dug with picks and shovels instead of machines.
The report, and Mr. Conathan, fail to note that Denmark has the highest concentration of wind power in Europe and the highest electricity rates in Europe. Moreover, Denmark sells its wind power to Germany during the overnight hours at a very low rate, when the wind is blowing most consistently, and buys conventional electricity back from Germany during the daytime at a much higher rate, when their electricity demand is highest.
Mr. Conathan: Furthermore, the study assigns zero value to increased energy independence and vastly underestimates the reductions in greenhouse gas emissions that New Jersey's targeted 1,100 MW of offshore wind energy would produce.
BHI Response: Mr. Conathan displays his ignorance of the composition of the New Jersey electricity market. As we explain in the report New Jersey gets the vast majority of its electricity supply from domestic sources of coal, natural gas and nuclear power. Oil only provides between 0.5 percent and 1.5 percent of state electricity, and fluctuates depending on oil prices. Moreover, because it is unpredictable and unreliable, wind power cannot provide any of the marginal electricity supply. In other words, wind power operators are at the mercy of the current wind conditions and they cannot control their output to meet changes in electricity demand at any given moment in the day. Therefore, wind power must supply the base load on the grid, which means it would displace domestically supplied coal and natural gas and would have no effect on electricity supplied by oil. Therefore, no foreign oil would be displaced by the wind power.
Contrary to Mr. Conathan's statement that we underestimate the reductions in greenhouse gas emissions the wind power project would produce; the emissions effect is likely negligible for two reasons. First, coal represents 68% of the New Jersey's marginal supply of electricity, so that when the wind suddenly stops blowing at any given moment, coal plants must be cycled up to supply the power lost from the wind plant. The opposite happens when the wind begins to blow again.
Nevertheless, the coal plants cannot be shut down completely when the wind power is operating. That is to say coal power plants are similar to an automobile idling. They are still burning coal and sending some electricity to the grid, but not at an efficient level. When the wind stops blowing the cola plant operator hits the gas petal, if you will, to keep the current electricity supply balanced with the current demand and prevent brownouts and blackouts. While the coal plants are idling, so to speak, they are running at less-than-peak efficiency and produce more greenhouse gas emissions than if they were running at peak efficiency while online. This shifting back and forth between idling coal plant and intermittent wind turbine reduces the emission benefit from wind power.
In addition, the construction of a 1,000 MW wind plant takes much more raw materials, such as steel concrete, aluminum, plastics, transmission wires and land, or in this case water, than a conventional power plant. The production of all these materials also produces greenhouse gas emissions and when we accounted for these greenhouse gas emissions, the wind advantage erodes even further.
Mr. Conathan: This report isn't BHI's first foray into the admittedly complex world of offshore wind. A 2003 report from BHI on Cape Wind's proposal to build America's first offshore wind farm used similarly deceptive tactics, suggesting the project could cost the region $64 million to $134 million in tourism dollars. These findings were included despite polls that showed less than 3 percent of potential tourists would change their plans if the farm were built and despite ample studies of actual tourists' behavior in areas proximate to actual wind farms in Europe.
BHI Response: Mr. Conathan must not have read BHI's report on Cape Wind carefully. BHI did, in fact, conduct a statistical survey of tourists that were on the very Cape Cod beaches where the Cape Wind turbines would be visible. The fieldwork for these two surveys was done under contract with, and under the supervision of, David Paleologos, President, DAPA Research, Inc., an experienced pollster and professor at Suffolk University. The attitudes of European tourists on European beaches, cited by Mr. Conathan, are irrelevant to the Cape Wind project.
Mr. Conathan also fails to cite the recent contract between Cape Wind and the utility National Grid that priced its electricity at 19.4 cents per kilowatt hour in 2016, escalating 3.5% per year for 20 years. This is almost double the current electricity rates for Massachusetts.
