Posted by: bmeverett | April 15, 2014

Response to Greg, Part 3

Here’s part 3 of my open letter to Greg Craven regarding his book “What’s the Worst That Could Happen? A Rational Response to the Climate Change Debate.”

Dear Greg:
In my last two posts, I offered my arguments on climate science and economics. Based on these arguments, I have attached my proposed decision matrix using your methodology.

It will come as no surprise that I see the size of the rows very differently than you do. As discussed, the warmists have not made their case for catastrophic climate change, which seems to me likely to occur only under a rather contorted and implausible set of assumptions. If anything, the bottom row in my matrix is larger than I would have like to portray it, but it needs to be wide enough to include the captions.

BME CC matrix

I have opted for three columns, rather than two. As I discussed previously, “take action” versus “take no action” is a false dichotomy. I would challenge you to present a program of climate action that would actually reduce atmospheric carbon concentrations materially. Putting up a few wind mills, tightening building codes and impeding new coal-fired power plants aren’t going to cut it. (Here’s an interesting exercise. At the end Al Gore’s film “An Inconvenient Truth”, he scrolls through a series of climate actions he wants us to take. See how many of these suggestions would actually reduce carbon by any significant amount.) Also, bear in mind that the US is now too small a share of global carbon emissions to solve the problem on our own.

The April 15 New York Times had yet another front page article about climate change (“Political Rifts Slow U.S. Effort on Climate Laws” by Coral Davenport) rehashes the same old argument that climate action is being impeded by Republicans motivated by their political need to protest fossil fuel industries. Ms. Davenport cites the IPCC’s call for massive carbon cuts and notes approvingly the efforts that president Obama is trying to make. Nowhere in the article does she attempt to compare the two and evaluate whether the President’s program would actually reduce atmospheric carbon by any meaningful amount.

Running around the US trying to convince people to “do something” is hardly a meaningful plan. You have to tell them what you want them to do to actually solve the problem and to do so at an acceptable cost.

I therefore have six boxes, instead of your three, and here’s what they look like. Box #1 is the upper left (warmists are wrong on the science, and we take no action). The result is that everything is fine. As I noted in my last post, you do not get to claim that this box is a disaster because other problems will make the future horrible anyway.

Box #2 is the upper middle box (warmists are wrong on the science, but we adopt the warmist agenda of expensive but ineffective climate actions). The results are not catastrophic, but useless, expensive government programs divert capital, labor and brainpower from more production uses. As a result, we suffer wasted resources, unnecessarily higher energy costs, lower economic growth, higher unemployment, limitations on mobility and higher global poverty levels. How bad the problem is depends on how much money you can convince people to throw away.

Box #3 (warmists are wrong on the science, and we adopt radical de-carbonization) is a real nightmare. Remember that this box is beyond the control of the US, and of necessity involves decarbonization by all major countries – a very unlikely development. For generations to come, we will face a loss not only of our living standard, which can never be sustained with massive government planning powers, but also of our personal freedom. Since Americans are less than 5% of the global population, we can defend ourselves against external threats only if we have a strong, nimble and innovative economy. The US economy in Box #3 is a wreck.

The lower left Box #4 (the warmists are right on the science, but we take no action) is, I grant you, bad. The real problem we have with climate change policy, however, is that Box #5 (the warmists are right on the science but we adopt the warmist agenda) is just as bad. Only Box #6 (the warmists are right on the science and we adopt radical decarbonization) saves the world from climate catastrophe.

You are welcome to make your case to the people of the world. If you are honest about what you are asking, however, your chances are pretty slim. You’ll get a receptive audience in San Francisco, but I doubt you’ll get much support from people in China who still live on $2-3 per day. If you can’t achieve Box #6, do you really want Box #6 instead?

Greg, as I noted before, I’m happy to print any reply you might wish to make.

Posted by: bmeverett | April 2, 2014

Response to Greg, Part 2

Here’s part 2 of my open letter to Greg Craven regarding his book “What’s the Worst That Could Happen? A Rational Response to the Climate Change Debate.”

Dear Greg:
Last week, I went through my arguments on climate science. Here are my comments on climate economics.

Your economic analysis is driven by two powerful, but highly arguable assumptions: (1) even if the warmists are wrong, the future is still bleak because of peak oil and population pressures and (2) it doesn’t really cost much to reduce carbon emissions anyway.

Regarding the first proposition, I argued last week that Peak Oil, always a questionable proposition, has now been almost entirely discredited. The global hydrocarbon resource base will probably allow us grow production of oil, coal and natural gas for at least 100 if not 200 years. In the copper industry, technology has been outpacing resource depletion for 5,000 years.

I’m not sure the source of your pessimistic view of population. The latest UN projections show a growth in global population from 7 billion today to just under 11 billion by 2100. There’s no reason to believe that the Earth can’t sustain a 50% increase in humans. The US population has more than doubled since I was a child, but I don’t see us killing each other for the last scrap of food. Many other analysts see world population peaking and then beginning to decline sometime this century. A recent Deutschebank study, for example, projects population to rise to about 8.5 billion by mid-century, then to fall to 8 billion by 2100. The “population bomb” argument was wrong when Thomas Malthus made it in 1798, it was wrong when Paul Ehrlich made it in the 1970s and it’s wrong now.

Making these questionable assumptions severely distorts your comparison basis. Suppose your doctor recommends a heart transplant, and you ask him about the risks. He explains to you that you could easily die on the operating table, but that doesn’t matter since you’ll probably get killed in a car crash next week anyway. If we are evaluating what happens if the warmists are wrong, we should more reasonably assume that world economy can continue to grow at a healthy pace. Otherwise, you have decided that mankind has no optimistic future regardless.

What about your second assertion, that climate mitigation would be easy and inexpensive? You haven’t really offered a coherent argument here, just some bits and pieces of the usual environmental narrative, which you toss out without any critical evaluation. My primary comment is that you should get yourself an Economics 101 textbook and learn the basics of this field. Since you’re a busy guy and may not have the time to do that, let me offer some specific comments on some of your economic assertions.

A key component of the warmist agenda is strong and truly puzzling faith in central planning – the ability of government to manage the economy. The field of economics involves many controversies, but there is one overwhelming conclusion from history: central planning produces political oppression and poverty, while free markets are conducive to democracy and wealth creation.

I note in your book references to the standard myths about American economic history. The Depression Myth, which all schoolchildren are taught, claims that (1) the Great Depression started in 1929 with the stock market crash, (2) President Herbert Hoover and the Republicans believed that the economy could correct itself and did nothing, (3) President Roosevelt understood that only massive government intervention could save us and (4) fifteen years of central planning plus the massive government stimulus of World War II finally ended the Great Depression. A more accurate history is (1) in 1929 the US economy entered one of the painful recessions we had periodically endured over the prior hundred years, (2) unlike previous recessions, the federal government believed it could “fix” this one, (3) President Hoover and the Republicans immediately did all the wrong things, like raising taxes and contracting international trade, (4) the electorate replaced Hoover with FDR who did exactly the same things Hoover had done, thereby turning the recession into a depression and (5) World War II ended the Great Depression not because of stimulus but because FDR stopped messing around with the economy and let it produce at its capacity. For a rigorously researched and well-argued presentation of this alternative narrative, I would recommend you read “The Forgotten Man” by Amity Shlaes.

The political left jumped on the Great Depression as proof that free market economies don’t work and that government planning is necessary. Fortunately, the post war boom allowed us to overcome this severely misguided view. Until 2008, that is. The political left has once again seen an opportunity to attack free markets with the misguided narrative that (1) unregulated markets fueled by greed caused a financial collapse, (2) only massive government saved us from a repeat of the Great Depression and (3) government must take a much stronger role in the economy from now on to prevent this from happening again. The reality is that (1) both Republicans and Democrats in the 1990s and early 2000s demanded an increase in home ownership, (2) the federal government forced banks to extend mortgages to people who could not repay them, (3) to overcome resistance by the banks, the government allowed all these bad loans to be shifted to Fannie Mae and Freddie Mac, (4) the federal government told the American people that Fannie Mae and Freddie Mac were private institutions and (5) when the bad mortgages entered default, the federal government decided to bail out (almost) everyone, including the supposedly private Fannie Mae and Freddie Mac. In reality, the 2008 financial crisis was, like the Great Depression, an artifact of government economic meddling. The free market would never have produced such a result.

