This three-article series on TechCentralStation (first article second article third article) connects the science behind renewables and technological change in energy to policy issues, much along the lines of my earlier post. And Sallie Baliunas is one of the most insightful and articulate physicists I’ve ever met (and my husband is a physicist, so that’s pretty high praise!).
When Napster was active and we were all downloading songs like fiends, recording industry revenues and record sales went up. This Wired story from June reports on a recently released study indicating these results:
The Ipsos-Reid study found that 81 percent of music downloaders reported that their CD purchasing either remained the same or increased. That backs up research from Jupiter Media Metrix that concluded that people using file-sharing networks were more likely to spend money on music.
Arnold Kling suggested that I explore the fuel cell future in more detail. I intend to delve further into the economics of such technological change, but for now, here’s a compilation of several articles on fuel cell research and how close they are to economic viability. Most current analysts predict about 20 years. This October 1997 Wired story sets the stage by highlighting how hydrogen fuel cells work, what some of their limitations currently are (including cost per horsepower or kilowatt hour, and the infrastructure issue of hydrogen filling stations for fuel cell vehicles), and what kind of research is under way. The author also talks about one of my favorite public relations ploys in hydrogen fuel cells — drinking the exhaust from the pipe. It’s water, good old H2O. I heard a story last fall about BMW’s prototype fuel cell sports car, and how they were doing a marketing gig in Los Angeles, at which Jay Leno took the car for a spin and then rehydrated from the tailpipe!
This July 2001 Wired story specifically addresses the prospect of fuel cells in transforming not just how we generate power, but how we organize the infrastructure of the entire energy network. The story focuses on the distributed resource research done at EPRI an electricity research consortium.
In recent years, a series of technological breakthroughs – and, more important, a critical mass of scientific ideas – has begun to coalesce around a new model for an energy system that would better serve the needs of the near future, while enabling power producers as well as consumers to lessen their impact on the environment in the long term. Both privately and publicly, many at the institute express concern that the policy thrust of the current administration will lock out the most promising set of innovations to emerge in the energy community since the creation of the existing grid in the first half of the 20th century. The end result, they fear, may be to freeze us into high-emissions power pathways for decades to come. …
The smarter energy network of the future, EPRI believes, will incorporate a diversified pool of resources located closer to the consumer, pumping out low- or zero-emissions power in backyards, driveways, downscaled local power stations, and even in automobiles, while giving electricity users the option to become energy vendors. The front end of this new system will be managed by third-party “virtual utilities,” which will bundle electricity, gas, Internet access, broadband entertainment, and other customized energy services. (This vision is reminiscent of Edison’s original ambition for the industry, which was not to sell lightbulbs, but to create a network of technologies and services that provided illumination.)
This vision, which I share, promises to deliver a more robust and flexible energy network. It is also consistent with something I’ve been thinking more about and talking about with several industry folks — a biological/ecosystem metaphor is a better model for a forward-looking, robust, flexible, efficient energy network than the traditionally mechanistic, engineering-focused model of an energy system. Engineering and mechanics are clearly important parts of creating and understanding a dynamic energy network, but we are likely to make some serious policy mistakes if we think only about them.
This abstract of a January/February 2002 Technology review article (access to full article available to subscribers) addresses the role of fuel cells in the electricity grid. It also makes a point that I have emphasized in my own work, although it doesn’t make it explicitly: fuel cells and distributed generation will make electricity transmission contestable. That means that transmission will face potential competition, which will serve as a discipline on the transmission owner’s ability to raise transmission prices, because if they raise prices consumers will be more likely to say, “thanks but no thanks, I’m going to buy and install a combined heat and power system for my production facility, so please take me off the grid.” That’s a much better way to discipline the pricing decisions of transmission owners than the traditional rate-of-return regulation that we’ve had for most of the past century, and in the past decade with stock market returns outpacing the regulated rate of return on transmission investment, has contributed to the dearth of grid network that we are confronting right now.
Now, the cool futuristic stuff: this March 2002 Wired story talks about thermoelelectrics — using heat to generate electricity. This abstract of a November 2001 Technology Review article talks about methanol-powered fuel cells for cellphones — 20 hours of portable talk time from methanol!!! How cool is that? This abstract of a January/February 2002 Technology Review article discusses how new plastics may contribute to making solar power more economically competitive with fossil fuel generation.
The big-picture punch line: our expectations of the future, including technological changes and how soon they are likely to become economically viable alternatives, are very important determinants of our current investment and consumption decisions. And current policy decisions can have large impacts, either positive, negative or mixed, on the future paths of these technological changes. But the problem is that these policy decisions are not made in a vacuum, nor are they made in an environment of certainty about the future. For all of these reasons, a lighter-handed, more flexible approach to energy regulation and energy policy is more likely to result in a robust, reliable, flexible, efficient energy network that behaves as well as a highly evolved natural system.
