Archive for December, 2012

By William Tucker

“Predictions are hard, especially about the future.”  That was Nils Bohr’s aphorism that made it into history, although in another one of those unpredictable twists the quote is now being attributed to Yogi Berra. 

It would be worth keeping that in mind, especially when we talk about energy independence.

Last August Mitt Romney set off gales of laughter when he suggested that North America – not the United States but North America – could achieve energy independence by 2020.  The poobahs of the press competed with each other to shout him down.  

“I’ve said it before – you can’t be serious about reducing U.S. dependence on foreign oil unless you’re also serious about reducing U.S. consumption through energy efficiency and the cultivation of alternative sources,” wrote Bryan Walsh in Time.

“Whatever the hype in the U.S. about oil self-sufficiency and its benefits to energy security, America is a long way from achieving oil independence — let alone energy independence,” pronounced Martin Adams, energy editor for the Economist Intelligence Unit on Huffington Post. 

“The whole idea of energy independence is conceptually bogus,” wrote Matthew Yglesias on Slate.  

And Cory Suter, writing on PolicyMic, debunked Romney’s plan “in 10 simple charts.” 

So now here we are six weeks after the election and the debate has taken a 180-degree turn.  Now we’re not just talking about North American energy independence but independence for the United States.

The source of this highly optimistic view of the future has been the International Energy Agency’s annual World Energy Outlook report, released on November 14, one week after the election.  As Robert Samuelson reported in the Washington Post, “the agency comes to the startling conclusion that, by 2020, the United States will displace Saudi Arabia — albeit temporarily — as the world’s largest oil producer. Even more astonishing, the United States is projected by 2035 to be virtually self-sufficient in oil, with modest imports coming from secure suppliers.” 

Two weeks later, the Energy Information Administration, the federal government’s principal source of information, came out with an equally optimistic prediction, although it moved the moment of independence back a bit to 2040.  

So what are we to make of all this?  Certainly there’s a lot of partisan rancor in these debates.  Many of the same commentators who were laughing at Mitt Romney three months ago and now discussing whether President Obama should be given credit for putting the country on the path to self-sufficiency.  But the real problem is that such predictions almost always consist of projecting present trends into the future.  There’s no room for the unexpected.  Either that or the predictions are fudged so much that just about anyone could make them.

Take a look, for instance, at the EIA’s projections for the price of Brent crude over the next 30 years.  

By including a “high” and “low” projections with the “reference” trend, the report manages to determine that by 2040 the price in current dollars will be anywhere from $75 to $240 a barrel.  It’s hard to argue against that.  

Then there are EIA’s predictions for dry gas production from various sources:  

Here the EIA takes the trendline for shale gas from the last five years and projects it on a straight slope all the way out to 2040.  Every other source stays almost exactly the same as it is today except for the perfectly predictable slow decline of natural gas from conventional onshore wells.  Somehow it seems there must be other possibilities.

Finally, look at the EIA’s predictions for energy consumption by fuel:

What’s most notable about this graph is the contrast between the past (to the left of 2011) and the predicted future.  The last 30 years show a steep climb with ups and downs and considerable changes in all sources.  The future is portrayed as basically a flat continuation of the present.  Forty years from now no source’s slice of the pie varies more than 4 percent from what it is today.

I don’t have access IEA or EIA’s number-crunching, but one prediction I would make is that the future is going to be full of surprises.  Here are some wild guesses at a few of them:

