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Castles and Henderson, again

January 27th, 2006

People who’ve been following the debate about global warming closely will be aware that the economic modelling used in projections of future climate change by the IPCC has been severely criticised by former Australian Statistician Ian Castles and former OECD chief economist David Henderson. The critique emerged in a rather confused form, with a number of letters and opinion pieces before finally being published in contrarian social science journal Energy and Environment. Responses, including mine, have been similarly partial and sporadic.

I’ve finally prepared a full-scale response to the main claim made by Castles and Henderson, that the use of market exchange rates, rather than “Purchasing Power Parity” conversion factors for national currencies, biases estimates of future emissions upwards. My conclusion is that although PPP measures are preferable in comparisons of national welfare, the biases introduced by using market exchange rates are not important in modelling emissions and will, on average, cancel out. You can read it all here.

Update: Ian Castles has sent a response which I’ve posted here. It doesn’t seem to me that Ian responds to my argument except to deny that the MER/PPP issue was the main point of the critique.

I should also note that Holtsmark and Alfsen (2004), whose paper I’ve just found, present much the same argument as mine.

Further update In the comments discussion, a fair degree of common ground has been reached. Ian clarifies that he and Henderson object to MER conversion factors, but not because they bias projections of emissions, saying

I agree that these arguments (about the errors in GDP growth and emissions intensity reductions cancelling one another out) are sound as a first approximation.

Ian makes the valid point that use of MER conversion produces the incorrect conclusion that the energy-intensity of LDCs is about the same as prevailed in developed countries when their income was similar. This could lead to misleading policy inferences, for example with respect to mitigation policy and should be corrected.

I agree with Ian that it is better to use PPP measures consistently, and that the sooner the IPCC does this the better. On the other hand, I think it’s important to make the point that the widely-repeated claims that IPCC projections of emissions are fundamentally erroneous because of the choice of exchange rate are not supported by careful analysis.

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  1. January 27th, 2006 at 18:27 | #1

    There’s a problem in the first paragraph, John. Better fix it before tim blair starts a thread about you!!

  2. January 27th, 2006 at 20:47 | #2

    Thank you for that JQ. I am not able to argue against Ian because I severely lack any sort of economic qualifications. This coming from another economist at least carries some weight. Ian uses his critique to bag the whole IPCC process and it is difficult to counter.

  3. jquiggin
    January 27th, 2006 at 22:56 | #3

    Fixed now, thanks, hopefully before Tim noticed this glaring error.

  4. Harry Clarke
    January 28th, 2006 at 17:27 | #4

    So your point is that (ignoring relative prices) the estimated demand will look like (energy) E = a + b*GDP. Estimating GDP at market exchange rates for developing countries will underestimate it in developing countries so that increased growth will be needed in them to achieve convergence with GDP in developed countries. But the estimate of b will be biased upwards anyway if you regress E on an understated income variable. So the net effect of using downwardly-biased GDP figures is ambiguous. Is that it? Sounds right if so.

  5. jquiggin
    January 28th, 2006 at 18:13 | #5

    Exactly right, Harry.

  6. Louis Hissink
    January 28th, 2006 at 20:43 | #6

    Ian Castles is a statistician, not an economist which Henderson is.

    However when has any economic prediction ever been right?

  7. Waratah
    January 28th, 2006 at 23:34 | #7

    I read Castle’s response. Then I read it again. His usual game of distraction: quoting and citing numerous papers and referring to meetings and webs of exchanges between eminent persons without actually saying anything much at all. Castles alleges that you haven’t addressed the main arguments. What the hell are they, precisely? I’d like to know. If these agruments are so important, surely he is capable of summarising them himself, without subterfuge?

  8. Ernestine Gross
    January 28th, 2006 at 23:54 | #8

    John,

    Thank you for making your paper available.

    I don’t understand why PPP should be considered as a relevant conversion factor at all, given that the world economy does not consist of approximately 200 countries, each one the size of Monaco and adjacent to each other.

    There is an index problem, which you mentioned. But setting this aside, disaggregated PPP does not hold even approximately within some countries and this is not due only to non-tradeables (eg real estate) but due to transport costs being non-negligible because of the size of the countries. PPP implicitly assumes there is only 1 location in the sense of Debreu (1959). (Profs M. Kemp and A. Woodland have written on transport costs in a G.E. context at least 30 years ago).

    For example, petrol (and other) prices in outback Australia are much higher than in Sydney (the variation between outback and city prices exceeds the variation within cities). This is due to transport costs. Transport costs imply transport technologies and transport technologies use energy and are associated with emissions.

    I don’t understand why you consider PPP conversion more relevant for welfare questions. Firstly, given the aggregate nature of the model, any link to individuals’ welfare is in any case artificial – but I suppose this item is assumed to be treated separately at a country level. Second, with a stretch of imagination, I can see that PPP conversion might be more interesting for geographically smaller but densely populated countries than most countries in African, Australia, Canada, Argentina ………. But his thought is not consistent with any universally applicable welfare criterion I can think of.

  9. Ian Castles
    January 29th, 2006 at 08:07 | #9

    John Quiggin criticises me for saying the IPCC scenarios embody ‘fantastic assumptions’ and ‘astronomical’ projections of growth rates. Well, I’m in good company amongst some economics professors. John Reilly of the Massachusetts Institute of Technology labelled the Panel’s scenario exercise ‘a kind of insult to science’ and described the method as ‘lunacy’. According to Julian Morris of the University of Buckingham the scenarios are ‘bizarre fictioins’. Richard Tol, of Hamburg, Vrije and Carnegie Mellon Universities told the House of Lords Committee inquiry that the growth assumptions were ‘ludicrous’, and that Castles and Henderson were ‘very right’ to criticise them. And Warwick McKibbin of the Australian National University finds strong evidence that the wide variety of assumptions about ‘convergence’ commonly used in emissions projections ‘are not based on empirically observed phenomena’.

    One scenario puts the world’s average consumption of electricity per head in the year 2100 at over five times the rich country average in 1990. The same scenario has the consumption of oil per head increasing more than threefold over the century. But all of the scenarios, according to the IPCC, are ‘plausible’. These scenarios are in the same category as the notorious “Limits to Growth” fantasies of the report to the Club of Rome in 1971.

  10. Harry Clarke
    January 29th, 2006 at 08:51 | #10

    But Ian I think John’s basic point about the irrelevance of the specific income valuation procedure is right. One way I can imagine that indicated degrees of emission growth are systematically exaggerated is if (i) income levels were understated by using market exchange rates and (ii) the income elasticities of energy demand were obtained in a way independent of the understated income levels. An example might be if income elasticities were obtained using PPP adjusted data or guessed-at elasticities perhaps loosely based on cross-sectional data are used in the simulation exercise.

    Alternatively forecast income growth in developed countries could be estimated too high (perhaps because supply constraints from energy price effects are ignored) so that an exaggerated implied extent of required convergence is suggested. The forecast levels of electricity use (5X current rich country levels) does sound high. And scenarios where world oil use trebles would seem to ignore supply-side issues. But it sounds to me like these are problems with regard to how the scenario is constructed in terms of the income levels that need to be attained. This argument would not destroy John’s point about the comparative irrelevance of using market exchange rates.

  11. jquiggin
    January 29th, 2006 at 09:04 | #11

    I agree with Harry that scenarios with 5x electricity use and 3x oil use sound high and might encounter supply issues in the case of oil. But if I recall correctly, these are explicitly labelled as high-range projections under business as usual assumptions. Considered in this light, I don’t regard them as evidence of lunacy or absurdity. The required growth rates for developed countries are about 1.6 per cent and 1.1 per cent respectively.

    There are plenty of problems with the SRES scenarios and analysis, but the overheated rhetoric Ian uses and quotes doesn’t help anybody (except those aiming to stop any response to global warming, such as the Lavoisier Group).

  12. jquiggin
    January 29th, 2006 at 09:19 | #12

    A couple of questions I’ve posed to Ian by email, and will also pose here

    (1) If the MER/PPP issue is not your main objection to the IPCC modeling, could you state your main objection in a couple of sentences?

    (2) As you must be aware, your criticism of the IPCC modelling has been used extensively by bodies such as the Lavoisier Group who have no interest in promoting improved modelling and whose only goal is to sabotage any action to mitigate global warming. Do you support substantive action to mitigate global warming, such as Kyoto or the McKibbin-Wilcoxen plan, and will you say so publicly?

