Transparency, again

In this post, I introduced two variations on a definition of transparency:

• How are decisions arrived at? Who has the decision authority? What is the basis of a decision? How may the decision be appealed?
• Authority and responsibility must lie at the same locus.

But depending on the context, transparency also means a few other things. With respect to commercial activities, transparency means that you get what
you pay for and it is known to you what you are paying for it. Seen from this standpoint, surprisingly, one of the more transparent transactions in which you will ever engage is the purchase of gasoline. They put the price on a great big sign out front; the price even includes all federal and state taxes; and you control the trade at every step. You could argue that it is less than transparent since the amounts explicitly going to the state and feds are not usually spelled out. But since everyone in the local area has the same burden built in, what difference does it make where it goes? It's the cost to you that matters.

The opposite of this might be the purchase of a house: first you negotiate with the previous owner, then you negotiate with the bank, then you have to pay title insurance, mortgage insurance, transaction fees, flood insurance, and possibly a few other things before you take possession. Later, you find that there are tax advantages and disadvantages (depending on where you live). Other complex deals are comparable: the purchase of a cell phone with a plan and a car with financing involve bundling, hidden costs, fees, taxes, and so on.

For the most part, though, purchasing stuff in a modern economy has become so much more transparent than it was here in the past, or the rest of the world even now. Most of my daily transactions are closer to the gasoline. They post a price, you select the standardized product, you swipe your debit card, your bank transfers the exact amount to their bank, and everyone is happy. Quite different from the bazaar trade in which you weren't sure of the price or the quality/quantity you were getting, and it was risky just carrying your cash on you.

On the other hand, the modern world has made such transactions the opposite of transparent when looked at from another angle: you don't really have any idea what you are getting or how it got here. How much Nigerian or other blood was spilled bringing that gasoline to market? Were those khakis sewn by kidnapped children in India? How many pesticides and effluent went into the production of your spinach? I'm not going to link examples to each of these or the many other stories we hear on a daily basis. You know them as well as I, perhaps better.

I just thought it was worth pointing out that modern crypto has made the money part of our transactions incredibly secure, so secure that we may soon be able to carry on large swaths of economic activity in cyberspace and outside the surveillance of our insect overlords. However, the actual creation and transport of matter, of things in meatspace, cannot be secured with the intelligent application of prime numbers and collision-free hash algorithms. So, how does one create transparency in the creation of hardware?

There are a few open source hardware movements. The Economist just highlighted some of them (may be a $ link). In it, they mention the Chumby, the Neuros OSD, the RepRap (not mentioned in the article, a comparable project is Fab @ Home), the Tuxphone, OpenMoko, GumStix, and Eric von Hippel's book, Democratizing Innovation. Additionally, I have come across a large number of open source Wi-Fi projects, including this mobile hotspot (but the parts are not OS), this solar-powered grid project to bring the tubes to kids in the developing world (an idea complementary to the $100 laptop), and especially the Linksys WRT54G router. And let's not forget open source automobile projects Oscar, Society for Sustainable Mobility, and c,mm,n (I proposed a framework for how an open source car project might work here).

When you can fire up the matter compiler and build your own car after paying for the matter with a secure transaction, the world is going to be a very different place.

PS: I ran into this article in Wired immediately after posting.

Google is not a search engine. Google is a reputation-management system. And that's one of the most powerful reasons so many CEOs have become more transparent: Online, your rep is quantifiable, findable, and totally unavoidable. In other words, radical transparency is a double-edged sword, but once you know the new rules, you can use it to control your image in ways you never could before.

Food for thought.

Energy roundup

1) News from Green Car Congress

• Hybrid sales are continuing to climb. According to the diligent folks at Green Car Congress, hybrids accounted for 3% of cars sold in May. It's weird, almost like there's some kind of incentive, perhaps something to do with the cost of fuel? Yet, the politicians tell us, the market will fail to bring us efficient cars unless we force them to do it via CAFE and hybrid subsidies. Hybrid subsidies might be a factor in their popularity, except that Toyota doesn't seem to be seeing much drop in demand after they hit the magic number that shuts off the subsidy every year.
• In another GCC article, we find that Honda is discontinuing the Accord hybrid. Apparently, "hybrid" does not equal "slam dunk". The Civic Hybrid works, the Accord Hybrid does not. Apparently, consumers haven't gone completely irrational over the "sexiness" of hybrids.
• Honda, Mercedes, and Bosch are exploring diesel-electric hybrids. Apparently they believe there may be a market in 70 mpg vehicles that can run on vegetable oil.
  

