Reasons to be cheerful, Part I

by John Quiggin on May 16, 2011

There are plenty of reasons to be gloomy about the prospects of stabilising the global climate. The failure at Copenhagen (partly, but far from wholly, redressed in the subsequent meeting at Cancun) means that a binding international agreement, let alone an effective international trading scheme, is a long way off. The political right, at least in English-speaking countries, has deepened its commitment to anti-science delusionism. And (regardless of views on its merits) the prospect of a significant contribution from nuclear power has pretty much disappeared, at least for the next decade or so, following Fukushima and the failure of the US ‘nuclear renaissance’.

But there’s also some striking good news. Most important is the arrival of ‘peak gasoline’ in the US. US gasoline consumption peaked in 2006 and was about 8 per cent below the peak in 2010. Consumption per person has fallen more than 10 per cent.

There are a couple of ways to look at this. One is in the standard economics terms of supply and demand. Given that oil production reached a plateau some time ago, and that demand from China and other developing countries is growing fast, equilibrium can only be reached if prices rise enough to limit the growth in Chinese consumption and generating an offsetting reduction in consumption elsewhere (I’m assuming little or no supply response, which seems consistent with the evidence).

We have of course seen oil prices rise substantially. The effect on demand depends on the percentage change in fuel prices and on the elasticity (a measure of responsiveness) of demand. Because the US has very low taxes on gasoline and other fuels a given change in oil prices produces a much larger percentage change in fuel price than in other developed countries. The US gasoline price rose, in real terms, by around 40 per cent between 2000 and 2010, and have risen by another 30 per cent or so since then, for a total increase of about 70 per cent. So, the US is the place to look for big price effects.

The big question is the elasticity of demand, that is the percentage change in demand arising from a 1 per cent change in price. In the short run, this elasticity is quite low, reflecting the fact that fuel is a small part of the running costs of a car. The short run elasticity (measured over periods less than a year) is relatively easy to estimate and is about -0.25, that is, a 1 per cent price increase will reduce demand by 0.25 per cent, and a 40 per cent increase will reduce demand by 10 per cent. That’s roughly in line with the observed outcome. However, given that factors such as income growth tend to raise demand, the observed reduction is a bit more than would have been expected with constant prices.

The long run elasticity is much higher, since in the long run people can change their driving habits, reduce their stock of cars, and choose more fuel-efficient cars The meta analysis cited here suggests values around -0.6, suggesting that the price increases we’ve already seen should reduce demand in the long term by around 40 per cent, relative to the trend with constant real prices.

In my view, even the long-run estimates are too low. A sustained upward trend in prices will induce the development of energy-saving innovations (the reverse is true – when energy is cheap and getting cheaper, people invent new ways to use more of it). I suspect that the full long-run elasticity, including induced innovation, is near 1, meaning that if current real prices are sustained, consumption could fall as much as 70 per cent below the level that would be expected if prices had remained at the 2000 level.

The alternative is the ‘bottom-up’ approach of looking at changes in driving habits, the car fleet and so on, then working back to total demand.

  • Cars are becoming more fuel efficient. That’s partly a market response, reflected in the demise of the Hummer, and partly the result of regulation. The US is tightening its fuel economy standards, and has finally blocked the loophole under which SUVs like the Hummer were treated as “light trucks” and counted separately from cars. The 2009 regulations require a 40 per cent improvement in the average efficiency of new cars, relative to the existing fleet, by 2016. That will take a decade or so to feed through (but efficiency standards for post-2016 cars can be increased further in that time).
  • Car sales have been below previous peaks for some years. That’s partly a response to the Global Financial Crisis and the subsequent recession, but there’s evidence that the US car fleet is past its peak size.

In all of this, the GFC has had an effect, which is mostly temporary. So, we should expect some recovery in demand as the general economy recovers, but the peak gasoline phenomenon is real.

Finally, what does peak US gasoline imply about Peak Oil, which I’ll interpret as the point at which the current plateau in oil production turns into a clear, though gradual decline?

  • First, we won’t really notice it happening (except as it’s manifested as a further increase in oil prices). Rather, we’ll have to look back at the stats to identify when the decline began
  • Second, the adjustment will be a combination of many different processes (less travel altogether, less of that by car, more fuel-efficient cars) rather than one big shift
  • Third, given that oil accounts for something like a third of all CO2 emissions, the sooner Peak Oil arrives, the better.
  • Finally, oil output per person peaked in 1979. For most purposes, it’s output per person that matters. And the evidence is that, over the last 30 years, output of goods and services per person has risen substantially even as output of oil per person has fallen. That seems pretty conclusive as far as apocalyptic versions of the Peak Oil hypothesis are concerned.

{ 64 comments }

1

Brett Bellmore 05.16.11 at 10:42 am

Here’s the thing: In a country with plentiful supplies of natural gas and coal, peak “oil” doesn’t have to mean peak “liquid fuels for vehicles”. It does right now, but that’s only because of a certain stickiness in fuel choices, and an administration that thinks high fuel prices are a *good* thing.

An administration that thought the opposite could adopt policies which would bring vehicle fuel prices back down in the US. Peak “gasoline” is a political artifact. You shouldn’t expect it to last.

As for the nukes, the head of Duke energy has just announced that they’re going ahead with their expansion of nuclear power. Good for them!

2

Martin Bento 05.16.11 at 11:23 am

It’s a tangent, but it probably should be noted, appropo of this, that TEPCO has announced a meltdown.

http://www3.nhk.or.jp/daily/english/13_03.html
http://www.ens-newswire.com/ens/may2011/2011-05-13-01.html

It is shocking to me that this is getting so little attention. I think it means nuclear is back off the table, though it may be that the reasonable compromise is to take nuclear in the Pacific Rim off the table. But the countries located entirely on the rim are not likely to like that.

