Alex Epstein — VOICES for REASON

Today’s MasterResource features the first entry of a four-part Series by me titled “Energy at the Speed of Thought.” MasterResource is a leading free-market energy blog.

Today’s segment is called “The Original Alternative Energy Market.” Part 2 will be released tomorrow. (The article was originally published in 2009.)

Image: Wikimedia Commons

On this blog, I have repeatedly stressed the inferiority of solar and wind energy due, in large part, to the fact that both are dilute and intermittent, making them expensive and unreliable to harness. For a look at what real energy–that is, concentrated, controllable energy that can provide large amounts of power on demand–looks like, check out this amazing clip of a 25,000 ton nuclear ship plowing through thick Arctic ice. (HT Atomic Insights Blog.)

“The most important and most overlooked energy issue today,” I wrote in “Energy at the Speed of Thought,” “is the growing crisis of global energy supply. Cheap, industrial-scale energy is essential to building, transporting, and operating everything we use, from refrigerators to Internet server farms to hospitals. It is desperately needed in the undeveloped world, where 1.6 billion people lack electricity, which contributes to untold suffering and death. And it is needed in ever-greater, more-affordable quantities in the industrialized world: Energy usage and standard of living are directly correlated.”

In a recent post on Master Resource, Donald Hertzmark elaborates on this point. Hertzmark gives many valuable facts and figures about the degree of “energy squalor” that exists in the world, but to me the most powerful part was this image–a picture of the entire world at night, revealing which parts of the world (such as North America) are alight with plentiful energy, and which parts (such as much of Africa) are dark with energy poverty. Remember that image next time you hear that the whole world needs to drastically cut its usage of practical forms of energy (coal, oil, natural gas).

In today’s economy, which is an unstable mixture of capitalism and socialism, it is all-too common for executives to demand special favors for their companies at the expense of other companies. Nowhere is this more true than in the government-infested energy industry, where solar and wind companies demand (and get) exorbitant subsidies at the expense of taxpayers, and at the expense of truly practical energy technologies such as coal, oil, and natural gas.

Given this sad state of affairs, I was particularly delighted to see a sober, realistic analysis of the many pitfalls of solar power by an executive in the solar industry.

David Bergeron, president of SunDanzer Development, Inc., which manufactures solar-powered refrigeration equipment for customers in remote locations without access to cheap electricity from an electricity grid, recently wrote an analysis of why solar is woefully incapable of providing the reliable, cheap, large-scale electricity generation that solar advocates claim it can.

Here are some highlights:

Solar Photovoltaic (PV) electric panels are far too expensive to provide a sustainable energy alternative to homes and businesses already connected to the electric utility grid. The on-grid solar industry and associated jobs are artificial and only exist because of special government favor.

For PV to be economically feasible, the “installed” cost would need to be equal to or less than $1/watt. This is the holy grail of the industry and consistent with the statements of Dr. Chu, the Secretary of Energy. Very large-scale PV systems are reaching $4/watt today, which is admirable, but still four times too expensive to be a credible solution.

…

Can we get to $1/watt any time soon?  At present, solar panels are about half of the system cost. The remaining cost is mounting hardware for the panels, the inverter to make AC power, wiring, labor, and permitting. So even if it were possible to manufacture panels for free, the balance of system cost is still about $2 per Watt and the industry would continue to be non-sustainable without substantial subsidy.

…

Perhaps the most egregious myth is the claim we are helping our economy and creating jobs. This is false. Money for the solar subsidies comes from taxpayers and ratepayers. As this money is taken from us, spending for other goods and services must fall. This causes economic and job losses in other segments of the economy, such as in restaurants, department stores, and service and manufacturing companies.

Image: Wikimedia Commons

Tell me if this refrain sounds familiar: China is leading the world in “green,” “renewable” energy such as solar and wind, and if the US doesn’t shovel (even more) taxpayer money into these technologies, we will suffer an economic deathblow.

Here’s a recent example of this line of argument from the New York Times.

Companies that make solar cells and wind machines argue that a national energy policy is needed to guarantee them a market that will allow their industry to develop. Clean power will be an important industry globally for years, they say, and if the United States does not subsidize renewable energy now, it risks falling far behind other countries.

They point to China, which is rapidly increasing the amount of electricity it generates from renewable sources. In its most recent quarterly assessment of the renewable energy sector, the accounting and consulting firm Ernst & Young identified China as the most attractive market for investment in renewable energy.

