Energy Policy

Last week I attended the 2006 Haagen-Smit Symposium, an annual conference on varying issues affecting air quality in California and more broadly, named after the Cal Tech professor who “invented” smog (that is, he figured out what it was and how it was generated, and whipped some up in the laboratory to prove it) and is deservedly a California science hero. The event is laid on by the Air Resources Board, a state agency with the interesting philosophy that public policy outcomes will be constrained by the realities of the physical universe as science reveals them, and that policy and management choices should recognize this.

This year’s meeting was about transportation fuels, and was pervaded necessarily by the political kerfuffle occasioned by $3 gasoline but also by the recent discovery by national politicians of the alternative fuels issue. The presentations were of the usual sort for a meeting of this kind: scientists and engineers presenting research results, staff from NGOs pitching better- and worse-conceived policies and programs, and flacks from oil and car companies with really slick slides telling us in the former case that “we get it, but of course that’s all in the future and now we need to drill and pump and stop subjecting refinery and LNG facilities to all these silly environmental rules” and in the latter, that “we get it, but of course we have to make vehicles people want to buy” and in both cases, “…and please don’t muss up our market with regulations and government meddling.” I should note that the Honda speaker cast a very dark cloud over the GM guy, who of course had a pretty weak hand to play.

It was a very interesting couple of days; I learned a lot and met some very smart folks. The big message for me, and for others as indicated by repeated recitation of the phrase, is that “there’s no silver bullet”: do not expect a one-shot, relatively painless, fix for the intertwined challenges of global warming, international trade balances, and petro-politics. Obviously all the petroleum in the ground, and maybe even all the coal, will be burned; the big task is to burn them much more slowly than we do now, partly so they last longer for what they’re really good for, and partly so the atmosphere can cope with the CO2 releases. No single fuel regime –and we heard about all of them, from hydrogen (made with one or another low-carbon source, like solar or nuclear) to ethanol and biodiesel (essentially biological solar collecting systems), will displace enough petroleum to arrest global warming or disentangle us from the wretched governments endowed with so much of the oil (perhaps the intelligent designer’s laptop had a virus on oil-allocation day?). Every one of these has a really daunting set of problems, whether economic, political, or technical, that will constrain its scope and brake its rollout.

One technology that’s a fur piece down the road but could really change everything is carbon sequestration. If we can catch the CO2 coal burns into and put it somewhere–the bottom of the ocean has some promise here–for a really long time (millenia) at manageable cost we could be in the combustion business (which in turn lets us make almost anything at a manageable price) for generations. But we won’t be in the $75/barrel oil combustion business; convenient energy will cost more than we’re in the habit of paying. Some technical challenges seem to be much more refractory than we expected: a “really good battery”, with two to four times the energy density of current chemistries, continues to be right around the corner as it has been for two or three decades, and one fears, always will be.

I have been looking in on energy issues since I started professing at MIT in the 70s, and a discouraging amount of current debate hasn’t moved far since. I can’t believe it’s still possible for an oil flack to show a slide with “demand” and “supply” represented as two lines diverging into the future, with the space between them labeled ‘shortage’ (and usually colored a scary red) to a roomful of educated adults and not be laughed off the stage. [In case you have been bemused by this intellectually reprehensible trick: demand and supply are not numbers but functions, especially functions of price. It’s meaningless to give “petroleum demand in 2040” as a number without stating the price assumed for it; same for supply.] For some reason, the hundred-odd attendees apparently included almost no economists or policy analysts, and the discussion frequently suffered for it. A lot of the discussion would have made sense if gasoline prices were historically high now, but of course they aren’t, only about where they were in 1980 in real (inflation-adjusted) dollars. Which are, of course, the only, um, real kind. Back in the day, we really didn’t know whether there was a price-elasticity of demand for any kind of energy, nor whether the relationship between energy and GNP was absolutely fixed. Now we do, but a surprising amount of the meeting’s policy discussions implicitly assumed (for example) that prices just don’t affect consumption. A big take-away for me was the value of teaching engineers more policy analysis and public sector economics– yes, and teaching my own students more real science. C.P. Snow would still wring his hands at the two-culture gulf.

