Professor Lawrence Krauss, a physicist at Arizona State University, wrote an op-ed for the New York Times (our favorite newspaper) on January 15 entitled “Deafness at Doomsday”. This is a very useful read, although probably not in the way that Professor Krauss intended. The only word I can use to describe this piece is “whiny”. Professor Krauss is bemoaning the fact that the country is not listening to scientists on important issues, the way we once supposedly did.

He cites Einstein’s August, 1939 letter to President Roosevelt concerning the possibility of an atomic bomb as an example of how scientists were once respected and their advice heeded. Prof. Krauss is missing the point entirely. Einstein’s letter (which you can read at http://www.dannen.com/ae-fdr.html) made two factual points. First, science now tells us that an atomic bomb is a real possibility and, second, the Nazis seem to be doing work in this area. His only recommendations were that Roosevelt pay attention to this issue, consider funding additional research and think about how to obtain uranium which was not believed to be in abundant supply in the US. Einstein’s letter was effective precisely because of its rigor and modesty. He brought some compelling facts to Roosevelt’s attention and made some common sense suggestions about what to do. Einstein did not recommend that Roosevelt approach Hitler and agree to ban further nuclear weapons research in the interests of humanity. He did not suggest that the US should publicly declare our intention never to have such weapons and our willingness to work with other countries toward that end. He did not recommend that the US let the League of Nations take the lead on controlling such weapons. Such recommendations would have seemed preposterous at the time. The League of Nations was in shambles. Europe was being carved up by ruthless and murderous dictators in Germany and the Soviet Union. Britain’s attempts to avoid war by appeasing Hitler had clearly failed, and very few Americans at the time saw Hitler as an acceptable partner in anything.

Fast forward to today when nine countries have nuclear weapons, including Putin’s Russia, the oppressive and increasingly aggressive Chinese communists, the lunatics in North Korea, and an unstable and increasingly Jihadist Pakistan. Ahmadinejad’s Iran, whose stated goal is to wipe Israel off the map, appears to be next. The US, Professor Krauss argues, is complicit in nuclear weapons proliferation because “our actions suggest that we have no real intention to disarm.” Seriously?

Einstein’s letter to Roosevelt demonstrated that he had adopted the US as his new home and that he believed that the US should and must defend itself and the rest of the world against the evils everyone could see. Prof. Krauss, on the other hand, sees the US as having no more moral standing than Kim Jong-Un. He implies that all these dangerous states have nuclear weapons only as a defense against aggressive enemies (such as the United States) and would happily give them up if we would do the same. His scientific advice fails on two grounds. First, it is based on opinions about politics and has nothing to do with science. Second, it’s advice no sensible person would accept. His viewpoint undoubtedly gets rave reviews on college campuses, a bastion of extreme left ideology. The average American, however, is much too smart and sensible to buy into this nonsense. If Professor Krauss had written the 1939 letter instead of Albert Einstein, Americans (or what was left of us) would be speaking German today.

Then, of course, Prof. Krauss gets to global warming. As we’ve discussed in many previous posts, the science behind predictions of catastrophic global warming is weak. What our Climate Community scientists are proposing is that Americans abandon the free market institutions which have made us a wealthy and successful nation and turn the economy over to “experts” who will dismantle our economy, impose severe limitations on our personal liberty and dramatically reduce our standard of living in order to achieve a trivial reduction in carbon emissions which will be dwarfed by the massive growth in emissions from China, India and other developing countries. Professor Krauss seems genuinely baffled as to why the American people would not take that advice seriously.

Here are a few suggestions for Professor Krauss.

First, remember that the US is a democracy and not a Platonic Philosopher Kingdom in which the smartest people rule. Monarchy always looks good to the people who assume that they will be the monarch. Unfortunately, the levers of power have a tendency to end up in the hands of the most ruthless people, not the smartest. Monarchy is not so attractive when someone else is telling you what to do. Hence the appeal of democracy to most people.

Second, remember the distinction between science and the opinions of scientists. The American scientific community should speak out actively and forthrightly on scientific issues. Most of the issues around, for example, nuclear proliferation and climate change, however, have very little to do with science and much more to do with economics, politics and general world views about how nations really do interact, as opposed to how Professor Krauss would like them to interact. Scientists have no superior claim to knowledge in this area. It’s rather silly to claim that “I know how to deal with Vladimir Putin because I wrote a paper on String Theory and must therefore be smarter than you.”

Third, leave campus every once in a while and talk to real people. Most Americans don’t accept the leftist politics of academia that cast the United States as the villain in the world and see American society as a racist, sexist, homophobic cesspool of gun-toting bible-belting rednecks. At the very least, Professor Krauss should understand that most Americans will not easily accept that view of themselves or the country in which they live and then give him the power to “fix” them.

Professor Krauss asks an interesting question: Why don’t we listen to our scientists on the critical issues of the day? His embarrassing essay answers that question brilliantly.

It’s been a while since I’ve offered a post on Tom Friedman, but I would like to direct your attention to his January 12 New York Times column entitled “Collaborate versus Collaborate” – one of his very worst pieces. Mr. Friedman offers a solution to Washington gridlock – the two parties should collaborate as they do in Silicon Valley. Mr. Friedman argues that collaboration produces great outcomes, or, as Jeff Weiner, the C.E.O. of LinkedIn, puts it: one plus one can often turn out to be four. This topic is a bit off energy, but it’s very fundamental to what’s going on in the country today.

Mr. Friedman’s problem here is that he does not understand the difference between zero sum games and positive sum games. In a zero sum game, one person’s gains can come only at someone else’s expense. In positive sum games, the total benefit available for distribution can grow with everyone sharing some part of the gain. The real beauty of the free market is that it’s a positive sum game – hence the extensive opportunities for collaboration in Silicon Valley. Mr. Friedman needs to re-read (or perhaps read) Adam Smith. Silicon Valley entrepreneurs are not collaborating to help their customers or to improve the society; they’re collaborating to make money. The benefits to their customers and to the society as a whole are substantial but incidental and are not increased by replacing capable, self-interested business people with altruists. It’s this point that the American political Left doesn’t seem to grasp.

Politics is different. Elections are by definition zero-sum games. One candidate wins, the other loses. They can’t collaborate to improve the outcome. Mitt Romney and Barack Obama were not seeking common solutions. Only one of them could be President; the other got nothing.

For many years, the Congress gave the appearance of a positive sum game. Between 1954 and 1994, the Democrats controlled the House of Representatives. They also controlled the Senate for 34 of those 40 years. That made politics easy and civil. The Democrats expected to win and thus enjoy all the power and perks of office. They named the committee chairs and controlled the pork. The Republicans expected to lose and collaborated with the Democrats on many issues in return for whatever share of the pork they could get. Both parties agreed, however, that the federal Treasury should be a constantly expanding piggy bank they could use to dispense funds to the constituents they needed to keep getting elected.

