If Galileo could see our climate change debate today, he would undoubtedly roll his eyes and ask why nothing has changed over the centuries. Galileo was an early practitioner of science – a very simple way of gaining knowledge about the natural world. We start with a falsifiable hypothesis and test it against empirical evidence.
For those of us who are not scientists, here’s a simple definition of scientific knowledge. Drop a golf ball from a height of 1 meter at a specified location and under specified conditions of air pressure, temperature, wind, humidity and rotation. How long will it take to hit the floor? The answer is about 0.45 seconds. How do we “know” this? Is it because we have polled the scientific community and found that most scientists agree? Is it because a preponderance of peer-reviewed articles in the scientific press support this answer? Neither of the above. We “know” how long the golf ball will take to hit the floor because we have clear empirical evidence derived from dropping the golf ball and timing its fall. You don’t need to rely on anyone else’s opinion. You can try it for yourself.
Another way of looking at this problem is that science is the ability to predict. If your hypothesis cannot make predictions, it has no meaning. For example, the hypothesis “When dropped, the golf ball will move as God directs it” may be true but has no predictive value, cannot be tested empirically and is therefore not a scientific question. Galileo tried to apply the scientific method to some of the most interesting questions of his time. For example, does the Sun revolve around the Earth or vice-versa? The Church, which found the scientific approach threatening, insisted that biblical authority was all that mattered. Since all ecclesiastic scholars agreed that the Sun revolves around the Earth, the question was settled. QED.
Climate change is an exceedingly complex issue. Everyone is aware that the Earth’s climate changes over time. Nobody that I know questions that fact. The issue is whether we understand why and how climate changes. Pictures of polar bears and retreating glaciers are meaningless, as is the constant barrage of stories about droughts, severe weather, animal migrations, Arctic ice melt and all the other “warning signs” of impending catastrophe.
The Earth is habitable only because the atmosphere traps heat through the “greenhouse effect.” Physics does tell us that atmospheric carbon dioxide absorbs certain wavelengths of radiation, thereby enhancing the greenhouse effect. Water vapor, however, mainly in the form of clouds, accounts for 95% of the greenhouse effect, and carbon dioxide, by itself, cannot warm the atmosphere very much. The real question, in fact the only question, is how do increasing atmospheric concentrations of CO2 affect the entire climate system.
The UN’s Intergovernmental Panel on Climate Change (IPCC) has all the hallmarks of the medieval approach of biblical authority. Since most of the hundreds of scientists involved in the IPCC work agree that human-induced climate change is a serious threat, the science is therefore settled. Not true. The climate computer models used by the IPCC contain a small amount of science buried under massive assumptions. The critical assumption is that the climate system has powerful positive feedback loops. In other words, when the system is disturbed, for example by man-made carbon dioxide emissions, other elements of the system amplify the effect, causing the greenhouse effect to accelerate and reach a “tipping point.”
This assumption might be true, but then again it might not. After all, many natural systems contain negative feedback loops which counteract disturbances. Bacterial infections in the human body, for example, disturb our biological equilibrium, but provoke the production of anti-bodies which counteract the bacteria, thus restoring equilibrium. If we did not have these negative feedback loops, we would all quickly die.
We have before us a straightforward hypothesis from the IPCC: the feedback loops in the climate system are positive. We can argue about this all day long, but science tells us exactly what to do: examine the empirical evidence. If the hypothesis is correct, then radiation emitted from the top of the Earth’s atmosphere should decrease as CO2 emissions increase. That would mean that the Earth is retaining more energy which will heat the atmosphere.
Professor Richard Lindzen, along with his colleague Prof. Yong-Sang Choi, both respected MIT climatologists, decided to review the actual data from NASA’s Earth Radiation Budget Experiment (ERBE) to see what the evidence shows. The ERBE program involved the launch of a special satellite plus the installation of instruments on two other satellites launched by the National Oceanographic and Atmospheric Administration (NOAA) in 1984 and 1986. This program now offers us real data series on what radiation the Earth received and what radiation it sent into space.
Lindzen and Choi’s analysis, published in August of 2009 by the journal “Geophysical Research Letters” indicates that, as sea surface temperatures increase, the amount of radiation the Earth emits into space goes up, not down. In other words, the climate feedback processes are negative, not positive as assumed by every single one of the models used by the IPCC. If true, then the Earth may be adjusting to increased CO2 concentrations in the atmosphere. Lindzen and Choi’s article is not definitive, but it casts doubt on the most powerful assumption of the IPCC work.
A good scientific debate should follow, with scientists cross-checking Lindzen and Choi’s data and looking for other empirical ways to test the feedback hypothesis. Some of that is indeed happening, but we also get what we’ve come to expect in the climate change debate – personal attacks on Lindzen. The website Climate Progress.org, for example, calls Lindzen “MIT’s Uber-hypocritical anti-scientific scientist” and refers to his writings as “disinformation.” Greenpeace calls Lindzen a “climate criminal” and accuses him of taking work direction from ExxonMobil.
The “climate community” has rejected science in favor of the approach favored by the medieval Catholic Church. Since the IPCC’s members agree on climate change, the issue is settled. No room for dissent and certainly no need for empirical testing. After all, argue many of the IPCC members, what’s important is generating public support for carbon reduction policies, not getting the science right.
This view is dangerous and troubling. The basis of democracy is respect for the views of the electorate. When scientists, even with the best of intentions, abandon science to advocate for climate change policies, the public debate is distorted. The effort to drive dissenting views out of the discussion is even worse. After a while, the drive to score debating points overwhelms our ability to see what is true. Americans are quite capable of making sensible political decisions through our electoral process if given the right information, even if that information is ambiguous.
The “climate community” needs to decide whether they want to discover the truth or just win the argument.