Two things that oddly never came up were nuclear power, which would seem to be a very important way one might generate hydrogen without putting carbon in the air, and land use and development practice, which is obviously a central driver of vehicle fuel consumption. To live in, heat, and cool a big one-story house on a half-acre of thirsty turf, never encounter anyone you don’t intend to meet, drive alone wherever you’re going, and park free when you get there may or not be a basic human right, and it may or may not be what people [think they] want so badly that higher fuel prices can’t change anything. But they may also be physically inconsistent criteria that cannot be satisfied by building lane-miles or any other government program or private choices. They may also constitute the kind of desire the wise learn not to follow, like another helping of dessert or invading Iraq to prove you’re better than your daddy. In any case we need more public discussion like Joel Kotkin’s (wrong but thoughtful) op-ed linked above before we become really desperately trapped by an installed base of unlivable infrastructure.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

5 thoughts on “Energy Policy”

  1. Usually figures for energy demand elasticity in response to price increases is around one third. Higher elasiticies are supply substitutions – replacing one energy source with another rather than actual increases in efficiency or conservation. In other words a 60% increase in price results in a 20% drop in total demand. That is why any successful demand lowering strategy must incorporate a significant regulatory/public works component.
    One really good study on demand elasticity that distinguishes between source substitution and actual reductions in demand:
    Dermot Gately and Hillard G. Huntington
    RR#: 2001-01:The Asymmetric Effects of Changes in Price and Income on Energy and Oil Demand
    Economic Research Reports; January 2001 p23. Tables 6 & 7.

  2. 1. Peak Oil people don't understand economics. Neither do global warming people, in general (although there is a somewhat better understanding at the policy making level).
    2. that said, the UK has $6/ gallon gasoline, but our average car mpg is about 33% better than yours. Distances are shorter, we drive less, but one in 12 cars sold is an SUV (1/8 in London). And we drive at far higher speeds on the highway (90mph is not an uncommon speed).
    My conclusion is that price signals, alone, are unlikely to realise the necessary changes in energy consumption. Income effects outweigh substitution effects.
    There are a number of factors at work here:
    – the person who pays the energy bill is often not the person who made the energy conservation decision. The heating requirements of my house were decided by a Victorian architect, who had never heard of central heating. I can't do much about them.
    Extend this to business. I was talking to our office landlord about using energy saving fittings. His reply was that he had tried it, and tenants had complained and regulators had indicated the building violated the safety codes (not enough light).
    Now you and I know that one can buy a 20 Watt fluorescent fitting that replaces a 100 watt one, with no diminution of light. But he didn't know this, and he certainly wasn't going to try again!
    The tenants don't pay the electric bill in any case, it is all in the rent.
    Another excellent example is the 'instant on' feature in electronic appliances. There is a 13 fold difference between the best and worst in class, but there is no way a consumer has that information, nor would it influence a consumer's buying decision. Yet Amory Lovins has estimated it is up to 5% of all electric demand.
    – people are broadly unaware of the energy/ CO2 consequences of their decisions. Although in principle you can buy a more energy efficient applicance, it's not high on anyone's list of decision-making criteria (I know mine was highly rated by the government: I couldn't tell you what the impact on my electricity bill is).
    My conclusion is you have to have home insulation standards, CAFE, power usage standards for appliances and other regulated solutions which are 'inefficient' but are a case of the government overcoming the information costs of a large system, by centralising.
    The pure price mechanism does not, by itself, have enough impact to get you there.

  3. It is my understanding that the total amount of fossil fuel burned matters far more than how fast it is burned and hence burning it more slowly (within the plausible range of rates) will do little good if it all ends up being burned anyway. Do you have sources to the contrary?

  4. James
    1. there is reuptake of CO2 ie it gets consumed by plants and absorbed by the oceans.
    The problem is not only how much CO2 we generate, but the extent to which we do it, more than the ecosystem can reabsorb it. There is some level at which human activity would not raise atmospheric CO2 (probably less than 1 billion tonnes pa, v. 7-8 bn tonnes pa emitted currently).
    Estimates are that emitted CO2 sits around the atmosphere for as much as 20-30 years. Therefore, what we do now, will impact the climate 20-30 years from now.
    Also, eventually, technologies will emerge which are very low carbon. So any delay we can make in burning carbon, now, may reduce our total emissions in the future, because by then our technologies won't require carbon emission.
    It's worth remembering that there was an 'oil crisis' in the middle of the 19th century. The world was running out of whales, who provided the vast majority of oil for lamps.
    Fortunately oil was discovered in the ground in Pennsylvania in the 1860s, and whales become less relevant to the problem of domestic lighting (although several species were by that time extinct).
    2). Tim Flannery 'The Weather Makers' is an excellent summary of the global warming problem and the lastest research. His earlier book 'The Eternal Frontier' about man and the natural history of North America is also excellent.

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