Since control of Congress was never really contested during this period, there were opportunities for collaboration, particularly on defense. Senior congressmen of both parties never had to choose between a strong defense and getting reelected, since they could have both. Democrats knew they would have the positions of Congressional power, and Republicans accepted that fact.

The whole world changed in 1994 when the Republicans took control of both the House and the Senate. All the powers and perks which were assumed to go to senior Democrats were suddenly up for grabs in each election. It’s interesting to note that, when the Republicans took the Senate, a couple of powerful lifetime Democrats, Richard Shelby of Alabama and Ben Nighthorse Campbell of Colorado, immediately switched parties to remain on the winning side. When the Democrats regained the Senate, Jim Jeffords of Vermont and Arlen Specter of Pennsylvania decided that they were really Democrats. According to Washington values, collaboration on problem solving is fine, but always takes a back seat to getting reelected. As my father (a very wise man) said recently, “Politicians do care about the country, just not very much.” For the last twenty years, we have been in a constant knock-down-drag-out fight for political control in Washington. Nothing of substance takes precedence over the need to gain and hold power.

Mr. Friedman maintains the naïve view that elected officials in Washington are there to serve the country and solve its problems. They are there first and foremost to keep getting reelected and second to enhance their status and power as much as they can. If you don’t understand that simple fact, nothing in Washington will ever make sense.

The country could easily tolerate this ongoing battle provided as long as there were no great national issues to be solved. Today, however, we face one of the most critical issues in the country’s history: the unsustainable growth of government. In 1950, government at all levels consumed about 25% of our GDP. As our elected officials sought more and more funds to distribute to favored constituents, that share gradually increased to about 38% by 1992. Government declined to about 36% under Bill Clinton’s presidency, largely because of cuts in defense, but then began to grow again under President Bush, reaching almost 40% under President Obama. Much of the historical increase was at the state and local level, but, unfortunately, large federal funds transfer to state and local governments in the last few years have enabled the profligate states and municipalities to maintain their growing budgets at the expense of those areas of the country that are well managed.

This situation has become unsustainable. The public is aware of our annual deficits of more than a trillion dollar plus deficits, but the real problem is the unfunded liabilities of Social Security, Medicare, Medicaid and the pensions of overpaid state and municipal workers. These liabilities total tens of trillions of dollars and cannot possibly be paid for by any of the “soak the rich” schemes currently under discussion. Arithmetic dictates that one of three things will happen: (a) the country will reverse course and reduce government’s hold on the GDP, (b) the government will impose heavy taxes on the middle class (where the real money is) or (c) governments at all levels will exhaust their credit limit and default on their obligations and debts with disastrous consequences.

Both parties agree that (c) would be a bad outcome, but they are completely at odds as to what to do. The Democrats are insisting that government spending must continue to grow. Although they have yet to say so, option (b) is their only hope of success. Republicans, on the other hand, are demanding that we do (a). These positions are simply incompatible. How in the world can the two sides collaborate on solutions?

Mr. Friedman naturally blames the Republicans for the impasse. Mr. Friedman’s real point seems to be that the Democrats are right, and the Republicans should abandon their position and get on board with the unsustainable growth of government, which Mr. Friedman generally refers to as “investment”.

The outcome that Mr. Friedman seeks is as plausible as expecting the Ravens and the 49ers to “collaborate” at the Superbowl, agreeing in advance to end the game in a tie and give the championship bonuses to charity. This expectation is not only unlikely, it’s impossible. One way or another, one of these positions must prevail over the other.

As promised last week, here is an update on the state of play of residential solar power in the United States. As with wind, we’ll start by agreeing on a set of rules for the analysis, summarized as follows:

First, we focus on cost, not jobs created or carbon emissions reduced.
Second, we look at the full cost.
Third, we exclude all the special taxes credits and subsidies.
Fourth, we use proper capital costs.
Fifth, we use the proper comparison basis.
Sixth and finally, we quantify externalities.

Consistent with these rules, my assumptions for solar energy economics are as follows:

a) The cost for residential solar panels is $2.40 per Watt, delivered to the house. With the 30% federal tax credit, the homeowner would pay only $1.68. As noted in my last post, however, this federal tax credit does not reduce the cost of the solar installation, but simply shifts it from the homeowner to the taxpayer. Someone still has to pay it, so we’ll stick with the true cost of $2.40. I cannot find any meaningful way of adjusting this cost for the many indirect subsidies, such as the federal grants to solar panel manufacturers. The cost structure of Chinese solar panel suppliers, who have recently dominated the US market, is even more opaque, so let’s take the $2.40/W as our basis.

This cost has come down quite dramatically over the last few years, but the reason for the decline is significant. The federal government decided some years ago to finance the construction of numerous solar panel manufacturing facilities, generally in the districts of powerful politicians. The idea was partly to cater to the green energy crowd, but mainly to boost investment and employment in politically important areas. When Chinese companies entered the US market in a big way a few years ago, much of the US manufacturing capacity became redundant. Many US suppliers were stuck with large inventories of solar panels that could only be sold at distressed prices. It remains to be seen whether these prices are sustainable. In any case, the current low cost of solar panels is not an indication of technological progress, but rather of market glut and low Chinese manufacturing costs.

b) The Balance of System (BOS) costs, which include the inverter, which converts DC power to AC, plus the wiring, switches and installation labor, total about 150% of the cost of the solar panels themselves. With $2.40/W panels, the total installed system cost would be about $6 per W. This is consistent with the average cost reported in by the State of California for recent residential solar installations (data at http://www.californiasolarstatistics.ca.gov/).

c) Maintenance for residential solar systems is not high, and consists mainly of keeping the panels clean. The best estimates I can find are around 3¢ per installed Watt per year, so an average 4 kW system would require about $120 per year of maintenance. It’s worth noting that in the real world, people do not keep their solar panels very clean, just as they don’t keep their tires fully inflated. Dirty solar panels produce less power, but we’ll ignore that problem here.

d) The critical issue for solar systems is load factor, i.e., the amount of power a solar panel can actually produce over the course of a year. A natural gas combined cycle power plant has the capacity to produce more or less the same amount of power regardless of its location and construction, but solar output depends to a great extent on where the system is located and how it’s oriented to the sun. In order to avoid biasing the calculation, let’s pick Los Angeles, which is a pretty sunny area. Ideally, a rooftop solar panel in the northern hemisphere should be oriented directly south and tilted at roughly the same angle as the latitude of its location, in this case 34º. (Please note that a mechanically rotating system can be more efficient, but is much more expensive.) According to the DOE’s National Renewable Energy Laboratory, a perfectly aligned 4 kW rooftop solar unit in Los Angeles would generate 5,879 kilowatt-hours (kWh) of electricity every year. If the solar panels were generating power all the time, they would produce 35,040 kWh per year (24 hrs X 365 days X 4 kW), so the load factor for our ideal solar installation would be 16.8%. This calculation is fine if you are building a brand new house. The cheapest way of installing solar panels is to lay them on the roof, using the roof for support. Most existing houses, however, do not have a south-facing roof. Installing solar panels at an angle to the roofline requires a separate support structure and is both unsightly and expensive.

