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If you don't price scarcity, you ration it anyway

Thu, 08 Jan 2026 00:00:00 GMT

Some people who are clear-headed about the bad economics of Net Zero are not so clear-headed about basic economics.

https://x.com/7Kiwi/status/2008992262282465539

Some think that some economic activity is too important for pricing that reflects supply and demand.

https://x.com/AndrewSabisky/status/2009174629030510815

This logic ignores the vast array of choices about the allocation of resources that are embedded in what superficial analysis may judge is a simple strategic judgment.

It also reflects how quickly we forget the lessons of history. This was exactly the logic that led to the gradual nationalisation of the "commanding heights" of the economy post-War, and the UK's ensuing decline. If stuff is important, it's not too important for responsive pricing, it's too important not to price responsively.

The resource allocations that are implicitly ignored include:

Capital

Is it optimal to size the Elizabeth Line to maximum current demand (i.e. idle most of the time), or could the marginal capital for the marginal capacity be put to better use on other infrastructure with greater utility? Economies of scale may mean that max-sizing the Elizabeth Line has a low marginal capital cost. That's probably non-linear, and it still needs to be judged against (a) the value of that marginal capacity (i.e. marginal operating profit), and (b) the value of alternative uses of the capital.

Upstream from there is the allocation of wealth to consumption or saving/investment. Maybe we can max-size the Elizabeth Line and do the other projects. There may be more or less capital available, depending how much people are prepared to pay for it (i.e. interest/return). But there isn’t infinite capital. It is a scarce resource like most things, so there are always choices to be made. Is the marginal value of max-sizing the Elizabeth Line enough to attract the capital against its alternative uses?

Labour

Is the value that is enabled by more people being able to travel on the Elizabeth Line at rush hour worth enough that it justifies the capacity to serve it? Could whatever the marginal traveller is doing have been done elsewhere, or by people who live elsewhere (not needing to travel that route)? Could it have been done at another time (avoiding the need for rush-hour capacity)? Might alternatives to that activity have been acceptable? Is some of it not so valuable that people would still do it if they had to pay the marginal cost of enabling it (and if so, why should other people pay the socialised cost so that they can indulge themselves that way?)?

Infrastructure

Would it be better value to build more housing where people are commuting to? Or build workplaces and services nearer where they live? Or would alternative transport options be better value at the margins? The choice to make it easy to get into London from some areas by train is partly a choice to encourage a particular model (London jobs, Thames Valley rail commuting) over others (London jobs for homes in London or other suburbs, or redistribution of marginal jobs to other regions).

There’s no good reason to tip the balance in favour of London jobs for Thames Valley rail commuters. If that’s people’s preferred option when all costs are fairly weighed, then fine. But the way you weigh those options is for prices to reflect marginal costs and see what people choose. If you insulate people from that pricing, you skew outcomes to a net loss of utility.

Maybe all of the above (and other considerations so numerous that no planner could possibly take them all into account) adds up to a case for max-sizing the Elizabeth Line, but we ought to know, because otherwise some people are subsidising other people’s utility. The way we find out is marginal pricing to balance supply and demand. If people will pay the marginal cost, it was worth investing the capital. If people choose to invest their capital that way, it should be on a judgment that the value will be worth it, and it should be remunerated accordingly.

The complexity is multiplied by the fact that investment decisions need to take account not only of the current situation, but of expectations for how that may change in future. If you think you know the right capacity now for a piece of infrastructure without help of the price mechanism, you are fooling yourself. If you think what you believe now will hold good for the indefinite future without the price mechanism to help respond to changes, there's a reason it was so easy to fool yourself.

Evolution

Sabisky says that the Elizabeth Line is sized for peak demand, but that is a static view. Even without dynamic responses to pricing, it seems a fair bet that demand will not remain static. Once upon a time, planners thought the M25, M60 and M8 would have enough capacity. Conversely, planners once thought the M45, M58 and Humber Bridge were justified by peak usage, or by the economic activity that max-sizing would generate.

Maybe you are a cynic about political decisions, and think the planners never really believed that, and those choices were more a function of political considerations. That’s worse, unless you have figured out a way for political decisions to be immune from political pressures. The altruistic decisions that Sabisky wants to be taken now are not only based on excessive confidence in planners’ knowledge, but also blindness to how well that hypothetical purity will survive the political process that is the alternative to market price-setting.

It’s not even true that the Elizabeth Line is sized for peak now. I live close to the Elizabeth Line, and there have been times when I couldn’t get on. There’s always rationing of scarce resources. If it’s not price rationing, typically it’s queuing.

That’s now. It will change more. Not just because of exogenous factors affecting economic activity and population distribution. But also because you are making peak travel look artificially cheap. Over time, the fact that the benefit of peak travel versus its scarcity is not reflected in its price will result in more people choosing to travel at peak than would otherwise be the case. Over-usage of an under-priced resource is a self-fulfilling prophecy, barring offsetting exogenous factors.

"But it's so unfair that people have to pay high prices when demand is high and supply is scarce."

Trade-offs

Marginal pricing isn’t just about high prices at peak. It is also about low prices off-peak. If you argue for cost-blind pricing, you are arguing as much for over-pricing the off-peak periods as under-pricing the peak periods. The good is badly allocated in both regards - more demand than supply at peak and less demand than could be served off-peak. Opponents of basic economics (let’s be frank, that’s what this is) like the comfort of arguing that expensive things should be artificially cheaper, but never consider the flip-side that they have made the same thing unnecessarily expensive at other times.

Or perhaps you think that those price differentials should still exist between peak and off-peak, but you are just trying to keep the peak price down for social benefit. Now that’s just plain subsidy (under-pricing never offset by over-pricing). That’s supposedly for a social benefit, but it’s actually for a targeted benefit of certain members of society (Thames Valley rail commuters with London jobs) at the cost of the other members of society.

The same logic applies to energy and any other scarce resource.

Price signals help efficient resource allocation

There are many unjustified interferences with resource allocation already, whether that’s Net Zero on energy or planning policy on commuting patterns. We don’t make them better by skewing things yet further. Most of those interventions come from the same mindset (clever central planners can work things out better than market discovery) that thinks governments should ensure flat rather than responsive pricing.

The fact that we have such a (badly) managed economy is not an argument to manage it more (badly). Responsive pricing can help even badly-skewed markets by mitigating the harm. It shouldn’t be limited only to perfectly efficient markets, unless what you really want is no responsive pricing ever, because we will probably be waiting a long time for a market that governments don’t skew to some extent.

I have been fighting subsidised energy intermittency (https://iea.org.uk/blog/fickle-as-the-wind) and Net Zero (the Costs of Decarbonisation report) longer than most. It is irrational to say, in effect, “bad planning and government interventions have screwed up our economy, so more planning and interventions are the way to fix that”.

Yes, the supply of wind and solar electricity does not respond to price signals, except very slowly in the sense that prices incentivise deployment as well as operation. And in the UK's skewed energy market, wholesale market prices have little bearing on the deployment of wind and solar because that is determined almost entirely by the subsidies and other interventions.

But the justification for responsive pricing does not depend on the impact on wind and solar electricity generation. It assists balancing even if there is none. Increasing intermittent generation makes other sources of electricity (generation and storage) all the more important. Their economics is influenced by the wholesale market. And if organisations or homes have the ability to vary their demand according to the level of system stress indicated by the wholesale price, then why shouldn't they? In doing so, they not only profit by moving their demand from expensive to cheap periods, but by reducing system stress, they also benefit everyone else too. If it is voluntary (which it is), why would anyone want to prevent that? And if I'm on Agile and don't vary my usage, I am paying more at the times when the system is most stressed, contributing more to the balancing capacity that we need. So Agile users help whatever they do.

It doesn't matter how much of it there is. However much you get, helps. The option for people to contract for that does not harm the people who don't. It helps them. Envy or economic illiteracy are the only reasons to prevent people from having this choice, if a supplier is willing to offer it.

Agile energy tariffs are not planning or intervention. No one is imposing Agile pricing. No one has to vary their demand if they don’t want to. If you choose to use the tariff, you will probably save money if you are smart. By moving your demand away from periods of high system stress, and paying more for however much peak demand you have left, you help not only yourself, but the energy system. Doing that doesn’t create or stimulate the causes of the imbalances, it mitigates them. Opposition to voluntary Agile pricing is economically illiterate and politically authoritarian. Why shouldn’t we have the option? And criticising defenders of responsive pricing as somehow apologists for Net Zero or intermittent energy is irrational, ahistorical and insulting.

It sometimes seems like opponents of Net Zero think the energy market would have no imbalances otherwise. Demand varies a lot, wherever the energy comes from. That’s especially if you consider all energy, not just electricity, which many amateur energy commentators (and policymakers) often confuse. Supplying peak demand is more expensive than supplying baseload demand, however it is done. If we scrap Net Zero tomorrow, we will still have strong economic benefits from offering price signals that encourage people to think about their energy usage at peak, and about investment in technology to meet that demand.

Yes, let’s stop screwing up our energy systems. Giving people the opportunity to contribute to balancing the system is part of making it better, not worse.

Raking over the coals

Fri, 20 Aug 2021 00:00:00 GMT

We are constantly told that the cost of renewable electricity generation has fallen so far that it is now cheaper than coal- and gas-fired generation. That seems strange when the retail cost of electricity has been heading ever upwards as the share of renewables in the electricity mix has increased.

The claims are based on calculations of the Levelised Cost of Electricity. LCOE is intended to give a single figure in terms of cost per unit of electricity generated that encapsulates the capital and running costs.

There are many things wrong with LCOE. In particular, it excludes system and distribution costs, which are affected significantly by the generation technology mix. But even on its own terms, something looks fishy with the figures commonly presented.

Our World in Data is a fantastic resource. But occasionally it is hoodwinked by the Establishment narrative.

On the question of generation technology costs, they produced a chart that reflects the Establishment view. Recursively, it is used by the Establishment as evidence of the validity of this comparison, leaning on OWiD's strong reputation, as argumentum ad auctoritatem.

For instance, Paul Krugman used a simplified version of their chart in a recent Op-Ed in the New York Times. Such is Krugman's consistent attraction to fallacies that I would immediately check anything of mine that he quoted.

Even without looking at individual figures, something stinks about the presentation of this data. Two sets of data points are taken: estimates for 2009 and 2019, and a straight line is drawn between them to imply a trend. This is not an appropriate way to show two sets of data. If you want to draw trends, incorporate more periods. If you've got two periods and don't want to mislead, use a barchart or something else that doesn't imply an intervening trend.

The Global Warming Policy Foundation and the Renewable Energy Foundation have dismantled such claims on the cost of wind and solar electricity. But it struck me that the coal "trend" warranted some exploration as well.

Not that long ago, coal was widely understood to be a cheap way to produce electricity, until you factored in the cost of carbon. But this chart says it's not only expensive now, but was also expensive a decade ago. Really?

2009 is artfully chosen as a starting point, because there was a significant upsurge in coal costs in the second half of the noughties. The fuel got a lot more expensive. And the introduction of the European Union Emissions Trading Scheme added a cost of carbon for the first time.

Even so, the average daily wholesale cost of electricity in 2009 was £38/MWh. How could that be when gas and coal made up the majority of our electricity and they cost (according to OWiD, Krugman, Lazard etc) $83-275/MWh and $111/MWh respectively? Most of the rest was nuclear, which was apparently $123/MWh.

This is not explained by a difference between the UK and the US. EIA data for wholesale spot electricity prices put the 2009 average around $35/MWh. That's an even bigger discrepancy with OWiD's LCOEs. Coal, gas and nuclear generation were similarly dominant in the US at that time.

How can the wholesale price to actually buy electricity from generators be a fraction of the theoretical cost (LCOE) of producing that electricity? Because LCOE is bullshit and so is analysis based on it; that's how.

Here's another way of judging what a load of cobblers that analysis is. Fuel cost is a major component of the cost of fossil-fired electricity. Here is how the cost of coal has varied ($/ton) since 2009. Assuming a calorific value of around 8.5 MWh/ton and a conversion efficiency of around 37%, at $50/ton, the fuel cost component in the electricity is $16/MWh. At $150/ton, the fuel cost component is $48/ton. But we are asked to believe that the cost of coal-fired electricity varied by $2/MWh, from $111/MWh in 2009 to $109/MWh in 2019.

Over a 30-year lifespan, the capital cost of a coal-fired generating station is a relatively small proportion of the overall cost. Other operating costs are also not that significant. It is no accident that the wholesale price of electricity was around the middle of the range of fuel costs for the largest component of that electricity.

The cost of carbon signifies in the cost of coal-fired generation, but LCOE does not include a carbon value. It is one thing to argue that low-carbon generation is cheaper when you take into account the social cost of carbon emissions, but another to argue that it is cheaper anyway regardless of the cost of carbon. In the former case, society still has to incur the cost of decarbonisation in the short-run, on the assumption that it is a net benefit in the long run. In the latter case, there is no cost to decarbonising electricity. The green blob want us to believe it, but it's palpable nonsense. There is a reason why low-carbon electricity needs a lot of subsidy.

It is hard to square the LCOE with the cost of electricity to its users (the retail price). The only technology that has increased in cost is nuclear, but there has been no new nuclear and its share has been falling in the UK. Everything else has been static or falling in cost.

The technologies whose shares have increased the most are those whose LCOE has supposedly fallen the most (the following charts use BEIS's Historical Electricity Data). If LCOE represented reality, this ought to add up to significant reductions in the cost of electricity.

Instead, the cost of electricity to consumers has risen significantly since 2009, and even more so since the mid-2000s.

BEIS's data are unfortunately not in actual price (p/kWh or £/MWh) since 1990, but in values indexed to 100 in a particular year (2010 in this chart). This is presumably an unintended consequence of the privatised market structure.

But they are in real terms, so a doubling in the chart means a real-terms doubling in the price. Electricity has more than doubled in cost to consumers since 2003, in real terms.

BEIS offer data back to 1920, so to round this off, let's see how the long-term trend looked.

Real prices (p/kWh) are available upto 1990. These are adjusted to 1990 £, to show real-terms (i.e. directly comparable) values.

The history of electricity in the twentieth century was, by-and-large, one of continuous cost reductions (apart from the Oil Price shock and nationalised sclerosis of the 70s).

The history of electricity in the twenty-first century has so far been, and looks set to be, one of rising costs. LCOE is not a true indicator of cost. It's an academic fiction, invented to try to fool people for as long as possible that cheap things are expensive and expensive things are cheap, by highly selective choice of system boundaries and data.

Trust markets, not academics, consultants or bureaucrats, to tell you true costs.

Net Zero Substance

Thu, 27 May 2021 00:00:00 GMT

You can find a potted version of this article on the Institute of Economic Affairs' blog.

Introduction

The Global Warming Policy Foundation’s new board member, Steve Baker MP, published an article in The Critic, cautioning about the cost of Net Zero, and the lack of critical scrutiny of the policy in Westminster and the media.

One of many critical responses came from Tim Lord, Senior Fellow, Net Zero at the Tony Blair Institute for Global Change, and former civil servant at the Department for Business, Enterprise and Industrial Strategy, where he was a Director responsible for the UK government’s decarbonisation strategy.

Many of Tim’s and Steve’s points were their estimates of the likely costs and impacts of Net Zero. As someone who has been in the business of decarbonising energy for over 30 years, I too have an opinion on the likely impact of Net Zero. I lean mostly towards Steve’s view.

BUT, I recognise two limitations to my assessment:

I might be wrong. No one has a perfect crystal ball. Innovations may surprise us all. That is a good thing, to be encouraged.
These debates are stagnant, because no one can prove they are right or wrong about the future until we get there. If policy is determined by the predictions of government advisers, no amount of evidence and arguing that they are wrong will change it. It comes down to power, not reason. We get what those in power think we ought to get. Anyone outside government’s circle of influence who has ever responded to a consultation knows the truth of this.

Net Zero is a symptom of a bigger problem – the way that government policy is set. It cannot be tackled by offering different assessments of the future, however well-founded.

I was reminded about modern governments’ repudiation of the knowledge problem and about outsiders’ impotence by one of Tim’s tweets. He described the International Energy Agency (IEA) assessment that “rapid transition this decade can create more jobs than it costs” as “evidence”. Are predictions about the future evidence? It made me realise that we need to step back and look at the epistemics:

1. How do we deal with compound uncertainty?

2. How do we draw the system boundaries?

3. Where does humanity fit in?

Caveats

This is not about the probability of climate change. Some of the points are relevant, but this is about the uncertainties of how to proceed assuming climate change is real and man-made.
The risk of ecological disaster in no way converts fallacies into truths.

