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Is the Earth Full?

In 1965, the American economist Kenneth Boulding popularized the phase “Spaceship Earth” expressing his concern about the fragility of our planet. His logic went something like this: since the Earth’s resources are finite, just as bacteria growing in a Petri dish will eventually exhaust their resources, we too must sooner or later run up against the Earth’s limits. This is a deep current in contemporary environmentalism and one expressed today in the New York Times by Thomas Friedman. As my friend Roger Meiners observes, this line is “…a timeless classic that always sells well.”

Wait, wait, I’ve seen this movie before!

One of the earliest examples is Fairfield Osborn’s 1948 book, Our Plundered Planet. In 1970, the definitive work of this movement, The Limits To Growth, was published. Limits To Growth predicted that, at present rates of consumption, supplies of many important commodities would be exhausted by 1992. More recently the Archbishop of Canterbury called for an end to economic growth to save the planet, and the World Wildlife Fund warns that we are consuming 20 percent more natural resources a year than the Earth can provide.

Economic growth is neither designed nor intended to ruin the Earth. And while it is true that nature has sometimes been destroyed in the quest for economic growth, the aim of economic development is to generate resources that improve the condition of humanity. Across time and cultures, we have reaped the benefits, as technological advances and economic growth have proved the only sure path to a cleaner, safer environment. (For a sobering look at the condition of the “people’s” air and water, check this link out.)

This quest for progress benefits not only present generations, but future ones as well. By using natural resources to create wealth today, we increase the probability that those yet unborn will be able to meet their material needs better than any preceding generation. Prosperity, now and in the future, increases the odds that we will avoid a life that Thomas Hobbes described as “solitary, poor, nasty, brutish, and short.”

The Earth’s resources are not in any meaningful sense fixed. Every material that we consider a resource was at one time worthless. The economist Erich Zimmermann explains. “Previous to the emergence of man, the earth was replete with fertile soil, with trees and edible fruits, with rivers and waterfalls, with coal beds, oil pools, and mineral deposits; the forces of gravitation, of electro-magnetism, of radio-activity were there; the sun set forth its life-bringing rays, gathered the clouds, raised the winds; but there were no resources.”

“Resources are, reserves become.” Not until human creativity goes to work does any physical thing become useful and valuable. This explains how many resources are evermore abundant and less expensive in the face of growing consumption.

Our manipulation of resources fosters economic progress. This allows us time to participate in our communities, create a responsible and enjoyable culture, and live long and fulfilling lives. Our technology frees us from drudgery, cleans our water, powers medical equipment, and fuels the jet turbines and diesel engines that make global trade possible. In sum, all this allows us to fulfill the most basic of our aspirations, i.e., improving the wellbeing of our loved ones.

Progress over the past 100 years has been stunning. Life expectancy has more than doubled from a world average of only 30 years in 1900, rising to 46 years by 1950, and is now for (both sexes) 66.57 years. The World Health Organization thinks life expectancy will increase to 73 years by 2020. This is an unprecedented improvement in the condition of humanity.

The idea that economic growth must be curtailed is cruel tragedy in a world where billions of people still live in dire poverty.

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Talking “L’environnementalisme de marché”

Today my colleague Laura Huggins and I spent an hour or so with Sandrine Bélie, a member of the European Parliament representing the group, Europe Ecologie. It was a fascinating conversation and I learned a lot. Here are some of the points I made:

(1) Protecting the environment requires real resources, which have competing opportunity costs.

(2) Across time and cultures, wealthier is healthier, safer, and more environmentally sensitive.

(3) Things that have no owner and no price are prone to exploitation.

(4) Public lands by definition are political lands, and predictable pathologies follow.

(5) Markets work through trial and error, experimentation, and feedback. Their constant search for efficiencies subjects ideas (both new and old) to ruthless, systematic testing. This is a far more efficient and equitable process than relying on decisions made by politicians and their business cronies.

Thanks to Sandrine for a great discussion.

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It’s OK to Print this Post for Earth Day

So says PERC’s Laura Huggins today over at Advancing a Free Society.

Laura’s piece emphasizes one of my favorite Mark Twain quotes: “It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.”

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Here’s what an energy transition looks like

What will our energy future look like? Unlike many of our political leaders, I claim no special insights, but I see some interesting trends. The first is reported by Roger Pielke, Jr. demonstrating the switch away from oil in electric power generation in the early 1980s by OECD countries.

