The stupid energy things people believe

People believe a lot of stupid things. I mean, really stupid things, including things that are obviously either false or irrelevant but which are repeated without much thought. A good example is the common remark that a butterfly flapping its wings in the Amazon could create a hurricane in the Atlantic because of the chaotic weather. Now, there are billions if not trillions of butterflies in the Amazon, and they flap their wings perhaps once a second, which equates to 30 million wing beats per year per butterfly. That means that quadrillions of wing beats per year could create – caution – a dozen or two hurricanes. This is not to deny the connection, but to demonstrate the irrelevance of the idea.

At the same time, this particular fallacy is not very important: Nobody is claiming that there could be a multi-billion dollar surveillance effect from the flap of a butterfly’s wings (at least not yet, call me DARPA), so it doesn’t matter. But since other fallacies can lead to bad investments and bad policies, it’s worth thinking about their origins and how to avoid or correct them.

A big part of the problem is bias. That is, people who like an idea then adopt it, repeat it, and cite it until it becomes accepted truth. This is possible because complex systems like the energy industry or the climate produce a wealth of data and anecdotes that can support pretty much any theory, so the biased observer can find support for even the silliest idea.

And this is done in two ways: by ignoring context and/or by claiming that correlation equals causation. In the first case, predictions that climate change will mean 60,000 additional deaths from malaria are repeated by climate activists as an existential threat, without mentioning that malaria deaths currently stand at over 600,000. Or opponents of electric vehicles point to lithium-ion battery fires, without mentioning that gasoline cars sometimes catch fire too. (The comparison is notable, though, because the types and causes of fires are different, so it’s like comparing apples to oranges, or, perhaps more aptly, comparing domestic cats to wild cats.)

The worst and most worrying misconception is that climate change is the fault of capitalism, as Naomi Klein argues in her book: This changes everything: Capitalism vs. climate. The basic idea is that under capitalism, the profit motive makes companies disinclined to spend money on emissions control, which is true to some extent (Google “public goods”). However, the whole idea requires the assumption that correlation equals causation. To demonstrate this: Communist countries like the Soviet Union and state-owned oil companies like Petroleos de Mexico were famous for their complacency about emissions and pollution. And a large portion of emissions from coal-fired power plants in China come from state-controlled industries, although theorists insist that state-owned companies are more likely to provide public goods like pollution control. Likewise, some of the worst toxic waste sites in the U.S. are, beware, military bases. Armies, at least in this country, were not driven by the profit motive, a fact that is conveniently overlooked.

There is also a tendency to believe things that contradict reality. Ronald Reagan always joked that economists were people who saw something working in the real world but questioned whether it worked in theory. A perfect example of this is that many economists believe that you can prove mathematically that oil prices must rise by the interest rate in the long run, or about 3% above inflation. This is based on a 1973 paper by Robert Solow (who later won the Nobel Prize in Economics but was not a commodity economist). The fact that oil prices had not performed this way over the last century and beyond did not deter him and still does not convince many economists.

However, they say prices are well above the long-term norm (around $35 per bar). Prices usually rise when supply is constrained by political events or decisions, but they show no tendency to rise in the long term, nor do prices of other “non-renewable” resources such as minerals. Unfortunately, short-term price spikes are all too often seen as the new norm, as in 2004 when peak oil theorist Colin Campbell said, “The good old days are here.” In reality, prices had risen after disruptions to Iraqi and Venezuelan production, not due to geological scarcity as he had predicted.

This tendency to view short-term or temporary events as the new norm also brings bias into play. Neo-Malthusians such as Paul Ehrlich (co-author of 1986) The population bomb) often point out that a bad harvest would finally bring about the age of mass starvation he predicted. Amusingly, the book also criticizes optimists who use good harvests as evidence of long-term prosperity.

The acceptance of peak oil theory and Solow’s earlier economic theory also contributed to the bias. Proponents of renewable energy and electric cars have embraced the idea that oil supplies have reached a permanent peak and prices will skyrocket, making their products more competitive. And many in the oil industry have liked to hear that they can just sit back and let revenues grow with higher prices, which is true in numerous other sectors, from real estate to agriculture. Of course, there are exceptions: One industry executive told me her board wanted a low oil price forecast to encourage managers to cut costs.

In another case, I recently read that some experts complain that we are not addressing climate change because our time horizons are too short. Chaos KingsScott Patterson describes how musician Brian Eno told Nicholas Taleb, “Olive farmers and cathedral builders thought across generations… Modern man seems to have lost the ability to think about intergenerational risk.” I’m not sure where Mr. Eno shops, but the stores I frequent are full of olives. And cathedrals are not being built, but closed, as religious practice declines.

Similarly, the problem of price volatility has long plagued the oil industry and was supposedly one of the reasons John D. Rockefeller created his monopoly. Yet we often hear that price volatility makes long-term planning difficult or impossible for the industry, ignoring the fact that the industry has been coping with volatility for many years. While smaller companies without large financial resources are more vulnerable to price crashes, the argument sometimes made that we should buy more expensive energy (like ethanol) because its price is more stable (which is not really the case) is usually based on the supposedly detrimental effects of volatility on planning.

And finally, which we’ll get into later, there is the widely held claim that renewables are cheaper than fossil fuels. As far as I can tell, this claim comes from reports by Lazard-Frere that reach this conclusion, and its appeal leads countless activists to repeat it as fact. But even a casual observer should be surprised by the fact that renewables are heavily subsidized, and investment often falls sharply when subsidies are cut. Moreover, areas like California that have invested heavily in renewables do not have low or falling electricity prices. EPRINC-Chart2024-31-ResidentialUnitVersusPerCapitaCosts-v1a.pdf

Back in 1992, I hypothesized that the consensus view of the vast majority of experts that oil prices must rise partly reflected the large number of people and institutions that had not studied the issue in detail but assumed the consensus was correct, or were afraid to deviate from it. The question of the cost of renewable energy is similarly complex: the costs of land, labor, and regulations vary by location, and in addition, the intensity of sunlight can vary by a factor of two or three. Therefore, German solar power is likely to be much more expensive than that produced in, say, Dubai, whose projects are sometimes cited as evidence of their low cost.

As much as I’d like to believe that future policymaking won’t be influenced by cliches and unproven claims, politicians have long demonstrated the ability to construct their own realities. They can echo the opinions of experts, as when President Carter suggested we should save our “scarce” natural gas in favor of burning coal, or contradict them, as when New York Governor Cuomo banned fracking after extensive research turned up a study suggesting there could be health problems. Still, it’s appropriate for those of us who comment on energy to do at least a modicum of due diligence to find out whether a claim is true or not, regardless of the views of many advocates on both sides of an issue.