To be fair, let’s assume that, on average, all solar installations have the correct tilt angle, but the average orientation is 30° away from true south. In this case, the panels would generate 5,608 kWh or a load factor of only 16%. In addition, the rooftops of many houses are partially blocked by taller buildings, trees and other structures which reduce the available sunlight. Let’s assume that, on average, 5% of the sunlight is blocked. On balance, therefore, our residential solar panels in Los Angeles would generate 5,326 kWh per year or a load factor of 15.2%. Let’s use this number in our calculations.

e) The intermittency debit is a bit more complex for solar than for wind. Wind power comes mostly at night, when it competes with low-cost baseload power plants which are idled by the wind turbines. Solar, however, comes during the day and sometimes during peak hours when electricity is expensive. Let’s assume that the net intermittency debit is zero.

f) The proper basis for residential solar cost is the retail price of power to homeowners, rather than the generating cost to the utility. In Los Angeles, the average residential price is 14.4¢/kWh. Residential solar has no transmission debit.

g) Finally, let’s assume that the homeowner finances the entire solar installation with a home-equity loan. About 30% of homeowners are currently “under water” and have no equity, but let’s ignore this problem. According to Wells Fargo Bank, an LA homeowner with an average credit rating and $100,000 of home equity could obtain a 10 year variable rate home equity loan at 8% interest.

These assumptions produce a generation cost for solar power of 44¢ per kWh – over three times as expensive as retail power in California at 14.4¢/kWh. The entire argument for “grid parity” is based on a massive set of subsidies that do not reflect actual costs. As noted above, homeowners get a 30% federal tax credit, and Los Angeles customers currently get an additional rebate of $1.05/W for residential solar installations. These two programs alone would reduce the homeowner’s perceived cost to 27¢/kWh without reducing the true cost to the society.

Los Angeles is currently developing a “feed-in tariff” program that would pay residential customers 17¢/kWh for solar power generated by their homes but made available to the grid. If a solar installation sold, for example, 25% of its output back to the grid rather than consuming those kWh in the home, the breakeven cost of solar energy would be reduced another 1¢/kWh. These tariffs, however, are also subsidies, since other consumers must pay higher costs. Other states have property tax relief, low-cost financing, special incentives for low-income homeowners and other subsidies. If we add enough of these subsidies, we can make solar energy look inexpensive to the consumer, even though it would still be very expensive to the society.

What about externalities? If we start with the full social cost of 44¢/kWh, we would need a carbon tax of over $1,000 per metric tonne to make the cost of residential solar equal to the cost of grid power. To put such a tax in perspective, the US currently emits about 6 billion metric tonnes of CO2 per year. A $1,000 tax would be a burden of $6 trillion a year on our GDP, which is currently about $15 trillion.

We really should stop hiding and obscuring the true costs of solar energy just to make it look good. As with wind, the real issue is whether subsidizing solar will actually force down its cost. There’s no reason to believe that this is the case. Take helicopters, for example. The cheapest two-person helicopter currently on the market costs about $200,000 plus maintenance costs of about $13 per hour of flying time. Fuel efficiency is about 10 miles per gallon – about the same as a Hummer. If the government gave massive subsidies to, say, 100,000 helicopters per year, would we expect that helicopters would quickly become cost-competitive with automobiles for private transportation? I very much doubt it. The high cost of helicopters is inherent in their physics, not just the result of poor technology or low manufacturing scale. The same is true for solar power. We may ultimate find an inexpensive way of harnessing the sun’s energy, but solar photovoltaics are probably not it. In the meantime, let’s at least be honest about the status and cost of this technology.

My readers may have noticed a series of excellent comments on this site by Christian Schiller, one of my favorite Fletcher students, who writes on the site globalberliner, which you can find at http://bostonianberliner.wordpress.com/.

In response to Christian’s comments on my statements regarding wind and solar power, I’d like to expand on my views. Let’s start this week with wind and we’ll address solar later. Before we crunch numbers, however, let’s agree on some ground rules.

First, we focus on cost. The wind lobby loves to talk about how many jobs it creates, how fast wind capacity is growing, how much its costs have fallen and how much property tax it pays. All well and good, but the critical issue is whether wind can generate electricity at lower cost than fossil fuels or nuclear plants.

Second, we look at the actual cost of wind power. Not just the cost of the wind turbines, but the full cost of installation and operation. When a wind farm buys turbines from GE, Vesta or one of the other vendors, the turbine is delivered, but then has to be erected on a prepared site and connected to the grid. These “balance of plant” costs are generally 20-40% of the cost of the turbines.

Since wind power is intermittent and unpredictable, it requires back-up generating capacity. Let’s say we build a 400 Megawatt (MW) natural gas-combined cycle (NGCC) plant, which is capable of operating 90% of the time, with only 10% required for maintenance. If we build in addition a 100 MW wind farm, the NGCC plant would have to be shifted to stand-by about 8% of the time to accommodate suddenly available wind power. Although the NGCC plant would save something on fuel and variable maintenance, it would still require more revenue to meet its investors’ return expectations. These costs must be included as a debit against the wind farm.

Since wind farms tend to be located farther from demand centers than fossil fuel plants, we also need to consider transmission costs. According to the Energy Information Administration, these costs are about 1.3¢ per megawatt-hour (MWh) for natural gas plants but 4¢ per MWh for wind. In states like Texas, where the wind farms are hundreds of miles from demand centers, this difference can be much higher.

Third, we exclude all the special taxes credits and subsidies in making our assessment. Subsidies do not reduce costs, but merely shift them from electricity consumers to taxpayers. These subsidies can be explicit, such as the 2.2¢ per kilowatt-hour (kWh) production tax credit, or they can be subtle. Renewable portfolio standards, for example, require utilities to purchase a certain amount of renewable energy regardless of its cost, which allows wind energy producers to charge an above-market price for their kWhs. “Net metering” regulations require utilities to pay the full retail for wind energy whenever it’s available, thereby forcing the utilities to bear the added cost of stand-by generating capacity. Government loans and loan-guarantees reduce the cost of borrowing to below-market levels. All these subsidies must be made explicit in our analysis.

Fourth, we use proper capital costs. Many studies assume very low returns on capital (4-5%). No investor, particularly a venture capital firm, will put his money at risk for such a return, unless he has government guarantees against loss. In any case, people who wish to offer opinions on renewable economics must at the very least be explicit about their capital cost assumptions.

Fifth, we use the proper comparison basis. When we buy a new car, we don’t compare its cost, efficiency, styling and comfort with the old clunker we’re replacing. We compare new cars with other new cars we could buy. By the same token, a new wind farm has to be compared with the lowest-cost new power source. The concept of “grid parity,” where we compare the cost of new energy sources to the average retail price of power from the grid, is meaningless. The existing grid is full of older power plants, inefficient transmissions systems, onerous regulations, taxes, fees and many other market-distorting factors. Today, NGCC power plants are the low cost option, generating power at about 4.2¢ per kWh. That’s the target, not the national average retail electricity price of about 10¢ per kWh (12¢ for residential customers).