  13. Ian Castles
    January 29th, 2006 at 10:26 | #13

    John, My critique of the economic and statistical work of the IPCC, mostly done in co-authorship with David Henderson, runs to well over 100 pages. Are you able to show me where and when I said that the MER/PPP issue is not my main objection to the IPCC modeling? Please quote my (our) exact words.

  14. jquiggin
    January 29th, 2006 at 10:38 | #14

    Your email to me, linked in the post, begins

    “John, You’re quite mistaken in thinking that the ‘main claim’ of Castles and Henderson is that the use of market exchange rates (MER) rather than purchasing power parity (PPP) converters biases projections of future emissions upwards.”

  15. Ian Castles
    January 29th, 2006 at 10:41 | #15

    John, Why did you stop in mid-sentence? Please quote the whole sentence.

  16. jquiggin
    January 29th, 2006 at 10:56 | #16

    Comments seem to have crossed, Ian. I was just fixing that as you wrote in. Full sentence is there now.

  17. jquiggin
    January 29th, 2006 at 11:23 | #17

    I’ll observe further that, if I have mistaken your main point, so have lots of others. For example, McKibbin et al summarise your critique as follows:

    “Castles and Henderson (2003a, 2003b) suggest that if PPP adjusted data were used in the SRES, the projected economic growth rates would be lower and so would the projections of emission levels. We now examine the magnitude of the consequences of the Castles and Henderson critique …”

    Google produces many similar examples.

  18. Ian Castles
    January 29th, 2006 at 11:39 | #18

    Thanks John. As the full sentence shows, my objection was to your statement that our ‘main claim’ related to the effect ON EMISSIONS PROJECTIONS of using MER rather than PPP, In fact, we have laid far more stress on the effect of using MER rather than PPP-based measures on estimates and projections of output and of energy and emissions intensities.

    The statement in the IPCC Special Report on emissions scenarios that ‘the level of energy intensities in developing countries today is generally comparable with the range of the now-industrialised countries when they had the same level of GDP’ was an extraordinary analytical error. As Angus Maddison’s submission to the Lords Committee shows, the now-industrialised countries had far higher energy intensities when their incomes were at the levels of today’s developing countries. The IPCC’s error in turn misled the World Bank, as I pointed out in one of my first letters to Dr. Pachauri. Such mistakes, which stem directly from the use of MER converters, have potentially serious policy consequences.

  19. jquiggin
    January 29th, 2006 at 11:52 | #19

    Fair enough, Ian. I will correct the paper to clarify that you don’t regard this as your main point. However, as I’ve noted, it has been taken to be the main point by a great many who’ve cited it. Moreover, since the primary purpose of the SRES scenarios has been to generate projections of emissions, it’s obviously important. I’d be interested to know, therefore whether you have any substantive response to my analysis of this point.

    I agree with you that the conclusion that ‘the level of energy intensities in developing countries today is generally comparable with the range of the now-industrialised countries when they had the same level of GDP’ is incorrect if PPP measures are used, and that this error could lead to mistaken policy inferences.

    The obvious example of such an inference would arise if this claim was used to justify an assumption of no energy-saving technological progress in modelling. Are you aware if this has been done?

    Also, do you have any response to my second question ?

  20. Ian Castles
    January 29th, 2006 at 12:09 | #20

    John, This is in response to your posting at 9.04 am and Harry Clark’s at 8.51 am.

    Yes, the projections I quoted are labelled high, and it is of course the warming projections derived from these that are almost invariably quoted in the media as forecasts of the future actual temperature. So let’s look at the B1 scenario, which CSIRO described as ‘best case’ in a submission to a Senate Committee inquiry in 2004. When the B1 marker was tabled in the ‘open process’ phase of scenario development in 1998, world fossil CO2 emissions were projected at 9 GtC in 2050. The final report in 2000 put the level of emissions at mid-century at 11.7 GtC – up 30%. Compared with the preliminary projections made public a year or so earlier, emissions of developing regions were 49% higher and those for developed regions 6% lower.

    It’s not difficult to guess why this may have happened. According to Richard Tol, in evidence to the Lords Committee, the SRES Team were told ‘If you come up with scenarios in which the African countries, which are a fairly large bloc (in the UN) … do not grow fast enough, they will never approve our scenarios.’ John Reilly of MIT says that his lab refused a request from the IPCC to let their models be ‘tweaked’ to support the IPCC scenarios. As the B1 scenario projects a 15-fold increase in GDP per head in Sub-Saharan Africa in the first half of the 21st century (compared with a doubling or so in the whole of the 20th century), I think that it is fair to suspect that this scenario was ‘tweaked’. Is it not revealing that the IPCC and its acolytes have not seen any need to investigate John Reilly’s very serious allegation? (Incidentally, Dr. Pachauri gave evidence on the same day as Tol, and told Lord Robert Skidelsky that the criticism of the IPCC scenarios ‘only validates the methodology the IPCC used earlier. It does not require any deviation from it.’)

    Harry, this is no more than a guess, but is it not possible that the ‘tweaking’ process is made easier to get away with if the models incorporate GDP estimates showing developing countries having average incomes of one-third or one-quarter of what they really are? If PPP comparisons had been used for the base period, the reported levels of income per head after several decades of rapid growth would look unrealistically high.

    the reported GDP(MER) series do not represent real income/production changes, but rather nominal income/production changes. What is important here is that this concerns ALL THE SCENARIOS IN THE SRES, which therefore provides a HIGHLY MISLEADING PICTURE and is worthy of criticism�

  21. Ian Castles
    January 29th, 2006 at 12:35 | #21

    The last para. of my posting at 12.09 was left there by mistake. The words come from the paper by Holtsmark & Alfsen that you said presented much the same arguments as yours, John. And yes, in response to your 11.52 am posting, first para., I agree that these arguments (about the errors in GDP growth and emissions intensity reductions cancelling one another out) are sound as a first approximation. But as you see, H&A, after making the same arguments as you, conclude that the scenarios in the SRES provide ‘a highly misleading picture.’

    I don’t agree that the primary purpose of the SRES was to generate projections of emissions. If this was all the climate modellers wanted, the SRES database could have provided some average or representative profiles of emissions from the literature. The main purpose of the SRES was to present internally consistent projections of population, output, energy use, relative costs of energy technologies, land use, etc.: see SRES. section 1.3, especially the detailing of the specific needs of each of the three Working Groups. The failure of the IPCC to use the output concept prescribed by the UN Statistical Commission has led to great confusion and has rendered the scenarios largely useless for the purposes of WG II and WG III.

  22. Mike Hart
    January 29th, 2006 at 12:46 | #22

    Sirs, I tend to agree with the critique of PPP and MER as a forecasting tool for future emissions but perhaps for different reasons. The use of income measurement for forecasting physical emissions seems to be a case of grasping at straws in terms of a correlation to what may actually be occuring or likely to occur.

    I am curious to know why given that we know that oil and coal are finite resources, quite estimatable in terms of recoverable deposits (putting aside the marginal utility of recovery argument), thus we know how long we can continue to use these energy sources, that the physics of the energy consumption rates are not used instead? If we recover and use X amount of oil and mine and use Y amount of coal and Z for other energy emissions and we know that the product of the burning of X, Y and Z results in W amounts of emissions (plus or minus any efficiencies in the combustion process) then surely future emissions reduce to those amounts, therefore the production curve for energy deposits = the emission curve. The longer we do it the more we get, seems a simple irreducible fact, is the rate exponential? the historical data seems to suggest it is.

    I would take the hair splitting debate about income and GDP measures more seriously were they not based on income and money which appears to have an infinite exponential rate of increase and instead refocused on the physical reality of what it is we are actually doing with the stuff, we burn it for energy which we use in a wide variety of processes.

    The IPCC had to have something credible to make people pay attention but pandering to technical niceties on accounting statistics merely encourages the useless debate evident above.

  23. Willis Eschenbach
    January 29th, 2006 at 16:31 | #23

    Mike, you say:

    I am curious to know why given that we know that oil and coal are finite resources, quite estimatable in terms of recoverable deposits (putting aside the marginal utility of recovery argument), thus we know how long we can continue to use these energy sources, that the physics of the energy consumption rates are not used instead?

