This blog consists of notes toward the better understanding of our energy predicament. No easy depiction of that predicament is possible. Rather, there are a set of interlocking problems, including:
--climate change and other environmental costs of energy use and production;
--peak oil and other potential constraints on the use of natural resources;
--nuclear power, with its promises of abundance and specters of catastrophe;
--food and water crises (both of them closely linked to the availability of energy);
--financial markets that are necessary but volatile, sometimes dysfunctional; and
--grand strategy or geopolitics, where the emphasis is on the relationship of energy production to military power and realpolitik.
At the intersection where people worry and argue about these things, one finds a great deal of contention, a fascinating hodgepodge of irreconcilable nostrums and clashing empiricisms. My main purpose is to help readers better understand these fields of contention, both in their own right and in the relationship they bear to one another.
Though I set forth an argument here and there, I am impressed by how much I do not know about these things, as also by how much we cannot know. I sometimes think darkly of the blog as notes towards a book that I would be incompetent to write, alarming stuff I'm reading that I do not truly comprehend, an excursion into fields (all the natural sciences) for which my professional background is seriously wanting, but which seem to hold a vital key to the human prospect.
Take solace in one thing: the issues are sufficiently difficult that no one can pretend to expertise in all of them, or even most. That is, we all face the difficulty, in one form or another, of making judgments about things that we couldn't begin to evaluate as a true expert would. What seems, at first, a source of terror and inadequacy should also be a source of consolation, for nearly all the experts, taken out of their regular habitat, face the same difficulty themselves. And that is the nature of this energy problem: it has no one habitat. It is all over the place in its predicaments and devil's bargains.
6/1/11
Showing posts with label A. Introduction. Show all posts
Showing posts with label A. Introduction. Show all posts
November 11, 2008
Five Difficult Pieces
The five most difficult pieces of the energy puzzle are climate change, peak oil, nuclear proliferation, financial dysfunction, and grand strategy. We want to acquire an understanding of each of these in its own right, but also to be looking toward the ways they fit together.
My approach emphasizes the trade-offs and extremely difficult choices that await us in grappling with the energy problem, while seeking to find a provisional road map for sensible public policy.
Perhaps the most frightening problem is the climate change induced by global warming. That humankind faces a great threat and a great challenge in this regard is the conviction of the large majority of scientists who have studied the matter; those of us who are not experts need to take their warnings seriously and attempt to understand the contours of this problem. Any solution to the energy predicament that blithely ignores the potential impact on climate change is just hidebound. Realism on this score, as best as we can muster it, is a solemn duty.
The second piece of the puzzle is the possibility that oil production will peak in the not too distant future, beginning a decline that will forever alter our hydrocarbon-based societies. Some experts believe that "peak oil" is here now; we will try to assemble the most important pieces of evidence on either side of the debate. If the peak oil theorists are right, then revolutionary changes are in store over the next decades. An initial conclusion might be that diminishing supplies of oil (we'll never "run out" entirely) would definitely diminish the dangers from global warming, but it is also quite possible that “subprime” carbon fuels like coal or tar sands would supply the oil deficit, in which case the warming problem would be exacerbated.
The third conundrum concerns nuclear power. To those chilled by the prospect of global warming, nuclear power is a godsend. Any energy source that emits no greenhouse gases is like some sort of manna from heaven. On the other hand, more civilian nuclear power, here and abroad, might lead to the widespread proliferation of nuclear-armed states. And there are other serious drawbacks: both the construction and cleanup of nuclear plants are carbon-intensive; the operation of reactors requires huge volumes of water. A key nexus for considering the nuclear conundrum lies with the Nuclear Non-Proliferation Treaty of 1968 and its application to Iran's nuclear program--the subject of reiterated threats of force by the United States and Israel. No other nuclear thicket--not North Korea's, or India's, or even Pakistan's--raises a more immediate danger of war than the Iranian program and the bellicose response it has evoked in the United States.
The fourth problem is the relationship between energy and the financial markets, in late 2008 in a state of serious disorder. The capital markets are in the business of allocating capital, but they do not necessarily do so in a fashion that contributes to vital public goods. Complicating this question is the long time frame needed to bring energy projects to fruition; another is the role that commodity speculation has played in the energy markets, of which the experience of 2008—in which oil rose rapidly to $145 in the summer, then crashed—was a dramatic reminder. So we want to know whether the capital markets are functioning, as it were, in optimal fashion. Are they regulated wisely? Is there a way of approaching them such that businesses can make a profit and the public can secure vital goods of its own?