Beginning in the 1970s a sharp rise in oil prices (compared to other fossil fuels) induced power generators to switch from oil to other energy sources, e.g., to coal, nuclear, or alternatives. The result? Over about 40 years oil lost about 90 percent of its share as a source for electricity production (to 2.5 percent from 25 percent).

Pielke makes the following points regarding this dramatic shift, some of which he claims are obvious, but worth repeating. I agree. Here they are:

1. Significant energy shifts happen.

2.They can take many decades.

3. Such shifts depend upon available substitutes.

4. The trend was from more expensive energy to less expensive energy, not vice versa.

Vaclav Smilfrom the University of Manitoba, reinforces these compelling observations: “There is one thing all energy transitions have in common: they are prolonged affairs that take decades to accomplish, and the greater the scale of prevailing uses and conversions the longer the substitutions will take.” Smil’s work contains many stunning examples, including these nuggets:

  • In most of the world’s developed economies it took more than fifty years for internal combustion engines (both gasoline and diesel) to displace agricultural draft animals. (In many low-income nations this process is still not complete.)
  •  James Watt’s improved steam engine, which became commercially popular during the 1770s, remained an important technology into the mid 20th century.
  • The first diesel-powered car (the Mercedes-Benz 260D) was made in 1936. It wasn’t until the 1990s that diesels claimed 15 percent of the new car market in the European Union. (In 2007, diesels share of the U.S. new car market was 3 percent.) This is despite the fact that diesel engines have always been inherently more efficient than gasoline engines (the difference is up to 35 percent), and that modern diesel-powered cars have very low particulate emissions.

Misguided political directives can delay our energy transition from high carbon to lower carbon fuels. For example, in 1978 Congress, concerned about impending shortages of natural gas, passed the Powerplant and Industrial Fuel Use ActThis prohibited the use of natural gas for power generation and industrial use.

As a result, capital investment shifted towards a new generation of coal-fired power plants. If all the coal-fired electric generating capacity added during the last thirty years had been fueled by natural gas, U.S. carbon dioxide emissions would have been about 20 percent lower. This act was repealed in 1987. Recent natural gas finds in “unconventional” geologic formations (e.g., the Barnett Shale in Texas) may double America’s natural gas (CH4) resources.



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What is it about national energy policy?

by Pete Geddes


I’m convinced that I have discovered a new social law. It seems to have the validity of Newton’s. Here it is: national energy policy causes IQs and body temperatures to converge, with the most rapid convergence occurring in the political arena, especially in a presidential election year.

The Hoover Institution’s Richard Epstein’s recent blog confirms my hypothesis as he dissects President Obama’s recent energy speech at Georgetown University. Epstein make two critically important points. Here they are:

(1) Regarding energy consumption, consumers make decision at the margins.

Higher gas prices provide consumers with incentives to prioritize consumption. At some point ($4, $6, $8 a gallon?) we decide (perhaps) that fueling our SUV is too costly. Hence, we select cars that get better (likely not maximum) gas mileage, drive less, carpool more, and decide to forgo water-skiing for rafting. The amount of oil we demand, whether for use as gasoline, fertilizer, or in plastics, depends on price and not every use of petroleum is equally valuable.

(2) The market process gathers information and prices guide decision-making.

Markets, like DNA-driven organisms, are highly efficient information-processing systems. The prices they generation transmit information and help allocate resources both for individuals and organizations.

Epstein makes the case to let the market process show the way to our energy future. This is a point politicians often miss (or deliberate ignore). The market process of constantly searches for efficiencies subjects ideas (both new and old) to ruthless systematic testing. This is a far more efficient and equitable process than relying on decisions made by politicians and their business cronies.

Venture capitalists have access to ever more and better information. They are the most optimistic investors in the world, earning their living evaluating risks and rewards. If green technologies have the potential to yield attractive profits, then firms will enter the game. Witness Exxon Mobil’s recent $600 million investment in algae-based biofuels. (They are, after all an energy company.)

If a technology is not economically competitive, no amount of public subsidy or special political favors will make it so.

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Are we running out of resources?

by Pete Geddes

Steve Horwitz addresses this modern economic myth:

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New drilling method opens vast oil fields in US

by Pete Geddes


AP writer Jonathan Fahey (a 2010 PERC Media Fellow) reports on a new drilling technique that is opening vast fields of previously out-of-reach oil in the western United States (interactive graphic here).

