Centralised versus decentralised

I was quoted in a recent article about bringing power to sub-Saharan Africa: "How do you bring electricity to 620 million people?" The journalist, Tom Jackson, did a good job of summarising my position (although I am mildly annoyed that he didn't send me a copy before publication; something I asked for). That being said, some additional context never hurts and so I thought I'd publish my full email response to his questions.

Two minor footnotes: First, this was framed as a "centralised versus decentralised" debate. There are of course many variations on the decentralisation theme. (Do you really mean distributed generation, rather than transmission? Does this include microgrids? Etc.) Given the way the questions were asked, I simply took it to mean the absence of a centralised electricity grid. Second, when I talk about first-best and second-best alternatives, I don't quite mean in the strict economic sense of optimality conditions. Rather, I am trying to convey the idea that one solution is only really better when the other is unavailable due to outside factors.

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Why are grids still vital? Why is a functioning electricity grid necessary for economic growth?

These two questions are more or less the same, so I‘ll take them together. Large, centralised grids constitute the most efficient and cost-effective way of delivering (and consuming) electricity in modern economies. Not only are decentralised options substantially more expensive and (generally) less reliable, there’s no intrinsic reason to believe that they will be better at delivering a clean energy future.

Is the centralised argument being lost in places like SA where the grid is so poor and not being improved?

I wouldn't say that South Africa’s present electricity woes are the result of grid failure. Rather, the problem is primarily one of generation capacity and government mismanagement. On that note, the grid is the one component of the electricity system that is best thought of as a “natural monopoly”. (The other components of the electricity value chain – i.e. generation and distribution – should then be left to competitive forces.) Your question highlights an irony. Eskom’s mismanagement on the generation side (huge overspends and delays on the Medupi and Kusile power stations, etc.) are undermining confidence in its ability to manage a centralised grid, the one aspect that government can legitimately claim needs to be operated as a regulated monopoly.

That all being said, Eskom is falling behind the required investment goals for maintaining an adequate grid infrastructure into the future. A deficient grid network has also constrained economic growth in many other developing countries, from Nigeria to India. And, yet, this is not to say that the decentralised alternative offers an intrinsically superior solution. A grid system remains the first-best option. Decentralised solutions are really a second-best option in the absence of the former. The distinction is crucial.

What role for de-centralised solutions?

I think that decentralised solutions will remain a second-best, niche alternative for the next few decades. There are several things that cause me to take this position, of which intermittency and local storage are probably the most pronounced. Now, there do happen to be a number of exciting developments on the storage issue, but nothing that I would expect to fundamentally change the equation. More to the point, I believe that the resilience of a decentralised generation system will fundamentally require a functioning grid. The increased intermittency and smaller scale of decentralised power production will necessitate excellent access to similar, small-scale generation in other regions. This can only be achieved through a robust grid network. (An example may help to make my point: Germany’s much-fêted Energiewende was supposed to involve a fundamental shift towards the decentralised paradigm. What we've seen in practice, however, is that the Germans are investing hugely in extending their inter-regional grid capacities to places like Norway, whose hydropower resources offer the most cost-effective means of accommodating the intermittency of wind and solar.)  Similarly, the parallels that people inevitably draw between a dentralised electricity system and the communication sector (i.e. where fixed-line telephones were leap-frogged by cell phones) are misplaced. Beyond various other differences, cell phones networks are fundamentally centralised in nature: Cell phone towers are the grid equivalent of the modern-day communications sector.

I should probably conclude by saying that I fully support experimentation with decentralised systems. I just wouldn't want to put my own money on it. 

Joe Romm's cognitive dissonance on renewables, nuclear and shale gas

I used to be an avid reader of Joe Romm's "Climate Progress" blog. However, my enthusiasm has waned dramatically over the years due to his selective presentation of facts and data, stark intolerance for any opposing ideas and dogmatic stance on nuclear power. (On the plus side, his blog remains an excellent repository for climate news and he can be great fun when mocking the likes of Christopher Monckton.)