2) An NPR article on plug-in hybrids titled, "Corporations push Congress on Climate Policy" makes some fantastic-sounding claims:

A company called A123 Systems invented the battery pack. Les Goldman is the lawyer hired by the company to represent it in Washington. He has been bringing the Prius up to Capitol Hill, singing its praises to senators and staffers. He tells them it gets 100 to 170 miles per gallon — "and that includes charging the battery every 40 miles or so. And one charge, which takes about four hours, will cost you at the electricity rates in the Washington metropolitan area, at night at about 55 or 60 cents."

What A123 Systems wants is a tax break, not for itself, but for consumers. A decade ago, Congress approved tax credits worth up to $2,000, for buyers of new hybrids. It helped dealers sell thousands of the high-mileage cars. Now, Goldman asks the senators, why not do the same thing for these new battery packs?

Now, I assume you caught the fact that they want it for their consumers, not themselves, right? So they selflessly hired a lobbyist to point out that tax breaks helped Toyota sell "thousands of high-mileage cars". At no point does the reporter stop and ask if rising fuel prices were behind that increase rather than the tax breaks, nor does the reporter point out that A123 might perhaps benefit from those increased sales.

But let's go beyond that. Assuming the following:

• Approximately 65% of electricity energy is lost in transmission (see this great graphic). Thus, for each kW-h consumed, 3 must be generated.
• 1 kW-h of electricity is 3,600,000 Joules (3.6 MJ)
• A gallon of gasoline contains 132 MJ of energy
• Electricity costs about $0.10 per kW-h, so $0.55 to $0.60 worth of electricity is about 5.5 to 6.0 kW-h
  

That means that the plug-in hybrid is getting 40 miles per 5.5 kW-h or 40 miles per (5.5*3.6 MJ) = 2.02 miles/MJ. Inverting that, I get .495 MJ/mile, but that is for energy consumed, not energy generated. By multiplying by 3, I find that the vehicle used about 1.485 MJ of energy generated per mile. By inverting that number and multiplying by the 132 MJ/gallon of gas, I can calculate an equivalent mpg. The electricity is giving an equivalent of 267 miles per gallon for energy consumed, but about 89 mpg equivalent of energy generated because of transmission losses. Not bad.

It is also using gasoline at the rate of 170 miles per gallon. Using the higher figure, that's 170 miles per 132 MJ, or about .776 MJ/mile, roughly half the energy required to go one mile with electricity when accounting for transmission loss.

So for every mile it goes, it's consuming about .495 MJ of electricity used or 1.485 MJ of electricity generated and .776 MJ of gasoline. By adding those, I get the total average energy usage per mile. The combined efficiency -- accounting for transmission loss -- is about 58.5 mpg. That's not much more significant that what I can get in my car (50 mpg on the last tank).

Also, gasoline at $3.5/gallon is equal to $0.095 per kW-hr, or slightly cheaper than what I am using for the cost of electricity (diesel currently happens to be a much better deal at $2.70/gal).

So, instead of serving as a panacea, plug-in hybrids shift the fuel from oil to coal, natural gas, or nuclear, and shift the costs from your cheaper gasoline bill to your slightly more expensive electricity bill. Coal is reputed to be dirtier; it also happens to be burned somewhere other than in your own neighborhood. As you might guess, electric companies are behind some of these efforts to promote plug-ins.

