Energy posts from the Daily Score blog - Sightline Daily

Oil Futures

Eric de Place — Wed, 14 May 2008 16:25:29

Predicting the future is hard. It's so difficult that even teams of analysts using fancy models get results like this:

This isn't back-of-the-envelope stuff. This is the US Energy Information Administration's official prediction for oil prices, circa 2007. According to the "high price" scenario, oil may reach $100 per barrel some time around 2030. But wait: oil was at $127 yesterday. So, not only was the EIA projection wrong -- it was wildly and completely wrong.

Okay, everyone makes mistakes, even energy analysts. In 2008, the EIA cleaned up its act and produced this forecast:

As you can see, in the "high price" scenario, oil will almost reach $120 per barrel around 2030. At the risk of repeating myself, oil was at $127 yesterday! So, the EIA projection is still wildly and completely wrong.

Ordinarily, this would be jolly good fun. But it's not so funny when these kind of projections are used to make decisions with big consequences. These two charts, in fact, come from the Western Climate Initiative's economic analysis, which is being conducted by consultants. (The forecasts shown in the charts are the data inputs for a model that is supposed to inform policymakers and thereby guide the design of the cap and trade program.) But the data inputs are laughably wrong.

Of course the consultants are well aware of the problem. And they're already trying to develop new forecasts to use in their modeling exercise. Plus, in their defense, the reason they planned to use EIA data was that it's probably the best available and it's considered highly credible.

In any event, the WCI consultants will probably use new and improved EIA data to update their models. That would be fine, maybe, but the EIA seems to have a hilariously persistent tic. Check out this chart via Kevin Drum:

The black line is actual prices and the colored lines are monthly forecast revisions. The black line (the price) keeps going up, and every month the EIA forecasts a decline, starting immediately. It's as if the forecasts are impervious to reality.

On the other hand, who knows? The EIA could eventually turn out to be right and the current high prices may evaporate. But even if that happens, it's a bit worrisome that our climate policy might be based on forecasts that are so wildly and consistently inaccurate. And this stuff matters. A lot.

All else being equal, forecasts of lower oil prices will tend to raise the predicted costs of climate policy. In part, this is because cheap oil means lots of consumption and intractable behavior. But if oil prices are high in the future, as they are now, then a cap and trade program might add only small costs -- or even result in savings. So the EIA's perpetual sunshine-optimism about future oil prices might create a big distortion of the cost of sensible carbon reductions.

All this to say that it's tough for even the best minds to predict the future. Not that we shouldn't do our best to calculate costs and minimize impacts -- we definitely should! But our projections for the future should be leavened with a heaping spoonful of skepticism.

Truckers Hit the Brakes

Eric de Place — Tue, 13 May 2008 11:16:50

No kidding, the American Trucking Association wants trucks to go slower:

The plan calls for governors on new trucks to limit speeds to no more than 68 mph, a call to reduce the national speed limit to 65 mph for all vehicles...

The proposal isn't just altruism. It's another instance in which self-interest and the public interest are aligned. Soaring diesel prices make it economical to reduce speed, thereby saving fuel and carbon emissions.

We've heard anecdotes about this, and we even seen some empirical research. Now we're seeing intentional policy. There's other good stuff in the plan too:

Also on the list is reducing engine idling, improving highways, using more productive truck combinations, and setting fuel economy standards for trucks.

Apparently, a number of trucking companies are already taking the initiative to get creative about reducing fuel use. They're crunching the numbers to find savings -- and then they're reducing load weights, switching to effiicient tires, upgrading lubricants, and installing aerodynamic panels.

Chalk this up as more evidence that the transportation sector really does respond to price signals. Just as in other energy sectors, smart policies can wring all kinds of efficiencies out of the transportation system.

[Hat tip to Ross McFarlane; photo by Geognerd, distributed under a Creative Commons license.]

High Gas Prices, Healthy New Habits

Anna Fahey (and Clark Williams-Derry) — Fri, 09 May 2008 18:55:19

Teaching old dogs new tricks? It took soaring fuel prices for old habits to shift. But they're shifting alright. Just take a look at these poll results - Gallup finds that big numbers of Americans are making changes in their daily lives to deal with higher gas prices. Here's a snapshot:

Most telling, perhaps, is that 7 out of 10 poll respondents are considering a more fuel-efficient car. That's a change that'll help control energy costs for years to come, no matter what happens to the price of gasoline. (And given recent history, hoping for a return to cheap oil is a risk that fewer and fewer families are willing to take.)

Even though we can't control the price of gas, we can control our consumption - we can drive less, take transit, consolidate trips, drive slower, put air in the tires, carpool, walk...choices that are good for our pocketbooks, the climate, and our health. So, it's no surprise that Americans are already choosing smarter travel habits. Over the long haul, it's just common sense.

Rising energy costs--and our demonstrated ability to adjust our consumption in response--gives us all the more reason to support a cap on climate-warming pollution. A cap will allow us to take charge of our energy future, invest in alternatives that are more stable, and keep more of the money going to foreign oil in our local economies - with the added bonus of taking action to turn around our impacts on the climate.

