Most shipped bulk commodities

One other factoid I found interesting in Prime Movers of Globalization was the relative volumes of the most shipped bulk commodities (besides crude and petroleum products, which dwarf them).

• iron ore, ~800 million tons


• coal, ~800 million tons


• grain (I think including oilseeds as well), ~300 million tons


• bauxite and alumina, ~80 million tons


• phosphates, ~30 million tons
  

This might only be interesting for commodity nerds, but I thought the drop-off was impressive.

Decoupling of oil price and renewables

Geoff Styles has a post titled "Will $100 oil help renewables?", in which he argues the counterintuitive answer that, "no, not that much." Worth reading in full, but since I like to practice synthesis:

Today, gas predominantly sets the marginal price of power generation, and gas prices have decoupled from oil due to abundant shale gas supply. Transport is minimally electrified, so renewable power cannot yet substitute oil in that sphere. And prices for commodity input often rise along with oil, increasing renewable costs (a.k.a. the "receding horizon").

The first, I totally agree with. The second is broadly speaking true, although paths like CNG, gas-to-liquids and coal-to-liquids become economically viable with high oil prices and could re-strengthen the link between transport and electric power (as could increasing EV penetration over the longer term). The third is directionally true, but not absolute (and not entirely causal). Many second-gen biofuels use waste inputs which are not otherwise traded, so higher oil prices are an unmitigated boon for them. The prices of silicon and corn are often correlated with crude, but probably more because of overall economic growth than because crude drives their price. It will be interesting to see if corn starts to price off of its value as ethanol, as it did back in 2008. Not good for food security, if it does.

Highest climate ROI = family planning

Suppose you had $1 million to spend on tackling climate change. How would you spend it to get the best bang for your million bucks?

Would you spend it on stopping the slash-and-burn of forests? Perhaps on switching to nuclear energy? More energy-efficient buildings? Building cleaner power stations?

According to a recent paper by David Wheeler and Dan Hammer, climate change experts at the Center for Global Development, the answer is (drum roll): you would do much, much better to spend your money on a combination of family planning and girls’ education in developing countries.

That's Owen Barder, reporting on a Copenhagen Consensus-like analysis (in output, not methodology) on climate change mitigation. According to the analysis, the killer combo of family planning and girls' education is ~4x as cost effective as reducing deforestation, ~6x better than nuclear and almost 10x better than CCS.

An interesting thought explored in the comments is whether this would be more impactful in poor countries (high potential to reduce fertility but tiny per capita emissions) or rich countries (little unmet demand for family planning, but much larger carbon footprints). Apparently the two are similar (at least the U.S. is).

As Owen acknowledges, there are limitations to this approach, but at the very least this appears to be a solid analysis with a thought-provoking conclusion.

Can't quit "dirty power" cold turkey

In response to an over-enthusiastic Earth Day petition, the always-thoughtful Geoff Styles thinks through the following:

What would it mean if every power plant burning coal, oil or natural gas shut down today and remained idle? The short answer is chaos and social collapse, but let's take a quick look at why.

Here are a few of his facts for the numerically inclined:

As it turns out, all renewable sources plus nuclear generated a bit over 1.2 trillion kilowatt-hours (kWh) last year... Unfortunately, it's also less power than the US has generated in any year since 1966.

If we adjust for energy:GDP, then 1979, with its net generation of 2.25 trillion kWh, looks like a more appropriate basis of comparison to the economic work that our current zero-emission power output could do. The problem is that the US population has grown by 84 million people since then, and our economy, expressed in constant dollars, is more than twice as big as in '79--even after last year's contraction.

The wind, solar and geothermal power sources we've focused intensely on expanding accounted for just 2% of the electricity we used last year. Double them, and then double them again (10 years?) and that's still only 8%, compared to the 69% we got from fossil-based generation last year.

The argument almost makes itself, but he makes it well. And rightly doesn't even bother with the triviality of a similar argument for fossil transportation fuels.

How to make nuclear economic

Tax the hell out of coal, is in essence the argument of long-time environmentalist Stewart Brand in this interview and his new book.

e360: One of the main arguments against nuclear is economic — it’s not viable in the marketplace. How much should the market play in pushing these technologies, versus the government?