Probably the biggest problem that I have with Romm, however, is that he appears to suffer from acute cognitive dissonance. For example, the overriding theme of his blog is one of impending climate doom, yet he regularly proclaims that renewables are already at grid parity, getting cheaper by the second and ready for mass deployment. So, problem solved surely? Frustratingly, this is a recurrent theme on many green blogs, where Cassandra complexes are hard to square with wildly overstated -- or misleading at best -- claims about current renewable energy performance.

Such cognitive dissonance is again on display in one of Romm's recent posts, entitled "Major Study Projects No Major Long-Term Benefit From Shale Gas Revolution". The study in question is by Huntington et al, (2013) and contains projections from a broad suite of integrated climate models. In addition to GHG emissions, the researchers looked at the wider economic impacts of shale gas and their conclusions are rather more nuanced than Romm's excitable headline would suggest. In short, the final projections depend on a complex set of model assumptions and variable interactions. This is evident from the following paragraph that Romm actually cites from the study (emphasis his):

…this trend towards reducing emissions becomes less pronounced as natural gas begins to displace nuclear and renewable energy that would have been used otherwise in new power plants under reference case conditions. Another contributor to the modest emissions impact is the somewhat higher economic growth that stimulates more emissions. Reinforcing this trend is the greater fuel and power consumption resulting from lower natural gas and electricity prices.

Does anyone else see the irony here? Romm is lauding a study which questions the climate credentials of shale gas... and yet that largely depends on whether cheap gas displaces nuclear power -- a technology that he maligns at every opportunity.

More importantly, to say that shale gas confers no long-term climate benefits (in of itself) is extremely misleading. It all depends on whether it is complemented by a carbon price, as anyone interested in this debate (at least that I am aware of) readily acknowledges. You get a sense of this from the very figure that Joe Romm chooses to include in his blog post:

Comparison of low shale scenario (light blue), high shale scenario (dark blue), and a scenario depicting a reference case combined with a carbon price (green). This reference case is in between the low and high shale scenarios, while the carbon price starts at $25/tonne in 2013 and increases at 5% each year. Source: Huntington et al. (2013).

The dramatic reduction in emissions due to a carbon price is clearly evident. However, the above figure is still not really comparing apples with apples, since the carbon price is not adapted to the high shale scenario. (It is applied to a reference scenario that is somewhere in between the high and low shale cases.) Luckily, the data that would allow us to make the correct comparison is available here. I have therefore reconstructed the above graph, this time adding a new column that specifically combines the high shale scenario with a carbon price.

Based on Figure 13 of Huntington et al. (2013). The figure now includes a fourth column (purple) where a high shale scenario is combined with a carbon price.

This updated graph makes perfectly clear that the shale revolution can be fully compatible with deep long-term emission reductions, as long as it is complemented by a carbon price. To his credit, Romm does mention this briefly in the article and has also commented on the issue previously. Yet, by continuing to disparage shale gas and pretend that its supporters ignore the need for a carbon price, he simply serves to further polarise the climate debate.

THOUGHT FOR THE DAY: Adapting to the threat of climate change will require a broad suite of interventions. Nobody should claim that the proliferation of shale gas is a sufficient development for de-carbonising the global economy. However, together with a carbon price and other technological breakthroughs, it will likely form a very necessary component.

PS - It probably goes without saying that the economy also benefits from cheap and abundant shale. Huntington et al. state as much in their report (p. 7):

Higher shale resources reduce the costs of natural gas development and expand opportunities throughout the economy. Relative to its path in the low-shale case, [real GDP] is higher in all models that track the economy’s aggregate output. The cumulative aggregation of these GDP gains over all years is significant standing at $1.1 trillion (2010 dollars).

Showing this in graphical form is a little trickier, since some of the models actually take economic growth as an exogenous assumption, or don't extend all the way until 2050. Nonetheless, here is a graph showing a selection of models that compare changes in real GDP up until 2035.

Links and happenings

Busy times for yours truly over the last two weeks. Here is a list of things that I've been doing, plus one or two items that I spotted on ye olde internet.

1) I moved apartments! More or less the same size as our old place, but more comfortable and modern. Here is a little photo taken from the (car-free) route that I cycle to school everyday. Not too shabby, eh?