The fifth nexus revolves around the significance for US foreign and defense policy of dependence on foreign oil, especially the oil of the Persian Gulf, where most of the world’s reserves are concentrated. Adverse consequences for the balance of payments, excessive dependence when oil prices are low, a huge transfer of wealth when prices are high, the role of US military forces in “ensuring access,” the prospect of "resource wars"—these are all very familiar aspects of the energy predicament as it has affected, and been affected by, US policy. A fundamental aspect of the rise in oil prices over the last three years was the shift in financial power that went along with it. Russia, Saudi Arabia, Venezuela and other “petro-powers” saw their coffers swell, whereas oil consumers saw their trade deficits expand. Oil politics, then, are part of "grand strategy." While we'll attempt to understand in general terms the influence of the energy complex on geopolitics and the shifting distribution of power among the nations, a key concern is to understand the lineaments of a prudent US policy toward these hazards. I take it as a given that military solutions to either energy dependency or nuclear proliferation are seriously misguided.
These five difficult pieces constitute the core of the energy predicament as I see it. I give an exploratory overview of these inter-relationships in the second chapter ("Defining the Problem"), followed by two chapters ("Capital Markets" and "Patterns of Dependence") laying out basic facts of the energy predicament.
In Capital Markets, I want to build up a picture of how energy figures in the equity markets. We'll look at the oil, coal, natural gas, wind, solar, and nuclear industries, show a few proxies for each one them, and then examine a range of ratio charts in which we look at their price movements in relationship to one another. Ultimately, the markets are asking a very simple question: who's going to make a profit, who's going to take a loss? At any given time, it very difficult to know for sure exactly what information the market is registering--on occasion it acts very erratically, as most people these days don't need to be reminded. At the same time, these price movements are of vital significance in determining what gets built and what gets put on the shelf. They determine, as it were, our future energy infrastructure. So anybody interested in the outcome--aren't we all?--should pay attention to them.
In the next chapter, Patterns of Dependence, I compile some visual evidence laying out various "dependencies" associated with the energy complex--how much oil the US imports, natural gas pipeline networks, sea lanes of communication--things of that sort. We'll also introduce here a key metric of energy production, the energy return on energy invested.
The subsequent five chapters treat the five difficult pieces noted above: Climate Change, Peak Oil, Nuclear Quandary, Financial Dysfunction, and Grand Strategy.
That's the general prospectus. The idea behind this first iteration is not to present a completed work but to construct a good frame for further investigation, both for myself and others.
* * * *
I've retained the above statement, written in 2008, to indicate to the reader "where I'm coming from," but since that time have made a few changes in overall plan and perspective.
First, I've added a section on food and water. When I started, I was seriously worried about "peak oil." Now, I've grown anxious about "peak water." It dawned on me that the food and water problem is intimately connected with the energy problem, and all of them reflect basic resource constraints. So now, officially, there are Six Difficult Pieces. Do I hear Seven?
I've also consolidated the "capital markets" and "financial dysfunction" sections, though I've only partially done the comparative review of the various energy sectors promised in the prospectus. I will do that one of these days. In "Peak Oil," I have brought together material on resource constraints more generally, while adding a separate section dealing with the oil market as such. I've also added chapters dealing with natural gas, coal, and wind and solar, plus a few other odds and ends.
I haven't done as much on nuclear proliferation and grand strategy as originally planned, but have not changed my views on the basic questions of U.S. policy, whether toward Afghanistan, Iran, or Iraq: I favor deescalation rather than escalation, steps toward withdrawal rather than ratcheting up our commitment, deterrence rather than preventive war. In 2008, I was seriously worried about the prospect of a preventive war waged by Israeli or the United States or both against Iran, a step for which there seemed a lot of momentum. Both Israel and Cheney wanted it; only Bush's veto of the idea prevented it from happening (an attitude from W. that I did not expect and for which I am genuinely grateful).
