Energy poverty and clean technology

For the past three years, I’ve team-taught a class that’s part of our Institute for Energy and Sustainability at Northwestern (ISEN) curriculum. It’s an introductory class, primarily focused on ethics and philosophy. One of my earth science colleagues kicks us off with the carbon cycle, the evidence for anthropogenic global warming, and interpretations of that evidence. Then one of my philosophy colleagues presents moral theories that we can use to think about the morality of our relationship with nature, environmental ethics, moral obligations to future generations, and so on. Consequentialism, Kantian ethics, virtue ethics. I learn so much from my colleagues every time!

Then I, the social scientist, come in and throw cold water on everyone’s utopias and dystopias — “no, really, this is how people really are going to behave, and the likely outcomes we’ll see from political processes.” Basic economic principles (scarcity, opportunity cost, tradeoffs, incentives, property rights, intertemporal substitution, discounting), tied in with the philosophical foundations of these principles, and then used to generate an economic analysis of politics (i.e., public choice). We finish up with a discussion of technological dynamism and the role that human creativity and innovation can play in making the balance of economic well-being and environmental sustainability more aligned and harmonious.

Energy poverty emerges as an overarching theme in the course — long-term environmental sustainability is an important issue to bear in mind when we think about consumption, investment, and innovation actions we take in the near term … but so are living standards, human health, and longevity. If people in developing countries have the basic human right to the liberty to flourish and to improve their living standards, then energy use is part of that process.

Thus when I saw this post from Bill Gates on the Gates Foundation blog it caught my attention, particularly where he says succinctly that

But even as we push to get serious about confronting climate change, we should not try to solve the problem on the backs of the poor. For one thing, poor countries represent a small part of the carbon-emissions problem. And they desperately need cheap sources of energy now to fuel the economic growth that lifts families out of poverty. They can’t afford today’s expensive clean energy solutions, and we can’t expect them wait for the technology to get cheaper.

Instead of putting constraints on poor countries that will hold back their ability to fight poverty, we should be investing dramatically more money in R&D to make fossil fuels cleaner and make clean energy cheaper than any fossil fuel.

 

In it Gates highlights two short videos from Bjorn Lomborg that emphasize two things: enabling people in poverty to get out of poverty using inexpensive natural gas rather than expensive renewables will improve the lives of many millions more people, and innovation and new ideas are the processes through which we will drive down the costs of currently-expensive clean energy. The first video makes the R&D claim and offers some useful data for contextualizing the extent of energy poverty in Africa. The second video points out that 3 billion people burn dung and twigs inside their homes as fuel sources, and that access to modern energy (i.e., electricity) would improve their health conditions.

The post and videos are worth your time. I would add one logical step in the chain, to make the economics-sustainability alignment point even more explicit — the argument that environmental quality is a normal good, and that as people leave poverty and their incomes rise, at the margin they will shift toward consumption bundles that include more environmental quality. At lower income increases there may still be incrementally more emissions (offset by the reduction in emissions from dung fires in the home), but if environmental quality is a normal good, as incomes continue to rise, consumption bundles will shift. If you know the economics literature on the environmental Kuznets curve, this argument sounds familiar. One of the best summary articles on the EKC is David Stern (2004), and he shows that there is little statistical evidence for a simple EKC, although better models have been developed and if we tell a more nuanced story and use better statistical techniques we may be able to decompose all of the effects.

Gates is paying more attention to energy because he thinks the anti-poverty agenda should include a focus on affordable energy, and energy that’s cleaner than what’s currently being used indoors for cooking in many places.

Building, and commercializing, a better nuclear reactor

A couple of years ago, I was transfixed by the research from Leslie Dewan and Mark Massie highlighted in their TedX video on the future of nuclear power.

 

A recent IEEE Spectrum article highlights what Dewan and Massie have been up to since then, which is founding a startup called Transatomic Power in partnership with investor Russ Wilcox. The description of the reactor from the article indicates its potential benefits:

The design they came up with is a variant on the molten salt reactors first demonstrated in the 1950s. This type of reactor uses fuel dissolved in a liquid salt at a temperature of around 650 °C instead of the solid fuel rods found in today’s conventional reactors. Improving on the 1950s design, Dewan and Massie’s reactor could run on spent nuclear fuel, thus reducing the industry’s nuclear waste problem. What’s more, Dewan says, their reactor would be “walk-away safe,” a key selling point in a post-Fukushima world. “If you don’t have electric power, or if you don’t have any operators on site, the reactor will just coast to a stop, and the salt will freeze solid in the course of a few hours,” she says.