Conventional Wisdom Watch, Gasoline Edition

Clark Williams-Derry — Fri, 02 May 2008 13:22:34

The nifty image to the right, taken from today's issue of The New York Times, says a lot: gas prices, coupled with recession jitters, have ushered in a sea change in the vehicle market. Fuel efficient cars are flying off the lot, while cars and trucks with big tanks are, well, tanking.

Hybrids aren't the only winner in this auto race. High-mileage compacts -- the Honda Fit, Toyota Yaris, and Ford Focus among them -- are experiencing a substantial sales boost too.

But to me, the most fascinating part of this article is this: recent trends have completely upended the "conventional wisdom" about how consumers respond to high gas prices.

You see, It used to be pretty common to read press stories that implied that drivers had no ability, or perhaps no willingness, to adjust their transportation habits in the face of higher prices. As gas prices rose, the stories went, consumers were doing almost nothing in response, other than tightening their belts in other areas.

In the Northwest at least, this has been false for a while. Gas consumption, measured per capita, has been going down for the better part of a decade. Still, the idea that gas prices were having no effect on driving seemed to be pretty much ubiquitous.

But now, look at what the Times says:

How the downsizing of America’s vehicle fleet will affect fuel consumption is still largely unknown. When gas prices rise, as they are now, many drivers simply drive less to save money. [Emphasis added.]

That's right -- the article takes the link between rising prices and driving for granted. They don't even bother to source it -- meaning that by the Times' standards, it's basically self-evident.

I think it's another sign that we've reached something of a tipping point: people are starting to understand that many families do, in fact, have some flexibility in how much they drive, and how much gas they use. And as gas prices near $4 per gallon, people are figuring out ways of cutting back.

Of course, "price elasticity " (as this effect is called) has been the conventional wisdom among economists since the days of Adam Smith. So it's nice to see the idea finally getting a little ink for a change.

Grandfathering and Windfalls

Clark Williams-Derry — Thu, 01 May 2008 15:36:24

This new NRDC report (co-released with some major electric utilites) is kinda cool: it looks at the potential financial windfalls to the nation's top 100 electric power companies under competing "cap-and-trade" bills currently being considered by the US Congress. A key difference among the proposals is how many emissions permits the government gives out for free, and how many are sold at a public auction.

The report puts a spotlight on two federal bills in particular: the Lieberman-Warner "Climate Security Act" (pdf summary here), represented at the top of the chart to the right; and the Bingaman-Specter "Low Carbon Economy Act," represented in the bottom of the chart.

In the images to the right, the blue wedges represent the carbon permits that are given out for free -- and obviously, the blue wedges on the top graph, representing Lieberman-Warner's approach, are smaller than on the bottom graph, representing Bingaman-Specter's.

As NRDC points out, even with a relatively low carbon price of just $10 per ton, grandfathering means big money to the biggest utilities:

"The ten largest investor owned utilities would receive an annual allocation valued at $6.2 billion, assuming a CO2 allowance price of $10 per ton [under Bingaman-Specter]. To provide a sense of the magnitude of this value, this is equivalent to 16 percent of the companies’ total earnings in 2006.

Wow. That's a huge earnings boost, and those utilities' shareholders will be sure to see some major gains in stock prices. Of course, that "value" doesn't just appear out of nowhere. It comes from the companies' customers, who have to pay higher prices for electricity without getting anything in return.

Of course, in the US west, many electric utilities are subject to government price regulations that may limit the kind of windfalls that this report talks about. But nationally, electricity-sector windfalls are a huge problem.

However, reading the NRDC report also raises an issue for me: if windfalls are such a problem in Bingaman-Specter, aren't they also a problem in Lieberman-Warner? All the arguments against the Bingaman-Specter approach apply, at least to some extent, to NRDC's favored bill too. There's just less money at stake -- making Lieberman-Warner the lesser of too evils, for sure, but still far from saintly.

As far as I can tell, free allocation is little more than a bribe to entice utilities not to fight cap & trade legislation. Maybe it's a necessary bribe, and the carbon cap would be dead without some freebies to the utilities. Still, we should call 'em like we see 'em -- a bribe's a bribe. But where bribes are concerned, size does matter. And sometime down the road, we may come to think of Lieberman-Warner's free allocation as a ridiculous excess, much as Bingaman-Specter seems now.

The Slow Car Movement

Eric de Place — Fri, 25 Apr 2008 16:37:19

A few weeks ago, Clark wrote about truck drivers slowing down to economize on fuel. It's a great story, but was it a real trend or just anecdote?

Well, I'm here to report that there's some truth to it. Or at least some truthiness. A recent Congressional Budget Office paper examining the effects of gas prices found: "Freeway motorists have adjusted to higher prices by making fewer trips and driving more slowly."

That's surprising to me. I mean, I don't slow down when gas prices are high; it would never occur to me. Do other folks?

But whether it occurs to anyone or not, it is a rational response to high prices, depending on the circumstances. As the paper explains, slowing from 70 mph to 65 mph reduces a typical vehicle's fuel consumption by 8.2 percent. That adds up eventually, but whether it's worth it depends on how much you value your time. (It also depends on how pricey gas is, and how efficient your car is.)

