2018-09-29

Climate and Economics, again

power The Exponential Climate Action Roadmap was published 13 September at the Global Climate Action Summit in San Francisco, says SR on fb. So, fairly sure what I'd find, I decided to take a look. It fully lived up to my low expectations. Let's begin with
The Paris Agreement’s goal to reduce the risk of dangerous climate change can be achieved if greenhouse gas emissions peak by 2020, halve by 2030 and then halve again by 2040 and 2050. This is now technologically feasible and economically attractive but the world is not on this path...
What should you do if you read, and indeed if you write, this kind of stuff? That's right: you should wonder "if this is economically attractive, why isn't it just happening of itself? Why do people feel the need to write reports pushing it, and trying to make it happen faster?" So you'd expect a substantial portion of the report to be dedicated to this puzzle, because it is obviously rather important. And note that this isn't some minor element tucked away in an appendix; it is literally the first words in the report, the overall most-important-thing that they want you to see.

When I say "expect", I don't mean expect-in-the-real-world of course. I mean expect in a mythical "sensible" world. What you'd expect-in-the-real-world is that they'd totally ignore the point I mention, and that's exactly what they do.

One possibility is that they are simply lying, or being somewhat more polite, being a little economical with the truth. "economically attractive" is a vague phrase as it has to be to cover such a wide area. Another is that they're just being over optimistic, or rather bad at evaluating things: of their eight or so talking heads, only one - CEO of Ericsson - is actually in bizniz. Another is that if it really was economically attractive, and just going to happen anyway, well, where's the fun in that? Who would need nice reports like this if the evil capitalists were going to do it anyway just to make money?

My image, from the report, illustrates another problem. There's a nice graph, projecting "energy use" sources. We see solar increasing nicely. What problem could there possibly be here? The answer is "we estimate that solar needs to continue growing exponentially at a pace of 23% per year... less than half of historical growth rates". Less that half of historical rates should be easy to achieve, yes? But suppose instead you assume historical growth rates. In which case, more than 100% of power will be solar by 2030. That's even better, you can stop pratting around with wind. Oops, but that would make the wind people very unhappy indeed, so assuming that would be a Bad Idea. My point, which my sarcasm badly obscures, is that the projections are quasi-arbitrary, and it isn't obvious that's its a good idea to try to "manage" them.

Refs


Economics, Law and Ethics
Hothouse tipping elements of no return
The Great Persuasion: Reinventing Free Markets since the Depression
FT: The Big Green Bang: how renewable energy became unstoppable

26 comments:

Chrishod said...

Take a real example: Australia. Renewable expansion in power generation continues but is nobbled by two factors. One: fossil generators and fossil fuel companies control power distribution. Two: coal producers control the national government. What is clearly the most economic path is being deliberately blocked lest the (currently) powerful be stranded. The main power generator facing heavy pressure to maintain coal-fired power production, AGL (yes, originally a gas company), nevertheless wants to retire a large and obsolescent coal power station at (some years after) the end of its effective life. This power station had only just above 50% availability last year and its reliability continues to deteriorate. The decision to let it expire, and to replace it with planned renewables and storage spliced into the existing distribution infrastructure, is clear and sensible. But the coal-fired national government keeps returning to the plant operator to try to force extension of the life of the coal-fired power station, at immense and manifestly uneconomic cost, for the sake of the coal industry.

The most economic path won't be the one chosen, if currently powerful interests would lose power or be stranded. The most economic implementation of that path won't be chosen, if currently powerful interests can use a less effective path as a bridge to control the future. I don't see why you express surprise, or think uneconomic action unlikely. Sure, if all economic actors were relatively insignificant in the overall market, and if barriers to entry were low...but we're discussing major players in major parts of our current activities.

CapitalistImperialistPig said...
This comment has been removed by the author.
CapitalistImperialistPig said...

This essentially replows ground already tilled by chrishod, but the phrase "economically attractive" need to be qualified by "to whom." It's not attractive at all to the economic and political interests who own the rights to trillions of dollars worth of fossil fuels. In sufficiently frictionless markets, such questions would not matter, but that's not the world we live in.