Nonetheless, the warmists see the 2008 financial crisis as validation of central planning. This is an extremely dangerous view. Warmists (and central planners in general) tend to see government as a panel of experts dedicated to the technocratic management of the economy in the general interest. In fact, government is run by politicians who use the money and authority granted to them to continue to build their power base by rewarding their supporters and punishing their enemies. Any public interest served is incidental to this process. I continue to be amazed at what we have seen in Washington over the last 20 years or so. Our elected officials identify social and economic problems, ask for money and authority to deal with those problems, make the problems worse and then ask for even more money and authority. It’s my sincere hope that we will soon wise up and stop granting this request.

You fall right into this trap when you claim that “Shifting to a low-carbon economy, including building a massive new energy infrastructure, may be the greatest job-creation opportunity we’ve seen in a long time.” When the government forces the replacement of any good or service with a more expensive option, jobs will be created, but other jobs will be lost. Suppose we passed a law requiring everyone to wear a $500 Stetson hat whenever they are in public. Suppose further that that law created 5,000 jobs for people to make, distribute and retail the hats. Those people would be happy, and the government would claim that they had added 5,000 good jobs to the economy. Not so fast. The $500 you spend on your hat would have been spent on something else, say a new suit. The people who would have grown the wool, made and transported the cloth and tailored and sold the suit would now be out of jobs.

In a growing economy, the people whose jobs are created by government action can be identified and their smiling faces shown on TV. The jobs that were not created, however, cannot easily be assigned to particular people, but just add to the general unemployment. Remember that government has no money other than what it extracts from the economy through taxation, borrowing or inflation. The money government spends would have been spent on something else.

Energy is a critical input into a modern economy. A massive increase in energy costs would have profound impacts on our living standards, affecting not just the utility and gasoline bills of average Americans, but the cost of everything we produce and move around our huge and highly mobile society. There is no reason to be glib about the joys of replacing fossil fuels with energy sources that are much, much worse in terms of cost and performance.

Politicians are in fact too smart to even attempt the replacement of fossil fuels, since they know that the impacts on living standards would be so severe that the public would never accept them and would likely throw the politicians out of office. What elected officials like President Obama are actually proposing is a series of largely symbolic steps that would cost us some real money, but would have no material impact on US carbon emissions. If you doubt that statement, here’s an interesting exercise. Have a look at President Obama’s “Climate Action Plan” from June, 2013, which you can find at http://www.whitehouse.gov. This 21-page report is full of exciting words like “lead”, develop”, “promote” and “identify”. What exactly would the impact be on our carbon emissions? Well, page 4 reiterates the President’s 2009 pledge to reduce US carbon emissions by 2020 to 17% below the 2005 level. Note the careful choice of base year. In 2005, US carbon dioxide emissions from energy use were 5,999 million metric tonnes (mt) (http://www.eia.gov/environment/data.cfm#summary). By 2009, when the President made this wondrous pledge, the US was deep in recession and, as a result, carbon dioxide emissions had fallen to 5,418 million mt, a reduction of 10%. So the President was in fact proposing a further reduction of only 438 million mt by 2020, equivalent to 1.2% of projected global emissions. By the way, he only promises to do this “if all other major economies agreed to limit their emissions as well.” What you risk here is spending lots of money borrowed from China but having no impact whatsoever on atmospheric carbon levels. Are you OK with that?

Elected officials in the US and Europe are actually testing the willingness of their warmist constituents to accept promises and symbolic gestures rather than actual carbon reductions. Subsidies, renewable portfolio standards, feed-in tariffs and loan guarantees have cost American and European consumers billions of dollars with negligible effects on global carbon emissions. The worst example was the Kyoto Protocol – an expensive cap-and-trade system with loopholes and accounting gimmicks that allowed the European Union to meet its obligations without reducing greenhouse gas emissions at all. Politicians may like this approach, but the rest of us shouldn’t.

This gets us to the 800 pound gorilla in the climate room. American warmists talk about the problem as though carbon dioxide is coming primarily from the extravagant lifestyle of Americans with their big cars and excessive air conditioning. The US has certainly been a major emitter of carbon dioxide over the years, but that calculus has changed rather dramatically over the last few years. There are 190 signatories to the UN Framework Convention on Climate Change. When the Convention was signed in 1992, US CO2 emissions were 5½ billion metric tonnes (mt) per year – about a quarter of the world total. US emissions, however, have not increased much since, and the Energy Information Administration projects minimal growth through 2040, when the US will represent less than 13% of the global total. Chinese emissions, on the other hand, have increased from 2½ billion mt per year in 1992 to 9 billion today with a projected growth to nearly 15 billion by 2040 – a third of the world total. If there is a danger from greenhouse gas emissions, it comes not from rich Americans but from Chinese peasants not unreasonably seeking a middle class lifestyle by burning massive amounts of cheap domestic coal and imported oil. If there is a climate problem, it will arrive on a wave of Chinese coal.

The key to reducing atmospheric carbon concentrations lies not in the US but elsewhere. I am continually amazed at the faith my Fletcher students and faculty colleagues have that if the US would just destroy our economy, the Chinese would happily follow suit. Unfortunately for warmists, the Chinese leadership has only two objectives: staying in power and enhancing China’s geopolitical position. Achieving these goals requires a single-minded focus on economic growth to bring the Chinese population out of poverty and to provide the resources for a superpower-quality military. Climate change may be low on America’s priority list, but it’s not on China’s list at all. Chinese engagement in climate change negotiations serves only to encourage the West to hobble their economies with high energy costs and to offer China real economic benefits in return for vague promises.

The bottom line here is that the dichotomy between climate action and no climate action is entirely false. It makes more sense to talk about three scenarios: (a) no climate action, (b) reductions in carbon dioxide emissions sufficient to materially change atmospheric carbon concentrations and (c) meaningless, symbolic actions which would reduce economic growth slightly but have no impact whatsoever on climate. The warmists may like option (b), but the best they will ever get is option (c).

Next week, I’ll make an attempt to put the science and economics together and offer my own decision matrix.

Posted by: bmeverett | March 20, 2014

A Reply to Greg Craven (Part 1)

I recently posted some comments on a Youtube video by Greg Craven, a high school teacher in Oregon (“The Kid’s Logic”, February 21). I received a nice response from Greg asking for comments on his book “What’s the Worst That Could Happen? A Rational Response to the Climate Change Debate.” I have now read the book and offer the following open letter to Greg. If Greg elects to reply, I promise to post his comments in full. Here goes.

Dear Greg:

I’ve finished reading your book and appreciate the opportunity to comment. First, some positive remarks. I fully agree that the climate debate has become a shouting match, and I would like to make common cause with people like you who want to understand the issue and discuss the problem rationally and reasonably. Second, you’re a great writer, and I really like your style and humor. By the way, I bought your book, rather than finding a free pdf on the web. Please spend the money wisely.

Now for the negative part. Your argument is still completely wrong. Let’s accept for a moment that your 2 X 2 matrix is valid, even if oversimplified. I’ll use your terminology of “warmist” vs “skeptical”. In your original video, you claimed that the decision on climate change action did not rely on determining whether the “warmist” view is true. You now acknowledge that this approach is incorrect and spend most of your book time trying to convince the reader that the warmist argument is correct. You’ve failed to make this case, at least to me.

Let me offer my comments in three batches over the next three weeks: science, economics and general. Let’s start with science.
The key question for the climate change issue is how lay people (also known as voters) can come to understand a complex scientific issue that carries major implications for their living standards. You offer a structure in which we should essentially see climate change as a debate in which scientific propositions are being offered by various people, and you then suggest that we organize these people into a credibility spectrum.

