Tuesday, March 27, 2012

EPA's new Greenhouse Gas Emissions Cap

Well, today's announcement of proposed EPA regulations on GHG emissions was another reminder that we don't live in the a free-market society. Why do we have such little faith in the free market to find solutions to global problems?
If we lived in a free-market society, you couldn't ban something until you proved that it was dangerous. And we are still far away from proving that CO2 emissions are dangerous, especially because it's a chemical that live depends on so dearly. You can't have life on Earth without carbon dioxide.

The argument that CO2 is a pollutant is absurd. We can't even agree on what is the climate sensitivity due to a doubling of CO2 concentration in the atmosphere. Sure, we can all agree that the climate sensitive factor is greater than 1 deg C per doubling, and it's probably closer to 2 deg C per doubling of CO2 concentration. All the current regulation will do is push back slightly the time at which we reach a certain level of global GHG concentration.
But knowing the climate sensitivity doesn't help us answer the question: what is the economic and environmental damage from CO2 emissions?
The meta-analysis by Tol of the 14 studies (conducted before 2009) suggests that the global average economic effect of CO2 emission is positive in the short-run, and then only slightly negative in the long-run.
Why would we want to ban something with short-term economic benefits, even though it might or might not have long-term economic consequences?

Sunday, March 25, 2012

The Economics of Baseload Power Generation

There are three main types of power plants, as far as the quality of the electricity they generate: baseload, peak following, and intermittent.
Intermittent power plants (wind and solar) typically have high upfront capital costs, but have low reoccurring costs, such as fuel  or O&M. This means means that once they are built, they typically generate electricity whenever the wind is blowing or the sun is shining. Then, there are the baseload power plants. These are typically nuclear and coal power plants. They are typically also capital cost heavy and Fuel/O&M light, so once again they normally generate electricity continuously because they can compete in the electricity market at almost any price. And then there are the peak following power plants: natural gas and hydroelectricity. Peak following plants are normally capital cost light and fuel/O&M heavy, and so they only turn on when electricity prices are highest. However, we now face the fact that natural gas, in most of the US, is so cheap that natural gas can replace coal and nuclear as the fuel for baseload sources of electricity.
This means that we are living in the middle of an energy revolution, and I think that it will still take a few years for the US to understand the implications of this energy revolution. Nobody, and I mean nobody, predicted a few years ago that natural gas prices would drop to $2.20/MMBTU. While this drop in price is due to a lot of causes (including the warm weather on the East Coast), this drop in price is due in part to the abundance of shale gas wells being drilled across the US. This was an energy revolution that took place despite the actions of the current administration and the current Federal Reserve board. In fact, the 2008 Stimulus Package was a direct attack on shale gas (hardly a single penny of the stimulus package went to Shale Gas development…it went to solar cells, wind turbines, biofuels, batteries, CO2 sequestration, CO2 re-use,  and geothermal.) It didn’t go to shale gas development and it crowded out the market for investment. Instead, we wasted a lot of money, time and work on projects that would be completely uncompetitive in today’s market had they not be subsidized.
This money, time, and work should have been invested in drilling more wells and developing technology to convert natural gas into gasoline. I think that people would have invested more of their own money into shale gas development had interest rates been higher. The zero-interest rate policy and the stimulus package were major and collective failures on the part of the government. No one person should be blamed for this, especially because the government was in part getting advice from companies that donate to both political parties (such as GE, major banks, etc.) Why did GE and the major bank suggest or allow the government to spend so much money on solar cells, wind turbines, biofuels, batteries, CO2 sequestration, CO2 re-use,  and geothermal? GE and the major banks must have been smart enough to realize that they will be paying for these projects in one way or another (directly by taxes or indirectly via inflation.) So, I don’t want to just blame President Obama, Secretary Chu or Chairman Bernanke. This was a collective failure to understand and to appreciate the vast natural gas resources in this country, and a failure to appreciate the need to develop technologies that pull out the higher hydrocarbons or convert natural gas into gasoline. We are all somewhat to blame here.

But now we know that natural gas is abundant. So, we need to act appropriately in the future. We can’t go back to the Utopian mindset that wind turbines, solar cells, and biofuels will save the planet from destruction and save our society from catastrophic collapse. The goal of this post is to discuss the implications of cheap natural gas prices, and to look at what are the chances that we will build new coal power plants in the US in the future, and if so, what type of coal power plants. In fact, natural gas prices are so low that virtually the only power plants being built (without subsidies) are natural gas and hydro-electric power plants. Using data from the Department of Energy, the question I’ll address here is: what would have to be the price of natural gas or the price for emitting carbon dioxide in order for coal power plants to compete against natural gas combined cycle power plants?

We need to go beyond our genetics in order to grow

Our genes have done pretty well so far, haven't they.
You are here reading this post, and I'm here writing this post. Each of our genes have somehow managed to survive so far.
But our world is very quickly changing.
We have access to pretty much as much food as we want, as much as information as we want, and as much stimulation (from the TV, internet, cell phones, iPad, etc...) as we want. Our genes have survived up until now because they were good at keeping us fed, keeping us informed, and keeping us reproducing.
One problem we face in 21th century is the deception of over-consumption and over-stimulation. We actually need to learn to fight what our genes are trying to get us to eat or to watch. But as readers hopefully recognize, this is not a call to stop growth. In fact, it's the opposite. Our genes have wired our brains to want more food and more sex. The problem is that in today's world of junk-food and junk-stimulation, these dopamine-driven desire are actually decreasing our growth rates to roughly zero in Europe (0.1%/yr growth rate in 2010) and in Japan (-0.1%/yr growth rate in 2010). In the US, in the population growth rate is only 1%/yr.