2) I had the pleasure of acting as moderator for the inaugural TEDxBergen conference. (My school has actually been hosting TEDx events for a while, but they've now expanded to include the other educational institutions in the city.) The speakers were all very interesting, with two or three in particular being excellent. I believe the video(s) for the event will be made available shortly, so I'll link to them then.

3) I gave a lecture on shale gas (and fracking) to the master's class in Petroleum Economics this week. My slides are here!

4) On a more prestigious note, two Nobel laureates recently gave lectures at my school. (i) As I pointed out on Twitter, Chris Sims is sounding an awful lot like an MMTer /Post-Keynesian lately. (ii) Finn Kydland makes a provocative claim that we are more resilient to energy price hikes today than we were in the past. His argument is that the adverse economic effects of the 1970s' oil shocks largely manifested themselves as inefficient tax rises due to the monetary and fiscal systems of the time. This in turn caused investment and employment to fall. I'm entirely not sure about this story -- the declining energy intensity of our economies would seem to play a bigger role -- but it's an interesting idea.

5) As predicted, some people are using the terrible events at the Westgate Shopping Mall in Nairobi to disparage "interventionist" foreign policy. I'm not saying that they don't have a point -- although, the ongoing anarchy in Somalia is certainly destabilising to the area and has negatively affected Kenya's economy. I'm saying that if blowback is the measure by which policy is to judged, then consistency dictates that one should make equally narrow arguments against (say) liberal immigration policy, subsidy revocation or economic austerity. What's sauce for the goose, is sauce for the gander after all.

6) To my American friends that have to suffer through the asinine politicking of the Republican party and the twilight-zone-thought-vacuum of Fox News, you have my sympathies.

China to reduce coal consumption?

I've tried to emphasise the importance of relative concepts many times on this blog. However, there are occasions when relative measures can also be more than a little misleading. Case in point: This article from Reuters, which describes how China plans to reduce its coal consumption to 65% of primary energy by 2017.

This policy prescription is primarily motivated by desire to improve the country's terrible air pollution. Of course, a reduction in coal will also bring climate benefits. (I have previously talked about the "co-benefits" of climate policy and local air pollution measures here.)

However, despite being a tentative step in a right direction, this is hardly a watershed moment. In fact, the US Energy Information Agency (EIA) was already forecasting a drop in Chinese coal consumption to 65% of total energy by 2017 (from 69% in 2012) in the reference scenario of its International Energy Outlook, which was published earlier this year.

More importantly, this relative decrease glosses over the fact that the absolute consumption of coal is forecast to increase by nearly 20% over the same period... Up from 79.2 quadrillion Btu in 2012 to an eye-watering 94.1 quad Btu in 2017!

Source: EIA data tool

THOUGHT FOR THE DAY: Be wary of anyone who tells you that China is leading the race in de-carbonising their economy, or winning the battle on renewables for that matter. There may be an element of truth in such statements, but the bigger picture is far more sobering.

How methane emissions could actually be good for the climate

This was the title of a post I wrote last week for the Recon Hub.

It may seem like I am merely trolling for viewer hits here. However, the logic behind this counter-intuitive statement is based on the political factors that shape people's opinion on climate change. (E.g. Rather depressingly, support for the theory of man-made climate change increases when the weather is hotter.)

The other important thing to realise is that methane is a much more powerful greenhouse gas than CO2 over the short-term. Yet, it's potency fades the further we look into the future, whereas CO2 remains in the atmosphere for millennia.

Here's the take-home:

Tying everything together, a move to natural gas might conceivably benefit the long-term climate in two ways. First, there is simply a direct elimination of carbon emissions due to the switching away from coal. This obviously presumes that fugitive methane leakages are not high enough to offset those gains. However, even that runs parallel to a second point which has been the focus of this post: Methane emissions in the present will drive up temperatures (but not over the long-term) in a way that likely encourages political action and hopefully helps to establish a coherent climate policy. 

To conclude, I’d rather see global temperatures follow a concave path over the coming decades, than a convex one. In less technical terms: Accepting an acceleration in near-term temperatures in order to secure the political will necessary to enact long-term climate policy, seems an acceptable trade-off from my perspective.

