Five Centuries of Inflation

Debts and Defaults in History

Nantucket Sound Wind Project Approved

Interior Dept press release:

BOSTON, Mass – Secretary of the Interior Ken Salazar today approved the Cape Wind renewable energy project on federal submerged lands in Nantucket Sound, but will require the developer of the $1 billion wind farm to agree to additional binding measures to minimize the potential adverse impacts of construction and operation of the facility.

“After careful consideration of all the concerns expressed during the lengthy review and consultation process and thorough analyses of the many factors involved, I find that the public benefits weigh in favor of approving the Cape Wind project at the Horseshoe Shoal location,” Salazar said in an announcement at the State House in Boston. “With this decision we are beginning a new direction in our Nation’s energy future, ushering in America’s first offshore wind energy facility and opening a new chapter in the history of this region.”

The Cape Wind project would be the first wind farm on the U.S. Outer Continental Shelf, generating enough power to meet 75 percent of the electricity demand for Cape Cod, Martha's Vineyard and Nantucket Island combined. The project would create several hundred construction jobs and be one of the largest greenhouse gas reduction initiatives in the nation, cutting carbon dioxide emissions from conventional power plants by 700,000 tons annually. That is equivalent to removing 175,000 cars from the road for a year.

A number of similar projects have been proposed for other northeast coastal states, positioning the region to tap 1 million megawatts of offshore Atlantic wind energy potential, which could create thousands of manufacturing, construction and operations jobs and displace older, inefficient fossil-fueled generating plants, helping significantly to combat climate change.

Global Forest Losses

Planned Rumaila Output

Averaging US East Coast Wind

Crude + Condensate Trends

When Does Surplus = Resilience?

If 2005-2007 Wasn't Peak Oil, What Was It?

Latest Global Oil Production Statistics

European Aviation and the Icelandic Volcano

More on Icelandic Volcano

Heading Out is a must read on this subject tonight, with some very helpful background.

In an aside, I was on the phone to my Dad in the U.K. this morning, and I was asking if any real economic consequences have surfaced yet.  It's a pretty interesting natural experiment in how dependent modern economies are on air travel - Europe has now effectively had air transport altogether withdrawn for several days with no warning.

He said so far the only visible consequence for the person in the street was that the supermarkets had run out of lettuce.  I forgot to ask if there had been panic buying of lettuce :-)  Of course, the airlines are losing $200m/day, and I wonder if a couple will go under if this goes on for a long time, since they weren't in great shape even before this.

Update:  Wow. Guardian says 30% of UK exports travel by air, with pharmaceuticals particularly reliant.  That sounds like it would start to bite pretty fast.

What is Waxman-Markey Really Doing?

Correlation is Not Causation

Icelandic Volcano Blows Again

Carbon Prices are a Very Blunt Tool

Deep Energy Retrofits

It Can't Possibly Be That Easy

Over the weekend, I read Paul Krugman's big essay on climate economics, Building a Green Economy.  In it, he makes the following claim:

Just as there is a rough consensus among climate modelers about the likely trajectory of temperatures if we do not act to cut the emissions of greenhouse gases, there is a rough consensus among economic modelers about the costs of action. That general opinion may be summed up as follows: Restricting emissions would slow economic growth — but not by much. The Congressional Budget Office, relying on a survey of models, has concluded that Waxman-Markey “would reduce the projected average annual rate of growth of gross domestic product between 2010 and 2050 by 0.03 to 0.09 percentage points.” That is, it would trim average annual growth to 2.31 percent, at worst, from 2.4 percent. Over all, the Budget Office concludes, strong climate-change policy would leave the American economy between 1.1 percent and 3.4 percent smaller in 2050 than it would be otherwise.

And what about the world economy? In general, modelers tend to find that climate-change policies would lower global output by a somewhat smaller percentage than the comparable figures for the United States. The main reason is that emerging economies like China currently use energy fairly inefficiently, partly as a result of national policies that have kept the prices of fossil fuels very low, and could thus achieve large energy savings at a modest cost. One recent review of the available estimates put the costs of a very strong climate policy — substantially more aggressive than contemplated in current legislative proposals — at between 1 and 3 percent of gross world product.

Such figures typically come from a model that combines all sorts of engineering and marketplace estimates. These will include, for instance, engineers’ best calculations of how much it costs to generate electricity in various ways, from coal, gas and nuclear and solar power at given resource prices. Then estimates will be made, based on historical experience, of how much consumers would cut back their electricity consumption if its price rises. The same process is followed for other kinds of energy, like motor fuel. And the model assumes that everyone makes the best choice given the economic environment — that power generators choose the least expensive means of producing electricity, while consumers conserve energy as long as the money saved by buying less electricity exceeds the cost of using less power in the form either of other spending or loss of convenience. After all this analysis, it’s possible to predict how producers and consumers of energy will react to policies that put a price on emissions and how much those reactions will end up costing the economy as a whole.

There are, of course, a number of ways this kind of modeling could be wrong. Many of the underlying estimates are necessarily somewhat speculative; nobody really knows, for instance, what solar power will cost once it finally becomes a large-scale proposition. There is also reason to doubt the assumption that people actually make the right choices: many studies have found that consumers fail to take measures to conserve energy, like improving insulation, even when they could save money by doing so.