3

Brett Bellmore 05.16.11 at 11:51 am

I don’t think even that compromise is reasonable. TEPCO has announced a meltdown, and it’s harmed less people than what happened at most of the conventional power plants during this quake. Context, Martin. When 20,000 people are dying, you have to put things in context.

4

Thomas Jørgensen 05.16.11 at 11:53 am

Thing is, I am not at all sure that even the Japanse themselves are going to back down from nukes, because what are their real alternatives? You cannot power tokyo with solar panels on top of the skyscrapers, after all, and all the fossile fuels Japan uses are imported. It probably does mean that the old plants in the japanese fleet will not be getting life extensions, tough.

5

PHB 05.16.11 at 11:57 am

@Martin 2

Like the WikiLeaks disclosures, this only tells us what we knew already but officials had succeeded in persuading many that it was false.

A second worker has died at the plant. It is being described as a heart attack. We are being assured that he only received a small dose of radiation immediately prior to his death. Which as anyone with experience in the field knows is a claim TEPCO cannot possibly know the truth of.

As with WikiLeaks the pattern is lies lies lies and people who dispute the lies are told that they are ignorant, foolish and wrong. Then when the truth is proven beyond dispute the liars claim that its not news because it was ‘known all along’.

There are of course official liars for climate change denial. They don’t have degrees in science. They don’t have a research degree of any kind. They are hired by professional lying shops like the AEI, Cato, CEI and so on who spend their days examining the work of people who actually know something about climate to find the most trivial inconsistencies that they can misrepresent as error.

There are even professional liars to tell people that asbestos is safe and that Canada should continue to mine the deadly stuff. Like Windscale was renamed Selafield when the old name became too notorious, they have renames asbestos ‘chrysotile’ and it is mostly exported to places like India where the officials can be bribed not to ban the stuff.

And in the interests of objectivity and impartiality, these official liars are given plenty of time to make their case in the establishment media because that is what the New York Times, the Murdoch Press and the Washington Post exist to perpetuate: the official lies that protect the vested interests they exist to serve.

6

derrida derider 05.16.11 at 12:04 pm

What illogical rubbish, Brett. The only reason you’d want to turn natural gas and coal into gasoline is if you were so short of oil that the price rose enormously so it became profitable. That is, unless you “libertarians” prefer to go in for some extremely inefficient central planning and force those poor oil corporations to do grossly uneconomic things. If you want substitutes for liquid oil then of course high prices are a good thing. Conversely, if you think they’re a bad thing that can be avoided then you won’t be interested in these sort of substitutes.

And the stuff about how high gas prices are all because Obama won’t subsidise those indigent oil firms to drill in Alaskan national parks does not survive even cursory scrutiny. The US produces about 40% of the oil it consumes – a proportion that has been dropping for decades as reservoirs run out faster than new ones are found. The prospects for Alaskan and offshore drilling do nothing to change this – apart from being bloody expensive, there aint anywhere near enough of the stuff remaining off the US coast or in Alaska to make very much difference.

John, I think there’s another reason the elasticities for the US may be higher than current estimates – there is no reason CES should apply. As prices get high enough that fuel costs begin to dominate household budgets I think the price sensitivity will rise.

7

sg 05.16.11 at 12:05 pm

PHB, all the deaths at the plant so far have been unconnected to radiation.

Count me out of the plan to get rid of Japan’s nukes. I live in Tokyo, and I’m not looking forward to Japanese summer on 80% electricity. A lot more people are going to die of heat exhaustion than radiation sickness, even after a full meltdown.

8

PHB 05.16.11 at 12:09 pm

@Brett 3

The plant has also required 750 square miles of land in a land-scarce island be declared uninhabitable. Quite likely for decades. The evidence of contamination is significa

There are ways to generate nuclear power that appear to be safe. The problem is not the technology, its the liars and the lying. They told people that they were taking every precaution when they were in fact using a design that was considered highly unsafe at the time it was originally proposed.

Only a fool can trust those people, so nuclear power is dead. The nuclear lobby killed it.

9

Straightwood 05.16.11 at 12:27 pm

For those with short memory spans, I would like to note that the last CT Fukushima thread featured several declarations that the safety of nuclear reactor technology had been proven by the prevention of a major release of radiation at the Fukushima reactors. We now know that a few of the reactor vessels have cracked and leaked deadly high-level radioactive materials, and that nobody knows how to stop the leakage. The Fukushima incident remains out of control, except for the press coverage, which is being managed to minimize public concern.

A technology that is susceptible to catastrophic failure is bad, but a technology that has no means of controlling a catastrophic failure is totally unacceptable. Nobody knows how to stop the continuing radiation release at Fukushima, and that is the final, unanswerable indictment of the nuclear power industry.

10

ajay 05.16.11 at 12:47 pm

The plant has also required 750 square miles of land in a land-scarce island be declared uninhabitable. Quite likely for decades.

When did this happen?

11

PHB 05.16.11 at 1:06 pm

@ ajay

20 mile exclusion zone, pi r^2. May have switched km for miles, but they just evacuated a village 30 miles away.

@sg 7

And how do you know that?

You can’t. Nobody can. That is my point. We are being given convenient denials before there is time to determine what the truth is. I am not saying that I know the truth, I am saying that I know we are being told lies. The officials are telling us information before they can know it.

We were also told that there absolutely had not been a melt down. And plenty of folk here were attacking me as uninformed and scare mongering for pointing out that the claim was obviously false. And now we know that the truth is that there was a meltdown.

The idea you seem to be pushing here is that we should wait to find out the facts before making up our minds and accept the official claims until then even though the have lied repeatedly since the incident.

The first part is reasonable, the second is not. At this point we have do not have reason to believe that the currently deployed nuclear designs are safe.

It appears to me that the UK Conservative party has come to the same conclusion. They have just announced a 20% cut in funding for particle physics research. That is not something you would want to do if you were planning to expand any type of nuclear in the future. If you don’t have the research side you don’t have the academics to teach the undergraduate courses.