This story is not a tale of a successful privatization program, but is instead a cautionary tale of how regulation has created a worse outcome than privatization could. Technological innovation is enabling us to use the radio spectrum more intensively than before. This innovation is placing pressure on regulation and property rights issues in the management and use of the radio spectrum. The current Federal Communications Commission (FCC) licensing system for spectrum, in which the government retains ownership rights to spectrum, is creating some conflicts and problems that would not arise in a privatized spectrum system. As a political process, it is also more prone to manipulation.
For most of the past century the federal government, usually through the FCC, has retained ownership of rights to transmit in various parts of the radio spectrum. For most of the twentieth century the FCC allocated spectrum use through either an application procedure or through a lottery; both of these allocation methods allowed the FCC to choose the potential licensees, in keeping with the FCC remit to govern broadcasts based on a public interest objective (this public interest remit for the FCC is increasingly coming into question, too).
As early as 1958, economists Ronald Coase and Arthur DeVany recommended privatizing the radio spectrum, selling it through an auction process. Privatization would create well-defined property rights in specific locations on the spectrum, and would enable spectrum owners to transfer rights, and importantly, to determine how much value they place on having adjacent owners far enough away to remove some, most, or all likely interference. Privatization could also involve a judicial system of legal recourse in the event that some owners believed that interference from someone else’s spectrum property harmed their use of their spectrum.
Since 1994 the FCC has auctioned spectrum transmission rights. The FCC retains ownership of the spectrum itself, but has been auctioning ten-year licenses conveying the rights to use spectrum for specific purposes. These licenses are not transferable between uses or between license holders. Retaining spectrum ownership enables the FCC to continue regulating broadcast, cable, telephone, wireless cable, and two-way analog and digital (such as analog and digital telephones and pagers) communication uses. However, a turgid system of enabling but regulating radio spectrum use, such as the FCC has been following since its inception, could slow or deter technological change itself, particularly in the burgeoning wireless technology industry.
New wireless devices such as Wi-Fi, Bluetooth, and HomeRF have become popular over the past year as people expand their network capability with wireless access through laptops, phones, PDAs, and other new wireless devices. These devices transmit in the 2.4 GHz (gigahertz) frequency, 2.4-2.483 GHz across short ranges. This portion of the spectrum is popular for several reasons, including the fact that the 2.4 GHz frequency is unlicensed. Thus regulatory hurdles in using this frequency are minimal relative to the other parts of the spectrum. Devices in this frequency also do not generate a lot of interference for each other because of the short ranges over which they transmit and because they generally operate as spread spectrum devices, which decreases the potential for interference. Customers have received a lot of value out of the increased use of this frequency, and these wireless devices have brought information access to many rural and underserved communities.
The 2.4 GHz frequency is right next to a licensed slice of spectrum; the FCC has licensed it to satellite radio operators. One of these satellite radio operators, Sirius, is concerned that consumers who use a mobile device in their cars will create interference over short distances with their satellite radio transmissions to those consumers, particularly in urban areas where buildings can create problems for satellite radio transmissions to automobiles. In a privatized spectrum system, Sirius and the device makers in the 2.4 GHz neighborhood could negotiate a mutually beneficial compromise; in the FCC regulated hybrid system we have now, though, Sirius has petitioned the FCC to force mobile devices in the 2.4 GHz frequency to operate at the lowest possible wattage, which is below the electric energy of the engine running the car. If the FCC grants this petition, the market value of wireless devices to consumers would probably fall.
Sirius appears to be using the regulatory process to increase the value of satellite radio to consumers. The Sirius and 2.4 GHz interference situation is an illustration of the wasteful incentives inherent in using regulation and the political process to mediate spectrum border disputes. Regulation creates incentives for companies to engage in expensive rent seeking. Privatization would favor uses of the radio spectrum that make the most sense for consumers, while regulation favors uses whose developers are better at manipulating the political process. The FCC’s continuing ownership and regulation of spectrum gives spectrum users an opportunity to use FCC petitions to mediate disputes instead of a judicial process based on law.
Because of the politics of spectrum rights and the lack of private spectrum ownership, resources might not get to move to higher-valued uses. The FCC is not going to be as impartial a rights arbiter as the combination of well-defined spectrum ownership and a court system using the rule of law. The absence of spectrum privatization may slow or deter potentially beneficial technological change, and leaves in place a political process more prone to financial and other manipulation than one based on markets and law.