1. How do we deal with compound uncertainty?

Nothing about the future is known. I would prefer that “evidence” refers only to data that support or falsify hypotheses, which inherently do not exist yet for predictions. But I am not resting on semantics. We can consider predictions as evidence if you want to abuse language that way.

What sort of evidence are predictions? At best, they are probabilistic. In most cases, they are not even that, at least not explicitly. The crystal-ball-gazers combine a bunch of assumptions without stopping to consider the degree of confidence for each, let alone how their probabilities combine.

It is a common error to think that combining uncertainties reduces rather than increases uncertainty. Clever minds did that with sub-prime derivatives. Theirs were sophisticated methods applied to limited uncertainty, compared to intellectuals prognosticating about the state of the economy, environment and technology decades in the future.

Even if each of the assumptions under-pinning the supposedly low-cost routes to Net Zero 2050 were almost certain, there are huge numbers of them. The product of hundreds of near certainties is almost complete uncertainty.

Many of the assumptions are far from certain. It is said (e.g. by John Kerry, Bill Gates and the IEA) that the technologies needed for half of Net Zero have not been invented yet. Some dispute that, either semantically (they have been invented, they’re just too immature to be viable), or conspiratorially (there are cheap solutions available now, that just haven’t been widely deployed for some strange reason). It is immaterial as far as uncertainty goes. They highlight, not diminish, the uncertainty.

If our knowledge were greater, Net Zero advocates might claim to use the probability distribution around each assumption to mitigate this compounding of uncertainty. But we cannot have such knowledge with regard to speculation about the future. In practice, they don’t even try.

Typically, their assumptions are optimistic (or for sceptics, pessimistic), i.e. they would be on the tail, if normal distribution were relevant or considered, which it’s not. It is not even treated as a bare probability, let alone a distribution. Mostly, the assumptions are chosen for convenience, with only a narrative justification of their likelihood. It’s just “we’re assuming this because we think it’s possible and our model needs it”. This is a quicksand foundation for any policy structure.

Even the pathways to 2030 are immensely (but tacitly) uncertain, let alone to 2050. They try to fudge the issue by saying “they’re pathways not predictions”, but what value are they in that case? If I am allowed to discount uncertainty on that basis, I can find a pathway to almost anything.

If the pathways are “evidence”, it is because we are confident they can be followed, i.e. pretty certain. If we recognise the uncertainty, they are evidence of nothing. You can have 100 pathways. If they are all highly uncertain, they are cumulatively evidence of nothing.

“This is nihilism: do nothing because we don’t know the best way for sure.”

No. Shape your institutions to the nature of the challenge. Dirigisme is not the only option. Pervasive uncertainty does not prevent action, but a different approach is better than assuming the uncertainty away.

Hayek differentiated between taxis (human-imposed order) and cosmos (emergent order). A taxis is applicable where its components can be known and structured by a central planner. Where the complexity and uncertainty are too great for a taxis, order is better achieved through a cosmos. Net Zero is an attempt to impose a taxis where the uncertainty mandates a cosmos.

[Hayek sketched these ideas in “The confusion of language in political thought” and then fleshed them out in Law, Legislation and Liberty.]

As an emergent order without a central planner, a cosmos cannot be harnessed to deliver a particular outcome. But its rules (nomos) can be augmented to embed considerations within the choices of the actors. The outcome will reflect those considerations, but not necessarily what a central planner might think ought to be the outcome of those considerations. In a cosmos, outcomes are discovered, not planned. “Internalising the externality” (i.e. polluter pays) embeds climate change as a consideration in the choices of all actors within the cosmos that is our society and economy.

With the externality internalised, our cosmos might end up at Net Zero, but (a) it does not aim for it, and (b) the chances are tiny that the welfare-maximising outcome happens to be Net Zero. That is a feature, not a bug.

If the outcome is other than Net Zero, there would have been a net loss of welfare had we aimed for Net Zero.

If the outcome is Net Zero, then there is no disadvantage to having taken the decentralised option (cosmos). In fact, it was probably an advantage, unless the discovered route to Net Zero was exactly the same as the planned one would have been.

In other words, there is no world in which a centrally-planned approach would produce a more welfare-optimising outcome than a decentralised approach, for problems as uncertain and complex as addressing climate change.

One of these is a fallacy:

(a) The problem is so severe that dirigisme is essential. Besides, alternative approaches are unpalatable. Dirigisme needs confidence that the plan will have the expected outcomes. We can’t have that, but the need for this approach to be viable means we can behave as though we can.

(b) We can’t be confident in any plan, so dirigisme is not sensible. We should use means that are more effective under uncertainty, even if they are unpalatable. Better to promote the solution that is rational but unpalatable than the solution that is irrational but palatable.

Irrational policies don’t work. The comfort is illusory. The right option is rarely easy. If it were, we wouldn’t need governments. A politician’s job is not to pander to comfortable fallacies. It is to explain that the uncomfortable reality is in people’s interests in the long-run.

2. How do we draw the system boundaries?

Everyone plays with system boundaries. The ubiquitous example in this field is failing to distinguish between energy and electricity. But I am thinking of a more subtle example from the economic modelling. The IEA’s Net Zero roadmap will add 25 million jobs net by 2030, apparently (p.17):

"The transition to net zero brings substantial new opportunities for employment, with 14 million jobs created by 2030 in our pathway thanks to new activities and investment in clean energy. Spending on more efficient appliances, electric and fuel cell vehicles, and building retrofits and energy‐efficient construction would require a further 16 million workers. But these opportunities are often in different locations, skill sets and sectors than the jobs that will be lost as fossil fuels decline. In our pathway, around 5 million jobs are lost."

Let’s put aside how they know that. That is covered in point 1 above. Even if true, is it the whole picture? Increasing the labour required for a key economic input is not usually a recipe for prosperity.

So it is not only the extraordinary capital investment whose costs have to be covered. It’s the increased labour costs too. It is a reasonable inference that this will have an impact on energy costs (especially considering experience in the UK over the past decade).

If so, what is the impact on the rest of the economy? Some other consumption must give, and jobs in those areas will go. Are they factored into the impact of Net Zero on jobs? Of course they aren’t. Factoring that in can yield a very different answer.

On the other hand, the extra direct jobs in the Net Zero pathway could mean more spending, and more jobs outside the system boundary. Indirect factors can flow both ways.

If government-directed investment generated wealth and jobs more effectively than undirected investment we would see a lot more of it and stronger growth. The net effect is highly uncertain. The system boundary is drawn tightly around the direct elements not because the indirect elements are insignificant, but because incorporating them would exacerbate the endemic uncertainty.

But the effects are not limited in practice to the direct impacts, even if we have a reasonable inkling what they are. We should choose a system that takes account of all important factors, not exclude important factors because they make the chosen system unworkable.

Jobs are just one example of this problem. If you think you can counter this point by pretending to understand enough to quantify the jobs impact across the economy, you have failed to understand the point in two crucial ways.

3. Where does humanity fit in?

By “humanity”, I don’t mean mankind as a species. I mean human nature.

The human species is unique for the extent that it can abstract, hypothesize, experiment, refine, communicate and learn.

For most of mankind’s existence, the benefit of these cognitive capabilities was limited by top-down social orders.

Humanity’s true flourishing occurred when feudal structures decayed and social structures emerged that facilitated cooperation outside the “tribe”. These allowed for progress not only when the elite happened upon an innovation that was useful to them, but also for innovations outside the elite and/or that benefited others than the elite. The coincidence of aptitude and experience being significantly random, progress is bound to accelerate where there are opportunities for contributions outside the ruling group to prosper.

The trend back to dirigisme is a reversal of this development. The only innovation that is welcome in a dirigiste system is one that furthers the central plan. There is no space for heresy. This is de-motivating for the people whose imagination a system ought to harness to maximise innovation.

Businessmen in a dirigiste system will do better as “yes-men” than as radicals. They must maximise compliance as much as utility. At best, innovators will waste resources trying to make their ideas compliant. Many will be deterred by the barriers to their non-compliant ideas.

It is not a minor consideration that a cosmos is not only more rational than a taxis for these conditions, but also more conducive to making the most of human nature. It is a better world to live in. Why would anyone want to downplay the abundant uncertainty in order to justify an approach that is as unattractive as it is irrational?

The 2003 Energy White Paper

Governments have been increasingly engaged in imposing taxis where cosmos would be more suitable. Hayek noted that it was already happening in 1968.

The 2003 Energy White Paper (introduced by the then Prime Minister, Tony Blair) paid only modest lip service to uncertainty and discovery. Mostly, it viewed innovation and investment as things for government to direct.

We can judge how well-founded was its confidence in dirigisme, because it predicted (pp.18-19) the state of the energy industry in 2020, resulting from the proposed measures. A large number of them fell wide of the mark. Many reflected over-optimism about cost reductions in technologies that are once again being talked about as major contributors in 2030 or 2050 once they have been “driven down the learning curve” (successfully, this time, they hope).

Nuclear would have been shut down by now,
“Fuel cells will be playing a greater part in the economy”,
Hydrogen for the fuel cells “will be generated primarily by non-carbon electricity”,
Hybrids “will be commonplace” (PHEV market share in 2020: 4.4%)
“Substantial and increasing use of low carbon biofuels” (stagnated at <5% until boost to c.8% in the last couple of years)
“Hydrogen will be increasingly fuelling the public service fleet and utility vehicles. It could also be breaking into the car market”
“Nuclear fusion will be at an advanced stage of R&D”
Reductions in domestic gas use will be “offset by demand for gas from CHP”
“Many buildings will have the capacity to reduce their demand on the grid, for example by using solar heating systems to provide some of their water heating needs”
“There will be much more micro-generation, for example from CHP plant, fuel cells in buildings, or photovoltaics”
“Some of those large power stations will be offshore marine plants, including wave, tidal and windfarms” (1/3 ain’t good)
“There will be much more local generation, in part from medium to small local/community power plant, fuelled by locally grown biomass” etc.

The paper had already banked (p.12) the projected delivery of the Renewables Obligation by 2010: 10% renewable electricity, costing £1bn p.a. It aimed to double that by 2020. This was exceeded in practice. But they would have been surprised to learn that by 2020 costs had risen not fallen. We spend more than £10bn p.a. supporting renewable electricity. That does not pay for 10 times what £1bn was expected to pay for in 2010, let alone the higher ratio that falling costs would imply. In reality, the cherry-picking effect (people do the easy things first) and diminishing marginal returns often outweigh the learning curve.

Nevertheless, we are told that renewables costs are falling. Very clever government advisers, and highly reliable metrics like LCOE say so. Rising consumer costs are purely coincidental. Oligarchy is fool-proof and in everyone’s best interests. “Evidence” of the future (i.e. expert projection) disproves the failings of the past. This time is different.

An analysis of any other government energy policy of the past 30 years would lead to a similar conclusion. Reality usually varies significantly from the government’s expectations. We have a long enough track record that we should no longer fall for the pretence that government can predict how the energy industry ought to look and direct it efficiently to that outcome. But if it can’t, what substance is there in the claims about the costs of Net Zero?

Conclusion

Net Zero is a depressing, inhuman, irrational, impoverishing concept.

It cannot be de-coupled from central planning. If uncertainty were acknowledged and discovery incorporated, it would have to allow that one discovery could be that Net Zero is not the optimal level.

The Net Zero debate will continue to focus on the credibility of different pathways. That is a red herring, and an unwinnable war.

There is no real evidence until we get there, by which time it is too late. Advocates can’t prove they are right, but sceptics can’t prove they are wrong.

It comes down to power. Sceptics won’t win that, and neither will society. Besides the direct costs of imposing detrimental policy, there is also huge damage to democracy when governments claim to have capabilities that they don’t, and are exposed by unintended outcomes.

Trust and social cohesion are lost. They are key to economic cooperation. We lose directly and even more indirectly.

We do best when people understand the knowledge problem, and when governments limit themselves (outside narrow areas where taxis is applicable) to supporting the nomos.

Debates about the costs and benefits of an immensely complex and uncertain government plan are beside the point. We will all continue to engage in it, because the questionable assumptions make it hard to resist a challenge. But it is largely performative. It will make little difference.

If we are in a decentralised system, we will discover what works and what is worth it. If we are in a centrally-planned system, we will never know if better options were available.

If you think Net Zero is the right target and certain technologies will get us there cheaply, if you are right, discovery will validate your analysis. Ironically, that is not so under central planning. If you are wrong, discovery will allow alternatives to emerge, whereas dirigisme would have locked us in to the wrong course.

Under dirigiste climate policy, we will not discover if the dominant analysis is wrong until serious damage has been done. If it is sub-optimal but not disastrous, we may be stuck with it forever, unable to prove that we could have done better.

It is a miserable vision with a tiny chance of doing as well as a more rational approach, and an overwhelming likelihood of doing worse. That’s not because the experts aren’t clever and doing their best, but because it is based on a misunderstanding of knowledge and humanity. There is no virtue to it.

Biased BP

Tue, 27 Apr 2021 00:00:00 GMT

BP's Statistical Review of World Energy is widely used as a reference source for energy statistics. Sadly, it turns out that BP's bias as an oil company leads it to categorise energy in such a way that it distorts the data badly.

I noticed this when I was looking for a reliable source to illustrate the insignificance of wind and solar in the Swedish energy mix. Our World in Data is normally an excellent resource, but something about their chart of Swedish energy consumption by source didn't look right.

Anyone who knows Sweden knows that biomass is one of their major primary energy sources. Yet in this chart, there is a small contribution from biofuels, and biomass is otherwise subsumed within the similarly insignificant "Other renewables" category.

Our World in Data get their data for this chart from BP's Statistical Review of World Energy (their data, referenced below, is downloadable here [XLSX]). Biomass appears negligible in this chart because BP treat primary energy sources as follows:

Biofuels (i.e. bioethanol and biodiesel) are treated as a separate category from other biomass. Biofuels are not a significant category in primary energy consumption in Sweden as in most countries. They are presumably treated separately by BP, despite being the least significant use of biomass, because they are an oil company with a transport-fuels bias.
Other biomass is lumped in with "Geo Biomass Other" in BP's data, which Our World in Data shorten to "Other renewables".
"Geo Biomass Other" is a category for electricity generation, not all energy uses. Their first sheet "Geo Biomass Other - TWh" lists electricity production from these sources. Their second sheet "Geo Biomass Other - EJ" lists the "Exajoules (input-equivalent)", i.e. the amount of input energy estimated to produce the electricity in the previous sheet.
This completely omits the use of biomass for heat, which is its primary use in Sweden as in many countries. Biomass and waste accounted for almost a quarter of the Swedish energy supply in Sweden in 2013. District heating supplies 60% of all heat in Sweden, and almost half of that heat comes from biomass. Biomass also makes a material contribution to the other (direct) 40% of heat.

BP's bias in this regard will be replicated wherever biomass heat is a material contributor, which is most of the world. I wonder how widely this skew is replicated in analysis that relies on BP's data?

Clean energy when you need it

Thu, 15 Apr 2021 00:00:00 GMT

A well-known problem with low-carbon energy is that its production profile does not match the demand profile. Wind is irregular. Solar is variable (by season, day and weather). Nuclear is more economic run as baseload to spread its enormous capital cost. We refer below to the combination of wind and solar (and similar, e.g. wave and tidal) as “intermittents”, and the combination of these with nuclear as “inflexibles”.

Electricity demand is not well-correlated with these production profiles. Wind is slightly positively-correlated because both its production and current demand are somewhat higher in winter than summer. But on a half-hourly basis, there is no connection between the level of demand and the output from wind. Solar is negatively correlated on an annual basis because of the same effect as wind, but acting in the opposite direction (i.e. solar is mostly summer when demand is lower). Solar’s diurnal pattern is however somewhat correlated with the diurnal demand profile, but far from perfectly. Nuclear’s output is uncorrelated with demand.

That is now. The problem becomes more complicated as heat and transport are electrified in order to decarbonise them and hypothetically to absorb the excess intermittent output that policymakers have decided is required for decarbonisation. If we are to assume below that there are huge numbers of vehicle batteries, then we must also assume that there is an equivalent amount of electricity consumption for transport.