There are many fallacies here–for example, that truly promising industries need government backing, and that another country’s superiority in one line of production is somehow a threat (ever hear of division of labor and comparative advantage?). But it’s important as a factual matter to obliterate one distortion shared by this article and much other commentary on the subject–that “green energy” is in any way, shape, or form responsible for China’s recent economic success.

China’s impressive growth over the last 20 years and its potential for growth in the upcoming years have been and overwhelmingly will be fueled by the greens’ most-hated energy source of all: coal. Coal has provided the vast, vast majority of the nearly 500 percent increase between 1990 and 2008. (See Power Hungry by Robert Bryce, page 60). And don’t just take my word for it; see the statistics provided by the Obama administration’s Energy Information Administration. Of the 77.3 quadrillion Btus China produces annually, coal provides 74%, oil 15%, hydroelectricity 7%, Natural Gas 4%, Nuclear 1%, and so-called Other Renewables (solar, wind, ethanol) 0.2%! Whatever solar and wind farms China is building, to great fanfare, are mere window dressing to win over world opinion.

Those who admire China for its economic progress should take note: it is not coming from the endlessly subsidized, diluted, intermittent, expensive sources such as solar and wind–it is coming from highly concentrated, cheap sources such as coal, oil, natural gas, nuclear, and hydro (all of which the “green energy” movement opposes as “unnatural”). The lesson? If you want more prosperity, don’t go green–go industrial.

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The Wall Street Journal recently featured a debate on the subject of “Is Google a Monopolist?” I agree with Amit Singhal, who defends Google as an innovative company for whom “competition is literally just one click away.”  But I would like to make an additional point in response to the “Google is a monopolist” argument of Charles Rule, an attorney whose firm represents corporations suing Google. Mr. Rule contends that since some of Google’s leaders once supported the antitrust case against Microsoft for market dominance, then they should acknowledge that “Google’s overwhelming dominance” is also illegal. Rule writes: “Failing to apply antitrust rules evenhandedly–particularly to politically well-connected monopolists like Google–would neither be just nor promote the cause of free-market capitalism.”

Actually, yes it would. Ever hear of the expression “Two wrongs don’t make a right”? It was completely wrong for the government to persecute Microsoft for adding a free web browser to its wildly successful operating system, and it is completely wrong for the government to persecute Google forchoosing its own prices and terms for its market-leading advertising services. As I wrote in: “An antitrust case against Google: a threat to free competition”:

All of this talk of Google’s power makes Google sound like a menace to competition and customers. But let’s take a closer look at this power, to see where it comes from, and whether it’s good or bad.

Through incredible technical innovation and brilliant management and marketing, Google has created by far the most popular search engine on the planet, earning hundreds of millions of users. Through additional innovation, it has created the AdSense program, which has enabled millions to engage in highly profitable advertising to the user-base Google brought together. Because Google offers customers an unmatched advertising audience, it has the power to charge higher prices and demand more favorable terms than, say, a less-popular search engine can. For example, Google holds expensive auctions for top keywords. Or, to take another bugaboo of Google opponents, the company has an at-will customer policy that allows them to drop any customer at any time (such as the many outfits that have tried to defraud Google) without the onerous legal obligation to explain themselves case-by-case.

Google’s prices and terms, denigrated as “overcharging” and “unfair,” are in fact earned. And Google’s power to demand them exists only insofar as it continues to offer superior value to its competitors. The second AdSense stops making financial sense to advertisers, Google will see its so-called monopoly position disappear. Clemons and others note that it will be hard for a competitor to overtake Google in search and advertising–but that just proves how much value Google brings to the table relative to anyone else. This is grounds for admiration for being a superior competitor–not prosecution for being “anticompetitive.”

So long as Google has no power to force consumers to use its products and no power to prevent competitors from offering competing products of their own, it can pose no threat to the competitive process.

There is, however, one player in today’s market that can thwart competition: the government. By using the vast and arbitrary political power given to it by antitrust law, the government can forcibly control successful companies like Google and Microsoft, telling them what products they can sell, what markets they can enter, what prices they can charge.

As for any hypocrisy in Google’s stand, that should be resolved, not by sinning twice against free competition, but by defending it clearly and on principle. Quoting my article again:

In recent years, competition has been perverted by an embarrassing series of skirmishes in which industry leaders like Google and Microsoft defend their own dominance as being earned and beneficial, but declare that the dominance of others is “anticompetitive” and in need of government prosecution. But it’s not too late for someone to stand up on principle. So Google, Microsoft, and everyone else: “Don’t be evil.” Stand up for true freedom of competition in high-tech.

Image: Wikimedia Commons

According to a story in Politico, there is a good chance Republicans will at least partially gut the EPA’s dictatorial power to control carbon emissions–and therefore the entire carbon-centric American economy.