    While your proposal sounds appealing, the problem with the idea is that our estimates of “recoverable deposits” (usually called “proved reserves”) is not constant as you assume. Take a look at the BP Statistical Review of World Energy June 2004, which can be found on the internet at: http://www.bp.com/statisticalreview2004

    Using your method, in 1988, the total proved oil reserves (as estimated in 1988) divided by the 1998 usage rate (including projected increases in the usage rate over time) give us about 35 years of projected oil usage.

    In 1994, using the 1994 usage rate and 1994 reserves and the same method we get … about 35 years of projected oil usage.

    And in 2004, using the 2004 usage rate and reserves and the same method we get … about 35 years of projected oil usage.

    Finally, as the Canadian tar sands example shows, we cannot blithely ignore the change in recoverable resources with respect to oil prices. As prices rise, so do proved reserves. The recent entry of the Canadian tar sands onto the market has increased the proved reserves by about 20%, a huge amount.

    While obviously this can’t continue forever, we don’t know how long it can continue. Thus, unfortunately, we can’t use your simplified method to calculate future usage or future CO2 emissions, because for the last 15 years or more, discoveries have kept pace with rising usage.

    Your method requires a fixed, known amount of recoverable deposits, and we simply don’t have that information. Thus, we are forced to choose between MER estimates and PPP estimates of future growth in order to estimate CO2 emissions.

    Regarding that choice, it is astounding to me that

    a) the IPCC continues to insist on using MER (according to Nature magazine, the IPCC now say they plan to change that, but it’s too late to update their scenarios for the FAR, so they’ll change next cycle … which, of course, means that the current scenarios are wrong and unusable), and that

    b) Prof. Quiggin supports this use of MER, in the face of opposition from economists, government economic bodies, and learned societies around the world.

    There is a special report on the costs of global warming in the latest Nature magazine (26 Jan ’06) which is extremely critical of both the IPCC’s, and by implication Prof. Quiggin’s, position. Worth reading before anyone goes bashing Ian Castles too much …

    My best to you all,

    w.

  24. jquiggin
    January 29th, 2006 at 17:01 | #24

    To repeat myself, Willis, my view is that PPP estimates are generally preferable, but that as far as projected emissions are concerned, it doesn’t matter much which you use. On this point, Ian Castles, a few comments up says:

    “I agree that these arguments (about the errors in GDP growth and emissions intensity reductions cancelling one another out) are sound as a first approximation. ”

    though he goes on to repeat his argument that PPP estimates are misleading for other reasons.

  25. Ian Castles
    January 29th, 2006 at 17:44 | #25

    John, this is in response to your second question (posting at 9.19 am today). As the head of the Australian Bureau of Statistics for nearly nine years, I became accustomed to the notion that many (perhaps most) users were less interested in the reliability and accuracy of the statistics in which they were interested than in the utility of those statistics in supporting the causes that they favoured. It was not uncommon to find that particular interest groups (including government agencies) would prefer to have no data at all than to have information, however reliable, which might be used against their interests or preferences. So I’m generally disposed to ‘let the light shine’, and not to be swayed by considerations of how information may be used in deciding whether or not it should be published. I take the same position with respect to emissions scenarios and the economic analysis of climate change generally.

    To be frank, the IPCC has been a shock to me. The UNDP has responded positively to the criticisms I raised about the Human Development Report (mentioned in your paper) which were confirmed by a group of expert statisticians appointed by the UN Statistical Commission. I took for granted that, if a scientific body wanted to use statistical concepts such as GDP in its analyses, it would also want expert advice from national accounting statisticians and index number specialists. Instead, the reaction of the IPCC has been totally negative. Their approach has been focused on how to deal with the criticism, rather than on examining its possible validity. It is disturbing that no statisticians were selected for the IPCC writing teams for AR4: can there be any possible reason, other than a disinclination to have the IPCC’s scenarios opened to scrutiny?

    I’m also concerned that the ‘modeling community’ seems to believe that it should be the arbiter of good statistical practice (do the climate modelers try to second-guess the physicists?). I believe that there is much more to developing long term scenarios than modeling. At Amsterdam, David Henderson developed with others a proposal for a special meeting on “Long term economic scenarios in the context of the work of the IPCC’ and sent it to Dr. Pachauri. Possible speakers were named: Nicholas Crafts for reviewing and building on the past, Shankar Acharya on projecting growth in poor countries and rich, Paul David on the interactions of economic and technical change, me on the basis for international comparisons, William Nordhaus on the uses and limits of model-based scenarios and Angus Maddison on methods and ways of thinking about the future. Again this proposal got nowhere: I wonder why?

    But at least, for whatever reason, the Economic Affairs Committee of the House of Lords decided twelve months ago to review the economics of climate change – and, perhaps to their surprise, they found themselves querying the IPCC’s role and conduct, including some of the assumptions underlying both UK and international climate change policy. To quote from the submission that David Henderson and three other leading British economists have made to the Stern Committee: “It is a striking fact that a group of eminent, experienced and responsible persons, drawn from a national legislative body and spanning the political spectrum, with the help of an internationally recognised expert adviser and after taking and weighing expert evidence, has published a carefully considered and unanimous report … in which, among other things, the work and the role of the Panel are put in serious question.’

    I agree in general with the policy conclusion reached by the Lords Committee. I look forward to the findings of Sir Nicholas Stern and his team , which will become available later this year. Like David Henderson, I feel very strongly about the use of economics in administration. So far as the economics of climate change is concerned, I have hopes that the Stern review may yield insights that are not readily produced by an intergovernmental panel (and certainly not, on its recent track record, by the IPCC).

    You ask whether I ‘support substantive action to mitigate global warming, such as Kyoto or the McKibbin-Wilcoxen plan’. If by ‘Kyoto’ you mean the ‘targets and penalties’ approach embodied in the 1997 agreement, the answer is of course no. If you include in ‘substantive action to mitigate global warming’ the support and expansion of ‘research and development to increase the variety and cost-effectiveness of available mitigation options’ (the words are from Indur Goklany’s submission to the Lords Committee inquiry), the answer is yes.

    I wish that in Australia we could have our own review, along the lines of the Stern review, into the economics of climate change. Such a review does not fit easily into our present policy structures, but the same could have been said about the UK – and the review is up and running. The appropriate balance between mitigation and adaptation would clearly be a key issue before such an inquiry. The principles underlying the McKibbin-Wilcoxen Blueprint seem to me to be right, and I would like Warwick to have the opportunity to present specific proposals for examination by a task group of experts. In the end, expert examination can only go so far towards reaching a decision on such a plan, and the political decision should be based on the best possible information. On prospective emissions (which I recognise is only one consideration) why can’t Australia conduct its own scenarios exercise (I advocated this in 2002, before my first letter to Dr. Pachauri).

    John says rightly that most of the SRES projections have global emissions declining after 2050, but in many cases the levels remain much higher than at present. What is being assumed about technology, implicitly and explicitly, in such projections (I don’t know the answer to the question you raised about the possible effects of MER/PPP on this, John). Why do ALL the scenarios assume that methane concentration will continue to rise, when they’ve remained stable for the past five years (I know that there are reasons why they may rise again, but there are also reasons why they may fall. All of this should be being examined in a less highly charged atmosphere (no pun intended).

  26. Willis Eschenbach
    January 29th, 2006 at 18:33 | #26

    John, thank you for your response. A few questions:

    1) Since according to you, and Castles and Henderson, and everyone else, PPP estimates are preferable, why do you suppose the IPCC is so opposed to using them? Why did they use them in the first place? And why have they (and you) been fighting so hard to discredit Castles idea that the IPCC should use PPP?

    2) You say that MER estimates contain errors that will “on average” cancel out. However, this clearly implies that in any particular case, they don’t cancel out. Since the IPCC SRES scenarios are used for particular as well as general cases, won’t this make anything but the most general IPCC results unreliable?

    In particular, the location of the emissions is critical for both worldwide and regional computer climate forecasts. In this case, even the overall situation may not “average out”, because the total numbers may be right but the locations are wrong.

    To take another example, suppose a bunch of your students take a test, and an error in your software adds or subtracts a random normal number of points from each score. The errors will, as in your analysis of MER, cancel out “on average” (although they will still contain an error of unknown size and sign). However, each score will be wrong, some of them wildly so.

    Now suppose that you want to see if students from a particular area do better or worse. In this case, the location matters (as with the scenarios) and so your results are useless. They present, as Holtsmark & Alfsen say of the SRES scenarios, a “highly misleading picture.”

