Great minds think alike

by Russ Roberts on March 21, 2007

in Environment

Here is Al Gore testifying before Congress on the virtues of small-scale energy production:

Gore advised lawmakers to cut
carbon dioxide and other warming gases 90 percent by 2050 to avoid a
crisis. Doing that, he said, will require a ban on any new coal-burning
power plants—a major source of industrial carbon dioxide—that lack
state-of-the-art controls to capture the gases.

He said he
foresees a revolution in small-scale electricity producers for
replacing coal, likening the development to what the Internet has done
for the exchange of information.

Here is Mao on the virtues of small-scale steel production:

In the August 1958 Politburo meetings, it was decided that steel
production would be set to double within the year, most of the increase
coming through backyard steel furnaces. Mao was shown an example of a
backyard furnace in Hefei, Anhui
in September 1958 by provincial first secretary Zeng Xisheng. The unit
was claimed to be manufacturing high quality steel (though in fact the
finished steel had probably been manufactured elsewhere). Mao
encouraged the establishment of small backyard steel furnaces in every
commune and in each urban neighbourhood.

If Al Gore thinks energy can be produced the way information is produced, he either doesn’t understand energy or he doesn’t understand information. Here is the Wikipedia summary of the decentralized experiment of Mao:

Huge efforts on the part of peasants and other workers were made to
produce steel out of scrap metal. To fuel the furnaces the local
environment was denuded of trees and wood taken from the doors and
furniture of peasants’ houses. Pots, pans, and other metal artifacts
were requisitioned to supply the "scrap" for the furnaces so that the
wildly optimistic production targets could be met. Many of the male
agricultural workers were diverted from the harvest to help the iron
production as were the workers at many factories, schools and even
hospitals. As could have been predicted by anyone with any experience
of steel production or basic knowledge of metallurgy, the output consisted of low quality lumps of pig iron which was of negligible economic worth.

Castro had similar failed experiments that impoverished his people.

Giving up the economies of scale we currently use for energy production is going to be very expensive.

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  • Cute!


    It sounds, though, like Gore is bugging up his anti-nuclear stance. Here's David Friedman talking about this issue:


    http://daviddfriedman.blogspot.com/2007/03/nuclear-power-and-global-warming.html


    As David writes, nuclear plants leap to mind if you want to fight CO2 emission, so Gore has to come up with some excuse not to subsidize nuclear. It seems he is pushing the idea that big plants are bad, and nuclear plants are big, and so we should do something else.


    Just my impression. I don't know whether it's true, but it's what it looks like.

  • Bill

    Spencer, a car that can go 200-250 miles on 10 minutes of charging from a regular 110-volt line is not possible. Even if the car only produced 1 horsepower, which would be extremely inadequate, the charging operation would be drawing several hundred amps.

  • Aschkan

    Golddog, you appear to forget our third option, which is to have distorted incentives and polluted air (with regulations). Perfectly implemented (and politically feasible) pigouvian taxes are of the same rare breed as perfectly executed regulation. Moreover, given the inherent and historical uncertainty in climatological forecasts (and the economic consequences predicted by said forecasts), there are few instances where the law of unintended consequences could be any stronger.

  • golddog

    "The govt creating incentives is not the same thing as a market solution. A real, free market solution; that is, the kind that works, is made possible by the govt not interfering in the entrepreneurial efforts of the citizenry."


    The problem is that in this case the "free market" solution is inefficient. No one is taking into account the costs of pollution. The incentives are already distorted.


    Ideally, only a perfectly implemented pigovian tax would eliminate the distortions. Since the political feasibility of this occurring is low, the next best solution is regulation.


    I will be the first to agree that regulation distorts incentives and leads to an inefficient equilibrium, but keep in mind that if we do nothing, we already have an inefficient equilibrium. We have two options: have distorted incentives and polluted air (without regulations), or have distorted incentives and clean air (with regulations). I would prefer the latter over the former.

  • Paul Zrimsek

    My objection dealt not with the ability of the batteries to absorb the requisite amount of power but with the ability of ordinary house wiring to deliver it.

