The Importance of Choice

Having a viable substitute for something you want to change is important. I didn’t quit smoking until I found nicotine gum. That was despite a very clear understanding of what smoking was doing to me and those around me.

Ten coal plants are being retired from service, it was recently announced, bringing the number of such retirements to 106–coal plants in the U.S. that have shut up shop or are planning to do so.

A variety of reasons are given for these closures–rising costs of coal, new and stiffer regulations by the EPA–but the fact is that these closures are possible because of the availability of low cost natural gas. When a substitute becomes available, it changes the way decisions are made.

Roger Pielke Jr. has a post up over at his eponymous weblog about the cost of gas at the pump expressed as a proportion of GDP. He  notes that a 70% rise in the cost of gas at the pump has only pushed spending on gasoline from 2.8% to 3.8% of our GDP. Pielke speculates that the calculus on gasoline changed when China began consuming a lot of it, and he’s probably right.

But I would submit that rising gas prices (and I think they will probably continue to rise–the developing world will bid up the price) will not have as much of an effect on richer countries as it has in the past. This is because substitutes are more easily available and more societally acceptable. By that I mean that some dude in a nice suit trying to show his status can now do so with a Prius or a Tesla–he doesn’t have to show up in a Hummer. Soccer moms can send similar signals about awareness, status and preparedness without a 4 x 4. At the less rarified atmospheric levels of the middle class, we now can buy good cars with conventional engines that get good mileage–and they look cool, or at least a lot of them do.

Gasoline prices will continue to rise–but they won’t have the same effect. That’s a good thing. Fewer dirty coal plants and more natural gas–also a good thing. But note that the key part of making good things possible is having the money, time and technology to make choices available and to send the signals about which choices advance a (greener) way of looking at the world. We are slowly beginning a move towards a European view of energy. That’s fine, especially when it’s a matter of choice, right? But we can’t kid ourselves–this is really happening because we’re the richest country on Earth. If we want this migration to go viral, we’re going to have to help the developing world get richer first.

7 responses to “The Importance of Choice

  1. Hi Don

    I see they just found 25 trillion cubic meters of the stuff. (http://www.ft.com/intl/cms/s/0/8b45584e-63a1-11e1-b85b-00144feabdc0.html)

    That should help…

  2. I don’t think the developing countries need any special encouragement to aspire for wealth. And all we need to do is to consume goods they produce.

    Price is also a powerful incentive and I do not expect oil prices to go significantly down, thanks to increasing demand by developing countries.

    China will run out of coal at the current rate of usage in 30 years. India is a question mark: their state-run coal supply monopoly is very inefficient. India will become major importer of coal, competing with China.

    In such an environment, even costlier alternatives will start to look appealing.

  3. The ten plants closing isn’t that big a deal in itself. I remember some years back in something like Power magazine, they were discussing that the average age of steamers was 37 years. That is well past their use by date so a lot of kit must have been very low availability and their boilers more weld patches than anything else. The new environmental standards probably was just the last nail in the coffin. The fact that the companies have committed to closing them means they see the time is ripe for capital reinvestment and like you say, they have a choice of fuels. Committing your fleet change to CCGTs can be fraught with difficulties though. Some years back when gas prices rapidly rose, operators were caught by trying to two shift plant designed for baseloading. Lots of failures and outages but they had the coal plant then to fall back on.

  4. Tom, since you mentioned Europe it might be interesting to actually look at what might work in the US by comparing different countries.

    European contries are a varied lot and have very different profiles on energy production and consumption. You have Norwaythe hydro heaven, Sweden with nuclear and hydro, Denmark with wind and fossil fuels, Poland on coal, Estonia with shale oil, etc. Also taxes on energy vary a lot.

  5. Never expected you’d shill for Big Pharma!!! /joke

    More seriously, I’m beyond thankful for the train service in Switz (altho the last few days, one had to take a bus past the mudslide on the N-S-N axis thru the alps). My understanding is that it’s mainly nuclear and hydro powered.

  6. Reminds me of “Free To Choose” by Milton Friedman

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s