Mike Munger in Cato Unbound on recycling

Lynne Kiesling

As is his wont, Mike Munger speaks vast amounts of sense in this month’s Cato Unbound, focusing on the political economy of recycling. I’ve never seen a better articulation of the various energy and economic tradeoffs associated with recycling than Mike’s presented here.

For example, Mike does a great job of pointing out the reasons why municipalities underprice landfill dumping — to reduce incentives for the illegal dumping and burning that it’s costly to monitor and enforce — and how that incentive may at the margin create reasons for recycling, even though lots of recycling uses more energy to process waste and create a not-very-valuable “resource”. He concludes by arguing for a nuanced view of recycling as a matter of policy:

Neither the simplistic “if it’s recyclable, it should be recycled!” view nor the “let unfettered markets handle it!” perspectives are defensible.  For sound economic reasons, advanced nations underprice landfill space, often by substantial margins.  If you think that doesn’t matter, just take a look around at all the ad hoc dumps, burning, and trash in developing nations.

The problem with underpricing landfill space is that we throw away many commodities and old packaging that could be disposed of more cheaply in some other manner.  It is at this point that the price system would be of value, but it’s because people are insulated from actual prices that we have the problem in the first place.

As a “second-best” solution, since we are denied the first-best price solution, we try to divert commodities out of the waste stream using moral suasion, appealing to public spirit rather than to the self-interest of the citizen.  But this requires that we elevate the value of the landfill space somehow in the minds of those we are trying to reach.  Unfortunately, without prices to guide us there is no limit on the value placed on landfill space, and we begin to make a fetish of garbage.  In extreme cases, citizens and public officials may even begin to try to divert garbage that should, on economic grounds, actually be disposed of in the landfill.  And when the relative scarcity of commodities changes because of the dynamics of modern economies, it may be very difficult to explain adjustments to those citizens who are persuaded that “Recycling is always cheaper, no matter how much it costs.”

Mike applies property rights logic to argue that a better approach would be to assign packaging disposal liability to the manufacturers of products, to align their incentives to reduce packaging and/or make it easier to reuse or more biodegradable.

Not surprisingly, for a lot of consumer products this is already happening without regulation or legal precedent, brought into being in the market through reputation mechanisms. Companies as diverse as Apple and Amazon have been changing their packaging (minimizing it consistent with cushioning, replacing plastics with cardboard or with plant-derived plastics) in response to consumer preferences and perceptions. Wine shippers have moved from styrofoam to molded cardboard to hold bottles in boxes. And those are just the examples I have off the top of my head.

The richness and depth of Mike’s analysis is superb, and not to be missed. I look forward to the rest of the contributions over the month.

More on the purported environmental benefit of cutting down trees

Lynne Kiesling

As a follow-up to my previous post about cutting down trees for biofuels, here’s some interesting news about the unintended consequences and perverse incentives embedded in regulations to promote the use of biomass as fuel: a BBC investigation reveals trees cut from swamp forests in the US being used to fuel electricity generation in Britain.

Critics say subsidising wood burning wastes money, does nothing to tackle climate change in the short term, and is wrecking some of the finest forests in the US.

I have tracked the controversial trade from the swamp forests of North Carolina to the towering chimneys of the UK’s biggest power station, Drax in Yorkshire, which is converting half its boilers from coal to wood.

The implications are complicated and disputed, but it is clear that EU leaders did not have burning American wood in mind when they mandated that 20% of Europe’s energy should come from “renewable” sources.

But that’s what’s happening, induced by billions of pounds worth of subsidies in Britain. 

Cutting down trees for biofuels?

Lynne Kiesling

Cutting down trees to generate biofuels to substitute for fossil fuels can’t make sense in terms of carbon accounting, can it? I never thought so, but apparently some people have contended that it does. This Project Syndicate essay from Bjorn Lomborg addresses the question, and I think it’s worthy of consideration not just because I think his argument is persuasive (which may reflect the quality of the argument or my confirmation bias, take your pick), but also because he provides several links to published papers that suggest that such strategies may actually increase GHG concentrations.

His point is more important and more subtle, though. What happens when deliberate cultivation of biomass crops changes the land use and moves agricultural production to other plots of land?

But the biggest problem is that biomass production simply pushes other agricultural production elsewhere. Studies are just beginning to estimate the impact. In Denmark, a group of researchers estimated by how much various energy crops would reduce CO2 emissions. For example, burning a hectare of harvested willow on a field previously used for barley (the typical marginal crop in Denmark) prevents 30 tons of CO2 annually when replacing coal. This is the amount that proud green-energy producers will showcase when switching to biomass.