1. The decline of coal will be much more rapid than anticipated.  We started phasing out coal in the early 1970s on air pollution grounds but the trend was interrupted by the Carter Administration’s promotion of coal as the solution to the Energy Crisis and its simultaneous shackles on nuclear energy.  Almost half the nation’s coal plants are more than 50 years old and most of them still don’t have pollution equipment.  I would bet they will be phased out even without a crackdown from the EPA.
2. Natural gas will begin to power significant portions of our transport sector.  There have been some experiments with compressed natural gas and converting methane to diesel but for my money the Fuel Freedom Foundation’s proposal to convert natural gas into methanol is the winning bet.  Methanol is the simplest liquid hydrocarbon and has been powering Indianapolis 50 cars since the 1960s.  We already have a methanol industry and prodigious amounts of natural gas.  All it would take to kick start the conversion would be for the EPA to make it legal.
3. The hydrogen fuel cell will be part of the transition from oil to natural gas.  Fuel cells had a big run-up in the late 1990s but then faded from view. Stalwarts such as Ballard Power have continued to make headway, however, and hydrogen buses and cars and even a locomotive are starting to catch on in England.  Fuel cells will also find application as a stationary power source.  The hydrogen, of course, must be derived from natural gas. 
4. The public will fall in love with small reactors.  I would peg this at somewhere around 2020.  At that point people are going to begin to realize that nuclear energy is not as frightening as they have been led to believe.  Right around that time the first commercial SMRs will be coming on line.  They will make nuclear seem warm and cozy and people will respond positively to the idea of burying a gazebo-sized reactor 40 feet below ground and having it power a city of 20,000 people.  No more carbon exhausts or grotesque, twenty-square-mile “farms” of solar collectors or windmills that only generate electricity 30 percent of the time.  SMRs will offer “distributed energy” and “microgrids” that will eliminate cross-country transmission lines and reduce the dangers of blackouts.  They will allow us to forget about climate change and go back to building a prosperous world.

Oh well, maybe this is just a pipedream.  None of this would fit into the charts, graphs and statistical extrapolations of the major prognosticators.  Still, I wouldn’t be against it.

By William Tucker

Former Senators Trent Lott, Republican of Mississippi, and Byron Dorgan, Democrat of North Dakota, have teamed up to form a Bipartisan Policy Center that is putting out the word that what we is need a Bipartisan National Energy Plan.

As an editor at RealClearEnergy, I must admit I see this story about twice a day.  Every editorial writer in creation has already written his piece about how we need a National Energy Plan.  But bipartisan, hey that must be something new, right?  The two parties working together?   That will do the trick, no?

Well, no.  You see the whole idea of a National Energy Plan is that decisions will be made in Washington.  Then the word will go out telling everyone what to do.  The one thing you can be certain of is that if decisions are made in Washington, not much of anything will get done and the whole thing will become politicized.  

Take nuclear energy, for example.  What we have today in the nuclear industry is essentially a huge monopoly organization run out of Nuclear Regulatory Commission headquarters in Rockville, Maryland.  It’s impossible to get anything done today in the nuclear industry without clearing it first through headquarters.  

For instance, when I was touring the Cooper Nuclear Station in 2006 in preparation for writing my book, Terrestrial Energy, I saw a large tricycle sitting in front of the administrative building.  I asked my guide what purpose it served.  He explained that no cars were allowed “inside the fence” and employees often found themselves walking long distances around the site in the winter cold.  So they had finally asked the Nuclear Regulatory Commission if they could ride bicycles.  The NRC considered the matter for eight months before coming back with a word that bicycles would be too dangerous but it would allow a tricycle.  So there it was.

What’s the biggest energy breakthrough we’ve had in the last ten years?  Fracking for natural gas.  How did that develop?  Did somebody in Washington draw up a plan about how to extract those known gas reserves from shale?  Did the Department of Energy set a quota?  No, George Mitchell, an independent operator in Texas, spent two decades and millions of dollars of his own company’s money experimenting with the technology, almost bankrupting himself in the process.  (His employees and subordinate were all against it and complained he was spending their retirement funds.)   True the Department of Energy finally kicked in a few dollars at the end of the process at his request.  And true, government-loving think tanks such as the Breakthrough Institute have desperately tried to argue that the federal government made the whole thing happen.  But take away George Mitchell and fracking never would have happened.

Moreover, fracking has only proceeded so rapidly because the new deposits are found in the East and on private land.  If this were federal land being developed – and the federal government still owns 65 percent of the land west of Denver – we’d still be writing the environmental impact statements.  

Frederick Hayek dealt with all this in his 1940s classic, The Road to Serfdom, and it’s amazing how you have to keep going over the same old arguments because the impulse toward the “planned economy” never ends.  It’s the same as the argument we’re about to have over whether there is any economic benefit in exporting natural gas.  David Ricardo pretty much settled the issue with the theory of Comparative Advantage, introduced in On the Principles of Economic Theory and Taxation in 1817.

