Streetwise Professor

April 20, 2024

Why Do Governments Repeatedly Engage in Energy and Environmental Boondoggles?

Filed under: Climate Change,CoronaCrisis,Economics,Energy,Politics,Regulation — cpirrong @ 1:34 pm

In the Wealth of Nations, Adam Smith famously wrote:

By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland? (WN IV.ii.15)

This came to mind when reading this Bloomberg article about an “efuels” venture:

At its plant, electrolyzers break down water into hydrogen and oxygen, using electricity generated from nearby wind and solar farms. The hydrogen is then transported to a reactor, where it meets CO2 captured from local refineries, setting off a series of complex chemical reactions aided by patented catalysts. The result is a synthetic fuel with the same chemical properties as its fossil fuel-based cousins.

Yes, this process can create “equally good” fuel as traditional hydrocarbons. But at what cost? Well, they could tell you, but then they’d have to kill you:

How Infinium fits into that future remains to be seen. Schuetzle is tight-lipped about the company’s exact plans. While acknowledging that Infinium’s e-fuel is “more expensive” than conventional fuel, he didn’t disclose the cost difference. 

Probably not the 30x of Adam Smith’s Scottish wine, but evidently a large enough multiple to frighten the horses if disclosed.

Because of this cost differential, this industry will come into existence only as the result of heavy-handed government policy, in the form of subsidies, kneecapping competitors (namely traditional fuels), or more likely both. And echoing Smith, the question becomes “is it a reasonable law or policy to rig they system to favor this technology, merely to encourage the making of efuels?”

Smith did not answer his question because it answered itself. And the same is true of mine.

To repurpose an old joke, the government wants to address climate change in the worst way, and it is. Picking technologies that are feasible but exorbitantly costly in order to achieve a putatively desirable objective is a tried and false modus operandi of government. And this has been especially true of environmental and energy policies in the United States going back to the dawn of the EPA in the early 1970s, and the energy crisis of the mid-to-late 1970s.

I recall the “synfuels” boondoggles of the late-70s, e.g., making oil from shale. No, not the shale revolution you might be thinking of that actually resulted in the economical production of vast amounts of crude oil and natural gas, but taking shale rock in Wyoming with embedded hydrocarbons, subjecting it to energy intensive transformations (redolent of those described above for the efuels project) to produce oil at vastly higher cost than even the then-elevated price of conventionally produced oil. The government spent billions back when a billion actually meant something on this effort (and other synfuel efforts). And every dollar was wasted.

And reading the Bloomberg article demonstrates that the government, in its wisdom, is doing Adam Smith one better: it wants to mandate technologies that don’t really exist (unlike Smith’s “glasses, hotbeds, and hotwalls”):

Some regulators seem to agree with that thinking. The EU will phase out government subsidies for e-fuel made with fossil fuel-sourced CO2 by 2041. 

In its place, governments will mandate that efuels be made from CO2 obtained from air capture, a technology that the Bloomberg article describes as “nascent” but is more accurately described as “pie in the sky” (literally, in this case).

This generation of efuels will come into existence only as the result of government diktat, just as the first generation–ethanol and biodiesel–did. And the efuel technological greenhouse forcing is just one small part of an array of mandating of technology choices, all in the name of fighting global warming. The electrification of everything is if anything a more extreme example: the EPA’s mileage mandates (intended to make ICE vehicles uncompetitive with EVs), its emission standards for fossil fuel generation, and the lavish subsidization of inefficient (because diffuse and intermittent) renewables are if anything more egregious than growing the efuels industry like orchids.

But bureaucrats are geniuses, and will only do what’s best, right? Right? To disabuse yourself of such notions, refer back to the synfuels case discussed above. Or consider two more recent examples.

One was the European policy to force the replacement of gasoline engines with diesel ones in passenger vehicles, with the unintended–but totes foreseeable–result of increased particulate emissions (and widespread fraud by automakers to conceal that). Europe had to jettison that policy, so it has substituted another: eliminating ICE vehicles altogether. I’m sure that will work out swell.

Another that I find particularly rich is the sulfur standards for marine fuels introduced in 2020. In another unintended (but again foreseeable) consequence, the resulting reduction in particulate emissions is allegedly contributing to global warming. The irony behind this (compounded by the fact that efuels funder Bill Gates is also a fan of this technology) is demonstrated by serious proposals–recently experimented with–to inject particulates into the atmosphere to, yes, mitigate global warming.