Heat is more complicated, as there is an ongoing battle between electrification and hydrogen. But assuming that we have electrified all the heat is the most generous assumption, as the conversion and storage efficiencies of electrified heat are several times higher than for hydrogen. If your counter to what follows is “ah, but hydrogen”, then what you are really saying is “ah, but the solution is to make the process 5 times less efficient”. Ummmm, no.

After years of trying to play down the significance of the imbalance problem, clean-energy advocates are being forced to think harder about it, as increasing capacity of intermittents causes increasing periods where production is either problematically insufficient or so excessive that generators have to be paid to turn off (“curtailed” or “constrained”).

One popular deus ex machina is to assume that road transport will have been largely electrified, and the capacity of electric-vehicle (EV) batteries can be used to balance electricity supply and demand. The numbers seem so enormous that the tree huggers feel exonerated, as usual, from considering the detail. Surely 35 million electric vehicles will have enough storage capacity to deal with the problem? Well…

There are at least two variants of this solution. The simplistic one is simply to count on the storage capacity of the EVs. A more sophisticated version points out that, if EVs roll out rapidly in the coming decade, by 2040-50, many of the original batteries will need to have been replaced. The old batteries will have diminished capacity, but their cost will have been recovered. They can be put to a second use at low additional cost as supplementary storage. Let’s start with the simple version, as it puts the sophisticated variant into perspective.

Scenario and assumptions

We will assume generously that the average storage capacity of an EV is 100 kWh. So 35 million EVs will have storage capacity of 3.5 TWh. That’s a bit over one percent of current annual electricity demand. But of course the hope is that it charges/discharges frequently, so only a fraction of total demand is required as storage capacity.

On the other hand, that’s current electricity demand. It will be a lot higher when we have electrified heat and transport, even allowing for the large efficiency improvements of (a) heat pumps vs boilers, and (b) electric motors vs internal combustion engines. To be as generous as possible to this scenario, we have taken these efficiency improvements for granted, without worrying about, for instance, whether the building stock can be retrofitted to make it suitable for heat pumps at high efficiency.

We also take a generous/naïve view on the timing of charge/discharge cycles for EV batteries. To the extent the energy is used for transport, we assume it can be done predominantly off-peak (primarily at night, but also in the mid-day dip). To the extent excess battery capacity is used for balancing the network, we assume it can be done as required, without worrying about whether the vehicles are actually plugged in. These are very generous assumptions.

With these assumptions, we arrive at a peak figure for night-time charging of EVs for next-day travel of around 210 GWh/day (this is not the full amount of energy required for road transport daily, but we are also assuming some mid-day re-charging). The remainder of the 3.5 TWh is therefore nominally available for balancing. There may be some standalone (i.e. non-EV) grid-balancing storage capacity, so we (again generously) assume that the full 3.5 TWh is available for balancing services.

We don’t worry about whether the grid operator or electricity supplier (whoever is managing the smart-meter-controlled EV chargers) is actually able to know how much energy each vehicle will need for its journeys the following day. We naively assume they are able to optimise, probably by giving each driver an ability to override the smart meter’s choice. This ignores behavioural issues that would likely reduce the capacity available for balancing.

Electricity demand in an electrified world

These and many other assumptions give us the following figures for electricity demand under this scenario (“Proposed”), and as it was in 2017 (“Base”) for comparison. The 2017 figure may look a little low, but it (a) is end-user demand, not transmission-system demand (i.e. after distribution losses), and (b) allows for conversion efficiencies. This is necessary if we are going to take into account significant improvements in that efficiency. Fortunately, the conversion efficiency of electricity-use (as opposed to the conversion efficiency of electricity-production) is generally very high, so the difference with published statistics is not that significant.

The model allows us to take any of 2016, 2017 or 2018 as a base. That is partly because of the availability of the weather data needed for the model (e.g. estimating hourly heat demand). And partly because that was a sweet spot where there was enough capacity of the inflexible technologies that the output could be used as a basis for the model, but not so much (especially so much embedded) that it distorted some of the figures on which the models rely (e.g. demand). The base year determines only certain profiles whose dependence on the weather (e.g. intermittent output and heat demand) makes it important to use real-world data as a basis, which is amplified by the assumptions in the scenario about installed capacity and usage. The model is not tied to 2016-18 technology characteristics, e.g. it allows for higher efficiencies for new capacity than for the capacity existing at the time.

How do these annual figures look on an hourly basis? 8,760 periods do not visualise clearly, so here are a couple of sample months:

And a couple of sample weeks to decompress further:

The Road element is just the part of the EV battery-charging that will be used to power the vehicles’ journeys. The charging/discharging for balancing services comes into it later.

Once we allow for transmission and distribution losses, the annual transmission-system (“Wholesale”) demand profile looks like:

Again, 8,760 periods don’t compress easily into that space, so here are the sample months:

And the sample weeks:

Peak wholesale demand (around 129 GW) is nearly 3 times higher than at present. We are focused on storage in this article, so we quickly pass by the implicit network reinforcement costs, likely all the way down to most properties.

Inflexible electricity generation

How does that profile compare with inflexible electricity generation? This is a supposedly decarbonised scenario, so we have had to assume a large capacity of inflexibles:

Offshore wind: 60 GW

Onshore wind: 30 GW

Solar PV: 20 GW

Nuclear: 20 GW

Biogas: 1 GW

The annual picture is again a mess, but it does show some important features, such as large gaps below the demand curve, especially in Jan/Dec, and high peaks above the demand curve, especially in Jun-Oct.

Zooming in to the sample months:

And the sample weeks:

This is all before any balancing, whether through storage charging/discharging, or through import/export on the interconnectors. But notice that the periods in winter where inflexible production exceeds demand are so few that there is little opportunity to re-charge storage for months. We could have assumed higher capacity, but then we would have had much too much excess production in summer, and still problems in winter, because a multiple of a small number (e.g. when the wind isn’t blowing and the sun isn’t shining) is still a small number.

Combining these, here is the electricity demand net of inflexible output (negative points are where inflexible output exceeds demand):

Balancing supply and demand

The system needs a lot of balancing. My first run of this scenario assumed complete decarbonisation, i.e. no fossil-fuelled generation. But you can’t get close to balancing this profile with any realistic combination of interconnectors and storage, so I reintroduced 40 GW of gas-fired generation.

We assume that storage will be used as a priority. The interconnectors have second priority, with flows determined by a function of (a) the balance of supply and demand in that period, and (b) the flow in that period in the base scenario, to reflect the reality that our neighbours are not connected solely to take or supply electricity as we require, but also to balance their networks. If our neighbours are as wind and solar-heavy as we are, and it’s a dark, still period in winter, they may not be able to supply us even though we need it. Whatever imbalance remains is served by the gas-fired generation, plus 4 GW of biomass-fired generation and 1.6 GW of hydro, which are also assumed to be dispatchable (another generous assumption, as hydro depends on reserves, and biomass may be hitched to CCS that demands baseload operation).

Note that this means a total capacity of 176.6 GW, way above peak demand in the scenario, let alone the 45 GW (or so) at which the system currently peaks. Apart from finally killing the last remaining coal-fired power stations, we haven’t saved much fossil-fired capacity. We have just (a) massively increased the amount of non-fossil generation, and (b) substantially reduced the periods in which the dispatchable generation operates, which will increase significantly the cost per MWh of that generation. Here is how the technologies contribute in this scenario (“Proposed”) vs 2017 (“Base”):

8,760 periods multiplied by 18 technology layers plus a demand curve is an illegible mess at this resolution. So let’s skip straight to the sample months:

And the sample weeks:

Now we start to get to the crux of the matter. Notice the white space below the Gross demand curve in the week of 22 Jan. These are periods when 3.5 TWh of storage capacity, 10 GW of interconnector capacity and 45 GW of dispatchable electricity still cannot remotely fill the gap between demand and the output of inflexible generators. By design or necessity, these are periods of “demand-side response” to use the euphemism for switching off supplies to users whether they want to or not.

With adequate incentives (e.g. rewarding those users who reduce their demand, which means negative prices for electricity) there will be some voluntary demand-side response. But this is up to 45 GW needing to be cut. That’s around maximum demand by all users combined at the moment.

One reason it’s so high is we have electrified heat, and the weather is cold, while the wind isn’t blowing, the sun isn’t shining, and neither has done for so long that our storage has been discharged. We’ve got 3 days in a row where we need most people to turn off their heating while the weather is particularly cold. Or else turn off all lights, appliances, offices, businesses, etc. and still have to turn down the thermostat. Or tell everyone they have to stay home so there’s no EV charging for travel, and even then still do a lot of the other options.

This isn’t a realistic option politically, but it’s an unavoidable choice when the weather is unhelpful, as it will be every few years, under this scenario (which is what the politicians are currently aiming for). 3.5 TWh of EV battery storage doesn’t begin to scratch the sides of the storage requirements to cope with this scenario.

Electricity storage (mainly batteries)

How is that storage performing? Here is the messy, indistinct annual picture. Notice that the number of peaks and troughs is relatively limited, which will be reflected in the storage costs, which are inversely related to the charge/discharge frequency. This is very expensive storage, even before we start adding more capacity to deal with the gaps.

The red line is the hourly flow in/out of the batteries (negative means charging, positive means discharging). The purple area is the level of charge on the batteries in each period. The model of course assumes that the system cannot be charged above 100% nor below 0%. So if the charge is 100% and the system has excess inflexible output it needs to dump, it will be exported via the interconnectors if possible, and failing that, the output will need to be curtailed. And the logic is similar for 0% charge while the system is calling for balancing supplies.

This is a necessary constraint in the model mirroring an unavoidable constraint in the real world. Many clean-energy protagonists ignore this by dealing simply in aggregate figures and not worrying about whether it actually works on an hour-by-hour basis. You can’t in reality take the excess electricity you need to store in one hour but couldn’t because the batteries were fully charged, and use it in subsequent hours to charge the batteries or supply demand. This is a typical fallacy that aggregate treatments (i.e. dealing in annual or monthly or even daily aggregated figures) conceal. Electricity has to go somewhere immediately, or be curtailed.

Another factor the model has to take into account is the round-trip efficiency. We naively accept the high (c.90%) round-trip efficiencies claimed for batteries. If this were one of the technologies considered more economic for longer-term storage, such as hydrogen or compressed air, the round-trip efficiencies would be lower (much lower in hydrogen’s case) and the problems (other than cost) would be exacerbated.

The more storage we have on the network, the fewer charge/discharge cycles would be made by additional storage capacity. We illustrate this reality with a chart of marginal storage utilisation. If we imagine that the storage is composed of 100 GWh tranches, the chart illustrates how many GWh/year each additional tranche would charge/discharge.

The first tranche would charge around 4 TWh/year, i.e. 40 cycles/year. This is very low compared to the usual ratio of one or two cycles per day required for storage to be economic. But this storage is serving two purposes (the other is being available for long-distance journeys), so perhaps we’ll give this a pass, even though it doesn’t look like an efficient solution.

But look at the decline. By the time we’ve got 1 TWh of storage capacity, we are down to 27 cycles/year. At 2 TWh, we are down to 16 cycles/year. The last 0.5 TWh is hardly used at all, even though we are short of storage. Imagine how much worse it would be if we installed standalone storage to provide additional balancing services. It would be trying to recover its cost on one or two cycles per year.

The problem is that the imbalances are significantly seasonal, not just diurnal. The first tranches can pick up the diurnal imbalances. What’s left is storing excess from summer to be used in extreme periods in winter. It’s not a rational option. And yet, despite assuming that we have installed an irrational amount of storage, it’s also not remotely enough to avoid periods of insufficient supply of up to 45 GW!

The adequacy of intermittent generation plus EV batteries

Putting it all together, this is a chart of the adequacy of this scenario to meet demand.

The blue line is wholesale electricity demand. The green bars are the margin (i.e. excess capacity) when the system is able to meet demand. It is in general around 25 GW. But there are periods (the red bars) where the gap between all the supply options (generation, interconnectors, storage) and demand is as much as 50 GW. We need upto 50 GW of supply that will be used only occasionally and/or upto 50 GW of “demand-side response”. That is very expensive, not only economically, but in terms of welfare and even mortality, as it implies people going cold for several days in the depths of winter.

What if we also used all the used batteries from older EVs? Well, their cycle frequency will be one or two per year, so their cost needs to be nearly zero. But there is an operational problem, because sitting for long periods with either a full charge or zero charge is a killer for batteries, yet that is exactly the purpose for which we want to deploy these. We need around 2 TWh to fill the gap in the above scenario, before we even think about reducing the 40 GW of standby gas-fired generation. There won’t be enough defunct EVs in a century to supply the batteries we need to ditch the gas, even if it were viable and operationally feasible, which it isn’t.

So, no. The batteries in a 100%-electrified road-transport fleet aren’t remotely enough to deal with the problem of balancing inflexible generation against variable demand profiles.

Carbon footprint

And by the way, this has a low carbon footprint, but it’s far from Net Zero. The 40 GW of gas-fired generation is unavoidable because balancing the system without it was ridiculously bad (the red bars in the chart above spread thickly across the year). We can try to decarbonise it with CCS, but CCS not only hurts the efficiency (meaning we need more capacity), but also pushes strongly towards baseload operation to cover its costs. CCS on gas-fired generation used infrequently and intermittently is unlikely to be an attractive proposition to investors.

We also passed over the question of decarbonising forms of transport other than road vehicles (especially air transport). We have not considered decarbonising non-energy greenhouse-gas emissions.

And yet we have bankrupted the country and frozen most of our old people to death with a system that is utterly irrational if the consequences were considered carefully. Instead, they have been dismissed because a government objective once set means that obstacles must be assumed away, or because the government and its advisers (and supporters of this approach) are so naïve that they do not understand that the system actually works on a minute-to-minute basis, not an annual-aggregate basis.

Public choice and the knowledge problem (again)

This is the reality of central planning. It overestimates its knowledge, and serves the interests of those who do the planning, and those who can extract rent by influencing the planning. In this case, the mechanisms needed to force the market to deliver an irrational system provide huge amounts of rent for the large energy companies who install and operate the systems and who are “de-risked” by the support mechanisms. The politicians claim the credit for their environmental compassion and strategic industrial vision (strangely for a group who between them have little commercial experience), whilst denying the blame for the impact on costs and lives (the rent-seeking corporations have to suck up the blame for their “profiteering” so the politicians will put the mechanisms in place to make that possible). The civil servants get large empires controlling the managed markets that are necessary because no free market would do such a thing. Government advisers (academics and consultants) get the contracts to decide what the market should be forced to deploy, and the kudos when the market delivers what it has been forced to deliver, or the additional contracts to work out what went wrong and how to fix it if the market doesn’t deliver what it is supposed to deliver. The rest of us get to pick up the bill. But we voted for it, so...

This is not fundamentally different to any managed economy that permits private ownership and profits so long as they are engaged in support of the government’s objectives, whether Lenin’s NEP or the Nazis’ relationship with big business. The greatest sleight-of-hand in modern politics is a bloated, overmighty state pretending that it is market-friendly because it allows large corporations to profit from delivering its objectives. That is authoritarianism, not voluntary exchange.

150 Ways to Price your Carbon

Fri, 09 Apr 2021 00:00:00 GMT

Back in 2014/15, I did some work to convert the value of various renewable-energy subsidies into implicit carbon prices. I found nearly 150 different values, ranging from just over 1 p/kgCO₂e to 300 p/kgCO₂e, depending on the technology, scale, sector and counterfactual (i.e. the fuel it was displacing).

This was only a subset of all of the carbon valuations implicit in government subsidy. I didn't estimate the value of the nuclear subsidies, for instance. Nor did I look at the effect of several other policies. This covered only three: the Feed-In Tariff, the Renewables Obligation and the Renewable Heat Incentive. The reality must be at least 200 different carbon valuations.

You might think that, at any point in time, there is only one carbon value. And you'd be right. The environment doesn't care what technology is used, or at what scale, or in what sector. It cares only about the amount of carbon emitted. A tonne of carbon saved by one means has exactly the same value as a tonne of carbon saved by another.

Carbon tax reflects that reality. Winner-picking policy such as the UK has implemented for over 30 years, does not. UK policy, as always, assumes that our intellectual establishment knows what's best for everyone, and perverts valuations in order to ensure the outcomes that, if they were right, would be delivered anyway by mechanisms that did not pervert valuations.