The upper left of your spectrum consists of high-credibility people in the warmist camp, and the upper right is high-credibility skeptics. You find lots of people on the left side and nothing comparable on the right. This is in essence your argument, which I believe is flawed. The credibility of the scientific community depends on open inquiry and the willingness of scientists to evaluate empirical evidence on its merits. These conditions are met for most scientific questions, but not for climate change.

Most scientists are academics and live in university communities. Universities used to be repositories of scholarship and were fierce defenders of the rules of open inquiry, especially the scientific method. Many academic institutions have evolved, however, into political advocacy organizations that see their role as changing the world for the better, an approach sometimes known as the “social justice” movement. There’s nothing at all wrong with scientists and other university faculty expressing political opinions and exercising their rights as citizens. The problem comes when the search for truth is subordinated to the construction of effective debating points. The social justice movement has come to define certain issues, particularly climate change, “diversity,” “sexual assault awareness”, gay marriage, immigration, affirmative action and abortion as moral crusades rather than subjects for legitimate debate. Solidarity trumps open inquiry, and opposing views are regarded not as incorrect logic but as character flaws.

This approach to climate change was articulated openly and honestly in 1989 by Stephen Schneider, Professor of Environmental Biology and Global Change at Stanford:

On the one hand, as scientists we are ethically bound to the scientific method, in effect promising to tell the truth, the whole truth, and nothing but — which means that we must include all the doubts, the caveats, the ifs, ands, and buts. On the other hand, we are not just scientists but human beings as well. And like most people we’d like to see the world a better place, which in this context translates into our working to reduce the risk of potentially disastrous climatic change. To do that we need to get some broad based support, to capture the public’s imagination. That, of course, entails getting loads of media coverage. So we have to offer up scary scenarios, make simplified, dramatic statements, and make little mention of any doubts we might have. This ‘double ethical bind’ we frequently find ourselves in cannot be solved by any formula. Each of us has to decide what the right balance is between being effective and being honest. I hope that means being both.

Climate change orthodoxy has been institutionalized on many campuses. I doubt you could find a university with an “Office of String Theory Advancement” or an “Office of Higgs Boson Promotion”, but you can find many “Offices of Sustainability”. In fact, a Google search of “university office of sustainability” gets over 91 million hits. If you ask the university sustainability directors what they are doing, they will happily talk about reducing the campus’s carbon footprint by maximizing the use of renewable energy, cutting energy consumption and improving environmental literacy. A core part of their mission is to teach the University community that the warmist view is an established fact and that advancing the warmist agenda is a matter of personal responsibility, not a subject for scientific inquiry. Students are told that reducing carbon and lobbying for carbon mitigation is a social service activity, akin to feeding the homeless. Tufts University, where I teach, has an Institute for the Environment, which includes a program called “Climate Change, Climate Justice”. Here’s its mission statement:

As an enormous body of research makes explicitly clear, people of color, women, and especially the poor will bear the brunt of the catastrophic effects of climate change globally. Climate change is without doubt the biggest social justice issue of this century as it is estimated that many millions of people, primarily in poor countries, are likely to face displacement, disease, war and death as a result of climate change caused primarily by rich Western countries.

Does that sound like an invitation to open discussion? When the community in which you live and work establishes and constantly reinforces an official orthodoxy on a critical issue, the effect is to chill speech and limit debate.

Under these circumstances, you should not assume that what you are reading and hearing represents a full spectrum of views. When I discuss climate change in my class, my warmist students push back hard. I’m glad they do, since we can have a spirited debate. Many other students, however, tell me privately in office hours that they share my concerns about climate change, but don’t dare express these views publicly for fear of provoking hostility or ridicule from classmates and faculty.

I have no data, but do wonder about (1) how many skeptical scientists keep quiet for fear of the consequences, (2) how many scientists choose to research less controversial topics in order to retain full freedom of expression, (3) how many skeptical young scientists are not hired because their views are unacceptable to their peers and (4) how many smart young people pick fields other than climate science where they are free to pursue open inquiry safely.

Greg, you place a great deal of weight on scientific bodies, such as the UN Intergovernmental Panel on Climate Change (IPCC). Professor Schneider’s view, however, has begun to permeate the bodies you rely on for honest and objective science. Forty years ago, we could have easily distinguished, for example, between the American Physical Association (APS) and the Union of Concerned Scientists (UCS). The APS was founded to advance knowledge of physics, while the UCS was established to advocate for certain government policies, initially nuclear disarmament and later climate change. The members of the UCS are distinguished scientists, but their mission is to win political debates using the credibility of their members as a tool. They are in effect salesmen. There’s nothing wrong with this, provided we all understand what they are doing. In the last 15-20 years, the APS has evolved from a scientific professional organization to a political advocacy group akin to the UCS. If you don’t believe me, check their climate change statement at http://www.aps.org/policy/statements/07_1.cfm. Their position is purely political, not scientific, and some members of the APS objected on those grounds. The APS may be correct, but they now resemble the UCS rather than a professional physics society.

This problem is amplified in the IPCC. Hundreds of scientists participate in the detailed work of the IPCC, but only a handful write the critical “Summary for Policy-Makers”. Many of these people are avowed warmists who see their role as making the strongest possible case for carbon mitigation. They may be right, but they are not a scientific body.

You also rely on the peer review process to filter out good ideas from the noise. The peer review process itself has been badly damaged by the climate debate. When the universe of potential writers and reviewers consists primarily of warmist scientists with a social justice attitude, the process will filter for politics, not science. If you doubt the seriousness of this problem, review the infamous emails from the 2009-2010 “climategate” scandal, in which prominent warmist scientists discuss how to subvert peer review to make sure that skeptical articles do not appear.

You also give credibility to corporations who express support for some or all of the warmist agenda on the grounds that the interests of these organizations should incline them toward the skeptical camp. Therefore, their support for warmism must be sincere. I believe you are misreading what’s happening here. During the run-up to the Kyoto Protocol in 1997, ExxonMobil made a series of strong public statements, warning that (a) climate science is insufficient to support scary climate scenarios and (2) the economic costs of carbon mitigation are very high. I can tell you from my personal experience as an ExxonMobil executive that these positions were sincerely held by the management of the corporation, particularly our CEO Lee Raymond. Inside ExxonMobil, we regarded these statements as thoughtful and constructive, but they generated a massive attack by environmental groups, such as Greenpeace. This pushback did some damage to the corporation’s public image, which wasn’t all that great to begin with after the Valdez oil spill of 1989. When Lee Raymond retired in 2005, the new management reevaluated the Corporation’s position on climate change and concluded not that the corporation’s position was wrong, but that the pain of public engagement on the issue wasn’t worth the gain. ExxonMobil never endorsed the warmist position, but simply stopped talking about climate science and politics. Opinion research suggests that the public assumes that anything oil companies say is self-serving and that the public just wants to know that corporations are behaving responsibly. As a result, ExxonMobil chose simply to say that long-term reduction of carbon emissions would be a good idea, provided carbon mitigation was balanced against other priorities, such as economic growth. The Corporation would do its part by improving its energy efficiency. You can find the Corporation’s full statement at http://corporate.exxonmobil.com/en/current-issues/climate-policy/climate-policy-principles/overview. Not much here to support the warmist agenda.

Many other corporations watched ExxonMobil get beaten up and got the message. Shell and BP, in particular, took public positions much closer to the warmist view. Many of my colleagues at these two companies told me privately that their managements agreed with ExxonMobil on the substance of climate science and economics, but chose to avoid the flak associated with stating that position publicly. This “positioning by focus group” may be sensible corporate strategy, but has nothing to do with the views the business community really holds on climate science. Other companies, such as General Electric, manufacture renewable energy equipment and are happy to encourage the federal government to subsidize their products.

As a final comment, you place a great deal of importance on the views of distinguished individual scientists, such as James Hansen, one of the icons of the warmist camp. A person like Dr. Hansen, who chains himself to the White House fence and demands that oil company executives be tried for crimes against humanity, may be a brilliant scientist and he may even be right, but he cannot be regarded as a credible interpreter of balanced and impartial science. Dr. Hansen has staked his entire professional reputation on the validity of the extreme warmist position and would look like a complete fool if the skeptical position proved to be correct. Many skeptical scientists suffer from the same problem. Dr. Pat Michaels, for example, is a brilliant scientist with impeccable credentials, but he has staked his reputation on the validity of the skeptical camp. Both of these men chose to change their role from scientist to political advocate. You cannot be both.