I’m often asked about our consumption of natural resources, e.g., oil, iron, and copper. Since these resources are finite and population continues to grow, aren’t we in danger of running out? My short answer is no, we’ll never run out of anything that trades in the marketplace. But, we should be concerned about running out of “resources” that have no price and no owner, e.g., wild things and the ecosystems upon which they depend.

Geologists define resources as the total physical stock of any material, e.g., coal. In contrast, reserves are the portion of those resources that can be economically developed. Technological advances allow us to constantly move commodities from the resource category into the reserve pool.

Prices also expand our reserves, as yesterday’s high cost resources become today’s lower cost ones (e.g., Canada’s oil sands). Rising prices signal scarcity, and this creates incentives that spur conservation and the search for substitutes (e.g., silicon fiber-optic lines replaced copper phone wires to great environmental benefit).

When institutions foster innovation and property rights are secure, scarcity never wins against creativity.

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Societal Change Happens Fast

by Pete Geddes

Shanghai 1990 vs. 2010 (via Roger Pielke Jr.)

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Excellent Summary of Coase and the Environment

by Pete Geddes

Don Boudreaux provides an excellent summary of Ronald Coase’s work and its implications for the environment in today’s Pittsburgh Tribune-Review. Here’s a preview:

Coase’s insight shows that many disputes over competing uses of the environment can be solved privately without heavy-handed government bureaucracy. If private property rights are clearly specified, parties will then exchange these rights with each other so that those who value particular rights most highly are those who gain control over those rights.

To the extent that parties can bargain with each other for ownership of property rights, government officials need not take upon themselves the difficult responsibility of deciding just how the environment is to be used (or not used).

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The Philosophical Underpinnings of Markets Over Mandates

by Pete Geddes

I have several hockey-playing friends who simply cannot understand my opposition to government subsidies for “green” energy. They question my belief that the market process is likely to generate environmentally and ethically superior results and default to describing me as a “market fundamentalist.” If you find yourself in a similar situation, I’d like to offer the following for your consideration.

In addition to several empirical arguments against government intervention, I think it’s important to explain the philosophical underpinnings for my preference for markets over mandates. I start with these insights from 1974 Nobel Laureate F.A.Hayek:

The knowledge problem

In modern societies, knowledge of time- and place-specific conditions is dispersed among millions of individuals. Consumers and producers communicate their desires through prices. Markets then allocate resources — labor, capital, and human ingenuity — in a manner that can’t be anticipated or mimicked by a central plan (or planner.)

This fundamental insight is found in Hayek’s essay The Use of Knowledge in Society.”

What is the problem we wish to solve when we try to construct a rational economic order? On certain familiar assumptions the answer is simple enough. If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic.

This piece explains why large scale economic planning fails. It is because the social world does not consist of physical objects governed by simple laws of causality, but is a ‘kaleidic’ world inhabited by individuals with minds, whose inner recesses are inaccessible to the external observer, where knowledge is not ‘fixed’ and available to a single person or institution. (Another essential critique is found in the work of János Kornai.)

Here’s an example from the American West: 
Between 1933 and 1938 the Columbia Basin Project (CBP) impounded water behind the Grand Coulee Dam. It was to provide irrigation and power to 100,000 family farms, and turn the desert of eastern Washington into lush farmland. Two generations later, only a few thousand farmers and corporations work the irrigated land–at great cost to taxpayers and the environment.
 What was the problem? Planners designed policies for an unknown future, the only kind we have. The CBP plans did not anticipate changes in technology such as the replacement of horses by tractors. The tractors, tillers, and harvesters all became much, much larger and faster. This led to huge consolidation rather than 40-acre farms. Social preferences are even more difficult to predict (e.g., for healthy runs of wild salmon instead of more dams for irrigation).

“Product of human action but not human design…”

My progressive friends are firm believers in the theory of evolution and are highly dismissive of alternative explains, except when considering social policy. I find this intriguing, but not surprising.