Happenings

Given the inadvertent success of my previous post, I've decided to take the philosophical route for this next one: My fifteen minutes of quasi-blogosphere fame are almost certainly up and so it's time to resume normal services!

With that in mind, here are some mundane reflections on the last two weeks or so:

1) I wrote what should be my final ever (ever ever) sit down exam at the end of May. The subject was philosophy of science and, despite some frustrations, I enjoyed spending time on something that is outside of my normal field of expertise. I have now effectively completed my coursework requirements for the PhD -- both compulsory and elective credits -- and should be able to concentrate on the research side of things. Basically, I've got two years to finish the remaining two chapters in my dissertation and thus, thankfully, in a pretty good position at the moment.

2) My final article on natural gas and the environment was published at The Energy Collective. Having taken on short- and long-term carbon emissions, followed by demands placed on freshwater resources, this one looked at whether fracking can cause earthquakes? (Short answer: Yes, but you'll hardly notice them.) The issues surrounding natural gas and fracking are obviously very contentious. Important research is ongoing and I certainly don't expect everyone to be fully swayed by my articles and arguments. However, having spent a lot of time researching these matters -- giving primacy to the peer-reviewed scientific literature in the process -- the following paragraph provides an accurate summary of my overall impressions: "The takeaway is consistent with the overarching theme of my series. Yes, there are environmental trade-offs to securing the benefits of fracking and natural gas at large. Placed into the right context, however, these are relatively benign and often much better than the immediate alternative. Economics teaches us that there is no such thing as a free lunch, but fracking looks like a pretty good deal to me."

3) Not everyone was happy with the above article and I was involved in some amusing (not to mention ironic) Twitter spats. I'll summarise one of these for you:

@grant_mcdermott: "Does fracking case earthquakes? (link) Yes, but they're so small that you won't notice them."
@LoveCanal2020: "Whatevs! Shell sponsored that post. You're just a shill!"
@grant_mcdermott: "Ad hominem much? Actually, Shell have nothing to do with the content of my article. By all means though, don't address any facts."
@LoveCanal2020: "Meta-analysis Mumbo-jumbo! LOUD NOISES!"
@grant_mcdermott: "Yes. Science. As opposed to anecdotes, wild accusations and LIBERAL use of CAPITAL LETTERS."
@LoveCanal2020: "Criticize my creative use of capital letters, eh? Typical ad hominem!"
@grant_mcdermott: "Ad hominem?? I criticised your emotional outburst in lieu of actual facts."
@LoveCanal2020: "Still counts as ad hominem. #philosophy101"
@grant_mcdermott: "#philosophy101fail" 

etc

4) I'm spanning the genres for my latest song contributions to www.noondaytune.com: The Meters - "It Ain't No Use" and M83 (feat. Susanne Sundfør) - "Oblivion".

Video - Fracking chat with David Zetland

I had a long video chat with David Zetland yesterday, where we discussed fracking, water pollution, property rights and a bunch of related issues. David's take on our talk is here.

Like many people, I find it very difficult to watch/listen to videos of myself. (Where did all those mannerisms come from??) Still, if you've ever wondered what a real South African accent sounds like, you're in for a treat!

In related news, the below video will act as supporting evidence for my submission as "the palest man in economics".

Fracking and water pollution

My new article for The Energy Collective is up: Hydraulic Fracking and Water Pollution.

There's much debate about whether shale gas "fracking" (i.e. hydraulic fracturing) poses a risk to our freshwater resources. However, alongside the fact that the water demands of fracking are relatively small compared to other uses, the available scientific evidence actually paints a fairly optimistic view of the situation. Thus far, no causal link between drilling activity and water pollution has been found -- despite researchers scrutinizing some pretty extensive data.

That said, water is so fundamental to our lives that it's entirely reasonable for residents to demand insurance against possible contamination. I give a brief overview of how property rights plays a key role in all of this, and my preferred regulatory framework for making sure that people are protected in the event of a dangerous leak.

