Sinn oder Unsinn...

Simon writes each week on international issues relating to energy policy.

Writing in the Financial Times this week, German professor Hans-Werner Sinn describes what he terms "the green paradox" ("a green paradox" might have been more suitable, but that's beside the point). By this, he means the unfortunate consequences of future policy to limit carbon emissions being to encourage producers to extract more oil, gas and coal today, before their costs are increased. His solutions: a perfect, "seamless" global emissions cap (easier said than done) or a punitive tax regime on producers (a Sinn Tax?).

How the latter is supposed to operate is a mystery. Who is going to be able to tell Saudi Arabia to hand over the $69 profit it makes on a $70 barrel of oil as a matter of international law? No organization that currently exists could do it, and can't image one that could without giving rise to very serious concerns about democratic accountability and liberty that would outweigh any environmental benefit. It is also worth noting that, with the price of oil in Sinn's vision still high, temptations to cheat would be rampant. From OPEC through the Iraqi Oil for Food program, history has shown attempts - even internationally sanctioned attempts - to compel countries to stop producing their only revenue source to be destined for failure.

The carbon cap, improbably, seems the more viable of Sinn's proposals. But the only way that it will work is the only way that any demand management strategy (most of which he appears to loath) works. The prices for substitutes have to come down. This straightforward observation is completely absent from his argument, but is crucial to it. Without functional and affordable alternative technologies, all the king's horses and all the king's men couldn't keep people from wanting energy products, and the countries that have them from supplying them. A cap changes the definition of what's affordable, moving the equilibrium from, nominally, the cost of producing oil to some other, policymaker-set value. But it doesn't change the fundamental; that unless there's some other way of powering the lights, that oil, coal and gas is going to be produced and combusted.

Climate Science, Politics and Kurt Vonnegut

"Here's what I think the truth is: We are all addicts of fossil fuels in a state of denial, about to face cold turkey." Kurt Vonnegut, Jr.

Research in the field of global climate change has made significant strides in the modern era. Paleontologists have used history to test and refine new concepts, advanced spatial and temporal models have allowed us to make long-term predictions, and socio-economic analysis of climate change impacts have all served to bring the issue into the political domain. The role of research (basic and applied) in bringing climate change to the political domain can not be understated. Without trust in the scientific method, climate change would have faltered as environmental propaganda from the get-go. Notice the emphasis on the scientific method and not simply the science or science-based results. More on this in a moment.

And so in time, climate change has been labeled environmental propaganda because the scientific arguments which at first held so much weight, have over-stayed their welcome and been uttered too many times by politicians. Politicians concluded more and new science was needed. In response, a portion of the scientific community and some politicians formed an unwritten agreement that science would attempt to advance a political agenda much as science originally placed the issue on the political agenda. To my mind, this has manifested itself most directly in the pursuit of climate proof, which often takes the form of tying weather events and climate trends to climate change.

Today we see a variety of researchers in the field of global climate change including honest brokers of climate policy alternatives, genuinely pure climate scientists, and issue advocates (both admitting and non-admitting) (see Roger Pielke, Jr. for more). I do not object to advocacy or politics in research as I believe the portrayal of science as objective is an illusion – no scientist operates in a vacuum free of values. What I do object to, and this is my motivation for contributing to this blog, is a failure to recognize the clout science holds lies less in its ability to generate new knowledge or even the purported objectivity of science, and more in the scientific method.

There is no process of truth-seeking more logical than the scientific method. A testable and falsifiable hypothesis is formed, the hypothesis is tested and subsequently refuted or upheld, and an independent researcher reproduces the results. In other words, hypotheses are to be disproved and never proved. To me, the scientific method is holy because it says humans can never know any aspect of nature in its entirety and this is fucking exciting. A scientist seeking to prove a hypothesis simply isn’t using the scientific method and does not have the power of the scientific method on his/her side.

I feel its time to draw some conclusions. 1 – At this stage in the game of climate politics, it seems like only proof will push the boulder over the hill. Don’t be fooled. 2 –The scientific method can’t generate proof, but it garners respect and is not to be ignored. So use it. 3 – Start listening to climate skeptics instead of always convincing them. Become a skeptic yourself on points that don’t sit well. 4 – Scientists and researchers should stop trying to build evidence and proof of climate change and instead cull and refine the hypotheses, models, and predictions already out there. Time should assist in re-evaluating past research, if only we make time (and funding) for it.

"Another flaw in the human character is that everybody wants to build and nobody wants to do maintenance." Kurt Vonnegut, Jr.

Can lithium aid Bolivia's depression?

Simon writes each week on international issues relating to energy policy.


Twice in the space of the past day, I encountered an energy story I'd never come across before. The story provides a glimpse of a potentially vast revenue stream for a highly impoverished country, but is accompanied by some warnings from history. It features a Latin American nation often overshadowed by its more truculent or troublesome neighbors to the north – Bolivia. It also features the lightest metal in existence, and perhaps the critical ingredient in the electric-car revolution – lithium.