The Senate version of the infamous “cap and trade” bill has now emerged, co-sponsored by John Kerry (D-MA) and Barbara Boxer (D-CA). Congress is apparently incapable of learning from the past.
The Kerry-Boxer Bill (no, it’s not an invoice for the Senator’s underwear) is designed to stop the seas from rising, save the polar bears, prevent the spread of malaria and other dread diseases – all at no cost to the American consumer. How does it do this?
The Bill sets targets for US emissions of greenhouse gases compared to our emissions in 2005. As is always the case with targets of this type, the base year is higher than current emissions. CO2 emissions in 2005 were 6 billion metric tons compared to the DOE’s estimate of 5.7 billion metric tons for 2009. The required reductions are 3% by 2012, 20% by 2020, 42% by 2030 and 75% by 2050. These “caps” will define allowable emissions credits, which will be allocated through some mechanism, either auction or allocation. Companies will have to obtain sufficient credits to cover their emissions either by using their allocation or by purchasing credits from other companies who have credits in excess of their emissions.
The bill isn’t quite this simple, of course. It’s full of other provisions mandating efficiency improvements, spreading money around to favored groups (like the coal, renewables and biofuels industries), requiring transportation planning, providing adjustment assistance to displaced workers and lots of other goodies. It’s a regular grab-bag of constituent giveaways.
The bill also has a whole list of escape hatches. For example, the price of carbon emission credits has a floor and a ceiling. In other words, if it proves too expensive to cut carbon, we don’t have to do it. Companies can also get credits for international carbon offsets, which have proven to be a wonderful loophole in the Kyoto Protocol. Under this approach, companies can get credit for paying other countries not to do things they were not going to do anyway.
This bill sounds an awful lot like the infamous Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act of 1985, sponsored by Phil Gramm (R-TX), Warren Rudman (R-NH) and Ernest Hollings (D-SC), which was intended to eliminate government deficits by establishing deficit targets, which the Congress and the President were legally obligated to meet. The first version of this law was declared unconstitutional, so Congress enacted a revised version in 1987. As you may have noticed from our current 13-figure deficits, this law has not been one of the more successful legislative efforts of our time.
The reason for its failure is very simple: no Congress can pass legislation committing future Congresses. Gramm-Rudman failed because every year Congress and the President would essentially change the law by moving certain expenses “off budget” (one of the more ridiculous concepts ever to come out of Washington), exempting certain types of expenses, such as interest and entitlement payments, or simply changing the targets and the dates by which they must be met. In short, the law had no impact at all.
Kerry-Boxer is the same. For the next several years, the “caps” are meaningless – less than the accuracy of our carbon measurements. Furthermore, it takes a couple of years to gather and process the data in order to determine whether the target has actually been met. That gives them 5 years or so in which nothing of any real substance needs to happen.
By 2020, the caps in Kerry-Boxer will hypothetically start to bite, raising consumer energy costs and potentially constraining US economic growth. One of a number of things could happen. First, we might actually meet the targets. Doubtful, but possible, particularly if the economy remains chronically weak. Second, Congress could change the targets or push out the timeline. Third, the extensive escape clauses in the Bill might eliminate the need to do anything substantive. Finally, the whole climate change issue might just go away, and Congress could repeal the whole mess.
John Kerry is 66 years old and Barbara Boxer 69. Kerry has one more Senate election before 2020, and Boxer has two. 2020 is a lifetime away in American politics. In the meantime, both Senators can take credit for saving the world.
Gramm-Rudman and Kerry-Boxer are example of “aspirational” policies. I first noticed this approach when President Jimmy Carter gave one of his many scolding speeches to the American people on energy. His speech of July 15, 1979 stated that the US would never import more oil than we did in 1977. Never! What mechanism did the President have in mind to ensure that this limit would not be exceeded? None. He simply hoped it wouldn’t happen before the 1980 election. After that, who cares?
Nobody should like Kerry-Boxer, even if you are a supporter of the catastrophic climate change hypothesis. Its impact on carbon emissions will be negligible. It may, however, impose significant costs on the economy, distort investment decisions, increase the national debt and cause a lobbying frenzy in Washington, as special interests seek favors or exemptions from the Bill’s requirements. Sounds like a great deal for Washington. For the rest of us – not so much.