    Perhaps you could explain why this “highly misleading picture” is a satisfactory result, particularly given the remaining error of unknown size and sign in even the most general of results?

    3) As you point out, Ian Castles says (above) that the MER based SRES estimates are misleading for other reasons, and he has detailed those reasons in his response. Could you address those issues?

    4) Finally, given the detailed, multi-page nature of Castles response to you, your claim that

    It doesn’t seem to me that Ian responds to my argument except to deny that the MER/PPP issue was the main point of the critique.

    glosses over a wide variety of other very germane points made by Castles and supported by citations from very reputable sources.

    In particular, you have not touched on any of the number of papers, both from Castles and a variety of other authors, which have discussed this issue. Since many of these papers have discussed, and often emphatically denied, points that you have made in your paper, this omission is a significant one. Do you plan to discuss those other studies and points?

    Many thanks,

    w.

  27. Mike Hart
    January 29th, 2006 at 18:51 | #27

    Willis, I agree that the level of reserves changes (but a change over ten years extending the life of known reserves by only the same amount, is to my mind not realy significant), however, there are two issues here.

    One, we have already burned through vast amounts of oil, coal and shale oil (dirty energy) this is evident by the increasing Co2 load in the biosphere thus it becomes an issue of the rate of increase of the Co2 load which is created by continuing to burn these fuels. (I am inclined to accept Hubberts bell curve on this, perhaps not the timeline).

    Second, I see no attempt by anybody barring those who signed up to the Kyoto agreement to reduce emissions, therefore by simplistic deduction I assume that what is left is what will be burned and therefore that is what is going to be added to the Co2 levels in the biosphere. The prime issue therefore is at what rate and what is the best measure for that rate, assuming the continued need to have most nations operating at a growth rate of 2-4% annualised increase in GDP and without price signals for alternative to substitute, then we will continue to burn the remaining reserves. It is that consumption of dirty energy that has to change and us with it. I am actually more concerned that market price signals are already being distorted by subsidies in many parts of the world and thus energy efficencies and alternative sources are being excluded.

  28. Willis Eschenbach
    January 29th, 2006 at 19:21 | #28

    Mike, thanks for your response. My main point is this – we don’t know how much recoverable oil is in the ground. Simple as that.

    Like I say, our estimates of how much recoverable oil there is just went up by ~20% because of the entry of the Alberta tar sands into the equation. This is a huge jump. How much will they jump again when the use of oil shale becomes practical?

    A second missing link is the actual amount of reserves in the mideast. Most of the nations there have not done any further exploration since the big oil companies were kicked out fifty years ago … no need to, you see, they have plenty of oil for now. Will they find more if they look? Undoubtedly. How much? No one knows.

    A third question involves all of the areas in the US and other countries, like the whole coast of California, which are closed to exploration. How much oil is there, and will we ever burn it? We don’t know the answer to either question.

    Fourth, not all oil is burnt. A significant part of fossil fuels (oil, gas, coal, etc.) is feedstock for industry, making such things as plastics and fertilizers. Much of this will not ever go into the air as CO2.

    Finally, oil reserves are considered by most governments and nearly every oil company as a very closely guarded secret. We think we know how much oil Russia has, for example, but we don’t know, any more than we know how much reserves Mobil actually has.

    Thus, for better or worse, we’re left with PPP and a string of economic assumptions, and unfortunately, your simplified system won’t work.

    Regarding your second point, market signals are indeed distorted by subsidies. However, they work opposite to what you claim. The largest of these subsidies is that the consumption of oil is subsidizing most governments, through taxes. The amount of these taxes worldwide dwarfs any subsidies to the energy companies, and these tax-based government subsidies act in the direction you want, that of energy efficiency and the support of alternative energy through higher oil prices.

    My best to you,

    w.

  29. Terje Petersen
    January 29th, 2006 at 19:26 | #29

    I would think that there is actually an incentive on the part of oil producing nations to minimise market knowledge about reserves. That way the price is likely to be higher.

    Of course as and when the price of oil (and other fossil fues) rises new reserves become viable. However so do alternate energy sources.

  30. Louis Hissink
    January 29th, 2006 at 20:25 | #30

    Recoverable oil and coal reserves are based on the theory that these are derived from compressed remnants of the biosphere, “fossil fuels”.

    On this basis, from an inventory of the known sedimentary basins, finite reserves (not in JORC terms) are estimated. These estimation would for the basis of IPCC economic forecasting.

    However coal and oil reserve estimations become problematic when mantle derived, abiotic hydrocarbon production is introduced into the analysis.

    Opponents of the Russian-Ukrainain theory of Abiotic oil need initially to show how the Second Law of Thermodynamics has been repealed, in order to scientifically substantiate their assumption that oil is principally biogenic.

    If these basics are flawed, then any model built on those basics will also be flawed.

  31. Louis Hissink
    January 29th, 2006 at 20:26 | #31

    Apologies for spelling errors, I am, but human.

  32. January 29th, 2006 at 20:39 | #32

    Willis – “Like I say, our estimates of how much recoverable oil there is just went up by ~20% because of the entry of the Alberta tar sands into the equation. This is a huge jump. How much will they jump again when the use of oil shale becomes practical?”

    The size of the reserve is not the point. Only by using half of Canada’s entire natural gas output could the tar sands be ramped up by 2020 to 5 million barrels per day. As demand is likely to be 100 or 110 million barrels by then this is really a drop in the ocean. Really Tar Sands should be regarded more like coal as an oil resource that has to be mined.

    “A second missing link is the actual amount of reserves in the mideast. Most of the nations there have not done any further exploration since the big oil companies were kicked out fifty years ago … no need to, you see, they have plenty of oil for now. Will they find more if they look? Undoubtedly. How much? No one knows.”

    If anything the reserves will be overstated as most mideast countries artificially raised their reserves about 1985. Most oil bearing places have been extensively explored and the rate of discovery even with the most modern technology is dropping. Only half the oil used is replaced by new discoveries.

    “A third question involves all of the areas in the US and other countries, like the whole coast of California, which are closed to exploration. How much oil is there, and will we ever burn it? We don’t know the answer to either question.”

    Actually the US peaked in 1970 despite all the exploration.

  33. January 29th, 2006 at 20:42 | #33

    Louis – “Recoverable oil and coal reserves are based on the theory that these are derived from compressed remnants of the biosphere, “fossil fuelsâ€?.”

    For the last time even if this abiotic theory was nearly true do you think the oil wells will refill at 83 million barrels per day. If they did the entire globe would be swimming in oil.

    Also please explain why so much oil is found using the fossil theory of formation?

  34. Louis Hissink
    January 29th, 2006 at 21:28 | #34

    Ender,

    Swimming in oil” I have no idea where you get the number of 83 million barrels per day. Not from I.

    Your last question is easy to answer – no one has been looking elsewhere, hence there is no data, and hence no theory.

  35. Louis Hissink
    January 29th, 2006 at 21:30 | #35

    I might add that theorising in the absence of data is called religion.

  36. January 29th, 2006 at 21:52 | #36

    Louis – 83 million barrels per day is the world’s current consumption – are you claiming that oil wells could refill abiotically at this rate?

    Wildcat wells are drilled all the time in unlikely areas – the only ones that produce oil are usually in the areas where oil of fossil origin is likely to be found.

  37. Louis Hissink
    January 29th, 2006 at 21:57 | #37

    Ender,

    I have said nothing of the sort.

  38. Waratah
    January 29th, 2006 at 22:17 | #38

    Louis can you briefly explain what you’re on about so that a non-specialist can understand it?

    Curious if Ian will keep ignoring John’s question no. 2 above.

  39. Ernestine Gross
    January 29th, 2006 at 22:23 | #39

    W.E. says: “How much will they [recoverable oil] jump again when the use of oil shale becomes practical?” [added]

    ?practical? Do you mean technologically possible or financially profitable?

  40. Andrew Reynolds
    January 29th, 2006 at 22:40 | #40

    Ender,
    A quick look here may give you pause for thought. I would be interested to see your response.

  41. Louis Hissink
    January 29th, 2006 at 22:49 | #41

    Waratah,

    gladly but what is John’s q 2 above ?

    And what point of mine confuses you ?

    Regards
    Louis

  42. Louis Hissink
    January 29th, 2006 at 23:00 | #42

    To which one might add- theorising in the absence of data is also known as economics.

