The Sputnik fallacy redux

In his speech Monday to the National Press Club, Energy Secretary Steven Chu said that clean energy represents a new "Sputnik” for the US. In this remake of the space rate, the Red Chinese are playing the role of the USSR.

To quote from the official press release:

A New Sputnik Moment
Secretary Chu said that China's investments in clean energy technologies represent both a challenge and an opportunity for the United States. While China's experience with rapid, large scale deployment of technologies makes it an important global testing ground and creates opportunities for scientific partnerships between our two countries, it also means that America cannot afford to take our scientific leadership for granted. Secretary Chu stressed that our economic competitiveness depends on jump-starting the next round of American innovation in clean energy.

Dr. Chu’s slides even more explicitly make the Sputnik analogy, quoting Dwight Eisenhower.

As CNET reported his remarks:

Chu said that the U.S. needs to fund research in clean-energy technologies in order to stay apace and take advantage of the economic opportunity that cleaner energy technologies represent globally.

"America still has the opportunity to lead in a world that will need a new industrial revolution to give us energy we want inexpensively and carbon free," he said during his presentation, which was Webcast. (Click for PDF of slides.) "I think time is running out."
…
He said there are risks in the status quo which were detailed in a report called Business Plan for America's Future which was authored by business leaders including Bill Gates, venture capital investor John Doerr, GE CEO Jeff Immelt, and former Lockheed Martin CEO Norman Augustine.

The report said there are many benefits to moving to a cleaner energy system in the U.S., including public health, protection from climate change, and cleaner air, but none of these are recognized by the free market. Also, the scale of investment required in new energy technologies in beyond the scope of commercial companies, which is why the government should fund research and development.

As I noted six weeks ago, there are two problems with this line of reasoning.

First, the cheap Chinese manufactured goods are helping reduce CO2 outputs even if they take market share from US and German firms: Western leaders have to decide which is more important, saving jobs or saving the planet.

Secondly, the idea that renewable energy policy can be approached like a moonshot is a fallacy that was demolished by three leading innovation economists (who all have strong environmental sympathies). (Official Research Policy article here, working paper here).

Dr. Chu’s answer is to throw more money at federally funded technology development. I realize that Dr. Chu is a scientist who spent years spending DOE R&D money, but the answers are going to found in industry, not federal labs.

Yes, the US is and remains the innovation leader of the PV world. But the problem is not technological innovation, but in business models and manufacturing efficiencies. I don’t know what kind of business advice Chu is getting, although both Doerr and Immelt have shown their priority is to get the government to subsidize their EE/RE bets.

Nothing that Chu suggests will change the fact that China has 4x as many young people and will someday have 4x as many science PhDs as the US. Nor will it change the fact that the cost of capital and land and labor (and energy) is so much cheaper for Chinese manufacturing that none of his proposals would bring back US manufacturing in any significant way.

If the US is not going to be exporting manufactured goods to any significant degree, what can it do? It can try to imitate Germany of a decade ago and sell lots of goods to its domestic market before that market is swamped by imports. Or it can try to export technology, services and other innovations that are not so manufacturing- and cost-sensitive.

Finding a good niche

As in any other industry, the success of new cleantech businesses usually depends on finding a good niche. Yes, the big oil companies would like to start with billion (or trillion) dollar market segments, but most other companies need to start with a small, well-defined, highly motivated and easy to target segment.

Today the Merc offered a profile of an intriguing electric vehicle company that seems to be taking a different tack than Tesla, Fiskar and the other big VC-funded firms. Green Vehicles Inc. of Salinas (an hour south of San Jose) is selling the Triac, a tricycle commuter car for $25K, with a top speed of 80mph and a “real” (not best case) range of 100 mph round trip.

The $25K MSRP does not include the $7,500 Federal subsidy and a state subsidy (under AB 118) of up to $5,000. So you pay the 10% sales tax on the full $25k, but still the car is cost-competitive (to buy, before operating costs) with conventional cars selling for around $13,500 — and there aren’t a lot of cars in that range. It would get me the 12 miles to work, or the 4 miles to the LRT to work or the CalTrain to San Francisco.

The car is severely limited in size (two people) and like other pure EVs, in range. But to me, this could be the ideal commuter car to throw into the portfolio as a third car, say for households with a teen driver that has a 2-5 mile one-way trip to high school or the mall job.