Brand: It’s a strange kind of desperate argument. Probably that question applies most in the developing world where coal really is king, is the cheapest. If the market rules, coal wins almost everywhere. I’ve been saying, and I say in the book, that we have to get used to the idea that there’s a very serious role for the government here, basically to make coal expensive, and let the rest fight it out.

Coal is cheap everywhere, not just in developing countries. His admission that under pure market rules coal is unbeatable is a different tack than those environmentalists who optimistically hope for the advent of renewable power at massive scale... but I think he is being more realistic than they are. After all, renewables are nowhere near being able to satisfy our current demand, let alone the likely future growth:

... the greenest people in the world probably are the squatters in the slums of the world — a billion people. How lucky we are that they’re there, they’re getting out of poverty, they’re green as hell but they would really like electricity 24/7 and fresh water and sanitation and some other things that are going to involve more energy use. That’s either coal or nuclear as far as I can tell.

The whole interview is interesting, and the book looks interesting too – I’ve added it to my (long) reading queue.

Economics of cap-and-trade

Michael Roberts kindly sketches out the economics of cap-and-trade (and specifically its impact on energy markets and prices) through a classic supply-demand framework. I tend to believe that formalizing these sorts of things into models is a very effective way of thinking through issues and effects, so many thanks to Michael for taking this direction.

It still doesn't feel intuitively correct to me that oil and coal would benefit from cap-and-trade, even in the short term; here's my first thought on where the model might be off:

Thanks for writing this out - much more cogent than my first attempt.

The one thing I'm not sure it captures fully is the interaction with existing low-carbon energy technologies (as opposed to future innovations). The demand for total energy is inelastic in the short term, but the demand for carbon-based energy is probably more elastic because as prices climb higher, broader swathes of existing low-emission technologies (wind, solar, nuclear, etc.) become economically viable.

There may be other tools from the Econ 101 toolkit that can include price-based substitution into the standard supply-demand framework (besides embedding in the demand curve) - if anyone has any ideas, I'm all ears.

What is Buffett betting on?

Everyone's talking about Warren Buffett's big $26 billion acquisition of Burlington Northern Santa Fe railroad, which the Wizard himself characterized thus:

“It’s an all-in wager on the economic future of the United States,” he said in a written statement. “I love these bets.”

Dig a bit deeper, and there are a few other angles. Green Sheet sees it as a bet on government infrastructure spending, especially on carbon-friendly railroad. Environmental Capital notes the same, but also uncovers a fascinating tidbit:

About half of Burlington Northern Santa Fe’s cargo is coal, from the huge coal fields around Wyoming, notes Reuters. Coal accounts for one-quarter of BNSF’s revenue. And coal accounts for about half of the electricity generated in the U.S. today.

That makes Mr. Buffett’s deal basically a massive bet on coal, argues Brad Plumer at The Vine.

Economic growth is good for energy and thus for coal... unless cap-and-trade or some other carbon price comes into effect, in which case coal will take a big hit. I would be very curious what Buffett thinks the net impact of a bill like Waxman-Markey would be on his newest and biggest acquisition.

Thumbs up on cooperation, thumbs down on substance

The Kerry-Graham NYT op ed on climate policy is a welcome sign of collaboration across the aisle, but its substance is mixed. The five main points are:

1. "We agree that climate change is real and threatens our economy and national security." [good!]
   


2. "While we invest in renewable energy sources like wind and solar, we must also take advantage of nuclear power, our single largest contributor of emissions-free power." [fine]
   


3. "Climate change legislation is an opportunity to get serious about breaking our dependence on foreign oil." [i.e. we need clean coal and offshore drilling]


4. "We cannot sacrifice another job to competitors overseas." [i.e. we need carbon tariffs]


5. "We will develop a mechanism to protect businesses — and ultimately consumers — from increases in energy prices." [good]

As a friend points out, clean coal is nice, but it won't do much to displace oil imports, since the vast majority of oil is used for transportation fuel, whereas coal is entirely used for power. (NB: this could change if CNG or coal-to-liquids ever took off in the U.S., but the former is still a Pickens pipe dream for now, and the technology for the latter has bad economics even without carbon pricing, which would make it completely untenable).

But the worst point is clearly the nearly naked defense of climate-inspired trade protectionism. Kerry-Graham claim that such tariffs will incentivize other countries to adopt environmentally friendly policies; this is the best possible outcome, but sparking a global trade war is another one, and it’s not clear to me why the latter is any less likely.