Sixth and finally, we quantify externalities. Wind power does have advantages in terms of air pollution and carbon emissions. We must not, however, treat these external costs as infinite. The Climate Community tends to see global warming as apocalyptic, thereby freeing them from the need to put a price on carbon. We can’t make policy that way. It’s impossible to put a price on the impact of atmospheric carbon dioxide, because in reality we have no idea whether and how much it will affect the climate, but we’ve seen some political calibration. The most recent price for European carbon futures is about €8 per metric tonne or roughly $11. The Regional Greenhouse Gas Initiative has sold carbon emission rights at about $2 per metric tonne.

If we do not quantify the externalities, we have no way of knowing whether the higher cost of wind power is worthwhile. Talking in generalities about the need for low carbon fuels and bragging about the tons of carbon dioxide saved have no meaning. The question is are you getting a reduction in external costs comparable to what you are paying?

With these ground rules in mind, here are my assumptions for wind power economics: (a) turbines cost $1,200 per kW, based on the most recent averages, (b) balance of plant costs are 30% of turbine costs, (c) annual maintenance is 2% of original capital cost, escalated with inflation, (d) load factors average 31½% based on data from the American Wind Energy Association, (e) the wind farm consists of 50 X 2 MW turbines for a total of 100 MW, (f) the wind farm takes 1 year to build, (g) the wind farm is built in conjunction with a 400 MW NGCC power plant, (h) the NGCC plant takes 3 years to build, (i) per the EIA, the cost of the NGCC plant, including balance of plant costs is $1,056 per kW, with annual fixed maintenance of $15.39 per kW and variable maintenance of $3.27 per MWh, (j) the load factor of the NGCC plant is 90% without the wind farm and 82% with the wind farm, (k) the price of natural gas is $4 per million British Thermal Units (MBtu), (l) the loan/equity ratio is 80/20 on both the wind and NGCC plants with a 30-year loan at an interest rate of 8%, (m) investors earn 15% on equity, (n) the project lasts 33 years from ground-breaking, including 30 years of wind turbine operation and (o) the net lost earnings from the NGCC plant are debited against the economics of the wind farm.

These assumptions produce break-even generation costs of 4.3¢ per kWh for NGCC and 6.8¢ per kWh for wind, making wind roughly 50% more expensive than NGCC. A carbon tax of $11 per metric tonne, equivalent to the current European carbon market price, would debit the NGCC plant by only 0.3¢ or about 15% of the discrepancy. To fully close the gap, the carbon tax would have to be around $100 per metric tonne, a huge burden on the economy.

I highly recommend the article “Understanding Trends in Wind Turbine Prices Over the Past Decade” by Mark Bolinger and Ryan Wiser of the Lawrence Berkeley National Laboratory. This article tracks turbine prices from 1997 through 2011 and finds not a smooth decline curve but a cycle with turbine costs falling from 1997 to 2001, then rising from 2001 to 2009, then falling again. Overall, we see a drop of about 20% over 15 years or 1½% per year – not an impressive technology curve.

Wind power is still not competitive in the marketplace. Without subsidies, there would be no wind turbines built in the US. The rationale for these subsidies continues to evolve. The argument about externalities is weak, because the gap between wind power and NGCC is simply too wide. Implicit in the argument for subsidies is the assertion that heavy government subsidies can force a drop in the cost (not the price) of wind power. As I have noted in previous posts, the opposite is likely to be true. Manufacturers may gain economies of scale from increased turbine production, but subsidies diminish the incentive to improve the technology, since the government forces utilities to buy inferior technology as it is.

Another argument that’s making a run is that all energy sources have been subsidized and that oil was heavily supported by the government during its early days. Therefore, renewables are simply following the same path as other energy sources. This argument is becoming one of those myths that is widely believed because it’s repeated so often. It is simply not true, however, and I’ll address this issue soon in a future post.

The New York Times thinks that Ireland has the answer to all our economic and environmental problems – a carbon tax. In a December 27 article entitled “Carbon Taxes Make Ireland Even Greener”, Science Editor Elisabeth Rosenthal lauds the Irish government’s 2009 decision to impose a tax on each type of energy based on its carbon content and to impose high registration fees on automobiles based on their fuel economy. Ms. Rosenthal claims that “Environmentally and economically, the new taxes have delivered results.” She notes that “Although much of that decline [in carbon emissions] can be attributed to a recession, changes in behavior also played a major role, experts say….” Let’s call a time-out right here. Reporters often ask “experts” instead of actually doing the math themselves. The danger in this approach is that you can always find an “expert” who says what you want. It’s much harder to extract your preferred conclusion from arithmetic. Here’s the analysis Ms. Rosenthal should have done.

According to Irish government statistics, carbon dioxide emissions in Ireland fell from 45.3 million metric tonnes (mt) in 2007 to 35.9 million mt in 2011 – an impressive drop. How much of that decline was due to the recession and how much to improved carbon efficiency? You don’t need an expert; you can calculate the number yourself. In 2007, Ireland’s GDP (in $2012) was $289 billion, so carbon dioxide emissions were 157 grams per $ of GDP (45.3 divided by 289). The recession hit Ireland particularly hard, and by 2011 GDP had declined by 23% to $222 B. Carbon dioxide emissions, however, declined by only 21%, so the carbon efficiency of the economy actually deteriorated from 157 grams to 162 grams per $ of GDP. “Experts” notwithstanding, the decline in Irish CO2 emissions was due entirely to reduced living standards. Where exactly do the “experts” see the influence of these wonderful taxes?

The US has no carbon tax, no “cap-and-trade” system, no heavy excise taxes on fuel, no massive fees on car registration, so presumably the US must have a worse track record on reducing its carbon emissions over this period. Actually, no. Our economy was not hurt nearly as badly as the Irish, falling from $15.5 trillion ($2012) in 2007 to $15.1 trillion in 2011 – a decline of about 2½%. Over the same period, however, US carbon dioxide emissions fell by almost 8% from 6.5 billion mt to 6 billion mt. Now, to be fair, Americans, emit more carbon than the Irish (389 grams per $ of GDP compared to 161), but that’s not the issue. The question is whether Ireland was able to achieve reduction in CO2 emissions by dropping a ton of tax bricks on Irish consumers. The answer appears to be “no”.

We are seeing here the essential narcissism of the climate change movement. Instead of doing the math to figure out whether they are actually solving any problems, they just want to pat themselves on the back for reducing their carbon footprint. What would it actually take to stabilize or reduce atmospheric concentrations of CO2? We don’t understand the climate system well enough to know, of course, but let’s say we set an objective of reducing global carbon dioxide emissions by 50% by the year 2035. Currently, the world emits about 35 billion mts of CO2 annually, or about 5 mt for each of the 7 billion people on the planet. By 2035, we anticipate about 8 billion people, so each could emit on average only a little over 2 mt if we are to reach our goal. The Irish are currently emitting about 8 mt per person – about four times the required amount.

