This morning, Energy Secretary Steven Chu was grilled by the House Energy and Commerce Committee over his role in the ongoing Solyndra debacle. In September 2009, the California-based solar panel manufacturer received a $535 million loan guarantee from a stimulus-funded green bank operated by the Department of Energy. Last September, Solyndra declared bankruptcy, and now taxpayers are on the hook for almost a half billion dollars. Lawmakers on the Energy and Commerce Committee want to lay responsibility for this fiasco at the feet of Secretary Chu, but they have misidentified the perp. In fact, the Congress has only itself to blame.
This is not to say that Secretary Chu is faultless. His stewardship of the stimulus-funded green bank was rash. From the outset, the Energy Secretary intended to rush money out the door, which is conducive to fiscal mismanagement. Two weeks after the creation of the green bank, Secretary Chu promised to “start cutting checks” within months, despite the fact that the Department of Energy was essentially creating an investment bank from scratch.
Secretary Chu’s need for speed, however, wasn’t enough for Members of Congress. In September 2010, the Senate Energy and Natural Resources Committee held a hearing decrying the supposedly languid pace of loans from the Energy Department’s green bank. A month before that, Senate Majority Leader Harry Reid (D-NV) bemoaned that, “They [the Department of Energy] have been, in my opinion, very, very slow in putting that money out.”
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House Republicans, led by Speaker John Boehner, announced today that they will soon be introducing the American Energy & Infrastructure Jobs Act. A summary is available on Rep. Boehner’s website. The bill would expand domestic American oil and natural gas production offshore and on federal lands, something I believe is very positive. However, I am not enthusiastic about depositing royalty revenues into the Highway Trust Fund, which would spell an end to the mechanism’s “user-pays/user-benefits” principle that has long enjoyed broad bipartisan support. The other day at CEI’s OpenMarket.org, I briefly explained why this is a shortsighted move that will likely do great harm to long-term surface transportation policy in the United States by opening the door for increased politicization.
The first three excerpts this week argued that the quantity of natural resources are 1) not as limited as experts have believed (Daniel Yergin), 2) not as important as our technological and political ability to access them (Peter Huber/Mark Mills), and 3) not “natural,” in that their usefulness is not an inherent feature, but rather an artificial human innovation (Robert Bradley). This excerpt from Matt Ridley’s brilliant 2010 book The Rational Optimist: How Prosperity Evolves explains how non-renewable, finite energy sources paradoxically made economic growth sustainable. With inanimate objects doing the work instead of slaves, we can, as he says, all “live the life of a Sun King.”
In 1807, as Parliament in London was preparing to pass at last William Wilberforce’s bill to abolish the slave trade, the largest factory complex in the world had just opened at Ancoats in Manchester. Powered by steam and lit by gas, both generated by coal, Murrays’ Mills drew curious visitors from all over the country and beyond to marvel at their modern machinery. There is a connection between these two events. The Lancashire cotton industry was rapidly converting from water power to coal. The world would follow suit and by the late twentieth century, 85 percent of all energy used by humankind would come from fossil fuels. It was fossil fuels that eventually made slavery–along with animal power, and wood, wind and water–uneconomic. Wilberforce’s ambition would have been harder to obtain without fossil fuels. ‘History supports this truth,” writes the economist Don Boudreaux. ‘Capitalism exterminated slavery.’
The story of energy is simple. Once upon a time all work was done by people for themselves using their own muscles. Then there came a time when some people got other people to do the work for them, and the result was pyramids and leisure for a few, drudgery and exhaustion for the many. Then there was a gradual progression from one source of energy to another: human to animal to wind to fossil fuel. In each case, the amount of work one man could do for another was amplified by the animal or the machine. The Roman empire was built largely on human muscle power, in the shape of slaves. It was Spartacus and his friends who built the roads and houses, who tilled the ground and trampled the grapes. There were horses, forges and sailing ships as well, but the chief source of watts in Rome was people.
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Last week, after three years of environmental review, public meetings, and public comment, President Obama postponed until first quarter 2013 a decision on whether or not to approve the Keystone XL Pipeline — the $7 billion, shovel-ready project to deliver up to 830,000 barrels a day of tar sands oil from Canada to U.S. Gulf Coast refineries. Obama’s punt, which Keystone opponents hope effectively kills the pipeline, is topic-of-the-week on National Journal’s Energy Experts Blog. So far, a dozen “experts” have posted, including yours truly.