The article goes on to discuss raising funds for lab experiments and a subsequent demonstration project, and it ends on a skeptical note, with an indication that existing industrial nuclear manufacturers in the US and Europe are unlikely to be interested in commercializing such an advanced reactor technology. Perhaps the best prospects for such a technology are in Asia.

Another thing I found striking in reading this article, and that I find in general when reading about advanced nuclear reactor technology, is how dismissive some people are of such innovation — why not go for thorium, or why even bother with this when the “real” answer is to harness solar power for nuclear fission? Such criticisms of innovations like this are misguided, and show a misunderstanding of both the economics of innovation and the process of innovation itself. One of the clear benefits of this innovation is its use of a known, proven reactor technology in a novel way and using spent fuel rod waste as fuel. This incremental “killing two birds with one stone” approach may be an economical approach to generating clean electricity, reducing waste, and filling a technology gap while more basic science research continues on other generation technologies.

Arguing that nuclear is a waste of time is the equivalent of a “swing for the fences” energy innovation strategy. Transatomic’s reactor represents a “get guys on base” energy innovation strategy. We certainly should do basic research and swing for the fences, but that’s no substitute for the incremental benefits of getting new technologies on base that create value in multiple energy and environmental dimensions.

Interpreting Google’s purchase of Nest

Were you surprised to hear of Google’s acquisition of Nest? Probably not; nor was I. Google has long been interested in energy monitoring technologies and the effect that access to energy information can have on individual consumption decisions. In 2009 they introduced Power Meter, which was an energy monitoring and visualization tool; I wrote about it a few times, including it on my list of devices for creating intelligence at the edge of the electric power network. Google discontinued it in 2011 (and I think Martin LaMonica is right that its demise showed the difficulty of competition and innovation in residential retail electricity), but it pointed the way toward transactive energy and what we have come to know as the Internet of things.

In his usual trenchant manner, Alexis Madrigal at the Atlantic gets at what I think is the real value opportunity that Google sees in Nest: automation and machine-to-machine communication to carry out our desires. He couches it in terms of robotics:

Nest always thought of itself as a robotics company; the robot is just hidden inside this sleek Appleish case.

Look at who the company brought in as its VP of technology: Yoky Matsuoka, a roboticist and artificial intelligence expert from the University of Washington.

In an interview I did with her in 2012, Matsuoka explained why that made sense. She saw Nest positioned right in a place where it could help machine and human intelligence work together: “The intersection of neuroscience and robotics is about how the human brain learns to do things and how machine learning comes in to augment that.”

I agree that it is an acquisition to expand their capabilities to do distributed sensing and automation. Thus far Nest’s concept of sensing has been behavioral — when do you use your space and how do you use it — and not transactive. Perhaps that can be a next step.

The Economist also writes this week about the acquisition, and compares Google’s acquisitions and evolution to GE’s in the 20th century. The Economist article touches on the three most important aspects of this acquisition: the robotics that Alexis analyzed, the data generated and accessible to Google for advertising purposes, and the design talent at Nest to contribute to the growing interest in the Internet-of-things technologies that make the connected home increasingly feasible and attractive to consumers (and that some of us have been waiting, and waiting, and waiting to see develop):

Packed with sensors and software that can, say, detect that the house is empty and turn down the heating, Nest’s connected thermostats generate plenty of data, which the firm captures. Tony Fadell, Nest’s boss, has often talked about how Nest is well-positioned to profit from “the internet of things”—a world in which all kinds of devices use a combination of software, sensors and wireless connectivity to talk to their owners and one another.

Other big technology firms are also joining the battle to dominate the connected home. This month Samsung announced a new smart-home computing platform that will let people control washing machines, televisions and other devices it makes from a single app. Microsoft, Apple and Amazon were also tipped to take a lead there, but Google was until now seen as something of a laggard. “I don’t think Google realised how fast the internet of things would develop,” says Tim Bajarin of Creative Strategies, a consultancy.

Buying Nest will allow it to leapfrog much of the opposition. It also brings Google some stellar talent. Mr Fadell, who led the team that created the iPod while at Apple, has a knack for breathing new life into stale products. His skills and those of fellow Apple alumni at Nest could be helpful in other Google hardware businesses, such as Motorola Mobility.