12

john b 05.16.11 at 1:19 pm

Never. But lying about how evil and scary nuclear things are is super-fun.

13

john b 05.16.11 at 1:22 pm

(last was in snarky agreement with Ajay, incidentally)

It appears to me that the UK Conservative party has come to the same conclusion. They have just announced a 20% cut in funding for particle physics research. That is not something you would want to do if you were planning to expand any type of nuclear in the future. If you don’t have the research side you don’t have the academics to teach the undergraduate courses.

Or, it might be something you’d do if you hate science, academia, research, and public spending in the public good. Especially since there is absolutely no way in which funding particle physics research (as opposed to “funding research into the improved engineering of nuclear fission plants” could conceivably have any bearing on the provision of nuclear power in the UK within *at least* the next 30 years.

14

Matt McIrvin 05.16.11 at 2:34 pm

I’m guessing “peak gasoline” is mostly just the effect of the recession and continued high unemployment.

Kevin Drum had an article a while back saying that gasoline’s income inelasticity was greater than its price inelasticity; in other words, the only reliable way to get Americans to drive less is to make them poor. The implication is that right-wing economics is actually the best thing to happen for the environment in decades, since it’s impoverished so many Americans. If the US ever gets its act together, gasoline consumption will spike again and we’ll be back where we started, until gas gets so prohibitively expensive that it alone is a major drag on the US economy.

15

Straightwood 05.16.11 at 2:41 pm

We are leaving the era of politics and entering the era of physics, or, as Churchill said, “a time of consequences.” After the American electorate gets over the shock, honest and competent people will gradually come to occupy positions of public trust – not because of any ethical renaissance, but because of dire necessity.

16

Alex 05.16.11 at 2:44 pm

The size of the evacuation area, by the way, is given by “what it says in the statute book” rather than anything more specific. Apparently the law requires a 20km evacuation zone as soon as a “specified technical incident” is declared.

17

JulesLt 05.16.11 at 2:55 pm

When we’ve run out of lovely cheap fossil fuels, I wonder if then we will start wondering about the wisdom of markets (‘hmm, if we’d pushed earlier for the advances that gave us the 90 mpg vehicles we had at the end, and urban rapid transit, the oil supply would have lasted another 200 years, and the Earth would have been 2 degrees cooler’). Or at least, the wisdom of not correctly pricing externalities (pollution, the cost to future generations of using resources now).

Whether it’s a good thing or not is another question – the environmental cost of replacing the car fleet is, itself, quite high. It is rarely justifiable, on environmental grounds, to replace even the least efficient working vehicle or appliance with a more efficient one. From an individual point of view, it’s often justifiable in terms of running costs.

There’s definitely some trade-off there – we could end up consuming more energy overall in order to lower our motor fuel costs / consumption.

As an aside, there was a good piece in The Register the other week about how green funding is dangerously biased towards subsidising wind and solar power, and how there’s very little Western funding for non-Uranium based nuclear energy – or indeed other high-engineering solutions i.e. that a lot of people are quite happy to use science to show there is a problem, but to ignore scientific evidence when it comes to the solution.

(It also noted that there’s a definite bias amongst green policy towards curbing people’s energy usage and movement, rather than on supplying that energy in a clean or carbon-neutral manner)

18

Alex 05.16.11 at 2:57 pm

The Fukushima incident remains out of control, except for the press coverage, which is being managed to minimize public concern.

This struggles to compete with my observation that the press tends to be quite alarmist, especially on science issues.

19

Matt McIrvin 05.16.11 at 3:03 pm

read “elasticity” for “inelasticity” above.

20

Odm 05.16.11 at 3:05 pm

I’m curious what you think about the argument that high oil prices are bad because production methods that are more environmentally damaging become profitable. Your third point suggests that you disagree.

21

Straightwood 05.16.11 at 3:27 pm

Contemporary conventional wisdom calls it “smart” for an individual to execute a successful smash-and-grab. In America, this is an aesthetic preference as well as an economic one. Thus, for a nuclear power executive to retire comfortably while leaving a toxic mess for posterity is simply the expression of dominant values favoring short-term self interest.

It is the tedious duty of the media to create a cloud of “who could have known” obfuscation to exculpate grossly selfish and deceitful behavior. Fortunately, the leaders of the media establishment fully share the values of those they protect, so criminal neglect goes unpunished and disasters continue to be “unexpected,” even when preceded by many warnings.

22

Ed 05.16.11 at 3:33 pm

I’ve not paid alot of attention to the climate change arguments because I’ve suspected that peak oil might trump climate change. The world uses up the cheaply obtainable fossil fuels. It turns to the expensive fossil fuels (as Brett Bellmore outlines at the beginning of the thread, but leaving out the “expensive” part), the price of using the things go up, economic activity goes down, and everyone reduces their consumption.

So much of the Green agenda gets put in place after all, without governments doing much to make it happen, in fact in the face of governments actively trying to prevent it from happening (by desperately trying to implement measures to cause economic growth to resume). And because the environmentalism is unplanned and forced, and tied to declining living standards, it becomes more and more unpopular, even as it is actually implemented by reality.

This is a bit too neat, and probably many of the attempts to evade the implications of peak oil, such as fracking, will cause even more environmental damage in the short run, before they are abandoned.

23

chris 05.16.11 at 3:33 pm

20 mile exclusion zone, pi r^2.

Did you take into account the fact that Fukushima is coastal and therefore roughly half of the circle would fall on water?

In any case, a temporary evacuation is a very far cry from “uninhabitable probably for decades”, as a quick glance at downtown Hiroshima could tell you. (Ok, it *has* been decades, but AIUI both nuclear bomb targets were rebuilt rather quickly.)

…Of course, you could argue that one of the criteria for building safer nuclear power plants is “don’t build on the Ring of Fire or equally geologically active/tsunami danger sites”, an option not really available to Japan, but satisfied by default for Europe and most of the US. It’s not like Fukushima broke down on its own — it took a once-in-a-century-level disaster in an unusually disaster-prone region of the world to cause the failure of *one* of Japan’s nuclear plants (out of I don’t know how many).