Bolivia is home to the world’s largest salt flats, and these salt flats are in turn home to the world’s largest lithium deposits – by some accounts 50% of all the world’s lithium is located in the high, hot Uyumi plateau. And, as demand for the metal is driven up by battery makers, for use in laptops, longer life AAs, and increasingly by carmakers, the Bolivian government is looking to develop this heretofore-untapped resource. President Evo Morales’ Socialist government has determined that the state will take sole responsibility for the new mining operations, speaking in grandiose terms about being not just the “Saudi Arabia of lithium” – extracting the metal for wholesale – but of becoming the world’s leading battery manufacturer . Such ambitions are bold, but also risky, as many commodity-dependent economies can attest.

The historical record in such situations is not good. The concept of the “Resource Curse” is well established, as the likes of Jeffrey Sachs and Paul Collier have expounded. Excessive dependence on one industry can skew economic allocations, engender corruption and sometimes violence, and inhibits growth. Still, while the problems are well-known, solutions are hard to find. The alternative, ignoring – or at least underutilizing – natural resources won’t help growth either, and may be morally indefensible in a country where 60% of people already live below the poverty line. The jobs and income quality development would provide would be invaluable, especially among the indigenous communities who inhabit the salt flats, and whose income levels are markedly lower than people in other parts of the country.

As prices continue to rise, it is going to become harder to hold off developing these deposits. It seems inevitable that despite Morales’ ideological hostility, there will have to be some involvement from foreign companies. While he can maintain ownership of the resources and their rents, Bolivia simply lacks the expertise, not to mention the capital, to realize their prospects. The treatment of western oil and gas companies in the last few years, summarily nationalizing and expropriating their assets, will have done little to encourage involvement, though.

Of the possible solutions suggested here, one of the more interesting – and implementable – ideas may be one from close(ish) to home. Privatization is out for the time being, simply because it is incompatible with the current politics of the country. Whether or not it would have much success is also questionable, with instances such as the former USSR showing it to be easy to get devastatingly wrong. Creating a Norway- or Dubai-style sovereign wealth fund to take proceedings and invest them in other sectors, to provide a longer-term and diversified revenue stream. Such funds, though, are only as responsible as their governors, and it is hard to tell how accountable the Bolivian government would be. But the third, slightly familiar idea, that of establishing a revenue distribution fund, similar to Alaska’s program for distributing oil proceeds, may be the most preferable. It reduces the dangers of corruption by putting money in the hands of citizens rather than the government. It helps raise individual incomes, allowing for the expansion of other private enterprises. The risks of inflationary pressures exist, but are probably no worse than other forms of distribution of the revenues, and with this system would have the added advantage of helping less well-off parts of society rather than waiting for a trickle-down from elites (which would have the added risk of capital flight).

There are a lot of ifs to be addressed before we see this experiment take shape – at present prices this windfall is still minor, compared with the lucre that hydrocarbon fields provide (the value of Bolivia’s lithium amounts to about two thirds of its current GDP. By contrast, Saudi Arabia’s proven oil reserve are valued at around 40 times its current GDP, and Venezuela’s at around 20x). However, if electric cars expand their market share, and if lithium batteries remain the technology of choice to power them, the price of their commodity should continue to climb. Bolivia may well provide an interesting test case for a country trying to handle a new bounty of natural resources, using all the experience economists have learned from the previous century.

With energy resources having proven the most egregious contributors to the “resource curse” problem through the years, and with the desire to re-invent the sector potentially generating new demand spikes for previously neglected materials, it behooves policymakers to ensure that the mistakes of the past are not repeated in the present. Efficient development need not be irresponsible development, and the owners of such resources, be they public or private, can give extractive operations a better reputation in the this century than they had in the last one.

Moores Mill Road Follow-up

On Friday I promised an explanation for the strange behavior of the power lines on Moores Mill Rd. Basically what happened was a malfunction at a transformer substation that is in charge of stepping down the voltage from 34 kV to 14 or 7 kV. The smaller transformers that are hooked onto the telephone poles then perform the subsequent voltage drops before the electricity makes it to homes, where it is finally stepped down to 120/240 V. So rather than delivering electricity at 7 kV (around that) to the transformers, they were getting inputs at 34 kV, the highest voltage considered to be distribution-grade electricity (above that is transmission). One by one the transformers were overloading and exploding (partially due to the insulating oil that is used inside them), and then the electricity would reach the next transformer in sequence.

Friday YouTube Treat

Good morning energy blogosphere. My post today will be short and sweet. Yesterday I visited a BG&E distribution training center (where they train the people who go out into neighborhoods to put up or repair electric wires). Besides being a national leader in smart grid pilot programs, they have a really well-oiled training system. They show this video to all of their trainees to let them know what happens when multiple things go wrong:

I'll let you mull it over this weekend on what might have caused such a light show, and post an explanation on Monday.

Newsflash:

The world's running out of oil (tomorrow). Is your homestead ready? If you're a city person, probably not, but here's what you need to do.

We'll have a real post about Peak Oil sometime in the future, but you should get hopping now just in case!