Of course, if you were to install a wind or solar generator at the house, the electricity would be "free", but then again the sun and the wind usually aren't very effective at night when the car is parked. And, as I noted near the end of this article, some people are trying to get something for nothing by plugging their electric vehicles in at work. So here are two predictions/suggestions of what we may see in the next few years if fuel prices stay this high:

• Employers providing charging stations at worksite parking areas for charging employees' plug-ins. Install solar panels on the shelters and you increase your "green cred" while simultaneously providing shaded parking and "free" recharging. Sell extra power back to the grid (net metering) and make that unused space pay its own rent.
• Coin-op meters at large parking facilities for car charging. The coin-op serves as both parking fee and recharge fee. It would be nice if they would allow debit/credit/Paypal transactions, too.
  

3) Regarding the previous post on the news that Congress is considering a measure to block states from enacting more stringent measures: this poses a tactical problem for a decentralist. On the one hand, I'm against turning over all decision-making to a large and growing central decision-making bureaucracy and would much rather see local communities working to preserve their environment. On the other hand, opposing the federal/national Leviathan means protecting the paternalist busybody living next door. It puts you in the position of fighting for local decision-making, and then fighting against those decisions. Geez, I guess that's what Jefferson meant by, "The price of freedom is eternal vigilance." But at least I can meet my neighbors and reason through these issues. And when locals make decisions that help some and harm others, they know the score and can compensate them on the next go-round; when large nations make decisions, the far-flung citizens have little idea who is harmed or benefited, so they will remorselessly slam the same scapegoats in every round.

4) Department of Duh: The Worldwatch Institute claims that photovoltaic (PV) costs are set to decline 40% by 2010. Until just recently, as I noted back in July 2006, PV costs were rising. My guess is that consumer demand driven by both high fuel prices and worldwide government subsidization was driving the trend. Since then, the rise seems to have flattened out and even tipped the other way. If the WI predictions are correct, then Julian Simon should be calling WI founder and perpetual Malthusian doomsayer Lester Brown from the grave to say, "See? Told you so."

40% is a substantial reduction. As I noted in this post, PV is only economical under certain circumstances, but a 40% drop in prices certainly opens that up.

So why "duh"?

Well, if you know that the price is set to drop 40% in the next three years, why would you buy now? And if it is set to drop due to market supply and demand factors (which is arguable, see below), then why would you subsidize it? In fact, if many people would defer planned purchases just a little while, the over-production would create an inventory problem and drive prices down even faster.

Note from the WI report that the primary driver behind the supply increase is the money pouring into China from capital markets. Are they investing because they all believe in Peak Oil, in reducing carbon dioxide emissions, or in capturing some rents through programs like California's Million Solar Homes? If the latter, can this really be said to be a drop "due to market supply and demand factors"?

"Well, no matter" say the Big Government Greens, "whatever it takes to get there. As long as we get to screw Big Oil in the process."

How do you suppose Big Oil got that way? Hint: Among the biggest sellers of solar panels are little mom & pop companies like Shell and BP. Baptist, meet thy Bootlegger.

Sustainability Conference II

Sustainability Conference I

The attention given to solar was completely unrealistic. I happened upon Kunstler's blog; he accused Democrats of as much "magical thinking" as Republicans in this post. WRT solar power, he's right. There was no realistic discussion of this: a few people were obviously interested in it, and a few had done enough research to know the reality, but did not seem to have been dissuaded.

1) The keynote speaker said the cost of solar is going down. Bzzt. As I noted earlier, it has been going up in lockstep with oil prices, though it seems to be plateauing. If each dollar buys less solar panel, given a fixed or declining amount of money left over after other purchases (which is what the End of Suburbia was preaching), you aren't going to be able to buy as much solar in the future. My suspicion is that there are two causes for the rise in price: increasing demand with flat or slowly increasing supply, and subsidies. The former was driven by the increase in fossil fuels in 2003-2006, and may eventually correct itself. The latter is self-fueling (see below).

2) How much power does the average user use? The US national average in 2001 was 888 kW-h/month. Mine is something like 600 kW-h per month. If I had a 1 kW solar array and got 6 hours insolation (direct solar exposure) per day for 30 days, I could generate 180 kW-h per month. That's 1/3 of what I need, 2/3 if I double the size of the system. And I live in New Mexico where we get 6-7 hours of insolation a day (and we have something like 260 cloud-free days per year); the calculus is much tougher if I live in NYC or Seattle where they get far less insolation.