24

Matt McIrvin 05.16.11 at 3:46 pm

The big problem with “peak oil will fix global warming” is coal. If it just leads to more and more of the power we use coming from coal, that’s worse than the status quo.

25

sg 05.16.11 at 3:48 pm

PHB at 11, I “know that” because I read the Japanese press, and they tell me simple and convenient facts, like that the first 3 people to be found dead in the plant died of massive injuries and blood loss, because they were killed by a tsunami that has killed 20,000 other people, rendered a couple of hundred thousand homeless, and created a massive waste problem that has nothing to do with nuclear powerplants.

Of course you could create a fantasy world in which nothing you hear is true except what you want to believe. But that isn’t conducive to rational discussion, is it?

26

Adrian 05.16.11 at 4:01 pm

Maybe media obfuscation and alarmism are part and parcel of the same mechanism.

They blow up a situation, propagating a version of reality that only exists within media. Then once the initial event bores the public the coverage returns to normal. The public becomes desensitized to disaster, and no longer have a balanced sense of reality.

Sounds like the perfect obfuscation through which to run off with millions.

27

roac 05.16.11 at 4:02 pm

Nuclear power advocates love to talk about fatalities (except in connection with Chernobyl, which they prefer not to talk about at all). But death rates are not what a potential investor is going to be looking at. Attention is more likely to focus on the chance, demonstrated to be larger than zero, that your multi-billion-dollar investment will not merely become worthless, but convert itself into a multi-billion money sink.

If the numbers still work, fine. If they can only be made to work by offloading potential cleanup liability on the taxpayers, no thank you.

28

ajay 05.16.11 at 4:21 pm

Nuclear power advocates love to talk about fatalities (except in connection with Chernobyl, which they prefer not to talk about at all).

Well, OK then, let’s talk about Chernobyl, which killed as many people as an average week in the Chinese coal mining industry.

Attention is more likely to focus on the chance, demonstrated to be larger than zero, that your multi-billion-dollar investment will not merely become worthless, but convert itself into a multi-billion money sink.

Fortunately, as BP will be the first to tell you, nothing like this ever happens in other parts of the energy business.

29

michael e sullivan 05.16.11 at 4:25 pm

John, is that really right about elasticity or are you using a heuristic that works at the margin for small changes? If a -.25 elasticity means that a 1% rise in price causes a .25% decline in demand, and it is linear, then a 100% rise in price would cause a 25% decline in consumption. Further if elasticity of 1 were reached, that means that a 100% rise in price would cause demand to reduce to zero.

If this is truly how to calculate demand changes from elasticity then it would seem hardly any fundamental goods could ever have a long or short term elasticity of -1 or even close.

If an elasticity of -1 means that a multiplying the price by X will mean that demand multiplies by X^-1, then it makes more sense that the long term elasticity of something could be -1. And this is how I have understood elasticity. An elasticity of -1 would mean that the total money demand for a good is constant — price doubles, demand halves, price halves, demand doubles.

Of course, for small price differences, there won’t be much difference between the two. And also, elasticity at the margin at a given price may not be the elasticity at other price points. It would seem that even short run elasticity of gasoline is probably much closer to -1 than -.25 under extreme price increases. If the price of gasoline shot up 10-15 times tomorrow, suddenly living with paying more gas while you wait for time to buy a new car, or move to a location closer to work is not acceptable. The long run would become shorter (I probably start looking for a closer situation *now*, instead of merely valuing closeness to work a little higher the next time I am in the market to move) and some radical strategies for dealing with the short run would become feasible. I could get to my work that normally requires about 3l of gasoline each way on a bus, at the expense of an extra 1 hour per trip of my time and a some constraints on when I can arrive/leave. At US$4/gallon, that would be a terrible trade. At US$40/gallon, it’s not a bad trade at all, especially given that I can read or write on a bus, and that the walking portion would be good exercise, so the time spent is not a total loss.

30

ScentOfViolets 05.16.11 at 4:34 pm

I’m guessing “peak gasoline” is mostly just the effect of the recession and continued high unemployment.

Try this one on for size, though I don’t know how big the effect is or how much it overlaps with your categories: Older people (and therefore an aging populace) drive less. It’s not just that they have less get-up-and-go; once the kids leave the nest, a lot of the reasons for driving disappear. I know that at one point I was logging at least 200 extra miles a week, every week, just driving my daughter and her buds around to various official and unofficial activities. Now that she’s 16, I’ve noticed that I don’t drive nearly so much – and when I do kid-related things, it’s mostly in connection with school events where I’m the designated driver for three or four passengers.

31

ScentOfViolets 05.16.11 at 4:35 pm

If the numbers still work, fine. If they can only be made to work by offloading potential cleanup liability on the taxpayers, no thank you.

I completely agree: nuclear should be subsidized no more than coal and oil already are ;-)

32

Omega Centauri 05.16.11 at 4:46 pm

@6 derida. Actually US oil production has been recovering slightly. And to a greater extent imports have been tending down the past couple of years. Production reached a local minimum a few years back, new production, especially from the Bakken formation (mostly in North Dakota) has reversed the decades long production decline. The rest of your argument holds, more effort to drill will only marginally increase production. In reality a good argument against the drill-drill-drill thesis is that the US drills twenty times more wells than Saudi Arabia, but produces much less oil than the Saudis. Drilling only works if there is significant oil to drill for.

@13 john b. That quote strikes me as pretty ignorant (of the quotes author not you), particle physics has virtually nothing to do with Nuclear engineering. However, a cut in particle physics just might make some physicists hungry enough to take jobs in the nuclear sector.

33

Alex 05.16.11 at 4:48 pm

Nuclear power advocates love to talk about fatalities (except in connection with Chernobyl, which they prefer not to talk about at all).

