Saturday, November 28, 2009

Don't give away the ending.

If you've ever re-watched a movie like "The Sixth Sense" or "Fight Club", you already know the major plot twist. Knowing changes everything. You can't go back and see it the way you saw it before.

The movie we're living has been good so far. It had a really long boring prologue, but in the last seven or so generations things have really picked up. The cheap energy and explosive food production really moved our story along.

The latest twist in this multigenerational epic is a relatively quiet combination of peak-everything and catastrophic climate change.

Some people figure it out early, others will wait until close to the end. The realization point is different for everybody.

The clue that lets you figure it out might come in the form of a movie, a talk, a child, or any combination of hundreds of little factoids that seep into your consciousness. But once you develop an understanding of the depth of the problems we face it changes the way you see the world.

You can't turn it off either. You may resent, pity, even envy the oblivious masses, but you won't be able to see the world the old way anymore. You know too much.

One clever dodge is not to watch the movie at all. Take the blue pill, and believe whatever you want to believe. Bury your head far enough in the sand so that you avoid having to act.

Revelling in obliviousness, however, isn't a good long term strategy. Like rubbing your eyes, it sure feels good in the moment though.

The other, healthier option is to face up to reality, because reality doesn't negotiate. Take the red pill and put on your helmet. Buckle up. It's going to get ugly, but it's better to be ready. If you can take action now to soften the crash it will go better for everyone.

Once you know, you can clearly see the disaster coming at the end of this movie, but you hope it'll be different. Maybe our heroes will get out of it this time. You know you're pulling for them. Maybe the next generation will stick around for a sequel.


You might also like:

Build Mine To Last

Complex issues, no agenda, better meetings.

The gap between knowing and doing

Saturday, November 21, 2009

Engaged Citizens would manage common resources better than bureaucrats

How many cows would you put on this field?

Garrett Hardin was an ecologist responsible for bringing "The Tragedy of The Commons" to the public eye in his 1968 paper of the same name. In it he describes how as population increases, the notion of a commons as a source of food or as a place for waste disposal must be abandoned.

One example given is herdsmen who keep adding livestock to a finite common pasture to the ultimate detriment of all of the herdsmen.

The herdsmen's problem, as well as runaway population growth and climate change (problems including the private exploitation of a common resource) are problems with no technical solution. To win, you have to change the game.

Enter Elinor Ostrom, an American political scientist. She recently won half of the 2009 Nobel Prize in Economic Sciences "for her analysis of economic governance, especially the commons".

She admits in her 1969 paper "Collective Action and the Tragedy of the Commons" that there are no cost-free solutions to problems, although we can achieve social arrangements "that will cost less than the benefits to be derived from such arrangements". The payoffs to working together are bigger than the costs of doing so.

Her work explores how local communities often manage scarce resources better than outside authorities. "Bureaucrats sometimes do not have the correct information, while citizens and users of resources do" she said.

How do you get people involved when it's easier to stay home and trust the people in charge to make the right decision? This is known in economics as a collective action problem. Solving it typically needs most of the people involved to work out a solution. The more people who opt out of the process, the more likely the bureaucrats are to step in with a solution that doesn't quite work.

For example, Ostrom's co-workers organized their kitchen cleanup by insisting that people clean their own dishes, but they also identified someone to do a final cleanup of the kitchen every day. That person got a spatula in their mailbox that morning and passed it on to the next person the following day. (From her NPR Planet Money interview). They manage it themselves, and it works. An outside bureaucracy couldn't easily implement something this simple and effective.

The take-away message here is that citizens need to pay attention to the issues and participate in finding solutions themselves. They are closest to the information and when they work together they can figure out the social organization that works for them and solves their problem.

You might also like Complex issues, no agenda, better meetings.

Sunday, November 15, 2009

Please don't cripple the green economy. Stop Bill 50

Premier Stelmach

Energy Minister Mel Knight

Rob Anderson MLA.

First of all, thanks to Energy Minister Knight and Mr. Anderson for getting back to me regarding the Government's position on Bill 50, and special thanks to Richard Marz, MLA for Olds-Didsbury-Three Hills who spoke with me on the phone about it. I'd like to take this opportunity to clarify my position.

My previous letter dated October 15, 2009 was intended to provide an escape hatch so that the government could politically extract itself from Bill 50. As I will outline below, there are several philosophical problems which make passing Bill 50 a serious misstep in Alberta Government Policy.

- Bill 50 would remove the role of the regulator, theThird Party Expert panel that would determine whether the power lines are necessary, and whether the costs are justified.