3) Two costs were given at the conference. One was $16,000 for a 1.5 kW system (roughly $10/W). Another was that the typical system costs $0.25 - $0.40 / kW-h to operate. Someone asked if that included sell-back (net-metering). The answer was obscure (I don't think the speaker heard it correctly), but the proper answer should have been: no, but it doesn't matter much. You can only sell back at the rates you pay for electricity, which is about $0.10/kW-h, so it's still 2.5-4 times the cost of commercial supply, i.e. it's no free lunch. Also, you can only sell back to the electric company up to the amount you use. Look at it this way: if you are currently paying $60/month for electricity, you will be paying $90/month for the loan for the system after accounting for rebates and sell-backs. You will also still have that monthly bill from the electricity company, but it will only consist of the subscriber fee plus tax.

Note that these were for grid-tie systems. An off-the-grid system will run at least twice as much, and the batteries require extra care (a well-ventilated area to dissipate the hydrogen generated during storage) and replacement on a regular basis (10-20 years). Incidentally, "grid-tie" and "net-metering" means that the PV system produces more than you use through most of the day, produces just about what you need in the afternoon/evening, and you rely on the grid at night and in the morning; which means someone still has to run a power plant.

3a) Let's look at this. The 1500 W system will be operational in a location that gets about 6 hours of insolation per day. That comes to 65700 kW-hours in the 20 year lifetime of the system. That means the cost of electricity is about $0.24/kW-h, rather toward the low end of the other prediction. This doesn't take into account system degradation, line losses, and so on, which would all drive the cost per kW-h higher. Take the $6,000 tax rebate back and it still comes to $0.15/kW-h. This system was enough to cover the speaker's own daily use.

3b) One thing that occurred to me during the movie I discussed in the previous article (link at top) -- and was later pointed out by one of the builders in the panel session -- was that in the coming era of higher energy costs (remember, this is their basic assumption), the system would be more and more valuable. In other words, if electricity costs increased to something on the order of $0.20/kW-h, the system would be viable at the low end of the calculations above. It would definitely pay for itself quicker if energy costs rose above $0.25/kW-h. That's an interesting bet, especially if you switch to a plug-in hybrid.

4) One of the builders, a self-described long-time left-wing activist, made a point of saying how the Bush Administration had "hammered down" any subsidies for solar power.

4a) Let's review the Clinton Administration environmental initiatives:

• Signatory to Kyoto, never submitted to the Senate for ratification, never did anything about it.
• Some 11th hour rules made in 2000 (first directed in 1996) on arsenic in drinking water changing the maximum exposure level.
• Propose a “Million Solar Rooftop” program, but never pressed it. That's about it.
  

This chart from here shows that Clinton Administration funding for Climate Change programs basically increased from 603 million to 1.1 billion. Not impressive.

Funding for Technology Programs to Combat Climate Change (in millions of dollars)
1993	1994	1995	1996	1997	1998	1999	2000 Estimated	2001 Proposed
603	796	960	788	764	825	1,009	1,095	1,432

This isn't to say that the Bush Administration is exactly the Teddy Roosevelt Administration (or even the Nixon Administration) in terms of its environmental activity, but Clinton only topped him in rhetoric. However, from what I can find, current Climate Change spending is somewhere in the $3-4 billion dollar range. Clinton: 40% increase in 8 years, Bush 400% in 6 years. Of course, since you can't actually pin those numbers down to find out exactly what we're getting for the "investment", I'd guess we had a case of Clinton = Bush = 99% BS. I say that because I suspect that both administrations counted obvious boondoggles (such as ethanol from corn programs) as Climate Change remediation.

I also found that the Bush rhetoric has been a regular but undiscovered drumbeat. This article's author thinks the rhetoric is new, despite earlier press releases like this, this, and this. I think Kunstler is right to be cynical.