The situation has not improved since 2014/15. We have new micro-targeted mechanisms since then (e.g. Contracts for Differences). We have more heading our way (e.g. the Green Gas Levy).

If we compare the performance of the UK against Sweden (which implemented a carbon tax in 1991, the same year that the UK implemented its first winner-picking mechanism, NFFO), it's clear that the UK Establishment's intellectual arrogance is not only irrational but also ineffective. The UK targeted electricity and did little about heat and transport. Consequently, we made decent progress on electricity, but not as much as Sweden. But on heat and transport, it is chalk and cheese. Renewables constitute around 6% of UK heat compared with 68% of Swedish heat (and they need a lot of heat for obvious reasons). Renewables also constitute around 6% of UK transport (if we take out the double-counting element in the Renewable Energy Directive). Sweden's figure is around 4 times higher.

This is just a little cover note to explain this graphic of implicit carbon prices in the RO, RHI and FiT mechanisms, which I wanted to put online for reference.

Climate Debt Relief

Sat, 21 Nov 2020 00:00:00 GMT

It is 15 years since China surpassed the USA to become the largest carbon emitter in the world. They now emit twice as much carbon as the US every year, and account for over a quarter of global emissions. India and Russia are comfortably in 3rd and 4th place, emitting more than Europe. Brazil is in 7th, Iran 8th, Indonesia 10th, Mexico 11th...

Even per capita, the lines have blurred. China emits more per capita than the UK. Russia exceeds Germany. Turkey beats France. South Africa trounces Italy. Iran trumps Poland. The Arab States out-smoke the US, Canada and Australia...

"Ah, but..." says the developing-world grievance-peddler, "you have to take account of centuries of emissions since the Industrial Revolution. Cumulatively, the West is still responsible for vastly more emissions than the rest of the world, and should accept most of the responsibility for climate change. It is their climate debt." A certain type of self-loathing Westerner (found most often in the social-science and humanities departments of our universities, or infecting young minds in our schools) claps in agreement. Whatever burden Western governments put on their people is never enough to assuage their white guilt or racial resentment.

“Climate change is a product of a system of White supremacy and colonization over the past 500 years,” Eric Holthaus says.”

Let start making changes!@yesmagazine https://t.co/TUe4Xh4I99
— Greta Nintzel (@chava_tito) August 5, 2020

Reason plays little part in their thinking. Evidence is unlikely to change their opinion. But for everyone else: is this justified?

In the 30 years to 2017, China emitted as much carbon dioxide as the West emitted from the start of the Industrial Revolution until 1947, or the USA emitted from its foundation until 1960.

We should also take account of the fact that carbon dioxide has a half-life in the atmosphere, as it is gradually absorbed back into the biosphere. That carbon dioxide emitted by the West upto 1947 or by the USA upto 1960 has a much smaller effect on our climate than the equivalent amount emitted by China in the last 30 years — around 1/7 of the effect, in fact.

If we allow for this decay pattern, how much of the West's emissions has an equal effect to China's emissions of the last 30 years?

Everything upto around 2007, in the case of the USA.
Everything upto around 1991, in the case of the West.

The gap between the current impact of the cumulative emissions across time of China and the USA was small enough (32,688 MtCO2e) in 2017, and the discrepancy between their current emissions (c.6,500 MtCO2e) is large enough that it seems likely that China will overtake the USA around the end of 2022.

I think it's fair to say that China has fully caught up! The West has been paying down its climate debt for years, while China has been racking it up.

You can't blame developing-nation governments for playing the climate game as well as they can. They still have plenty of poverty. If they can persuade the West to engage in further bouts of self-flagellation ahead of their own deferred efforts, they are acting in the best short-term interests of their citizens.

It's up to Western governments to do the maths and say no, protecting their citizens' short-term interests as strongly as their poorer rivals do. But we won't do that, because our elites are racked with guilt for their privilege, but conscious only of their privilege as it relates to foreigners, and not as it relates to their less-privileged compatriots. A lot of those compatriots are white, and therefore (according to Western elites) hugely privileged. They are guilty by definition for the sins of their fathers, and their fathers are guilty by race-association for whatever crimes we might anachronistically accuse them of.

The basics of energy storage economics

Thu, 18 Jun 2020 00:00:00 GMT

Time after time, keyboard warriors treat energy storage as their deus ex machina to explain how we will get round the imbalances between energy demand and the production profile of their favoured technology. They explain airily that it's just a matter of investment. The technology (typically batteries) is coming on so fast that it will soon be economic for interseasonal storage.

Or if they hate renewables, they still treat long-term storage as a technical issue, but in that case an insuperable one.

See, for example, the replies to these tweets by Bishop Hill and Andrew Neil.

The reality is that the fundamental problem with energy storage for long periods (e.g. between seasons) is economic, not technical. Maybe there are resource limitations to build enough batteries, but there are other storage technologies that claim greater potential for scaling to this kind of use. Who knows what will be invented in future? But whatever the innovation, it will always face the following obstacle.

Above-ground compressed-air storage

A positive report about a British company deploying an innovative system for storage provides a useful jumping-off point to demonstrate the basic economics. To be clear, we take no view about the credibility of this technology. On the basis of its promoters' claims, it sounds promising. We take those claims broadly at face value here, as the problem has little to do with the technical feasibility. The problem remains even if advances like this are validated in deployment.

The report gives some basics:

The scheme has capacity to store 250 MWh
It costs £85m
It will create 200 construction jobs and "a few dozen in the continuing operation" (is an employment cost of any less than £1,000,000 consistent with a few dozen employees in the UK?)
It's expected to last 30-40 years

Naturally, there are a few omissions (no business will willingly reveal every detail of its economics). Most importantly, we have the energy capacity (MWh), but not the power capacity (MW). But they give us a clue that it can "power up to 200,000 homes for five hours", so presumably around 50 MW max output (although 250W sounds light for a home).

It would be useful to know if the maximum charging rate is the same as for discharge, but it's reasonable to assume that it won't be an order of magniture different.

The round-trip efficiency is a key value for any storage technology. The report does not tell us. This is widely understood to be a weakness of compressed-air storage. Existing systems are said to have an efficiency of around 60%, but it's believed that 70% is achievable with known technical advances. Perhaps they will go further in future. Highview cite 60-75% on their website. Let's take 70% as a generous figure at the moment.

The economics also depends on some aspects outside the control of the storage supplier. The most critical is the differential between the cost of the purchased electricity and the value of the discharged electricity. At present in the UK, the differential between low off-peak and peak prices is around 15p/kWh (£150/MWh) on a daily basis, and could be as much as 40p/kWh (£400/MWh) on longer-period differentials.

Calculating these differentials from retail prices is a generous assumption, as large storage systems will be playing in the wholesale market, whose prices are much lower. The differentials will probably also be somewhat lower, although the main difference between wholesale and retail is the smearing of the subsidy, distribution and system costs over all retail sales, which therefore should not greatly affect the relative values.

Let's take two extremes of use-cases to demonstrate the effect of usage on viability:

1. Smoothing the daily variations (365 charge/discharge cycles p.a.).

2. Interseasonal: storing summer excess for winter (1 charge/discharge cycle p.a.).

Daily smoothing

The system charges up every day during the cheapest off-peak periods in order to discharge every day during peak periods.

At 70% round-trip efficiency, they need to buy 357 MWh for each 250 MWh that they discharge. But they are averaging 5p/kWh for the 357 MWh (£17,850), while selling the 250 MWh for 20p/kWh (£50,000). That's £32,150 net revenue each day, or £11,734,750 p.a.

We know they have employment costs of at least £1,000,000, and their other operating costs will not be zero. Let's generously call it £10,000,000 EBITDA. That's an acceptable (though hardly exciting) IRR over 30-40 years of 11% on the initial £85,000,000 cost.

Interseasonal: storing summer excess for winter

The system charges in summer during the cheapest periods and discharges in winter during the peak periods (assuming they can be predicted).

They still need 357 MWh for each 250 MWh that they discharge. But in this scenario, that's the annual total as well.

The price differential is greater. They charge up at -5p/kWh (£-17,850) and they sell for 35p/kWh (£87,500). That's annual net revenue of £105,350.

On the above basis of operating costs and overheads of around £1.75m, they are losing £1.65m p.a. This is an obvious non-starter.

That should do you

It's as simple as that for those of you who get the maths. The return from energy storage is proportionate to the frequency of charge/discharge cycles. As most storage technologies have material capital and operating costs, they need to charge/discharge frequently (typically daily) to justify the investment. They can't do that and provide interseasonal storage.

What follows is a look at some of the nuances for those of you who think you are clever enough to spot an end-run round this fundamental mathematical constraint. You're actually dumber than the ones who can see that's it. I don't really care whether what follows persuades you or just wastes your time while you try to protect your delusions. You deserve it either way.

A middle ground?

OK. So they won't charge/discharge once a year. But perhaps there's a middle ground?

The challenge that we are told energy storage will solve is the seasonal/long-period imbalances between demand and the production profiles of intermittent generators. So there's no point considering a middle ground of (say) weekly rather than daily charge/discharge because that does nothing to address seasonality, nor does it match to the variations in production (and only modestly to demand variations). But it harms significantly the storage economics. That's pain without gain.

So what is the middle-ground use-profile that makes storage useful for long-period balancing without destroying the economic model of the storage facility?

There isn't one. Interseasonal storage is fundamentally about storing up the energy in one season (typically summer) and releasing it in another (typically winter). If you try to squeeze in extra charge-discharge cycles, you help the project economics but you remove the interseasonal nature of the storage.

For example, there's no such thing as charging up in June for discharge in January but somehow also charging in April for discharge in October. If you've charged in April intending to discharge in October, you can't also charge in June to discharge in January because when you come to charge in June, you're already full from charging in April. You have to do something like charge in June for discharge in November and then charge in December for discharge in February. That's no longer interseasonal to a meaningful extent, and certainly not more so than simply charging in summer and discharging in winter.

That's pretty much the fiction of interseasonal storage for solar disposed of. In temperate regions, solar is very seasonal. Output in winter is minimal. If we want to balance this with energy storage rather than dispatchable generation, we literally have to have storage systems to charge in summer and discharge in winter.

Smoothing wind

The least-bad middle-ground application could be smoothing the non-seasonal intermittency of wind power. The economics of this cannot be simplified as above, because the production profile is largely stochastic with minimal cyclical elements. In other words, sometimes the wind blows strongly for sustained periods (even a week or more), sometimes we are becalmed for sustained periods, and at other times, the variation is more frequent, but never regular.

Imagine a storage facility trying to "flatten that curve". If it's sized so it can charge up for 7 days before discharging for 7 days so it can smooth out the longer-period variation, most of the capacity will be under-utilised for the short-period variations. If it's sized to the shorter-period variation, then it won't have the capacity to smooth the longer-period variations. Sizing to the shorter-period variations will be more economic, but this does nothing to address the impact of sustained cyclonic and anti-cyclonic periods on security of supply, let alone to match intermittent output to the cyclical variations in demand.

Instead of a simple calculation as above, you have to model the production and demand profiles and balancing-market prices, and adjust for reasonable expectations of future developments, to judge the potential and cost of this type of storage application. Our Future Scenarios model allows you to do exactly that. The outcome, inevitably, is that the first few GWh of storage capacity can focus on the smaller, more-frequent variations and perhaps do OK. But as you add capacity, the opportunities are increasingly covered in the short-period variations, and the extra capacity has to try to survive on the longer-period variations, which destroys their economics.

You end up with a marginal-utilisation curve like this. This is the output from the model where we have assumed that we have followed the government's plans for massive expansion of offshore wind and solar, and rather than rely on coal or gas for balancing, we have deployed a huge amount of compressed-air storage (2,000 GWh, 10 GW) to try to smooth out the imbalances. It also assumes material progress on the government's plans to electrify heat (40% of total heat, all heat pumps where new) and transport (about 50% of road transport).

The marginal-utilisation curve breaks the storage capacity into chunks of 100 GWh and shows how each additional chunk is used somewhat less as the gaps for it to fill are increasingly filled by the previous chunks. This would manifest itself as increasing costs of storage as capacity is added, becoming prohibitive in this case around 1,100 GWh.

This is massive hypothetical investment in energy storage. If 250 MWh / 50 MW costs £85m, then the capital cost of 2,000 GWh / 10 GW would be around £100bn, before any learning-curve savings.¹ Yet it's not enough (as the "Electricity supply margin" chart shows) to store the wind when it blows and the sun when it shines to ensure electricity is available to meet demand at all times. This would be exacerbated if only the more feasible half of this storage capacity were installed.

And this is in a world where we are nowhere near full decarbonisation yet. This might be just about on-plan for the government's Net-Zero strategy for 2030.

Feasible long-period energy storage technologies

There are only two technologies known to be feasible for such long-period storage:

1. Hydro (conventional dam across a valley, not pumped-storage or run-of-river)

2. Biomass

Funny enough, both of these technologies are effectively solar energy. They may not be as efficient as photovoltaics, but their capital- and operating-costs make them uniquely suitable for long-term storage. Contrary to myth, efficiency is far from being all-important.

Hydro can effectively hold back the rain that falls between (say) April and November for release as required from December to March. It's solar because it is harnessing the water cycle driven by solar evaporation. Its operating costs are so low and its potential scale so large that it can hold back meaningful quantities of energy for winter at modest marginal cost, although it's a long payback.

Biomass can be stored almost for free: cut it when suitable (depending on your weather/ground-conditions) and leave at roadside (drying to some extent) for collection as required. It's solar because it is harnessing the power of photosynthesis. The economics of biomass for seasonal storage depend on the cost of the technology in which it is used, as well as the fuel, but the fuel itself is eminently suitable for seasonal deployment.

For instance, new biomass power may be expensive to run seasonally as it needs to recover its capital cost and has non-negligible fixed and operating costs. But using biomass in fully-depreciated generating plant or for heat (where all the competition is also seasonal) may be viable, although investors may still prefer to run continuously regardless of demand if the support mechanisms are structured badly (as they are in the UK).

It is unlikely that other technologies will match these two for long-period storage. Not because of technology, but because of economics. They have greater capital and operating costs that (as illustrated above) cannot be recovered from infrequent use.

That makes the interseasonal storage of intermittent electricity highly problematic, to put it diplomatically. Neither hydro nor biomass is very suitable. It needs a technology that takes in electricity then releases it as required. But they are too expensive for long-period storage. You can time-shift solar from day to evening with chemical or mechanical storage technologies, but you can't time-shift it from summer to winter. The best you can do is find uses that match the seasonal profile, and resort to other technologies to fill in the gaps in the intermittent output.

The least bad option we have come up with so far is exporting to countries with large hydro potential (that means Norway within reasonable range of the UK) so they use our electricity when we've got too much, and save their hydro (for their own use and to export to us) for when we don't have enough. But Norway is a small country compared to us, in terms of economy and population. And we are not the only ones wanting to do this. The Danes and Germans are already doing it, to a problematic extent in the latter case. We can't all piggyback on Norway, like a herd of elephants piggybacking on a mouse. And we can't build our own because we don't have the geography or the political will for it.

Not nuclear

Certain armchair warriors like to cite nuclear as the leading contender to fill in those gaps. It can be done but it makes no sense. Technically, you can ramp nuclear down and up if it doesn't have to be too responsive. But what is the point? You save almost no cost or carbon when it is ramped down. What purpose are the intermittents serving that force nuclear power stations to be ramped down and up, versus simply running the nuclear more continuously and not bothering with the intermittents at all?

Not compressed-air storage (at the moment)

Let's be clear what Highview mean by long duration storage. The announced project has storage capacity for 5 hours at full power. In other case studies, they assume 10 hours.

This is not "long duration" in the sense of seasonal storage, nor even long enough for the longer-period swings in wind output. They mean "long duration" in the sense of significantly longer than the applications at which batteries are primarily targeted. It's "long duration" in the same sense as pumped storage, which looks like their target competitor: the ability to run for several sustained hours within a daily charge/discharge cycle.

Sure, some of the reporting also talked about their ability to store the electricity "for weeks". In that case, I have a bucket that is equally advanced. Water can be filled and discharged fast or slow, and if it's not discharged after filling, it can hold water "for weeks" or longer.

This is not a serious claim to long duration. Taken at face value, it refers to the potential for expensive equipment to stand idle, earning nothing, "for weeks".