The problem then, Greg, is that nobody has any real credibility here. Virtually everyone who is knowledgeable on climate science has either chosen sides in this debate or is sitting it out. Your credibility spectrum may be an excellent approach to evaluating the state of play of some scientific controversies, but climate change is simply too politicized. We need to find some other way.

We are in a position analogous to jurors in a complex technical trial who have listened to the testimony of paid experts put on the witness stand by the plaintiff and the defendant. All are acknowledged experts in their fields, and they all sound convincing, but all have an obvious conflict of interest. The jurors have no choice in this situation but to look at the merits of the arguments, not the credibility of the people making the arguments.

So, setting aside the individuals involved, what are we arguing about? Since the warmists are arguing for fundamental changes in our economic and political life (more on this in the next installment), the burden of proof is on them. Here, ladies and gentlemen of the jury are the arguments for the prosecution.

First, the atmosphere has been warming over the last 100 years or so. Despite some methodological issues, the science on this point seems pretty compelling. Measured surface temperatures, confirmed by later satellite observations, show an increase of about 1° C this past century. This point goes to the warmists.

Second, this temperature increase is unprecedented in known history. Not so fast here. Several prominent warmists, notably Prof. Michael Mann of Penn State, have constructed a historical time series, known colloquially as the “hockey stick” that purports to show relatively flat temperatures over the past 1,000 years or so followed by a sharp uptick over the last century. The analysis is based on combining thermometer readings over the last 100-150 years with indirect historical data series based on tree rings, coral, ice cores and other parameters. There are many methodological problems with this approach, and I am not in a position to sort them out. It is clear, however, that this analysis is highly controversial, despite the vigorous defense of the warmists. The verdict on this contention is “not proven”.

The third argument is that increased atmospheric carbon concentrations will cause temperature to increase. There is solid theoretical and empirical evidence for this contention, and the point goes clearly to the warmists. However, the direct effect of expected carbon emissions is likely to be relatively modest and would not produce the scary climate scenarios we are all familiar with.

The fourth, and most critical argument, is that climate feedback loops amplify rather than dampen the climate impacts of atmospheric carbon concentrations. Here, Greg, I think you have misinterpreted the IPCC work. You suggest in your book that the IPCC reports ignore the possible feedback loops in the climate system. In your view, this oversight creates a major risk that the temperature effects will be much higher than the IPCC scenarios suggest. In fact, all the climate models used in the IPCC studies already include positive feedback loops. The lowest IPCC scenarios show warming still above what we would expect from the direct effect of increased atmospheric carbon. This assumption actually skews the temperature analysis upward.

The IPCC acknowledges the large uncertainties here. The biggest uncertainty is the impact of warming on cloud formation. Clouds trap heat but they also reflect sunlight. The latest IPCC report (AR5) states, “The quantification of cloud and convective effects in models, and of aerosol–cloud interactions, continues to be a challenge. Climate models are incorporating more of the relevant processes than at the time of AR4, but confidence in the representation of these processes remains weak.” In reality, we don’t know whether the net effect of climate feedback loops is positive or negative, which creates a very wide range of possible outcomes, including scenarios in which increased carbon concentrations cause little if any long-term warming and scenarios in which modest climate warming is actually beneficial to humans. The IPCC does not properly acknowledge these more benign outcomes.

Positive climate feedback is an opinion, not a scientific conclusion. I don’t have the time or training to resolve this issue, but there is a theoretical argument that the feedback loops may be negative. As a scientist, Greg, you are undoubtedly familiar with Le Chatelier’s Principle, which states that “Any change in the status quo prompts an opposing reaction in the responding system.” In fact, the entire modern environmental debate is really about Le Chatelier’s Principle. Environmentalists tend to believe that natural systems are inherently fragile and prone to collapse if disturbed. Le Chatelier’s Principle suggests the opposite, i.e., that natural systems are robust and will compensate for disturbances. This is not to say that there are never adverse consequences when natural systems are disturbed, but they will tend to push back, restoring a new, if different equilibrium. In other words, Le Chatelier tells us to expect negative feedback loops. This by no means resolves the controversy, but it does suggest that the current IPCC assumptions may be too pessimistic rather than too optimistic as you suggest.

To wrap up this section, let me address one more issue: the track record of warmist predictions. I realize, Greg, that your book was published in 2008, so a lot has happened since then, but the prediction record of the warmists is just plain terrible. Every month through the 1990s, warmists like Al Gore trumpeted a new temperature record. Beginning in the late 1990s, however, a funny thing happened: the warming stopped. Climate scientists should have reevaluated the warmist conclusions to see whether they were still valid. Instead, the warmists frantically sought explanations that would preserve the warmist agenda, insisting that no matter what the data show, the warmist agenda must still be right. The warmists seem to have settled on aerosols – particulates that reflect sunlight causing an unanticipated cooling effect. This may be true, but it’s a classic case of “curve fitting” – structuring the data to meet the expected correlation – a no-no in statistical methodology.

What about the predictions of the severe consequences of warming? In your discussion of the supposedly high-credibility Association for the Advancement of Science (AAAS), you say “[In 2006] The association claimed that the pace of climate change has increased in recent years and said that ‘the intensification of droughts, heat waves, floods, fires and severe storms’ are ‘early warning signs of even more devastating damage to come, some of which will be irreversible’”. This claim has been repeated time and again by warmists and even by President Obama in his 2013 State of the Union address. The problem is that these statements are not factually correct. Severe storms, wildfires and droughts have shown no clear trend over the past 100 years. Wildfires, for example, are determined more by forest management practices than by climate and were far more severe in the US in the 1930s than they are today. For more on the severe storm fallacy, see my post “Hurricane Sandy and Climate Change” from November 13, 2012 at http://bmeverett.wordpress.com/2012/11/13/hurricane-sandy-and-climate-change/.

In your book, you asked a very sensible question: What would it take to change your mind? I don’t know if all your highly credible warmists could answer that question, but I can. If the general circulation models the IPCC uses to predict climate effects could show any predictive ability, I would take them seriously. The problem is that, despite your contention, these models are unable to predict anything. Your contention that the warmists have a good track record is simply not true.

The warmists have failed to convince me that the scary scenarios are anything other than debating tools with no real science behind them. In my 2 X 2 matrix, the row for catastrophic climate change would be extremely thin, probably too thin to appear on the chart. The warmists will have to do much better.

P.S. Greg, you really shot your scientific argument in the foot with your comment that “… Peak Oil is also a certainty (or, as close as science can get to one) in our lifetimes”. I realize that a lot has happened since you wrote your book, but Peak Oil was always a highly controversial proposition. Although there have been some thoughtful proponents of this idea, including M. King Hubbert, Ken Deffeyes and Matt Simmons, very few people in the oil industry ever believed it. In fact, the oil industry has found more oil than it produced consistently for the past 150 years. To cite an example I use in my class, in 1980, global oil reserves were estimated by BP at 683 billion barrels. Since then, we have consumed approximately 829 billion barrels. How much do we have left? 1,669 billion barrels. Humans have been producing increasing amounts of copper for 5,000 years without hitting peak production. Why? Because technology can beat depletion over millennia. If this is your definition of scientific certainty, perhaps a rethink is in order.

I realize that this was an unusually long post, but Greg’s arguments deserve a thorough response. Next week, some comments on climate economics.

Posted by: bmeverett | March 13, 2014

Climate negotiations

On March 1, I mentioned the debate on climate negotiations currently underway at The Fletcher Forum – Fletcher’s student journal of international affairs. I have submitted by views which you can find at http://www.fletcherforum.org/2014/03/13/everett/

Posted by: bmeverett | March 7, 2014

US Natural Gas Exports and Ukraine

The recent crisis in Ukraine has prompted calls for increased US natural gas exports to reduce the Russian pressure on Ukraine and Western Europe. On balance, this crisis may encourage us to take some sensible steps here. Common sense suggests that the US should develop its extensive natural gas resources, and economics tells us that that natural gas should flow to its highest value use, whether domestic or export markets. We need to be careful, however, not to overstate what we can do in the European, and particularly in the Ukrainian gas markets.