4b) Let's review the politics and economics of subsidies. Subsidies are sometimes known as "corporate welfare", which, as we all know, both Republicans and Democrats are against. It is a mystery how they keep getting passed, init? In the solar industry, the subsidies happen to help out little Mom & Pop companies like British Petroleum, Canon, Kyocera, Mitsubishi, Sharp, and GE Energy. Also keep in mind that the subsidies are not secret: the suppliers know about them, too. They know that the bargaining limit for prices will go up by the amount of the subsidy, so they can basically leave production levels where they were before the subsidy even as they raise prices by the amount of the subsidy. The subsidy is no benefit to the consumer when it all goes to the manufacturer, so this merely becomes transfer from taxpayers to PV manufacturers. This is probably one reason for the rise in PV prices, especially in Europe. Still in favor of them?

Conclusion:

I believe we would be much better off with fossil fuel energy prices that more closely reflected the social costs. That's what Mankiw's Pigou Club promises, but it's also what a cap & trade program would bring. Both Kyoto and the 1990 Clean Air Act contain forms of cap & trade programs; the SO2 program in the 1990 Clean Air Act is thought to be very successful (which Administration signed that?) at reducing Acid Rain (resulting in things like this). Raising the cost of production of coal-fired or natural-gas-fired electricity by requiring providers to buy CO2 permits does a much better job of encouraging alternative solutions for two reasons:

First, people might not choose solar. They might choose to cut down on energy consumption with, for example, more insulation, better house design, more efficient vehicles, and/or better urban design. This would be a much better way of balancing our needs with the supplies and AGW forecasts because it would stretch existing supplies. This is the soft energy path favored by Amory Lovins. It is also an example of the principle of substitution noted by Julian Simon, and an example of adaptation recently suggested by Roger Pielke in Nature. Cutting energy use could also be combined with the adoption of alternative energies, enabling us to get there easier. In other words, rather than replacing my entire 600 kW-h usage with solar, I could perhaps cut my energy usage by half and then buy a 1500 W system that meets all of my needs.

Second, making fossil fuels more expensive would not subsidize and therefore support the least efficient providers of solar energy. If there are, say, three providers, the most efficient (least cost) provider would sell all he could make at a price that the competitors could not match up to the point at which consumers would turn to the next least cost provider. Once demand rises that high, the least cost provider would raise his prices to those of the competitor and pocket the extra income because the only alternative consumers have is not the least cost provider. If demand is high enough that the two most efficient providers cannot meet it all, they will raise their prices to meet those of the highest cost provider. As demand continues to increase, the least cost provider will see higher returns, and can therefore command more investment to expand his facility to the point that he might put the least efficient (highest cost) provider out of business. In such an environment, the highest cost provider has an incentive to try to improve his processes to match those of the least cost supplier; either that or risk going out of business altogether (which is fine, since it leaves the two lower cost providers in business at the prices commanded by the second lowest-cost provider). The subsidy thwarts the entire scheme by allowing even the highest cost provider to raise prices in order to capture some of the subsidy from the consumer. It is thus an incentive to capture market share and a disincentive to do it by increased efficiency at using inputs. More investment will go toward marketing than engineering and production management.

Unfortunately, the default setting of people at these conferences is

Democrats good, Republicans bad (and libertarians evil embodied)

Or, alternatively

Command and Control, Tax and Spend, Policymaking Government Good, Market-based Reform Bad

If they could perhaps be bumped off their default settings, I think I could stand listening to the rest of what they had to say. Unfortunately, they wanted to start the second half of the conference worshipping Cuba as the example of the path we should take with another film called The Power of Community. Sorry, I am actually offended by cults of tyrannical, murderous, autocratic personalities.

NOTE: Now that I'm looking up the Cuba film, I'm sorry I missed it. Apparently, one of the responses to the loss of their patron, the Soviet Union, and the subsequent collapse of their system was to establish farms with property rights (property rights in a broad sense - it is owned by a local community) and private markets (at which said community trades). The same thing that brought China out of the Cultural Revolution. Private property saves the day again?

Still, it's limited freedom within an overall oppressive atmosphere. One rooftop farm has this description: "Running free on the floor are gerbils, which eat the waste from the rabbits, and become an important protein source themselves." Yummy, can't wait. Most reviews of the film are the same fawning fluff, but only in a picture caption on this did I find a reference to the private markets. And abelardlindsay comments on The Oil Drum post about the film that Cuba is much less efficient at turning energy into wealth than its neighbors.