Now, if you’ve been paying attention at all over the past 40 years, you may suspect that most Keystone opponents want to kill the pipeline just because they hate oil and oil companies — even as they fill up their tanks to drive to the next demonstration. Bill McKibben, lead organizer of the anti-Keystone protest rallies outside the White House, lives in Vermont. On the Colbert Report, host Stephen Colbert asked McKibben: “You’re from Vermont? Did you ride your bicycle down here? Or did you ride ox cart? How did you get down here? Or do you have a vehicle that runs on hypocrisy?”
If we take them at their word, McKibben and his climate guru, NASA scientist James Hansen, oppose Keystone because they believe it will contribute to global warming. How? The cutting-edge method for extracting oil from tar sands is a process called steam assisted gravity drainage. SAGD uses natural gas to heat and liquefy bitumen, a tar-like form of petroleum too viscous to be pumped by conventional wells, and burning natural gas emits carbon dioxide (CO2). So their gripe is that replacing conventional oil with tar sands oil will increase CO2 emissions from the U.S. transport sector. Maybe by only 1% annually,* but to hard-core warmists, any increase is intolerable.
Enter the Law of Unintended Consequences. If McKibben and Hansen succeed in killing the pipeline, petroleum-related CO2 emissions might actually increase! [click to continue…]
There was a telling juxtaposition in the news yesterday. On the one hand, Energy Conversion Devices became the latest green energy company to flirt with bankruptcy, after benefiting from stimulus spending. On the other, oil and gas giant Anadarko announced that it would invest $1 billion annually to tap the Wattenberg field, part of the Niobrara shale formation in Colorado.
Such investments are fuel to the engine of job creation. A decade ago, the Niobrara shale deposits would have been worthless, because we couldn’t get the oil and gas out of the ground. But that changed thanks to two technological breakthroughs—horizontal drilling and hydraulic fracturing.
In fact, these two innovations are allowing for the recovery of big oil and gas plays across the country, which is why the industry is a leading job creator. Earlier this month, Reuters reported on a new analysis from the U.S. Bureau of Labor Statistics showing that jobs related to oil and gas drilling account for one in five of all net new private sector jobs in the United States since 2003. And according to a recent report by economics consulting firm EMSI, nine of the top eleven fast-growing jobs in the nation are in the oil and gas sector.
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Yesterday’s excerpt from Mark Mills and Peter Huber’s book The Bottomless Well showed how people consume energy to discover and create more energy through technological advances. Today’s excerpt from Robert Bradley’s 2009 book Capitalism at Work: Business, Government, and Energy makes a similar point, that there are no such thing as “natural” resources. As he writes, “Resources without man are not resources.”
His name is not found in economics textbooks or histories of economic thought. Where it does appear, his Germanic surname is often misspelled. His contribution is virtually unknown in the world’s vast mineral-resource industries today. Government policies owe little or nothing to him. Yet Erich Zimmermann (1888–1961) developed a new theory to explain why fixity and depletion were the wrong way to view minerals in an economic and business sense.
Zimmermann’s 1933 World Resources and Industries began a line of analysis that would explain a paradox of economic life—the growth of supposedly “depletable” supply, whether measured as current production or known reserves. …. Economists from Jevons forward focused on a conception of known resource quantities that, by definition, depleted as they were mined and consumed. Future production costs would rise as mining progressed from superior to inferior deposits. Resource prices were destined to increase in the face of continuing demand and, certainly, demand growth. The increasing scarcity of mineral resources might be gradual or rapid, but the direction was not in doubt, even allowing for improved exploration and extraction technology.
Zimmermann rejected this outside-in view that saw resources as a knowable, fixed quantity. Such a perspective was for the natural sciences, not economics. Instead, he started from the inside out: “the appraising mind of the economic decision-maker.” Resources, defined as “the environment in the service of man,” exist only from “human wants and abilities.” Resources without man are not resources. The interaction between man and environment is central.
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Stimulus spending on environmentalist policy is a green albatross around the neck of President Barack Obama. Inspectors General are having a field day auditing stimulus-funded programs for so-called “green jobs,” and the media LOVES stories about wasted taxpayer money. What started as a sop to his environmentalist base, now threatens to become a slow-drip nightmare of negative press. The timing couldn’t be worse for the President. It takes time to disburse scores of billions of dollars, so we are only now starting to scrutinize stimulus spending. By November 2012, we’ll be able to account for most of the money, and unless the current trend changes radically, the Executive in Chief is going to look conspicuously incompetent.
Here’s the back-story: In early 2009, the Executive and Legislative branches of government had a popular mandate to defibrillate America’s moribund economy with a huge injection of taxpayer dollars. Instead of limiting this “stimulus” to state bailouts and infrastructure spending, the Obama administration (led by climate “czar” and former EPA administrator Carol Browner) and the Congressional majority (led by House Energy and Commerce Chair Henry Waxman (D-Beverly Hills)) also sought to advance environmentalist policy. As a result, the American Recovery and Reinvestment Act, a.k.a. the stimulus, included almost $70 billion in spending for green jobs and renewable energy infrastructure.