Of course even our not so frictionless markets where fossil fuels are heavily subsidized will do their work in the long run, so we wouldn't have to worry if the statement were pretty close to true. Chances are that moving to anything close to the idealized scenario will require the kind of government subsidies that built the railroads, the highway systems, the internet, and the global oil industry.

William Connolley said...

> I don't see why you express surprise, or think uneconomic action unlikely

I didn't. I don't.

> the phrase "economically attractive" need to be qualified by "to whom."

Of course. This is my point, too. This is my criticism of the report. Rather than address these actual problems, it veers of into quasi-technocratic solutions for what an ideal govt might do. Without recognising that, as so often, the problem is the non-ideal govt. Welcome to Hayek.

Tom said...

I have studied this topic at length (and written about it far too much). I worked in the solar power industry and have projected energy consumption trends until I'm blue in the face.

The Exponential Climate Road Map doesn't talk about it, but the key to making their numbers add up is in their Executive Summary--reducing demand.

Given that all agencies (EIA, IEA, et al) and all companies (BP, Exxon, et al) that have been forecasting energy usage on an annual basis have been forced to adjust their estimates upward, I find it absurd that someone would introduce a plan dependent on reducing demand without discussing a mechanism.

At 3000 Quads, a blog I maintained for some years, I tried to show my work. If population increases to 9.1 billion, if all but a Bottom Billion adopt their Holy Grail consumption levels similar to the OECD, energy demand will increase to about 3000 Quads per year.

The solutions discussed in their document are almost entirely relevant to the OECD, as opposed to the developing world where all of the increases in energy demand will take place. And most of their solutions are in fact feasible. However, most of their solutions have been available for decades without being adopted at scale.

I have great faith in solar as a major contributor to global energy supplies--starting around 2050. I think that solar is the future, with asterisks as needed to look at innovations in energy storage and other current roadblocks.

But the first part of this century is just going to be tough.

JamieB said...

"If population increases to 9.1 billion, if all but a Bottom Billion adopt their Holy Grail consumption levels similar to the OECD, energy demand will increase to about 3000 Quads per year."

A key component of that estimate is what you assume OECD consumption will be at your future point in time I see from your blog about page that to get to 3000 Quads you assume current US primary energy consumption.

That assumes that we make no progress on electrification of anything and we're still overwhelmingly using thermal plant to generate our electricity and that nearly everywhere else follows that path and that no energy efficiency gains come about. This is absolutely the worst case scenario.

Electrify transport and heat (and as much of the rest as possible) and generate most of that electricity renewably and your primary energy demand drops.

Tom said...

Hi JamieB,

One small advantage of focusing on actual energy consumption/demand is that we can put aside discussions of the fuel portfolio used for supply, at least for a moment.

US energy consumption has been on a fairly even keel for quite some time, despite a growing economy and a growing population. The same is true for much of the rest of the OECD.

I'm all in favor of electrifying anything that moves, although the implications of that (heavy investment in nuclear power) seem to frighten some.

I would note that what has been rejected as a strategy (shift to natural gas as a bridge to a combination of nuclear and renewables) seems to be occurring without leadership.

Which might say more about our need for 'leadership' than anything else.

rconnor said...

> “Without recognising that, as so often, the problem is the non-ideal govt. Welcome to Hayek.”

No, the problem is large companies having too much power in politics. The small government solution just allows these large companies to skip a step – instead of buying the government; they just freely dominate the industry they have market superiority in.

Your logic seems to stop as soon as it gets to “non-ideal gov’t”. Yes the gov’t is non-ideal. But you need to keep thinking and ask yourself the questions “is the problem really that the government is too big or that corporate influence is currently too strong?” (and no, the former doesn’t automatically lead to the latter, see Lawrence Lessig’s Republic Lost) and “how, in the real world (not the libertarian market utopia), would reducing the size and power of government solve or lessen the issue of foot-dragging in emission reduction efforts?”. In absence or weakening of government intervention (i.e. regulations, removal of subsidies for oil/gas and/or addition of subsidies to solar and/or (centrally planned) carbon taxes), why would an electric company change from oil/gas to solar?