  • Paul Zrimsek - pick up the latest issue of Popular Science (has an image of a new jump-jet on the cover) as the car company is discussed in that issue. Basically they are using newer lithium-ion batteries to speed up the charging process. And if I remember correctly, the cost of the car was something like $60,000 - although you may want to double check that figure

  • Mike

    "Is there evidence of perfect causality as a result of the advent of the E.P.A and the subsquent decline of polutants?"


    Climate modelers point to the fact that the mid-20th Century cooling happened more in the Northern Hemisphere than in the Southern Hemisphere as proof that sulphate aresols (i.e., pollution) was the cause of the cooling.


    But the EPA is just in the USA. The environmental movement more generally is more likely to be the main cause of man-made global warming.

  • Hodak:

    "I think you're referring to the Juan Trippe of the Aviator. The real Juan Trippe, while not above a little rent-seeking, built a great airline in the market environment of his day."


    Never saw the movie.


    I'm thinking of the real Juan Trippe. Not so much a businessman but a ruthless manipulator of people and polticians.


    It's not really my point to distract this post to create a debate as to Juan Trippe's virtues as a person or businessman, but Pan Am was not that great, as evidenced by its death in the 90s.


    I've been in and out of aviation for the past 18 years, and I've become very well educated to many of it's lores, facts, and fictions, and Mr. Trippe was a ruthless builder of subsidized empire. Period. Nothing personal of course, never knew the guy.


    And not having seen the movie, I don't know just how badly they portrayed him so I can't say if it is accurate. But he was not a good businessman in his own right.

  • Paul Zrimsek

    For example, one of the small companies they are supporting has developed a largely aluminum car that has a battery good for 200 to 250 miles that can be recharged in 10 minutes from a 110 power line.


    That would be your standard 3000-amp household circuit, yes?


    I would dearly love to have the opportunity to short that VC fund.

  • Ray,


    I think you're referring to the Juan Trippe of the Aviator. The real Juan Trippe, while not above a little rent-seeking, built a great airline in the market environment of his day.

  • "Gore's proposal would would create incentives for those companies that were able to create alternatives."


    The govt creating incentives is not the same thing as a market solution. A real, free market solution; that is, the kind that works, is made possible by the govt not interfering in the entrepreneurial efforts of the citizenry.


    The only venture capitalists chomping at the bit for this kind of action are essentially just rent seeking. Think Juan Trippe for an example. Not so much a great businessman but just very well connected in Washington, and ruthless enough to make it work.

  • Tense Alcyoneus

    Although I have gone over to the dark side of Socialism, I find persuasive Russ' argument by analogy.

  • From my comments above, this is the most complete version of how plasma-arc technology would work:


    http://www.popsci.com/popsci/printerfriendly/science/873aae7bf86c0110vgnvcm1000004eecbccdrcrd.html

  • While I don't believe Al Gore's global warming pitch farther than I can throw him, there are elements of energy policy and environmental policy that could potentially benefit from a move away from traditional fossil-fuel generated electricity. I'm not writing about nuclear energy, although that more neatly fits into a carbon-neutral system than CO2 sequestering from coal-fired plants. Rather I am talking about the emerging plasma-arc incinerator/generator plants that are being developed and could be situated at large landfills.


    After a brief use of external power to get the plasma arc up to 30,000 degrees, the system is self-sustaining by grinding up landfill debris and feeding the small chucks into a plasma arc chamber where the material is broken down to its constituent elements (yes, CO2 becomes carbon and oxygen). Solid residue becomes a glass-like inert substance that can be buried and takes up only a fraction of the space of the original waste material. The deconstruction of the wastes generates tremendous heat which powers turbines which keeps the plasma arc powered and creates a tremendous excess of electric power which can be used locally.


    Estimates are that this type of system in the future could power a city's electric needs with the city's waste and end up with a much smaller landfill requirement.


    Here is one example:

    http://money.cnn.com/2007/01/24/magazines/busin...>

    http://www.pyrogenesis.com/content_en/technologies/pawds.asp


    http://www.usatoday.com/news/nation/2006-09-09-fla-county-trash_x.htm


    It does meet Al Gore's vision without breaking the bank the way Mr. Gore envisions.