Every single link along the green energy supply chain was showered with subsidies. There was funding for green jobs training, funding for factories to make green products, and funding to incentivize demand for green goods and services. It was as like a green Gosplan!
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Yesterday’s excerpt from Daniel Yergin’s new book The Quest showed how even preeminent scientists have fallen for poor predictions about future energy supplies. Today’s excerpt explains why. In their myth-crushing book The Bottomless Well: The twilight of fuel, the virtue of waste, and why we will never run out of energy, Peter Huber and Mark Mills argue that the quantity of raw fuel matters less to energy security than our ability (both technological and political) to extract the fuel. In this passage, they make the counter-intuitive point (one of many in this book) that energy consumption, rather than limit our supply of energy, actually increases it.
Though he was prepared to go quite a bit deeper when he turned on his steam-powered drill in Crawford County, Pennsylvania, in 1859, Colonel Edwin Drake struck oil at 69 feet. The first “deep water” oil wells stood in 100 feet of water in 1954. Today, they reach through 10,000 feet of water, 20,000 feet of vertical rock, and another 30,000 feet of horizontal rock.
Yet over the long term, the price of oil has held remarkably steady. Ten-mile oil costs less than 69-feet oil did, and about the same as one-mile oil did two decades ago. Production costs in the hostile waters of the Statfjord oil fields of the North Sea are not very dfiferent from the costs at the historic Spindletop fields of southeast Texas a century ago. There have been price spikes and sags, but they have been tied to political and regulatory instabilities, not discovery and extraction costs. This record is all the more remarkable when one considers that the amount of oil extracted has risen year after year. Cumulative production from U.S. wells. alone has surpassed a hundred billion barrels.
The historical trends defy all intuition. It is easy enough to thank human ingenuity for the relatively steady price of a finite and dwindling resource and leave it at that. But there is a second part to this story: it is energy itself that begets more energy. Electrically powered robots pursue new supplies of oil at the bottom of the ocean. Electricity purifies and dopes the silicon that becomes the photovoltaic cell that generates more electricity. Lasers enrich uranium that generates more electricity that powers more lasers. Power pursues the energy that produces the power.
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Below is an interesting excerpt from Daniel Yergin’s new book The Quest: Energy, Security, and the remaking the modern world, an epic 700-page journey through worldwide energy history. The passage describes how even the preeminent scientists from ages past have fallen for phony fears about energy.
The fear of running out of energy has troubled people for a long time. One of the nineteenth century’s greatest scientists, William Thomson–better known as Lord Kelvin–warned in 1881, in his presidential address to the British Association for the Advancement of Science in Edinburgh, that Britain’s base was precarious and that disaster was impending. His fear was not about oil, but about coal, which had generated the “Age of Steam,” fueled Britain’s industrial preeminence, and made the words of “Rule, Britannia!” a reality in world power. Kelvin somberly warned that Britain’s days of greatness might be numbered because “the subterranean coal-stores of the world” were “becoming exhausted surely, and not slowly” and the day was drawing close when “so little of it is left.” The only hope he could offer was “that windmills or wind-motors in some form will again be in the ascendant.”
Three quarters of a century after Kelvin’s address, the end of the “Fossil Fuel Age” was predicted by another formidable figure, Admiral Hyman Rickover, the “father of the nuclear navy” and, as much as any single person, the father of the nuclear power industry, and described once as “the greatest engineer of all time” by President Jimmy Carter.
“Today, coal, oil and natural gas supply 93 percent of the world’s energy,” Rickover declared in 1957. That was, he said, a “startling reversal” from just a century earlier, in 1850, when “fossil fuels supplied 5 percent of the world’s energy, and men and animals 94 percent.” This harnessing of energy was what made possible a standard of living far higher than that of the mid-nineteenth century. But Rickover’s central point was that fossil fuels would run out sometime after 2000–and most likely before 2050.
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Rent-Seeker Glee
Robert Bradley, Jr., Master Resource, 14 November 2011
No Free Lunch: Green Energy Is Causing Costs To Rise for California Ratepayers
Garance Burke & Jason Dearen, AP, 13 November 2011
Obama’s Green Crony Capitalism
Peter Scweizer, Newsweek, 13 November 2011
Before Solyndra, a Long List of Failed Government Energy Projects
Steven Mufson, Washington Post, 13 November 2011
A Goldrush in Subsidies for Green Energy
Eric Lipton & Clifford Krauss, New York Times, 11 November 2011
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