Emissions, pollution and environmental degradation aside, oil/gas is a pretty great fuel – especially if you already have the infrastructure and expertise built up. Emissions, pollution and environmental degradation ain’t the electric company’s problem directly. They only become its problem with government intervention.

JamieB said...

"One small advantage of focusing on actual energy consumption/demand is that we can put aside discussions of the fuel portfolio used for supply, at least for a moment."

The supply mix is absolutely critical to any discussion about consumption if you're talking about primary energy (which I think you must be to get to 3000 quads).

The nature of our current energy system (internal combustion engines, steam and gas turbines, combustion-based space heating) leads to huge quantities of primary energy being rejected to the atmosphere as heat.

The idea that X billion people will need to generate all that rejected heat in a future energy system that is looking increasingly likely to be dominated by renewables powering electrified end uses is obviously wrong (but a depressingly common fallacy).

The starting point should be to focus on useful energy, not primary energy, i.e. what quantity of energy does society need to provide the energy services needed to function effectively?

Tom said...

Yes, Jamie, wasted heat from power generation is greater than the total power consumption of the US. Or China. The choice of fuel portfolio is a vital question and one I have explored in detail. It's just a different question.

Focus on demand, both real and latent, frames the issue. The world will use increasing amounts of energy.

That should clarify the importance of choosing our fuel portfolio wisely.

William Connolley said...

> why would an electric company change from oil/gas to solar?

Because, apparently, it is "now technologically feasible and economically attractive", unless the people writing the report are fools. As I said already.

Carbon taxes are fully compatible with smaller govt. Carbon taxes and less regulation and subsidies even more so.

rconnor said...

> “Because, apparently, it is "now technologically feasible and economically attractive"”

I think we both agree the report is somewhat misleading.

In the energy supply section of the summary, it talks about solar dropping below the cost per unit of energy of “conventional power”. However, even if true, that only applies to the $/kW of new solar vs. new conventional power. However, to half emissions by 2030, which is the reports goal, you can’t wait for oil/gas plants to naturally come to end-of-life; you’d proactively need to decommission many conventional power supplies and then install solar in its place (along with new/different transmission as solar is much more site-specific than oil/gas plants). No oil/gas utility is going to do that without some form of financial incentive/penalty or legislative mandate.

However, you also seem to conveniently ignore the fact that part of the reason the report claims these emission reduction initiatives are “economically attractive” is due to government policies and financial incentives. The shift to date and the reports future projections are not due to a natural change in the market; they are (and will need to be increasingly more so) reliant on government intervention (taxes, financial incentives, R&D grants, regulations, efficiency standards, education, etc.).

> “Carbon taxes are fully compatible with smaller govt”

Smaller? How? It’s a new tax and revenue stream that requires administration that didn’t exist before.

Furthermore, a carbon tax is a centrally planned effort to distort the market by impacting producer/consumer behaviour. Welcomed by Hayek?

William Connolley said...

> ignore the fact that part of the reason the report claims these emission reduction initiatives are “economically attractive” is...

Of course I ignored that. Because I (like, it would seem you) don't think they're telling the truth about the "economically attractive" aspect. Given that, there's little point inquiring into further detail.

> not due to a natural change in the market; they are... reliant on government intervention

I don't think that's true. I'd accept that solar panels got kickstarted by the govt; but presently they're commercially driven, and possibly even held back by govt (see Trump's fuckwitted tariffs).

> Welcomed by Hayek?

Yes, I think so. Hayek is happy with some govt intervention, though it isn't easy to tell how much. You should try reading him some him. Although I thought you'd said before that you had. As to size: a carbon tax as revenue-neutral could easily result in other taxes disappearing (I mean, in an ideal world. In the world of horrors like I-1631 that is less likely.

rconnor said...

> “Of course I ignored that. Because I (like, it would seem you) don't think they're telling the truth about the "economically attractive" aspect”

You’re playing a game of marry-go-round with me. Let’s review the conversation (with some paraphrasing):

RC: “Why would an electric company change from oil/gas to solar without gov’t intervention?”