The health care debate tells us a lot about the Obama Administration’s overall views on macroeconomics. As we look forward (some of us with dread) to the upcoming climate change discussions in Copenhagen in December, we ought to clarify some basic misconceptions.
Much of the health care debate has centered on the concept of “deficit neutral.” Health care plans that are deficit-neutral are good, but plans that add to the deficit are bad. The President promises not to sign any bill that adds one dime to the deficit. This is a false distinction. Government can pay for its spending in one of three ways: taxation, borrowing or inflation. The critical issue for our economic future is the size of government. The method government chooses to pay for itself is a strictly second-order effect.
Let’s suppose that the government needs an extra trillion dollars, not much by today’s standards but just for discussion. If the government decides to borrow the money, as it’s doing now, that money will be diverted from capital markets where it could be employed doing other productive things. Furthermore, future government spending would have to increase to pay interest on the debt. If government inflates the currency to pay for new spending (or to diminish the value of the debt it owes), the cost will be borne by everyone through inefficient allocation of resources but especially by anyone who owns fixed-income investments. If government increases taxes by a trillion dollars, these funds are no longer available to the private sector to buy things or to invest. Unless you believe that the government is a more efficient spender or investor than private individuals, the net result of higher government spending will be lower economic growth – regardless of how the government chooses to finance the additional spending.
According to the Congressional Budget Office, at the height of World War II, when the country was fighting for survival, the federal government spent about 44% of GDP. By 1950, federal government spending had dropped back to 15.6% of gross domestic product. The share had risen to 19.3% by 1970 and 21.8% by 1990. For a while, we enjoyed the “peace dividend” with the federal government falling back to 18.4% by 2000. Since that time, thanks to a determined bipartisan effort, the government has gradually crept back over 20%. For 2009, following the TARP program, the Stimulus Bill and other federal actions, we are on track for federal expenses to exceed 26% of GDP. Even with an optimistic economic growth forecast of 2.5-3%, the federal government would still account for over 23% of GDP by 2019.
This assessment doesn’t include state and local governments, which are by and large unable to run deficits and which, altogether, have increased from 5% of GDP in the late 1940s to about 10% today. We have also not yet encountered Obamacare, the value-added tax (VAT) now being bandied about Washington and the upcoming explosion of existing entitlements in Social Security and Medicare.
Overall, we may be headed very soon for governments at all levels in the US to take 40% or more from the economy. That’s moving us clearly in the direction of Europe, where government takes 45% of GDP in the UK, 52% in France and around 55% in the Scandinavian countries.
Conservatives (and even some Republicans) seem to be falling into a political trap. If they continue to criticize government spending proposals, such as health care, based on their potential to add to the deficit, they’re making the wrong argument. Deficits can easily be closed by raising taxes. The proper question to ask is how much bigger is government going to get?
Watch for this issue in the climate change debate coming up in Congress. Supporters of cap-and-trade will argue that selling carbon emission permits will be a source of government revenue that helps to reduce the deficit. True, but meaningless. Selling carbon emission permits will be a way of making government larger. If that’s what you want, fine, but be careful what you wish for.

My old friend the New York Times has another incoherent editorial in today’s paper, lauding the Administration’s decision to reduce domestic oil supplies. The Times commends Interior Secretary Ken Salazar for his decision to freeze oil-and-gas development on 60 drilling sites in Utah.
The Times is firing off all its rhetorical big guns. The Bush Administration was in a “headlong rush” to disturb “fragile lands”. The Bush Administration policy was “drill-now, drill-everywhere.” In the Arctic, “ecological damage to some of the world’s richest fisheries could be staggering.”
The Obama Administration’s policy, on the other hand, is “sensible”. The Times has consulted its favorite source on policy questions, a group called “Most Scientists.” According to the Times, this key group is urging caution. This from a newspaper that supports expensive cap-and-trade legislation based on the mushy “science” of climate change.
Most people agree that reducing US dependence on imported oil would be a good thing. The American Left, however, including the Democratic Party and the environmental movement, wants to achieve this end only through the most expensive policies imaginable: wildly uneconomic renewable energy, high-cost public transportation, high taxes and unattainable fuel standards. Most of these policy proposals would generate tiny reductions in oil use in return for very large investments.
There’s an easier way. The US probably lacks the hydrocarbon resource base to become independent, but we could undoubtedly produce a lot more oil and gas if the federal government would simply lease available land for development. The environmental objection to increased oil and gas production is weak. First of all, modern technology, even for Arctic oil development, is highly advanced, involving a minimal footprint and little if any lasting damage. Directional drilling, for example, allows wells to be drilled from a central location to access oil reservoirs miles away and miles underground. It is true, as the Times points out that oil spills are a threat. The oil we don’t produce here in the US, however, has to be imported by ship and unloaded at an American port. The chances for oil spills are no greater for domestically produced oil than for the imported oil it would replace.
The biggest advantage of increased domestic production is economic. Not a single wind farm would be built in the US without a heavy taxpayer subsidy. Wind power is intermittent and requires fossil fuel back-up to generate power when the wind is unavailable. We produce only a small amount of renewable power because its burden on the economy is so high. Leasing additional acreage for exploration is automatically cost effective. Why? Because companies won’t bid on it unless they can make money, which in turn means they can produce and sell oil at the market price. If the oil is too expensive to produce, companies won’t do it. Even if they make a mistake, they’re spending their shareholders’ money, which is voluntarily given, and not taxpayers’ money, which is coerced.
Weak dollar got you worried? How about producing more oil and home and buying less overseas?
How about the deficit? Leasing federal lands generates money for the federal and state governments through lease bonuses and royalties without any increase in taxes or energy costs.
One of the silliest imaginable outcomes is occurring in waters offshore Cuba, where oil development is underway by the Spanish oil giant Repsol in partnership with the Cuban state oil company. The Florida coast will be under the threat of oil spills from projects over which we have no regulatory control and which provide not one penny of benefit to the United States. Why in the world are we keeping US companies from exploring the waters off Florida? Don’t people in Florida drive?
It’s hard to see why the Times would consider importing oil rather than producing it domestically as “sensible.” Maybe the Times has concluded that any policy that generates profits for corporations, particularly the hated oil companies, is unacceptable. (The Times clearly detests profits, and doesn’t earn any itself.)
Sometimes governments have to make hard decisions. Our government doesn’t even seem to be able to make easy ones. Our best hope for the future is a wave of popular revulsion against a range of policies that the Times regards as “sensible” and a return to government approaches that actually work. Stay tuned.