I remain keen on taxes on energy consumption, a vital step to limit dependence, check harm to the environment, and raise needed revenue (while allowing the U.S. government rather than foreign oil producers to capture more of the the "rent" from this resource). I've been convinced of the need for such taxes for over 30 years, soon to be 40, and at this point am immune to all counter-arguments. We ought to have had large taxes on gasoline consumption since the oil crisis first reared its head in the 1970s, as Europe and Japan have done. That this question remains unthinkable in American politics is a sad commentary on our "democratic distemper" and our "incoherent empire."As it is, America's transportation infrastructure, built on the basis of cheap oil, makes the country extremely vulnerable in the event of an era of expensive oil.
On some other rather big questions, however, my convictions are unstable. I keep changing my mind, or rather can't make up my mind. The "climate skeptics," I believe, are not without some decent arguments. "Peak oil" might not seriously kick in for some time. While still being basically persuaded of the "climate change" and "peak oil" cases, I admit to various doubts, and know enough to know that I can't really resolve them to my satisfaction but must instead simply weigh the probabilities.
Paul Roberts' book on The End of Oil had a big effect on me when I first read it in 2005 or so; he looked on gas as the great and necessary "bridge fuel" to the future. Since that time, natural gas has boomed and busted. If you believe the gas companies, who say their reserves have doubled and are good for another 100 years, the attractiveness of natural gas has been greatly enhanced in the last few years. There are, however, unanswered questions regarding the long term status of reserves, the safety of "fracking" to water supplies, and the contribution of the entire natural gas production cycle to "greenhouse gas" emissions.
Wind power, which seemed to me an unambiguously good thing in 2008, looks much more dubious to me now. My expectations for solar power, primarily due to the hits it has taken in the capital markets, are also considerably diminished. I go back and forth on the possibilities, opportunities, and dangers of nuclear power.
9/25/11
My approach emphasizes the trade-offs and extremely difficult choices that await us in grappling with the energy problem, while seeking to find a provisional road map for sensible public policy.
Perhaps the most frightening problem is the climate change induced by global warming. That humankind faces a great threat and a great challenge in this regard is the conviction of the large majority of scientists who have studied the matter; those of us who are not experts need to take their warnings seriously and attempt to understand the contours of this problem. Any solution to the energy predicament that blithely ignores the potential impact on climate change is just hidebound. Realism on this score, as best as we can muster it, is a solemn duty.
The second piece of the puzzle is the possibility that oil production will peak in the not too distant future, beginning a decline that will forever alter our hydrocarbon-based societies. Some experts believe that "peak oil" is here now; we will try to assemble the most important pieces of evidence on either side of the debate. If the peak oil theorists are right, then revolutionary changes are in store over the next decades. An initial conclusion might be that diminishing supplies of oil (we'll never "run out" entirely) would definitely diminish the dangers from global warming, but it is also quite possible that “subprime” carbon fuels like coal or tar sands would supply the oil deficit, in which case the warming problem would be exacerbated.
The third conundrum concerns nuclear power. To those chilled by the prospect of global warming, nuclear power is a godsend. Any energy source that emits no greenhouse gases is like some sort of manna from heaven. On the other hand, more civilian nuclear power, here and abroad, might lead to the widespread proliferation of nuclear-armed states. And there are other serious drawbacks: both the construction and cleanup of nuclear plants are carbon-intensive; the operation of reactors requires huge volumes of water. A key nexus for considering the nuclear conundrum lies with the Nuclear Non-Proliferation Treaty of 1968 and its application to Iran's nuclear program--the subject of reiterated threats of force by the United States and Israel. No other nuclear thicket--not North Korea's, or India's, or even Pakistan's--raises a more immediate danger of war than the Iranian program and the bellicose response it has evoked in the United States.
The fourth problem is the relationship between energy and the financial markets, in late 2008 in a state of serious disorder. The capital markets are in the business of allocating capital, but they do not necessarily do so in a fashion that contributes to vital public goods. Complicating this question is the long time frame needed to bring energy projects to fruition; another is the role that commodity speculation has played in the energy markets, of which the experience of 2008—in which oil rose rapidly to $145 in the summer, then crashed—was a dramatic reminder. So we want to know whether the capital markets are functioning, as it were, in optimal fashion. Are they regulated wisely? Is there a way of approaching them such that businesses can make a profit and the public can secure vital goods of its own?