But burning the willow releases 22 tons of CO2. Of course, all of that CO2 was soaked up from the atmosphere the year before; but, had we just left the barley where it was, it, too, would have soaked up quite a bit, lowering the reduction relative to coal to 20 tons. And, in a market system, almost all of the barley production simply moves to a previously unfarmed area. Clearing the existing biomass there emits an extra 16 tons of CO2 per year on average (and this is likely an underestimate).

So, instead of saving 30 tons, we save four tons at most. And this is the best-case scenario. Of the 12 production modes analyzed, two would reduce annual CO2 emissions by only two tons, while the other ten actually increase total emissions – up to 14 tons per year.

Rather than displace agricultural production (with all of the attendant distortions in other markets that would arise), I tend to think about doing research in and exploring technologies for biomass waste recycling. Things like anaerobic digesters to process dairy waste and use it to generate electricity. In that case you are generating two benefits — electricity for consumption and waste management — so the combined value of those two benefits may make a more costly technology economical. Here are some suggestive numbers about that net benefit from Wisconsin, although I caution putting too much credence in them.

How cool WAS that? Not that cool, it turns out.

Michael Giberson

While digging through the KP archives looking for another old story, I can across a 10-year old post titled “How cool is this?

(Let me warn you now that there isn’t much more to this 2013 post other than to observe that not every cool-sounding technology in 2002 turned out to work. You already know that; you can stop reading now. -MG)

What seemed pretty cool at the time was a new bladeless turbine that the inventor said would drastically reduce costs in a number of applications. The Hydrogen Renewable Energy Enterprise, LLC in Hawaii was reportedly very excited about the possibilities and signed up to be the exclusive seller of the technology.

Since I hadn’t noticed bladeless turbines taking over the world, I wondered what became of the technology. Unfortunately, other than a bunch of press release inspired news reports from about 10 years ago, not a lot of information is findable online about Hawaii-based The Hydrogen Renewable Energy Enterprise, LLC.

Utah-based International Automated Systems, Inc. (IAUS), developer of the bladeless turbine technology appears to be still around. In addition to the bladeless turbine, the company has developed products including a automated self-checkout retail system and a fingerprint identification system. The newest technology seems to be a solar energy thermal system which can be used with the bladeless turbine. The company website lauds its solar technology as “Years Ahead of Schedule” and costing less than “the World Government’s goal for solar power cost per kilowatt by the year 2020.”

In June 2009 Renewable Energy Development Corporation contracted with Needles, California to supply the town with solar power based on the IAUS technology. In an interview published in November of 2009, REDCO owner Ryan Davies touted the IAUS technology, saying, “All of our engineering reports and research data indicate that this technology will be significantly more efficient than PV. We’re quite excited about it.” A year later REDCO was pleading with Needles to boost the $128 per MW price in the contract after REDCO “discovered … fatal flaws in the technology they were going to use. Those flaws included cost and efficiency issues.” In 2012 REDCO filed for bankruptcy.

Neldon Johnson, President and CEO of IAUS, is quoted as saying he thinks the technology would have worked, had Davies and REDCO attracted enough investment. Maybe, but IAUS has apparently attracted a detractor online who has collected information about the company: See http://www.iausenergy.com, particularly the page http://iausenergy.com/NewsHistory/index.html, and don’t miss the website’s collection of photos from the IAUS solar pilot plant west of Delta, UT.

That’s about it. No real surprises.


Some natural gas posts worth reading

Lynne Kiesling

Last week the EPA released a report on the extent of methane release during shale gas drilling; the results indicate that methane release is substantially smaller than previously thought. According to an article in Fuel Fix summarizing the report,

The scope of the EPA’s revision was vast. In a mid-April report on greenhouse emissions, the agency now says that tighter pollution controls instituted by the industry resulted in an average annual decrease of 41.6 million metric tons of methane emissions from 1990 through 2010, or more than 850 million metric tons overall. That’s about a 20 percent reduction from previous estimates. The agency converts the methane emissions into their equivalent in carbon dioxide, following standard scientific practice.

The EPA revisions came even though natural gas production has grown by nearly 40 percent since 1990. The industry has boomed in recent years, thanks to a stunning expansion of drilling in previously untapped areas because of the use of hydraulic fracturing, or fracking, which injects sand, water and chemicals to break apart rock and free the gas inside.

Experts on both sides of the debate say the leaks can be controlled by fixes such as better gaskets, maintenance and monitoring. Such fixes are also thought to be cost-effective, since the industry ends up with more product to sell.

