Archive for the ‘energy’ Category

People recycle because they don’t want to waste resources. Throw a yogurt tub in the trash instead of a colored bin, and you lose forever to a landfill whatever use could be gotten from that plastic.  But recycling itself also consumes resources, so how can you judge the trade-off? Such is the worry of a Mother Jones reader:

City recycling instructs you to put clean containers in the recycle bins. But I’ve become increasingly frustrated trying to get certain pet-food cans, yogurt containers, and margarine containers cleaned without using a lot of water. I feel that the water I use, the gas to heat the water, the dish soap, and the paper towels are wasting natural resources as well as costing me money. So how clean is clean enough?

The columnist ignores the question of resources, instead saying that 1) you don’t have to get the containers squeaky clean, but 2) the cleaner they are, the more valuable they are, so “by providing clean recyclables, you can actually save your city (and ultimately, taxpayers) money.”

By the logic of the second point, everyone should also not only be sorting and cleaning their recyclables, but also personally transporting them to the recycling center, perhaps stopping along the way to dive a dumpster or two for more revenue-generating recyclables.  Think of all the money you’d be saving taxpayers!

Ikea furniture is cheap, but the price can be misleading because you’re performing the value-added process of building the furniture yourself. For some the labor and time involved is a trade-off worth making. For many people, however, it’s better to pay a higher price for a typical piece pre-assembled by an expert.

Cleaning recyclables is also a value-adding process, and if your goal is to conserve resources, you want that process done as efficiently as possible. The single best way to ensure that efficiency is to pay the specialist to do the recycling for you. Don’t waste any resources cleaning the yogurt tub, just throw it in the bin as is .* If a modern recycling facility can’t turn a dirty yogurt tub into a valuable resource, then how in hades do you expect to do better in your kitchen!

* Prediction: As automated scanning and sorting technologies improve, and the economic value of recycling increases, sorting at the home will disappear entirely. Sci-fi writers and futurists feel free to include this prediction in your works.


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Weirdly, in the past dozen posts or so I’ve had a proclivity to pen successive posts on the same topic. I haven’t planned it at all, but for some reason one post on my traffic troubles spawned several more over the next few days and less than 24 hours after writing a post touching on the difference between finance and economics I decided to write a lengthy post doing present value calculations of gym pricing plans.  And now, here I am about to write another post on gas prices–my blog has its reasons of which reason knows not.

Anyway, let’s get to it, shall we?

It seems consumers who buy mid-grade fuel are missing out on an arbitrage opportunity, as mixing regular and premium will give you the same fuel for a cheaper price (.pdf):

Midgrade is a redundant product offering, easily and almost costlessly replicated by mixing existing regular and premium products. Indeed, this redundancy is widely known and exploited by … just-in-time mixing at the retail pump from separate underground regular and premium storage tanks. … It is rare to see a consumer create a midgrade by buying from two retail feedstocks at a single retail gas station. This is true despite the overwhelming evidence that consumer midgrade mixing is almost uniformly the least costly way to buy retail midgrade.

It’s puzzling that midgrade prices remain inflated when such an easy cost-saving measure could be adopted by consumers. The authors suggest at the end of the paper that for some reason competition across octanes in the retail market is not equal. I would suggest it’s a simple information asymmetry: people like me have no idea you can mix fuels at all, much less that you can approximate a medium grade by mixing regular and premium. If the information became more widely known, prices would fall.

As for me, the way I saved money when gas was four bucks a gallon was to downgrade from premium to regular, despite my car manual’s recommendations and my father’s protestations. Some deft working of the Google machine quickly revealed the truth:

The main advantage of premium-grade gas is that it allows automakers to advertise a few more horsepower by designing and tuning engines to take advantage of premium’s anti-knock properties. But auto engineers generally agree that if you use regular in a premium engine, the power loss is so slight, most drivers can’t tell.

“I go back and forth, and I’m hard-pressed to notice” whether there’s regular or premium in the tank, says Jeff Jetter, principal chemist at Honda Research and Development Americas. He drives an Acura designed for premium.


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Here’s a counterintuitive article:

Feeling sorry for gas stations as prices plummet? Don’t.