Ukraine currently imports about 1 trillion cubic feet (TCF) of natural gas every year from Russia. Since the break-up of the Soviet Union, Russia has sold this gas at a discount, presumably to keep a hook in Ukraine’s economy. Since last December, the Russian price to Ukraine was about $7.50 per thousand cubic feet (MCF), an attractive price, given that the average import price into the EU has been running about $11.50 per MCF. This discounted price, however, has been further sweetened by Russia’s allowing Ukraine to run a tab on its gas imports, accumulating a debt currently estimated at around $1.5 billion.

Before we consider the policy implications, a few general comments about the global natural gas market. First and foremost, oil is easy and inexpensive to transport while gas is not. A barrel of oil can be shipped from any coastal location in the world to any other coastal location for $3/barrel or less. With oil prices at over $100/barrel, the transportation cost is only a small share of the delivered price. Oil can be poured into tankers under ambient temperature and pressure conditions, while natural gas must be moved (a) through pipelines, (b) in liquefied form which requires liquefaction facilities, special cryogenic ships and regasification facilities or (c) chemically converted into liquid fuels. All of these methods are very expensive with new projects costing in the tens of billions of dollars. Unlike oil, the delivered price of natural gas depends heavily on distance from potential suppliers.

Second, the world has a large number of discovered natural gas fields which are not under development because the infrastructure is not in place. The industry calls this “stranded” or “static” gas. We know it’s there, but there’s no market willing to commit to its purchase. Much of this resource base is in the Middle East, the Caspian and Central Asia. The constraint on gas supplies is infrastructure investment, not resource availability.

The Ukrainians’ problem is not the lack of access to natural gas supplies, but their desire to maintain cheap supplies of Russian gas. The key strategic issue is whether the Ukrainians are willing to pay more for gas in order to get themselves out from under the thumb of the Russians. Let’s assume for the moment that the discount for Russian gas is about $4 per MCF. With imports of about 1 TCF, the discount is about $4 billion per year. There are about 45 million Ukrainians, so the Russian discount is roughly $100 per person. According to World Bank data, per capita income in Ukraine is about $3,900, so the discount is about 2.5% of the average Ukrainian’s income.

If Ukraine wants to reduce its dependence on Russian gas, the US is probably not the place to start. Odessa is about 7,700 ocean miles from Houston – a long haul for LNG tankers. The Turkish LNG hub is only 450 miles from Odessa. Potential Israeli or Egyptian export terminals are only about 1,400 miles away, and Yemeni natural gas is less than 3,000 miles away. The question is whether Ukrainians will be willing to pay the price. Moving from a subsidized price to a market price is critical for Ukraine’s future. Either they are independent from Russia or they are not. None of the regional LNG suppliers will subsidize Ukrainian gas consumption, and the US shouldn’t either. If the Ukrainians choose to move forward with non-Russian gas supplies, it will take some time and lots of infrastructure investment. Here the West can help with political and financial support.

Western Europe’s problem is similar. The EU currently consumes about 16 TCF of natural gas annually of which 4 comes from Russia via pipeline. The EU can reduce their dependence on Russian gas by negotiating LNG contracts with other suppliers in the Middle East and Africa. Qatar, which has almost inexhaustible supply of natural gas, is about 4,900 miles from the Adriatic terminals. Nigeria is a similar distance from Northwest Europe. The US is a competitor for the European natural gas market, but it’s by no means an easy reach. Houston is 5,600 miles from Northwest Europe. Although US natural gas prices are currently below historic levels at less than $5 per MCF, Nigeria has gas currently being flared, i.e., zero value gas, and gas can be produced in Qatar for less than $1 per MCF. Each major US LNG export project that comes on line could sell roughly 1 TCF/year – a significant market player, but not exactly enough to overwhelm the European market and push the Russians out. Again, the issue is how much, if anything, the Europeans will pay to reduce their dependence on Russia.

By all means, let’s develop our gas and take advantage of export sales when they make commercial sense. Let’s be careful, however, about threatening Putin. The US currently has natural gas reserves of about 300 TCF, most of which we will consume ourselves. Russian gas reserves are currently 1,165 TCF, and their consumption is only about two-thirds of ours. They are likely to remain a much more powerful player in the gas market than we are.

Posted by: bmeverett | March 1, 2014

The Debate on Climate Negotiations

The Fletcher School has an excellent journal called The Fletcher Forum. The Forum recently initiated a debate on the major geopolitical risks we current face, namely:
1. The Breakdown of Climate Change Negotiations
2. The Growing War within Islam
3. The Credit Crisis and Economic Slowdown in China
4. The Growth of Cyber-espionage
5. The Unraveling of Africa’s Economic Boom

You can find Dean Stavridis’ introductory material at http://www.fletcherforum.org/2014/02/06/2014globalrisk/, and I encourage you to have a look.

As is too often the case, the introduction starts the discussion way too far downstream, The Dean notes that “Failure to take aggressive action on any new [climate] agreement will be problematic as climate change accelerates and we near the depletion of our carbon budget.” With this statement, the debate is effectively over, rather than engaged.

There have been six articles submitted to the Forum so far on this topic, which you can find at http://www.fletcherforum.org/category/grf2014/grf2014-cc/. As you can see, they cover a very narrow range of opinion. I find the discussion reminiscent of the old disarmament debates of the 1960s-1980s. Nuclear weapons, it was argued, pose such a threat to humanity that they simply have to be eliminated, and we should engage the Soviet Union immediately in an effort to achieve that purpose. Behind these proposals were the unspoken assumptions that the Soviet Union had nuclear weapons only because the US threatened them and that the Soviets would be happy to dismantle theirs if we got rid of ours. The discussion of climate change negotiations mirrors this logic. Climate change is so serious that the “international community” has to fix it. If the US leads the way, other countries will follow. This argument is wrong on many levels.

I’ve been invited to submit an article myself, which I plan to do during the next week. I’ll post the link in this space as soon as it’s available.

Posted by: bmeverett | February 21, 2014

The Kid’s Logic

Several of my students at the Fletcher School have sent me a link to a brief video on climate change which you can find at http://www.upworthy.com/one-guy-with-a-marker-just-made-the-global-warming-debate-completely-obsolete-7. You have to love the title. In 9½ minutes, Greg Craven, an Oregon science teacher, wins the climate change debate with only a magic marker as a weapon. If you watch this video, you will see what happens when smart young people study environmentalism instead of science, mathematics and logic. I wouldn’t worry so much if this video had been made by a high school student, but this kid is teaching other people’s children.

Here’s what The Kid does. He draws a 2 X 2 matrix. The rows are whether global climate change (GCC) is true or false. The columns are whether we take action – yes or no. He then proceeds to fill in the four boxes as follows. In the upper left, GCC is false, but we take action anyway, resulting in (in his worst case) a global depression “which makes the 1930s look like a cakewalk”. In the upper right, GCC is false and we take no action, which means we made the right choice and everything is hunky-dory. In the lower left, GCC is true and we take action, thus incurring a cost, but it’s money well spent. In the lower right, GCC is true but we take no action, resulting in catastrophe with “sea levels rising 10-20 feet, entire coastal countries disappearing, hundreds of millions of people worldwide displaced, crowding in on their neighbors, causing widespread warfare over scarce resources and longstanding hatreds. We’ve got entire forests dying and burning, massive droughts alternating with catastrophic floods. We’ve got the breadbaskets of the US and Russia turned to dustbowls causing catastrophic famines, terrible disease epidemics spreading like wildfire. Hurricanes like Katrina becoming the norm. This is a world straight out of science fiction. Economic collapse because the global economy has been hit by crisis after crisis. This is a world that makes Al Gore look like a sissy Pollyanna with no guts who sugar-coated the bad news.” He also notes that “We’ve learned in the last five years that it’s possible… it’s plausible that this might happen abruptly.”