This excerpt reflects my thinking on the leaks — since methane is the product they are extracting to sell and the cost of managing leaks is relatively low (but not zero), the firm has a self-disciplining incentive to reduce leaks (although not eliminate them, since the cost is not zero).

In a post on the EPA report, Walter Russell Mead remarks that

Companies are developing more sophisticated leak detection systems, and unlike many other environmental problems (like, say, power plants’ greenhouse gas emissions), there is a market incentive to prevent these leaks without any sort of green interventionist policy. Every unit of methane released into the atmosphere during drilling is lost profit.

But that’s not stopping misguided greens like Bill McKibben from bemoaning the news. McKibben took this opportunity to stress the need to transition away from fossil-fuels altogether, rather than appreciating the fact that we’re extracting one of the cleanest fossil-fuels more efficiently and with much less environmental impact than ever before. McKibben’s blinders are firmly in place; we’re unlikely to see a revision to a post of his earlier this month in which he suggested that methane leakage might make natural gas worse for the environment than coal.

I’ve never found McKibben’s arguments compelling, and now I realize why: his advocacy for dramatic, fast changes does not reflect how real people in real-world, complex decisions make changes in their behavior. McKibben fails to think at the margin. He does not acknowledge that the long transition to cleaner fuels is already in process. Long transitions are typical in technological change; think about how long it took to transition from water power to steam power — 60 years! McKibben’s argument for sudden, dramatic change does not reflect economic thinking.

Europe wood. Wood you?

Michael Giberson

From The Economist, “Wood, The fuel of the future“:

WHICH source of renewable energy is most important to the European Union? Solar power, perhaps? (Europe has three-quarters of the world’s total installed capacity of solar photovoltaic energy.) Or wind? (Germany trebled its wind-power capacity in the past decade.) The answer is neither. By far the largest so-called renewable fuel used in Europe is wood.

In its various forms, from sticks to pellets to sawdust, wood (or to use its fashionable name, biomass) accounts for about half of Europe’s renewable-energy consumption. In some countries, such as Poland and Finland, wood meets more than 80% of renewable-energy demand. Even in Germany, home of the Energiewende (energy transformation) which has poured huge subsidies into wind and solar power, 38% of non-fossil fuel consumption comes from the stuff. After years in which European governments have boasted about their high-tech, low-carbon energy revolution, the main beneficiary seems to be the favoured fuel of pre-industrial societies.

Also note, “because wood can be used in coal-fired power stations that might otherwise have been shut down under new environmental standards, it is extremely popular with power companies.”


But if subsidising biomass energy were an efficient way to cut carbon emissions, perhaps this collateral damage might be written off as an unfortunate consequence of a policy that was beneficial overall. So is it efficient? No.

Wood produces carbon twice over: once in the power station, once in the supply chain. The process of making pellets out of wood involves grinding it up, turning it into a dough and putting it under pressure. That, plus the shipping, requires energy and produces carbon: 200kg of CO2 for the amount of wood needed to provide 1MWh of electricity.

This decreases the amount of carbon saved by switching to wood, thus increasing the price of the savings. Given the subsidy of £45 per MWh, says Mr Vetter, it costs £225 to save one tonne of CO2 by switching from gas to wood. And that assumes the rest of the process (in the power station) is carbon neutral. It probably isn’t.

And there’s more, so read the whole thing, but you get the idea. A real case study in unintended consequences.

Should governments raise the cost of water used in fracking?

Michael Giberson

In dry Texas, water use has been one of the bigger of the policy complaints tossed into the policy whirlwind surrounding hydraulic fracturing. A number of water quantity related bills are currently circulating in the Texas legislature and the Texas Railroad Commission (which regulated oil and gas drilling in the state) has considered a number of water related issues. At least a few of the bills aim at limiting disposal options for wastewater or promoting the use of wastewater recycling.  In effect, most of the bills would raise the cost of freshwater used in oil and gas drilling.

A general theme is much of Texas is still suffering the lingering effects of a drought, so we need to conserve freshwater. But if this is true, why focus so much attention on such a small slice of water use? Less than one percent of water in the state goes into oil and gas drilling. Recycling may be able to squeeze that one percent down a little, or at least keep usage under one percent as the number of wells drilled increases, at an estimated 50 percent increase in water costs.

Policies that selectively increase resource costs for some users and not others are almost certainly creating inefficiencies. Perhaps, to use an obvious example, irrigation could be reduced by 1.5 percent. Or maybe more cities should detect and repair leaks in their municipal supply systems. Or maybe more homeowners should xeroscape their yards. Or powerplants could buy water reclaimed and recycled from oil and gas drilling instead of requiring drillers to reuse it. I don’t know what the most efficient allocation of water uses is going to be, but I’m also sure that policymakers don’t know either.