The idea that things exist in the world that are the product of human action but not human design is highly unintuitive. In Hayek’s 1967 essay, “The Principles of a Liberal Social Order,” he explores this:

[Read more…]

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The real “green” in the green energy economy

by Pete Geddes

In today’s Wall Street Journal the always well-informed Holman Jenkins offers a primer on the inherent problem of government intervention in the energy economy. To recap:

When we subsidize things that trade in the market, we benefit the well off and well organized at the expense of the most vulnerable members of society. This holds true whether in Bozeman, Boston, or Birmingham. George Will said it well: “The world is divided between those who do and do not understand that activist, interventionist, regulating, subsidizing government is generally a servant of the strong and entrenched against the weak and aspiring.”

To learn how this process works, I recommend the late Mancur Olson’s book, The Logic of Collective Action: Public Goods and the Theory of Groups. Olson examines how political forces derail the greater good. His explanation is straightforward: small, wealthy, well-connected groups easily organize into cohesive, effective units. They then use the political process to reap huge benefits while dispersing the costs over 290 million citizens. This graft is rarely challenged, by parties of either flavor.

But isn’t it reasonable to support subsidies for the “right” kind of energy, e.g., wind and solar? No, for the same pathological logic applies. Here’s an example:

Wind farms are enjoying a boom. Alas, their popularity has more to do with harvesting advantages in the tax code than with their environmental or energy merits. Following The Logic of Collective Action, we’re not surprised to learn these “good” subsidies annually transfer hundreds of millions of dollars from customers and taxpayers to a few large companies. Wind “farmers” reap more revenue from tax breaks and subsidies than from the sale of their product. They benefit at the expense of other taxpayers and energy consumers.

Our energy economy is in transition. Few doubt that some day, when technological advancement brings prices down, we’ll harness the sun and the wind in meaningful amounts. In the meantime, beware of corporate executives wearing green eyeshade.

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CH4 and the Decarbonization of Energy

by Pete Geddes

What will our energy future look like? Of course, I have no special insights, but I see two interesting trends.

Here’s the first. In large, complex economies, meaningful energy transitions occur gradually across many decades. Vaclav Smil, from the University of Manitoba, offers these compelling observations.

 In most of the world’s developed economies it took more than fifty years for internal combustion engines (both gasoline and diesel) to displace agricultural draft animals. In many low-income nations this process is still not complete.

James Watt’s improved steam engine, which became commercially popular during the 1770s, remained an important technology into the mid 20th century. The first diesel-powered car (the Mercedes-Benz 260D) was made in 1936. It wasn’t until the 1990s that diesels claimed 15 percent of the new car market in the European Union. (In 2007, diesels share of the U.S. new car market was 3 percent.) This is despite the fact that diesel engines have always been inherently more efficient than gasoline engines (the difference is up to 35 percent), and that modern diesel-powered cars have very low particulate emissions.

Smil observes: “There is one thing all energy transitions have in common: they are prolonged affairs that take decades to accomplish, and the greater the scale of prevailing uses and conversions the longer the substitutions will take.”

The second trend is the gradual decarbonization of the world’s primary fuel sources. Jesse Ausubel and Cesare Marchetti noted that humanity first began using the energy sources rich in carbon. Over time, we have substituted fuels lower in carbon and richer in hydrogen. For example, the energy stored in wood (with water removed) has a carbon to hydrogen ratio of about 40 to 4. Coal is about 8 to 4. Oil, in the form of gasoline and jet fuel, is about 2 to 4, and finally methane CH4, the main constituent of natural gas, is 1 to 4, or about 1/40th the ratio of wood.

Ausubel writes, “Carbon is slowly losing market share to hydrogen as horses losing to cars or typewriters losing to word processors.”
 
This trend points towards an energy future that will (eventually) be dominated by hydrogen. This has profoundly positive implications for our environment. Hydrogen is the universe’s simplest and most abundant element. Burning it (with oxygen) produces heat and water.

What drives this trend? Marchetti explains that our energy system is evolving to meet the demands of consumers who increasingly live in dense populations. In cities such as Shanghai and New York fuels must conform to the supply and delivery constraints of high-density urban living. Such places accept only electricity and natural gas for these can reach consumers easily through existing infrastructure.

Furthermore, in the course of economic life, in which individuals and businesses are held accountable for the consequences of their actions, pollution and waste indicate inefficiency. And without government protection, inefficient processes are filtered out. The market process, like evolution, is a constant search for fitness. In the long run, companies face persistent economic and social pressures to become green.