Furthermore, the Irish have already taken many of the easy steps to reduce carbon emissions. In the 1980s, Ireland’s electric power sector grew primarily on imported coal and oil. In the 1990s, however, they began to replace coal and oil with imported natural gas and have now reduced coal and oil use in power generation by two-thirds. As noted above, they have slammed Irish consumers with massive taxes on transportation. They’ve built a bunch of expensive wind turbines that now provide about 8% of their power supply. What else are they going to do to get a 75% reduction in their carbon footprint over the next 20 or so years? Suppose, for example, that Ireland replaces all the coal, peat and natural gas in its electric power industry with wind, solar and other zero-carbon renewables. This would hit Irish ratepayers very hard, since renewables are much more expensive than fossil fuels for power generation. It would also damage the competitiveness of Irish industry. Savings would be about 10.6 million mt of CO2 each year. Suppose furthermore that the Irish all drive cars averaging 100 miles per gallon. That would save another 3.2 million mt. Even with these draconian measures, Irish CO2 emissions would still be 22 million metric tons or over 5 mt per person – 2½ times their global “allotment”.

Will Irish voters allow their living standard to deteriorate further just to chase the climate change dream? I doubt it, particularly after all the economic pain they’ve suffered over the last few years.

The self-congratulation evident in Ms. Rosenthal’s argument reminds me of a TV interview I saw some years ago with Senator John Kerry and his wife Theresa. They solemnly expressed their deep concern over climate change and announced that they would consider traveling more by commercial airlines rather than private jets. I have no idea whether they made this change in their lifestyle or not, but their promise is truly laughable. The Kerrys were making a fashion statement, not contributing to the stabilization of atmospheric carbon levels.

So how about the economic side of Ms. Rosenthal’s claim that “The three-year-old carbon tax has raised nearly one billion euros ($1.3 billion) over all, including 400 million euros in 2012. That provided the Irish government with 25 percent of the 1.6 billion euros in new tax revenue it needed to narrow its budget gap this year and avert a rise in income tax rates”? It’s rather odd for the NYT to argue that excise taxes are better than income taxes. The NYT has been a major cheerleader for the Obama campaign’s efforts to increase tax “fairness”, parroting the Administration’s argument that the wealthy don’t pay their fair share. President Obama, with a loud “amen” from the NYT, demands that the American national debt crisis not be solved on the backs of the middle class. Apparently, an income tax system in which the top 20% pay 70% of the taxes while the bottom half pay virtually nothing, is insufficiently progressive for Mr. Obama. The President is demanding (and will probably get) an increase in marginal tax rates for the wealthy without any corresponding tax increases for 98% of Americans, all in the name of fairness.

How does a carbon tax meet the fairness test? Ms. Rosenthal claims that “Although carbon taxes in some ways disproportionately affect the poor — who are less able to buy new, more efficient cars, for example — such taxes do heavily penalize the wealthy, who consume far more.” It’s certainly true that the wealthy use more energy than the poor, but the wealthy spend a smaller share of their income on energy than the poor do. This makes carbon taxes by definition a regressive tax, flying in the face of all the arguments about fairness.

The real agenda of the American political left was clarified in the NYT editorial of Sunday, December 30. The US is currently running budget deficits in excess of $1 trillion per year. The Obama campaign implied (although did not say outright) that this deficit could be closed by making the rich pay more. What they proposed during the campaign, however, is an increase in marginal tax rates for the top 2% of earners that would raise revenue of about $80 billion per year. Experience shows that the tax increase won’t actually raise that much money, since the complex tax code still allows people to shield income from taxes in various ways. Even if the tax hike produces as promised, however, it will reduce the deficit by only 8%. Moreover, the President wants to couple that additional revenue with more spending on stimulus and unemployment benefits, not to mention the $60 B requested for relief from the effects of Hurricane Sandy. How on earth will the deficit be eliminated if all we do is couple small tax increases with more spending? The answer is a succession of fundamental tax changes to raise the federal government’s share of GDP from the traditional 20% to 25%, 30% or even higher, as it is in Europe. Following the increase in marginal tax rates, the NYT editorial proposes eliminating deductions, taxing capital gains as ordinary income, raising corporate tax rates, adding a financial transactions tax and imposing higher estate taxes. These tax increases could all be presented to the public as soaking the rich for the benefit of the middle class, but even these are not nearly enough.

Carbon taxes hit the middle class directly. Gasoline in Ireland costs €1.59 per liter or $8.00 per gallon – about $4.75 higher than the current US price. Since the average American household uses about 1,200 gallons of gasoline per year, taxing gasoline at the same rate as Ireland does would cost the average family about $5,700 per year. That amount might be reduced over time through more efficient engines, but only at the cost of driving smaller, less comfortable and less safe cars fewer miles. The Administration could try to portray this to the American public as an environmental policy rather than a tax and could claim that the tax was imposed on ExxonMobil and not on consumers, but people are probably too smart to buy that.

Even if the President Obama could sell all that to the American people, the $500 billion or so in annual revenue from carbon taxes still wouldn’t be enough to eliminate the deficit and allow for further spending increases. That’s when the hammer would really fall. The NYT also wants a value added tax or VAT – a national sales tax on nearly every good and service that people consume. State sales taxes in the US vary from zero in states like Alaska and Delaware to a high of 7.5% in California. In many states, counties or municipalities can add their own sales taxes. European VAT rates, however, average over 20% with some Scandinavian countries at 25%. According to the Bureau of Labor Statistics, the average American family spends about $50 thousand on consumer goods, including roughly (a) $17 thousand on housing, (b) $3 thousand on health care, (c) $7 on pension contributions and charity, (d) $7 thousand on food, (e) $8 thousand on transportation, (f) $3 thousand on entertainment, (g) $2 thousand on clothing and (h) $3 thousand on other goods and services. If Americans were subjected to a 20% VAT on items (d)-(h), as they would be in Europe, the additional tax would be roughly $4,500 per year, raising another $500 billion annually for the government.

So here’s the plan. Step one: soak the rich, which everyone seems to agree on. Step two: save the planet by imposing carbon taxes on the middle class. Step three: Hit the middle class directly with a VAT. Presto-changeo, we’re Europe! In reality, this won’t be easy to accomplish, since President Obama will have to convince the American people to accept this suicidal program before the US runs out of its borrowing capacity. It’s going to be an interesting year.

The United Nations Framework Convention on Climate Change (UNFCCC) was signed in 1992 and provided for annual meetings called Conferences of Parties or COPs. The first (COP-1) was held in Berlin in 1995. Believe it or not, we just finished COP-18 in Doha, Qatar. For 18 years, the UN has held an annual climate change meeting to call in vain for serious action on climate change. Eighteen up, eighteen down. The Kyoto Protocol, signed in 1997, is about to expire with no meaningful results. The Climate Community ought to do some soul-searching about why this is true.