- Bill 50 would provide, in effect, a massive subsidy to existing centralized power plants by reducing the cost of distance. This skews the electricity market and prevents other generation technologies from competing on their merit.

- Bill 50 would prevent adoption of green technologies by artificially depressing the price of centrally produced energy, which would price greener options out of the market.

- Bill 50 would take $8.1 Billion after-tax dollars out of the economy.

I'll discuss these issues in more detail.

Transmission is a subsidy to centralized power, and cripples the emerging green power market

Please bear with me, this is a subtle but important point.

The cost of conventional electricity is divided into two parts, the cost of generation and the cost of transmission. The cost to generate power using local renewables is higher than the cost of generation alone, but reduced transmission charges is one of its competitive advantages. Bill 50 would eliminate this competitive advantage.

Artificially reducing the cost of distance (with sponsored transmission lines) gives an unfair subsidy to the large central power plants, who don't have an incentive to reduce their delivery charges. If a private company thinks it makes sense to build high voltage, long distance power lines, and can secure the land and permits to make it so, then in a deregulated power market that would be fine.

If provincial government pushes this through it will cripple the newborn child that is the renewables market. Distributed renewable generation would take the burden away from high voltage transmission lines. Bill 50 would enshrine centralized power by forcing us to pay for the distance whether we use it or not. It would leave stillborn a clean energy industry that's poised to grow and bring investment and 'green-collar' jobs to Alberta. With Bill 50, the distributed green energy would be priced out of the market.

A large subsidy (or a forced spending, which is practically the same) on transmission infrastructure would constitute a meddling in the market that would reduce the competitiveness (and thus the functionality) of the deregulated electricity market in Alberta. This locks us into dirty centralized power, because since everyone is paying for the additional transmission infrastructure, you won't realize the savings by going to a system that saves you on your transmission bill.

Don't bypass the regulator

The Alberta Legislature is not made up of a panel of electricity experts. Bill 50 would provide the government the authority to approve the need for critical transmission infrastructure. The legislature does not have the expertise to determine which infrastructure is critical. The AESO is only allowed to consider transmission options, and that sets up a situation where if the only tool you have is a hammer, all your problems start to look like nails. If the solution isn't more transmission lines, the AESO is incapable of finding it. As a legislature, I expect you to be thorough in assessing options. This includes exploring the less glamourous options like energy conservation and getting the price signals right. Getting the price signals right means avoiding massive subsidies, including mandating particular transmission lines.

The electrical grid is a complicated beast, and despite pressure to the contrary, the Alberta Government shouldn't take control of deciding what power developments are necessary. It is an irresponsible use of Alberta Legislature time and resources to dig into the nuts and bolts of whether these projects are actually necessary. I recognize that there is a lot of money to be made by private companies on the backs of Alberta Electricity users in this regard. But allowing these companies to strong-arm you into spending someone else's money without going through the proper hearings to determine whether it is actually necessary is highly irresponsible.

I also recognize the role of advertising pressure and the media campaign that exists to try to convince people that the grid must be updated. These decisions shouldn't be based on who can buy the most persuasive advertising, but based on the facts of what is best for your constituents, the people of Alberta. If I was a company in danger of losing an $8.1 Billion contract, I'd buy a bunch of advertising to sway public opinion too, but that wouldn't make it right.

Maintaining squeaky clean justification for your decision is important here, and you get that by following the established procedures and going through the regulator, not by succumbing to power company scare tactics and ramming things through.

If you were watching your friend's house while he was on vacation, and you decided to rewire his house on his dime, it would be important to have clear third party analysis that such rewiring was necessary, otherwise he's not going to be pleased about the extra expense that he will be stuck with for a long time to come. When it's $2230 from the Alberta economy for every man, woman, and child in the province, it pays to have third party proof to show whether it's necessary.

Widget Factory Example

If I were to build a widget factory in the Northern Alberta, but my widget customers were in the south, it would be ridiculous for the government to demand that everybody pay for my transportation costs to deliver the widgets across the province.

If instead I were to build my widget factory close to the customers, it might cost me more (land costs for example) but it would cost less to deliver the widgets to my customers, as a responsible widget factory owner I would look at the costs of transportation and the costs of building near my customers and find the sweet spot.

If the government steps in and says I can build my widget factory in the cheapest place and that they'll take care of my transportation cost, there is an incentive for me to be inefficient with my resources.

You can't expect to retain the efficiencies of a free market with such meddling. Passing Bill 50 would lock in these inefficiencies.

