The Dumb Energy Things People Believe

People believe a lot of dumb things. I mean, really dumb things, including things that are obviously either wrong or irrelevant but that are repeated without being given much thought. One great example is the common remark that because weather is chaotic, a butterfly flapping its wings in the Amazon could start a hurricane in the Atlantic. Now, the Amazon has billions if not trillions of butterflies, and they flap their wings maybe once a second, which comes to 30 million flaps a year per butterfly. So, easily quadrillions of annual flaps yielding—-wait for it—one or two dozen hurricanes. This isn’t to deny the connection but to point out the irrelevance of the idea.

At the same time, this particular misconception isn’t very important: no one suggests a billion dollar butterfly wing-flap monitoring effect (not yet, anyway, call me DARPA), so it doesn’t matter. But since other mistaken beliefs can lead to bad investments and policies, it’s worth thinking about their origins and how to avoid or correct them.

Bias is a big part of the problem, that is, people who like an idea then embrace, repeat, and cite it until it is raised to the level of accepted truth. This is possible because complex systems like the energy industry or the climate will produce a host of data and anecdotes that can support pretty much any theory, allowing the biased observer to find support for even the dumbest idea.

And this is done in two ways: ignoring context and/or asserting that correlation equals causality. For the former, predictions that climate change will mean sixty thousand more deaths from malaria will be repeated by climate activists as an existential threat without noting that the current level of deaths from malaria is over 600,000. Or opponents of electric vehicles will point to lithium-ion battery fires without mentioning that gasoline cars also sometimes catch fire. (The comparison is however noteworthy because the types and causes of fires are different, so it’s like comparing apples and oranges or, perhaps more appropriately, comparing housecats to wildcats.)

The most egregious, and concerning, misconception is that climate change is the fault of capitalism, as Naomi Klein argues in her book, This Changes Everything: Capitalism vs. the Climate. The basic idea is that under capitalism, the profit motive means that companies will not be inclined to spend money to control emissions, which has some validity (google ‘public goods’). However, the entire notion requires assuming correlation equals causality. To demonstrate, Communist countries like the Soviet Union and national oil companies like Petroleos de Mexico were famed for their unconcern about emissions and pollution. And a huge amount of emissions due to coal plants occurs in state-controlled industries in China, even though theorists will insist that state enterprises are more likely to provide public goods like pollution controls. Similarly, some of the worst toxic sites in the U.S. are, wait for it, military bases. Armies have not been driven by profit motive, at least in this country, a fact that is conveniently overlooked.

There is also a tendency to believe things that contradict reality. Ronald Reagan used to joke about economists being people who saw something working in the real world and but questioned whether it worked in theory. In a perfect example, many economists think that you can prove mathematically that oil prices have to rise at the rate of interest over the long-term, about 3% above inflation. This is based on a 1973 paper by Robert Solow (later winning the Nobel Price in economics, but not a resource economist). The fact that oil prices had not behaved that way during the previous century plus didn’t dissuade him, and still hasn’t convinced many economists.

But, you say, prices are well above the long-run norm (about $35/barre). Prices usually spike when supply is restricted by political events or decisions, but they do not show any tendency to rise over the long-run, nor do prices of any other ‘nonrenewable’ resources like minerals. Unfortunately, all too often, short-term price spikes are regarded as the new norm, as in 2004 when peak oil theorist Colin Campbell said, “the good ol’ days arrived’. In reality, prices had risen after disruptions to Iraqi and Venezuelan production, not geological scarcity as he had predicted.

This tendency to seize on short-term or transient events as representing a new norm also brings bias into play. Neo-Malthusians like Paul Ehrlich (co-author of 1986’s The Population Bomb) often point to a bad harvest as meaning the era of mass starvation which he predicted had finally arrived. Amusingly, in the book they also criticizes optimists for using good harvests as evidence of long-term abundance.

The acceptance of peak oil theory, and Solow’s earlier economics, played into bias as well. People supporting renewables and electric vehicles have embraced the idea that oil supply was near a permanent peak and prices would soar, making their products more competitive. And many in the oil industry loved hearing that they could just sit back and let revenues rise with higher prices, something that holds true in any number of other sectors, from real estate to agriculture. There are exceptions of course: one industry executive told me her board wanted a low oil price forecast to encourage cost cutting by managers.

In another case, I recently read that some pundits complain that we don’t deal with climate change because our time horizons are too short. In Chaos Kings, Scott Patterson describes musician Brian Eno telling Nicholas Taleb that “Olive farmers and cathedral builders thought across generations…Modern humans seem to have lost the ability to think about generational risk.” I’m not sure where Mr. Eno shops, but the stores I frequent are loaded with olives. And cathedrals aren’t being built but are closing as religious observance declines.

Similarly, the problem of price volatility has long bedeviled the oil industry and was supposedly one reason John D. Rockefeller created his monopoly. But it is common to hear that price volatility makes long-term planning difficult or impossible for the industry, ignoring the fact that they have coped with volatility for many years. True, smaller firms without deep pockets are more vulnerable to price crashes, but the occasional argument that we should buy more expensive energy (like ethanol) because its price is more stable (not really) tends to stand on the supposed detrimental effects volatility has on planning.

Finally, something to be dealt with in more detail later, there is a widespread assertion that renewable energy is cheaper than fossil fuels. As near as I can tell, this originates with reports from Lazard-Frere which make that conclusion, and its appeal means that countless activists repeat it as fact. But even a casual observer should wonder at the fact that renewables are heavily subsidized, and investment often declines sharply when the subsidies are reduced. Also, areas like California that have made major investments in renewable energy do not have low or falling electricity prices. (EPRINC)

Back in 1992, I hypothesized that the consensus view amongst the vast majority of experts that oil prices had to go up reflected partly the large number of people and institutions that had not studied the issue in detail but assumed the consensus was right or were afraid to differ from it. Similarly, the question of renewable energy costs is a complex one: the cost of land, labor and regulations varies by location, but additionally, the intensity of sunlight can differ by a factor of two or three. So, German solar power is probably far more expensive than that produced in say, Dubai, whose projects are sometimes cited as evidence of their low cost.

As much as I would like to believe that future policy-making will not be influenced by cliches and unsupported assertions, politicians have long shown an ability to construct their own realities. They might reflect expert opinion, as when President Carter thought we should save our ‘scarce’ (sic) natural gas in favor of burning coal, or contradict them, as when New York Governor Cuomo banned fracking after extensive research turned up one study that suggested their might be health problems. Still, it behooves those of us commenting on energy to spend at least a minimal due diligence to know whether a claim is true or not, regardless of the beliefs of many advocates on either side of a question.