[Apologies to my loyal readers for my absence the last couple of weeks. I have been down with the flu, but am gradually returning to the land of the living.]
Our energy debate over the last 35 years or so has focused largely on the threat of energy dependence to our national security. Recently, advocates of government climate change policy have picked up on the national security theme, arguing that climate change will change the world in ways that we won’t like. Even some senior military officers echo this concern. As I’ve discussed in this blog on many occasions, these arguments are rather weak. More importantly, we’re taking our eye off the real basis of our national security – a strong and technologically dynamic economy.
The United States has spent the last 200 years in a truly enviable position. We have been rich enough to confront those who have wished us ill. Our wars have been wars of choice in which our victory was never really in doubt, provided that we truly mobilized the resources that were available to us.
In the early days of our Republic, the situation was much different. Take, for example, the War of 1812, which was essentially the US engagement in the Napoleonic Wars which had raged in Europe for several years. According to OECD historical data, the US was dealing with two major European powers – Britain and France – each of which had economies and populations 2-3 times the size of ours. Even Germany and Russia were larger than we were in terms of population and GDP. Wars fought under these conditions are existential affairs – losing could mean the end of the country. Fortunately, the US was a minor participant in that war and the fighting in the western hemisphere was a sideshow.
During the 19th century, the oceans protected us from foreign threats while our economy grew rapidly. By 1900, the US population and GDP were substantially larger than Britain, France or Germany. Russia had more people, but was poor and in disarray. In 1898, the US took on Spain, a country with one-quarter of our population and about 10% of our GDP. Not much of a contest.
The US tried hard, but ultimately in vain to stay out of World War I. Germany, Austria-Hungary and their allies decided to wage war against Britain, France, Russia and Italy – countries with more than twice their population and 2½ times their GDP. When the US entered the war in 1917, the US economy alone was about twice the size of the combined economies of the Central Powers. Americans were understandably concerned about the potential loss of life and treasure, but there was never a real question about who would win.
The situation was similar in 1939. The GDP of the US was larger than the combined economies of Germany, Italy, Japan and all the other Axis powers combined. The Allies in total had nearly 3 times the GDP of the Axis countries and four times their population.
In 1980, at the height of the Cold War, the US GDP was significantly larger than the combined GDPs of the Soviet Union, Eastern Europe and China. Even without our Western European and Japanese allies, the US had the resources to confront any combination of hostile powers.
Unfortunately, we’ve become complacent about this situation. We talk only about what the US should do militarily, never about what we can do. But this may not always be the case. China, a country with four times our population, is growing rapidly. Many current projections, including for example, the Energy Information Administration’s, see China’s GDP as outpacing the US over the next 20 years. This may or may not happen. The Chinese have many internal constraints to growth, including the remnants of central planning, a dysfunctional legal system and several hundred million poor people to look after. We should be very worried, however, about the prospect of a China which is richer, more populous and possibly more technologically advanced than we are. The Chinese government has global ambitions and the ability to put vast resources in the hands of the central government without worrying much about public opinion.
In the past, the US could rely on powerful allies among the democratic states. Western Europe has now given up its military power almost entirely, pinning all its hopes on us. Japan remains (for the time being) disarmed. It’s probably very much within our power to prevent the eclipsing of American power, but we have to wake up and focus on our own economy. The US economic machine is strong enough to withstand lots of sand thrown in its gears by government, but its strength is not infinite, and we may start to see some of those limits soon. The US is accumulating massive debt to be spent on programs that do nothing to expand the economy. Absurd environmental programs like the proposed “cap and trade” system would burden the US economy with substantial costs for no reason other than demonstrating our environmental credentials. We can foresee large tax increases, a resurgence of labor unions and many other anti-growth actions if we are not careful.
If we allow our economy to stagnate for reasons of “fairness” or “energy independence” or to worship at the green altar, we may very well bequeath to our children a world we have not seen for 200 years – a world in which the US lacks not only the political will but the economic resources to defend ourselves against a resurgent China. If we are not careful, our children may worry less about Chinese demands on Taiwan than about Chinese designs on Hawaii.