Here's my conclusion:

It would be strangely naive to suggest that there are no potential risks to our water resources due to fracking activity. Like all energy sources, there are trade-offs to securing the benefits of shale gas and the possibility of water contamination is one of those. However, anti-fracking advocacy groups do their credibility few favours through the selective interpretation of – or pure disregard for – the existing scientific evidence, and what this actually says about the extent of these risks. Several comprehensive studies have thus far failed to establish any systematic relationship between drilling activity and water pollution. Important research is ongoing, but we clearly have reason to be optimistic at this stage. Regardless of the final outcome, I believe that such matters should be handled according to a clear regulatory framework that incorporates full liability and assures other stakeholders of the requisite contingency plans should an accident occur. After all, effective risk management is an entirely different animal to prior restraint.

Click through to read the full article.

Energy Collective post - Natural gas and long-term climate goals

I should perhaps have mentioned this last Friday when it was published, but my new post for The Energy Collective is up: Bridging the Gap? Natural gas and long-term climate change goals.

As the title suggests, my aim is to explore whether the scientific evidence supports the much-touted notion of gas as a "bridge fuel" (i.e. towards a low-carbon economy). This a hotly debated topic, with a lot of excited rhetoric and dubious assertion clouding the issue. Luckily, I've read it all so that you don't have to! A snippet:

However, even this is not to say that natural gas lacks credibility as the most viable, climate-friendly alternative to coal. Unpalatable as it will be for some people, the unavoidable conclusion from my perspective is that achieving very stringent emissions targets will always depend on a hefty slice of fortune… It is certainly no accident that studies which demonstrate hypothetical pathways towards achieving such targets must inevitably make fairly heroic assumptions – whether that be in the form of changes to economic behaviour and institutional reform, or in the presumption of substantial technology breakthroughs. In that light, it is not entirely obvious to me why CCS-enabled gas plants should be regarded as more unlikely than, say, thorium nuclear. And it certainly isn’t obvious to me that climate activists are best serving their cause by demonizing the one fuel source that has provably shaken coal’s grip on the global energy system.

PS - My post on Hugo Chavez and Margaret Thatcher has also been reposted at TEC -- with an updated intro in light of recent events.

New writing gig - The Energy Collective

Some exciting news for yours truly is that I'll be writing a series of articles for the excellent energy and climate website, The Energy Collective, as part of their Future Energy Fellows initiative.

I will be focusing on particular sub-topic that has aroused a lot of interest recently; namely, the economic and environmental impacts of natural gas.

My first post concerns the role that the North American shale boom has played in bringing U.S. carbon emissions to a twenty-year low, and the question of whether these climate gains are undermined by increased coal exports to Europe. (Short answer: not really.) The article expands on some earlier musings that I have presented here at the Corral and at the Recon Hub. Here's the opening gambit, which I use to set up the problem:

U.S. Shale Gas Meets European Climate Policy

Economists are suckers for a good paradox. Few things are more intellectually appealing to the practicing economist than a result which runs counter to his or her immediate intuition. Indeed, some of the most enduring ideas in history of economic thought have surprising implications at the heart of their allure; from the paradox of thrift to Ricardo's law of comparative advantage. For their part, the specialized fields of energy and environmental economics are not immune to the charms of counter-intuitive theories either. This includes textbook favourites like the green paradox and the rebound effect.

Beyond the intellectual appeal, it is clearly sensible to be mindful of such factors when designing policy. However, our inherent affinity for paradoxes is also problematic in that it can cause people to overstate their role in real world situations. To illustrate using the aforementioned rebound effect, Nature recently published a comprehensive literature survey on the subject by Gillingham et al. (2013). The authors show that the rebound effect’s significance is much overplayed, being typically only in the region of 10% (with an upper bound of about 30%). Hardly a compelling objection to improved efficiency standards then.[...]

Click through to read more!

Chavez, Thatcher and the oil that binds them

Daniel Yergin (one of the world's foremost energy experts) tweeted yesterday: "Too soon to say what Hugo Chavez’ death means for oil prices but it is certainly true that oil prices are what made Hugo Chavez possible."

I fully agree with this statement, but one could also say the same for leaders from all ends of the political spectrum. I expand on this idea in a new Recon Hub post, using Maggie Thatcher as an ideological foil to Mr Chavez.