So why not pursue policies that creates the wide-range of incentives and information needed to promote many low-cost conservation adjustments instead of policies that impose much higher costs on one particular kind of water use?

NOTE: The above prompted in part by Kate Galbraith’s article, “In Texas, Recycling Oilfield Water Has Far to Go,” part of a series on water and fracking in The Texas Tribune.

Free solar power tomorrow!

Michael Giberson

Well, not free-free, but subsidy-free. Maybe.

When I read a headline promising “Solar Power to Hit Cost Parity Next Year,” it reminds me of the sign above the bar promising “Free Beer Tomorrow.” Like tomorrow, “next year” is always approaching and never here.

RP Siegel begins his Triple Pundit article, “Solar Power to Hit Cost Parity Next Year,” in full solar triumph mode:

They said it couldn’t be done. They tried to tell us that renewable energy could only survive if it were propped up with government subsidies. Never mind that our whole system of economic development, beginning with the patent office, is predicated on the idea that fledgling, underfunded industries need special protection for a limited time until they are strong enough to go it alone. Never mind that the fossil fuel industry, which can hardly be considered fledgling or underfunded, is still receiving billions in taxpayer subsidies.

But like the little engine that could, or the middle aged rock star that, after twenty years of struggling in sleazy dives has suddenly become an overnight sensation, solar power, having now surpassed the 100 GW threshold, has finally arrived and is good to go, in many places, without subsidies.

Great, so can we now pull the plug on solar power subsidies? And, by all means, yank the fossil fuel subsidies too.

(I’m passing over the wildly off-the-mark claim about “our whole system of economic development.” Not credible enough to take seriously. As it turns out, neither is the “grid parity” claim credible yet. But let’s at least explore the triumphant claims of success.)

Curiously, the article follows the “has finally arrived and is good to go … without subsidies” declaration with accounts of subsidized success. Apparently one-third of the 100 GW of world solar power capacity has been installed in Germany because of its generous feed-in tariff policies. Installations in China are growing fast. India and then Spain are mentioned. Spain built a lot of solar with subsidies, but recently stopped the subsidies. I’ll come back to India, but let’s look closer at the claim for Spain. Let the fisking begin!

Spain, the article declares, has achieved “grid parity,” backing the claim with only a link to a post at Forbes.com last December. The Forbes.com blog by Peter Kelly-Detwiler, “Solar Grid Parity Comes to Spain,” builds off a report from Bloomberg titled “First Large Solar Plants Without Subsidy Sought in Spain.” The Bloomberg article reports that many large-scale solar projects have applied to connect to the power grid, and the head of solar energy analysis at Bloomberg New Energy Finance is quoted as saying, “Spain is probably set to have Europe’s first utility- scale solar parks without subsidies.” So following the chain of links we have gone from gleeful declarations of “grid parity” to mere grid-connection paperwork that “probably” will yield “solar parks without subsidies” according to a solar energy analyst.

But read a little more and you get the views of the solar power lobbyist in Spain who reports that while many companies are anxious to develop solar power projects…

The biggest hurdle they face is to get the government of Prime Minister Mariano Rajoy to restart the planning process for new solar generation, said Eduardo Collado, director of operations at lobby group Union Espanola Fotovoltaica. Rajoy ordered the end of subsidies for new projects 10 months ago.

“None will go ahead until that changes, even though there are a few plants definitely needed at points in the system where the network operator wants them,” Collado said in an interview.

So, none of the subsidy-free projects will go forward until the policy that ended subsidies is changed?

Still, just a bit later in the article, a solar power developer said it would be able to build without subsidies. Maybe, at long last, this report justifies the triumphant claim that Spain has reached “grid parity”?

Not exactly. In June 2012 the developer said it expected to be able to build without subsidies in the last half of 2013, because “we think the cost of photovoltaic will have dropped enough by then and, given the irradiation in Spain, will be totally competitive.” So once again we have hopes of grid parity “next year,” which through the magic of sloppy reporting become triumphant claims that “Spain has … achieved grid parity.”

So what about India? As the Triple Pundit post reports, Deutsche Bank anticipates solar power transitioning “from subsidized to sustainable markets in 2014″ based on the emergence of “large unsubsidized markets in places like India, where sunshine is plentiful and the alternatives are expensive.” Okay, so once again we have analysts claiming that solar power could live subsidy free soon, just not yet, and no doubt one day such predictions will come true.