Offshore wind power is more expensive, unpredictable, less reliable and less efficient than conventional energy sources. These features make wind power costly to electricity consumers, especially businesses in energy intensive industries. This is why wind power was abandoned as a source of reliable electricity at the dawn of the industrial revolution. These inconvenient economic truths force advocates like Mr. Conathan to resort to "deceptive tactics," half- truths and baseless accusations.
On TP's Climate Progress blog, Michael Conathan, claims that Beacon Hill Institute's recent cost-benefit analyses of offshore wind energy in New Jersey are slanted. Conathan alleges that the BHI study "misses the mark on both sides of the ledger by dramatically overstating the costs and underestimating the economic benefits of offshore wind."
It is actually Mr. Conathan that "misses the mark" in his critique of the BHI study. Mr. Conathan makes baseless claims, reports only partial data and relies on irrelevant studies with no economic value or relevance to offshore wind power in New Jersey. We address his individual critiques below.
Mr. Conathan: "The study dramatically underestimates the economic savings realized from the environmental benefits by assuming a static price for the valuation of reduction of greenhouse gasses - which will inevitably rise over time. "
BHI response: Mr. Conathan bases his claim on speculative assumptions about the future regulations of greenhouse gas emissions and other variables. He assumes that the U.S. government will impose a cap-and-trade system, a carbon tax, or a restrictive E.P.A. regulatory regime. This action by the federal government would raise the cost of greenhouse emissions and in turn the price of coal and other fossil fuels, while at the same time raising the benefits of wind power. However, these greenhouse gas regulations are not even a remote possibility in the current political and economic environment.
Let us take a look at the recent history of CO2 prices over time. The IntercontinentalExchange INC. which runs the Chicago Climate Exchange and Chicago Climate Futures Exchange has decided to shut both down due to a lack of legislative interest. "The U.S. has not enacted carbon cap-and-trade legislation and changes to the EPA acid rain program have reduced trading activity," ICE said in its notice. "Accordingly, volumes are down substantially and the exchange is operating at a loss." It appears that IntercontinentalExchange INC. does not share Mr. Conathan's view that the price of greenhouse gas emissions will inevitably rise over time.
The exchange also lists prices for New Jersey RGGI futures contracts. On June 30, 2011 the price was $2.02 per metric ton for November 2016 delivery and on May 30, 2011 the price was $1.93 per metric ton. In our study we used a real price of $2.04 in 2011 dollars. Therefore, our price is well within the range of futures prices listed at that time. Moreover, if we inflate our current price using a 3.5% annual rate, our $2.04 2001 real price translates into a nominal price of $2.78 in 2020 and $3.92 in 2030. We, in fact, do account for his inevitable price increase over time.
Mr. Conathan: By BHI applies an absurdly high discount rate of 10 percent to the benefits when most economic studies use rates of 3-5 percent. The discount rate mistake alone could lead to underestimating the benefits of offshore wind by as much as 50 percent.
BHI Response: First, Mr. Conathan makes the mistake of comparing our 10 percent nominal discount rate with 3-5 percent real, or inflation-adjusted, discount rates. Using the same 3.5 percent inflation rate assumption as in the previous example would translate our nominal rate into a real discount rate 6.5 percent, not far off from his 3-5 percent range. If we use the recent annual CPI increase of 4.2%, our real discount rate becomes would be 5.8%. Moreover, the White house Office of Management and Budget recommend using this discount rate.
While Mr. Conathan rails against us for applying such as high discount rate to the benefits, he is silent about the fact that we apply the same discount rate to the costs of the project. Thus, if we are underestimating the benefits of the project by 50 percent, which we do not, then we would be underestimating the costs also.
Mr. Conathan: BHI also artificially inflates the costs of the project compared to fossil fuel generation by failing to account for the reality that as costs go up, people will reduce their consumption thereby partially offsetting the price increase.