More importantly, the low up front cost will allow someone to experiment with this restricted-capability vehicle — inherent in pure EV models — to see if it fits their lifestyle. Even if it only holds two people, I think a $14k vehicle (after incentives) has a much bigger audience than the $57k ($35k after incentives) Tesla Model S sedan.

An honest (ex) politician

Corn-based ethanol makes no sense from the stand point of economics, food policy, energy policy or land use policy. Monday, former senator and presidential hopeful Al Gore admitted this reality: even as a former politician, it puts him in a select group who will admit this Emperor Has No Clothes. (It also confirms the speculation at the time of his divorce that he never plans to run for president again).

As Reuters reported:

"It is not a good policy to have these massive subsidies for first generation ethanol," said Gore, speaking at a green energy business conference in Athens, Greece. First generation ethanol refers to the most basic, but also most energy intensive, process of converting corn to ethanol for use in vehicle engines.

"First generation ethanol I think was a mistake. The energy conversion ratios are at best very small," he said, referring to how much energy is produced in the process.

The U.S. ethanol industry will consume about 41 percent of the U.S. corn crop this year, or 15 percent of the global corn crop, according to Goldman Sachs analysts.

Alas, half of the GOP senate thinks they’ll be a presidential nominee in 2012 — about the same number of Democrat senators assume it’s possible for 2016; pandering to foolish farm state subsidies is a bipartisan effort. (Perhaps the GOP House members will live up to their budget-cutting claims.)

So while it would be nice to end the ethanol craziness, it seems like things are going to get worse before they get better.

Tortoises for Global Warming (tm)

I’ve previously written about the perverse goals of some environmentalists and politicians to block RE development protect wildlife. or, worse yet, to save views in Cape Cod or the Mojave Desert. Some of the same activists who want government to force through spending and approval on RE facilities cringe when there’s a tradeoff between reduced CO2 emissions and other environmental goals.

The NYT’s green blogger, environmentalist Todd Woody, does an unusually good job of capturing both sides of this dilemma in his blog posting and article today about how more than 4 gigawatts of newly-authorized capacity (mostly solar thermal) will likely transform the Mojave Desert — despite repeated objections by the Sierra Club and other environmentalists.

The flashpoint of the Mojave controversy is the California Desert Tortoise. As Woody writes:

The protected desert tortoise has become the totemic animal for environmentalists fighting to ensure that the huge solar farms don’t eliminate essential habitat for the long-lived reptile and other wildlife, like the bighorn sheep and flat-tailed horned lizard.

The tortoise has been in decline for decades, and the rampant development of the desert – from casinos and strip malls to subdivisions and off road recreational vehicle areas – took their toll long before construction began late last month on the Ivanpah solar power plant, the first large-scale solar thermal project to be break ground in the United States in 20 years.

However, as Woody also notes, the new plants will provide resources, funding and data to better understand the tortoise and how to preserve it. (In other words, much as building a shopping center sometimes funds archaeological digs that otherwise would not have happened.)

The article suggests that the controversy is far from over. In the short run, it may get stronger as Gov. Brown appoints one or more wildlife environmentalists to replace Schwarzenegger appointees who consi entire favor RE over wildlife. In the long run, the actual evidence gathered by the newly-funded scientists should resolve the debate one way or the other.

Profiting from environmental catastrophe

The Chicago Climate Exchange has collapsed and is going out of business. It originally announced last month that it was scaling back, but now the plans are apparently to close up shop in December.

The exchange was created to trade carbon emission credits, in anticipate of a US cap-and-trade bill, but the bill died in the 111th Congress and its prospects are non-existent in the 112th.

Popular Science sees this as a bad thing: if the US won’t trade carbon credits, other countries will. Investor's Business Daily sees it as a good thing, further evidence that “job-killing” environmental regulation is temporarily on the back burner.

Like anything profiting from a government-created market, the major investors were among the most politically well-connected. According to IBD, the financial losers in the death of the CCX are its two main investors,Al Gore's Generation Investment Management and Goldman Sachs. Also losing out is Franklin Raines, Fannie Mae CEO during the subprime fiasco, who owned a patent on trading related to trading carbon emissions of residences.

