Month: August 2015

The opportunity cost of war

John Quiggin37 Comments

What is true of natural disasters is even more true of the disasters we inflict on ourselves and others. Of these human-made calamities, the greatest is war. The wars engaged in by the US, Australian and other governments come at the opportunity cost of domestic programs that could save thousands of lives every year. The cost of war, in terms of American (and Australian) lives, is many times greater than battlefield casualty counts would suggest.

That’s the theme of this extract from my book-in-progress, Economics in Two Lessons. You can find a draft of the opening sections here.

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Polls and punters, yet again

John Quiggin52 Comments

I just read this piece on The Drum, taking the line that it’s better to rely on the betting markets, which have Labor and the government level-pegging, than on the polls, which have had Labor well ahead for a long time. Elections are only held every few years, so they don’t provide much data on which to test the relative performance of the two. But, if markets give better estimates than polls, we should expect to see movements in the poll results follow those in the market rather than vice versa (in econometrics, this is called Granger causality). Digging around, I located a study finding that, if anything, movements in polls Granger cause movements in betting markets.

Since a compelling observation beats an econometric analysis for most people, let’s look at the 18 months or so since I last posted on this topic. Labor started out with a small lead in the polls and stayed consistently in front, with the lead varying over time. Meanwhile, the betting markets favored the government until very recently, before moving to even money. It seems clear in this case, that the markets are following the polls and not vice versa.

Green jobs

John Quiggin13 Comments

The question of “green jobs” has arisen in a lot of different contexts. At present, the most relevant is the problem of how to deal with the employment effects of the necessary and inevitable decline of industries based on fossil fuels. Part of this question is whether expanding sectors of the economy will create a number of new jobs comparable to those that disappear , and whether those jobs will be appropriate for the kinds of workers who worked, or would have, in the declining sector (that is, predominantly, male manual and trades workers). There are a lot of conceptual problems here, which I’m not going to address in detail. Rather, I’ll just look at some raw numbers and throw in some comments.

I was struck recently to read that, in the United States, the solar power industry now employs 174 000 people. That’s twice as many as coal mining. And, while these aren’t direct substitutes, they are, it would appear, broadly similar kinds of industries in the sense that the core workforce is dominated by male manual and trades workers.

Looking quickly at similar stats for Australia, I found that the numbers were reversed. According to the ABS, there were just under 40 000 Australians employed in the coal mining industry in May 2015, down from a peak of 60 000 in 2012, but well above the 20 000 or so employed in the early 2000s.

The Clean Energy Council estimates around 20 000 jobs in the renewables sector in 2014 – that’s up from virtually zero before 2010. So, broadly speaking growth in renewables has offset the decline in coal mining.

One specific issue in the US, that’s less of a problem here, at least in Queensland, is that of declining communities in places like Appalachia. Thanks to the practice of Fly-in Fly-Out, there are many fewer Australian communities focused on coal mining.

Finally, some related statistics I found in the process of researching this. The forestry and logging industries currently employ 3900 people (this number bounces about a lot, so I’m not sure how reliable it is). That’s about the same as the combined total for the NSW and Victorian National Parks systems. I expect if you added in various kinds of manual/trades jobs in adventure tourism and similar, you would find a net gain over the past 25 years or so.

Are natural disasters economic disasters ?

John Quiggin14 Comments

Yes. This has been the latest in our series “Short Answers to Misconceived Questions”.

Actually, there’s a longer answer over the fold, another extract from my book-in-progress Economics in Two Lessons. You can find a draft of the opening sections here.

This extract is a subsection of Part 2, in which I explore the implications of Lesson 1:
Market prices reflect and determine opportunity costs faced by consumers and producers.
 The conclusion is

if the damage bill measures the cost of restoring assets to their pre-disaster condition, it is also equal to the opportunity cost of the disaster, namely the goods and services that would otherwise have been produced.