As I wrote on this blog last year, with this power

the EPA can dictate what kind of cars we may drive, what energy sources we use for power, what expensive add-ons are necessary for power plants, and anything else that is connected to CO2 emissions–i.e., everything else. (Note: in the article, the Obama administration says it supports global warming legislation that will transfer much of the power to dictate emissions from the EPA to other regulators; I find this no more comforting than Soviet citizens used to find a shuffling of chairs at the Politburo.) All of this power is justified by the view that CO2 emissions are a negative thing–which is justified by the theory that the aggregate CO2 emissions of all the world’s people are raising the average global temperature.

But all of this evades the incredible value of CO2 [energy] in every aspect of our lives. Carbon energy has been and remains vital to the industrial society that has doubled human life-expectancies, and, among a million other benefits, enables us to cope with all manner of changes in climate (natural or manmade). There is simply no economic evidence that other sources of energy (besides nuclear, also opposed by environmentalists) can produce comparable amounts of energy at affordable prices. Therefore, CO2 emissions are a vital component of a modern standard of living.

We owe it to ourselves to do everything we can to remove the EPA’s energy-killing power.

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To me, the most interesting part of a recent New York Times feature describing corruption in the relationship between certain oil companies and the Minerals and Management Service is a passing reference to what the Gulf Coast was like before deepwater drilling.

For years, fading interest in the Gulf of Mexico had punished the local economy and left Louisiana to mourn its “Dead Sea.” Now, rising oil prices and new technology were setting off the deep-water version of a gold rush.

We have heard endless stories about how the oil spill has “ruined” the Gulf–the same Gulf the administration is now admitting it is already safe to eat from. But while the dangers of drilling accidents have been overblown, the fundamentally productive, life-giving nature of oil drilling has been largely evaded. We should remember that it was oil drilling that brought the “Dead Sea” to life.

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In case anyone believed that the reckless lending and borrowing of the housing boom would never happen again, read this story: “The Return of the $1,000 down mortgage.” Once again, borrowers are putting essentially zero money into the house they buy, encouraging them to buy houses they can’t afford and to walk away if the value of their houses decline.

If you are wondering how the government is letting this happen, you’ve got it backwards; as was the case leading up to the financial crisis, the government is making it happen through its many manipulating tentacles:

This offer does not come from a subprime lender, looking to reel in thousands of unqualified and ill-advised homebuyers, only to slap them with add-ons, fees and variable rates. It is not a teaser or a trick. The advertisement references a program initiated by the National Council of State Housing Agencies and Fannie Mae, the taxpayer-backed, government-sponsored enterprise that buys up mortgages from lending banks.

The pilot program is called “Affordable Advantage,” and it has now been adopted by three states — Massachusetts, Wisconsin and Idaho. (Other states, such as Pennsylvania, California and Colorado, have similar state programs.)…Fannie Mae helped to create Affordable Advantage after the state government agencies tasked with expanding homeownership found they were having trouble doing their job.

The idea that it is the government’s job to “promote homeownership” or create “stimulus” is the root cause of the financial crisis. This idea was carried out by the Federal Reserve, Fannie Mae, and Freddie Mac. Until that idea dies and these entities lose their power to manipulate the economy, the financial carnage will just continue.

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As an advocate of laissez-faire capitalism and a champion of America’s abundant oil use, it is rare that I get taken to task for being too tame in my defense of oil and in my expose of oil’s anti-industrial opponents.

But a superb letter to the editor in Tuesday’s Wall Street Journal by Paul Gilmour does just that. Responding to my point in my op-ed last week that oil spill hysteria ignores that “large amounts of oil enter the ocean every year through naturally occurring oil seeps,” he writes:

the situation is even more idiotic than the one Mr. Epstein describes.

Most of the oil in the Santa Barbara Channel and on nearby beaches comes from natural leakage of buried reservoirs, not man-made spills. Europeans who visited the area in the 16th century reported the sea was covered by a “sheen of oil, visible for as far as the eye could see,” and that local Indians waterproofed baskets and canoes with tar collected on beaches. It is estimated that, yearly, these seeps release the equivalent of one third of the oil spilled by Exxon Valdez.

Seeps of oil are common in coastal California, having given rise to such place-names as Oil Creek, Oildale, Brea (Spanish “tar”) and Coal Oil Point. By far the best known is the La Brea Tar Pits, located in downtown Los Angeles.

Wouldn’t it be nice if reporters actually told us this stuff, instead of only reporting things that reaffirm to them that oil is an “addiction”?