I am a nuclear power advocate (in the sense that in order to get off fossil fuels, the only physically bountiful enough technologies for Europe are nuclear, or solar PV based in the Libyan/Saudi/Algerian deserts, and I don’t fancy the latter).

The short answer for the number of fatalities from Chernobyl is less than many might expect:

http://www.unscear.org/docs/reports/2008/11-80076_Report_2008_Annex_D.pdf

Regardless, the relevance of Chernobyl to today’s nuclear power debate is basically nil.

If the numbers still work, fine. If they can only be made to work by offloading potential cleanup liability on the taxpayers, no thank you.

Or how about we offload both the losses AND the profits onto taxpayers? Why not treat nuclear power stations as publicly run and owned utilities? Why not nationalize?

34

Omega Centauri 05.16.11 at 4:53 pm

michel@29:
Your problem stems from extending a linear change to too large a domain. It would work much better to determine elasticity of the change in the logarithm of demand as a function of the change in the logarithm of price. In that case with an elasticity of -.25 a doubling of price would only lead to demand of exp(-.25*.69), which is something like 80%. Even an elasticty of -1 would mean a doubling of price would then only mean a halving of demand.

35

piglet 05.16.11 at 5:31 pm

Not only gasoline use but total energy consumption and even CO2 emissions have fallen in the US with the recession. That is good news. At the same time, global emissions have not fallen and the Mauna Loa CO2 curve shows no sign even of slowed increase. That is very bad news. When you look at the curve, you can clearly discern earlier recessions as a temporary flattening. This isn’t the case this time and it is surprising given the depth of the crisis. Part of the reason is increased coal consumption in China and a drought in the Amazon might also have an impact.

36

michael e sullivan 05.16.11 at 5:36 pm

Omega. I agree with you that it makes more sense to do this with logarithms and I thought that was standard (although in my question, I completely blanked and suggested a hyperbolic function instead which doesn’t make much sense either).

In the headline post John uses examples that are linear, rather than logarithmic, and this doesn’t make any sense to me. That’s why I was hoping he would clarify that he intended these as heuristic approximations (which for small changes at the margin will not be off by much), or perhaps expose some kind of error in my understanding.
So, a 40 percent price increase would mean a 8.9% reduction in demand, not 10% as john wrote, but only approximately 10%.

37

chris 05.16.11 at 5:52 pm

If the numbers still work, fine. If they can only be made to work by offloading potential cleanup liability on the taxpayers, no thank you.

So you’re opposed to the use of oil for energy?

Part of the (actual, not potential) cleanup liability for all carbon-based fuels is offloaded not just on taxpayers, but on everyone in the world, but even aside from that, you don’t have to look far for major taxpayer-incurred cleanup liabilities attributable to fossil fuels.

38

PHB 05.16.11 at 6:03 pm

@Chris 23

No I didn’t because we are talking about the potential for new nuclear power and some of that is going to be inland. Nobody with a functioning brain stem is going to allow a new nuclear site to be deployed within 20km unless they have a personal benefit from it.

The area impacted by the exclusion zone is much larger than the zone itself due to the fact that roads were planned before the exclusion zone existed.

As for it being ‘temporary’, at this point that is conjecture. The Chernobyl zone was ‘temporary’ as well. And here we are three decades later.

Its already been months and it would be years before the reactor is cool enough to be considered safe – even if it hadn’t melted down.

Sg “Of course you could create a fantasy world in which nothing you hear is true except what you want to believe. But that isn’t conducive to rational discussion, is it?”

No, that we were lied to is now incontrovertible fact. We were told that the reactors had not melted down. That was obviously untrue when the claim was made and it is now admitted that the melt down did in fact occur.

Thus it would appear that it was you that was living in a fantasy land in which the official word is always true and always to be believed despite all the evidence to the contrary and that evidence of blatant lies on one occasion cannot be used as evidence that other unsubstantiated claims from the same source should be treated with skepticism

Japan is facing an immediate shortage of power and even if they were likely to trust the nuclear industry there is no way that nuclear capacity could be added fast enough. Therefore Japan is going to have to make a major shift in its generation strategy just to get through the next few years.

Their only real option would seem to be to push whatever fossil capacity they have to the limit while they aggressively deploy renewables and whatever conservation measures may be possible.

39

shah8 05.16.11 at 6:32 pm

Okay, I’m not that impress with the post nor the thread, but I don’t have time to really chew it…

1) That inelasticity reflects people’s powerlessness, not the latency of their choices. In other words, it shortens the Keynesian “In the long run, we are all dead”, i.e., people are ruined, injured, or dead in some way because they couldn’t afford the gas.

2) Many institutions will cut vital services and add fees, like the airlines…So public schools may well institute a fuel fee to get you kids to school. Schools in rural areas will close, as well as hospitals, etc, etc…

3) Inelasticity drives stagflation like nobody’s business. Transportation fuel underlies *everything*. $40/g might drive a decision about buying a house in the city, but you will not be eating, well before gas/diesel hits $40/g. And in agricultural commodities, $5 dollars/g is an unmitigatable marginal cost increase. Ag imputs into final products will increase.

4) Going futher into the stagflation thesis, world-wide agriculture would probably go into serious crisis, and food crisis would be everywheres. Governments will not be serve the metropole that is us with cheap good and services. The China Price will no longer be available, even if you use Haitian or Cameroonian labor. Key infrastructure projects would become unviable. Important subsidies needed to increase manufacturing jobs developes leaks of resources through borders to countries that don’t subsidize.

Anyways, as far as nukes go… Let’s get something straight–No source of energy that supplies society with the amount of energy needed to grow is without major-league externalities, ok? Not wind, not solar. It’s basically the end of power supply as a private profit center. An international smart grid will matter far, far, far more than the wind or home solar that requires it. Enforced regulations about energy saving houses/businesses would matter far, far more. Ending subsidies and tax breaks would matter far, far more. Nationalized energy will demand such things…

40

clayton 05.16.11 at 7:05 pm

This is all well and good, except that you are forgetting one key thing about transportation fuel consumption in the U.S.: biofuels.