Twenty-five years ago, the fledgling Climate Community became convinced of the apocalyptic nature of man-made greenhouse gas emissions. Since then, they have tried to convince the public that their viewpoint is not only correct but obvious. Arctic ice is melting and glaciers are retreating – prima facie evidence of climate change. Supporters of their view, including President Obama, often say, “I believe that climate change is real.” The argument, however, is not that simple. The climate changes continuously – and always has. The issue is not whether the atmosphere is warming, but whether the warming is accelerating due to man-made greenhouse gas emissions.

Physics can’t answer this question directly. We know that increased carbon dioxide concentrations can trap heat and cause global warming. The direct impact of projected levels of atmospheric carbon, however, would cause only slight future warming – more or less the rate we have seen over the past 100 years. The Climate Community is arguing that the warming will accelerate not because of the direct effects of carbon, but because of the indirect feedback effects, particularly of cloud formation, creating a positive feedback loop that accentuates the warming.

This is a much harder case to make. Atmospheric warming is likely to increase cloud formation. Clouds do trap heat, amplifying the warming effect of atmospheric carbon. Clouds also reflect sunlight from their tops, thereby reducing atmospheric warming. Which effect is more powerful? The answer is we just don’t know. The Climate Community is making an assumption here, and it can only be tested by actual experience. In other words, the Climate Community has made a prediction, and we need to see if it comes true. So what’s the evidence to date?

NASA maintains an official data set of global temperatures from 1880 to the present, compared to the average temperature over the period 1951-1980, which you can find at http://data.giss.nasa.gov/gistemp/graphs_v3/Fig.A2.txt). There are, of course, lots of methodological issues around this data series, but let’s take it at face value. You can see a clear warming trend over this period of somewhat less than one degree. This warming is the first step in the climate change argument. By the 1990s, we were experiencing some real heat with 1994, 1995 and 1998 the warmest years on record. Then a funny thing happened. Although the global temperature stayed relatively high, it stopped increasing. Only two of the last 13 years (2005 and 2010) have been warmer than the 1998 record. Two years (1999 and 2000) were unusually cool. The trend line over the last ten years has been absolutely flat. So what are we seeing here? A validation of the climate hypothesis? Natural climate variation? Accelerated warming? Warming at the same rate as in the past? No warming?

In reality, we are still not seeing evidence of the positive feedback loops that are central to the Climate Hypothesis. Here’s where the Climate Community needs to be very careful. Instead of acknowledging the ambiguities in the evidence, the Climate Community insists that the evidence is there for everyone to see. Bid drought in the West? Obvious evidence of accelerated warming. Hurricane Sandy? Obvious evidence of accelerated warming. These arguments work only on people who either believe the Climate Hypothesis as a matter of faith or are not paying very much attention. These arguments simply don’t hold up to even a cursory review of the evidence. Over time, making bad arguments can only undermine the credibility of the people who make them.

The Climate Community likes to blame oil companies, “climate deniers” and timid politicians for the failure of the climate change agenda. The first of these complaints is getting quite stale since it’s been several years since any of the major oil companies has said a word in opposition to climate legislation. Even ExxonMobil, the greatest “climate criminal” of them all according to Greenpeace, has learned that it has no standing with the public to opine on this issue. ExxonMobil now confined itself to simple statements about its past successes and future intent to reduce its own carbon emissions.

The reality is that The Climate Community has failed to make its case to the American people. This failure is particularly embarrassing in light of the incredible support the Climate Community has received from academia, the Democratic Party, Hollywood, the broadcast networks, the New York Times, Washington Post and Economist, the UN and the US Environmental Protection Agency. Polls show that most people believe that carbon emissions create some sort of problem. The Climate Community’s strident insistence on the apocalypse, however, has gotten no more traction with the public than the doomsday predictions of the Mayan calendar.

The UN’s Intergovernmental Panel on Climate Change (IPCC) will issue its Fifth Assessment Report in 2014. It will be interesting to see how the IPCC deals with the increasing ambiguity of the evidence. Will they (as they should) accurately characterize the ambiguities or will they continue to overstate the case for carbon reductions? In other words, will we see “evidence-based policy analysis” or “policy-based evidence analysis”? The Climate Community would do well to tone down its rhetoric, stop demonizing those who disagree and stop demanding an end to debate. They should instead make their case carefully and thoughtfully acknowledging the uncertainties. “Run for your lives!” is never a good policy recommendation in the US. If they can’t make this “pivot”, their standing with the public will erode.

As always, the Climate Community sees in every hurricane an obligation to warn the public about the dangers of global warming, and Sandy was no exception. New York Governor Andrew Cuomo could be counted on to join the chorus, and he didn’t disappoint us. Cuomo’s reaction to Hurricane Sandy was to opine that “Climate Change is a reality.” Advance organization of proper emergency responses and preparation for the inevitable natural disasters were not on the Governor’s agenda. Thousands of his constituents have been without light and heat for two weeks, and he’s concerned mainly with scoring political points. Good job.

Before we get too excited about the latest undeniable proof of climate change, let’s just bear a few facts in mind.

First, it is NOT TRUE that hurricanes have become more frequent. This assertion, like much of the climate agenda, is becoming conventional wisdom without a critical look. I always encourage my students to look at the data whenever possible, rather than rely on other people to tell them what’s true. There is an excellent data set maintained by Unisys Corporation at http://weather.unisys.com/hurricane/index.php. The data are naturally incomplete. We have pretty good data for Atlantic storms since 1851, although I suspect that many storms that did not make landfall were not recorded. In the Eastern and Western Pacific, we have data since the late 1940s. In the South Pacific and Indian Oceans, however, data before satellites became available in the 1970s are scattered and anecdotal and lack wind or pressure measurements. We are therefore limited to essentially a 60-year data series including the Atlantic and the Western and Eastern Pacific. Fortunately, most hurricanes (or cyclones or typhoons as they are called in the Pacific) are found in these areas.

Between 1949 and 2012, a total of 1,936 hurricanes were recorded, an average of 31 per year. During the six decades from the 1950s through the 2000s, the averages were as follows: 29, 30, 30, 32, 35 and 31. So far in the decade of the 2010s, we are on track for 29. Although the 1990s were higher than average, there is no obvious trend here.

Second, it is NOT TRUE that hurricanes have become more intense. Mayor Bloomberg recently claimed, “What is clear is that the storms we’ve experienced in the last year or so around this country and around the world are much more severe than before.” Really? Let’s look at the data. Between 1949 and 2012, there have been 214 recorded Category 5 hurricanes – the killer storms that cause the most damage – an average of 3.4 per year. The averages for the six decades from the 1950s through the 2000s were as follows: 4.2, 4.1, 2.1, 2.4, 4.1 and 3.8. If you are looking for a great talking point, you can claim that major storms have increased by 80% since the 1970s. It’s more likely, however that the 1970s and 1980s were unusually quiet. So far in the 2010s, we are on track for only 2.3 Category 5 storms per year.