In Thatcher's case, the (then newly discovered) North Sea oil and natural gas reserves played a key strategic role in her fight against the coal mining unions, as well as enabling her government to pay down Britain's national debt.

Read more here.

Review - Extreme Environment (Ivo Vegter)

Extreme Environment (hereafter EE) is a book written by South African journalist, Ivo Vegter. I have mentioned Vegter before on this blog and he generously arranged for me to be sent a free copy of EE after I offered to review it in an online discussion. Given this, and seeing as some of other reviews that I have read are disappointingly superficial, I decided to provide a chapter-by-chapter overview and criticism. I hope that you'll excuse the subsequent length of this post in exchange for some added thoroughness. (If not, a condensed version of this review can be found here.)

The major premise of EE is straightforward: Environmentalists are guilty of making grossly exaggerated claims and the green movement should in general be regarded with extreme scepticism. I fully endorse the more measured observation of the book jacket, which is that we should be just as cautious of the emotive rhetoric of environmentalists, as we are of corporate spin. EE expands on this dictum with varying degrees of success and some parts of the book are undoubtedly more convincing (and fairly presented) than others. It should be said that Vegter is not immune to moments of unfounded hyperbole himself, stating as early on as page 3 that the car could not have been invented in today's world, because it "would never have passed modern safety and environmental rules". (Talk about exaggeration!)

Gas booms and carbon leakage

Following what I hope is my last written exam ever earlier this month, I must apologise for the sporadic posting of late. You see, I've also made my way home for a surprise visit to see the family and life is very much in the slow lane at the moment. (This is what we are dealing with, folks.)

Nonetheless, I did manage to write up something for the Recon Hub last week.Contrary to some negative Nigels, I argue that the availability of cheap American gas will not result in U.S. coal flooding the export market (and thereby undermining climate efforts on a global scale). The reason for this is that Europe has a cap-and-trade system in place and that means imported U.S. coal might displace coal from other regions, but not in a way that leads to materially higher emissions.

Gas Booms and Carbon leakage

... It seems to me that most commentators are missing something quite fundamental.  Namely, that Europe has an emissions trading scheme in the form of the EU ETS. This arrangement naturally places a cap on the total level of emissions, so that the influx of cheap American coal should matter little from a climate perspective. After all, the beauty of a cap-and-trade system is that it guarantees environmental effectiveness in a way that is indifferent of how you might achieve it. As long as the cap remains in place, the market can be allowed to figure out the most efficient way of reaching it. (The climate doesn’t care if CO2 emissions come from burning American or Polish coal, so why should we?)

The current situation also points towards an interesting strategic development. Thus far, Europe has effectively acted alone in establishing a multi-national carbon market with binding emissions targets. A chief criticism of this unilateral approach is that it could ultimately just encourage carbon leakage, as polluting firms and fuel sources move to regions without binding targets. However, I have just described a scenario that largely precludes such an outcome. The proliferation of domestic gas resources may be forcing U.S. coal producers to look elsewhere, but the EU ETS places concrete limits how much of an effect this can have on global emissions.

...

Coffee drinkers and energy subsidies

Busy times over here with term papers due, TA work and finishing up some revisions for my current working paper. (Referee comments were pretty favourable, so I'm quietly confident.) Still, here's something that I wrote for the Recon Hub blog earlier today: Of caffeine and energy subsidies.

As the title suggests, I draw an ingenious[*] parallel between coffee drinkers and energy producers of the world. Or, at least, I try to ask the question of whether per-energy-unit subsidies are more important than the absolute level of subsidies? This is an important issue that often gets brought up the renewables vs fossil fuels debate... Get the answers here!
___
[*] Open to interpretation.

Are charts of oil priced in gold really that impressive?

Okay, one more gold-related post before I go home...

Following on from my last post, I've just clicked through to Chris's website and seen a post titled, Petrol Price in Gold Terms, in which he argues that the recent rise in South African petrol prices are "not owed to higher petrol prices, but a much weaker Rand, caused by the Reserve Bank". [I assume by petrol prices he obviously means oil prices.] He continues, "In hard currency terms, the price of petrol is unchanged since 2002."