The Renewable Fuel Standard requires that 10% of U.S. gasoline be ethanol. And if you add ethanol consumption to gasoline consumption figures (both provided by EIA), gasoline (as represented by E10) has not peaked, regardless of the price increase. The trend continues upward.

So, yes, technically, gasoline consumption is down, but it has much less to do with price as with government regulations requiring inclusion of ethanol in the gas stream. After considering this, price elasticity of demand is considerably smaller.

Further, ethanol made from corn (which comprises the vast majority of U.S. ethanol consumption) is not much better environmentally than gasoline.

41

James Wimberley 05.16.11 at 7:07 pm

Alex in #33: “… solar PV based in the Libyan/Saudi/Algerian deserts, and I don’t fancy the latter.”

Why not? Solar electricity can’t economically be stored, so the vendor is locked into a long-term relationship with the purchaser; in this case, very probably through long-term investment partnerships and supply contracts. It will look much more like gas or coal than oil. There is the risk of self-destructive blackmail, as indeed with Russian gas today. However the Arab states with lots of desert are not all cohesive and the success OPEC used to have as a cartel is not automatically generalisable to other markets. For one thing, deserts flat and stony enough for solar power plants are not a scarce resource like oilfields. If Libya won’t play ball, you can just put your plant in Morocco or Egypt, neither of which you mention. The risk looks much less than what Europe lives with today with Russian gas.

I leave out the fact that it might even be a good idea in political and human terms to build trade with Arabs.

42

John Quiggin 05.16.11 at 8:04 pm

Michael, you’re right about the approximation, and Omega Centauri is correct – the common assumption is that demand is linear in logs.

There’s already a lot of imprecision in the estimate of the price change, and of the elasticity, so I just meant to give a round number estimate in any case, but I should probably spell this out.

43

John Quiggin 05.16.11 at 8:12 pm

@clayton That’s an important point. I read the data as including ethanol blend, but that was incorrect. However, ethanol is only around 3 per cent of total consumption (the same link says 14 million gallons out of 344).

44

Mike the Mad Biologist 05.16.11 at 8:26 pm

I’m inclined to agree with Matt at #14: a lot of this is due to the economic downturn. Even with increased fuel economy, U.S. housing patterns are so car-oriented that the change will be limited. Better than nothing though, but housing/working patterns are critical.

45

ScentOfViolets 05.16.11 at 8:39 pm

3) Inelasticity drives stagflation like nobody’s business. Transportation fuel underlies everything. $40/g might drive a decision about buying a house in the city, but you will not be eating, well before gas/diesel hits $40/g. And in agricultural commodities, $5 dollars/g is an unmitigatable marginal cost increase. Ag imputs into final products will increase.

It’s been said by some that the 21st century will be the century of rationalized infrastructure. Well-planned grids of electric trains. Perhaps even electrification of the roadways – and why not? The biggest question is how to meter and charge for power. Hopefully everyone will change over to high-voltage DC as well, as Edison intended :-)

46

ScentOfViolets 05.16.11 at 8:46 pm

Why not? Solar electricity can’t economically be stored, so the vendor is locked into a long-term relationship with the purchaser; in this case, very probably through long-term investment partnerships and supply contracts.

One possible future alternative is synthetic gasoline via the Fischer-Tropsch process. It’s generally assumed that the power source for these reactions is nuclear, but it needn’t be at all. There’s no good reason why the Oil states of today couldn’t become the Synthetic Oil states of tomorrow with the application of desert-based solar power.

However the Arab states with lots of desert are not all cohesive and the success OPEC used to have as a cartel is not automatically generalisable to other markets. For one thing, deserts flat and stony enough for solar power plants are not a scarce resource like oilfields. If Libya won’t play ball, you can just put your plant in Morocco or Egypt, neither of which you mention.

There’s a bit more to it than that, but close enough. There might still be a cartel of sorts; just not as unified. After all, how much does gas vary in your neighborhood from pump to pump? Strangely, no matter what the conditions and fluctuations of the market, they always seem to be within a cent or two of each other ;-)

47

Darren 05.16.11 at 8:52 pm

@JamesWimberly in 33: You seem to be neglecting intermittency. A very very good reason not to fancy buying solar power from Saudi Arabia is that it leaves you with the puzzle of what to do for electricity at night.

In the absense of large-scale economic electricity storage (and I haven’t seen a plan yet that has been reviewed/supported by real live power engineers), the only way to generate the baseload necessary is nuclear power.

@roac #27: Chernobyl is about as relevant to the discussion of Western nuclear power as the Titanic is to the hazards of transatlantic air travel.

48

sg 05.17.11 at 12:50 am

PHB, you’re seeing conspiracy where there is none. We were told the reactor didn’t appear to have melted down, in a situation where it took them two weeks to find the bodies of two of their colleagues in a sub-basement. The plant was so heavily damaged and they were so busy with damage control they didn’t have the ability to find their own dead. They only discovered what the true water level was in those facilities in early May after they repaired gauges. In the early days their only ability to estimate the possibility of meltdown was by testing the radioactive byproducts – at one point they measured plutonium etc. but they thought it might be due to fire in the cooling rods (which did happen, and was filmed happening).

This is not conspiracy – this is the extreme difficulty of operating in a very challenging disaster area.

Japan is not facing electricity shortages: East Japan is (they’re on separate grids). Tokyo has to function on 80% electricity this summer, which anyone who has lived in Japan for any length of time knows is going to be very unpleasant, and possibly deadly for old people. I think there was a new plant due to come online next year (some of the Fukushima plant was going to be mothballed next year). Japanese people are much more sanguine about nuclear, and will be even more so after the summer…

Also re: rendering large amounts of land useless. Note that larger amounts of land were rendered useless by the tsunami, and the clean up teams are dealing with so much rubbish they don’t know where to put it. There’ll probably also be large amounts of chemical contamination as the stuff they dispose of decays (even tatami mats can cause chemical pollution). So to characterize this nuclear plant as the sole cause of lost land, in a country that has experience regenerating from nuclear disasters – is hyperbolic.