The marginal cost of this technology's storage capacity is already relatively cheap, as opposed to the generating potential, which is expensive. The hope for this technology is that it can be further reduced so that it is cheap to expand the storage relative to the power, to extend the charge/discharge period. The problem is the same one described above. Extending the storage capacity not only increases the cost (however marginally); it also reduces the number of charge/discharge cycles in a year by extending the duration of each cycle. It's a fundamental, immovable obstacle, to which the only solution is very low capital and operating cost.

Highview are focused on projects with 5-10 hours of storage capacity not because it's a technical constraint, but because it's the economically-optimal capacity for their technology, even though an advantage of their technology is the relatively-low cost of storage capacity.

Not cost-saving

Let's say someone came up with a storage technology that was economic at the current differential between peak and off-peak prices. That may help our balancing problem. It is unlikely to help the economics of wind and solar, and therefore reduce the cost to consumers. It makes its money from the differential. If the differential comes down, the storage ceases to be economic. If the differential remains high, that reflects low electricity prices when the intermittents produce most of their output, and high prices when they aren't producing much. It's a non-existent solution that wouldn't save cost even if it did exist.

Fundamentally, you have to match supply to demand. If you can't produce when it's needed, there will be significant costs to align supply to demand. These are indirect costs of intermittency. They are ignored by proponents of intermittents, and are invisible in the wholesale prices those people use to pretend intermittents are cheap (read "not worth much"). But they have to be covered and end up one way or another on consumers' or taxpayers' bills.

Hence the widening divergence in the UK between a falling wholesale price and an increasing retail price. In the mid-2000s, the retail price was around 60% more than the wholesale price. Now the retail price is over 200% more than the wholesale price. Think of that next time a wind or solar advocate tells you how cheap they are.

1. The marginal cost of storage capacity is given as $50/kWh at https://www.highviewpower.com/wp-content/uploads/2019/11/ESA-storage-exchange-poster-2019-2.pdf. That's around £40/kWh. That puts the cost of the storage element of the announced project at around £10,000,000, leaving £75,000,000 for the generation/charging element. At 50 MW, that puts the cost of this element at £1,500/kW. We apply these ratios to 2,000 GWh / 10 GW to get a cost of £95bn. These ratios are consistent with the advertised advantage of this technology, that the marginal cost of additional storage is relatively low, which is why they are focused on longer storage opportunities.

China is cleaning up

Fri, 22 May 2020 00:00:00 GMT

This was going to be a piece on the futility and self-harm of Western decarbonisation plans, if China continues to increase its carbon emissions whilst undercutting our manufacturers, prompted by this article in The Economist.

Except, China isn't apparently increasing its carbon emissions. They have been nearly static since 2011.

You go where the data take you. So this is now a piece on how China is cleaning itself up, in a more rational way than the West's decarbonisation efforts. It doesn't fit as well with my Western prejudices and doesn't offer any gotcha conclusion, but hopefully that makes it more real.

My first thought on seeing this chart was: they must be fiddling the data. How could they be increasing their coal-fired generation capacity and imports of gas, replacing bicycles with internal combustion engines, and building god knows how many airports and high-speed rail lines, and yet prevent their carbon emissions from rising? But when I looked into the data, they are at least consistent (a) internally and (b) with some things we know about how China has tried to direct its development recently. They may still be false, but I have no evidence to doubt them.

IEA statistics

The International Energy Agency (IEA) provides a useful energy-data browser by country or region.

Natural Gas

Gas is straightforward. Consumption has increased significantly since 2011, by about 75%. But these are relatively modest amounts compared to the use of coal. The 2017 figure is equivalent to around 146,000 ktoe (thousand tonnes of oil equivalent). The increase since 2011 is around 62,000 ktoe. Their coal usage appears to be in the region of 2,000,000 ktoe.

Oil

Oil is also straightforwardly upwards since 2011, by a smaller proportion (around 1/3) than gas, but by a larger absolute amount (around 123,000 ktoe). It's still small beer compared to coal, though.

Coal

China's final consumption of coal has fallen significantly since 2011. This might appear to be the end of the story: falling coal consumption set against rising consumption of the lower-carbon fossil fuels (oil and gas). But final consumption doesn't tell the whole story. For instance, how does falling coal consumption fit with their increasing coal-fired generation capacity? Are they really building power stations to use them less?

Final consumption does not include electricity generation. The IEA's data browser doesn't offer figures for the amount of coal consumed in electricity generation. But they do tell us how much electricity is produced from coal (and other technologies). We can guesstimate the coal consumption by assuming an electrical conversion efficiency of around 35%.

At first sight, this is the original suspicions confirmed. Coal-fired generation is still increasing strongly. If this offsets the reduction in final consumption of coal, then rising gas and oil plus flat or rising coal must mean rising carbon emissions.

The increase in the electricity-generation chart from 2011 to 2017 is around 774 TWh, or 66,578 ktoe. At 35% conversion efficiency, that is around 190,000 ktoe of coal. That is very similar to the decline in the final consumption of coal since 2011. In other words, overall coal usage is indeed flattish.

We can get at the coal usage another way. The IEA offer figures for coal production, imports and exports. Barring changes in stock levels:

Production + Import - Export (aka Supply) ≈ Consumption

This is how coal supply compares with final consumption (every 5 years from 1990, then every year from 2010). You can see how supply dwarfs final consumption. You can also see how supply is marginally down since 2011. But marginal differences on such large amounts can signify. The reduction in supply since 2011 is 42,000 ktoe, and since the peak in 2013 is 133,000 ktoe.

That still leaves a net increase between coal, oil and gas, but (a) coal is more carbon-intensive, so a small fall in coal weighs more heavily than larger increases in gas and oil, and (b) the IEA carbon figures do show small increases since 2011, but they are insignificant proportionately. In the same way, a change of a few tens of thousands of ktoe is insignificant against a baseline of 2,000,000 ktoe of coal consumption.

So how do we square increasing coal-fired generation with slightly declining coal consumption? It's not just that final consumption has fallen. If we assume that the difference between supply and final consumption is largely coal used for electricity generation, the movements in coal consumption for generation since 2011 are insignificant relative to the increased in coal-fired output.

My inference from the above is that the new coal-fired generators are (a) more efficient and (b) cleaner than the old generators, and even more so than the industrial coal-burners whose replacement (probably mainly with gas) are reflected in the declining final consumption of coal. China is managing to get more output for each unit of input, and in the process improving its air quality. The old generators are probably relegated to the bottom of the merit order, providing occasional balancing services.

Low-carbon (renewables and nuclear)

So what about the supposed decarbonisation of China through its investment in wind, solar and nuclear?

Firstly, they aren't even the main forms of low-carbon energy in China. For electricity, that's hydro, by a country mile.

If we were counting all energy, biofuels and waste are also well ahead.

In the grand scheme of things, this is all small beer compared to improving the efficiency and cleanliness of the coal combustion, and displacing the worst coal combustion with natural gas.

It tells us something about the realism of the Chinese approach. In the West, green evangelists (and gullible policymakers) would be arguing that we don't need those new coal-fired generators, as we can simply replace them with wind and solar, despite much higher market penetration already.

The Chinese government clearly recognises the different services that different types of generation provide. They are ramping up their dispatchable, frequency-stabilising, carbon-emitting generation, as fast or faster than they add low-carbon generation. To the extent that they are investing in low-carbon generation, hydro (especially) and nuclear are playing a larger role than wind and solar, because hydro and nuclear can provide load-following (the former) or baseload (the latter) power.

Economic impact

The pragmatism of Chinese energy policy has allowed them to continue their strong growth whilst halting the growth of their carbon emissions. Depending on the measure (with or without adjusting for PPP), their GDP has increased 60-80% in real terms since 2011.

Compare that with the effect of economic policies in the EU, UK and Japan. The UK has grown by 7%, the EU by 1% and Japan has shrunk by 19% in the same period (in current US$; growth was a little higher adjusted for PPP).

The sclerotic Western nations have decarbonised more, but was it worth it? China's emissions increased 4.8% from 2011 to 2017. Japan's shrunk by 4.4%. The EU (excluding the UK) cut emissions by 8.1%.

The UK did well with a carbon reduction of 24.8%, but the ONS notes that this excludes the embodied carbon in our imports. The UK has some of the highest levels of embodied carbon imports. The UK was more aggressive than most in moving from a manufacturing economy to a service economy. This was an effective way of reducing direct carbon emissions per unit of GDP, but a lot of what we cut by offshoring manufacturing, we re-imported embodied in the products. Was that a good trade-off?

China made a greater improvement than these nations in its CO₂ intensity per unit of value added and in its energy intensity per unit of GDP, albeit starting from a much higher level. They are looking to expand their service sector and rely less heavily on exports and more on internal consumption, but they have not had to switch as strongly as the UK to a service economy in order to reduce their energy intensity.

Lessons for the West

The lesson for British (and Western) policymaking is simple: our policymakers aren't intelligent and informed enough to adopt a Chinese command-and-control approach.

And if they were, they nevertheless feel compelled by democratic pressures to a naivety to which China is immune. China shapes its policies to international pressures only so far as is compatible with its national interests. Sclerotic Western nations put virtue signalling ahead of the prosperity of their citizens. The decadent West steers its systems towards what it hopes will work and encourages research that justifies this hope. China's ambitions favour realism over optimism in the energy sector.

The prosperity of the West was built on the replacement of hierarchical coordination (feudalism) with decentralised coordination (the market). That is partly necessary because the Western "elites" are not true elites, but rather people who know how to play the politics well enough to get into positions of power.

They understood the limits of their competence in the eighteenth and nineteenth centuries. They understood that their interests coincided with the interests of the economy when they limited their role to the provision of the institutional framework for market discovery (Adam Smith's "peace, easy taxes, and a tolerable administration of justice"). They gradually forgot this during the twentieth century, partly from decadent arrogance, and partly under the pressure of expectation from a population (empowered by universal suffrage) whose miseducation led them to expect governments to make everything right.

The consequence is a system of governance that claims more responsibility (and a much greater share of GDP) than the Communist Party of China with a fraction of the intellectual and administrative competence. They pay lip service to the foundations of our prosperity and the lessons of the twentieth century by avoiding re-nationalisation of those parts of the economy that are not still owned by the state (though even that is crumbling). But they use indirect methods (euphemistically described as market mechanisms, though they are really market-distortion mechanisms) to steer, skew, target, micro-manage (etc) markets to the extent that their core discovery function is completely undermined. It takes a level of ignorance that is mainly achieved through the Oxbridge Lobotomy to believe that there is a virtue in markets whose price signals have been hopelessly obfuscated.

Imagine if all of life were determined by majority rule. Every meal would be a pizza. Every pair of pants, even those in a Brooks Brothers suit, would be stone-washed denim. Celebrity diet and exercise books would be the only thing on the shelves at the library. And - since women are a majority of the population - we'd all be married to Mel Gibson

-- PJ O'Rourke, Parliament of Whores

This does not work. A bugger's muddle of micro-managed capitalism is a recipe for rent-seeking, sclerosis and increasing inequality between the government's beneficiaries and the rest. Democracy is a lousy way of managing economic coordination.

Either go the whole hog (like China) and implement a hierarchical system largely immune from irrational democratic pressures. Or leave economic coordination to the market and insulate your economy from democracy through limited government whose main economic role is to provide an institutional framework that supports voluntary exchange and does not pick winners.

At times, the hierarchical, authoritarian system may seem to be doing better, because it can get things done. But that is the same power that enables China to impose itself on Hong Kong against the will of the people of Hong Kong and to suppress the truth about an epidemic, and enabled the catastrophic decisions of communist governments for the past 100 years.

So this may have seemed to be a paean to the Chinese Communist system, but it really isn't. The fact that they can sometimes get things right because they do not run their economy democratically does not outweigh the terrible things that such a system can also enable. The lesson is not to be more communist. The lesson is that, if you want to avoid the huge cost of communism and the scleroris of centrally-managed (crony) "capitalism", you need to coordinate your economic activity via the dollar vote, not the ballot box.

Forever learning curves

Fri, 15 May 2020 00:00:00 GMT

A certain type of green technology evangelist is wetting themselves over this chart.

It implies (and the author goes on to argue explicitly) that this kind of exponential cost-reduction can continue indefinitely.

Let's be clear what that means. Global solar output in 2019 was 699 TWh from around 650 GW of capacity. Global electricity generation from all technologies was around 27,000 TWh from around 8,000 GW of capacity. So solar was contributing around 2.6% from 8% of the capacity.

If solar doubles 5 more times from here, it will have a capacity of 20,800 GW, or 2.5 times current global generating capacity of all technologies. And it will produce 22,400 TWh, or 83% of current total generation.

Most of that generation/consumption occurs outside the tropics:

https://ourworldindata.org/grapher/energy-use-per-capita

So most of that solar production will have a strong element of seasonality about it. At peak production, solar output will produce an order of magnitude more electricity than required. Throughout the winter, which in most temperate countries coincides with peak demand, solar will contribute little.

"So we need lots of storage", the green tech evangelists will say. But the economics of storage are heavily dependent on the frequency of charge/discharge. Ideally / in practical current use / in most calculations of its cost, storage operates on one or two cycles per day. Interseasonal storage, from summer to winter, will be hundreds of times more expensive, because it will have only one or two charge/discharge cycles a year.

Anyway, it's a false premise. Learning curves no more go on forever than "it's turtles all the way down". In fact, isn't one of the greens' favourite quotes (applied to growth/consumption), Herbert Stein's: "If something cannot go on forever, it will stop"?

https://www.oecd.org/env/cc/2047106.pdf

We've seen these learning curves before. The UK's first low-carbon electricity support scheme was the Non-Fossil Fuel Obligation (NFFO). This is how the price declined in the 5 tranches of NFFO in England & Wales between 1990 and 1998 (from a presentation to the OECD by the UK Department for Trade & Industry in 1999).

Fast forward to 2020, and the estimated Levelised Costs of Energy (LCOE) for these technologies in the UK are (BEIS figures, see also Arup's supporting report):

p/kWh	in 2016 £s			in 1999 £s
	Low	Central	High	Low	Central	High
Landfill gas	4.3	6.7	9.1	2.7	4.2	5.7
Energy from Waste	2.4	4.5	8.3	1.5	2.8	5.2
Wind (onshore)	4.7	6.3	7.6	2.9	3.9	4.8

At the central value, none of these technologies is cheaper now than it was in 1999. Only EfW is cheaper at the low value, and that is based entirely on optimistic assumptions about the gate fee (the price paid to dispose of the waste via EfW). Despite significant declines in the first decade, technology costs have not reduced for 20 years. In fact, they have increased.

Let's compare these figures with the prices in that chart in the beginning. Solar has achieved a bigger reduction, but primarily because it was astronomically expensive initially, not because it is cheap now. $320/MWh was around 25p/kWh! And indeed, solar received higher subsidies than that initially, although not at utility scale.

If solar is becoming competitive and may become more so, that's something to celebrate. But it is no reason to surrender to hyperbole. Solar capacity will not double five times from here. And its cost will not fall to 1p/kWh. In fact, if history is anything to go by, its cost will probably stabilise or start nudging upwards.

When we look at the increasing instances of intermittent over-production at peak as their capacity increases, the dominant force in the future may be a Hobson's Choice:

(a) subsidise the production enough that it keeps producing even when no one wants it and its value is negative, in which case wholesale costs will continue on downwards, but the true cost including the subsidy will increase, or

(b) pull the subsidies apart from a carbon price, in which case it will not be worth producing at negative cost and output will be increasingly curtailed, increasing the price required to breakeven on the un-curtailed output.

Either way, the upwards cost pressures should gradually overwhelm any remaining learning curve reductions, when all costs are taken into account.

What carbon price would you like?

Fri, 15 May 2020 00:00:00 GMT

Client: "What's 1 + 1?"

Accountant: "What answer would you like?"

The joke could equally be about jobbing economists. Political economy was originally about challenging rulers' bad ideas, such as mercantilism. But over the twentieth century, mainstream economics evolved into a tool for governments. Economists increasingly calculated what should be discovered, and refined (rather than challenged) governments' mechanistic view of the economy.

Take carbon pricing. The essence of carbon pricing is to internalise the climate externality in economic decisions. If the solutions to climate change are determined by government, we don't need a carbon price. They can just pick their winners. The carbon price enables the decentralised coordination of the market to take the externality into account.