WC: “Because the report says it’s economically attractive” (You dodge the question by taking the report at its word despite not believing it.)

RC: “I think we both agree it’s misleading but even if we believe it, there are still plenty of gov’t actions that made it “economically attractive” that you are ignoring.”

WC: “I’m ignoring them because I don’t believe the report.” (You dodge the point by acknowledging that you don’t believe the report…and therefore make it clear your first response was just a disingenuous attempt to dodge the first question.)

So I’ll ask again, given that you disagree with the report that solar is currently economically attractive, “Why would an electric company change from oil/gas to solar without gov’t intervention?”

> “don't think that's true. I'd accept that solar panels got kickstarted by the govt; but presently they're commercially driven”

Ah yes the good ol’ “If gov’t intervention worked in hindsight, then it was ok…but I’m still going to dispute any future gov’t intervention because Hayek.” To start, ask yourself if it wasn’t for the kick start by the gov’t, where would solar costs be at today? How much further delayed would their uptake be and how would that impact climate change?

Beyond that, many jurisdictions continue to provide tax breaks or financial incentives (sometimes directly from the gov’t, other times through the utility…which is often mandated to due to some Act or regulation). Furthermore, environmental protections make oil/gas extractions, refinement, delivery (including tariffs if importing) and burning more costly. It is also the (perceived or actual) threat of further gov’t intervention which is causing many energy providers to pre-emptively switch to low-carbon alternatives, to minimize future risk. So it cannot be claimed that the market is freely driving it presently. It’s also hard to imagine how a smaller gov’t would do anything but lessen the rate of change. (I also noticed you didn’t provide a response to that previously.)

> “though it isn't easy to tell how much [gov’t intervention Hayek supports]”

Well he did say “…there is no incompatibility in principle between the state’s providing greater security in this way [referring to healthcare and some social safety nets] and the preservation of individual freedom. Wherever communal action can mitigate disasters against which the individual can neither attempt to guard himself nor make the provision for the consequences, such communal action should undoubtedly be taken.”

Which is nice and all but it still seems to go against all his other teachings of the doomed failure of centrally planning. So while it may be consistent with his views on individual freedom, it seems to go against spontaneous order. If you know of a quote where he discusses that, I’d be all ears.

William Connolley said...

> just a disingenuous attempt to dodge

Stop pissing around. If you think I'm being dishonest, find someone else to talk to. There's no point talking to dishonest people, because they're dishonest. Make up your mind.

> RC: “Why would an electric company change

And when you said that, it wasn't clear whether you disagreed with the report or not. No-one can read your mind. If you think the report was wrong to say "economically attractive", then say so.

> if it wasn’t for the kick start by the gov’t, where would solar costs be at today?

We don't know. And we never will. Nor will we ever know where the world would be today if we could get back all the money that the govt has wasted over the years in various ill-conceived subsidy schemes that didn't work out.

> it cannot be claimed that the market is freely driving it presently

Why the strawman? No-one is claiming that the West is a free market. The claim, rather, is that in the present environment solar is competitive, and getting more so as time goes by. The case for the sticky fingers of govt getting in the way has largely gone. A carbon tax would help, but alas nearly all our govts seem too crap to provide that.

> of the doomed failure of centrally planning

Good. You've noticed the apparent contradiction. Now you need to actually think about it.

Phil Hays said...

If I think you are being dishonest at this or that or not, I still need the bad beekeeping news.

"all the money that the govt has wasted over the years in various ill-conceived subsidy schemes"

Making the unstated assumption that there have not subsidy schemes that have returns vastly greater than the cost... Like the Internet, perhaps?

There is no such thing as a free market. Or a free lunch, for that matter.

William Connolley said...

> There is no such thing as a free market

That's kind of one of the faux-profond things that people say, but which turn out not to mean much. Like "the map is not the territory" and so on. Noting that in modern society markets always exist within a framework of law is near tautological, because "in modern society" implies a framework of law.