  43. Louis Hissink
    January 29th, 2006 at 23:04 | #43

    Of the Keynesian type,

  44. Waratah
    January 29th, 2006 at 23:11 | #44

    Louis I was asking Ian to address John’s q 2 above so you can ignore that.

    Louis you make a point that ‘coal and oil reserve estimations become problematic when mantle derived, abiotic hydrocarbon production is introduced into the analysis’ etc etc. Your point rests on highly technical theories that the average reader would just gloss past. Can you explain your point about mantle derived, abiotic hydrocarbon production (in simple language); and can you explain why the Second Law of Thermodynamics would need to be repealed for oil to be principally biogenic? What’s the problem with current estimates or assumptions?

  45. Ian Castles
    January 30th, 2006 at 06:41 | #45

    Waratah, You say that I’m continuing to ignore John’s ‘question no. 2′ above. I responded to John’s ‘second question’ in my posting at 5.44 pm on 29 January. What is the ‘question no. 2′ that I’m ignoring?

  46. January 30th, 2006 at 08:12 | #46

    Andrew – “A quick look here may give you pause for thought. I would be interested to see your response.”

    What about abiotic oil? First of all oil and coal, despite what Louis says, is fossil based and finite.

    Even if this ‘theory’ was true the oil would be made over millions of years essentially making oil reserves finite anyway as we cannot wait a couple of million years for new oil. We use it at 83 million barrels per day.

  47. Willis Eschenbach
    January 30th, 2006 at 08:53 | #47

    Ernestine, thank you for posting. You say

    W.E. says: “How much will they [recoverable oil] jump again when the use of oil shale becomes practical?� [added]

    ?practical? Do you mean technologically possible or financially profitable?

    I mean when shale oil begins entering the marketplace in significant quantities, as has happened recently with the Alberta tar sand oil.

    w.

  48. Willis Eschenbach
    January 30th, 2006 at 09:01 | #48

    Ender, thanks for your comment. You say:

    If anything the reserves will be overstated as most mideast countries artificially raised their reserves about 1985. Most oil bearing places have been extensively explored and the rate of discovery even with the most modern technology is dropping. Only half the oil used is replaced by new discoveries.

    This was exactly my point, that we can’t use Mike’s simplified method because we don’t know what the possible (as opposed to the proved) reserves are. They may be more, they may be less, but we don’t know, and thus Mike’s method won’t work. And thus (to return to the topic of this thread) we need to use estimates based on PPP to calculate how much will actually be used, and where it will be used.

    However, your claim that “half the oil used is replaced by new discoveries” does not agree with the fact that for more than 15 years, the number of years of oil remaining has stayed stable at about 35 years (see the figures I cited earlier in this thread). This clearly means that for the last 15 years, all of the oil used has been replaced by increases in proved reserves.

    w.

  49. Ian Castles
    January 30th, 2006 at 09:05 | #49

    Waratah, In your first posting (Jan. 28, 11:34 pm) you said “I read Castle’s response. Then I read it again. His usual game of distraction: quoting and citing numerous papers and referring to meetings and webs of exchanges between eminent persons without actually saying anything much at all. Castles alleges that you haven’t addressed the main arguments. What the hell are they, precisely? I’d like to know. If these agruments are so important, surely he is capable of summarising them himself, without subterfuge?”

    By way of contrast, Willis Eschenbach said (Jan 29, 6.33 pm) that ‘given the detailed, multi-page nature of Castles response to you [JQ], your [JQ's] claim that ‘It doesn’t seem to me that Ian responds to my argument except to deny that the MER/PPP issue was the main point of the critique’ glosses over a wide variety of other very germane points made by Castles and supported by citations from very reputable sources. In particular, you [JQ] have not touched on any of the number of papers, both from Castles and a variety of other authors, which have discussed this issue. Since many of these papers have discussed, and often emphatically denied, points that you [JQ] have made in your paper, this omission is a significant one. Do you [JQ] plan to discuss those other studies and points?’

    Willis also said “As you [JQ] point out, Ian Castles says (above) that the MER based SRES estimates are misleading for other reasons, and he has detailed those reasons in his response. Could you [JQ] address those issues?’

    So far as I know, I have responded to all questions asked by JQ. You alleged that I have continued to ignore a question from him (29 Jan., 10.17 pm), but you didn’t say what the question was and have yourself ignored my request for clarification (30 Jan., 6.41 am). I am awaiting JQ’s response to Willis Eschenbach’s questions, and your response to mine.

  50. jquiggin
    January 30th, 2006 at 09:17 | #50

    I agree that Ian has responded to all the questions I raised, and I’ll now respond to the main questions I can derive from Willis’ comment.

    As I’ve mentioned in email to Ian, though not here, the paper was prepared fairly quickly, and is still in draft form. I’ll be happy to add the references Ian suggests many of which (including the House of Lords report) I have read.

    Since we appear to be in agreement on my main substantive point (that the choice of conversion factors doesn’t much affect projections of emissions) I will also try to expand the paper to discuss some of the other issues raised by Ian, but that’s going to take a bit more time.

  51. Willis Eschenbach
    January 30th, 2006 at 09:48 | #51

    JQ, thank you for your reply. I look forward to seeing your paper when it is complete.

    While I agree that on average the biases introduced by MER may “cancel out” as you say, I do not agree that the choice of conversion factors “doesn’t much affect projections of emissions.”

    This is because the GCMs are not driven by the average emissions. Rather, they are driven by the amount and location of projected individual emissions from individual countries. These do not “cancel out”, and thus there will be an effect on the GCM results even though the average may be less affected.

    In particular, the MER overestimates the growth in the developing world, much of which is in the Southern Hemisphere. I don’t see how this overestimation can be balanced by an underestimation of the Northern Hemisphere emissions.

    All the best to you, thank you for having this blog to encourage discussion of all of these issues.

    w.

  52. January 30th, 2006 at 09:55 | #52

    John,

    I am puzzled by your conclusion that there is no substantive difference whether you use PPP versus MER assumption. We find that emissions are 20% higher by 2050 and 40% higher by 2100 if using initial gaps based on MER rather than PPP. We are careful to do this correctly in a general equilibrium model that deals with teh issues you raise

    http://www.lowyinstitute.org/PublicationGet.asp?i=129

    The argument that a 20% difference doesn’t matter implies that any policies that can get a 20% reduction in emissions don’t matter because they are within the range of scenario uncertainty. This implies no policy action on climate because all policies will be swamped by the uncertainty about the future – which I disagree with. When is a marginal number ever large enough in your view to justify action when you compare it with the range of uncertainty?

    Warwick

  53. January 30th, 2006 at 10:07 | #53

    Willis – I put up a couple of graphs that summerise the current state of oil discoveries.

    http://stevegloor.typepad.com/sgloor/2005/12/a_couple_of_gra.html

  54. Mike Hart
    January 30th, 2006 at 10:50 | #54

    JQ thanks for succinctly restating the problem ,

    “..the choice of conversion factors doesn’t much affect projections of emissions…”

    Willis, the reserve issue has been debated now for probably forty years, however what is in the reserve and what is recoverable is problematic, marginal utility costs mean a some point what may be calculated as a reserve has to be left there because it is uneconomic to recover. From my limited understanding of thermodynamics and geology it has to do with field pressures and temperatures, thus for instance you can pump saltwater into arabic desert sands to lift the basin pressure but you have to use heated steam in artic areas as the fields deplete. Anyhow I digress.

    I would be interested to hear from JQ, Ian Castles or yourself as to what you think of Hubbert’s energy-population correlation argument as a reliable predictor of emissions. He postulated that there was a correlation between energy consumption (oil, coal, shale) and population increases in deriving an estimation for fossil fuel depletion. Hubbert seemed to suggest that this correlation was fairly robust over time.

    In reference to the subsidy issue, I am not persuaded that additional government revenue via tax represents a subsidy, unless we are referring to cross-subsidisation of other govement activity. If I recall the introduction of the original excise taxes by the Fraser Liberal Government was a counter to depleting Australian energy reserves and the 1970′s Oil Shock. The fact that the first warning signs of an oil dependent economy were ignored by subsequent policy makers does not make the tax itself a bad one. I am just particularly unimpressed that the money never went were eventually it was supposed to, to fostering a clean energy future, but then that’s politics for you.