The fifth nexus revolves around the significance for US foreign and defense policy of dependence on foreign oil, especially the oil of the Persian Gulf, where most of the world’s reserves are concentrated. Adverse consequences for the balance of payments, excessive dependence when oil prices are low, a huge transfer of wealth when prices are high, the role of US military forces in “ensuring access,” the prospect of "resource wars"—these are all very familiar aspects of the energy predicament as it has affected, and been affected by, US policy. A fundamental aspect of the rise in oil prices over the last three years was the shift in financial power that went along with it. Russia, Saudi Arabia, Venezuela and other “petro-powers” saw their coffers swell, whereas oil consumers saw their trade deficits expand. Oil politics, then, are part of "grand strategy." While we'll attempt to understand in general terms the influence of the energy complex on geopolitics and the shifting distribution of power among the nations, a key concern is to understand the lineaments of a prudent US policy toward these hazards. I take it as a given that military solutions to either energy dependency or nuclear proliferation are seriously misguided.
These five difficult pieces constitute the core of the energy predicament as I see it. I give an exploratory overview of these inter-relationships in the second chapter ("Defining the Problem"), followed by two chapters ("Capital Markets" and "Patterns of Dependence") laying out basic facts of the energy predicament.
In Capital Markets, I want to build up a picture of how energy figures in the equity markets. We'll look at the oil, coal, natural gas, wind, solar, and nuclear industries, show a few proxies for each one them, and then examine a range of ratio charts in which we look at their price movements in relationship to one another. Ultimately, the markets are asking a very simple question: who's going to make a profit, who's going to take a loss? At any given time, it very difficult to know for sure exactly what information the market is registering--on occasion it acts very erratically, as most people these days don't need to be reminded. At the same time, these price movements are of vital significance in determining what gets built and what gets put on the shelf. They determine, as it were, our future energy infrastructure. So anybody interested in the outcome--aren't we all?--should pay attention to them.
In the next chapter, Patterns of Dependence, I compile some visual evidence laying out various "dependencies" associated with the energy complex--how much oil the US imports, natural gas pipeline networks, sea lanes of communication--things of that sort. We'll also introduce here a key metric of energy production, the energy return on energy invested.
The subsequent five chapters treat the five difficult pieces noted above: Climate Change, Peak Oil, Nuclear Quandary, Financial Dysfunction, and Grand Strategy.
That's the general prospectus. The idea behind this first iteration is not to present a completed work but to construct a good frame for further investigation, both for myself and others.
* * * *
I've retained the above statement, written in 2008, to indicate to the reader "where I'm coming from," but since that time have made a few changes in overall plan and perspective.
First, I've added a section on food and water. When I started, I was seriously worried about "peak oil." Now, I've grown anxious about "peak water." It dawned on me that the food and water problem is intimately connected with the energy problem, and all of them reflect basic resource constraints. So now, officially, there are Six Difficult Pieces. Do I hear Seven?
I've also consolidated the "capital markets" and "financial dysfunction" sections, though I've only partially done the comparative review of the various energy sectors promised in the prospectus. I will do that one of these days. In "Peak Oil," I have brought together material on resource constraints more generally, while adding a separate section dealing with the oil market as such. I've also added chapters dealing with natural gas, coal, and wind and solar, plus a few other odds and ends.
I haven't done as much on nuclear proliferation and grand strategy as originally planned, but have not changed my views on the basic questions of U.S. policy, whether toward Afghanistan, Iran, or Iraq: I favor deescalation rather than escalation, steps toward withdrawal rather than ratcheting up our commitment, deterrence rather than preventive war. In 2008, I was seriously worried about the prospect of a preventive war waged by Israeli or the United States or both against Iran, a step for which there seemed a lot of momentum. Both Israel and Cheney wanted it; only Bush's veto of the idea prevented it from happening (an attitude from W. that I did not expect and for which I am genuinely grateful).