The climate doesn't differentiate between greenhouse-gas sources. A tonne of carbon-dioxide-equivalent (CO₂e) is a tonne of CO₂e, wherever it comes from (or however it is absorbed). The social cost of each tonne of CO₂e is the same, wherever it comes from.

A carbon price supposedly reflects that cost. When a government combines targeted support (whether direct or indirect) for certain technologies with carbon pricing (explicit or shadow), it effectively says that some CO₂e is more equal than others.

Let's say we have a carbon price of £50/tCO₂e. This equates to around:

Technology	p/kWh
Electricity from CCGT	2.1
Coal-fired electricity	4.1
Petrol	1.2
Diesel/heating oil/aviation fuel	1.3
Natural gas (e.g. for heating)	1.0

But we introduce mechanisms that:

provide different levels of support for low-carbon electricity generation:
- depending on technology and scale,
- regardless of the emissions that will actually be displaced,
- mostly way more than the carbon value based on grid-average emissions, but
- some of it less than the carbon value on the same basis;

insulate some low-carbon generation technologies from the varying half-hourly values of their electricity in terms of:

wholesale value (supply/demand), and
the carbon intensity at the time of generation,

so every MWh is guaranteed a price above the wholesale average, regardless of whether:

<ul>
	<li>there is any demand for it, or</li>
	<li>it displaces any carbon;</li>
</ul>
</li>
<li>insulate some low-carbon electricity technologies (e.g. wind in northern Scotland) from some of the cost of distributing their power to customers;</li>
<li>insulate intermittent electricity technologies from the effect of their intermittency on their wholesale price, by instituting a capacity market whose cost is passed to customers;</li>
<li>time-limit support mechanisms (without even a residual carbon value, because excessive value is provided in many cases during the support period), so depreciated low-carbon assets that could offer cheap low-carbon energy are disadvantaged relative to new projects, and apply different time periods depending on technology, scale, end-use (electricity, heat, transport, etc);</li>
<li>provide tax incentives to encourage people to drive diesel rather than petrol cars;</li>
<li>use grants, taxes and congestion charges to encourage the purchase of electric vehicles regardless of the source of the electricity and how much petrol or diesel they will avoid (and then remove some of those incentives without replacing them with something more rational);</li>
<li>tax all road vehicles at a level well beyond the cost of (i) carbon and (ii) road spending, while giving other forms of travel tax exemptions (air) and/or subsidies (rail);</li>
<li>use cap-and-trade to create an alternative carbon price for some carbon sources (industry and electricity generation) but not others (heating and vehicle fuels), with a scheme designed to (i) generate an inadequate carbon price, but (ii) apply that price to native production but not to foreign competitors whose cheap embodied carbon undercuts our native producers;</li>
<li>ignore low-carbon heat for two decades while other sectors are being richly subsidised, then
<ul>
	<li>institute a subsidy that provides radically different levels of support depending on sector (domestic or non-domestic), technology and scale, then</li>
	<li>adjust those levels of support depending whether the technologies are delivering what the government thinks they should deliver, then</li>
	<li>replace it with a sparse set of support mechanisms that provide different levels of support for certain of the favoured technologies ("green gas", and heat pumps, with a supporting role for biomass), while</li>
	<li>hanging hopes of long-term heat decarbonisation on technologies that are unproven and whose viability is unknown, with no mechanism to relate its cost to its carbon value, and with mass roll-out kicked into the long grass again.</li>
</ul>
</li>
<li>provide no material value for sequestration, other than a failed prize scheme;</li>
<li>etc. (CCL)</li>
<li>etc. (CRC)</li>
<li>etc. (EEC/CERT/CESP/ECO)</li>
<li>etc.................................................</li>

What signal are we getting from the carbon price in this environment? It is barely a yardstick. It is not a realisable value for most projects. The values available are complex but bear almost no relation to the carbon value. Investments are made on the basis of projects' real expected costs and values. The impacts are experienced on the same basis.

Imagine (a) the combination of the above provides a value that enables a project to proceed, and (b) the project would not have gone ahead if there was a simple carbon price instead of all these mechanisms. The project is proceeding even though its cost to society exceeds its benefit to society. This is a net loss to society, aka a reduction in welfare.

Now imagine the opposite: (a) a project cannot proceed on the strength of the mechanisms actually in operation, but (b) would have gone ahead on the strength of a carbon price. A project is prevented whose benefits to society would have exceeded its costs to society. This is also a net loss to society.

The only way we can be sure that all/only those projects proceed whose social benefit exceeds their social costs, is if the net value of the various interventions available to any project with climate ramifications is a carbon price equal to the social cost. The only practical way to achieve that is to set a carbon price and wind-down other climate mechanisms.

Bureaucrats can do all the Impact Assessments they like, putting arbitrary numbers on the expected (i) costs, (ii) benefits including a (shadow) carbon price and (iii) scale of delivery, to justify the implementation or rejection of each mechanism. The fact that the carbon price was incorporated in each IA does not mean that the combination of mechanisms provides a rational internalisation of the externality, even in the unlikely event that the assumptions built into the IA are borne out by experience.

The use of a carbon price in this context (shadow pricing in Impact Assessments) is highly misleading. The carbon price's purpose is to internalise the externality in actual economic decisions, not to be a component in the justification for alternative mechanisms, which generate a complex matrix of technology-, scale-, and sector-dependent impacts on market costs and values.

Economists know this. That is why over 3,500 of them, including 27 Nobel Laureates, have backed the Carbon Dividend proposal. Normally, if you put three economists in a room, you get four opinions. This must be the most widely-backed proposal in the history of economics, because it is widely-recognised as the technically-correct, least-bad way to address climate change.

And yet when 34 governments or public-sector bodies, 200 corporations and 80 colleges and pressure groups commissioned a study on carbon pricing, they managed to find two economists who had not endorsed a Carbon Dividend, and appear not to accept the basic economics underlying it. And not just any economists: Joseph Stiglitz (a Nobel Laureate) and Nicholas Stern (Lord Stern of Brentford, author of the British government's 2006 Stern Review on the Economics of Climate Change).

In his earlier report, Stern had made the classic economic arguments about a consistent carbon price, and attempted to calculate the carbon price in the way most consistent with the economic principles: estimating the Net Present Value (NPV) of the future harm. Unfortunately, the report received mixed reviews in economic circles. Many were critical of Stern's use of a very-low discount rate to generate a relatively-high NPV. The recent award of the Nobel Prize to Bill Nordhaus could be seen as a victory for Stern's opponents. Nordhaus was one of Stern's fiercest critics and advocates a more traditional discount rate (and therefore a lower carbon price).

This may partly explain why the Stiglitz and Stern report adopts a radically-different approach to pricing carbon. It attempts to estimate not the social cost of the risk of harm from Anthropogenic Global Warming, but the level of support needed to deliver the technologies most suitable (in the opinions of some experts and interest groups) to achieve the level of emissions thought to be consistent with avoiding runaway climate change.

There are several problems with this, including:

It assumes a level of knowledge and foresight that is not available;
It discards the most fundamental aspect of the underlying welfare economics: current and future costs are a trade-off, so it makes no sense to fix rather than discover a trajectory for emissions as though we know where that unpredictable trade-off balances out.
Even if (1) and (2) were not a problem, the objective would still be for all sources and sinks of carbon to receive the same value in the round (i.e. carbon price plus any other mechanisms) for the social cost of carbon, so that the most efficient solutions were encouraged. Yet S&S's approach was to pick certain technology "winners" (not even covering all uses of energy, but straight-line extrapolating from the easy sectors they did cover to the difficult sectors they did not), assume various government interventions to reduce their cost of delivery, and then estimate what was needed on top to make them happen, and call that the "carbon price".

It is (3) that really rankles, and that this post was written to address. By all means, argue that (a) minimal or (b) drastic action is required. You are effectively arguing for a carbon price that is (a) low (even zero) or (b) high. You'll need to back that up with how you reach the conclusion that in the main (a) adaptation is better value than mitigation, or (b) vice versa, but at least we're having a rational debate. But don't argue that some solutions should be valued differently to others. It's just rent-seeking.

If you do it as a business (say 200 corporations and their representative bodies sponsoring a study), you are simply pursuing your self-interest rationally. It's why governments should ignore businesses that claim strategic benefits worthy of government support for solutions that they just happen to be invested in.

If you do it as a government (say 34 public bodies commissioning a study), you are predictably falling for the Fatal Conceit, and responding to your public-choice incentives. Voters want to be told you have the answers, and you want to believe that you do. You are wrong and harmful, but anyone who understands government should expect no better.

But if you do it as a senior economist, you deserve nothing but contempt. You know it's wrong and damaging, and you don't need to pander to the interest groups. Why do it? I am struggling to think of any reason other than you were given the gig because your answer to the question "can you estimate a carbon price?" was "what answer would you like?"

Postscript

Here's an example of the effect of this cynical, irrational methodology.

There has been a persistent problem with developed nations offshoring carbon through the application of social costs to their own industry that developing nations do not apply to theirs. There is no environmental benefit to this. In fact, it is probably net negative because the production facilities in the developing nations are probably less efficient (i.e. emit more carbon for each unit of output).

A solution gaining increasing prominence in the light of China's behaviour is a border carbon adjustment system (see the Carbon Dividend proposal again). This should be set at the same carbon price that applies within your economy (both for economic efficiency, and to have any chance of approval by the WTO).

If you have manipulated your carbon price downwards by assuming various other interventions to make the government's "winners" viable at an artificially-low carbon price, you must set your border adjustment at that price. But it reflects only a fraction of the true cost. So your foreign competitors still get to undercut your native producers, except for the privileged "winners". Your consumers get to pay for this convoluted way of privileging some and harming others of your native businesses. All for the dubious benefit of reducing the efficiency with which we address the risk of climate change.

Stiglitz and Stern: knaves or fools?

The potential for renewable gas in the UK: a rent-seeking anatomy

Thu, 13 Feb 2020 00:00:00 GMT

National Grid claimed in 2009 that biomethane should make up 5-18% of our gas supplies by 2020. It now makes up 0.7%. We look at the impact of this fiction.

Read the full report →

The future of energy (according to Labour)

Wed, 11 Dec 2019 00:00:00 GMT

Many reasons have been given not to vote Labour at this election. The energy and climate-change proposals in their manifesto have not been top of the pile, although they are part of spending proposals that have been widely observed to be unaffordable in total.

Perhaps because there are so many other reasons not to vote for them, their energy proposals have mostly escaped serious scrutiny. But they smelt dodgy to us, so we thought we'd put them to the test, as the first run for the Future Scenarios model on our Energy Data sub-site.

The first challenge is interpreting what their proposals would mean in practice. We set out in some length in Part 1 of our analysis the assumptions that we judged most accurately combined Labour's proposals with the credible ways they might be implemented. We were, in general, generous in our assumptions (e.g. on cost and capacity of storage) to invalidate any suggestion that this was a hatchet job.

The second challenge was to explain and visualise the impacts of such a rapid transformation of our energy systems as proposed by Labour. We went into great detail in Part 2 of our analysis, although you can investigate it more dynamically by loading our assumptions (as a JSON file) into the Future Scenarios model. We also put out a condensed form of Part 2 as a tweetstorm.

The long and the short of it is that Labour have woefully under-costed their proposals. They repeatedly claimed that their proposals were "fully costed" unlike their opponents, in their "grey book" accompanying the manifesto. But that is only as valuable as it is accurate. They did not allow for the full system costs of their proposals.

Labour budgeted £250bn over 10 years for their Green Industrial Revolution, which included their energy and climate-change proposals, but also many other things. So they allowed some part of £250bn for their objectives of decarbonising 90% of electricity and 50% of heat by 2030, and a wide-scale transition to electric transport.

We estimate that just the electricity part of their proposals would cost around £445bn. Allowing for the heat and transport aspects of their proposal, the cost to 2030 is probably the best part of £1 trillion. That is around £100bn a year, or nearly 5% of GDP.

Beyond 2030, they aim to achieve net-zero carbon emissions as soon as possible in the 2030s, including decarbonising the other 50% of heat and largely replacing internal combustion engines in transport. We estimated that might bring the total cost to £1.5-2tn.

This is probably a best case, because we assumed certain essential technologies that are currently unproven, such as Compressed-Air Storage, quickly achieved the low costs that its proponents claim it is capable of. Without this, the plans would be even more expensive or simply impossible.

We estimated that this would raise the cost of electricity to £195.40/MWh excluding environmental costs and margins for operators. That probably puts the price to customers at around 21.5p/kWh.

The effect is more significant than a 50% increase in electricity prices, because 50% of heat would also have been electrified. Those moved from gas to electric heating would see their heating costs nearly doubled (over 8p/kWh of heat). The annual energy costs of a typical house with an Air-Source Heat Pump might be around £2,300.

Building or energy conservation?

Sat, 30 Nov 2019 00:00:00 GMT

The UK's decarbonisation strategy has focused myopically on renewable electricity for 30 years, even though electricity is only 20% of our final energy consumption, and the cost per tonne of carbon has been significantly higher in the favoured technologies than for many other options in the cinderella sectors.

As the carbon footprint of electricity generation reduces, the marginal value of further decarbonisation of the grid also reduces. Focus is finally turning to the other 80% of our energy consumption: heat and transport.

There are two angles to approach the decarbonisation of any form of energy: efficiency (i.e. reducing demand) and low-carbon supply for whatever demand remains.

All the parties are promising to reduce energy demand in buildings:

Labour:

upgrade almost all of the UK’s 27 million homes to the highest energy-efficiency standards, reducing the average household energy bill by £417 per household per year by 2030 and eliminating fuel poverty

Conservatives:

We will help lower energy bills by investing £9.2 billion in the energy efficiency of homes, schools and hospitals.

LibDems:

Cut energy bills, end fuel poverty by 2025 and reduce emissions from buildings, including by providing free retrofits for low-income homes, piloting a new subsidised Energy-Saving Homes scheme, graduating Stamp Duty Land Tax by the energy rating of the property and reducing VAT on home insulation.

SNP:

a reduction in VAT on energy efficiency improvements in homes, ending the Treasury’s 20% tax on making people’s homes warmer and greener.

https://www.gov.uk/government/statistics/energy-consumption-in-the-uk

etc.

OK, great. Except governments have been running schemes to improve building efficiency for decades, to the point that over two-thirds of homes with cavity walls have been insulated and likewise for lofts. Yet it has barely made a dent in energy consumption in buildings.

They're not proposing a radical departure. They're proposing more of the same, with modest remaining potential to do the same, even though the same isn't very effective.

One reason it's not effective is that these schemes have relied on supply-push (energy suppliers being compelled to install efficiency measures in their customers' properties) rather than demand-pull (consumers installing efficiency measures in order to reduce their bills). In the former case, the incentive is to be no more efficient than required, as any reductions are a direct hit to the revenues of the company funding the improvement. In the latter case, the incentive is to be as efficient as possible, because the person funding the improvement gets the saving from the reduction. Yet all the parties appear to be proposing more of the former approach.

But there is a limit to what can be achieved by retrofit anyway, even with the best of intentions. The government's own statistics estimate that cavity-wall insulation to the prescribed standard reduces gas usage by 7.5% on average. Loft insulation reduces it by 3.8%. Solid wall insulation has a bigger impact at 13%, but a far smaller proportion (around 10%) of solid-wall properties have been insulated than cavity-wall properties, because it is a more complicated and expensive thing to do.

To make a real difference, we would need to replace buildings, not improve them; designing and building from the ground up to have a low energy footprint. Most of the parties also include plans to promote higher efficiency standards in new buildings.

But these are relevant only to the extent that new buildings are built. And if the new buildings are mainly additions to the housing stock, not replacements, then there will be little progress on decarbonising the existing stock.

Unfortunately, we have almost given up demolishing old buildings. In the period from the War to around 1980, we demolished roughly 50,000 dwellings a year (House of Commons Library, Tackling the under-supply of housing in England, Dec 2018). From 1980, the demolitions ground to a halt. There seems to have been a bit of a revival in the early 21st century, but demolitions fell again from 22,000 in England in 2006/7 to 8,000 in 2018/19.

We also convert a handful of buildings each year. But if we add demolitions and conversions, the number of old buildings being replaced by more efficient homes is down to around 13,000 a year (see Table 118 of MHCLG, Live tables on housing supply: net additional dwellings).