    Similarly I am unimpressed by the arduous efforts by various interests to deny or minimise such changes and particularly when specious economic theorem are juggled about to distract all of us from the (de)pressing reality, its getting hotter, its becoming drier and the weather systems are moving to a new equilibrium which may be more serious for us as a species than we care to comtemplate.

    So as to PPP and MER, I am curently predisposed to the notion of a per capita energy certificate argument given that any efficencies from electricity generation or internal combustion engine improvements are immediately negated by increased consumption (the airconditioner problem or SUV issue), which means it does not matter how efficient I try and become, I have to indirectly pay for people and industries that do not change as utilities add extra capacity, more roads are created and the efficencies of pooled transportation systems are neglected. Similarly I am predisposed to going to a worst case measure for future emissions based on energy production curves and I can live with the errors from reserve measurement inequalities.

  55. Willis Eschenbach
    January 30th, 2006 at 11:37 | #55

    Mike, thanks for your interesting post. A couple of points.

    First, I am not taking a stand on peak oil. For example, Enders referred me to a graph (of unknown origin) saying that there have been no discoveries as big as the Gwahar field in the last 30 years. However, the Alberta tar sands contain much more oil than that field … which is why there is a (black) gold rush going on there as we speak.

    Regarding subsidies, what I said was that taxes on energy, which subsidize the various governments imposing the taxes, were the largest subsidy. As you point out, it would make sense to apply this money to discovering and encouraging both conservation, production, and alternatives, but that’s the gummint for ya …

    Hubble’s energy-population equation? I haven’t a clue, let me go do the calculations … OK, it holds since about 1975, but not before that. In 1965, we used about 1.2 tonnes of oil (equivalent)/capita/year. By 1975, this had risen to about 1.5 tonnes/cap/yr, and has remained about the same (~1.5-1.6 t/c/yr) since then.

    The wild card in all of this, of course, are new sources of energy — fusion being the known possibility, and who-knows-what being the unknown possibilities. It would surprise me greatly if new sources do not come on line during this century, with unknown effects.

    w.

  56. January 30th, 2006 at 12:29 | #56

    Willis – I had to do a quick scramble to my entry because I had thought I had left off the refererence however Willis has managed to do it again. This is the entry:

    “As I said in a previous post I attended the lecture of Professor Kjell Aleklett in Perth. I thought that I would share two graphs from his slide presentation that to me tell the story of Peal Oil better than most.”

    Complete with misspelling – clearly the slide is from a presentation from Professor Kjell Aleklett.

    “However, the Alberta tar sands contain much more oil than that field … which is why there is a (black) gold rush going on there as we speak.”

    The Tar Sands are not oil like Gwahir – including them in known reserves is wrong as you may as well include coal reserves as oil. Actually coal is a little bit easier to convert to coal than tar sands.

  57. Terje Petersen
    January 30th, 2006 at 12:35 | #57

    I would be interested to hear from JQ, Ian Castles or yourself as to what you think of Hubbert’s energy-population correlation argument as a reliable predictor of emissions. He postulated that there was a correlation between energy consumption (oil, coal, shale) and population increases in deriving an estimation for fossil fuel depletion.

    Is there a web link to more information on this theoretical correlation. I have read much about how Hubbert’s suggestion that supply will peak but I have not seen much about how he projects demand will change over time. I assume it is the same Hubbert.

  58. Willis Eschenbach
    January 30th, 2006 at 13:20 | #58

    Ender, while you are right that the slide is from a presentation by Professor Kjell Aleklett, that’s not the question I was pointing to. The question was, where is the data from?

    This is the normal, everyday understanding of the question about a source. When I post information on the blog, and someone asks “where is that information from”, I don’t reply “It’s from a presentation by Willis Eschenbach.” I give the data source.

    The common understanding, in other words, is that the question refers to the source of the data, and not to the presenter of the data. My apologies if this was not as clear as I had assumed it would be.

    Your comment on this, that “Willis has done it again”, is un-necessary, untrue, and unpleasant. Can’t you just ask for clarification if you don’t understand something I’ve said, without stopping to roll in the gutter along the way? Remember, you’re not giving up your opportunity, you can always abuse me later if the clarification is unclear …

    Finally, let me quote from your last post, where you say:

    Actually coal is a little bit easier to convert to coal than tar sands.

    At this point, should I now say “Ender has done it again, posting total nonsense”? Or would it be preferable for me to say “What did you mean by that, it makes no sense?”.

    w.

    … heck, I didn’t even know you could convert tar sands to coal …

  59. January 30th, 2006 at 14:28 | #59

    Willis – true enough and I apologise. I also realised that my post did not contain the source of the data. Revisiting the presentation it would seem that this slide was compiled by Professor Aleklett himself from various sources including the USGS. As Prof Aleklett has researched and worked on the subject of Peak Oil extensively he can, I believe, be considered an authority on the subject.

    “At this point, should I now say “Ender has done it again, posting total nonsenseâ€?? Or would it be preferable for me to say “What did you mean by that, it makes no sense?â€?.”

    And yes it does make no sense. That should have read “it is a bit easier to convert coal to oil that tar sands to oil.”

    Tar Sands are just that tar mixed with sand – it is not oil in any sense of the word. Conventional crude oil bubbles or is pumped out of the ground in the form that it goes to the refinery to be cracked.

    Tar sand and shale have to be MINED. This mineral is then washed, producing toxic tailings, and then heated and converted to something approaching crude oil consuming massive amounts of natural gas. Even then special refineries have to be built or converted from existing to handle this ‘crude’ oil. Alternatively steam can be piped under the ground converting the tar to almost crude ‘in-situ’. However this consumes even more natural gas – about 1000 cu feet per barrel.

    By contrast coal to liquids is an established technology that consumes about half a ton of coal per barrel of oil. The fact that tar sands is not a resource like crude oil precludes it from being included in the crude oil known reserves. Tar sands should be viewed more as a method of converting natural gas to oil. The natural gas supplies are the limiting factor – crude oil exploitation does not suffer from this limitation. Because tar sand and shale have to be mined thay are far more akin to coal than crude oil.

  60. Ernestine Gross
    January 30th, 2006 at 14:53 | #60

    W.E., Thank you for your reply: ” I mean when shale oil begins entering the marketplace in significant quantities, as has happened recently with the Alberta tar sand oil”

    I understand this to mean that the word ‘practical’ means financial profitability.

  61. Willis Eschenbach
    January 30th, 2006 at 14:59 | #61

    Ender, than you for your most gracious posting.

    The only comment I would have on it is on your interesting note where you say:

    Tar sands should be viewed more as a method of converting natural gas to oil. The natural gas supplies are the limiting factor – crude oil exploitation does not suffer from this limitation. Because tar sand and shale have to be mined thay are far more akin to coal than crude oil.

    In fact, tar sands are a way to convert, not just natural gas, but any other energy source to oil. Waste heat from a nuclear reactor or a conventional power plant would do just as well as natural gas. In fact, we could burn part of the tar sands themselves to turn the rest to oil …

    Which of course highlights the fact that in some sense all fossil fuel sources are energy limited … it takes energy to get the oil itself out of the ground, or to mine coal, or to convert coal to oil, or tar sands or oil shale to oil.

    And this, of course, highlights in turn the fact that the amount of oil we can acquire from natural sources is not fixed, but is a function of how much energy we have available to spend on the project.

    I find it highly unlikely that we will not have new energy sources, including fusion, and perhaps such odd-ball sources as methane clathrates, or solar-generated hydrogen, by the middle to late 21st century. And these sources, of course, will in turn allow us to get more oil out of the earth …

    And all of this makes it extremely difficult to say when we’ll run out of oil.

    w.

  62. Simonjm
    January 30th, 2006 at 15:01 | #62

    Fischer-Tropsch Coal Gas Cost Effective With Current Oil Prices?
    http://www.futurepundit.com/archives/2005_12.html

  63. January 30th, 2006 at 15:15 | #63

    Willis – “Waste heat from a nuclear reactor or a conventional power plant would do just as well as natural gas”

    The capital costs of tar sands is bad enough without adding a nuclear reactor into it. Also why build one at the ends of the earth in Alberta when you can just build one close to you and run electric cars from it.

    As you say all energy sources have an EROI. Crude oil was 100:1 however that has dropped to 20:1. Tar Sands is at best 5:1 and shale oil is 3:1. The question is do we just want to throw energy at a resource because we are familiar with it despite all the ecological problems or do we switch.