BHI Response: Mr. Conathan is describing what is commonly known as a "rebound effect." It is often used to describe the consumers' behavior after the installation of energy efficiency equipment. For example, as consumers witness their winter heating bill drop after making energy efficiency changes, they respond by turning up the thermostat to a more comfortable temperature, and thus negate some of gains of the efficiency gains. However, Mr. Conathan thinks that there is a free lunch to reducing electricity consumption and fails to recognize the two factors in the wind power case. First, consumers incur a cost to reduce the amount of electricity they would have consumed in the absence of the higher price. Either consumers lose the benefit they derive from that electricity consumed, for example less time on one's IPad, or consumers make an energy efficiency investments to reduce their electricity consumption, which also has a cost of lost opportunity to spend the money elsewhere. Thus, our estimates of the price effects include these costs of the rebound effect and do not need to be adjusted.
Mr. Conathan: "Furthermore, the study estimates the cost of natural gas and coal based on historical prices rather than based on forecasts of future market conditions. While natural gas prices are difficult to predict, experts believe coal prices will rise in the future."
BHI Response: Here again Mr. Conathan believes that his and other "expert" assumption of future prices and regulatory regimes are more valid than ours. Only time will tell who is more accurate. However, what we do know is that forecasting future regulations, supply, demand, costs, prices and other variables is extremely difficult and uncertain, and that includes coal prices. This is why we conduct a sensitivity analysis to test the robustness of our assumptions and provide a range of estimates.
Mr. Conathan: "The BHI study entirely fails to account for the jobs that would be created by the wind farm. Meanwhile, according to a 2009 report by the European Wind Energy Association, the wind energy sector in Europe created more than 60,000 jobs from 2004-2008."
BHI Response: Mr. Conathan is wrong again. We report net jobs, which includes 2,400 jobs created in the construction, manufacturing and related industries. These jobs created are simply swamped by the jobs lost in the other sectors that suffer from the higher electricity costs.
Mr. Conathan cites a report from the European Wind Energy Association, hardy an unbiased source. The purpose of the report is to boast the positive employment effects of the industry. However, as an economic study, it makes nonsensical assertions and fails to look at the economy-wide effects of wind energy that is more expensive and less reliable than conventional energy. Manufacturing and other energy intensive industries facing higher costs can move production to lower cost locations or simply shut down.
For example, the study states that the "additional employment effect of including the higher cost (and higher employment per MW installed) of offshore capacity is estimated at 2,800 jobs…" The report associates higher costs and higher employment requirements with offshore wind with economic benefits. The report associates higher costs and less efficient energy sources with more employment in the wind energy industry. Using this logic, the wind power should not be placed just off the New Jersey coast, but rather in the middle of the ocean because it would create many more jobs to construct and maintain the turbines and transmission lines that are much further away from the energy consumer. This is the same logic that would insist that a canal should be dug with picks and shovels instead of machines.
The report, and Mr. Conathan, fail to note that Denmark has the highest concentration of wind power in Europe and the highest electricity rates in Europe. Moreover, Denmark sells its wind power to Germany during the overnight hours at a very low rate, when the wind is blowing most consistently, and buys conventional electricity back from Germany during the daytime at a much higher rate, when their electricity demand is highest.
Mr. Conathan: Furthermore, the study assigns zero value to increased energy independence and vastly underestimates the reductions in greenhouse gas emissions that New Jersey's targeted 1,100 MW of offshore wind energy would produce.
BHI Response: Mr. Conathan displays his ignorance of the composition of the New Jersey electricity market. As we explain in the report New Jersey gets the vast majority of its electricity supply from domestic sources of coal, natural gas and nuclear power. Oil only provides between 0.5 percent and 1.5 percent of state electricity, and fluctuates depending on oil prices. Moreover, because it is unpredictable and unreliable, wind power cannot provide any of the marginal electricity supply. In other words, wind power operators are at the mercy of the current wind conditions and they cannot control their output to meet changes in electricity demand at any given moment in the day. Therefore, wind power must supply the base load on the grid, which means it would displace domestically supplied coal and natural gas and would have no effect on electricity supplied by oil. Therefore, no foreign oil would be displaced by the wind power.