I remain keen on taxes on energy consumption, a vital step to limit dependence, check harm to the environment, and raise needed revenue (while allowing the U.S. government rather than foreign oil producers to capture more of the the "rent" from this resource). I've been convinced of the need for such taxes for over 30 years, soon to be 40, and at this point am immune to all counter-arguments. We ought to have had large taxes on gasoline consumption since the oil crisis first reared its head in the 1970s, as Europe and Japan have done. That this question remains unthinkable in American politics is a sad commentary on our "democratic distemper" and our "incoherent empire."As it is, America's transportation infrastructure, built on the basis of cheap oil, makes the country extremely vulnerable in the event of an era of expensive oil.
On some other rather big questions, however, my convictions are unstable. I keep changing my mind, or rather can't make up my mind. The "climate skeptics," I believe, are not without some decent arguments. "Peak oil" might not seriously kick in for some time. While still being basically persuaded of the "climate change" and "peak oil" cases, I admit to various doubts, and know enough to know that I can't really resolve them to my satisfaction but must instead simply weigh the probabilities.
Paul Roberts' book on The End of Oil had a big effect on me when I first read it in 2005 or so; he looked on gas as the great and necessary "bridge fuel" to the future. Since that time, natural gas has boomed and busted. If you believe the gas companies, who say their reserves have doubled and are good for another 100 years, the attractiveness of natural gas has been greatly enhanced in the last few years. There are, however, unanswered questions regarding the long term status of reserves, the safety of "fracking" to water supplies, and the contribution of the entire natural gas production cycle to "greenhouse gas" emissions.
Wind power, which seemed to me an unambiguously good thing in 2008, looks much more dubious to me now. My expectations for solar power, primarily due to the hits it has taken in the capital markets, are also considerably diminished. I go back and forth on the possibilities, opportunities, and dangers of nuclear power.
In 2008, I took the danger of global warming as the overriding “environmental” problem raised by energy usage, but I am much more impressed today by the sheer diversity of environmental threats—the effect of removing mountaintops for coal on water supplies, for instance; or the susceptibility of the energy infrastructure to “accidents,” of which we’ve had an abundance the past few years.
I see more clearly now the adverse environmental consequences associated with all forms of energy production; I am also much more aware of the profound tension in environmentalism between climate change and more immediate threats to the physical environment. Which is the more important God to serve? That question did not really present itself to me in 2008.
The tensions within environmentalism are especially notable in the current debate over wind and solar power. Though there is something to be said for both forms of energy, they are not environmentally benign. Wind may have fiendish effects on our feathered friends and itself depends critically on rare earth minerals; solar may imperil wilderness and landscape. China, in any case, has developed something of a lock on both industries.
I was hostile to corn ethanol when I began in 2008, but don’t think I quite saw the sheer lunacy of depleting precious aquifers to grow corn for ethanol, as was official U.S. policy then and remains so now.
I see more clearly now the adverse environmental consequences associated with all forms of energy production; I am also much more aware of the profound tension in environmentalism between climate change and more immediate threats to the physical environment. Which is the more important God to serve? That question did not really present itself to me in 2008.
The tensions within environmentalism are especially notable in the current debate over wind and solar power. Though there is something to be said for both forms of energy, they are not environmentally benign. Wind may have fiendish effects on our feathered friends and itself depends critically on rare earth minerals; solar may imperil wilderness and landscape. China, in any case, has developed something of a lock on both industries.
I was hostile to corn ethanol when I began in 2008, but don’t think I quite saw the sheer lunacy of depleting precious aquifers to grow corn for ethanol, as was official U.S. policy then and remains so now.
I like to think that an inability to make up one’s mind, or a willingness to change it, is a product of honest skepticism rather than intellectual flaccidity. But perhaps not! Despite these shifts in perspective, my basic and consistent purpose has not been to propagate a dogma but to gather evidence and to pose a set of questions.
9/25/11
My General Perspective
One conviction that runs throughout this work should be stated at the outset. Though I consider myself friendly to free markets and "market solutions," it is very evident that the mantra--let the market decide—is an profoundly inadequate basis for resolving the energy predicament.
Energy policy is closely tied to costs, whether in the form of hidden subsidies or external costs (like dirty air) for which the market pricing is non-existent.
One important subsidy for oil are the US military forces that hover in and around the Persian Gulf. Those forces are in some sense a cost of extracting the oil from the Persian Gulf, yet they not registered in the market price of oil. In that sense, the price of oil is heavily subsidized by the US government, a benefit accorded not only to American consumers but all consumers of oil (as there is a world price for the stuff). Other things being equal, the oil price would presumably be higher if those military forces were not “standing guard.” Because we pay the cost, it does not necessarily follow that we reap the benefit we intend, but in principle those military costs should be added to the overall public cost of depending on Persian Gulf oil.