49

Straightwood 05.17.11 at 2:01 am

We now see the shift from pragmatic defense of nuclear power to ideology-based assertions that nuclear is the only option. But the greater the scrutiny to which nuclear power is subjected, the more suspicious these assertions become. This industry was corrupted by subsidies and undermined by complacency. The glacial pace of change in reactor design prevented the emergence of robust designs, and now the uncontainable disaster at Fukushima is likely to signal the end of the era of civilian nuclear energy.

The lesson for us all is that technologies with little margin for error and catastrophic failure modes are a very bad match for frail and corruptible human institutions.

50

Alex 05.17.11 at 2:32 am

Why not? Solar electricity can’t economically be stored, so the vendor is locked into a long-term relationship with the purchaser; in this case, very probably through long-term investment partnerships and supply contracts. It will look much more like gas or coal than oil. There is the risk of self-destructive blackmail, as indeed with Russian gas today. However the Arab states with lots of desert are not all cohesive and the success OPEC used to have as a cartel is not automatically generalisable to other markets. For one thing, deserts flat and stony enough for solar power plants are not a scarce resource like oilfields. If Libya won’t play ball, you can just put your plant in Morocco or Egypt, neither of which you mention. The risk looks much less than what Europe lives with today with Russian gas.

States “not playing ball” wasn’t the only threat to our energy needs I was thinking of. I was also thinking of the stability of the states, their vulnerability to upheaval and terrorism. As for the two countries you mention – the same problems that apply to Libya/Saudi Arabia/Algeria also apply to Morocco. Meanwhile, Egypt is still being run by a military dictatorship who may opt for democracy if their people are lucky. And Egypt does not have a low population density.

Remember, we’re talking about powering the vast majority of Europe’s electricity. And not now, but 50 years from now and onwards. By then, there will likely be an increased population, a higher demand for energy due to economic growth, and a higher demand for electricity due to the probable electrification of heating and transport.

I leave out the fact that it might even be a good idea in political and human terms to build trade with Arabs.

“Energy” is not just another good. It is vital for any society to flourish. Yes, let’s trade with Arabs (although can I please use this opportunity to voice my opposition to the trend to racialize states in the Middle East – it would be as if someone, while discussing the West, used the term “White World”), but energy is not just another commodity.

Anyway, I’ll just note that the EU is already doing lots of trade with the region under discussion:

http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/regions/euromed/

51

Alex 05.17.11 at 2:51 am

We now see the shift from pragmatic defense of nuclear power to ideology-based assertions that nuclear is the only option.

No-one here AFAICT has said that nuclear is the only option. I have said it’s the best option for most of Europe’s energy needs, which sounds like pragmatism to me.

But the greater the scrutiny to which nuclear power is subjected, the more suspicious these assertions become.

This itself (and all that follows afterwards) is an assertion.

The glacial pace of change in reactor design prevented the emergence of robust designs

Assuming what you say is correct, I’m sure you could do so much better.

Btw, I seem to remember that very often when new reactor designs are proposed, anti-nuclear activists voice considerable opposition.

and now the uncontainable disaster at Fukushima is likely to signal the end of the era of civilian nuclear energy.

Only if people like you keep opposing nuclear power. And in what sense is it an “uncontainable disaster”? It seems fairly well contained to me.

The lesson for us all is that technologies with little margin for error and catastrophic failure modes are a very bad match for frail and corruptible human institutions.

No, the lesson for us all is that rare, extraordinarily powerful earthquakes and a subsequent tsunami can kill thousands of people and destroy infrastructure in a highly developed society, and that some old nuclear reactors may be among those seriously damaged. It may cost a lot to clean up (though peanuts compared to the overall tsunami/quake disaster) but few people, if anyone at all, will die or be serious ill because of it.

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Alex 05.17.11 at 2:57 am

You seem to be neglecting intermittency. A very very good reason not to fancy buying solar power from Saudi Arabia is that it leaves you with the puzzle of what to do for electricity at night.

In the absense of large-scale economic electricity storage (and I haven’t seen a plan yet that has been reviewed/supported by real live power engineers), the only way to generate the baseload necessary is nuclear power.

This is not a good reason to opt for nuclear power, since it shares the same problem:

http://www.inference.phy.cam.ac.uk/withouthotair/c26/page_186.shtml

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Omega Centauri 05.17.11 at 3:07 am

Alex, a little too many absolutes. A decent fraction of demand met by desert solar is a good match for peak daytime demand. You don’t want to make that fraction 100%, but something like 50% should be able to be accomodated. We do have some near storage equivalnets, hydro, and natural gas peakers, with storage for natural gas. So wind/solar reduces the need for natural gas when they are producing, meaning that much higher natural gas capacity can be supported with a fixed supply of gas. Different types of generation can complement each other if the system is built smartly.

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Alex 05.17.11 at 3:15 am

Omega, that first paragraph not in the quote, should have been. Darren said it, not me.

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Straightwood 05.17.11 at 4:39 am

And in what sense is it an “uncontainable disaster”? It seems fairly well contained to me.

Really? I don’t think many people would call the steady release of highly radioactive water and wind-borne contaminants “well contained.” As of now, weeks after the meltdown, nobody knows how to stop this release. Do you have a plan?

some old nuclear reactors may be among those seriously damaged

Damaged? The accident at Fukushima has destroyed the facility: destroyed, not damaged. It will never produce electricity again.