Contrary to Mr. Conathan's statement that we underestimate the reductions in greenhouse gas emissions the wind power project would produce; the emissions effect is likely negligible for two reasons. First, coal represents 68% of the New Jersey's marginal supply of electricity, so that when the wind suddenly stops blowing at any given moment, coal plants must be cycled up to supply the power lost from the wind plant. The opposite happens when the wind begins to blow again.
Nevertheless, the coal plants cannot be shut down completely when the wind power is operating. That is to say coal power plants are similar to an automobile idling. They are still burning coal and sending some electricity to the grid, but not at an efficient level. When the wind stops blowing the cola plant operator hits the gas petal, if you will, to keep the current electricity supply balanced with the current demand and prevent brownouts and blackouts. While the coal plants are idling, so to speak, they are running at less-than-peak efficiency and produce more greenhouse gas emissions than if they were running at peak efficiency while online. This shifting back and forth between idling coal plant and intermittent wind turbine reduces the emission benefit from wind power.
In addition, the construction of a 1,000 MW wind plant takes much more raw materials, such as steel concrete, aluminum, plastics, transmission wires and land, or in this case water, than a conventional power plant. The production of all these materials also produces greenhouse gas emissions and when we accounted for these greenhouse gas emissions, the wind advantage erodes even further.
Mr. Conathan: This report isn't BHI's first foray into the admittedly complex world of offshore wind. A 2003 report from BHI on Cape Wind's proposal to build America's first offshore wind farm used similarly deceptive tactics, suggesting the project could cost the region $64 million to $134 million in tourism dollars. These findings were included despite polls that showed less than 3 percent of potential tourists would change their plans if the farm were built and despite ample studies of actual tourists' behavior in areas proximate to actual wind farms in Europe.
BHI Response: Mr. Conathan must not have read BHI's report on Cape Wind carefully. BHI did, in fact, conduct a statistical survey of tourists that were on the very Cape Cod beaches where the Cape Wind turbines would be visible. The fieldwork for these two surveys was done under contract with, and under the supervision of, David Paleologos, President, DAPA Research, Inc., an experienced pollster and professor at Suffolk University. The attitudes of European tourists on European beaches, cited by Mr. Conathan, are irrelevant to the Cape Wind project.
Mr. Conathan also fails to cite the recent contract between Cape Wind and the utility National Grid that priced its electricity at 19.4 cents per kilowatt hour in 2016, escalating 3.5% per year for 20 years. This is almost double the current electricity rates for Massachusetts.
Offshore wind power is more expensive, unpredictable, less reliable and less efficient than conventional energy sources. These features make wind power costly to electricity consumers, especially businesses in energy intensive industries. This is why wind power was abandoned as a source of reliable electricity at the dawn of the industrial revolution. These inconvenient economic truths force advocates like Mr. Conathan to resort to "deceptive tactics," half- truths and baseless accusations.
Thursday, July 9, 2009
The sound of wind in Texas felt like a good idea
The bloom is off the rose! T. Boone Pickens's wind farm dreams meet the gale force of reality.
Plans for the world's largest wind farm in the Texas Panhandle have been scrapped, energy baron T. Boone Pickens said Tuesday, and he's looking for a home for 687 giant wind turbines.
Pickens has already ordered the turbines, which can stand 400 feet tall — taller than most 30-story buildings.
"When I start receiving those turbines, I've got to ... like I said, my garage won't hold them," the legendary Texas oilman said. "They've got to go someplace."
Pickens' company Mesa Power ordered the turbines from General Electric Co. — a $2 billion investment — a little more than a year ago. Pickens said he has leases on about 200,000 acres in Texas that were planned for the project, and he might place some of the turbines there, but he's also looking for smaller wind projects to participate in. He said he's looking at potential sites in the Midwest and Canada.
In Texas, the problem lies in getting power from the proposed site in the Panhandle to a distribution system, Pickens said in an interview with The Associated Press in New York. He'd hoped to build his own transmission lines but he said there were technical problems.