More than a century later, Hayek demonstrated in exhaustive detail that all “planning” is something all of us do every day.  When we decide whether to drive or take mass transportation, whether to leave the lights on when we walk out of a room, whether to buy high-grade or low-grade gas, whether to live in the city or the suburbs – all this is “economic planning.”  It is signals that send a message to producers through the price system of what it is people want – which is the whole basis of economics.  And although all these little decision may not look like much, taken in aggregate, they add up to our “national energy plan.”  

Most important, the knowledge of what it takes to satisfy people’s wants and what is available to them is distributed as widely as possible throughout society.  It cannot possibly be centralized all in one place.  “National planning” simply means substituting politics for market decisions.  A bunch of bureaucrats in Washington will try to decide what people want and what’s the best way to produce it for them.  The results cannot help but be a mishmash – such as when the old Soviet Union used to produce millions of shoes in one size and then tell people they had to wear them.  

But National Planning does have an overwhelming attraction to one group – the people who think they’re going to do the planning.  They see it as an opportunity to impose their own agenda.  whether it be to save the coal industry, put up windmills, force people to consume less or switch our transportation to the electric car.  There’s only one catch, said Hayek – and I’ve always regarded this as one of the most profound sentences written in the 20^th century.  “The person who advocates National Planning always assumes it is his plan that is going to be put into effect.”  

Once decision-making is centralized in one place, politics takes over.  Lobbying becomes the key to success and the interest of well-organized groups is always overriding the will of the majority.  Environmentalists love national plans because it gives them the opportunity to prevent things from happening from Washington.  When they try to implement their own ideas, such as putting huge solar complexes in the desert, they run into the same problems as everyone else.  Soon everything becomes bogged down in minutia so that a single clause sneaked into some piece of legislation can decide who wins the battle. 

But there’s one other thing that politicians like about bringing decision-making to Washington and that is that it creates a lot of jobs. You might even call it prosperity.  Last week The Express, the subway handout of the Washington Post, ran a remarkable cover story entitled “Stressed?  Overworked?  Not Here:  Washington workers are happier than you might expect, a Post poll finds.”  Here are some excerpts:    

Now some news that may seem counterintuitive, given the stereotype of Washingtonians as dull, stressed-out workaholics: We are happy. We like our jobs. If we work more than 40 hours a week, we don’t seem to mind.  We love our full lives . . .

In interviews with a number of these poll respondents, we found residents of all demographic and geographic stripes determined not to let their work dominate them.  We found people focused on spending time with their kids, spouses, boats – intent on finding jobs that are fulfilling and meaningful, yet not overwhelming . . .

“People in Washington have jobs and roles that are highly energizing.  These are mission jobs – it’s not like you’re washing cars. There are lots of smart young people enjoying each other’s company; that’s as energizing as the job itself,” [says] Jane Weizman of Towers Watson, a human relations consulting company in Arlington. . . 

Wait, Money Can Buy Happiness?

Part of Washingtonians’ contentment may stem from the area’s prosperity. We asked in the Post poll to describe the state of their personal finances, 68 percent of adults here said excellent or good.  In a nationwide Bloomberg poll, only 27 percent said excellent or good.

All we have to do to produce more energy is to allow the people do their jobs.  People who produce energy for a living know how to produce energy.  All you have to do is free them from government restrictions, which are simply the “national plan” of people who don’t want to produce more energy.  If there are market externalities – things that aren’t taken into account by the price system –they can be dealt with through simple, clear market mechanisms.  If we’re concerned about carbon emissions, impose a carbon tax.  If we’re worried about the safety of drilling offshore, hold the drillers liable and let the insurance companies figure out how to avoid accidents.  Underwriters Laboratory has done this for the electrical industry since 1894.  On nuclear safety, INPO and WANO have been doing the same thing since Three Mile Island.  After all, no owner of a $5 billion reactor wants to see it melt down.  

When all this decision-making is given to the federal government, however, all we get is prosperity in Washington.  And prosperity in Washington, as is becoming increasingly clear, means an ever-deepening recessionary spiral in the rest of the country.