OK, now here’s The Kid’s argument. We have to choose between Column A (no action) and Column B (action). The worst that can happen if we choose Column A is a worldwide depression, but the worst that can happen if we choose Column B is (in The Kid’s words) “the end of the world as we know it.” Therefore, “When faced with uncertainty about our future, the only responsible choice, the only defensible choice, really the only choice is Column A in order to eliminate [the climate catastrophe] as a possibility.” The Kid then smiles smugly and urges everyone to adopt his perfect argument and demand climate change action.

There’s only one small problem with his argument: it’s wrong. He runs afoul of what logicians call The Fallacy of the Excluded Middle, also known as a False Dichotomy. In essence, the argument boils down to the assertion that we should take whatever action is necessary to avert serious catastrophe, regardless of the costs of action or the probability of disaster.

Here’s my analogy. Let’s say we are a society of 10,000 people living on a tropical island with a big volcano in the center. The High Priest says that unless we take action, the volcano will erupt killing everyone on the island. He proposes that we carry Fred to the top of the volcano and throw him into the lava to appease the Volcano God and thus prevent the eruption. Let’s use The Kid’s approach and make a 2 X 2 matrix. The rows are whether the High Priest’s prediction is true or false. The columns are whether we throw Fred into the volcano or not. The upper left hand box of the matrix is the case where the High Priest is wrong, but we throw Fred in anyway. The result is just a dead Fred. The lower left box means the High Priest was right and we’ve saved 9,999 people or 99.99% of the population for the loss of just one person – a pretty darned good result. The upper right hand box is the case where the High Priest was wrong, and we don’t thrown Fred in. No problems there. The lower right-hand box means we don’t throw Fred into the lava, and every one of us dies. The Kid says that we shouldn’t spend much time worrying about whether the High Priest is right or wrong. Just throw Fred in the volcano ASAP. The downside of taking action is just the loss of Fred (a person nobody really liked anyway), while the downside of taking no action and letting Fred live is that we all die.

Now I’m not comparing climate scientists to witch doctors. Scientists in fact have some serious tools available to them to examine the physical world and make reasonable predictions. The core of The Kid’s argument, however, is that required action doesn’t depend on knowing the probability of disaster, merely its severity. The Kid is telling you not to worry about whether there is a connection between the eruption of the volcano and throwing Fred into the lava. You need only concern yourself with the consequences of a volcanic eruption, which in our hypothetical case would be truly apocalyptic.

Setting the climate change problem up in this manner takes oversimplification to a new level. Global Climate Change is not a true/false proposition. There is strong theoretical and empirical evidence that carbon dioxide emissions contribute to atmospheric warming. We also know that there are other variables (cloud formation, ocean absorption, vegetation, solar cycles cosmic rays and others) that also affect climate. The question is whether we understand the climate system as a whole well enough to predict anything at all. Rather than a dichotomy, there is a wide range of possible outcomes. In my opinion, the Climate Community has not made the case that the catastrophe outlined by The Kid has any more plausibility than the volcanic eruption predicted by the High Priest. Furthermore, the actions that are being proposed by the Climate Community and implemented by President Obama through executive orders, will prove quite expensive but contribute nothing whatsoever to the reduction of any atmospheric warming. These are “big buck – no bang” policies. The Kid really needs to define what “action” means.

Here’s my recommendation. Delete this silly Youtube video and send The Kid back to school for some real education. Alternatively, let’s ask The Kid whether it’s OK to throw him into the volcano.

Posted by: bmeverett | February 13, 2014

US Energy Independence

As US oil and natural gas production have increased, we see more talk about the potential benefits of US energy independence. This idea has been around since Richard Nixon’s “Project Independence” in 1974 and it has no more meaning now than it did then. A February 2 interview by Fox News’ Eric Shawn with Pennsylvania Congressman Tim Murphy is an excellent run-down of all the fallacies associated with energy independence. (You can find the video athttp://video.foxnews.com/v/3141843881001/saying-goodbye-to-mid-east-oil/#sp=show-clips) Let’s run down the specifics.

The piece starts with Mr. Shawn’s observation that the US is now the largest oil and gas producer in the world, with output of 22.2 million barrels a day of oil equivalent (MBDOE) compared to Russia in the number two spot 21.8 MBDOE. Please don’t do this. Oil and natural gas are both sources of energy, but they serve very different markets and should never by simply added together. Oil is a transportation fuel. It powers out cars and trucks. Natural gas is mainly a power generation fuel. There are a few points of competition, such as home heating, but they are not really significant. The implication here is that increased natural gas production helps to reduce our oil imports. That may be true someday, but it’s not true today.

The Congressman, who by the way is a Republican, says that we really need a “portfolio of oil, natural gas, clean coal, wind, solar and other renewables. You have to put them all together.” This statement is purely political. As has been discussed often in this space, renewable energy is simply not economically competitive and presents substantial technical problems as part of an electricity grid. The US economy is not helped by forcing relatively small amounts of very expensive energy into the market. This statement is analogous to saying that we need to have a portfolio of roads made from asphalt, concrete and gold nuggets.

The Congressman’s next statement is that we have spent $4 trillion in Iraq and Afghanistan protecting the oil fields there. Seriously? The last time I looked, Afghanistan had no significant oil resources at all. We went to war in Afghanistan because the Taliban had used the country as a staging ground for the 9/11 attacks on the World Trade Center and the Pentagon. Iraq, of course, does have oil reserves, but the Congressman is suggesting that we went to war there because we needed their oil for the American market. The oil market is global and integrated with a single international price structure. It does not matter where the United States purchases its oil. When the US invaded Iraq in 2003, we were in the middle of a severe sanctions regime against Saddam Hussein that had restricted his oil output to half the level produced in 2001. If the US were interested primarily in getting Iraq’s oil, why were we forcing him to reduce oil supply? We could have easily cut a deal with Saddam to allow increased US investment in oil development and a preferential right to buy Iraqi oil in return for an elimination of the sanctions regime. Saddam would have taken that deal in a heartbeat.

In reality, the US has defended the major oil producing countries of the Middle East because the world economy needs the oil, not because the US imports that oil. This is a part of the post-war US mission of protecting the “global commons.” The idea that the US would lose interest in the international oil market if we stopped importing Middle Eastern oil is rather naïve. The US economy is deeply imbedded in the global trading system which needs oil to survive. Japan is still 100% dependent on imported oil and looks to the US to protect its supply routes. Europe, China and the emerging markets in Southeast Asia also rely on the US to protect supplies not just of oil but of all major resources moving in international trade. The collapse of the world trading system would be catastrophic to the US economy.

This fallacy has been with us since the early days of the Republic. In 1807, President Jefferson faced a crisis when the British and the French, locked in the Napoleonic wars, plundered US shipping for goods and sailors. President Jefferson’s response was the Embargo Act of 1807, prohibiting Americans from engaging in trade with other countries. The result was an immediate economic disaster. The Embargo lasted all of 15 months, and the experience convinced Jefferson that the US needed to develop the means to protect its international commerce. In April, 1917, Woodrow Wilson declared war on Germany barely a month after his second inauguration, even though he had won the election based on his slogan “He kept us out of war.” Why the sudden change? Because the Germans refused to respect American neutrality and attempted to stop us from trading with Great Britain. Wilson understood that the US economy could not survive losing access to global markets.