Carbon emissions are another cost of energy usage that is not registered in the market price. They are an instance of what the economists call “externalities.” They are real costs, yet the market by itself does not incorporate the real costs into the market prices.
Both examples—the military cost of extracting oil from the Persian Gulf, the environmental costs of carbon emissions—suggest the incoherence of the mantra: let the market decide. The public must decide; that is, it must create a coherent framework of policy that takes account of these various subsidies and costs.
My general perspective is reflected in these considerations. We need an energy policy
--that reflects the probable cost of carbon and other toxic emissions, looking toward the establishment of a tax and regulatory framework that favors the least emitting as against the most emitting;
--that anticipates, as accurately as we can, the cost and availability of energy sources in the future and prepares for potential interruptions in energy supply;
--that treats respectfully the rights and interests of developing nations to various forms of energy;
--that helps the capital markets look to the long term and ensures that markets function, like an invisible hand, for the public benefit;
--that registers the true cost of extracting oil from dangerous regions, of which the Persian Gulf is the most notable, and looks with grave skepticism on military solutions to our energy predicament;
--and that seeks cooperative solutions with other nations to address global warming, energy security, and other common problems.
Energy policy is closely tied to costs, whether in the form of hidden subsidies or external costs (like dirty air) for which the market pricing is non-existent.
One important subsidy for oil are the US military forces that hover in and around the Persian Gulf. Those forces are in some sense a cost of extracting the oil from the Persian Gulf, yet they not registered in the market price of oil. In that sense, the price of oil is heavily subsidized by the US government, a benefit accorded not only to American consumers but all consumers of oil (as there is a world price for the stuff). Other things being equal, the oil price would presumably be higher if those military forces were not “standing guard.” Because we pay the cost, it does not necessarily follow that we reap the benefit we intend, but in principle those military costs should be added to the overall public cost of depending on Persian Gulf oil.
Carbon emissions are another cost of energy usage that is not registered in the market price. They are an instance of what the economists call “externalities.” They are real costs, yet the market by itself does not incorporate the real costs into the market prices.
Both examples—the military cost of extracting oil from the Persian Gulf, the environmental costs of carbon emissions—suggest the incoherence of the mantra: let the market decide. The public must decide; that is, it must create a coherent framework of policy that takes account of these various subsidies and costs.
My general perspective is reflected in these considerations. We need an energy policy
--that reflects the probable cost of carbon and other toxic emissions, looking toward the establishment of a tax and regulatory framework that favors the least emitting as against the most emitting;
--that anticipates, as accurately as we can, the cost and availability of energy sources in the future and prepares for potential interruptions in energy supply;
--that treats respectfully the rights and interests of developing nations to various forms of energy;
--that helps the capital markets look to the long term and ensures that markets function, like an invisible hand, for the public benefit;
--that registers the true cost of extracting oil from dangerous regions, of which the Persian Gulf is the most notable, and looks with grave skepticism on military solutions to our energy predicament;
--and that seeks cooperative solutions with other nations to address global warming, energy security, and other common problems.
A rational approach to energy policy would assess alternatives with appropriate foresight regarding costs and benefits in all their various dimensions. That, of course, is easier said than done. In fact, the energy business reflects lots of grubby realities; it can make an excellent case study in government of the few, by the few, and for the few.
Our inherited energy infrastructure, too, is a case study in path dependency, or the idea that where you are depends on where you start. It is exceedingly difficult to change. That said, we must in principle hope that it is amenable to change.
Energy is both indispensable to human development and threatening to the human and natural environment, another of those things that we can’t live with and can’t live without. Our objectives should be to extend its advantages and limit its disadvantages, even while acknowledging that finding the right balance is an extremely difficult task.
We need both realism and idealism in addressing the energy predicament. Realism is difficult because the facts are often very uncertain; idealism is difficult because the values at stake are sometimes incommensurable. Rightly understood, however, I think these contrasting tendencies toward realism and idealism depend on and need one another.
5/19/11