  64. Andrew Reynolds
    January 30th, 2006 at 16:11 | #64

    Ender,
    Surely the question is “when do we switch?” If we switch now and that is premature, we will leave considerable oil in the ground and move to a less efficient technology. This, if it is premature, would be silly. If we leave it until the point where we need to switch, there may well be another technology, not currently available to us now, that is much more efficient. Not many people here are arguing that oil will never run out (the abiotic argument aside) but the time horizon is a critical consideration. If you are right we need to do something now. If you are not, then we need to investigate carbon reduction strategies, but we can safely leave the oil replacement question until later.
    So the question of the reserves is the critical consideration.

  65. January 30th, 2006 at 16:17 | #65

    Andrew – Delaying will leave us with a gap period. Early switching could result in a more seamless switch over. I posted an analysis of different scenerios in previous discussions on this topic however for anyone else it is on the same page that I posted before.

  66. Willis Eschenbach
    January 30th, 2006 at 19:01 | #66

    Ender, thanks for your thoughts on the energy return on investment (EROI) of the various fuels.

    One thing that analysis doesn’t touch, however, is that it is (to pick one example) very difficult to run a car on nuclear power, but easy to run it on gasoline. So trading abundant nuclear power for scarce oil may make sense.

    This is particularly true if we can use (as I suggested above) waste heat to do some or all of the heating of the tar sands. That way, it’s money for jam, as they say …

    Best wishes,

    w.

  67. January 30th, 2006 at 19:36 | #67

    Willis – It is not question of waste heat because a nuclear reactor in Alberta would be a dedicated unit specifically designed for the job. Waste heat is not hot enough plus there is very small electricity demand in Alberta other than the tar sands.

    It is extremely easy and efficient to run cars on nuclear power. Electricity is a very efficient energy carrier and existing battery technology is such that a 300 or 400km range electric car is becoming viable with mass production. Electric motors and inverters are up to 90% efficient and can power the grid when necessary. New rapid charge batteries are just being developed that can charge 50% of their capacity in 5 mins.

    Really to help mitigate global warming I think it is best to start with transport. Millions of plug in hybrids and battery electric cars have millions of batteries that can power the grid as well as charge from it. Millions of batteries provide the missing storage that renewable power, wind/solar, needs to be reliable. The fuel for plug in hybrids can be coal to liquids or ethanol.

  68. Ernestine Gross
    January 30th, 2006 at 21:15 | #68

    Hm, convergence – a tricky one.

    Warrick McKibbon’s et al. G-Cubed model is a partially disaggregated non-Walrasian equilibrium model which has the special feature of allowing for wage rigidities but, as far as I can tell, does not allow for discontinuities in financial markets (bankruptcies and stock-exchange busts) or major natural disasters. For reasons I don’t understand at present, this non-Walrasian model converges to a Walrasian model ‘in the long run’ (finite time? What happens to money? Market completion?). The data belongs to geo-politically defined countries.

    I am not convinced by PPP as a relevant ‘conversion factor’ because the choice of this measure implies an important contradiction.

    1. It is given that a conversion of monetary values is required because of the convergence requirement.

    2. PPP is said to be the preferred conversion factor over MER at t=0 (decision time).

    3. The models in the policy papers in question propose to solve unequal development (ie achieve convergence) through ‘economic growth’ defined as increases in GDP, which is a market price weighted sum of all market transactions. (G-Cubed allows for some technological changes and relative price changes that plausibly affect emissions but this does not change my argument.)

    4. Observation: Financial markets, including foreign exchange markets, are part of the economic system in reality which produces the accounting numbers GDP and the disaggregated industry numbers. These markets are important for raising financial capital used to finance physical capital, some of which produce emissions.

    4. MER is a ratio of market prices (exchange rates).

    I am being asked to accept the proposition that convergence is brought about by a system where resources are allocated by market prices but I must replace actual market prices (MER) at t=0 (decision time) by an artifical construct called PPP. Why? If MER is ‘wrong’, then all other prices are ‘wrong’ at t=0 and if actual market prices at t=0 are ‘wrong’ then they were wrong at t= -1 ……. (financial markets)…..

    I am not saying that therefore the existing MER conversion projections are ‘right’. I am saying there is something wrong somewhere and it is important.

  69. Andrew Reynolds
    January 30th, 2006 at 21:34 | #69

    Ender,
    Delaying will only leave us with a gap period if your figures on the oil remaining are correct or close to correct. The Economist article casts doubt on that. I am not saying it is right – that is beyond my knowledge – but I am saying that, if it is correct, your analysis is incorrect.

  70. jquiggin
    January 30th, 2006 at 21:46 | #70

    Responding to Warwick, I think the theoretical analysis establishes that the bias can go either way. In saying that 20 per cent doesn’t matter I’m responding primarily to those who’ve claimed that the MER/PPP question discredits the whole IPCC modelling process.

    I don’t buy this. I agree that using PPP instead of MER would be an improvement, but only one among many potential improvements.

    As an aside, note that a 20 per cent gap in 2050 emissions corresponds to a smaller gap in the derived projection of temperature increases.

  71. Waratah
    January 30th, 2006 at 21:48 | #71

    And so you did too Ian. My oversight and my sincere apology. I have read some of the papers. Given the intimate lengths one must go to make sense of the matters under controversy and assess the degree to which they informed the political decision on Kyoto, I was desiring some straightforward explanations, minus the posturing and lengthy quoting which, when interspersed among a minimum of direct responses, gives the impression of an attempt to further ‘cloud’ the issue and generates suspicion. Some of your subsequent posts above have been more straightforward and illuminating, thankyou. (I acknowledge that you were responding to John, not writing for a non-expert like myself. I also appreciate the importance of referring to important papers, but there are methods of doing so that make a response seem less politically charged).

    Louis Hissink hasn’t responded though. My question: Can you explain your point about mantle derived, abiotic hydrocarbon production (in simple language or link to a website that does this); and can you explain why the Second Law of Thermodynamics would need to be repealed for oil to be principally biogenic? What’s the problem with current estimates or assumptions?

  72. Mike Hart
    January 31st, 2006 at 07:55 | #72

    Terje, et al, the Hubbert hypothesis on energy and population was published in his paper presented to the American Association for the Academy of Science, Feb 4 1949, “Energy from Fossil Fuels”. I have lost the link but it is available in PDF format on the web. Cheers.

  73. Willis Eschenbach
    January 31st, 2006 at 10:16 | #73

    JQ, thanks for your reply to Warwick. You say:

    Responding to Warwick, I think the theoretical analysis establishes that the bias can go either way. In saying that 20 per cent doesn’t matter I’m responding primarily to those who’ve claimed that the MER/PPP question discredits the whole IPCC modelling process.

    Can I take classes from you? I just want to be in an environment where a 20% error is perfectly fine …

    Out here in the real world, a 20% error in any of the work I do would get me fired.

    w.

  74. Ernestine Gross
    January 31st, 2006 at 10:43 | #74

    WE:

    Where is your real world? Have you heard of Enron, HIH…………..Bond Corporation………………….

    What about the real world of financial market bubbles? Never heard of it?

    There are accountants who have the type of quality data you want, namely accurate records of past events (as recorded on invoices) and they still make ‘huge’ errors.

    Mind you, had accountants been in charge of business planning and investment decision making, we still might be dwelling in caves etc. ….

  75. Terje Petersen
    January 31st, 2006 at 14:16 | #75

    Where is your real world? Have you heard of Enron, HIH…………..Bond Corporation………………….

    All three corporations got fired so to speak (ie went bell up).

  76. Ernestine Gross
    February 1st, 2006 at 10:31 | #76

    Not quite, Terje. But you provide food for thought.

    Surely, according to the ‘labour productivity theory’ which underlies the recent IR law changes, ‘the employer’ wouldn’t wish to fire ‘an employee’ with a marginal product as high as the wages payed to ‘the employees’ in question. Wages are but another name for prices for labour services. Since we are talking about non-union labour in these cases, it seems to me that either the ‘market prices’ paid to these employees in question were ‘wrong’ or these employees were ‘wrongfully dismissed’.

    Now, shareholders are supposed to be ‘the empolyees’ in the cases in question. But the shareholders’ didn’t dismiss ‘their employees’. It was the debt-holders who did it.

    From the debt-holders’ perspective, it is quite clear that there was no ‘wrong-ful dismissal’ because the employees of the shareholders’ defaulted on their financial commitments.