Chris isn't alone in making this argument, which is a favourite among gold fans. That said, I've never found it as persuasive or profound as others seem to do. If you read my previous post then you may already have guessed why, but here is the key passage:

Looking at [gold] prices first, we can see that these have been undeniably impacted by the rising costs of producing an ounce of gold. This can be put down to a number of things, but chief on that list would be rising energy costs (since mines are incredibly energy consumptive)...

Energy is a fundamental input in mining activity. Gold mines, which are deeper and more complicated to run than virtually all other mining operations, are clearly no exception. In that light, why wouldn't we expect the price of gold to track what is happening in the oil market? It would be roughly analogous to me saying that cupcakes have stayed at a constant price... in terms of flour.

Now, if you're about to argue that what I've said would hold for coal but not oil... Fuggedaboutit. The movements of coal and oil movements track each other very closely. So much so that oil prices are widely used as a proxy for coal prices when forecasting and hedging in the electricity industry (since they are also more liquid). This is true even in countries where oil plays an insignificant role in power generation. And, of course, mining companies still consume vast quantities of oil during their day-to-day operations regardless of which energy source fuels their electricity needs.

Anyway, to illustrate here is the price of gold per per barrel of oil since 1971, followed by the same for several commodities. These series were picked more or less at random and are taken from the World Bank's Data Centre. (Click to enlarge.)

Not much to choose between them, if you ask me. The point here is that virtually all commodities exhibit some kind of long-term mean relationship with oil. Indeed the increasing linkage between energy and non-energy goods was a driving factor in the commodities boom of recent years. Now, of course, scale matters here and it might be misleading just to eyeball separate charts. As one last treat then, here is a single chart containing the above commodities plus a few extra, normalized in terms of their respective units. (I pick 2002 = 1 for no better reason than this is the year that Chris used in his initial post.) Again, I think the message is pretty clear.

THOUGHT FOR THE DAY: All this talk about gold, but when are we going to have a serious discussion about the Fertilizer Standard, or the Soy Bean Standard?

Quick links (05/05/2012)

I'm about to go into a pre-exam blogging hibernation, but here are some links to keep you interested:

1) Ed Dolan gives a nice overview of the economic issues surrounding fracking and the environment. Summary: "As an economist, I see something still different [to fracking critics or industry supporters]: a familiar pattern of negative externalities and missing market signals, to which the appropriate response is unlikely to be either prohibition or laissez-faire."

2) Economic blog comment of the week goes to this guy: "This was not Netanyahu at the UN."

3) Bryan Caplan draws inspiration from Game of Thrones in writing up The Bettor's Oath (a la the Brothers of the Night's Watch).

4) Turning to sport, I enjoyed this column by David Moseley on the farce that Super Rugby has become. More specifically, the laughable tournament format cooked up by the SANZAR brains trust (a concept that needs to be employed in the loosest possible sense).

5) Ever wondered where or how bands got their names? Here's a list that's worth going through. Lots of cultural homage and sexual innuendo, as you'd expect. Some of the more interesting/unexpected ones for me were Procol Harem, Pulp, Spandau Ballet, and The Replacements. Speaking of which...

And that, ladies and gents, is what we call a stone cold classic.

6) UPDATE: Forgot to mention that I've signed this petition on GMO research. You should too, and show your support for science against mind-numbing Luddite prejudices.

Earth Hour: Sending the right message?

In the build up to this year's Earth Hour, humourless critics were once again up in arms about the fact that turning off the lights for one hour would have a negligible effect on energy consumption.

Yes, because symbolic acts should be seen as outright solutions, rather than symbolizing representing solidarity with some wider issue. You know, like Tommie Smith and John Carlos thought that the solution to racial discrimination would be for everyone to walk around with an upraised fist.

Sounds to me like a lot of people could use a course in symbology.



That said, there are reasons to be critical of Earth Hour and, indeed, question the symbolic message that it does send. In that light, one of the better "contrarian" takes that I've read lately comes from Robin Mills, who argues that good intentions are undermined by a misguided signals:

Of course, improved energy efficiency is vital. The confusion is between conservation -- doing less -- and efficiency -- doing more with less. 