  • David

    I couldn't help but wonder skeptically, as I do of anyone in politics and on a platform, why Al Gore is so dogmatic in driving this point. Then I heard yesterday that investment firms he controls have a huge stake in companies that will benefit from a government-mandated rush to clean energy. It's classic, right: if you can't influence market share and corporate growth in the marketplace, seek to legislate the action. Would someone in the media, or a relevant blogger, more likely, shine some light on what he stands to gain financially from his crusade, i.e., more money to purchase carbon credits for the use of his private jet that burns 1000 gallons per hour?


    I'm excited about free market solutions to improving energy efficiency; Spencer's post is encouraging and not surprising. Make the motivation legislative, though, and filled with onerous regulation, and watch innovation slow and the few influencers like Gore benefit at the detriment of the rest-and at the detriment of innovation itself.


  • Python

    Spencer,


    Please clarify how conservation has anything to do with what the Professor is writing in this post - which is about electricity generation.

  • Python

    There are two you can take what Gore said. If he meant that free market entrepreneurs should go around the big boys to create their own energy, I am fine with that. If he meant that we need to restrict the big boys and rely on small players, I am against that. Based upon other things that he said, I think he meant the latter.


    Both my wife and I work in the Energy business. My wife writes the contracts to organize energy transfer from small players to the monopolized utility. There are several small players in our area that generate up to 50 MW each, using wind, solar, and geothermal. But make no mistake, there are large capital costs involved in these set-ups and the average "home brewed" solution at this stage is nothing more than solar on your roof.


    California will have a new law in 2010 or so which requires developers to give a solar panel option on all new homes.


    I haven't decided how I feel on this one. On the surface, making it an option sounds good, but I'm not sure how developers will decide which solar panels to offer. My point is that we are currently in a stage where solar is not that efficient, and I would not be happy to find that the new California law leads to less efficiency because developers took a short cut, or started using the brother of the owner's company's solar panels.


    I'd be interested in exactly what home brewed solution Al Gore has in mind. For the most part, you need land and a lot of money to get enough energy to pay for itself. Most solar doesn't pay for itself until you include the tax breaks and government refunds. And solar gets less efficient the further north and east you go. Check out this map with particular attention to the small map in the upper right. The big map is meant for big developers where there still exists large chunks of unowned land, whereas the one in the upper right shows general solar capabilities.

  • spencer

    I had lunch yesterday with an old friend that manages a "green" venture capital fund.


    We had a long discussion of the economics of such things as battery technology, wind power

    and solar energy involved in reducing use of carbon based poser.


    For example, one of the small companies they are supporting has developed a largely aluminum car that has a battery good for 200 to 250 miles that can be recharged in 10 minutes from a 110 power line. He says such cars will be on the roads in 2 to 3 years.

    The problem is that the capital cost is high, but because the operating cost is so low -- including replacing the battery -- that the total operating cost is lower then a gasoline car.


    It sure seem strange that a free market advocate like you has so little faith in the free market finding ways to reduce energy consumption that when Gore talks about it

    you have to imply that he is proposing communist solutions.


    If comparing gore to Mao the best economic analysis you can do?





  • spencer

    March -- I see you have mastered the process of winning argument by insult rather then by facts.


    My point was that there has b...........


    why bother your mind is made up and will not be confused by the facts.

  • steep

    I imagine that as soon as Congress decides they need to spend even more of our money on alternative energy, some of these new companies will become profitable, at least for their original stockholders. Lunch may not be free, but it can feel that way when someone else is buying.


    I personally would love to be able to experiment in my backyard with alternate energy technologies. It's only the multiple layers of regulations and associated prison time that dissuades me.

  • At the birth of the "commercial Internet," it was a bunch of small entrepreneurial companies connecting to some extent with existing networks developed by a mixture of public funding and university funding.


    But rapidly the small Internet service providers became huge. I was at a company that went from 2 guys with servers in the basement to a 300 person publicly traded company, and went through about five acquisitions and is now part of Verizon.

  • Golddog,


    I have a position in the Mercatus Center. I wasn't trying to pull a "gotcha" on you. Just wanted anyone reading to know that Mercatus isn't conservative in the way it's usually used.


    There are self-described conservatives with a strong libertarian streak. There are also libertarians with a conservative streak. Personally, I try and keep the two terms distinct for a wide variety of reasons.