But in parts of India, as with many other places around the world, where centralized grid power is expensive or unreliable or unavailable altogether, solar power is already an economical option. Solar power is a product with a few successful market niches, and these market niches will likely continue to grow as (and if) costs continue to fall.

Without extensive policy interventions, a sustainable solar power industry would tend its market niches and prepare to exploit other niches as it became more competitive.

And, by the way, please do yank fossil fuel subsidies and address externalities with appropriate policies, and let fossil fuels shrink to their market-justified size as well.

Get policy right and let the market sort ‘em out.

Promoting cooperation instead of conflict on public lands

Michael Giberson

A few days ago Shawn Regan and I had an op-ed that appeared in the Denver Post‘s Idea Log online section, “Promoting cooperation instead of conflict on public lands.” We begin:

Energy and the environment are often at odds. As America’s energy production reaches record levels, controversies over the environmental impacts of energy development dominate the headlines. More often than not, the result is costly litigation and lengthy political battles.

The debate is particularly intense on Colorado’s public lands. In the past five years, nine of every 10 acres proposed for oil and gas leasing in the state have been formally challenged. Plans to sell leases in the North Fork Valley and the Dinosaur area of Western Colorado provoked waves of protest this month. In response, the Bureau of Land Management deferred the sale of the controversial leases.

Although some conservationists celebrated the delay, many remain wary. During his State of the Union address last week, President Obama proposed to accelerate oil and gas permitting on federal lands. It’s clear that battles over energy development and environmental protection are not going away any time soon.

Recent agreements between energy developers and environmental groups suggest that it doesn’t have to be this way. Competing groups are increasingly working together to avoid costly litigation and reach compromises over energy and environmental values.

We continue with a few examples from Utah, Wyoming, and Colorado. We take these examples as indicating interest in alternatives to litigation and conflict, but the ad hoc nature of these actions are less than ideal ways of implementing policy. Shawn and I are working on a project to provide a more consistent policy foundation for such efforts.

Shawn Regan is an economist with the Property and Environment Research Center in Bozeman, MT, where this op-ed has been reproduced.

Who is the renewable power policy “playground bully”?

Michael Giberson

According to a poll by Fallon Research, “Nearly 60% [of Ohio voters] would pay an extra $3 a month on a $100 dollar energy bill to support the development of electricity from clean sources.” It is an interesting factoid, I suppose. My initial response is to wonder whether state electric power regulations in Ohio somehow prohibit Ohio voters who are so inclined from buying “electricity from clean sources.” If so, the regulations should be revised so that consumers have the opportunity to buy the kind of electric power they want.

Heather Taylor-Miesle, of the NRDC Action Fund, apparently thinks differently. She reads the survey results and thinks, “Great, this is a good reason for state regulators to force everybody to buy clean-sourced electricity, including the more than 40 percent who said they didn’t want to pay as much as 3 percent extra for clean-sourced electricity.”

Can we imagine polling Ohioans on whether they support the Cincinnati Bengals or the Cleveland Browns, and then having state regulators require every consumer buy a T-shirt from the majority-favored team? Why should electricity policy involve state-mandated purchases?

Granted, electric power production involves environmental harms and we might find state and federal policies useful in addressing these harms. But renewable-power purchase mandates are a inefficient way to pursue environmental goals. Granted also, there may well be positive information spillovers from research and development of less-polluting technologies. Renewable-power purchase mandates are an especially ineffective way of promoting the growth and spread of knowledge.

The main point of Taylor-Miesle’s Huffington Post piece was to suggest the conservative, pro-market policy group ALEC was playing the “playground bully” by advocating repeal of state renewable power purchase mandates. I find the suggestion hilariously backward.

So far as I have seen reported in the press, ALEC isn’t out threatening violence for state legislators who refuse to comply with ALEC’s wishes. So far as I know, ALEC operates mostly by distributing policy papers and hosting conferences where people talk a lot. I’ve never heard of a playground bully hosting a public policy conference.

Of course the policy that Taylor-Miesle favors is a policy of coercion: state renewable power purchase mandates simply require electric power retailers to purchase some fraction of their power from government-approved “clean sources.” Should a utility fail to comply, the state will impose penalties. Should a utility fail to pay, the state will seize money in the utility’s bank accounts. If that doesn’t work, the state eventually will close the utility down.

The state is the bully here. Taylor-Miesle is like that kid on the playground hiding behind the bully, egging him on. ALEC, on the other hand, wants to reduce the bully’s reach a little bit.