56

hapa 05.17.11 at 4:45 am

hello

most of what i had to say about this i actually said over at mark thoma’s blog http://economistsview.typepad.com/economistsview/2011/05/reasons-to-be-cheerful-about-climate-change.html but i realized that you pretty people might like to read the actual incredibly important study by james hansen et al, including jeffrey sachs:
this is a plan for the REDUCTION of atmospheric carbon by more than 50ppm over the course of the century.

“The Case for Young People and Nature: A Path to a Healthy, Natural, Prosperous Future”

“We describe scenarios that define how rapidly fossil fuel emissions must be phased down to restore Earth’s energy balance and stabilize global climate. A scenario that stabilizes climate and preserves nature is technically possible and it is essential for the future of humanity. Despite overwhelming evidence, governments and the fossil fuel industry continue to propose that all fossil fuels must be exploited before the world turns predominantly to clean energies. If governments fail to adopt policies that cause rapid phase-down of fossil fuel emissions, today’s children, future generations, and nature will bear the consequences through no fault of their own. Governments must act immediately to significantly reduce fossil fuel emissions to protect our children’s future and avoid loss of crucial ecosystem services, or else be complicit in this loss and its consequences.”

http://www.columbia.edu/~jeh1/mailings/2011/20110505_CaseForYoungPeople.pdf

57

Lee A. Arnold 05.17.11 at 4:59 am

“Why nuclear power will never supply the world’s energy needs” — interesting analysis in the Proceedings of the IEEE:
http://www.physorg.com/news/2011-05-nuclear-power-world-energy.html

58

Tim Worstall 05.17.11 at 8:12 am

“As an aside, there was a good piece in The Register the other week about how green funding is dangerously biased towards subsidising wind and solar power, and how there’s very little Western funding for non-Uranium based nuclear energy – or indeed other high-engineering solutions i.e. that a lot of people are quite happy to use science to show there is a problem, but to ignore scientific evidence when it comes to the solution.

(It also noted that there’s a definite bias amongst green policy towards curbing people’s energy usage and movement, rather than on supplying that energy in a clean or carbon-neutral manner)”

I shall treasure this. Perhaps the first (maybe only?) time here on Crooked Timber that someone has described some writing of mine as a “good piece”.

As to storage of solar power, not there yet in cost terms but the basic technology is available:

http://en.wikipedia.org/wiki/Bloom_Energy_Server

Electrolyse water with the power from the solar cell, store the H2, then run it through an SOFC when electricity is required.

But then that brings us back to scandium and SoV will shout at me again no doubt.

59

piglet 05.17.11 at 3:16 pm

“The Renewable Fuel Standard requires that 10% of U.S. gasoline be ethanol. And if you add ethanol consumption to gasoline consumption figures (both provided by EIA), gasoline (as represented by E10) has not peaked, regardless of the price increase.”

Can you provide the numbers? US total primary energy consumption has peaked in 2007 and was 6% lower in 2009. Of course it might go up again and reach new highs but at the moment it looks like it has peaked. On a per capita basis, total energy has actually peaked in 1978 and was in 2009 16% lower. Of course, the total is what counts but the decline (from a very high level to be sure) is remarkable.

60

ScentOfViolets 05.17.11 at 10:19 pm

In the absense of large-scale economic electricity storage (and I haven’t seen a plan yet that has been reviewed/supported by real live power engineers), the only way to generate the baseload necessary is nuclear power.

Well no, there’s always some sort of scheme like synthetic oil from carbon monoxide and hydrodgen that’s perfectly capable of storing large amounts of electricity. Yes, I know, the kicker is in the “economic” part. But here’s the thing: that “economic” part also applies to coil, oil and natural gas as a matter of basic chemistry/physics. You just can’t see it. All processes which convert solar energy to chemical energy – and that includes coal, oil, etc. as well – are subject to thermodynamic constraints which puts a ceiling on the highest theoretical efficiency, which puts places a lower limit on energy costs and hence economic costs. The difference between something like storage batteries and coal is that you don’t have to pay for the thermodynamic costs of the latter. That’s already been done millions of years ago.

Given those circumstances, it’s easy to see why alternative storage schemes will be “uneconomic” for some time to come.

61

TheF79 05.18.11 at 12:45 am

I would reckon that the 0.25 short-run elasticity is quite a bit larger in absolute terms than the literature would suggest. 0.10 is probably closer to the median of short-run studies I’ve seen, though it’s true there is a lot of debate about the precise magnitude. Two things to keep in mind while considering consumption and prices 1) prices have in fact more than doubled since 2008 (from $1.80 to $4.00) 2) EPA does have an RFS requiring roughly 10% blend of ethanol in all gas (which has ramped up since its implementation in 2005). So even with the RFS pushing down consumption, absolute levels of consumption are still only a bit lower than the peak in 2006/2007 (the year depends on whether you’re considering daily/weekly/monthly consumption). So while there are and have been a ton of competing forces on prices and consumption, an elasticity of 0.25 suggests that consumption would have been astronomical (roughly double the 2006/2007 peak) had prices remained at $1.80 levels. So I wouldn’t bank on short-run responses doing too much in terms of really lowering consumption – policy and long-run consumer exhaustion from paying high prices likely have a larger role to play.

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clayton 05.18.11 at 6:38 pm

@john quiggin EIA at DOE has 12% ethanol in U.S. conventional gasoline consumption, not 3%, it’s 9.4 in January, if you include all grades/types of gasoline.

Peak conventional consumption in the U.S., according to EIA was Aug. 2010, and best-fit time-trend is monotonically upward trending if you include ethanol.

63

ovaut 05.19.11 at 1:23 am

more significant, surely, than the fact i think we’ll fail to avert global warming is the fact I’m failing to act on this — except, my primary reason for thinking we’ll fail is the apparent supremacy in me of the same forces i take to be driving us to f*ck it all up as a species-team

64

piglet 05.19.11 at 10:22 pm

clayton 62, where did you find these numbers? 12% ethanol seems implausible given that 10% is the highest admixture rate commonly available. Please show your sources.

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