Sunday, March 18, 2012

Growing life: Gene Selection vs. Meme Selection vs. Group Selection

There has been a long, on-going, healthy debate in the evolutionary biological community about the merits of the theory of group selection, the theory of meme selection, and the theory of gene selection. Genes are chains of DNA that, when acting in concert with other genes and when there is both an energy source and sufficient materials, have the capability of reproducing. Gene selection is also known as kin selection, i.e. genes that have the tendency of helping kin survive have the tendency of propagating. Memes are certain cultural fads/actions/songs/beliefs/etc that are self-propagating. An example of a meme is the following: the belief that you can go to heaven if you succeed in convincing 5 other people that they can go to heaven if they each convince 5 more people of this belief. The theory of meme selection is the following: memes that have the tendency of helping people survive with the same meme have the tendency of propagating.

One difficulty in studying human beings and their social interactions is that both gene selection and meme selection are going on at the same time, and it’s often hard to tell if certain actions have an underlying genetic disposition, an underlying memetic disposition, or both. For example, religious leaders in many human cultures give up their rights to procreate in order to be a leader of their culture’s religion. Is there a gene or a set of genes that propagates well in the kin of those who take a vow of celibacy? Or is this a meme that’s propagating? If it is a meme, what exactly is propagating? (Is information propagating?) Or this is a part of what biologists used to call group selection? 

The scientific ‘consensus’ used to be in favor of group selection, and then moved towards gene selection, and now seems to be heading in the direction of multi-level selection with the new work by E. O. Wilson. Multi-level selection is a relatively new concept that is still being defined; it appears to be an attempt to reconcile gene selection and meme selection.

Group selection went out of favor in the second half of the 20th century because a) it’s hard to define the level of self-propagation for a group; and b) there has been a lot of success in understanding social behavior in terms of kin selection (i.e. gene selection) and in terms of meme selection (i.e. viral-like self-replication of information in the human mind.) For example, Hamilton’s equation [Sum (r*b) > C  where “b” is the benefit of an action,  “c” is the cost of an action, and “r” is the kin relatedness] has been quite successful in describing social behavior, even in eusocial species such as bees and ants. Some researchers, like E.O. Wilson, would like to include another term into Hamilton’s equation in another factor for benefit to the group. But the question for those researchers who favor group selection is the following: what specifically is self-propagating when they say ‘group’? What piece of code or information is actually self-propagating?

Wednesday, March 7, 2012

Respect for all forms of life: A discussion of the philosophy of Peter Singer

I have been slightly influenced (both positively and negatively) by the philosophy of Peter Singer because I think that he makes some good points and some bad points. The goal of this post is to compare and contrast my own philosophy (that the goal of life is to grow life) with his philosophy of life (that the goal of life is to maximize the happiness of sentient beings.)

In some respects, his philosophy is just an extension of 'utilitarianism' to non-humans.
He seems to be very concerned with suffering and happiness...and ultimately, the problem with his philosophy is that it is rest of the qualitative definitions of the words: happiness and suffering. [Check out this previous post in which I discuss the problems with utilitarianism.]

Tuesday, March 6, 2012

Ben Bernanke is anti-savings and anti-growth

Andy Laperriere wrote an interesting article a few days ago in the WSJ about the problem with having Federal Reserve interest rates below inflation rates.
The article does a good (but not great) job not explaining the problems with 'cheap money.'

My favorite line from the article is the following:  "Prosperity does not come from spending; it comes from work, saving and investment."

My least favorite line from the article is: "But saving is deferred consumption—people save to earn a return so that they may consume more in the future (say, for retirement or a major purchase)."

The problem is that if we call 'saving'  by the name 'deferred consumption,'  then we are still living in a fantasy world in which 'consumption' drives the economy.
Work (and the fuels/powerplants that help generate mechanical and electrical work) drives the economy. The point of investing and the point of saving is to increase the amount of work that we can generate in the future.
The point of consumption (such as a buying a nicer house) is to show off to others that you've got want it takes to thrive and to grow. It's like the peacock's feathers. They have their purpose, but the peacock's feather's don't drive the 'peacock' economy. What drives the natural economy of peacock is the seeds, grains, nuts and insects that they eat.
For peacocks, there needs to be balance between growing muscles to help them forage and growing feathers to help them mate.

Remember that when you invest money, that money still goes to a business. The difference between investing and consumption is that, when you invest, on average you see a positive return on that investment. And from that return on investment, you can spend some of the money on luxuries and re-invest the rest of the money.
This is the only long-term strategy for growing wealth (i.e. work).

The problem is that people like Ben Bernanke is making it tough for people to save and to invest their money. He's trying to get us to consume luxuries, and hence to waste our money. It's as if his goal is a 'steady-state' economy. It's as if he doesn't want real growth of the economy...just the feeling of growing because of inflation.

For example, he gave a speech last week saying, [paraphrase] "Don't worry about people trying to save because they invest in companies...so it doesn't matter if the Federal Reserve keeps interest rates low."

This is a misleading argument because low Federal Reserve interest rates are keeping down company bonds, and hence a company can go into the bond market rather than the stock market for new investment.

In the end, low Federal Reserve interest rates cause low growth. There's no way around it. If we want growth, we need saving and investment, and this will only come when the Federal Reserve raises interest rates.