As those of you who follow this blog know, my favorite villain is the New York Times – a once-great newspaper that has turned itself into an arm of the Democratic Party. This week, however, the editorial staff of the Times looks downright moderate compared to one its prominent columnists – Tom Friedman, the author of numerous books, including Hot, Flat and Crowded. Mr. Friedman has lost patience with the American people whom he clearly regards as a flock of stupid sheep. Why? Because they are too stupid to agree with him and therefore do not deserve their democratic rights.

In today’s oped piece (September 9, 2009), Friedman states:

“One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century. It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power and wind power.”

“Has its drawbacks”? “Reasonably enlightened”? What in the world is he talking about? China is a country where freedom as understood by Americans doesn’t exist. This is a country where political dissidents are jailed and tortured, where the practice of religion is forbidden, where the internet and all other sources of information are controlled by the state, where nobody votes, where minorities are brutally suppressed, particularly in occupied countries like Tibet, where corruption is rampant, where the air and water are polluted and where hundreds of millions of people live in misery and poverty. Yet, Mr. Friedman regards these people are “enlightened” because they like solar panels and electric cars.

Friedman’s views are reminiscent of the “useful idiots” of the 1930s American left who viewed the construction of the Moscow subway as evidence that Stalin was the wave of the future. After three generations of misery and 50 million dead in wars, purges and the gulags, the Russians gave up on central planning. Tom Friedman, however, has not.

Let’s forget for a moment the basic issue of human freedom, which is the foundation of the United States. Let’s forget John Locke, Adam Smith, the Founding Fathers, Abraham Lincoln and the hundreds of thousands of Americans who have died to preserve what Mr. Friedman wants to so cavalierly throw away. Let’s just look at the “Potemkin Village” of Chinese energy policy.

According to the Energy Information Administration, in 2007 the US generated 4,159 billion kilowatt-hours (BkWh) of electricity. About half our electricity came from coal, 22% from natural gas, 20% from nuclear, 6% from hydropower and the remaining 2% from solar, wind and other sources. How about in the Chinese Green Paradise ruled by the Reasonably Enlightened Leaders (RELs)? In 2007, China generated about 3,000 BkWh. About 80% came from coal, 15% from hydropower, 2% from nuclear and the remaining 3% from other sources.

OK, so let’s see. China uses 80% coal, compared to our 50%, and many of the Chinese power plants are old, inefficient and lack the modern pollution control equipment required in the US. The US has about 100 nuclear power plants in operation, while China has 3. The US generates 32 BkWh from wind power compared to China’s 8, and the US generates 0.6 BkWh of solar power compared to China’s 0.1 BkWh.

How about the future? By 2020, the US will have 110 Billion watts of installed nuclear capacity, while China will have 40. By 2020, the US is projected to have 65 Billion watts of installed wind capacity, versus China’s expected 40 Billion watts. The US is projected to have about 12 Billion Watts of solar power by 2020, versus China’s plan of 2. How will China meet its future electric power needs? Coal, coal and more coal. The Chinese plan to build the equivalent of one large coal-fired power plant every week for the next 15 years.

What in the world is Mr. Friedman thinking here? Does he see Chinese electric cars supplied by massive coal-fired power plants as the green future? China would certainly like to sell us green technology, but they don’t seem to want to use it themselves. Perhaps if Mr. Friedman looked beyond the glittering lights of Shanghai to the China where most Chinese live in poverty and oppression, he might not be so quick to give up on democracy. I’m not sure the American people are ready to replace “life, liberty and the pursuit of happiness” with “Shut up and do what you’re told!”