    When forced to label myself, I like the term "classical liberal" with the characteristics of being in favor of personal liberty with limited (not zero) government.


    Classical liberals see a role for government, certainly as enforcer of contracts and sometimes more including potentially beneficial environmental regulation. My real reaction to your opening comment up above is that saying that banning leaded gasoline was a good thing and that the catalytic converter reduced pollution is a very mild claim about the virtues of the EPA. I'll try and write more in a formal post.

  • Government intervention in U.S. energy industry has a long history, including government-enforced monopolies for electrical utilities. At the least (and at the most) state and federal government should get out of the way and allow private electricity providers to operate and innovate. Marvin Olasky reports the amazing story of AT&T and Chicago Edison's public relations campaign to convince the American public that utilities were a "natural" monopoly (even bribing economics textbook authors of the time). (Article here: http://www.fee.org/publications/the-freeman/art...>

    We can't know how a electric utilities might have developed and we can't know how they will develop with further deregulation and privatization.

  • march

    Oops, forgot the second paragraph...


    The disparity in capital costs per ton is also the product of unions; unionized steel companies have long had to substitute capital for their inflexible labor to try to remain competitive. So, Nucor's non-union workers not only offer management more flexibility (and lower operating costs), but also less incentive to replace them with capital.


    BTW, on a variable cost basis, each Nucor worker costs as much as 50% more than each unionized worker, after bonuses.

  • march

    Spencer, you should take off your clown suit and visit one of these mini-mills in Indiana or North Carolina. You would see that the per ton capital cost you're citing is not a variable cost, as in they can dump $150 in someone's back yard and get a ton of steel. That cost is spread over millions of tons coming out of a single plant.


    Sorry I had to use numbers. I know it's confusing for you.

  • spencer

    Triticale -- gee the fact that the capital cost of the mini mill technology uses is about $150 to $200 per ton as compared to capital cost of around $1,000 per ton for integrated steel mills doesn't have anything to do with it?

  • Nucor's mini-mills are not backyard cupola furnaces. They are mini in compared to US Steel facilities, where the plant security has radar guns in their patrol cars. They are mini because they remelt and blend scrap - intelligently, in a country with plenty available - rather than working from raw or pelletized iron ore. Much of their economic advantage comes from not having unions who dictate that the repair weld of a motor mount bracket requires a millwright, an electrician and a laborer as well as a welder.

  • golddog

    Professor Roberts:


    In this interview, Professor Tabarrok, Professor in the GMU economics department and scholar at the Mercatus Center, said the following:


    "2: George Mason University has a reputation for a strong libertarian/conservative bias. To what extent is this fair, and to what extent does it matter?


    Sure, the economics department and the law school at GMU have a libertarian/conservative bent (not bias! :) )."


    Since the Mercatus Center is heavily affiliated with the GMU economics department and law school, I felt that this "libertarian/conservative bent" would also be present.


    A browse through the Mercatus Center's Board of Directors shows that many of them were former Reagan administration employees:


    Edwin Meese III

    Attorney General during the Reagan administration


    Frank Atkinson


    Deputy Chief of Staff to the U.S. Attorney General during the Reagan administration


    Manuel Johnson


    Assistant Secretary of the Treasury in the


    Reagan administration


    Also on the board is Professor Tyler Cowen, who -- on his wonderful and always interesting blog, Marginal Revolution -- has made it clear that he too leans towards a conservative/libertarian ideology.


    These are my reasons for believing that the Mercatus Center has a conservative tilt.


    If I am in error on any of this information, or have unfairly taken it out of context, my apologies, and a correction would be welcome.

  • spencer

    While you are using foreign steel production as the example you might note that over the last quarter century the US domestic steel industry has essentially been taken over by mini mill small scale steel producers like Nucor while the old large scale steel producers have gone the way of the dinosaur.


    So Gore's example of small scale production has actually been achieved by the capitalist free market system in the very industry you are using as an example.


    There are actually many valid economic reasons that small scale energy production may be the way we go as we shift away form imported oil.


    Do you have any analysis to back up your disagreement with Gore's comments.