The question that is more useful is something like "is it in general preferable if people are able to exchange amongst themselves without interference?". The answer is easy to see, because for any individual the answer is yes: I would indeed like this for myself, again tautologically, because if I want to make an exchange then I want to make the exchange. With the obvious exceptions for purity and so on and so forth; round and round we go.

Phil Hays said...

Where is the bad bee keeping news?

I'm waiting for you to learn about: "I'm the cable/phone/internet/whatever company, I don't have to care."

While freedom between equals with comparable knowledge and resources in a small enough community might come close to a "free market", in any slightly advanced society people are NOT equals.

Not in knowledge, not in resources, not in market power.

I want interference when someone is selling "olive oil" that's really cottonseed oil with flavors and colors. Otherwise, I lose. The seller has the knowledge of what they are really selling, I don't. Note that this goes beyond simple fraud. Why is almost every seat on a flight sold for a different price? Why does your employer prohibit you from disclosing your pay?

I want interference when there is natural monopoly. I have ONE company I can buy internet access from. That's unlikely to change, even if they overcharge for declining service. Market power matters.

https://en.wikipedia.org/wiki/Natural_monopoly

I want interference in the market for energy. Fossil fuels have market power because of the vast scale of operations. The only way to break that market power is government interference in the market: subsidies at low market share of alternatives, taxes at high market shares of alternatives. Probably both subsidies and taxes over some range of market share.

On the market for energy, do we mostly agree? Other than you might have a higher preference for taxes?

rconnor said...

> “If you think the report was wrong to say "economically attractive", then say so.”

*My* view on “economically attractive” has no bearing on *your* response to the question “Why would an electric company switch from oil/gas to solar without gov’t intervention?”. Your view would have bearing and it was clear you disagreed with it….hence why I asked the question.

And you still haven’t answered the question.

> “The claim, rather, is that in the present environment solar is competitive”

Due to gov’t intervention.

> “The case for the sticky fingers of govt getting in the way has largely gone”

Only if you agree with the report…which you don’t. So we are still left with the problem that emission reduction measures are still not “economically attractive” enough on their own to hit our emissions targets.

So we are left with a few options:

1) Say “That’s fine; I don’t really care about hitting our emissions targets.”

2) Say “Well, the market will magically take on changes that aren’t “economically attractive” by itself, so all good.”

3) Ask “Since the market won’t magically take on changes by itself, what further efforts are required to get it there?”

I honestly can’t tell if your choice would be #1 or #3.

JamieB said...

@Tom: focusing on primary energy demand is a very misleading framing.

Tom said...

JamieB, obviously I disagree--I spent three years focused on energy demand, so perhaps that is why I would defend it.

Any other framing, I would argue, does not have adequate metrics available for pursuing practical solutions for poverty, climate change, other environmental issues and the choices available for adaptation and mitigation.

Perhaps I'm wrong. But writing about The Last Ton (Tonne? big difference...), or 350 ppm, or 2 degrees (now 1.5 degrees) is all so wonderfully vague and useless. Whereas energy demand can be fairly accurately projected, measured and used to craft sane policy.

The use of the phrase 'your actual mileage may differ' takes on a different context in this discussion, but I accept that most don't share my point of view.

William Connolley said...

> ...beyond simple fraud. Why is almost every seat on a flight sold for a different price?

A good question. With a known answer. Once it was not so; now it is. For excellent reasons. And economics helps us understand why this is so. You ask a question - hopefully; rhetorical; you should know at least the outline of the answer - but your framing implies fraud, or abuse of customers at the least. Which suggests that you don't know the answer.

> I want interference when there is natural monopoly

Indeed; and remedying a natural monopoly is good. But shouting about monopolies is all too common (rather akin to the way people refuse to support free trade by spurious arguments that "optimal tariffs" might be a good idea); actual natural monopolies are rare, and so is the harm from them. You may be sad about the charges for your internet access, but even if you are losing out, the loss as a fraction of your total spend is likely to be small.

> On the market for energy, do we mostly agree?