Although retail gasoline prices have fallen 55% since mid-July, wholesale prices have plunged even more sharply – 68%, according to the Oil Price Information Service. As a result, retailers have enjoyed record profit margins since mid-September.

“Guess what? They’re making substantially more money at $1.89 (a gallon) than they were at $4.29,” says OPIS chief oil analyst Tom Kloza.

The article gives three reasons for the increased profits:

  1. The credit card fees the gas stations must pay are charged as a percentage of the sale, so the decrease in price has led to lower fees.
  2. When prices are falling, customers will not fill up completely, hoping to take advantage of further falls in prices. This means they make more trips to the pump, and more importantly, to the convenience store, where gas stations earn most of their profits.
  3. Falling prices give station managers some space to fatten their margins, since consumers aren’t as sensitive to price as is the case when prices are high and rising.

There’s so much good applied economics here a teacher could fill up a day talking about it. For sake of symmetry, however, I’ll content myself to three points as well.

  1. People buying less gas in the hope of getting a better deal tomorrow is a good case study for what happens with deflation. In an economy with deflation, or a general sustained decrease in prices, people will hold off making purchases, which reduces economic activity, which reduces prices, which delays purchases, etc. and possibly leads to a deflationary spiral from which it is difficult to escape (See: Great Depression).
  2. That margins can be thicker at lower prices is a nice lesson about how sensitivity to changes in price is based in part on the price point itself. In gas, just like many other things, people tend to be more sensitive about a change in a high price, and less sensitive when a low price changes (here’s a textbook graph). When people are less sensitive, managers can charge a higher price without hurting demand.
  3. The last point is found in the following quote at the end of the article:

Not all retailers are cheering. Shaukat Zakaria, a partner in Lone Star Petroleum, which owns 30 stations in Texas, says the oil bust has dampened local consumer demand, intensifying price competition and cutting margins to 12 cents a gallon recently.

Mr. Zakaria gets the causality backwards. The oil bust didn’t dampen demand, the weaker demand caused the oil bust.  This is a similar mistake that is made by consumers when they see high oil prices coinciding with high oil company profits;they tend to see the profits causing the high prices rather than the high prices causing the high profits.

As I finish this post, I realize that to some this post will have been lengthy and tiresome, but I also chuckle to know that you, yes YOU, Dear Reader, will now assuredly think of me the next time you pull into the gas station–just try not to. My aura will be as unquenchable as the stench from a bit of gas dripped carelessly onto a shoe.

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Is that President-elect Obama thinks on the margin:

The debates unnerved both candidates. When he was preparing for them during the Democratic primaries, Obama was recorded saying, “I don’t consider this to be a good format for me, which makes me more cautious. I often find myself trapped by the questions and thinking to myself, ‘You know, this is a stupid question, but let me … answer it.’ So when Brian Williams is asking me about what’s a personal thing that you’ve done [that’s green], and I say, you know, ‘Well, I planted a bunch of trees.’ And he says, ‘I’m talking about personal.’ What I’m thinking in my head is, ‘Well, the truth is, Brian, we can’t solve global warming because I f—ing changed light bulbs in my house. It’s because of something collective’.”

HT: Climate Progress

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Feels So Right

I just read a Slate article discussing the author’s self-described eco-wander through Germany. He starts the article by writing:

While zooming by a field of wind turbines, traveling on a train from Amsterdam to Bremen at 200 kilometers per hour, I suddenly realized that I was experiencing turbine envy….I’d heard the very train I was on was powered by a grid that includes wind power. My laptop plugged into the train’s wall, I was starting to feel so darned eco that I could practically hear a puff of air each time I hit the space key.

That last sentence captures a fact of environmentalism about which I am decidedly ambivalent. On one hand, since I view self-interest as perhaps the most powerful human motivator, feeling good about doing something green on an individual level is probably a good thing. On the other hand, a warm and fuzzy feeling is not sound basis for public policy, environmental or otherwise. Good examples are contained in the article itself:

Beyond wind, Germany abounds with eco-superlatives. The country produces more solar technology than any other…

And so it does. But this is because the German government guarantees a high feed-in price for any electricity generated by renewable energy. In the case of solar energy, this has had the effect–though of course not the intent– of diverting solar panels from being built in places of the world that are actually sunny and driving up the cost of silicon, a key input in solar panel production, by 1500% in 5 years.