But while it’s unlikely that these models get everything right, it’s a good bet that they overstate rather than understate the economic costs of climate-change action. That is what the experience from the cap-and-trade program for acid rain suggests: costs came in well below initial predictions. And in general, what the models do not and cannot take into account is creativity; surely, faced with an economy in which there are big monetary payoffs for reducing greenhouse-gas emissions, the private sector will come up with ways to limit emissions that are not yet in any model.

Now, it's important to note that the goal of the Waxman Markey bill is to reduce US carbon emissions by 83% by 2050 (from 2005 levels, so even more than that from 2010 levels). So essentially, the CBO is saying, and Krugman is endorsing, that this level of emissions reduction will have so small an effect on economic growth that it's going to be indistinguishable from noise. I don't dispute that environmental economists think this, but I find it to be a completely facially implausible conclusion. I want to lay out two arguments for why these economists cannot possibly be right. The first is a common-sense argument about what actually has to happen at the level of the lives of individual citizens to bring about such a large reduction in carbon emissions. The second argument is based on looking at what was required to cause significant changes in energy efficiency in past episodes.

Robots vs Relocalists

One of the great things about the Archdruid is that even when I believe he's wrong, he's rarely wrong in a dull, predictable way.  Instead, if he's going to be in error, it's often in an interesting and thought-provoking way.  So it is with this week's essay, The Twilight of the Machine. In it, he argues that, well, let's have him say it in his own words:

The end of the age of cheap abundant energy, as last week’s Archdruid Report argued, brings with it an unavoidable reshaping of our most basic ideas about economics and, in particular, economic development. For the last three centuries or so, the effective meaning of this phrase has centered on the replacement of human labor by machines. All the other measures of development – and of course plenty of them have been offered down through the years – either reflect or presuppose that basic economic shift.

The replacement of labor with mechanical energy has even come to play a potent role in the popular imagination. From the machine-assisted living of The Jetsons to the darker image of reality itself as a machine-created illusion in The Matrix, the future has come to be defined as a place where people do even less work with their own muscles than they do today. All this is the product of what an earlier post called the logic of abundance: the notion, rooted right down in the core of the contemporary worldview of industrial society, that there will always be enough resources to let people have whatever it is that they think they want.

Abandon that comfortable but unjustifiable assumption, and the future takes on a very different shape. In a world where everything but human beings will be in short supply, it makes no sense whatever to deploy increasingly scarce resources to build, maintain, and power machines to do jobs that human labor can do equally well. An example may be useful here, so let’s take Rosie the Riveter, the iconic woman factory worker of Second World War fame, and match her up against one of the computer-guided assembly line robots that have replaced so many workers in production lines in the industrial world; we might as well pit icon against icon and call the robot HAL 9000.

He goes on to make a variety of non-quantitative arguments for why Rosy will win this contest. I won't rehearse them here. Instead, this affords me an opportunity to present a simple hypothetical calculation that has been at the back of my mind for a year or two, the conclusion of which bothers me a lot:

Latest Sea Level Rise Projections

Icelandic Volcanoes

Just a short note that Heading Out at Bit Tooth Energy is tracking the situation with the Icelandic volcano (here and here). Although I don't completely buy all of his analysis (in particular, he's an evil climate change denier and that keeps creeping into his writing :-), I do think he's right that there is some level of risk of a globally significant event here and it's worth keeping an eye on.

Ubaid Proto-Civilization

Exceeding the 2008 Peak of Oil Production

Implications of Unmeasurable Capital

I was very struck by a piece by Steve Randy Waldmann at Interfluidity yesterday, entitled Capital Can't be Measured.  He is basically arguing that modern financial institutions are sufficiently complex that the concept of their "capital" is subject to measurement errors of the same order of magnitude as the capital itself.  This rang true to me, and put into words something that had nagged at me in reading about financial reforms, but had not come clearly to the surface of mind.

Sure, “hard” capital and solvency constraints for big banks are better than mealy-mouthed technocratic flexibility. But absent much deeper reforms, totemic leverage restrictions will not meaningfully constrain bank behavior. Bank capital cannot be measured. Think about that until you really get it. “Large complex financial institutions” report leverage ratios and “tier one” capital and all kinds of aromatic stuff. But those numbers are meaningless. For any large complex financial institution levered at the House-proposed limit of 15×, a reasonable confidence interval surrounding its estimate of bank capital would be greater than 100% of the reported value. In English, we cannot distinguish “well capitalized” from insolvent banks, even in good times, and regardless of their formal statements.

State of the Blog, Q1 2010

Latest Male Employment Improving

35.5mpg by 2016

News today:

WASHINGTON — The federal government issued final rules establishing the first greenhouse gas emissions standards for automobiles and light trucks on Thursday, ending a 30-year battle between regulators and automakers.

The U.S. issued new rules that sets emissions and mileage standards for automobiles and light trucks. The new rules, jointly written by the Transportation Department and the Environmental Protection Agency, set emissions and mileage standards that will translate to a fleet average of 35.5 miles a gallon by 2016, nearly a 40 percent improvement over today’s fuel economy.

Awesome! This is the single most important and practical step that the US can take to dealing with tight oil supplies.

A Few Thoughts on Yesterday's Announcement