There are around 28.4m homes in total in the UK. At 13,000 demolitions or conversions a year, it takes 22 years to replace just 1% of them.

Unless a political party admits that we will have to radically increase the rate of replacement of the housing stock (as well as adding to the housing stock to accommodate the rising population), then promises to improve their efficiency are largely hot air, and budgets to try to do that by the same old means will be largely "spaffed up the wall".

We're Back

Thu, 28 Nov 2019 00:00:00 GMT

Did you miss us? A combination of work and domestic events distracted us for a while. But we're now planning to get C4CS going again.

And what a time for it. The UK General Election has turned into a spendthrift, virtue-signalling contest. Politicians are trying to buy your approval by promising to spend your money on things that we are supposed to approve of, like decarbonisation, but just don't value enough to do ourselves.

Extinction Rebellion have been trying to make people care more about the environment by inconveniencing them as much as possible. This has had little effect on the people who can make the big differences, like Trump and Xi.

China in particular continues to jack up its carbon emissions so fast that it dwarfs Western attempts to reduce theirs. The Paris Agreement is gradually revealed as the empty promises of which its critics warned at the time.

The net effect is that global carbon emissions are rising faster than ever, despite the costs incurred by Western nations to make modest reductions in their own footprints. We offshore our manufacturing to countries where the emissions are higher but not measured as our own. And we make the 20% of our energy consumed as electricity less reliable through the replacement of dispatchable with intermittent generation, at enormous cost (£10bn p.a. by 2021), while ignoring most of the rest.

https://public.wmo.int/en/media/press-release/greenhouse-gas-concentrations-atmosphere-reach-yet-another-high

All to "set a lead" that developing nations resolutely ignore (unless they're pitching for Western support) while they focus on driving up their citizens' living standards. The main difference between the West and China is that they are trying less hard to pretend to care.

Sustainabilty has never been further from its true meaning of functioning in a way that could be continued indefinitely.

What's new with C4CS

We've been working on something while we were away. There's a lot of data about the UK's energy systems out there, but it does not intrude much into the debate on energy and the environment. This will mostly be rational ignorance, but there is an element that the data is disparate, not well-known, not always user-friendly, and takes some effort to compile into useful analytical information.

So we set out to pull some of the more useful data together and provide an interface that made it easier to carry out the kind of analysis that tests the (largely misplaced) assumptions in the debate.

And as we did that, we realised that this data still needs to be pulled together within an over-arching framework to highlight the trade-offs, which proponents of one solution or another usually avoid through careful selection of the information they present. So we put together a (still incomplete, but functional) model of our energy systems, to calculate the trade-offs for any Future Scenario variation to our current systems (e.g. installations of capacity).

These tools are available as C4CS's Energy Data sub-site.

There are some instructions within the site. They are not comprehensive. We will provide more information over time. If you have problems, questions or suggestions, please register with our new bug-tracking system and submit your comments/ideas.

We will be using these tools to test the credibility of the proposals in the parties' manifestos in the current General Election in the UK. You can try it yourself as well, if you like. But for our assessments, stay tuned.

How much is enough forest?

Thu, 28 Nov 2019 00:00:00 GMT

The UK is one of the least forested countries in Europe. Afforestation can serve the double purpose of providing a productive (if low-value) use for land and sequestering carbon. But it's not free - if it were the best use of the land, people would already be doing a lot more of it.

In the give-away election currently under-way, where politicians are competing to spend taxpayers' money to prove how "virtuous" they are, there have been a series of bids from the parties for how many million (m) trees or hectares (ha) of forestry they intend to plant.

Conservatives: 30m trees (30,000 ha) p.a.
LibDems: 60m trees (40,000 ha) p.a.
SNP: 60m trees, of which 30m in Scotland p.a.
Greens: 70m trees (70,000 ha) p.a.
Labour: 300m trees by 2025, 1 billion (bn) by 2030, and 2bn by 2040

Not surprisingly, these proposals have been treated with varying degrees of scepticism, and the Labour figure has come in for particular scrutiny, e.g.

Equally unsurprisingly, this has provoked a fury of responses from proponents and opponents. This was one of the more measured ones.

Why so sceptical?

BBC journalists may have been led to scepticism by work that their colleagues had done previously. In 2017, their Reality Check series challenged the idea that the Conservatives would plant 11 million trees in 5 years as promised in their 2015 and 2017 manifestos. 11 million had been planted from 2010 to 2015, but the article contrasted:

In 2015-16, 642,000 trees were planted in England. In 2016-17, it was 802,000.

Hundreds of millions sounds like a big ask compared to that. But those figures are misleading.

Getting it in proportion

1. England is not the UK. It might be the biggest part economically, but in terms of forestry, Scotland dominates. If we check the Forestry Commission's Forestry Statistics 2019 (Chapter 1, Table 1.13), England accounted for around 15% of new planting and 20% of restocking (re-planting of felled forest) in those years. So the UK would be around 4m trees p.a. on the basis of the figures quoted for England.

2. There is a tension between the number of trees that the BBC quoted and the area planted/restocked, according to the Forestry Commission, of around 23,000 hectares p.a. Planting densities are typically in the range 1,000 - 2,500 per hectare, with a bias to the top end. Let's say 2,000 per hectare. That's 46,000,000 trees p.a. (These are gross figures - millions of trees are also being felled each year, but in recent decades in most of the West there has been a net gain.)

The explanation appears to be a form of political Chinese Whispers. The Environment, Food and Rural Affairs Select Committee held an inquiry in 2016 on Forestry in England. It was reported to them that planting in England had slumped particularly badly in the period immediately before the inquiry, to only 700 ha. Such a small area gave a similarly small number of trees. This was widely reported as a crisis in the general rate of tree planting and the government's plans, whereas it seems in reality to have been a brief anomaly in England amongst a wider, shallower but still brief hiatus across the UK. The average rate of planting is an order of magnitude higher than that anomaly suggested, at around 23,000 ha p.a. across the UK.

So we should reasonably assume the current run-rate is around 46m trees planted p.a. in the UK (gross).

3. The UK has been "unambitious" by the standards of comparable nations. The following are very rough estimates based on information found online, and assuming the average density of established forests is around 1,500 trees per hectare, but the planting density is around 2,000 trees per hectare (because thinnings, selective felling, mortality etc will reduce the density as forests age).

	Land area (km²)	Forest area (km²)	No. of trees (m approx.)	(Re)plant area (km² p.a.)	(Re)plant nos. (m p.a. approx.)
France	550,100	175,790	26,370	2,000	400
Germany	348,770	114,190	17,130	1,500	300
Sweden	407,340	305,050	45,760	4,000	800
UK	242,510	31,640	4,750	234	46
EU	4,246,940	1,819,180	272,880	23,650	4,730
USA	9,160,000	3,100,950	465,140	40,000	8,000

So Sweden may be planting around 800 million trees a year, while the USA may be planting around 8 billion trees a year.

How do the proposals compare with reality?

The UK will not do anywhere near that, because its land area is smaller than these comparators, and the proportion of that land that is forested is much lower. But it's not hard to imagine increasing the planting rate to around 60 million trees p.a. from the current level, and modestly increasing the area of forested land from the current 13% (across the UK, 10% in England).

The Conservatives look distinctly unambitious with a target rate well below the recent run-rate.

Labour's short-term ambition is also the achievable 60m p.a. Their medium-term ambition requires 100m p.a., which is more of a stretch, but not incredible. It does imply, though, that a meaningful (though still relatively small) proportion of land will be converted from its current use to forestry.

How much land would we need?

If we assume that felling continues at around its current rate (to assume an acceleration would contradict the aim of the policy, which is to sequester carbon), then most of the planting must be new planting, not restocking. That's around 30m trees (15,000 ha) for restocking and 70m trees (35,000 ha) for new planting p.a.

Over 15 years, plus the smaller increases in the first 5 years, that's around 630,000 additional hectares of forestry. That's around 2.5% of our land converted to forestry. As substantial parts of our land are not suitable for conversion to forestry (urban areas, unsuitable terrain, elevation, etc), that is a larger proportion of the cultivable land.

It would have a meaningful impact on land values and on the competing uses for the land (e.g. agriculture), but probably not a dire impact. Given the poor current prices for agricultural produce, it may be a useful rebalancing in land-use, which could benefit land-owners if they are not determined to continue with their current use.

Not all big numbers are equally credible or incredible. This big number in Labour's manifesto is a bit of a stretch but far from incredible. That says nothing about the credibility of other big numbers in manifestos. But it does say that those whose gut told them this was just another Labour over-commitment probably picked the wrong target.

How much would it cost?

What this analysis does not assess (yet) is the cost. If it needed no encouragement, then land-owners would already be doing it. It costs a few thousand pounds a hectare to plant forestry. There are some maintenance/management costs, and a long wait for income, with a material risk of disease or fire before that is achieved. It is likely that land-owners will need incentives in the thousands of pounds per hectare to switch to forestry at large scale. We would need to do more work on this aspect to put a more accurate figure on it. The first impression is that the cost p.a. would be relatively modest compared to many of the other pledges by the parties.

That is to incentivise land-owners to plant trees. The cost would be around quadruple (including land-purchase cost) if Labour were determined for these forests to be state-owned, as they are for other sectors of the economy. That could take the cost of Labour's policy up from low hundreds of millions of pounds per year to around a billion pounds per year.

How much should it cost?

If all of these planting rates are achievable, how do we know which is the efficient option? It is not the case that the highest planting rate is automatically the efficient rate. At some level, the cost (e.g. the opportunity cost of whatever else the money could have been spent on, or the welfare cost of the impact on the economy of raising the taxes to implement the policy) and impact on other uses exceeds the environmental benefit.

The answer, as always is that the efficient level is better discovered than arbitrarily chosen for political reasons. The environnmental benefit of sequestration should be "internalised" via a carbon pricing mechanism that places an equivalent value on this as on other carbon-negative (sequestration) or carbon-neutral (e.g. renewables) options. We would then discover how much tree-planting is the efficient amount. It probably wouldn't be any of the numbers chosen by the parties, because we can never have sufficient knowledge to calculate emergent values like this.

One lump or two?

Tue, 25 Apr 2017 00:00:00 GMT

Even in the midst of election fever, both here and in France, several news outlets have highlighted the report from the National Grid that from about 11pm on Thursday night (20/4) until midnight on Friday (21/04), the UK generated 'a day's electricity without coal'. (www.ft.com)

The last time coal contributed zero to the UK's power was over 130 years ago, in 1882, the year the fourth (and current) Eddystone lighthouse was first illuminated. 1882 was also the year of the 'Married Women's Property Act' which enabled wives to buy, own and sell property, and keep their own earnings. Progress indeed. Surely in these enlightened times, the fact that coal didn't contribute to keeping the lights on demonstrates our achievements in decarbonising electricity right?

Well, as with many things, the answer is 'yes', but with important caveats:

The absence of coal power from the daily energy mix does not mean the removal of all fossil fuel generation. Indeed gas power plants were supplying 47% of the power demand. Moreover, a wider consideration of the UK's progress towards decarbonisation has, as demonstrated by this blog, been most focused on the electricity component of our power demand, with little focus (or success) on the heat or transport components.
The intermittent nature of solar and wind power sources and the non-alignment of their output to grid requirements demand the existence of an equal but alternative power capacity and management of their excess. As renewables are given priority in the UK's energy mix, such reserve capacity has to be held ready to react quickly to changes in power output from those renewables to prevent power outages. Coal may not form part of the government's thinking in terms of reserve capacity, but the implications of such a capacity requirement from some dispatchable form(s) of electricity generation means the extension of both coping mechanisms by the National Grid (Balancing Mechanisms. Demand Turn Up) and ultimately higher cost to the consumer in providing such.

It may be considered that the development of solar and wind generation, and their contribution to renewable energy generation and reductions in carbon emissions, are deemed beneficial but that development has occurred without any apparently real consideration of the longer term implications for the performance of the National Grid. Battery technology is often quoted as the solution to our energy imbalance but their capacity is only applicable over a very short period, and their cost still relatively high. Interconnectors can only provide a marginal answer. The timeline for new nuclear development appears to be being pushed further and further out. Seasonal imbalances in energy generation, especially beyond the electricity sector, remain questions seeking a practical answer.

Two awkward questions therefore spring to mind:

Ultimately, if the UK has to 'back up' solar and wind generating sources, will we see the development of a parallel, or dual, electricity generating system, and how much more expensive will this be?
Unless fossil fuel sources can be effectively switched off long term, can we claim to have met our decarbonisation goals?

Mind the cap

Sat, 22 Apr 2017 00:00:00 GMT

The Vertically-Integrated Large Energy companies deserve no defense. They pollute the political discourse with rent-seeking nonsense in the hope of skewing the market in their favour.

So it is no pleasure to write what follows. But it has to be said, even if it helps the undeserving:

Electricity prices in the UK are not the result of profiteering on the supply of electricity.

It is becoming a bien pensant cliche that UK energy prices are high, and that the main cause is market abuse by the "Big Six" energy suppliers (EdF, Centrica, E.ON, RWE, SSE and ScottishPower).

It was reported last month that the UK government is preparing to cap energy prices because "the market isn't working".

Speaking to the Select Committee on Business, Energy and Industrial Strategy on Wednesday, Greg Clark (Secretary of State at BEIS) appeared to confirm that the Conservatives would intervene strongly in the market to control prices if they win the election.

There is an easy test of whether companies are profiteering. Are they achieving persistently-high profits? Profits may not mean profiteering, but the absence of profits is a pretty good indicator that any attempts at profiteering are not succeeding.

The VILE companies sell electricity and gas. Their general profitability does not tell us whether they are profiteering from electricity, gas or both.

Fortunately, they are obliged to provide annual Consolidated Segmental Statements to Ofgem (the energy regulator), which provide an overview of the performance of each main part of their business.

The best measure of the extent of profiteering in the energy sector is the EBIT margin (i.e. Earnings Before Interest and Tax relative to Total Revenue). EBIT is more appropriate than EBITDA for this sector because some of their key investments (e.g. nuclear and renewables) have high capital costs and low running costs, and it is therefore important to take depreciation/amortization into account to get a true picture.

Here is how their EBIT margin breaks down between their main activities.

The VILE companies lose money on conventional power generation, and make minimal margins on the supply of electricity. They make strong margins in two areas:

Low-carbon power generation, and
Supplying gas.

One might look at their gas margins as a bit higher than one might expect in a mass-market, low-margin product, but

(a) repeated investigations by Ofgem, the Office of Fair Trading and the Competition and Markets Authorityhave failed to find evidence of collusion, and

(b) the outrage at supposed profiteering is provoked mainly by increases in electricity prices more than gas prices:

The only parts of their electricity activities in which the VILE companies are making a lot of profits are the parts whose profitability is determined by the government already: low-carbon generation.

Both nuclear and renewable energy are dependent on government subsidies. If the Big Six are making big profits on these activities, it is entirely because the subsidies are set at a level that delivers those profits. They are the result of government creating a rigged market and handing large amounts of taxpayers' money to the privileged players who are large enough to make the massive investments that technologies like nuclear and offshore wind require, in order to milk the subsidies.

Don't imagine the Big Six are innocent. Who do you reckon employs teams of Public Affairs specialists to influence government policy to this effect?

Rent-seekers will always do this if they can get away with it. Politicians and bureaucrats should be sceptical of lobbying by interest groups, and implement policy on the basis of sound economic principles, rather than "evidence" from self-interested submissions.

But time and again, government implements what big business (usually in cahoots with the academic and bureaucratic establishment) wants, even as it publicly criticizes their profits that its credulous policy-making subsidized.

If suppliers are forced to lower their prices to a level that is easier to withstand for the Big Six (supported by their massive nuclear and renewable margins) than for independents, Greg Clark and Theresa May will unintentionally be helping the VILE companies to undermine their competitors, rather than addressing the real structural issues in the energy industry, which are largely of successive governments' creation.

If they really wanted to do something about profiteering in the energy industry, they would need to look at the excess subsidy that is already locked in, and prevent it getting worse through further increases in the subsidized capacity.

This would have the additional benefit of addressing whole system costs that are escalating because of the increasing imbalance between patterns of demand and inflexible or intermittent production. Environmental levies and whole system costs are the main factors driving UK electricity prices above the market rate.