CCS gets underway

There’s been a lot of hype, but now the Mountaineer power plant in West Virginia is actually operating CO2 capture and sequestration on a trial basis.

“During injection, the well behaved as expected,’’ said Melissa McHenry, a spokeswoman for American Electric Power.

It is too early to tell, of course, but hopefully this works!!

Paper: China won't scale up clean coal

A new Stanford paper says that while China may dabble in clean coal technology, it will never roll it out at scale...

In fact, fundamental and interrelated Chinese interests—in energy security, economic growth and development, and macroeconomic stability—directly argue against large-scale implementation of [carbon capture and storage] in China unless such an implementation can be almost entirely supported by outside funding.

... unless, of course, it is funded by the rich countries of the world.

Rich countries could pick up the whole tab, estimated by Stanford at $25 billion to $30 billion a year. That should be an easy sell in the U.S. Congress.

Exactly. Good luck with that one.

The Waxman-Markey "windfalls" myth

In social conversations about climate legislation, one objection that often comes up to the Waxman-Markey bill that passed the House is that, contrary to Obama's campaign promise to auction 100% of the permits, 85% are "given away" in Waxman-Markey, representing a "windfall" to those companies that receive then. This is a perception issue, not a substance issue. As I showed before, ~80% of the free permits will be effectively rebated to consumers, and most of the balance going to clean tech, energy efficiency, international purposes (e.g. avoiding deforestation) and adaptation.

In a recent conversation, a good question came up - what about the 5% of the permits which are allocated to merchant power generators? Won't that constitute a windfall, as they are not required to pass on savings like a regulated utility?

My answer at the time was that merchant generators will have to use the permits for power they end up generating (except for renewable power, but they should receive cash value for renewable power they generate), so the only windfall would be if they do not generate enough to require their 5% allowance allocation and the rest can be sold on the open market.

Here is a related post on Climate Progress by two electricity market experts on why W-M doesn't create windfall profits for utilities. However, I didn't see any mention of the merchant (unregulated) generators in the post, so I'm not sure whether they are meant to be included in the argument, or were omitted. If the latter, and the authors are hiding behind "the bulk of free allowances", I'd like to hear their thoughts on whether the merchant generators could in fact capture a windfall from the current allowance allocation structure.

My provisional conclusion is that the upper bound on profit windfalls is quite low, but I'm not yet completely convinced that merchant generators can't benefit at all.

DOE awards carbon sequestration grants

“People think the elephant in the room is coal and what we’re going to do with coal,” said Michael Webber, an energy expert at the University of Texas at Austin.

“Basically,” Mr. Webber said, “this deals with the elephant in the room.”

Federal Carbon Storage Grants Awarded, at Green Inc. Here's hoping that these will help the technology evolved, but I find this quote unintentionally telling:

“As with most areas of C.C.S., new initiatives are welcome,” said Howard Herzog, a sequestration expert at Massachusetts Institute of Technology, in an e-mail message.

As far as I know, we are not even in the same neighborhood of a cost-effective solution yet.

Coal industry behind climate lobbying fraud

Didn't take long to figure out who was behind letters forged by Bonner Associates urging Congressmen to vote against Waxman-Markey. That's right, from the same genius that brought you chart-topping hits like "Frosty the Coalman"...

Sequestering carbon... in the atmosphere

What happens when you build a coal carbon capture and storage (CCS) and then can't get a permit to store the carbon? You pump that carbon into the atmosphere, of course.

Natural gas is not cheaper than coal (in the long term)

Via Green Sheet, Robert F. Kennedy is the latest to call for replacing coal with natural gas in the U.S. power generation mix, because gas is "cheaper and cleaner." Cleaner, yes, but as I've mentioned before, natural gas is only temporarily cheap. There is a supply glut now, but nothing the market can't sort out given a few years, and, as Econbrowser shows, in the long run natural gas and oil tend to converge to similar prices on an intrinsic energy basis. So unless you believe oil is destined to be cheap forever, gas will not be either. It may take 1 year, or 2, or 5, but you can count on gas prices coming back, at which point the economic advantage of coal (any government-imposed price of carbon notwithstanding).

I find it kind of irritating when big names with (apparently) zero understanding of commodity economics sound off on important issues like this - it certainly doesn't help the public debate.

The cost of regulatory uncertainty

Futuregen loses two major power companies.