Misconceptions about energy

People believe a lot of things that don’t make sense, including things that are obviously either wrong or irrelevant, but are repeated without much thought. A great example is the common observation that because the weather is chaotic, a butterfly flapping its wings in the Amazon could trigger 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 is 30 million butterflies a year per butterfly. So easily quadrillion annual flaps give way to—wait for it—one or two dozen hurricanes. This is not to deny the connection, but to emphasize the irrelevance of the idea.

At the same time, this misconception is not very important: no one is suggesting a billion dollar butterfly wing monitoring effect (not yet, anyway, tell 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.

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

And this is done in two ways: by ignoring context and/or by asserting that correlation equals causation. For the former, predictions that climate change will mean 60,000 more deaths from malaria will be repeated by climate activists as an existential threat. This is of course terrible, but at the same time the current level of malaria deaths is over 600,000.

Or EV opponents will point to lithium-ion battery fires without mentioning that gasoline cars sometimes catch on fire, too. (The comparison is worth noting, though, because the types and causes of fires are different, so it’s like comparing apples and oranges, or perhaps more appropriately, comparing cats to feral cats.)

The most glaring and troubling misconception is that climate change is the fault of capitalism, as Naomi Klein argues in her book, This changes everything: capitalism vs. climate. The basic idea is that under capitalism the profit motive means that companies will be disinclined to spend money to control emissions, which has some validity (“public goods”). However, the whole notion requires the assumption that correlation equals causation. To demonstrate, communist countries like the Soviet Union and national oil companies like Petroleos de Mexico were famous for their lack of concern for emissions and pollution. And a huge amount of coal-fired emissions take place in China’s state-controlled industries, even though theorists will insist that state-owned enterprises are more likely to provide public goods like pollution control. Similarly, some of the worst toxic sites in the US are, you guessed it, military bases. Armies were not run for profit, 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 as people who have seen something work in the real world but wonder if it works in theory. In a perfect example, many economists think you can mathematically prove that the price of oil must rise at the long-term interest rate of about 3% above inflation. This is based on a 1973 paper by Robert Solow (later a Nobel Prize winner in economics, but not a resource economist). The fact that oil prices haven’t behaved like this in the previous century plus didn’t deter and still hasn’t convinced many economists.

But, you say, prices are well above the long-term norm (about $35/bar). Prices typically rise when supply is constrained by political events or decisions, but do not show any long-term upward trend, nor do the prices of other “non-renewable” resources such as minerals. Unfortunately, all too often, short-term price increases are seen as the new normal, just as in 2004, when leading oil theorist Colin Campbell said, “The good times are here.” In reality, prices had risen after Iraqi and Venezuelan production disruptions, not geological shortages as he predicted.

This tendency to take advantage of short-term or transient events as representing a new norm also brings bias into play. Neo-Malthusians like Paul Ehrlich (co-author of the 1986 paper The population bomb) often points to a bad harvest as signifying the era of mass starvation that he predicted had finally arrived. Amusingly, in the book, they also criticize optimists for using good harvests as evidence of long-term abundance.

Acceptance of peak oil theory and Solow’s earlier economics also played a bias. Proponents of renewables and electric vehicles embraced the idea that oil supplies were close to a permanent peak and that prices would rise, making their products more competitive. And many in the oil industry liked to hear that they could just sit back and let earnings rise with higher prices, which is true in many other sectors, from real estate to agriculture. There are exceptions, of course: One industry executive told me that her board wanted a low oil price forecast to encourage cost-cutting by managers.

In another case, I recently read that some experts complain that we are not dealing with climate change because our time horizons are too short. In Kings of ChaosScott Patterson describes musician Brian Eno telling Nicholas Taleb that “Olive growers and cathedral builders thought across generations… Modern people 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 are not built, but closed as religious observance declines.

Similarly, the problem of price volatility has long plagued the oil industry and is supposedly one of the reasons why 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 dealt 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 take into account the supposed detrimental effects of volatility on planning.

Finally, something that will be covered in more detail later, there is a widespread claim that renewable energy is cheaper than fossil fuels. As far as I can tell, this comes from reports from Lazard-Frere that make this conclusion, and its appeal means countless activists repeat it as fact. But even a casual observer should question the fact that renewables are heavily subsidized, and investment often drops sharply when subsidies are cut. Also, areas like California that have made major investments in renewable energy do not have low or declining electricity prices. EPRINC-Chart2024-31-ResidentialUnitVersusPerCapitaCosts-v1a.pdf

In 1992, I hypothesized that the consensus opinion among the vast majority of experts that oil prices must rise reflected in part the large number of people and institutions who had not studied the issue in detail but assumed that the consensus was correct or were afraid to differ from it. it. Similarly, the issue of renewable energy costs is a complex one: the cost of land, labor and regulations vary by location, but in addition, the intensity of sunlight can differ by a factor of two or three. So German solar energy is probably much more expensive than that produced in, say, Dubai, whose projects are sometimes cited as proof of their low cost.

As much as I would like to believe that future policymaking will not be influenced by clichés and unsupported claims, politicians have long demonstrated the ability to construct their own realities. They could reflect expert opinion, such as when President Carter thought we should save our “scarce” (sic) natural gas in favor of burning coal, or contradict them, such as when New York Gov. Cuomo banned fracking after extensive research revealed a study that suggested there could be health problems. However, it behooves those of us who comment on energy to do at least minimal due diligence to know whether a statement is true or not, regardless of the beliefs of many advocates on both sides of a question.