Will they propose (a) taxes on the profits of over-subsidized nuclear and renewable generation to recoup some of the excess taxpayer funds paid to these companies (addressing the profiteering without penalizing their competitors or breaking the grandfathering principle), and (b) the replacement of the mess of expensive and ineffective mechanisms for the promotion of low-carbon energy with something more economically-rational and less skewed in favour of the massive technologies that only big companies can benefit from?

The answers will probably be "no" to (a), and a pretense of reform on (b) that ends up being equally perverse, just in different ways.

The holy grail of solar heating

Wed, 19 Apr 2017 00:00:00 GMT

Emily Gosden, The Times' hyperactive new Energy Editor, published an article on Monday about the growing use of batteries to provide system services to the electricity network ("Power shift brings energy market closer to holy grail").

The article was on solid ground describing the stabilizing services for which a system near Leighton Buzzard was commissioned. But it went on to imply that progress on battery costs would lead to this kind of system smoothing out the larger variations in intermittent renewable output:

"To keep the lights on, the system needs flexible power sources that can respond quickly to short-term fluctuations to keep the grid frequency at safe levels, such as the service provided by the UKPN battery. Flexibility is also required to ensure that the grid is not swamped with too much power on a sunny summer afternoon or left short on a dark, still winter evening.

Batteries that can help to overcome renewables’ intermittency by storing power for when it is needed have long been the holy grail of the energy system. Now, thanks to rapid technological advances and cost reductions led by the electric vehicle market, they appear to be within reach."

There is no basis in reality, nor in anything that Emily reported being said to her, to infer that batteries are likely to become a way to deal with seasonal intermittency because they are becoming useful to deal with imbalances over a period of a few hours.

We sent the following brief letter to The Times to try to highlight the non sequitur:

"Sir, Batteries can indeed provide important short-period services to the grid to address problems exacerbated by intermittent renewables. But technologies like solar and wind present longer-period challenges as well.

Our demand for electricity is highest in winter. That pattern will be multiplied if the government continues with its strategy to electrify heat. Yet the output from solar in winter is less than 20% of its output in summer. The output from wind can be depressed for several days or even weeks at a time, and the coldest periods often coincide with low wind output.

Batteries cannot economically "help to overcome" these longer-period intermittency issues. The "holy grail of the energy system" still has to be found."

To understand why electricity storage is unlikely to address the seasonal imbalances between many of our key energy requirements and the production of many low-carbon electricity technologies, see my article on Biomass Heat: The Seasonal Solar Storage Technology.

The figures referenced in the letter to The Times were drawn from the same data that was used for the analysis in that article. The following were the monthly outputs of grid-connected solar generation in summer and winter 2016:

Jan 2016: 194 GWh
May 2016: 1,286 GWh
Jun 2016: 1,115 GWh
Jul 2016: 1,234 GWh
Aug 2016: 1,202 GWh
Dec 2016: 228 GWh

The maximum combined hourly output from onshore and offshore wind in 2016 was 10,042 MW. Between 6 and 25 March 2016, wind averaged 2,361 MW. Between 23 November and 6 December, it averaged 2,556 MW. In other words, for periods of multiple weeks, the output from all our wind turbines was barely one-quarter of its potential.

The point about the coincidence of cold periods and low wind output is best illustrated by one of the charts in my "Seasonal Solar Storage" article.

And to illustrate the disparity in scale between the UKPN scheme on which Emily's article was based, and the kind of storage that might be required to address seasonal imbalances, here is an illustration (also from my article on Seasonal Solar Storage) of the surplus or deficit of output from wind, solar and nuclear if we installed 30 GWh of storage (3,000 times more than the UKPN installation) in order to smooth out the imbalances created by decarbonizing one-third of our heat demand by electrifying it and supplying it with output from these low-carbon technologies.

As you can see, even 30 GWh of storage would not be sufficient to avoid the need for 100% dispatchable (i.e. fossil-fired) backup for the low-carbon generating capacity in winter. To supply just one-third of our heat in this way, nearly 30 GW of additional standby generation would be required (roughly as much again as our existing fossil-fired capacity) for the periods in winter when anti-cyclonic conditions and low insolation result in sustained low output of wind and solar. And in summer, most of the output would massively exceed demand, and 30 GWh of storage would be a thimble in which to try to hold this ocean of unwanted electricity.

Of all the absurd things that people propose in order to reduce our carbon emissions, the silliest may be to use solar electricity (which is produced mostly in summer) to supply our heating requirements (which fall mostly in winter). Storage cannot solve this because storage relies on frequent charge/discharge cycles to get sufficient utilisation to cover the capital cost. Seasonal storage would barely get one cycle each year. It is an economic non-starter.

If you are "free of subsidy", why compete in an auction for subsidies?

Fri, 14 Apr 2017 00:00:00 GMT

Great excitement amongst proponents of intermittent electricity today.

Dong Energy announced that they had won "the right to build three offshore wind projects in the German North Sea."

"The three projects are planned to be commissioned in 2024, subject to Final Investment Decision by DONG Energy in 2021."

They went on to proclaim that "For two of the projects – OWP West and Borkum Riffgrund West 2 – DONG Energy made bids at zero EUR per MWh, i.e. these projects will not receive a subsidy on top of the wholesale electricity price." This became the feature that was highlighted on social media.

But if you genuinely don't need subsidy, why compete in an auction for subsidies? Why not simply sell into the market?

This contract actually includes at least two significant subsidies, one of which Dong were explicit about in their announcement (though not on social media).

1. Connection cost

This is the one Dong were explicit about. Their Executive Vice President of Wind Power noted that "the bid reflects the fact that grid connection is not included." As Tim Worstall noted, "taxpayers coughing up for the grid connection would be a subsidy".

2. Wholesale price

Under the EEG, "Plant operators will market their production directly and will receive a market premium to make up the difference between the their bid price and the average monthly spot market price for electricity." In other words, Dong are guaranteed to receive the average monthly price, regardless of whether their output would have received the average price in the market.

The effect of rising quantities of intermittent generation like wind and solar, whose output is poorly correlated with demand but highly correlated with other generators of the same technology, is to create an excess of supply when the wind is blowing or the sun is shining, and an insufficiency of supply when they aren't. That means that prices are depressed when wind power is being generated, and much higher when it isn't.

If a wind-power project receives the monthly average price, it is receiving a much higher price than it would receive if it contracted freely in the market. This is only going to get worse as more intermittent capacity is added to the network.

These projects are only expected to come online in 2024, and the investment decision will not be taken until 2021. It hinges on an expectation that average wholesale prices will increase. What Dong aren't saying is that that expectation is based on the toxic effect on system balancing of installations like theirs. They have signed up to a "subsidy-free" subsidised contract because they know that it protects them from, and indeed leverages, the harmful impact that they have on Germany's electricity supplies.

Phantom Figures

Wed, 12 Apr 2017 00:00:00 GMT

The European Commission published its biennial Renewable Energy Progress Report on 1 February 2017. This report relies on figures submitted in each member state's national progress report.

For previous versions, the national reports have been published alongside the EC progress report. But the 2017 report was published alone.

It could not have been prepared without receiving and verifying all of the national reports. So why have the national reports been withheld this time?

We contacted the EU on 18 March to ask why the reports were missing, via their EU Direct service, the only route they offer for written enquiries:

Why have the national Progress Reports for 2017 under the Renewable Energy Directive not been published alongside the Commission Progress Report, as they were in 2015, 2013 and 2011? They must have been received and vetted before the EU Progress Report could have been compiled. They could be published in their original languages (as they were in 2015) even if they are in the process of translation.

We received an automated reply immediately from a noreply address:

Thank you for your e-mail. We expect to respond in three working days on average. For more complex or specific queries, responses may take longer.

After around a week of no response, we rang the EU Direct contact line, as no option is offered to follow up on enquiries in writing. They advised that the enquiry was considered to be complex and had been forwarded to the relevant department (presumably DG ENER).

Yesterday (11 Apr), we received the following communication from EU Direct:

Thank you for your message. Your enquiry is being dealt with in consultation with another EU department. Therefore, it may take longer to receive a reply. We thank you for your patience.

You would think someone at DG ENER would know why the national reports haven't been published. If there is an innocent answer, would they be unable for 4 weeks to provide it, and would the reports still be missing 10 weeks after the EC report was published?

My guess is that they will eventually claim that the national reports were withheld until all translations were complete. But if so, why would they not have provided this explanation promptly? And is it really persuasive that they couldn't publish the reports in their original language, even if the translations weren't available? Shouldn't we be able to check the figures on which the EC report is based, and do our own analysis? A lot of important information is obscured by the aggregated or indexed figures in the EC report.

In all likelihood, the real reason is that there are some questionable figures or plans in some of the reports. But if so, why would they not have resolved those issues before publishing the EC Report?

The UK's report may be part of the problem. We know that the renewable heat figures are inflated by claims of very large and increasing contributions from unmeasured and unsupported biomass heat installations (open fires and stoves). These figures are based on assumptions that are very hard to justify. If more reasonable assumptions were applied, the contribution from this sector would be static or falling, rather than large and increasing, and the UK government would consequently be well off-target. It is a sad reflection on the state of British government and the Office of National Statistics that they have taken to Argentine methods of statistical manipulation.

With any luck, the Commission is investigating cases like this, and can't tell us until a conclusion has been reached. There is a danger of a political resolution that agrees to pretend there is no problem, in exchange for concessions in the Brexit negotiations. It may suit both sides to pretend that the UK is doing better than it really is, although it remains to be seen whether Eurostat can be pressurised to comply. If the national reports are eventually published without a credible explanation for why they were withheld for so long, we can infer that that is what occurred.

When you have a fat friend, there are no see-saws, only catapults*

Wed, 05 Apr 2017 00:00:00 GMT

The Offshore Renewable Energy Catapult (OREC) is "the UK’s flagship technology innovation and research centre for advancing wind, wave and tidal energy". It is one of several "Catapult centres" established by Innovate UK, "an executive non-departmental public body, sponsored by the Department for Business, Energy & Industrial Strategy".

Gone are the days when bureaucrats would give their creations dull, bureaucratic names to obfuscate their purpose and avoid attracting attention. Now, the excitement of throwing taxpayers' money at policy-makers' favourites is represented by names like "Catapult centres" and "Innovate UK". Winner-picking shouts its purpose proudly in the brave new world of Mayist industrial policy.

Sock puppets

Sock puppets are organisations that receive government funding and use the funds to lobby government to promote policies that the government has implemented or wants to implement. This activity was supposedly prohibited by the last government, but the British Establishment was never going to allow itself to be stymied so easily.

OREC's latest report is a good example of sock puppetry.⌘

Offshore wind will be worth it one day, guv, honest...

OREC's report noted that the level of subsidy is not justified by the benefit to the British economy, but argued that cost-reductions would change this equation in future. We looked at a number of the assumptions underlying that claim, and what truly constitutes a benefit in economic terms, and concluded that OREC were thinking as wishfully as one would expect from an organisation in their position.

⌘ Image by Durova (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Common

* Demetri Martin joke

Eurostat renewable energy map

Thu, 30 Mar 2017 00:00:00 GMT

As the UK prepares to leave the EU, it is worth noting one of the few things that the EU does well. Its statistical arm - Eurostat - is an invaluable source of comparative data. For example, see their interactive map of renewable energy.

This image is just a screengrab. Follow the link to go to Eurostat's site where you can play with the interactive version (e.g. see how the shares have changed over time, and view renewable electricity shares instead of renewable energy shares).

Similar maps on many different energy data sets can be found at https://ec.europa.eu/energy/en/content/energy-modelling-interactive-graphs

As usual, this demonstrates the UK's incompetence on energy policy - huge costs to be one of the worst performers.

Two caveats:

1. This shows how much renewable energy each country has delivered, but not what it cost them. I am not aware that much work has been done on the relative economic efficiency of different countries' approaches to decarbonisation. It is something that we intend to focus on a lot.

2. Eurostat will not cease to be relevant to the UK, just because we are leaving the EU. Eurostat records statistics for many non-EU countries. Switzerland is the only significant European economy that is notable by its frequent absence from the figures (I don't know why). The UK could no doubt choose to continue to offer the statistics that Eurostat collects, and should do. This is analogous to many of the better aspects of the EU - we don't have to be a fully paid-up member of the club to choose to join in on the worthwhile bits.

The ever-increasing cost of environmental levies

Fri, 17 Mar 2017 00:00:00 GMT

£13.6bn p.a. is a lot of money to deliver one of the lowest levels of renewable energy in Europe.

When you are climbing a mountain, what looks like a summit often turns out to be just a brow ahead of yet another incline. The peak is higher and harder to reach than it seems from each vantage point.

So it is with the British government's plans to meet its environmental commitments primarily through the 20% of our final energy consumption that is delivered in the form of electricity.

To mix metaphors, the British public has been like the frog in the slowly-boiling pan of water. Through continuous under-estimates and unheralded increases, environmental levies have reached an anticipated £12.6bn in 2020/21 without provoking a strong public reaction.

And that is just the direct subsidy costs. This does not allow for indirect costs such as the network reinforcement required to incorporate remote, intermittent generation.

Two different things have combined to reach these lofty peaks of taxpayer largesse:

The costs rise every year as we add more renewable generation to the network.
The anticipated costs in any particular year rise with successive forecasts, as volumes and costs exceed the previously-budgeted quantities.

The animated chart above aims to illustrate both of these factors. (1) is represented by the way that each bar is higher than the one to the left (the previous year). (2) is represented by the growth of each bar over successive OBR forecasts.

The data are taken from the Supplementary Fiscal Tables from each of the Economic & Fiscal Outlooks published by the Office for Budget Responsibility (the most recent of which was published on 8 March 2017).

The OBR do not include the government's efforts towards decarbonising the 40% of our final energy consumption that is used for transport. The Cost Benefit Analysis for the recent consultation to modify the key instrument for this sector, the Renewable Transport Fuel Obligation, estimated the cost of the preferred option at £366m in 2020.

The OBR have recently started including the cost of the Renewable Heat Incentive, the key instrument in the heat sector, which also accounts for around 40% of our final energy consumption. It appears at the top of the later-year bars for the most recent forecasts. They are projecting £1.1bn in 2020/21.

This should give an idea of the extent to which the UK's effort is skewed disproportionately to expensive renewable-electricity technologies.

Out of puff - how pumping up renewable electricity lets the air out of renewable energy

Wed, 15 Mar 2017 00:00:00 GMT

The EU recently published its annual update on renewable energy. As usual, the UK is near the bottom of the league table, despite the massive public expenditure on renewable electricity. France and the Netherlands were singled out as particularly bad performers. But, given all the propaganda about how successful they are, you might be surprised to see Germany also languishing in the bottom half of the league.

What binds many of the countries that have been striving without much success to increase their share of renewable energy is that they have focused on renewable electricity. As electricity typically constitutes only around 20% of final energy consumption, it is remarkably difficult to have much impact if one focuses one's efforts on this sector.

We wanted to see if there was a statistical connection between the emphasis placed on the three sectors (heat, transport and electricity) and the overall performance. So we worked out the proportion of the overall increase in renewable electricity that was attributable to each of these sectors, and compared those proportions with the overall increase in renewables across all sectors.

Theoretically, if it were as easy to deliver renewables in one sector as another, and the choices came down mainly to the different national circumstances, then there should be no correlation between the shares in the overall growth, and the scale of that growth. This is how the relationship looks for transport:

There is a material negative correlation. In other words, the more emphasis that national governments placed on transport within their overall renewables policies, the less successful they were at increasing the total contribution from renewable energy.

For electricity, the picture is similar:

The more that national governments relied on renewable electricity to meet the overall commitments, the less successful were they in meeting those commitments.

Only for Heating & Cooling is the relationship positive:

Countries that placed the most emphasis on renewable heat within their portfolio made the best progress in their overall delivery of renewable energy.

Many of the countries that are seen as leading promoters of renewable energy, such as Germany, the UK and Spain, have actually favoured winner-picking in the renewable-electricity sector. Consequently, they have achieved less bang for their buck than countries that have placed more emphasis on decarbonising the heat sector.

There is a difference between effort and cost on one side, and delivery on the other. Policy-makers and journalists tend to focus on the amount of money that is spent, as though being ineffective is somehow virtuous. What really matters is delivering as much renewable energy and carbon reductions for as little money as possible. The spendthrift nations like Germany, the UK and Spain have been all huff and very little puff.