One of the more serious problems we have in our public debate today is the debasement of language. Words are supposed to have clear meanings, but to many people, they are just political tools. Take, for example, the word “free.” According to Greenpeace’s website:
Globally, the sun provides 10,000 times the energy humanity uses – energy free to anyone who can harness it.
What exactly does this mean? The word “free” means “costing nothing”, so Greenpeace’s statement should really read, “energy free to anyone who can harness it without cost.” But then again anything that can be acquired without cost is free.
The US is experiencing a difficult economic period, characterized by excessive debt, out-of-control government spending and insufficient savings rates. We ought to reinforce, not undermine some basic concepts of economics. Here, for your consideration, are two ways to misuse the word “free.”
When we talk about costs, we usually distinguish between fixed costs – the amount you have to pay no matter how often you use the product – and variable cost – the amount you pay each time you use the product. Is it, for example, cheaper to own a car or to take taxis? Owning a car has a high fixed cost. Even if the car never leaves the garage, you have to pay for your car loan, your insurance, registration and periodic maintenance. The variable cost includes gasoline, tires and some maintenance items. According to the AAA, the cost of owning a mid-sized sedan is about 55¢ a mile, including 38¢ of fixed cost and 17¢ of variable cost. That’s a lot cheaper than a taxi, which costs $3-4 per mile.
The AAA assumes, however, that you drive your car 15,000 miles a year. If you live in Manhattan and you only drive your car 1,000 miles per year, your average cost would be $6 a mile. In that case, you’d be better off taking cabs wherever you needed to go.
The fallacy of Greenpeace’s argument is that, while the variable cost of solar power is very low, the fixed cost is very high. The average cost of residential electricity in the US is about 11½¢ per kilowatt-hour (kWh). Photovoltaic panels cost about $5 per Watt of installed capacity. If the panel operated all the time, it would produce 24 X 365 = 8,760 Watt-hours or 8.76 kWh every year. Producing $1 worth of power every year (8.76 X $0.115) for a $5 investment wouldn’t be bad, but the sun doesn’t shine all the time. On average, solar panels only produce about 1.3 kWh per year for every Watt of capacity. That’s about 15¢ of power every year on a $5 investment. That ain’t free by anyone’s definition of the word.
The other misuse of the word “free” concerns government subsidies. Every article I read (and there are many) about the constantly improving economics of solar power include the available tax credits and other government programs. One of us can always subsidize another, but the society as a whole cannot subsidize itself. When we talk about the real cost of solar power, we have to talk about what the society as a whole sees, not just what one consumer sees. When a consumer installs solar panels on his house and takes advantage of generous federal and state tax credits, he is paying part of the cost and his neighbors are paying the rest. After all, an S-class Mercedes is a cheap car, if someone else pays for it.
Most of these subsidies are explicit. If you get a $1,000 tax rebate for installing a solar panel, we can see that cost clearly. Others, however, are hidden. Take, for example, “net metering.” Under this system, which is legally mandated in some states, you are allowed to supply any excess solar power you generate from your house back into the grid. When you do this, your electricity meter essentially runs backward. You are billed for the kWh you buy minus the kWh you supply. Sounds fair, right? Actually, it’s not. Let’s suppose we have two adjacent pizza parlors: Luigi’s and Mario’s. Luigi offers Mario a “mutual support contract”. Under Luigi’s draft, if Luigi suddenly needs some extra pizzas, Mario agrees to provide them. If, on the other hand, Luigi cooks too many pizzas, Mario agrees to buy them. Fair? Of course not. Luigi would have rights but no responsibilities, while Mario would have responsibilities but no rights. “Net metering” is the same thing. You can sell electricity to the power company whenever you want, but the power company has to supply you with electricity whenever you demand it. In states where net metering is not required, surplus power from solar and wind systems, which cannot after all be promised in advance, sells for a substantial discount to power-on-demand, yet the company is required to pay you the full retail rate.
Another hidden subsidy is a Washington favorite – the renewable portfolio standard (RPS). An RPS specifies the share – generally 10-25% – of power generation that must come from renewable sources. The definition of renewable is a bit of a game, since hydroelectric power (currently about 6½% of total US electricity generation) may or may not be classified as renewable. If the law requires 10% of power generation to be from renewable sources, and the selected renewable sources cost 50% more than conventional power, then the RPS would increase everyone’s electricity bill by 5%. The idea is to spoon-feed the additional cost to people in the hope that they will tolerate it.
Much of our consumer protection legislation concerns false advertising, hidden fees, “fine print” in contracts and other deceptive practices. The antidote to deception is clarity. When people go to the store, they generally expect that the price of the things they buy will be displayed clearly so they can make a sensible decision on whether to buy the product or not. Environmental groups, however, with considerable help from the federal government. have gone out of their way to disguise and hide the costs of renewable energy, making it seem less costly than it really is. Sorry, Greenpeace, the lunch still isn’t free.