Wednesday, April 15, 2009
The pitfalls of ethanol
Another reason to get rid of taxpayer subsidies for ethanol: wasted water resources.
The current Energy Secretary, Steven Chu, is no fan of corn-based ethanol, presumably because a variety of studies have suggested that it takes a significant amount of energy to produce, diluting its impact on carbon emissions. Nevertheless, the Energy Independence and Security Act sets hard targets for ethanol produced from biofuels, and the US has largely met those through corn-based ethanol to date. A study that appeared in the journal Environmental Science & Technology suggests that we should carefully consider how we meet future goals, as different regions in the US require radically different amounts of water to get the ethanol to market.
Past studies have suggested that the cost in water use for ethanol derived from corn might be high—as high as several hundred liters of irrigation water for each liter of ethanol to make it to the pump, with an added 40 liters of water used in the process of converting the corn to ethanol. Still, those estimates were based on models of irrigation use that didn't account for regional variations in use, and relied on evapotranspiration models to estimate the amount of water needed.
The new study avoids these issues by diving down into data that's available from a variety of governmental organizations. These include the Census of Agriculture and the Farm and Ranch Irrigation Survey, made available by the US Department of Agriculture and the US Geological Survey. These provide a state-by-state breakdown of the use of irrigation water, while the USDA has data on the amount of corn produced at the county level.
Crunching the numbers revealed radical differences among the states. Some of the major corn-producing states, like Iowa and Illinois, required very little irrigation to get a liter of ethanol to market (5 and 11 liters, respectively). At the other end of the spectrum, drier states like Colorado and California required staggering amounts: nearly 1,200 liters for Colorado, and a staggering 2,138 for California.
Thursday, February 19, 2009
In action, the law of unintended consequences of biofuels
It takes a large carbon footprint to grow biofuel. I would think we would have learned this lesson by now.
More on the deleterious effects of converting land for biofuels from Knowledge Problem.
More on the deleterious effects of converting land for biofuels from Knowledge Problem.
Friday, December 12, 2008
Infrastructure Spending
Reading that close to 1 million people are currently without power, a posting by Alex Tabarrok at Marginal Revolution came to mind. In his posting, he notes how when people typically think of government spending on infrastructure, new bridges and highways come to mind and he makes a persuasive argument for a different type of spending.
Mr. Tabarrok states that power outages cost the U.S. $100 billion a year, suggesting there could be gains if the incoming administration thinks outside the box. Additionally, a "smart grid" would be a requirement for the transportation of energy, a key pillar for the expansion of green power.
The validity of government spending and its effect effect (or multiplier) has been debated recently, including this interesting article that places the Multiplier at 1.0, but looking into the short term, I suspect there will be an expansion of federal spending, in an attempt to shorten the current resession.
"Even more valuable than transportation infrastructure would be greater investment in electricity infrastructure, a smart grid."This could include numerous national projects to put in place a "smart grid." This type of grid would be able to have "smart pricing" enabling prices of electricity to go up when demand is high, a basic economic requirement, reducing the maxium load on power stations at peak times. Additionally, this grid would be much more robust then the current system, allow at least some of the people currently effected by the ice storm to have heat and lights.
Mr. Tabarrok states that power outages cost the U.S. $100 billion a year, suggesting there could be gains if the incoming administration thinks outside the box. Additionally, a "smart grid" would be a requirement for the transportation of energy, a key pillar for the expansion of green power.
The validity of government spending and its effect effect (or multiplier) has been debated recently, including this interesting article that places the Multiplier at 1.0, but looking into the short term, I suspect there will be an expansion of federal spending, in an attempt to shorten the current resession.
Thursday, December 4, 2008
Biodieseling: the mirage of energy independence.
In May 2005, President Bush signed legislation creating federal subsidies for domestic biodiesel production. Along with supporters of biofuels, the President argued:
In 2007 almost 60% (291 million gallons out of 490 million gallons) of domestic production was exported. In the first eight months of 2008, an estimated 511 million gallons out of the 600 million gallons of biodiesel were exported rather than consumed domestically.