[snip] 

Environmentalism should not be about less -- it is about more: energy that is more abundant, cleaner, cheaper, more secure; economies that grow faster with new technologies; more people escaping poverty. 

Darkness spreading across the planet should not be the aim of environmental campaigns -- it should be a symbol of what happens when energy and environmental policy fails.

Environmental organisations like the WWF (or any advocacy group for that matter) need to think hard about the broader associations that come with their campaign messages. Concern about the planet's well-being is clearly laudable, but they will lose this fight if their cause becomes associated with privation.

Low-cost lighting from used plastic bottles

As a general rule, bottled water is not particularly good for the environment. If I were the judgmental type, I might even chime in that buying bottled water is pretty dumb -- at least in the circles that I move in -- given that it is typically of no better quality than tap water. But each to their own.[*]

Regardless, this is very cool:

(via WIMP)

UPDATE: The GF points out that I perhaps shouldn't emphasise the bottled water angle so much, since any beverage bottle would do (fizzy drinks, etc).

[*] Okay, I'm being a bit facetious here. I actually agree with David Zetland that bottled water is probably best viewed as a consumer product much like any other.

First journal submission

In other news...

I finally submitted my (co-authored) paper to a journal yesterday.

Title: 

Electricity Prices, River Temperatures and Cooling Water Scarcity

Abstract: 

Thermal-based power stations rely on water for cooling purposes. These water sources may be subject to incidents of scarcity, environmental regulations and competing economic concerns. This paper analyses the impacts of water scarcity and increased river temperatures on German electricity prices from 2002 to 2009. Having controlled for demand effects, the results indicate that the electricity price is significantly impacted by both a change in river temperatures and the relative abundance of river water. An implication is that future climate change will affect electricity prices not only through changes in demand, but also via increased water temperatures and scarcity.

All told, I'm pretty happy with it. We'll see what the reviewers think, though... As I understand it, these things take their time and I'm only expecting hear back at the start of next year. Still, a big relief to get it out the door.

Quick links - History Repeats Itself edition

Some things that I've been meaning to write about, but short on time[*]...

1) A heavily fancied South Africa bombs out during the knock-out stages of the Cricket World Cup. As I wrote on facebook: "Wait. I've seen this movie before." Or, in the endearing words of Yogi Berra: "It's déjà vu all over again!" (In related news, the ever reliable Zapiro brokes little sympathy for the apologists.)

2) Speaking of déjà vu... South Africa's favourite electricity monopoly, Eishkom Eskom, has covered itself in glory yet again. This time, serving up "a comedy of errors" that ultimately resulted in a massive explosion at a key power plant. The end result: Expenses of R3bn ($440m) for the company - thanks tax payer! - and a "severely compromised" national electricity supply. Seriously, is there anyone left who believes that we can delay the move to a competitive power market any longer?

3) More promising news is that South Africa is finally set to hike water rates in a bid to secure desperately needed investment for ageing infrastructure. A.F.T, as far as I am concerned. If you don't charge people rates commensurable to the cost of supplying water, sooner or later you won't be able to supply anyone at all. Or, as I commented: "To speak some 'economese', we need to charge water rates equivalent to the long-run marginal costs of providing it." You can see some of my (brief) previous thoughts on water pricing here and here.

4) I'm less optimistic about the Chinese command-and-control approach to water management, as officials announced plans to reduce water use per unit of GDP by 7%. I share the sentiments of many in thinking that water will ultimately prove the defining barrier for China's continued growth explosion, which has thus far come at a very large environmental and health cost. That the government has pledged a 30% reduction in water consumption (per unit of GDP) over the next five years is a start. Like any good economist, however, I maintain that they'll have to get prices involved if they want to make real improvements in water conservation over the long-term. (Having said that, and while I much prefer the market mechanism, the Chinese have been successful in their stated aims of reducing energy intensity thus far... moderate as these may be in reality.)

5) And now, for something completely different:



Alan! Alan! Alan!... Al! Alan!

I also enjoyed this:

"What was the answer?"
"Spatula. They're just making them up now."

[*] That, coupled with the fact that I was somewhat overzealous at both the gym and (later) the bar over the weekend. I can still barely straighten my arms. Walking around like a hungover T-Rex.