I'm doubtful. We agree re carbon taxes, except in details. But on "Fossil fuels have market power because of the vast scale of operations" less so. There's no particular barrier to solar now (other than Trump's stupid tariffs of course) other than their cost, which (and I don't bother track the details) is or soon will be lower than coal. In the absence of a carbon tax, I'm not going to strongly object to subsidies.

crandles said...

"In fact, solar alone saw more new capacity deployed than fossil fuels and
nuclear combined. Solar even added nearly twice as much capacity as its
renewables peer, wind power"

http://www.solarpowereurope.org/wp-content/uploads/2018/09/Global-Market-Outlook-2018-2022.pdf

How fast do you expect things to change?

"Discussions about sustainability of such low price levels became quickly obsolete as the price spiral has continued its way downwards. In february 2018, a 300 MW tender in Saudi
Arabia was won by local company ACWA Power at a new world record low price of 2.34 US cents/kWh, while the first seven shortlisted bids were all below 2.90US cents/kWh."

If we are at over 50% of new capacity being solar and wind and the downward price spiral continues, how long before we reach 80% of new capacity being solar and wind?

Even once there, with growing demand, it will still take time to get to a grid that is something like 30% solar, 30% wind, 20% nuclear, 15% biomas, 3% hydro and last couple of percent from tidal/geothermal/wave/gas peakers/...

>"economically attractive but the world is not on this path"

I am struggling to see why you are debating the 'economically attractive' part rather than the 'the world is not on this path' part.

William Connolley said...

Thanks for the cheerful news. I'm not sure I'd entirely trust the solar people to be unbiased, But I'll hope they aren't too far off. Saudi, obvs, is a rather special case since it is so sunny there.

> rather than the 'the world is not on this path' part.

Perhaps because I was hoping that people would pick up on that in the comments :-). But also because the answer is, as I hope the post indicated, at least in part because of thinking like this report. Too much of too many people's energy is wasted on the wrong approaches.

Also note that I do query whether they are accurate in their assertion. Their results are based on essentially arbitrary exponential extrapolation; if you make different arbitrary assumptions you can get different answers.

Phil Hays said...

>"but your framing implies fraud, or abuse of customers at the least."

Then you missed my framing. I was talking about information asymmetric marketplaces. Fraud is just a subset.


>"You may be sad about the charges for your internet access, but even if you are losing out, the loss as a fraction of your total spend is likely to be small."

The fraction of my total income might not be so small. I'm less concerned about the "spend" than the quality.


> Solar, other than cost...

Totally missing the point yet again, I see. Declining cost curves have yet to sink in, I see.

A thought experiment. How high would a carbon tax need to be in order to make the first one MW of solar install economic? Let wiki help you.

https://upload.wikimedia.org/wikipedia/commons/thumb/4/4c/Swansons-law.svg/800px-Swansons-law.svg.png

Looking forwards rather than backwards, at some point of increasing volume, of course, the cost curve slows/stops the decline and flattens. And at some point, the cost of fossil fuels starts to rise due to declining volume.

Other complexities include:
- daily storage of power (if 30% is solar, how is night handled?)
- seasonal storage of power

crandles said...

>"Other complexities include:
- daily storage of power (if 30% is solar, how is night handled?)"

Are you kidding? Daytime demand can easily be 50% more than nighttime. So that isn't a problem, indeed it is more of a problem for requiring overcapacity of ff plants in order to supply peak demand not just typical demand particularly when some plants are undergoing maintenance. So renewables represent a reduction of this need for overcapacity issue.

Batteries are also spiralling down in cost and are (getting to be if not already) cost effective for daily cycling. This further reduces above need for overcapacity problem.

However, there are new difficulties such as several day periods with little wind and lots of clouds. Batteries earning income every day works but if they only earn for a few days a year, that isn't cost effective. We are nowhere near the point where this becomes a problem yet and we can keep adding renewables and removing ff from the mix for some time yet. By the time we get there, maybe flow batteries or some other batteries will have developed to solve the last few percent issues. Even if not and we have to keep some gas peakers to operate for a few days a year then we will be in a much better position with drastically reduced ff use for electric generation.