Congressman Murphy then claims that energy independence would mean that “We no longer have to be at the mercy of OPEC, dangling threats in front of us.” OPEC, the Organization of Petroleum Exporting Countries, is nothing more than an ineffective commercial cartel. OPEC’s twelve member states include some of our true adversaries, like Iran and Venezuela, but also some US allies, like Qatar, the United Arab Emirates, Nigeria and Angola. OPEC’s sole purpose is to try to pump up oil prices by coordinating production restrictions among its members. They have been singularly unsuccessful over the last 30 years. Like most attempted cartels, the benefits of coordinated production are never realized because each member can maximize its revenue by producing as much oil as it can each day. Right now, only Saudi Arabia maintains any spare production capacity, amounting to maybe 2-3% of world oil output.
When we talk about the supposed benefits of “energy independence”, we should remember that the US has an open economy, and Americans pay the world price for oil. We are major exporters of corn, but US consumers still pay the world corn price. Increases in US oil production (not natural gas production!) will have to influence prices on a global scale, not a national scale. Today, world liquid fuel production is about 85 MBD. The US contributes about 9½ MBD and the rest of the world the remaining 75½ MBD. According to the latest projections from the Energy Information Administration (EIA), global oil production in 2040 will be about 115 MBD. The US contribution will increase by 2 MBD to about 11½ MBD, requiring 103½ MBD from the rest of the world. According to the EIA analysis, therefore, even if the US increases its liquid fuel output by 20%, the rest of the world would still need to increase output by over 35% to meet expected demand. If the US were to triple the expected increase from 2 MBD to 6 MBD, the rest of the world would still need to grow production by over 30%. The impact of increasing US production would therefore be significant but is unlikely by itself to result in a decline in the world price of oil.

The Congressman’s next statement is that OPEC uses “their money to fund terrorism and other issues around the world.” It’s certainly true that some OPEC members, particularly Iran and Saudi Arabia, channel funds to extremist Islamic groups and terrorist organizations, but most OPEC members do not. Some have been active allies in the war against terrorism. We also need to bear in mind that at the current price of $100 per barrel, global crude oil revenue is about $3 trillion annually. Experts estimate that the 9/11 attacks cost al-Qaeda somewhere in the range of $400-500,000 to plan and carry out, money that could easily have been obtained by a few well-executed bank robberies. Does anyone really believe that reducing US oil imports will cut off the funds to terrorists?

The next exchange was particularly interesting:
Eric Shawn: You mentioned something very important though, Congressman, about OPEC and about the geopolitical result of us getting off mainlining this Middle East oil. What does it mean politically in foreign affairs? The President is going to Saudi Arabia supposedly next month to meet with the rulers there. What will it mean when we’re finally off Mideast oil?
Mr. Murphy: Well, what it means is they no longer can threaten us. It also means we can help our friends and allies around the world who may also be subject to OPEC threats. The EU would love to have oil from the United States instead of being threatened by Gazprom in Russia and by OPEC. And it’s very important that Iran sells lots of oil to China. So be it. But imagine if we could do more of the same.

This exchange borders on incoherent and is based on what I call the Soup Nazi Fallacy, a reference that any Seinfeld fan will immediately recognize. On the Seinfeld show, the Soup Nazi had the best soup in New York, but refused to sell to people he doesn’t like. When Jerry and his pals complained, the Soup Nazi glared and shouted “No soup for you!” Apparently, Messrs. Shawn and Murphy think the world oil market operates this way. We need oil, and we have to kowtow to oil producers to get it. This view is wrong. Oil is a commodity; it’s interchangeable just like gold or copper. Oil has a single unified price structure, and, at any point in time, supply equals demand. No oil exporter has a unique product to sell and, apart from some relatively small quality and freight differentials, no exporter can sell his product above the world price. What precisely has OPEC threatened us with? What does the US do or not do on the world stage because we are afraid of what the oil exporters will do in retaliation?

By the way, the EU cannot replace natural gas from Russia with oil from the United States. Oil is a transportation fuel. Natural gas is not. Furthermore, any American oil exported to the EU would be sold at the world price, resulting in no net gain for the EU.

Next, let’s give Congressman Murphy some credit for a valid statement: “And when you look at what we have as well with our own oil off our coast, estimates are between 2½ and 3 trillion dollars in today’s money that is out there if we developed our own. That is a huge boom of America’s purchasing power around the world as well.” It’s certainly true that the US gains economically from the activity of producing oil and gas, just as we gain from producing cars or wheat.

Then Mr. Shawn goes back off the rails with this: “There’s a string of gas stations in your state, in Pennsylvania – Quick Fill, United Refining. It’s unbelievable. They are proud, they only sell crude from North American sources, from the US or from Canada. They boast that. They put that in their advertising. They use no Mideast oil.” First of all, let’s just straighten out the facts here. Refineries buy crude oil. Gas stations sell gasoline. United Refining operates a single, relatively small (70,000 barrels per day) refinery in the town of Warren in northwest Pennsylvania, less than 100 miles from the Canadian border. Unlike refineries near Philadelphia, which have physical access only to long-distance oil imports, United’s Warren refinery can access a pipeline bringing Canadian crude to the US. United may choose to portray this fortuitous logistical advantage as a patriotic choice, but consumers shouldn’t be fooled.

Furthermore, gas stations do not sell fuel made from specific sources of crude oil. Gasoline is shipped from multiple refineries through pipelines, ships, barges and rail cars to different distribution terminals, where it is naturally mixed together. It is virtually impossible to determine which crude oil is the source of the molecules in your gasoline.

The interview ends by summarizing all the fallacies noted above. Mr. Murphy says, “One of the nice things about pulling up to a gas station that has North American oil is that no soldier had to shed blood to protect those oilfields, and that’s really important to Americans.” Mr. Shawn finishes the love fest with the statement, “That is a fantastic testament to being energy independent.” Is it too much to ask that both public officials and journalists know at least a little economics and think about these issues critically?

Posted by: bmeverett | February 6, 2014

Should we get rid of coal?

According to the New York Times, the elimination of coal as a power generation source in the United States is the “potentially historic centerpiece of President Obama’s climate change legacy.” The EPA is currently working on regulations to do just that. Setting aside the very real constitutional issues of whether the executive branch has the authority to take such broad economic planning steps, let’s just ask two simple questions: what would the elimination of coal power plants cost and what would we gain?

A precise analysis would be very complex, but we can make a quick ballpark estimate. Let’s start with some simplifying assumptions. First, no new coal-fired power plants will be built. With current low natural gas prices, few new coal plants would be competitive in the marketplace with or without government regulation. Second, the proposed regulations would shut down all existing coal plants by 2020. It is theoretically possible but unlikely that existing coal plants could meet the new regulations (whatever they turn out to be), since carbon capture and storage technology (CCS) is not technically ready, let alone economically viable. Finally, let’s assume that the current coal plants are replaced with equal parts of natural gas combined cycle, onshore wind farms, offshore wind farms and large solar installations.

According to the Energy Information Administration (EIA), through October of 2013, US coal plants generated about 1.3 trillion kilowatt-hours (kWh) of electricity. Let’s gross this up by 20% and estimate total 2013 coal generation at 1.6 trillion kWh. Per our assumptions, we replace this amount with 400 billion kWh each of natural gas, offshore wind, onshore wind and solar. My latest estimates for the costs new power generation from these sources, including capital, operating and fuel costs, would be 4.7¢/kWh for natural gas, 20.5¢ for offshore wind, 9.3¢ for onshore wind and 18.1¢ for solar. The total annual cost for generating 1.6 trillion kWh from these power plants would be about $208 billion. We would save only the fuel and operating costs for the shuttered coal plants, since the capital cost is already sunk. There would of course be reclamation costs unless we wish to leave these dead generating stations as permanent eyesores, but let’s ignore these costs for the moment. Coal costs about 2¢/kWh and plant operating costs (fixed and variable) another 1¢ for a total savings of 3¢ per kWh or a total annual savings of $47 billion. Our switchout would therefore cost us a total of about $161 billion per year, most of which would be reflected in higher electricity bills for consumers. With about 110 million households in the US, the average electricity bill would increase by about $120 per month. There would naturally be substantial regional variations, but on a national scale, that’s a pretty heavy burden on the middle class.

This estimate does not reflect the substantial difficulties and costs associated with integrating renewable energy into the grid. Since electricity demand is instantaneous while wind and solar power are intermittent, the power system requires either extensive storage or back-up fossil fuel generation to incorporate these technologies. At present, wind and solar account for about 4% of our electricity generation. In my scenario, their share would rise to 30%.

Even if excessive renewable energy proves not to be a problem, what would we get in return? According to the EIA, American coal-fired power plants emitted about 1.31 billion tonnes of carbon dioxide in the first ten months of 2013, so let’s estimate total 2013 emissions at 1.57 billion tonnes. The total cost of this carbon reduction would therefore be roughly $100 per metric tonne. Is that good or bad?