So the paper crunches some additional numbers -- fascinating stuff I assure you -- and finds that freeway speeds really did decline as gas prices rose. Not by much, mind you, but a little: about a teaspoon of fuel every 2.6 miles. There's almost no way that the results are intended; it's almost like individual irrationality adding up to collective rationality. And the paper sort of hints at that:

Such small responses are unlikely to result from concious calculations. Few motorists would have the information required to gauge their responses so acutely, nor the time or inclination to do so. However, higher prices make drivers pay more attention to speed. The modest reductions in speed suggest that drivers may have responded by easing off slightly on the gasoline pedal or dialing back the cruise-control settings a notch. If only a minority of drivers have that response, their reduced speeds could cause nearby drivers to slow down as well, even if gasoline prices alone would not have that effect.

The upshot, I guess, is that there's an easy way to save the planet. Just reduce your fuel use (and everyone else's), by getting in the left lane and driving 45 miles per hour. Folks may not appreciate you at first, but you can just hand them the CBO paper and talk about elasticity of demand. They'll come around soon enough.

Good luck!

Clotheslines, Condoms, and the Climate: Sightline's "Seven Wonders"

Elisa Murray — Thu, 24 Apr 2008 01:47:40

We've got big news this week. Sightline has released a new book, called Seven Wonders for a Cooler Planet.

Seven Wonders, which was penned by award-winning journalist Eric Sorensen and Sightline staffers, examines seven everyday objects that serve not only as solutions to global warming, but also--and more importantly--as springboards for exploring some of the key issues behind climate change.

What are the wonders? Stop thinking Taj Mahal and start thinking of bikes, condoms, and clotheslines--ingeniously simple devices that have transformed our lives but often go unnoticed. Each wonder is profiled in a lively chapter full of brain-teasing facts and forward-looking solutions for our climate (and for our pocketbooks, health, and cities).

“The Bicycle" is an ode to the most energy-efficient vehicle ever devised--and the world of transportation solutions that is already at our feet. (My favorite biking fact: "Pound for pound, a person on a bike can go farther on a calorie of food than a gazelle can running, a salmon swimming, or an eagle flying.")
“The Condom” examines how a little more "wrapping-up" could have a big impact on global-warming pollution, and our health.
“The Ceiling Fan” shows that energy efficiency isn't just a free lunch. "It's a lunch you are paid to eat." (Great quote, huh? Amory Lovins said it.)
“The Clothesline” starts with a six-dollar piece of rope and ends with the vast potential of renewable energy.
“The Real Tomato” uses the well-traveled vegetable to examine how to make agriculture greener. (Favorite veggie fact: "Even a seemingly innocent one-pound bag of lettuce can be a fossil-fuel glutton, consuming 4,600 calories to grow, process, and ship an item that is mostly water and contains a scant eighty calories of food energy.")
“The Library Book” shows why "reuse" is the most important of the "three R's." (Library fact: "A typical US library prevents 250 tons of greenhouse-gas emissions each year, just from the paper it doesn’t consume.").
“The Microchip” is a testament to how the online world--and all the technology that drives it--can benefit our real-world climate.

If the book title sounds familiar, it's because it is. Sightline originally published Seven Wonders: Everyday Things for a Healthier Planet in 1999. It was designed as a hopeful follow-up to our very popular book, Stuff: The Secret Lives of Everyday Things, which was long on really interesting facts, but a bit short on solutions.

Last year, Sierra Club Books, the folks who originally published Seven Wonders for us, proposed the idea of re-tooling the book as a climate-change handbook. The idea made sense—most of the original wonders did connect to global warming—so we hired journalist Eric Sorensen to do the rewrite, and off we went (kudos to Sightline researcher Eric de Place, who also did a huge amount of work on the book).

A final note: While Seven Wonders looks a lot like a book of “personal tips” on climate change--it’s really not. Instead, it offers new ways to think about the world. The authors explain it better than I can:

Seven Wonders for a Cool Planet is not another book of tips. Like its antecedents in the “seven wonders of the world” lineage, it’s a guide to miraculous human-made things. The twist about these wonders is that they already surround you. This book is an ode to seven everyday devices you probably already own or use, which are so powerful, elegant, and in most cases simple, that they are and always have been friends of the climate (and also of your pocketbook, neighbors, health, and children). It’s a reminder of everything that’s right about our lives, not everything that’s wrong.

More subversively, Seven Wonders is a way to think—illustrated seven ways—about solving the climate crisis once and for all: by designing sustainability into the very heart of our lives, communities, institutions, and economy.

It all starts with human ingenuity, the greatest wonder of them all--and our most valuable renewable resource for taking on big challenges.

P.S. You can find out more about the book—including where to order it--on our Seven Wonders page and via the press release and this fact sheet. We can also make excerpts available to online magazines, newspapers, and blogs. (Unfortunately, since they own the rights, this is one of the few books where we can’t publish the pdf of the text.)