Bill 50 is functionally a tax increase

The government would decide to spend the money of electricity users (practically everybody), without regulatory approval or oversight.

So, Bill 50 is a government bill:

-where the money goes straight to private companies

-where the need hasn't been proven at a regulatory hearing

-that destroys the competitiveness of a growing green-tech industry

-that locks us into centralized carbon-intensive sources of power generation

-that drains after-tax money from the Alberta economy.

No responsible government can pass this bill.

Please note that I don't object to upgrading the electrical grid, but please do so in a way that grows a smart grid much like the energy stimulus in the US did.

There's a solution. Developing the smart grid will put us on a much firmer footing to move into the future, rather than keeping us locked in the past. The smart grid isn't just for individuals. Industry will benefit from it too.

Build a smarter grid. Not a bigger one.

Please note, I don't have any financial interest in any solar or distributed energy technology or business. I'm a private citizen who wants a cleaner, greener tomorrow. I believe that Bill 50 is an expensive misstep that would actively work against a greener tomorrow and cost the Alberta economy dearly.

Thanks for your time and attention,

Aaron Holmes



Minister of Environment Hon. Rob Renner

Richard Marz, MLA

Dr. David Swann MLA

Frank Oberle, MLA Peace River

Saturday, November 14, 2009

EROEI: Bang for your energy buck

When investing money, people look for a good return on investment. Armies scour the markets trying to figure out where they should put their money so that they'll get the highest return on their investment. You can do the same thing for energy.

Energy return on energy invested (EROEI) measures the bang for your energy buck. This number will play a major part in determining our energy future because we gravitate to the technologies with the biggest energy payoffs.

Back in the 1930s oil was close to the surface, easy to extract. The EROEI back then was about 100:1. They got 100 barrels of oil for each barrel's worth of energy they put into extracting it.

Of course they extracted the easiest oil first, and so as time went on, they needed to invest more and more energy into extracting the oil. Middle Eastern oil these days gives back at about 30:1. North American oil is at about 10 or 15:1 and declining.

Tar Sands oil runs at about 1.5:1. For three barrels of oil coming out of the tar sands, it uses two barrels worth of energy (including lots of natural gas). Fully two thirds of the energy obtained from the Tar Sands is being used to operate itself. When you think about how much energy is there, divide that amount by at least 3, because of the energy it would take to recover that bitumen.

When the EROEI for the Tar Sands goes below 1:1 it won't be sensible to keep going, because then it will take more energy to extract the bitumen than you get from it. That would be like paying somebody a dollar to give you ninety cents. You can't stay in business doing that for very long.

Ethanol is already below 1:1 and only happens because of government subsidies, largely to corn producers.

For comparison, solar's ERoEI is about 5:1 and wind is about 4-10:1. With technology, those numbers are improving, while the fossil fuel numbers keep going down. Energy conservation has an even higher payoff. The cheapest energy source is the one you don't need to use.

When you're looking for a source of energy there are lots of factors to think about, but Energy Return on Energy Invested is one worth paying attention to.

Further reading: Why EROI Matters.

You might also like The Gap Between Knowing and Doing.

Saturday, November 7, 2009

Price, Cost, and Value.

Is it worth it? That's the question we face every time we make a buying decision. The reasonable answer is that if the value exceeds the cost, then it makes sense to pry open the wallet. If it costs more than it's worth to us then it doesn't make sense to buy it.

So what? While price is simple, cost and value are both complicated moving targets. Here's how.

Suppose you want to buy a hamburger. How much does a hamburger cost? A typical fast food chain would set the price somewhere around $4.

Hold it for a second. See what happened there? It's a mistake that gets made all the time. We asked about the cost, but answered the question in terms of the price. Cost is so much more complicated, and confusing the two can get us in trouble.

If you value burgers at $6, and they're for sale for $4 you're up two dollars in value for each one you buy. Each successive burger, however, is worth less to you than the previous one. You can only eat so many burgers in a day.

Now you need to consider the opportunity cost. What else can you do with that $4. If you buy the burger you can't spend that money on anything else later. Money is only worth what you can trade it for.

You also need to count the time and cost that it takes you to get to and from the restaurant, and how much exercise you'll need to do to work off all those calories.

So is the hamburger worth it? That depends on how much you want the burger, relative to everything else you could trade that money for.

Did you just finish thanksgiving dinner, because then you'd probably turn down a free burger. If instead you're starving and stuck on an airplane, a $30 burger could be worth it, even though that's much higher than we normally think a burger should cost.

Cost and value are moving targets. It's ok to pay for value, but don't confuse cost and price. They're not the same.