Last November, the White House updated its estimate of the “social cost of carbon” the official estimate of the cost of emitting a tonne of carbon dioxide into the atmosphere. The new estimate is $37 per tonne – a little over one-third of the estimated cost of shutting down all US coal-fired power plants. (If you’d like to see an exercise in tortured logic, take a look at the report that generated this number, which you can find at http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCYQFjAA&url=http%3A%2F%2Fwww.whitehouse.gov%2Fsites%2Fdefault%2Ffiles%2Fomb%2Finforeg%2Fsocial_cost_of_carbon_for_ria_2013_update.pdf&ei=MsbyUtaPMM2BogTCr4CQBw&usg=AFQjCNEYMkkDA_ad6D5lk6BX-O153P9u2A&bvm=bv.60983673,d.cGU.)

By the government’s own logic, shutting down our coal plants would cost 2½ times more than it’s worth. The Climate Community answers, “So what? We have to do something to save the Earth.” OK, but the EIA estimates total global carbon dioxide emissions in 2020 at about 36.5 billion tonnes per year. The shut-down of all US coal plants would therefore reduce global carbon emissions by just over 4%. We can’t even measure carbon emissions within 4%. In effect, we would be paying $161 billion per year for a rounding error.

To put the problem in perspective, shutting down US coal power plants by 2020 would reduce our annual emissions output by about 220 million tonnes each year. Over that same period, the EIA projects that China will increase its annual carbon emissions from coal use by an identical amount. In other words, the program to shut down US coal plants barely offset the growth in China.

The willingness of the Climate Community to support such measures is based on one of the great fallacies of the climate change debate. Other countries, so the argument goes, are waiting on the United States to take the lead. When the US shows a “real willingness” to accept the costs of carbon reduction, the rest of the world will follow. This argument reprises the assertion that the world would eliminate all its nuclear weapons if the US would just “take the lead” and disarm unilaterally.

China, the world’s largest carbon emitter has embarked on a two-fold endeavor of historic proportions. The Chinese government wants to bring nearly a billion people out of poverty and at the same time expand China’s geopolitical reach into East and Southeast Asia and later into the world as a whole. Reducing carbon emissions is inconsistent with both goals. It’s easy for the Chinese to talk about their sincerity in fighting climate change and to encourage the West to take steps that weaken their economies. The belief that China cares about carbon mitigation is one of the great self-delusions of our time – equivalent to the common view in the 1930s and 40s that Stalin was trying to create a fair and just society.

Climate “action” is difficult precisely because the costs of even small carbon reductions are very high. No matter what you believe about climate change, the President’s program is the worst possible outcome – no meaningful reduction but at a very high cost.

Posted by: bmeverett | January 30, 2014

Climate Change, President Obama and the Future of Democracy

President Obama’s State of the Union speech last night was pretty bland by today’s standards. He offered us the usual laundry list of weak policy proposals, most of which will never see the light of day. His basis theme, however, ought to give us pause. The President is stating explicitly that he plans to go around the constitutional processes of the legislature and push the limits of executive action. This effort will put further pressure on our already weakened democratic system.

As background, I recommend Harvey Silverglate’s excellent book entitled Three Felonies a Day: How the Feds Target the Innocent. Mr. Silverglate’s basic thesis is that the Congress has passed more and more laws in recent years that create serious but overly broad federal crimes, but leave way too much discretion to prosecutors in defining and applying the laws. This process violates a basic principle of English Common Law, namely that ordinary people should be able to discover what conduct is illegal so they can comply with the law. According to Mr. Silverglate, federal prosecutors too often identify the defendant before they decide what crime has been committed. This problem is exacerbated by the ability of prosecutors to spend almost unlimited funds on the prosecution, while often freezing the assets of defendants thereby robbing them of the capacity to defend themselves. The result is often a coerced plea bargain and a ruined life.

It’s not entirely clear how this situation has come to pass. My guess is that one reason is simple laziness on the part of the Congress. It’s easy to pass broad bills with catchy names like The Racketeer Influenced and Corrupt Organizations Act (RICO). This sounds on the surface like an effort to stamp out the mafia. In fact, the law has been used to persecute many businessmen and even ordinary citizens. Federal prosecutors routinely test the limits of the law to make headlines and build their resumes.

This problem has a clear analog in the regulatory sphere, and here’s where President Obama’s climate change initiatives should set off alarm bells. The Clean Air Act (CAA), first passed in 1963 and amended in 1968, 1970, 1977 and 1990, has led to a major improvement in US air quality, particularly in urban areas. The identification of pollutants, establishment of standards and creation of enforcement mechanisms has effected major declines in atmospheric levels of carbon monoxide, sulfur dioxide, nitrogen oxides, lead, ozone and particulates (soot). The problem with the CAA is that it contains provisions which can easily be abused by the executive. Two problems in particular.

First, the CAA is virtually silent on the issue of costs and benefits. This weakness has not been much of a problem so far, as the EPA has successfully tackled air quality issues where the benefits happen to be very high. The decision to treat carbon dioxide as a pollutant, however, is a stretch. As has been discussed extensively in previous blogs, the science behind predictions of catastrophic climate change is weak at best, unlike, for example, the science behind the health effects of ambient lead. There may in fact be no harmful effects from increased atmospheric carbon dioxide and the costs of even small reductions are very high. The EPA, however, is not required to make this calculation under the law.

Second, the law allows the EPA to regulate pollution when the agency makes an “endangerment finding” that a certain pollutant is likely to cause damage to public health. The problem here is that the EPA does not have to justify its findings to anyone else. The CAA did establish an EPA Scientific Advisory Board (SAB) which is supposed to ensure sound science and peer review of the basis for proposed EPA regulations. The SAB is important in the process, since courts have almost always upheld EPA findings when supported by the SAB. This mechanism is fairly thin protection, however, in the case of climate change. Of the SAB’s current 52 members, 38 are from academia. Three other members are from climate advocacy groups (The Environmental Defense Fund, The Climateworks Foundation and The Carey Institute of Ecosystem Studies). Three more are from the environmental departments of very blue states (two from California and one from Vermont). There are currently no members from the environmental departments of any other states. Only three members are from industry (Dow Chemical, Proctor and Gamble and Bristol-Myers). There is thus a strong risk that this group might support climate regulation on political rather than scientific grounds. Although the EPA is required by law to take public comments on proposed regulations, they are under no obligation to accept such comments or even to respond to them.

These two provisions require citizens to rely on the good will of the EPA and its SAB and not on any decision-making process with reasonable safeguards. Major questions affecting the country’s economic future really ought to be decided in Congress. The EPA currently has way too much discretion in making endangerment findings and is now moving forward with some of the potentially most costly regulations in its history without much science.

In 1999, the International Center for Technology Assessment (ICTA) petitioned the Bush Administration’s EPA to force them to regulate greenhouse gas emissions from vehicles. The Bush Administration denied the petition, and the ICTA and several other parties sued. In 2007, the US Supreme Court ruled that the EPA has authority under the CAA to regulate greenhouse gas emissions from vehicles if the EPA were to make an endangerment finding. Climate activists often portray this decision as a Supreme Court order to regulate greenhouse gas emissions. In fact, Supreme Court simply said that the CAA permits such regulation. The problem is the law, not just the way the EPA interprets it.

Absent new amendments to the CAA, which are unlikely in today’s divided government, the EPA may have clear sailing to impose massive costs on the economy based on a very shaky case. As Mr. Silverglate has warned us in the criminal sphere, this is precisely what happens when Congress abdicates its duty to legislate responsibly and passes laws that say, “Pollution is bad, so the EPA hereby has the authority to fix it.” This approach may appear to work well when the people in power show reasonable restraint. In the current situation, however, we have a President who has stated clearly that he will bend the available laws as far as he can get away with. We can only hope that President Obama’s climate change initiatives go the way of the Affordable Care Act. It would be truly constructive for the country if poor conception, poor execution and blatant overreach would help convince the public to rein in the current push for central planning.

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