This means that $600 million was spent to replace 89 million gallons of oil. Since we import about 60% of our oil, we reduced our "foreign oil dependence" by 52 million gallons or a cost of about $11.54 per gallon, which seems to be hardly cost-effective.
HT: The Houston Chronicle
“... every time we use homegrown biodiesel, we support American farmers, not foreign oil producers.”The reduction of baseline oil imports was a goal of the $1 per gallon tax credit, funded mainly though debt and the income tax payments. However, as is the case with most government-induced price distortions, unforeseen consequences came into play.
In 2007 almost 60% (291 million gallons out of 490 million gallons) of domestic production was exported. In the first eight months of 2008, an estimated 511 million gallons out of the 600 million gallons of biodiesel were exported rather than consumed domestically.
This means that $600 million was spent to replace 89 million gallons of oil. Since we import about 60% of our oil, we reduced our "foreign oil dependence" by 52 million gallons or a cost of about $11.54 per gallon, which seems to be hardly cost-effective.
HT: The Houston Chronicle
Wednesday, September 10, 2008
Government is not an efficient entrepreneur
Barack Obama thinks that government can pick a winner and his industrial policy suggests that green jobs will help grow the U.S. economy.
At last month's DNC, Obama claimed that he will “invest $150 billion over the next decade in affordable, renewable sources of energy” creating “five million new jobs that pay well and can't ever be outsourced.”
Not so fast with those job numbers says John Stossel who takes on Obama's major premise that government directed "investment" to create Green Jobs is something that he should be proud of. Obama's claim misses the larger point: government is a lousy investor subject to the push and pull of politics.
As BHI research economist Ben Powell has noted numerous times, “Jobs themselves are not a benefit; if they were, workers would be paying their employers for the privilege of working, rather than vice versa! It is the value created by performing those jobs that is the benefit, while doing the job is the cost an individual must pay to obtain a benefit.”
More of this line of critique can be found here at BHI:
The Faulty Economics of Colorado's Climate Change Action Plan: A Peer Review
The Economics of Climate Change Legislation in North Carolina
Peer Review: Minnesota Climate Mitigation Action Plan Cost-Benefit Analysis
At last month's DNC, Obama claimed that he will “invest $150 billion over the next decade in affordable, renewable sources of energy” creating “five million new jobs that pay well and can't ever be outsourced.”
Not so fast with those job numbers says John Stossel who takes on Obama's major premise that government directed "investment" to create Green Jobs is something that he should be proud of. Obama's claim misses the larger point: government is a lousy investor subject to the push and pull of politics.
1.) Stossel reminds us "Alaska Rep. Don Young claimed the infamous "bridge to nowhere" would create jobs." Digging a hole then filling it is also creates jobs, but people would not consider that a benefit.
As BHI research economist Ben Powell has noted numerous times, “Jobs themselves are not a benefit; if they were, workers would be paying their employers for the privilege of working, rather than vice versa! It is the value created by performing those jobs that is the benefit, while doing the job is the cost an individual must pay to obtain a benefit.”
2.) Stossel also questions the idea “that Obama knows how best to 'invest' the $150 billion.” I have always held a firm belief that entrepreneurs invest much better then any politician. The entrepreneur risks their own money, and therefore will suffer any costs of a poor investment, encouraging them to measure the risk very carefully. The government risks my, and your, money so the costs are merely passed onto taxpayers. McCain suffers from the same issue, saying he “will support projects to advance technologies that capture and store carbon emissions,” funded via federal revenue. He is careful to say he is for “support,” as he is against “subsidies." Six one way, half a dozen the other.Green jobs are touted as a welcome byproduct of climate change legislation. In truth it is taking money out of the private sector and putting it into a government that take a cut. When an indepth look is taken and the hand waving and populist rhetoric has been pushed aside, current climate change strategies that consist of a mixing of heavy handed government regulation often fail to meet the basic criteria of cost-benefit analysis.