I’ve spent most of the time on this blog debunking proposed solutions to our energy problems. Today, I’m going to offer my own proposal. Not a panacea, but something very helpful. Let’s price energy properly.
A good place to start would be electricity. Despite decades-long efforts by the Democratic Party, prices for most goods and services in the US are still set by the market and vary with supply and demand. Electricity prices, however, are still heavily regulated. One characteristic of this regulation is that consumers tend to pay a single average price for electricity. For US residential customers, the price of power currently averages 11.4¢ per kilowatt-hour (kWh).
Average pricing is a problem in the power industry because electricity cannot be economically stored, but must be produced on-demand. Demand varies dramatically during the course of the day and over the course of a year. Power companies must therefore build and operate a set of power plants to meet this variability.
Nuclear, coal and hydroelectric plants are generally used for what is called base load, i.e., the demand that continues 24/7. These power plants are very expensive to build, but their fuel costs are very low (zero in the case of hydroelectric plants). Once a company invests the money in these facilities, it makes sense to run them all the time. Coal and nuclear plants produce electricity at a cost of 4-6¢ per kWh.
Natural gas plants, particularly new combined cycle plants, are much less expensive to build, but the fuel is expensive, so their total cost is 7-8¢ per kWh. Power companies use these plants to meet the growing electricity demand over the course of the day, so-called intermediate load. Finally, power companies have generating plants for peak load, those infrequent times late in the afternoon on hot summer days when air conditioning places huge demand on the generating system. Many companies use simple cycle turbines which are very inexpensive to build but require very expensive diesel fuel. Many of these plants cost over 30¢ per kWh to operate.
Charging everyone 11¢ per kWh makes no sense. Even charging a slightly lower price at night or in the winter doesn’t help very much. We would use electricity much more efficiently if we priced it according to the marginal cost of generation. In other words, if you ran your dishwasher during the middle of the night, you might pay 5¢ a kWh. If you insisted on running your dishwasher at 5:00 on a hot summer afternoon, you might pay 30¢. If it’s worth it to you, fine, but you ought to pay what it costs. We have all the computer control technology we need to manage such a system with ease and convenience for both the power company and the consumer.
Think about having a read-out on your PC that tells you how much electricity costs from minute to minute. You could program your computer to manage your household power use in any way you want. For example, if power is available at 10¢ per kWh, you could cool your house down to 70° F. If power costs 20¢ per kWh, your computer would reset the thermostat to 72°. If power cost 50¢, you could shut it off entirely. By the same token, your computer could decide (based on your preferences) when to run your appliances to keep your electric bill low.
Efficient use of electricity would bring costs down significantly, since power companies would need less machinery. Looked at another way, why build a power plant to generate electricity at 30¢ per kWh if nobody is willing to pay that much?
Simple as this approach sounds, many people on the left side of American politics simply don’t like the price mechanism, which they regard as unfair, uncontrollable and chaotic. Their view is that centralized controls can manage the production and allocation of resources better than the market can. (For more on this point, review the history of the Soviet Union.) In California, for example, there have been a number of proposals to allow power companies or government agencies to shut off your air conditioning if the load on the system becomes too great. This approach is ludicrous when there is a simple alternative that would achieve the same end (better efficiency) while allowing consumer preferences to determine how and when electricity is generated.
Prices in a market economy are carriers of information to consumers. If consumers know how much something truly costs, they can make sensible decisions about how much of the product to buy. Unfortunately, most of our existing and proposed energy policies seek to hide information from consumers so that consumers make the choices government wants. Take, for example, Renewable Portfolio Standards (RFPs) which require an electric power company to produce a certain share of its electricity from renewable sources. Solar and wind, for example, tend to be very expensive compared to other types of power generation, so nobody will opt for them if given the choice. RFPs keep that information from consumers. Subsidies do the same thing. An S-class Mercedes is a cheap car if someone else buys it for you.
The value of the price mechanism seems to have been lost in our public debate. No Democrats and very few Republicans will defend free markets these days, but prices ensure the we, not our government, make the decisions on how to spend our money.

This is the second in an endless series of futile attempts to bring some sanity to the discussion of the famous Chevy Volt. See my January 18 posting for the first article.
GM unveiled (again) its Chevy Volt plug-in hybrid scheduled to be in show rooms in 2011. GM’s press release is entitled “Chevrolet Volt Expects 230 mpg in City Driving.” The New York Times dutifully reported this event with the headline “GM Puts Volt’s Mileage in Triple Digits.” You can look in vain through either document for any acknowledgment that the 230 mpg number is meaningless, since it measures only the amount of gasoline the car consumes, not the amount of total energy the car consumes. What would happen if Volkswagen announced a diesel model with the headline “The new Volkwagen Jetta Expects Infinite Fuel Mileage”? Why not, since it uses no gasoline at all?
Let’s do this calculation properly. Assume that a new Chevy Volt will run 9,000 miles a year on electricity and 3,000 miles on gasoline and that it gets 50 mpg when the electric engine is running and uses 0.3 kilowatt-hours (kWh) of electricity in all-electric mode. The Volt would therefore use 60 gallons of gasoline and 2,700 kWh of electricity. Transmission and distribution consume about 10% of electricity produced, so the power companies would have to generate 3,000 kWh of electricity. High-tech combined-cycle power plants require about 6,800 British Thermal Units (Btus) of energy per kWh or 17.4 million Btus of natural gas to supply the annual needs of each Volt – equivalent to about 140 gallons of gasoline. Total fuel consumption for the Volt is therefore equivalent to about 200 gallons of gasoline, divided by 12,000 miles equals 60 mpg. Nice, but not triple digits and certainly not 230 mpg.
If the electricity is generated by coal, which is a much less efficient power generation fuel, the Volt would average 43 mpg.
Compare that with a Toyota Prius which uses only gasoline and gets 51 mpg with proven technology. You might get better efficiency with the Volt, but then again you might not. GM has indicated, however, that the Volt will initially cost about $40,000 while a Prius II costs only $22,000. Granted there will be a $7,500 tax credit for purchasing a Volt, but even with this credit, you couldn’t make up this difference in cost, even if the Volt used no fuel at all.
The US Environmental Protection Agency, which is supposed to spend your money to protect your environment, “does applaud GM’s commitment to designing and building the car of the future – an American-made car that will save families money, significantly reduce our dependence on foreign oil and create good-paying American jobs.” Nice work by the EPA. In fact, the Volt will do none of these things.
So let’s review the bidding. GM, which has been hemorrhaging money for years, wants to get back in the black by producing a high-tech marvel that is totally uncompetitive in terms of cost with models already on the market. Why are they doing this? Because it’s far more important to GM’s management to impress their Congressional overseers with their cool technology than it is to sell products profitably in the marketplace. In other words, GM will keep losing money, but Congress will be more inclined to keep funding the losses. Enjoy.