  • Aschkan

    http://www.nysun.com/article/29141?page_no=2


    "A professor of entrepreneurial management at Harvard Business School, William Sahlman, predicted that the surge of interest in private equity and hedge funds would mark the beginning of their decline. He said the proportion of students going into investment banking peaked in 1987 just before the stock market crash that crippled the industry. The proportion going into real estate in the early 1970s peaked just before the crash, and more students than ever started their own Internet companies in 1999, not long before the dot-com bubble burst."


    The interest of rank and file MBAs in a particular industry is usually a leading indicator that it's on the decline, not the other way around. I can't imagine why green or clean would be any different.

  • JohnDewey

    Russ Roberts: "I encourage our readers to find some charts on pre-1970 pollution. I think it would be very instructive."


    Russ, do you think such charts exist? From what I've read, there was no large-scale monitoring of air pollutants in the U.S. prior to the establishment of the EPA. Monitoring was limited to very small geographic areas.


    I believe in free market solutions, but I don't think I buy the argument that government never helps. Just the fact that we now have 36 years of pollution data must count for something. If private enterprise could solve every problem and meet every need, why do we not have pollution data before 1970? It was certainly a hot topic before then.


    I grew up in the petrochemical town of Lake Charles, LA. I worked for a while in two of its plants, alongside engineers and plant managers. I do not believe the children of south Louisiana would have been protected as much as they have without the hammer of some form of government regulation.

  • Ann

    I thought that the comparison to Mao was extremely appropriate. For those backyard furnaces, they melted down not just pots, pans, doorhandles and bedframes but plows! This wasn't the main cause of the Great Leap famine that killed between 10 million and 30 million people, but it certainly contributed. Massive numbers of people died because Mao chose to dictate exactly how people should live.


    Gore doesn't want to allow the market to find the most efficient solutions. He wants to cripple the economy and close off most approaches, forcing any and all 'innovation' to go in one and only one direction. By an amazing coincidence, the solutions he wants to mandate happen to fit with how he thinks everyone should be forced to live.

  • I think Gore is a 21st century PT Barnum, with a little more ignoramus baked in.

  • I don't know if someone already gave this link up but the kicker, and RR's point are summed up near the end of the video:


    http://video.google.com/videoplay?docid=-4520665474899458831


    The idea or concept of carbon credits and a market for them is sheer stupidity - yet another way for the banking industry to monetize nothing into something. It would be more beneficial for a business to take that money and do more productive things such as expand, return the money to shareholders, invest in more research and development rather than hold on to worthless paper that are designed to shield it from government intervention. I'm sorry, that is, for lack of a better word, extortion.


    But RR did make a great point in that when government forces action in the private sector, you often end up with pig iron as the end result.... and pig iron commodity traders, and pig iron protectionist groups, and pig iron propagandists...

  • Richard Pointer

    Don't you think that many more of the best and brightest are pelting the doors of huge Oil companies with their resumes? Looking at the current economic well-being of those firms, I think the b-school grads who are looking for work at fresh, "haven't earned a dime" start-ups are the ones that didn't do too well on their GMAT's.

  • Paul Zrimsek

    Doing that, he said, will require a ban on any new coal-burning power plants


    Why couldn't they go ahead and build the plants but purchase offsets? If it's good enough for Gore himself, it ought to be good enough for the power companies.

  • Python

    "There is a sense of hope in this country that this United States Congress will rise to the occasion and present meaningful solutions to this crisis," says Gore.


    After the laughter subsided, I was able to type the following:


    Can anyone give an example of anything when the Congress rose to the occasion and presented meaningful solutions to a crisis?


    Are there still people that believe the Congress is a "solutions provider" given its track record of botching subjects of importance from education to social security to medicare?


    Gore keeps to the script calling it a crisis. I think he actually believes his exaggerations. How many people have died from global warming so far? The visionary that he is knows that a crisis must be coming, so he labels it that now. I guess he feels like a Cubs fan on Opening Day.

  • "...likening the development to what the Internet has done for the exchange of information."


    I wasn't as involved in the creation of the internet as Gore was, but this seems to be a poor comparison. Doesn't most of US internet traffic travel through a few very large networks? Also, I don't know many people with server farms in their basements.