More of this line of critique can be found here at BHI:
The Faulty Economics of Colorado's Climate Change Action Plan: A Peer Review
The Economics of Climate Change Legislation in North Carolina
Peer Review: Minnesota Climate Mitigation Action Plan Cost-Benefit Analysis
Saturday, July 19, 2008
Slim Pickens When It Comes to Economic Sense
One impression that you get from the latest pronouncements by the anti-global-warming crowd is that they are, to a man, innocent of the discipline of economics.
I have already commented on Al Gore's convoluted reasoning with respect to electric power: While his proposal to wean the U.S. electric power industry off fossil fuels in 10 years sounds bold and imaginative, it is, in fact, nonsense. Gore's problem is not that U.S. electric power companies burn fossil fuels; his problem is that those fuels are valuable for producing energy and will remain so as long as they offer a cheaper source of energy than the alternative. Someone, whether U.S. electric power companies, foreign power companies, or some other energy consumer is going to gain access to those fuels and burn them. Meanwhile, under Gore's proposal, U.S. electric power consumers will just subsidize these other consumers to burn the very fuels that could have been used more efficienctly as they currently are.
We are getting further nonsense from billionaire T. Boone Pickens. His obsession is over our "dependency" on foreign oil, on the huge "wealth transfer" that results from U.S. oil imports. In fact our dependency on foreign oil is of exactly the same significance as our dependency on foreign coffee. We import most of what we consume when it comes to both products and we send dollars to foreigners to buy both. The reason we do this is because it would be more costly to try to produce all of our coffee or all of our oil at home.
Do we suffer when jihadists and other lunatics threaten our oil imports? Sure. Do we suffer when oil dollars go to fund the efforts of the same lunatics to kill us? Sure. But somehow goading U.S. electric power companies into using wind power to the exclusion of foreign oil or natural gas does nothing to increase the reliability with which those companies supply the end product, which is electric power. Wind power is itself unreliable and requires backup in the form of traditional power sources in order to work. And it does nothing to stop the jihadists from killing us. They will continue to sell oil for a lot of money until such time as the private sector, motivated by high oil prices, discovers a way to make electric power and other power more cheaply using renewable and non-carbon fuels. (Actually, there is another way, and it's called nuclear power. But that's another story.)
There is no good solution to the dependency problem except for someone in the Arab/Muslim to convince the jihadists that they could find better uses of their time than blowing up oil facilties and generally causing their famous brand of mischief. But wait, isn't that what the government of Iraq is trying to do now? It seems that the most effective way to increase energy reliability and to discourage lunatics from disrupting oil supplies and killing us is to drill for oil at home and to fund the U.S. Army.
I have already commented on Al Gore's convoluted reasoning with respect to electric power: While his proposal to wean the U.S. electric power industry off fossil fuels in 10 years sounds bold and imaginative, it is, in fact, nonsense. Gore's problem is not that U.S. electric power companies burn fossil fuels; his problem is that those fuels are valuable for producing energy and will remain so as long as they offer a cheaper source of energy than the alternative. Someone, whether U.S. electric power companies, foreign power companies, or some other energy consumer is going to gain access to those fuels and burn them. Meanwhile, under Gore's proposal, U.S. electric power consumers will just subsidize these other consumers to burn the very fuels that could have been used more efficienctly as they currently are.
We are getting further nonsense from billionaire T. Boone Pickens. His obsession is over our "dependency" on foreign oil, on the huge "wealth transfer" that results from U.S. oil imports. In fact our dependency on foreign oil is of exactly the same significance as our dependency on foreign coffee. We import most of what we consume when it comes to both products and we send dollars to foreigners to buy both. The reason we do this is because it would be more costly to try to produce all of our coffee or all of our oil at home.