Mayor Bloomberg has, I believe, succumbed to the “fallacy of the grocery store line.” How many times have you heard people in the grocery store exclaim, “Why do I always end up in the slowest line?” The reality is that they don’t. Finding yourself in a slow-moving line is annoying and therefore memorable. When people pick a fast-moving line at the store, however, they go on their way and pay no attention. Their data set is skewed by the irritating events they experience. It’s certainly true that Hurricanes Irene and Sandy have caused more fatalities and damage in New York City than any storms of the last 50 years. Climate change, however, is a global phenomenon, and New York City is too small a sample to draw any worldwide conclusions.

Third, it is NOT TRUE that hurricanes are becoming more destructive. One of the common arguments in favor of the catastrophic climate change hypothesis is that even insurance companies are recognizing the dangers of climate change by charging more for coastal storm insurance or even exiting this business segment altogether. Insurance companies may in fact be pricing into their premiums the risk of climate change. Insurance company risk pricing, however, says nothing about whether the climate change is natural or man-made – a point on which insurance companies can be agnostic.

Comparing the damage done by hurricanes is a difficult job, since the country undergoes dramatic changes over time. Roger Pielke, et al. have done an excellent job in “Normalized Hurricane Damage in the United States: 1900–2005” which can be found at http://www.nhc.noaa.gov/pdf/NormalizedHurricane2008.pdf. Pielke and his colleagues have reviewed the damage caused by hurricanes between 1900 and 2005 and adjusted these damage estimates for general inflation and for population and per capita wealth at the county level. In other words, they have estimated what damage major storms would have caused if they had hit their victims as they are today instead of as they were at the time. By decade, the damage from the 50 largest hurricanes was as follows (greatest to least): 1920s, 2000s, 1960s, 1940s, 1900s, 1990s, 1910s, 1950s, 1930s, 1970s, 1980s. No obvious pattern here.

The disaster modeling company Eqecat estimates the damage from Hurricane Sandy at about $50 billion. If true. Sandy would be only number 6 on the all-time list, behind not only (in $2005) Katrina ($81 billion in 2005) and Andrew ($58 billion in 1992) but also the two devastating Galveston hurricanes in 1900 ($78 billion) and 1915 ($62 billion) and the 1926 Miami hurricane – most destructive storm ever recorded in the US at $157 billion.

Pielke’s work suggests that the big issue regarding hurricane damage is coastal community development, not CO2 emissions.

Finally, we need to point out (yet again) the weakest argument that the Climate Community uses – one that Al Gore particularly abuses in his infamous An Inconvenient Truth. The argument goes like this: Hurricane Sandy may or may not have been caused by global warming, but this is what will happen to us if we don’t take urgent action. Pictures of hurricane damage are frightening, but have nothing at all to do with the argument over whether climate change is man-made, how much the climate will respond to greenhouse gas emissions and what exactly we should do about it. These are important questions. Let’s at least stick to the facts in our discussion.

One of my very best recent graduates from the Fletcher School offers a thoughtful comment on my Cape Cod Times article on subsidized renewable energy. The comment is posted nearby on this site. Herewith my response:

Comment: Cheap is cheap, perhaps too cheap! For this reason all oil companies are moving away from drilling in shale gas formations to aim at tight oil and shale oil formations. You can see this trend in Baker Higes rig counts, the rigs used for shale gas are declining sharply. So I’m not too sure that the “gas revolution” will take place so rapidly with gas prices at $2/3 MMBTU.

Response: It is certainly true that rapidly falling natural gas prices have dimmed some of the enthusiasm for shale gas production. According to the Energy Information Administration, wellhead natural gas prices in the US peaked in October of 2005 at $10.33 per thousand cubic feet (MCF), equivalent to about $60 per barrel of crude oil. With the “shale gas revolution”, prices actually fell below $2.00 per MCF ($11-12 per barrel of crude oil equivalent) last spring. Since that time, prices have inched back over $2.50 per MCF. It is quite possible that we have not yet reached a new equilibrium and that prices will trend upward a bit more. In my personal view, it is most unlikely that prices will return to their 2005 levels.

Oil is mainly a transportation fuel. Natural gas, on the other hand, is used primarily for electric power, home heating and industry. The main growth in natural gas use has been for electric power, based on the highly efficient combined cycle power generation technology developed over the last 30 years. It costs about $1,050 to install one kilowatt (kW) of natural gas combined cycle (NGCC) generating capacity. Once in place, that power plant can run almost continuously except for short periods of maintenance. If the plant runs 90% of the time (a conservative estimate), every kW of capacity can generate 24 X 365 X 90% = 7,884 kilowatt-hours (kWh) of electricity. At today’s prices, the natural gas fuel costs about 2.3¢ per kWh. With maintenance, financing, fuel and capital costs, electricity from this plant would cost about 4¢ per kWh. By comparison, coal-generated electricity costs about 6.3¢ per kWh. For natural gas to break even with coal, natural gas prices would have to more than double from their present level.

Coal, however, involves substantial external costs, so let’s take it out of the equation for the moment. My Cape Cod Times piece was specifically directed at onshore wind and solar, so let’s see how they compare. It’s certainly true that wind turbines need no fuel, so there’s a savings there, but the rest of the economic news on wind power is bad. Onshore wind turbines cost $2,500 per kW – in fact significantly more for the type of small turbine being installed in ones and twos around Cape Cod. (It’s important to remember here that government subsidies – both explicit and implicit – hide this cost and spread it around but do not reduce it.) Unlike a NGCC power plant, which can run almost all the time, wind power is available only part of the time. The average generation for wind power in the US is only 2,450 kWh per year per kW of capacity – equivalent to operating at full capacity only 28% of the time.

Another way of looking at this problem is that it costs about 13½¢ to install enough NGCC generating capacity to produce 1 kWh per year. Wind power costs over $1. That high capital cost overwhelms the fuel savings.

Furthermore, unlike NGCC, which can generate power at any time of the day or night, wind power is available only when nature gives it to us. This drawback is significant in the power industry. With virtually no storage technology, electric power companies must generate power instantaneously to match demand. Remember that primitive man had lots of sources of heat, including the sun, volcanoes and forest fires. The ability to start campfires was important because people could have warmth when they wanted it.

Including capital costs, financing, the debit for interruptibility, and maintenance, onshore wind power costs about 9¢ per kWh compared to 4¢ for natural gas. Offshore wind turbines, such as the infamous Cape Wind project on Cape Cod, costs much more – around 20¢ per kWh.

Well, what about carbon dioxide emissions? NGCC, although clean, still emits CO2, while wind power does not. The economic cost of wind power is very high, however, and we would need carbon taxes of $100 per metric tonne to equalize the cost of onshore wind and NGCC – well above the $25-50 per mt level that even the most green politicians in the US and Europe have been willing to tolerate, believing with good reason that higher carbon taxes would be a severe impediment to economic growth. Equalizing NGCC and offshore wind would require a carbon tax of over $500 per mt.