Are we finally about to enter a period of energy consumption automation and transactive energy? This acquisition is a step in that direction.

BP Statistical Review of World Energy 2013

Last week I attended Mark Finley’s presentation in Chicago of BP’s Statistical Review of World Energy for this year. In his role as General Manager of Global Energy Markets at BP, Mark is responsible for this annual analytical survey of world energy production, consumption, and trends. He’s an outstanding economist whose presentations are a master class in public communication of quantitative analyses, so attending his presentation was a real treat for me.

As the press release for the Review indicates,

The US recorded the world’s highest growth in production of both oil and natural gas in 2012, on the back of increasing production of unconventional hydrocarbons such as tight oil, an example of the increasing diversity of energy sources as the global market continues to adapt, innovate and evolve. With rising natural gas output driving prices lower in the US, natural gas displaced coal in power generation, causing the US to experience the largest decline of coal consumption in the world.

Elsewhere, 2012 saw the largest annual decline in world nuclear output. In Japan, where nuclear power generation all but disappeared after 2011’s Fukushima accident, higher imports of fossil fuels including liquefied natural gas (LNG) ‘kept the lights on’. In Europe, where gas prices were higher than in the US, power generators took the opposite course from the US, and substituted coal for gas.

A few of Mark’s insights that aren’t reflected fully in the graphs and data really struck me. Not surprisingly, he talked quite a bit about the increase in oil and natural gas production in the US due to shale, and this change has led to a couple of interesting trade patterns. One is the reduction of US oil imports by one-third in the past five years, and the shift in consumption from the US to China. That’s the “national security-reduce Middle East imports” desired outcome from shale oil, right? Not exactly — oil is not a homogeneous product, and it turns out that North American shale oil is most similar in weight and composition to the oil in Africa, not the Middle East. So the US imports of African oil have fallen, and Chinese imports of African (and other) oil have risen. BP also estimates that China has increased its oil inventories by more than all of the OECD country inventory increases combined.

One reason for the increase in Asian oil imports is the increase in automobile ownership in China and India. The majority of new car sales in 2012 occurred in emerging economies, with much of that activity occurring in China and India.

There were other fascinating insights in Mark’s analysis, but I’ll leave it there for a Friday afternoon!

I also recommend the interactive energy charting tool accompanying the Review — it uses the historical data and generates comparative regional charts elegantly and effectively. You can also export a particular graph, the data underlying the graph, and/or a spreadsheet with all of the data in the Review. I had fun playing around with the natural gas price history graph, which you can scroll through by year and see year-by-year how the price changes, as well as seeing in 2012 the large price difference between US/Canada and Europe/Japan.

Large shale gas potential in the UK

Interesting news — according to this BBC article, the most recent British Geological Survey indicates that there may be twice the shale gas deposits in the UK that were previously anticipated. Such a large potential source of natural gas has substantial implications: “If the estimates are proved correct, that would still suggest recoverable reserves of shale gas far in excess of the three trillion cubic feet of gas currently consumed in the UK each year.”

One of the recent conversations in energy economics and policy has been around whether or not liquified natural gas (LNG) exports from the US would raise natural gas prices in the US. A big driver of the profit opportunity in LNG exports is the relative lack of exploitation of shale gas deposits in Europe, and the natural gas price differential between the US and Europe.

If UK energy companies can bring their shale gas to market, that changes the complexion of global LNG shipments.

UPDATE: I then go do my morning reading and find Tim Worstall commenting on the issue. He links to a Telegraph story that contextualizes the magnitude further by pointing out that even just extracting 10 percent could meet Britain’s anticipated natural gas demand for 40 years.

NYT Energy For Tomorrow Closing Plenary video

Lynne Kiesling

Last week the New York Times hosted a conference called “Energy For Tomorrow”, and they have made video from all of the sessions available; there are several sessions discussing energy efficiency, natural gas, renewables, etc. I watched the closing plenary on Friday, for which the topic was subsidies in any or all energy industries (sorry, WordPress and the embed code aren’t playing well together). Among the speakers it features Rice economist Amy Myers Jaffe  (to whom we have linked here before), as well as friend-of-Knowledge Problem Branko Terzic from Deloitte Consulting.

The discussion was good and very informative, raising many of the aspects of the pros and cons of subsidies depending on their form and how they are implemented. Naturally, much of the discussion addressed solar and the unintended (but easily anticipated) costs illustrated by Solyndra and by Spain, whether subsidies generate more overall net benefits than a carbon tax would, and whether subsidies should focus on driving down costs and getting to grid parity or on R&D. I’ll let you form your own conclusions on those topics.