Do we suffer when jihadists and other lunatics threaten our oil imports? Sure. Do we suffer when oil dollars go to fund the efforts of the same lunatics to kill us? Sure. But somehow goading U.S. electric power companies into using wind power to the exclusion of foreign oil or natural gas does nothing to increase the reliability with which those companies supply the end product, which is electric power. Wind power is itself unreliable and requires backup in the form of traditional power sources in order to work. And it does nothing to stop the jihadists from killing us. They will continue to sell oil for a lot of money until such time as the private sector, motivated by high oil prices, discovers a way to make electric power and other power more cheaply using renewable and non-carbon fuels. (Actually, there is another way, and it's called nuclear power. But that's another story.)
There is no good solution to the dependency problem except for someone in the Arab/Muslim to convince the jihadists that they could find better uses of their time than blowing up oil facilties and generally causing their famous brand of mischief. But wait, isn't that what the government of Iraq is trying to do now? It seems that the most effective way to increase energy reliability and to discourage lunatics from disrupting oil supplies and killing us is to drill for oil at home and to fund the U.S. Army.
Friday, July 18, 2008
Al Gore, Prohibitionist
Al Gore wants to be Rachel Carson but has revealed himself to be Carrie Nation. He talks about protecting the environment, when all the while he really just wants to banish fossil fuels from the marketplace. There is no better example of his prohibitionist mentality than his recent demand that the United States
Only about 30% of our electricity currently comes from these sources. The question is what will happen to the fossil fuels that are used to make the remaining 70%, once those fuels are no longer used to produce electricity. The answer is that they will find their way to the market place to be used, as they are now, to produce energy, whether in theUnited States
If Mr. Gore really wants to spur theUnited States
Only about 30% of our electricity currently comes from these sources. The question is what will happen to the fossil fuels that are used to make the remaining 70%, once those fuels are no longer used to produce electricity. The answer is that they will find their way to the market place to be used, as they are now, to produce energy, whether in the
If Mr. Gore really wants to spur the
Tuesday, July 1, 2008
Demand Curves Slope Downward
According to the U.S. Energy Information Administration, oil consumption dropped in April to a level not seen since 2002. The idea that people consume less of something when its price increases is not a revolutionary idea. Yet some people just have a hard time accepting it. When prices increase, consumers alter their behavior: driving less, planning fewer trips to run errands or using other modes of transportation. They even buy more fuel efficient cars.
Monday, March 31, 2008
BHI testifies on Cape Wind proposal
On March 13, 2008, BHI researcher Michael Head testified before the Mineral Management Services hearing at the University of Massachusetts, Boston. His testimony follows:
I am Michael Head from the Beacon Hill Institute, the research arm of the Economics Department at Suffolk University. My testimony will focus on those sections of the DEIS that deal with economics.
Still no Cost-Benefit Analysis
The DEIS does not include a social cost-benefit analysis that would systematically weigh the social costs against the social benefits of the project, a serious omission. Presidential Executive Order 12866 states that “each agency shall … propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.” The Cape Wind proposal should not be exempt from this test.
Our updated research shows that the Cape Wind project is not economically viable, showing that the economic costs would exceed the economic benefits by $700 million in 2008 dollars.
Tourism could well be hurt
The DEIS asserts that “the proposed action is located far offshore and is not expected to affect tourism.” This conclusion is too optimistic and in the context of Cape Cod, which is heavily dependent on tourism would, on balance, be hurt by the Cape Wind project. In our 2003 study 62% of a sample of tourists surveyed believed that the turbines lessened the area’s appeal as a vacation destination.
Property Values May Decrease
The DEIS states that “currently available information does not support any firm conclusion with respect to the wind facility’s effect on property values.”
However, based on surveys undertaken by the Beacon Hill Institute in 2003:• Home owners believe that the windmill project will reduce property values by 4.0%, and waterfront property by 10.9%This translates into between a $1.76 and $2.54 billion loss in property values.
• Forty-nine percent of area realtors also expected property values to fall.
Employment Effects
DEIS also predicts secondary induced employment benefits resulting in an additional 206 to 622 jobs in Massachusetts. These effects are overstated.
In fact, the reduction in tourism brought about by the Cape Wind project would lead to a reduction in employment of about 700 jobs.
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