Solar power is even more expensive. Solar cells cost around $5,000 per kW for an efficient, large-scale installation. Small-scale versions, such as the one being installed at the Cape Cod Community College, are even more expensive. Furthermore, availability is down around 15%. As noted above, NGCC capacity costs about 13½¢ per annual kWh and onshore wind about $1.00. Solar costs about $3.80. All in, solar energy costs about 35¢ per kWh, compared to 4¢ for NGCC and 9¢ for onshore wind. Equalizing costs between solar and NGCC would require a carbon tax of over $1,100 per mt – an economically disastrous level.

Comment: Clean? most certainly not. The use of water for fracking is massive. The use of chemicals and proppants is clearly not beneficial for the enviroment. A gas-fired plant is obviously cleaner than a coal fired one but the process of extracting shale gas is still far from being even remotely clean (everything can be improved of course).

Response: NGCC generating plants emit far less pollution than coal or oil-fired plants. By comparison, the old fuel oil plant on the Cape Cod Canal is an environmental nightmare. Wind and solar are a little better than NGCC, but the cost is prohibitive.

The environmental problems associated with producing shale gas through “fracking” have been much overstated. The movie “Gasland” received a great deal of attention by recounting the story of a Pennsylvania town where natural gas contaminated the local water supply. The iconic image of the movie was a local man setting fire to his tap water.

In almost all circumstances, drinking water is taken from aquifers that are no more than a few hundred feet below the surface. Shale gas formations, on the other hand, are usually several thousand feet underground. The driller’s job is therefore to seal the well carefully where it passes through the aquifer so no natural gas can contaminate the water. Fortunately, this task is easy using simple technology. A cement casing seals the well from the surrounding rock formations except where gas flows into the well. In the “Gasland” case, the operating company simply screwed up. This problem is analogous to airplane travel. Problems can occur if the operation is not done properly, but extremely safe when it is. Lots of bad things can happen to airplanes, but accidents are quite rare. As a result, the benefits of air travel outweigh the occasional problem, tragic though it may be.

Furthermore, it does indeed require a great deal of water to apply this production method, but this problem too can be easily managed. Waste water from fracking operations can be recycled, treated or injected deep underground into sealed rock formations. Most states have in place extensive water regulations that govern fracking.

The one missing part of this equation is a proper price for water. In Pennsylvania, for example, where shale gas activity has been extensive, a property owner is entitled to draw water from below the surface of his property in unlimited amounts without regard for its impact on neighbors. From an economic standpoint, this system is inefficient, since water does not carry a price and is likely to be overconsumed. A mechanism for pricing water would probably lead to more efficient use. This effect, however, is strictly secondary, and is unlikely to seriously impact the economics of fracking.

Thanks to Ferrante for his comments. More are always welcome!

It’s election time again and both candidates are beating the drum about energy independence. I’ve addressed this topic before (see, for example, “Obama’s New Year’s Resolution” from April 1, 2011), but it’s appropriate to revisit it at this time of partisan fever.

The concept of energy independence is based on a series of popular misconceptions. Let’s see if we can straighten some of them out.

Incorrect statement: There is a limited supply of oil in the world and countries compete for access. If the US fails to secure our oil, other countries will take it.
Correct statement: There is a single, integrated global oil market where supply always equals demand at the current price. Countries do not “secure” their oil supply through political or military means; oil refiners buy it on the open market.

Incorrect statement: The US has a rigid set of oil supply sources determined by US government policy.
Correct statement: Dozens of US oil refiners buy oil on a daily basis based on price, quality and logistics. The US supply slate is nothing more than the set of recent purchases. The US government does not purchase oil.

Incorrect statement: The US intervenes politically and militarily in the Middle East to ensure that oil from Middle Eastern countries flows to the US rather than to other consumers. If we were to stop doing this, we would lose access to our oil supplies.
Correct statement: It is critical to US economic and political interests that the main sources of global oil supply, particularly in the Middle East and Africa, not fall into the hands of hostile powers who will curtail oil supply to world markets. The US has an interest in a healthy world oil market, not in where American refiners buy their oil.

Incorrect statement: If world oil supplies suddenly decline, there will be a shortage and American consumers will be back waiting in long lines at gas stations.
Correct statement: If world oil supplies suddenly decline, prices will rise. The gas lines in 1973-74 and 1979-80 were caused by a conscious US government decision to impose price controls, thus creating more demand than supply. If the US government had not intervened, gasoline prices would have risen more steeply, but consumers could have bought all they wanted without waiting in line.

Incorrect statement: If the US buys 25% of our oil from the Middle East, 25% of our supply is at risk if the Middle Eastern countries decide not to sell oil to us.
Correct statement: Oil is sold to the highest bidder with prices set on a daily basis. If Middle Eastern countries refuse to sell their oil to the US, they will have to sell that oil to someone else. The overall supply/demand balance would remain unchanged.

Incorrect statement: Oil from Canada is more secure than oil from Saudi Arabia.
Correct statement: Oil from Canada is more secure physically, but that’s not our real problem. If Saudi Arabia cuts production, all oil prices will increase, including the price of Canadian oil.

Incorrect statement: The less oil the US imports, the less vulnerable we are to volatility in world oil prices.
Correct statement: The US is an open economy, and American consumers pay world prices for everything we consume. The US is, for example, a major exporter of agricultural products, but American consumers pay world prices for food. Even if the US imported no oil, American consumers would still face price increases at the pump if global crude oil supplies were disrupted.

Once these misconceptions have been corrected, the whole idea of energy independence comes into question. The United States has a strong economic reason to develop our own hydrocarbon resources – oil, gas and coal – to the extent that such development is economically viable. In other words, we should use the cheapest energy we can find, and the government should facilitate and not impede that process. Crude oil produced in the US will be sold at the world price, but the economic benefits of that development, including the jobs, local services and taxes, will go to the US not other countries. We gain nothing, however, by producing energy that is more expensive than imported crude oil. When we subsidize ethanol, for example, farmers and ethanol producers (and the communities in which they operate) gain, while the rest of the economy suffers from higher energy costs, higher taxes or both.
Even if the US consumes no oil at all, the global economy and our major trading partners are still dependent on a stable supply of petroleum, and the US would still have a strong interest in ensuring that stability. Furthermore, if the US decides to consume very expensive energy sources in preference to imported oil, our economy will suffer compared to our economic and political competitors, such as China. Expensive energy cannot bring national security.

Every politician since Richard Nixon has promised the American people progress toward energy independence. None has delivered – not because we can’t but because the cost is too high and the benefits trivial.

Cape Codders love their wind turbines and solar panels, despite clear and convincing evidence that these energy sources are prohibitively expensive and perform poorly.

I had a Op-ed in the “Cape Cod Times” yesterday responding to the paper’s latest emotional outpouring on the wonders of renewables. You can find this piece at:

http://www.capecodonline.com/apps/pbcs.dll/article?AID=/20120904/OPINION/209040308

The original article I was responding to is at:

http://www.capecodonline.com/apps/pbcs.dll/article?AID=/20120823/NEWS/208230339&cid=sitesearch