The policy also encourages rent seeking. On a tour of a solar panel plant in Germany, I listened to a city official tell my boss how he didn’t use any of the electricity he generated from the solar panel on his roof. Instead, he sold the solar electricity back into the grid for the guaranteed high price and then bought the cheaper conventional electricity for his personal use, netting him some pocket money each month.

Another example:

I ate bockwurst for lunch (Germany produces 1,500 types of sausage), and the menu noted that the meat was chemical-free and the vegetables organic. More than five times as much agricultural land is dedicated to organic agriculture in the European Union (13.5 million acres) as in the United States (2.3 million acres)…From its wind farms to “small is beautiful” to abundant organics, Germany was beginning to look like the eco-miracle I’d hoped for.

I don’t begrudge anyone their desire to grow or eat organic products, but there is nothing virtuous about it, and indeed, any governmental policy that encourages such an inefficient practice is, in my view, unethical. I refer to Paul Collier, a respected development economist:

The world price of staple foods has rocketed, almost doubling in the past 18 months. For consumers in the rich world this massive increase in the price of wheat or rice is an inconvenience; for consumers in the poorest countries it is a catastrophe.

Food accounts for around half of the entire budget of most Africans….

The remedy to high food prices is to increase supply. The most realistic way is to replicate the Brazilian model of large, technologically sophisticated agro-companies that supply the world market…

Unfortunately, large-scale commercial agriculture is deeply, perhaps irredeemably, unromantic… We laud the production style of the peasant: environmentally sustainable and human in scale…

Our longstanding agricultural romanticism has been compounded by our newfound environmental romanticism. In the United States fear of climate change has been manipulated by shrewd interests to produce grotesquely inefficient subsidies to biofuel…[and] just as livestock are eating the food that would have been consumed by poor Africans, so Americans are running their SUVs on it. One SUV tank of biofuel uses enough grain to feed an African family for a year.

In Europe deep-seated fears of science have been manipulated into a ban on both the production and import of genetically modified crops. This has obviously retarded productivity growth in European agriculture. Again the best that can be said of it is that we are rich enough to afford such folly. But as an unintended side-effect it has terrified African governments into banning GM lest their farmers be shut out of European markets. Africa definitely cannot afford this self-denial. It needs all the help it can possibly get from GM drought-resistant crops.

And sometimes, one might discover that what is perceived as mundane or even dangerous can be more wondrous than it would first appear. So saith William Tucker:

A 1,000-megawatt coal plant is fed by a 110-car coal train arriving every day. A nuclear reactor is replenished by a single tractor-trailer bringing new fuel rods once every 18 months

By comparison, the “wastes” of nuclear power can once again be contained in a single truck. I recently watched one of these spent fuel assemblies being lifted into the receiving room at France’s nuclear reprocessing center in La Hague. It is an eerie sight — the most radioactive object in the solar system emitting double what you would have received standing at ground zero in Hiroshima. Yet a three-foot wall separated us, and the emissions didn’t even register on our badges. More than 95 percent of the spent fuel rod can be recycled. That is why France is able to store all its “waste” (from 30 years of producing 75 percent of its electricity) beneath the floor of a single room.

It all seems too good to be true. People conjure up all kinds of nightmare scenarios just to compensate. Yet the reality remains: nuclear energy is the most environmentally benign discovery ever made.

Maybe, just maybe, a warm and fuzzy feeling can coincide with good policy–nevertheless, prudence dictates that despite his claims about non-registering badges, we should attribute the sensation to radiation poisoning.

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Fun Facts

According to the Energy Information Administration, world demand for oil in 2007 was over 31 billion barrels (.xls), and current proven reserves are calculated to be just over 1.3 trillion barrels (.xls).

1.3 trillion / 31 billion = nearly 43 years’ worth of oil at 2007 levels of consumption.

In 1980 (.xls), the equation was:

645 billion / 23 million = 28 years’ worth of oil at 1980 levels of consumption.

To use an analogy I have come across a few times,  talking about the “proven reserves” of one’s personal supply of food would consider only the contents of one’s pantry, rather than what could be obtained at the grocery store once supplies had run low.

Someone careful might be able to convince me that the real problem is that there’s too much, not too little, of the black gold.

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