    It is only in a round-about way that ‘the market’ (debt and equity) reveal that there is something not working according to the ‘marginal productivity theory’. While I don’t have detailed knowledge of the G-Cubed model, on the basis of the information available to me, the ‘marginal productivty theory’ equation is in it – at least in the long-run. The non-Walrasian model assumes ‘labour market rigidities’. Well, we foud a few cases where this is true, haven’t we? But, note, the problem we have discovered cannot be solved by removing unions. (I am not saying that there is no problem with union involvement. I am saying the solution doesn’t match the problem discovered.)

    Incidentally, and only tangential to the topic, the residual losses were ‘socialised’ – at least in the case of the insurance companies – and government intervention was involved to organise this. Of course I can’t be sure what would have happened without government intervention but one of the possible outcomes is that ‘nobody’ would have ‘bought’ insurance. To the best of my knowledge, there is nothing in the G-Cubed model which captures the coordinating role of the government; ie to salvage the insurance industry by means of spreading the risk in a manner different from the original risk diversification in the financial markets.

    Let me know whether or not there is any ‘ism-word’ or ideological colour involved in the foregoing. I’d be more than happy to try harder to remove any taint of whatever colour.

    Regards
    Ernestine

  77. Ernestine Gross
    February 1st, 2006 at 10:36 | #77

    Correction: Shareholders are supposed to be ‘the employers’ (not employees)

  78. Terje Petersen
    February 1st, 2006 at 11:01 | #78

    Ernestine,

    What you say makes sence, and I don’t see any “isms”. However I thought that the reason companies now went into “administration” instead of “liquidation” when the creditors wanted their money back was precisely because we were previously scrapping otherwise productive entities.

    Also a man is more productive with a shovel and the organisational structure of a firm is in many ways like a shovel. If the firm collapses then it is like a broken shovel. The productivity of the worker rapidly declines and they become overprices. Usually it is not a workers fault when his shovel breaks but it does impact his productivity. Unhappy creditors is a sign that the structure of the firm is breaking.

    Building a firm is in many ways just an exercise in creating a form of social capital. This was the bit Karl Marx missed. He could see the banker brought finance and the worker brought labour but he was not convinced that the entrepreneur brought anything to the table. The answer is structure. And structure if done correctly is worth an awful lot. A good example would be the way Henry Ford restructured production.

    I started my own firm nearly eight years ago and I have thought about this issue of structure for a long time.

    Regards,
    Terje.

    P.S. Ironic that todays capitalists (shareholders) are mostly people of average means and we fret about their rights, while some in the working class (eg CEOs and trade union officials) have become the new social villians that apparently threaten the wellbeing of the capitalists. The game has been turned on its head.

  79. Ernestine Gross
    February 1st, 2006 at 12:08 | #79

    Terje, thanks for your reply. I understand that you do not criticise what I said on the grounds that there is an ideological bias underlying it. And, you acknowledge that ‘ism-words’ are not involved.

    In one of my early posts I mentioned that I am not suitable for ‘debates’ involving, in one way or another, going over past ground and, in my opinion, much of these ‘debates’ involve more sophisticated forms of name-calling, playing the players rather than the ball and I stay out of it. May I ask you to accept this in response to what else you wrote.

  80. Terje Petersen
    February 1st, 2006 at 15:11 | #80

    not suitable for ‘debates’ involving, in one way or another, going over past ground

    Most debates go over past ground simply because old ground is new to some people. You must find very few debates that suit you.

    May I ask you to accept this in response to what else you wrote.

    You can always ask. And I am happy to accept the response you have just given. If I understand you correctly you are saying that you don’t wish to engage in further discussion of the matter. Nothing wrong with that.

  81. Ian Gould
    February 1st, 2006 at 15:57 | #81

    >I would think that there is actually an incentive on the part of oil producing nations to minimise market knowledge about reserves. That way the price is likely to be higher.

    Conversely, reserves and production capacity are used in setting OPEC quoatas so OPEC members have incentives to overstate both.

  82. Ian Gould
    February 1st, 2006 at 16:06 | #82

    Louis hissink: “Your last question is easy to answer – no one has been looking elsewhere, hence there is no data, and hence no theory.”

    Yes because as we all know there is absolutely no mining for metalliferous ores or other minerals outside of sedimentary basins and no civil engeering or other tunnelling in areas of igneous rock.

  83. Ernestine Gross
    February 2nd, 2006 at 18:13 | #83

    Terje, you tried to change the subject matter. Good luck on your journeys.

  84. February 5th, 2006 at 08:42 | #84

    Hi , just discovered this thread. All the debate about GDP glosses over one important parameter in the formula (energy) = a + b*GDP.

    Global warming will only happen if the fossil fuel component in (energy) is greater than 0. Oil prices get higer due to depleting cheap oil and increasing market demand, on a given point alternatives will be really cheaper than fossil fuels, market demand will drop, oil price will drop until production cost is reached. No oil company will produce against a loss.

    The mercury metal price is a good example.

    The SRES A1FI scenario will therefore never happen.

  85. February 5th, 2006 at 15:05 | #85

    Hans – “Oil prices get higer due to depleting cheap oil and increasing market demand, on a given point alternatives will be really cheaper than fossil fuels, market demand will drop, oil price will drop until production cost is reached.”

    Sure – and every car, truck, bus etc in the world will be instantly converted to run on these alternatives by market forces.

  86. February 5th, 2006 at 20:46 | #86

    You can run already sunflower oil in your diesel car.
    However, you’ll smell like a donut van.

  87. February 6th, 2006 at 07:58 | #87

    Hans – yes you can however there is not 83 million barrels per day of sunflower oil available – unless of course you want to stop eating so that you can run your car.

  88. February 6th, 2006 at 20:53 | #88

    The average age of a car in holland is eight years.

    So not instantly, but only in eight years time 50% of the dutch will drive a car manufactured after 2005. New technology spreads fast.

    Take the refrigerator: at the start of the 20th century, a refrigerator was a luxury product as it operated on harvested ice during winter. There was a complete ice harvesting industry north of New York providing the city with refrigerating ice (you may remember a Charlie Chaplin slapstick on the topic.
    Electric refrigerators took over and today you can’t image a household without one. The ice harvesting industry melted away.

  89. February 6th, 2006 at 22:04 | #89

    Hans – I completely agree however the average half life of the transport fleet is 10 or more years when you consider heavy transport as well that is commonly kept for a lot longer that the average car.

    Eating is not a luxury. Urban populations depend implicitly on oil based transport to supply them with food. At the moment there is no other alternative. The coal that we use to generate most of our electricity is mined with oil based machinery. No oil – no coal. If you started today it takes on average 4 or 5 years to bring on stream a coal to liquids plant. If there is a serious interupption to oil supplies because China is more successful at cornering oil shipments than us then do we just do without eating and electricity for a while?

    How long do you think the economy would stand an oil supply interruption? If we wait until the market gets the signal to change then it is quite likely there could be a gap of 5 to 10 years while the alternatives are brought on line.

  90. February 6th, 2006 at 23:13 | #90

    ?? What ghosts are you seeing now? End of oil? Nah, end of cheap oil !

  91. February 7th, 2006 at 08:15 | #91

    Hans – I also like the time of cheap food and water as well. Not really a ghost but a coupled problem with global warming.

    Fix transport first, now, and then we reduce 30 or 40% of greenhouse emissions. Widespread electric transport makes renewable energy viable reducing greenhouse gases further.

  92. February 27th, 2006 at 09:08 | #92

    jquiggin said:

    January 30th, 2006 at 9:46 pm
    Responding to Warwick [McKibbin], I think the theoretical analysis establishes that the bias can go either way. In saying that 20 per cent doesn’t matter I’m responding primarily to those who’ve claimed that the MER/PPP question discredits the whole IPCC modelling process.

    I don’t buy this. I agree that using PPP instead of MER would be an improvement, but only one among many potential improvements.

    As an aside, note that a 20 per cent gap in 2050 emissions corresponds to a smaller gap in the derived projection of temperature increases.

    I say.

    Great, so we can do without the IPCC since whether emissions without Kyoto may be plus or minus 20% by 2050, there will be a “smaller gap in the projection of temperature increases” [of say 2C + or - 10%?, or 1.8C or 2.2C?]. Kyoto II is unlikely to embody a 20% emissions reduction target by 2050, so why bother?

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