I’ll be interested to see whether readers’ reaction is “That’s obvious” or “That’s obviously wrong”, assuming of course that you have any reaction at all. As always, civil comments of all kinds are welcome, particularly constructive criticism.

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Solar PV (now with grid backup)

John Quiggin60 Comments

Following my previous post there was some discussion about the need for grid backup of solar PV to deal with extended periods of overcast weather. It’s obvious that storage will help with this to some extent, since batteries can store electricity from the grid as well as from distributed solar. I thought I would try to put some numbers on this (slightly changed from last time to simplify the numbers).

I’ll focus on 1 kW of solar PV generating an average of 4.8 kWh per day, with (as before) 2 kWh of storage. If there is zero solar generation and no demand management, the entire 4.8 kWh per day must be drawn from the grid. In the absence of storage, we might suppose that 1kW of backup capacity is needed to match the peak output of the solar PV system. But with storage, all that is needed is enough to supply 4.8 kWh over the course of a 24-hour day, that is, 0.2 kW.

The optimal backup choice is a fully dispatchable technology such as hydro or gas. Hydro resources are pretty much fixed, so I’ll focus on gas. According to the US Energy Information Agency, the capital cost of gas-fired power plants is around $1000/kw so our grid backup will have a capital of cost only $200 for each kW of distributed solar. There’s also the need to take account of fuel and distribution costs. Fuel costs will be low since the system is only used as backup, while distribution costs will be around 20 per cent of what would be need if peak loads were to be met by centralised generation.

To sum up, if battery storage becomes available at a sufficiently low price, there’s no obvious problem with a system in which over 80 per cent of capacity, and an even larger proportion of generation is distributed solar PV.

EROEI (batteries now included)

John Quiggin50 Comments

As I showed in a recent post, a typical solar cell will generate at least 10 times the electricity used to produce it, and probably substantially more. This Energy Return on Energy Invested (EROEI) calculation didn’t take account of battery storage, which is needed to make solar PV comparable to dispatchable technologies like gas.

For this purpose, I’ll assume that each kilowatt of PV capacity requires 2 kilowatts of battery storage. The reasoning behind this is that we get an average 5kWh/day from the PV system, of which 3kWh is used during the day and 2kWh is stored.

According to this life-cycle assessment, a 26.6 kWh battery has a life-cycle cost of 4.6 tonnes of CO2, which comes out to around 0.4 tonnes for the 2kWh system proposed here. Assuming that the system displaces black coal, which conveniently yields about 1 tonne of CO2 per mWh, we have a cost of 400 kWh, which is only a few months worth of generation from a 1 kW system.

This seems amazingly good, so I may have made an order of magnitude mistake somewhere. If so, I’d be grateful to have it pointed out. If not, I think we can put the EROEI constraint to bed, at least as regards solar PV.

Sandpit

John Quiggin78 Comments

A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).

Score one for the planet

John Quiggin81 Comments

Several pieces of news in quick succession, have made in clear that the nightmare prospect of six mega-coal mines in the Galilee Basin has been staved off, at least for the foreseeable future. The key to the whole process is the Carmichael mine proposed by Indian conglomerate Adani. The rail line and port expansion proposed by Adani is necessary if any of the other mines are to proceed. Now the goods news

* Having already sacked its contractors, Adani is laying off most of its own staff, their non-denial denial notwithstanding. The break with Korean Steel company POSCO is particularly notable since POSCO was a likely equity investor and could have brought in debt funding from the Korean Export-Import bank
* The Federal Court overturned Minister Hunt’s approval of the project. While the grounds were technical, the decision raises the possibility that the whole process will need to be reassessed in the light of the adverse information that
* The Commonwealth Bank, the last likely source of debt finance for the project has ended its role as advisor

The remaining question is why, with no mine remotely in prospect, the Queensland government is still calling for expressions of interest in dredging for the proposed Abbot Point expansion. Hopefully, they have just been going through the motions. But, with the latest news, it’s time to stop throwing public money at this mirage. The tender process should be halted, at least until, and unless, the project is re-approved.