The Obama Administration announced today the winners of $2.4 billion in grants to develop advanced batteries for electric cars. The money is to come from the stimulus funds which have created a nice flow of your money to someone else. According to The White House, the grants will fund 48 projects in over 20 states. What could possibly be wrong with trying to develop new, more efficient energy technologies? A lot, actually.
Let’s start with the concept of technology. At the beginning of the process, we have a long list of good ideas for new ways of producing and using energy, including electric cars, fusion power, solar panels in space, biofuels from algae, tidal power and many, many more. Some of these ideas progress to the engineering stage, where we can actually build a machine that works. So far, we can’t build a fusion system that generates more energy than it consumes, but we know how to make electric cars or put solar panels in space. Building a functioning machine, however, is not enough. We need to build a commercially viable machine that can be sold on a mass scale at a competitive price and will perform at least as well as alternative products. It’s at the commercial stage, not the engineering stage, that most new energy technologies fail.
Suppose we launch into orbit a solar power station with a capacity of 2,500 kilowatts. On Earth, this system would require about 200,000 square feet of PV cells, cost about $12.5 million and produce about 5 million kilowatt-hours each year. If we could get the system above the atmosphere, it would certainly be more efficient, since the Sun’s energy would not be attenuated by air, clouds, dust and pollution. In space, a 2,500 kilowatt system would require only about 150,000 square feet and would produce almost 22 million kilowatt-hours each year, if it could be pointed at the Sun continuously. We’d need some way to get the energy back to the Earth’s surface, probably in the form of microwaves, but let’s ignore all that for the moment
Our 150,000 square feet of solar cells would cost about $10 million. Terrestrial solar PV panels currently weigh about 4 ounces per watt, but let’s say we could reduce the weight by 75% to just one ounce per watt. Our total system would weigh about 156,000 pounds.
For real efficiency, we’d need to put our solar panels in a “geosynchronous orbit,” an orbit that circles the earth exactly once each day. That way, the solar cells would remain over a single point on the earth’s surface all the time, and we could keep the system pointed at the sun and easily receive the transmitted energy.
A geosynchronous orbit is roughly 22,000 miles above the earth’s surface, and it takes a lot of energy to push anything up that high. Russia has a Zenit 3-Sl rocket which has launched payloads into geosynchronous orbits for about $9,000 per pound. Houston, we have a problem. Our payload would cost one and a half billion dollars to launch. The cost would be about $200 per watt, 40 times the cost of our Earth-bound solar station, and we’d get only 3-4 times as much electricity. Good idea, but just too expensive.
Government programs are pretty good at the engineering stage – solving complex technical problems at very high cost. That’s how we landed a man on the moon. Forty years later, however, we still have no commercially viable space travel, unless you count Virgin Galactic’s plan to offer a few minutes of suborbital flight for $200,000 a ride (no timetable yet).
We also know how to built supersonic aircraft, but 60 years after Chuck Yaeger’s historical flight in the Bell X-1, there are no supersonic aircraft in commercial service.
There is no reason whatsoever to anticipate that the Obama administration’s energy grants will move any technology from the engineering to the commercial stage. Where there are reasonable prospects for developing commercial technologies, private companies are already at work. Note, for example, ExxonMobil’s recent announcement of a $600 million program for algae-based biodiesel. The economic rewards for success in new energy technologies would be enormous – akin to Bill Gates’s success in developing Windows. We do not need any additional incentives to get people to look for new energy technologies. Throwing government money at the problem may result in some good science and some useful technical work, but not commercialization. In fact, the US Government has spent about $125 billion (in today’s dollars) on energy R&D over the last 30 years and has produced absolutely nothing of any commercial significance.
The key to the energy grants is the notation in the White House press release that the money will be spent in over 20 states. In other words, the purpose of the exercise is to spread money around, not to achieve any particular technical objectives. These funds, like the other stimulus money, might as well be thrown out of an airplane at 30,000 feet. Moreover, that money is being diverted from capital markets through either taxation or borrowing. Left alone, those funds might have produced something useful, instead of another handout.