Perhaps with the retrenchment of the CCX, the investors and regulators can solve the inherent problems of the carbon-trading schemes, including their potential for money laundering and the risk of fraud in countries with low transparency and/or weak legal enforcement.

Never believe a politician

The NY Times ran a story Saturday (picked up by the Merc) about the dedication of the new BMW electric car factory in the former East Germany. If nothing else, it proved that political hyperbole is not just endemic to the US but apparently a disease that afflicts the would-be ruling class the world over.

Just as our president has visited the shiny new PV plant of the (now-troubled) Solyndra, so Chancellor Andrea Merkel was on hand for the opening of the Leipzig plant scheduled to crank out EVs starting in 2013. Merkel’s picture was used in the dead tree Merc (I don’t get the dead tree Times).

There were no quotes from Merkel in the story, but the Times found the prerequisite hyperbole from the local governor:

“We’re at the beginning of an auto revolution,” said Stanislaw Tillich, the prime minister of the state of Saxony.

Despite this glowing prediction, NYT Germany correspondent Jack Ewing interpreted the company’s announcement as predicting limited production of only tens of thousands of units each year. Politicians notwithstanding, BMW appears to see this as a limited niche for now. (Various web sources suggest that BMW sells about 1 million cars/year, the majority of those 3-series sedans.)

Also, the new car seems like it will be less of a BMW and more a new subbrand, Megacity, a sister to the BMW-owned Mini brand. The factory already produces the BMW economy car, the 1-series, that we don’t see here in the US. I don’t know if this is to start a new brand for electric cars or (more likely) protect the performance reputation of the main BMW brand.

The Merc headline (but not the story) also trumpeted this as competition for Palo Alto-based Tesla Motors. While the rumored volumes dwarf anything yet demonstrated by Tesla, it’s hard to see how an electric econobox will draw demand from the existing Roadster.

We would have to see the actual list prices of the vaporware Megacity — as well as Tesla’s planned sedan — to predict whether the former will cannibalize sales of the latter. Based on what I’ve heard so far, this would be like asking whether Camry drivers will trade down to a Yaris — it’s possible if there’s a $30k difference but probably not if there’s a $10k difference.

However, a planned BMW PHEV sounds like a direct competitor for the Roadster:

BMW said it had also decided to produce a plug-in hybrid sports car known provisionally as Vision Efficient Dynamics. The car, which has been displayed at auto shows as a design study, will accelerate from zero to 60 miles per hour in less than five seconds, but be more fuel-efficient than most economy cars now on the market, BMW said.

The fabled BMW image, engineering and track record (in both senses of the phrase) could give it an edge over the fledgling Silicon Valley firm.

The three-cylinder diesel BMW would not be available until “2013 or 2014” at a price above €100,000. So for now, the limited-range all-electric Roadster has some breathing room.

An expensive way to not save the planet

In Monday’s Washington Post, Robert Samuelson wrote about administration plans to make a $10.5 billion down payment on a $200 billion cost of constructing 13 high speed rail corridors (including $19 billion for California).

A few choice quotes:

What would we get for this huge investment?

Not much. Here's what we wouldn't get: any meaningful reduction in traffic congestion, greenhouse gas emissions, air travel, oil consumption or imports. Nada, zip. If you can do fourth-grade math, you can understand why.
…
We are prisoners of economic geography. Suburbanization after World War II made most rail travel impractical. …Trip origins and destinations are too dispersed to support most rail service.

Only in places with greater population densities, such as Europe and Asia, is high-speed rail potentially attractive. Even there, most of the existing high-speed trains don't earn "enough revenue to cover both their construction and operating costs," the Congressional Research Service report said. The major exceptions seem to be the Tokyo-Osaka and Paris-Lyon lines.

President Obama calls high-speed rail essential "infrastructure" when it's actually old-fashioned "pork barrel." The interesting question is why it retains its intellectual respectability. The answer, it seems, is willful ignorance. People prefer fashionable make-believe to distasteful realities. They imagine public benefits that don't exist and ignore costs that do.

Samuelson predicts economic disaster for California if it spends $43 billion to build a high-speed rail system it can’t afford to operate. Or rather he predicts that the current economic disaster will get worse.