Carbon Tariffs are not Terrific

For negotiators working on the Doha Round of world trade talks, and the Copenhagen Climate Conference , the links between climate change and trade policy are already apparent, not to mention problematic. In the US, the intersection of these policy areas has added a further political dilemma to the already convoluted Waxman-Markey bill’s progress, creating a further forum for lobbyists of all persuasions to pursue their agendas. At the official level, though, debates about the two issues have descended into trading accusations of protectionism.

The connection between the issues takes two main forms. The first is the more basic: the level of tariffs imposed on traded ‘environmental’ goods and technologies, including for example solar panels or windmill components. The second is more complex: the question of whether countries restricting carbon emissions have a right to charge compensatory tariffs on imports from countries that do not restrict emissions, and whether it is a good idea to do so.

Tariffs on environmental goods are a bad idea. Tariffs on any goods are a bad idea, but tariffs on technologies that can help lower emissions are particularly foolish. The principle value of such technologies (unless you’re an energy independence activist) is to help ameliorate the global issue of climate change. Just as we should be agnostic about where in the world emissions reductions are made, so long as they are made, we should be agnostic about where the technology to help us make those reductions comes from. Be they Korean solar panels, American car batteries or colossal German windmills , anything that encourages their use and transfer is welcome. Which is why removing government levies on their cross-border movement (which raise costs by up to 5.2% in the US, and by up to 35% in China ) should be an easy win. However, even here, domestic politics and interest groups can jam a stick in the spokes.

At the international level, a deal was being negotiated on the fringes of the UN Climate Conference in Bali in December 2007. Led by the Bush administration and with the backing of the EU, it proposed to eliminate such tariffs. It ran aground on the objections of Brazil and India, with Brazil’s complaints focusing on its omission of ethanol as a carbon-cutting technology. Brazil obviously has a great deal of interest in being able to reach new markets with one of its biggest growth sectors. But in one of those target markets – the US – the ethanol sector is already tied up in political favors and long-standing subsidies.

President Obama has lectured extensively on the advantages for job creation of a ‘green revolution’. Specifically, he has spoken of the creation of American green-collar jobs. And here we run into a problem. With the American public still reticent to support carbon-reduction measures for their own sake, the only route to winning the political argument has been to offer other benefits. In many cases he’ll be right – that American ideas and workmanship will lead the market. But in other cases, exposed to global competition, Americans might lose out. Ethanol, regardless of whether or not it is good technology, is one such area where open markets instill fear in the agricultural lobby. Does the White House (or for that matter the Planalto) have the will or the public backing to accomplish even a basic step like this? Because the steps involved in addressing the second trade-climate problem will be much more challenging.

One major fear for countries considering carbon constraints is that heavy industries will ‘leak’ overseas – failing to reduce net carbon emissions (and possibly even increasing them if the new producers’ regulatory systems are more lax), while taking jobs with them. To address this, some politicians have touted the idea of imposing a tariff at the border to bring the price of these goods to what it would/‘should’ be were the carbon generated in manufacture priced. Energy Secretary Steven Chu suggested it back in the spring, but was apparently speaking beyond his purview, since US Trade Representative Ron Kirk explained a few days later that carbon tariffs were not currently a preferred method of the administration. European leaders have also raised the issue, with French President Nicolas Sarkozy (who scarcely met a tariff he didn't like) in the vanguard . The idea was also rejected, by the European Trade Commissioner shortly thereafter.

While appealing from a strictly environmental perspective, carbon tariffs pose enormous problems. The first and most obvious is the likelihood of retaliatory tariffs leading to a trade war. Carbon tariffs have yet to be determined legal by the WTO (although evidence seems to indicate they would be permissible if they were completely non-discriminatory. How easy that benchmark would be to meet, I cannot speculate). If China, for example, began reinstating tariffs on US exports, the value to domestic industry of carbon tariffs could be limited. And, at a time of global recession, anything which serves to depress growth-generating trade is a highly risky proposition. It may also be an environmentally harmful one; after all, China is most likely to engage in carbon-reducing activity if its prosperity continues to increase – reductions in trade volumes would certainly restrict its development.

A second problem arises with the ability of carbon tariffs to impact on the intended sectors and manufacturers. The bulk of Chinese carbon intensive heavy industry produces for domestic consumption . It is not evident that carbon tariffs imposed by the developed world would have a significant effect on manufacturing cleanliness in the developing world.

For now, carbon tariffs are a problem for the future. With policymakers focusing on a worldwide deal at Copenhagen, they could well be made moot by progress in December. Of course, the economists around will have noticed there is nothing here that wouldn’t be solved by a worldwide carbon price. However, if the negotiations do not yield a deal that comprehensive, which seems doubtful, carbon tariff legislation could well make a comeback in the following year. It was a positive development that carbon tariff plans were trimmed from the Waxman-Markey Bill between the March discussion draft and the passed version from June . Those comments at that time were unnecessarily provocative in a fragile world economy and were already prompting diplomatic displeasure. But the politics of the issue, especially in the US, are such that their return has a grim inevitability to it.