So why do governments repeatedly adopt excessively costly policies to address putative problems? One part of the answer is hubris combined with the knowledge problem: they think they know a lot more than they do. But that’s not the entire answer.

At root, I think the more fundamental driver is public choice-related. Specifically, specific technologies have specific constituencies who would benefit from their subsidization (or other forms of policy support). They exert influence on legislators and bureaucrats to implement policies that favor them. (It is not a coincidence, comrades, that Bill Gates and the like have connections with many of these schemes.)

In contrast the effects of policies such as a carbon tax or cap and trade are much more diffuse and far less predictable because the ultimate outcome would be determined by market processes in a complex system. Adjustments would occur on myriad margins, not just by large firms but billions of individuals. The winners and losers in such a process are unknown, unknowable, and highly diffuse–these are not the concentrated interests that exert disproportionate influence on public policy.

(NB: I am not endorsing a carbon tax or cap and trade. I merely assert that they would be better ways of reducing carbon emissions than subsidizing or mandating technologies to do so. An exercise in the Theory of the Second Worst, if you will.)

In sum, political systems produce bad “solutions” to problems because of the very nature of politics, a nature that Mancur Olson and others pointed out years ago. A nature in which “public choice” means that the public gets screwed.

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  1. The only known effects of carbon emissions have been to green up the entire planet and to improve agricultural yields by 15%.

    There is no physical theory predicting that CO2 emissions will warm the climate. There is no observable climate crisis — everything we observe is within natural variation.

    Climate catastrophe has been 10 years away for 45 years.

    Climate modeling is pseudo-science. The air temperature record is so riddled with measurement error that neither the rate nor the magnitude of warming since 1900 is knowable. The whole global warming panic rests on false precision.

    The emissions legislation of government is no more than sending huge streams of money into the pockets of the already rich. Theft. Period.

    Incompetents empowering the avaricious.

    Comment by Pat Frank — April 20, 2024 @ 5:10 pm

  2. In Britain climate hysteria has led to policies that are effectively the imposition of highly regressive taxation. Yet the enthusiasts for this sort of thing probably think of themselves as socialists. It’s a funny old world.

    Comment by dearieme — April 21, 2024 @ 12:34 pm

  3. What is about carbon that sends men mad?
    If 200 parts per million of CO2 was taken out of the atmosphere all the plants would die, and so would we.
    If we trebled CO2 to over 1,000 ppm the plants would thrive, and so would we.
    If we multiplied the concentration by an impossible ten times we wouldn’t notice. (Possibly long distance running records might last longer.)
    Sedimentary rocks are basically sequestered carbon. They are being created all the time at the rate of about 1mm per year over the entire planet.

    We need a Friends of Carbon pressure group to resist this insanity.

    Comment by philip — April 22, 2024 @ 6:32 am

  4. I’m fairly cheerful about electrolysis from wind/solar to H2 through Fischer Tropsch to hydrocarbon fuels. Porsche seems to think that it’s Tierra del Fuego (or mainland close by) plant can produce at $4 a gallon. Yes, expensive etc. But I tend to think that will be cheaper, overall, than trying to make electric airplanes to cross the Atlantic…..

    Comment by Tim Worstall — April 24, 2024 @ 3:12 am

  5. For the curious.

    “Hotbed of activity / revolution / innovation…” comes from the concept of a bed (as in flower bed, vegetable bed) warmed by a buried layer of manure to accelerate growth. Metaphorically “hotbed” means a place with ideal conditions for something to occur. Horticulturally it’s common to put a glass frame over the top and make a “hotbox”, essentially a cheap heated greenhouse.

    “Hot wall” is usually two words. Walled gardens were used as kitchen gardens in great houses, especially in cooler climates like Britain where the walls gave shelter from wind and frost. The ability of stone or brick walls to retain heat and slowly release it allowed south-facing walls to grow peaches and grapes even in southern England and Ireland. But in northern England and Scotland a more expensive approach was developed, becoming reasonably common in the 18th century, a “hot wall” or “fruit wall”.

    Originally hot walls had cavities in which fires could be lit and hot air channelled – even controlled by movable blocks of stone that opened or closed a flue. Later models were heated by a boiler and the heat circulated using pipes inside the wall.

    Comment by Anon — April 26, 2024 @ 4:25 am

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