I found that Amy Myers Jaffe’s comments were the closest to what I would have said if I were on the panel. She critiques the use of subsidies very effectively, and encourages an energy policy focus on “targeting the externality” and pricing it in the market. Branko’s comments highlight the political economy of subsidies and whether subsidies are hidden or in plain sight.

Recommended for easing into your Monday.

Waterless fracking?

Lynne Kiesling

Pale Rider is one of my favorite Clint Eastwood movies. One of its central themes revolves around classic property rights concepts in a community of miners that includes a number of small pan miners and a family that has built a larger, hydraulic mining operation that essentially uses pressurized water to blast rock hillsides apart and release the valuable gold therein. This hydraulic mining harms the mining potential of the downstream pan miners, reducing the value of their property. It’s a vivid example of property rights and Coase’s point about the reciprocal nature of costs when the actions of community members are interdependent. Of course, as director Eastwood heightened the dramatic conflict by making the hydraulic mining family greedy and mendacious, but that’s not necessary for there to be an underlying property rights conflict.

Pale Rider came to my mind yesterday afternoon, when I happened on an interview with Daniel Yergin on Fox Business. The interviewer asked him about fracking as a “new” technology and the US prospects for energy independence (oh, how I wish people would just get over that), and he pointed out that fracking is being used both for natural gas and for “tight oil” (which all KP readers know thanks to Mike, but I think a lot of people don’t). But Yergin also corrected her assertion that fracking is a new technology, mentioning very briefly that this technique in one form or another has existed for a long time. Fracking as we know it has been around for decades, but almost as soon as Evangelista Torricelli discovered atmospheric pressure and the vacuum in 1643, people started exploring using pressurized fluids to do work that they and their animals could not. In the 19th century that included hydraulic mining to get at subsurface mineral deposits.

Yergin’s remark triggered my Pale Rider memory, and the economic parallels between the issues in using hydraulic mining in Pale Rider and hydraulic fracturing today are strong — conflicts over the use of resources with ill-defined property rights, environmental impact, changes in potential profitability of using resources in different ways, etc. In particular, conflicts arise about the quantity of water used and water quality post-fracking. Again, thanks to Mike I think we understand those issues well.

I’ve been wondering about the next step in the chain of Coasian logic: if property rights and legal liability are defined so that energy companies are liable for harms they create (water scarcity or contamination), does that induce harm-reducing innovation? In the abstract, theory suggests that such innovations would fall into the two categories, waterless fracking and water remediation and purification.

And it is happening, although in its infancy and still more expensive than using water. Consider this Forbes article from Erica Gies about innovations in waterless fracking. The relative value of such innovations is going to be highest in places like Texas, as she observes:

Water shortages and conflicts are on the rise due to increasing population and climate change–caused fluctuations in precipitation that are making drought more frequent and severe in some places.

One of those places is Texas, where this summer’s mega-drought invoked comparisons with the 1930s Dust Bowl, as ranchers sold their emaciated animals for a song and agricultural losses soared to more than $5 billion.

As a result, gas industry projects in Texas had to scale back, as energy producers scrambled to find sufficient water.

She then points to a couple of different approaches being developed — liquified (again note the role of atmospheric pressure!) propane gel injected instead of water and which may be reusable, and a vapor “foam” that may reduce water use by 95 percent. I think her conclusion accurately captures the tradeoffs involved, and the role that innovation can play in reducing harms from fracking:

These technologies are in their infancy, and many questions about efficacy, impacts, and cost remain to be answered before they could move into widespread use. And of course, reducing water consumption does not mitigate concerns about prolonging our reliance on fossil fuels or the inherently ugly nature of extractive industry, especially for local neighbors.

But for the gas companies, although such technologies are currently more expensive than water, they offer the promise of reducing myriad headaches and expenses, including costs for hauling water and sand, repairing roads damaged by heavy truck use, and managing water pollution, including “produced” water disposal.

Gies wrote earlier in the year about innovations in water cleaning and business opportunities for wastewater treatment companies, providing concise background on the use of water in fracking. I also read an article last week (that I can’t locate now) about the potential to use technologies developed for oil spill cleanup to clean fracking water. Innovation changes some of the tradeoffs involved in fracking.