    I could have mistaken this quote for a South Park episode:


    "If your baby has a fever, you go to the doctor. If the doctor says you need to intervene here, you don't say, 'Well, I read a science fiction novel that told me it's not a problem.' If the crib's on fire, you don't speculate that the baby is flame retardant. You take action."

  • Golddog,


    The Mercatus Center is not conservative. It is market-oriented. Alas, they are not the same thing. The claim you cite is very modest.


    I encourage our readers to find some charts on pre-1970 pollution. I think it would be very instructive.


  • Ryan Fuller

    "And, of course, there are entrepreneurs from all backgrounds -- but especially former dot-commers -- who express a sense of wonder and purpose at the thought of transforming the $1 trillion domestic energy market while saving the planet."


    Oh, well if the dot-com entrepreneurs think it's a good idea, it can't POSSIBLY fail.

  • golddog

    I found this paper from the Mercatus Center's -- which is known for its conservative tilt -- Government Accountability Project.


    The first paragraph from the conclusion reads as follows:


    "In some cases federal regulations appear to have a limited effect on air

    pollution. The introduction of the catalytic converter is associated with a


    decrease in carbon monoxide levels. The phase-out of leaded gasoline


    beginning in 1979 and EPA enforcement actions have a positive effect on


    eliminating lead from the air.
    However, subsequent regulations in the 1980s

    and 1990s have no discernable effect on carbon monoxide or lead levels.


    This may be due to the fact that earlier regulations led to the most dramatic


    reductions with subsequent regulations proving redundant. Alternatively, if


    pollution began its decline before federalization, due to shifts in


    manufacturing and improvements in technology later regulations are not


    likely to have much effect. Unfortunately, without a longer data series, it is


    difficult to know this for certain.
    [emphasis added]"


    It does not prove "perfect causality," but it seems reasonable to say that the EPA did have some effect.

  • Forbes

    What is the conclusion that can be drawn from the fact that "The best and the brightest from leading business schools are pelting energy start-ups with résumés"?


    Start-ups don't want fresh out of B-school grads--who by definition have little, if any relevant technical or work experience.


    This observation is no different from the late-90s tech bubble, where the B-school grads flocked to internet start-ups, with resoundingly dismal results.


    That Al Gore compares the internet (or information technology) to energy is to demonstrate the vast emptiness of his knowledge about energy. Sad really, that people listen to this charlatan.

  • Adam

    The relevant question is what was the graph like before the EPA. Were they going upwards unti l970? Were they already going down?


    Plus the standard questions about establishing causation and whether this is all the relevant data or was cherry picked from all to give a particular answer (not suggesting this is the case, I'm just throwing it out there as a possibility).

  • John Pertz

    Is there evidence of perfect causality as a result of the advent of the E.P.A and the subsquent decline of polutants?

  • golddog

    I do not think the situations are analogous either. At the time, China did not have a market economy and there were no incentives to innovate.


    In contradistinction, Gore's proposal would would create incentives for those companies that were able to create alternatives. Here is an article [free subscription required] that illustrates why venture capitalists are excited about alternative energy sources. What follows is a quote from the article:


    "The best and the brightest from leading business schools are pelting energy start-ups with résumés. And, of course, there are entrepreneurs from all backgrounds -- but especially former dot-commers -- who express a sense of wonder and purpose at the thought of transforming the $1 trillion domestic energy market while saving the planet.


    The energy boomlet is part of a broader rebound that is benefiting all kinds of start-ups, including plenty that are focused on the Web. But for many in Silicon Valley, high tech has given way to 'clean tech,' the shorthand term for innovations that are energy-efficient and environmentally friendly. Less fashionable is 'green,' a word that suggests a greater interest in the environment than in profit."


    I might add that in 1970, Republican President Nixon created the Environmental Protection Agency. Here is a chart showing the steady decline of pollutants in our atmosphere since that date:






    <img src="http://usinfo.state.gov/journals/itgic/0605/ijge/image1.jpg"></img>










    I am uncertain if the chart will appear, but if not you can view it here. Since 1970, although the level of pollutants has declined substantially, our economy did not implode.



  • Mike

    I can only dream of being able to concoct incisive analogies like you, Mr. Roberts...

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