This is a theme of my comments next week at a forum on alternative energy — no business model (save perhaps farming, which the public seems willing to subsidize forever) is sustainable if it requires constant subsidies – at some point, the public wearies of the fiscal drain, or the growth of the business makes the subsidies too large to sustain.

By the way, don’t even get me started on the government-enforced labor involved.  10 minutes a week per person is 2.6 billion man-hours a year of forced labor.  I remember old Loony Tunes cartoons where some guy is sorting mail into slots and on the other side of the wall you see all the mail from the various slots being sent back into a single bag.  Given that the government forces us to expend this labor, forgetting the individual liberty aspects of it, is this really the best use of 2.6 billion man hours?

Postscript: Every time I write about recycling, I get this:  Well, we agree that mostly it does not save energy and we agree it does not save money (even though we told everyone it did) but you are forgetting about landfill space.   OK, here is a take on landfill space — it turns out that it is not running out, as technology and innovation  (and the profit motive) have expanded the capacity of existing landfills.

It sounded like a good idea: Provide a little government money to convert wood shavings and plant waste into renewable energy.

But as laudable as that goal sounds, it could end up causing more economic damage than good — driving up the price of raw timber, undermining an industry that has long used sawdust and wood shavings to make affordable cabinetry, and highlighting the many challenges involved in decreasing the nation’s dependence on oil by using organic materials to create biofuels.

In a matter of months, the Biomass Crop Assistance Program — a small provision tucked into the 2008 farm bill — has mushroomed into a half-a-billion dollar subsidy that is funneling taxpayer dollars to sawmills and lumber wholesalers, encouraging them to sell their waste to be converted into high-tech biofuels. In doing so, it is shutting off the supply of cheap timber byproducts to the nation’s composite wood manufacturers, who make panels for home entertainment centers and kitchen cabinets.

The federal government can provide up to $45 a ton in matching payments to businesses that collect, harvest, store and transport biomass waste to an authorized energy facility. That means sawdust or wood shavings may be twice as valuable if a lumber mill sells them to a biomass energy company instead of to a traditional buyer.

This is bad news for the composite panel industry, which turns these materials into particleboard and medium-density fiberboard, and outranks the U.S. biomass industry in terms of employees and economic impact, with 21,000 employees and annual sales of $7.9 billion, according to 2006 U.S. Census data.

The article poses this as a dueling jobs situation, but the result not only leaves us worse off economically, it leaves us worse off environmentally.   And the explanation is all Hayek and the limits on information possessed by a few individuals in Congress vs. 300 million market actors.  It is pretty clear to me that, to whatever extent Congress even thought at all about this legislation, they must have assumed that wood shavings were “waste.”  What happened, most likely, is some entrepreneur and his VC backers came to Congress saying that all this sawdust is just wasted and if you give us a fat subsidy, we can build a valuable business burning it for power.

But in fact, businesses (no matter how much environmentalists believe otherwise) abhor waste.    When a tenth of a percent on margins is important, a lot of people have financial incentives to either reduce the waste or do something productive with it.  Which is why there is a whole industry using sawdust and chips already to make various building products.  And I won’t go into the math, but trust me that this kind of use for waste is far more efficient, both economically and environmentally, for the waste than just burning it.

The hidden hand behind this unsanitary calamity is the US government. The true origin of the mess was not in the hour before I arrived but back in 1994, when Congress passed the Energy Policy and Conservation Act.This act, passed during an environmentalist hysteria, mandated that all toilets sold in the United States use no more than 1.6 gallons of water per flush. This was a devastating setback in the progress of civilization. The conventional toilet in the US ranges from 3.5 gallons to 5 gallons. The new law was enforced with fines and imprisonment.

For years, there was a vibrant black market for Canadian toilet tanks and a profitable smuggling operation in effect. This seems either to have subsided or to have gone so far underground that it doesn’t make the news. I’ve searched the web in vain for evidence of any 3.5 or 5.0 gallon toilet tanks for sale through normal channels. I wonder what one of these fetches in the black market. This possible source has no prices and an uncertain locale.

The toilet manufacturers, meanwhile, are all touting their latest patented innovations as a reason for the reduced hysteria surrounding the toilet disaster. I suspect something different. We have all gotten used to a reduced standard of living — just as the people living in the Soviet Union became accustomed to cold apartments, long bread lines, and poor dental care. There is nothing about our standard of living that is intrinsic to our sense of how things ought to be. Let enough time pass and people forget things. So let us remember way back when:

• Toilets did not need plungers next to them, and thank goodness. Used plungers are nasty, disease carrying, and filthy. It doesn’t matter how cute the manufacturer tries to make them or in how many colors you can buy them. In the old days, you would never have one exposed for guests. It was kept out in the garage for the rare occasion when someone threw a ham or something stranger down the toilet.
• Toilet paper was super thick and getting thicker. None of this one-ply nonsense.
• You never had any doubt about the capacity of the toilet to flush completely, with only one pull of the handle. The toilet stayed clean thanks to five gallons of rushing water pouring through it after each flush.

It concludes:

“Capitalism achieved something spectacular in waste disposal. Government came along and took it away from us.”

I get a lot of pushback on this, because it seems to offend people’s intuition.  They will say they know lots of good people they trust in government — there is no way that all these smart, well-intentioned people are going to be so consistently wrong.

But the argument against government in this case (and in most other cases) is not based on the IQ or goodness of the individuals that populate it.  The argument is that even good people in groups make terrible decisions due to problems with their information and incentives.

The information problem is one that Hayek is famous for addressing.  In short, there is simply too much to know to make decisions for the entire economy.  In fact, folks with high IQ’s often do especially poorly in this context, because they tend to overestimate their own knowledge and problem-solving ability.   And, even if one could be omniscient, it is still impossible to pick winners because 300 million people have different preferences and so one solution based on one set of idealized or mean preferences is going to sub-optimize for a lot of people  (remember this now that we all have to have health insurance plans on the exact same terms and coverage).

The incentives issue is perhaps an even more powerful problem.  We only have to look at the most recent health care bill and its progress through the legislative process to understand the power of incentives to shape rules and legislation in absurd ways.

Ethanol is a great illustration.  Scorned by scientists as both bad energy policy and bad environmental policy, ethanol mandates and subsidies do nothing but hurt the environment.  Ethanol generally takes more fossil fuels to produce than it replaces, it does almost nothing to reduce CO2 emissions, and it creates new environmental issues with land use as well as social issues from rising food prices.  If you listed a hundred potential legislative initiatives to improve the environment and energy policy, ethanol would likely be in the bottom 10.  But never-the-less, it is consistently the number 1 legislative solution adopted by western democracies, including the supposedly science-based Obama administration.

I used to say that if we could move the first Presidential primary out of Iowa, ethanol might go away, but obviously that understated the appeal of subsidizing the agricultural industry under the thin veneer of environmental policy, as demonstrated by these nutty large subsidies in Europe.  Via Carpe Diem:

Biofuels production in Europe is heavily subsidized. Support has also been increasing in the past years and today stand at approximately EUR4 billion ($5.76B). Another way to look at subsidies is that every litre of ethanol consumed in Europe gets 0.74 EUR (about $4 per gallon) and every litre of biodiesel 0.5 EUR ($2.72 per gallon). The effective rate of assistance to biofuels (taking account of all measures of support) adds up to more than 250% for ethanol (see chart above). Biodiesel, and especially rapeseed crops, have lower effective rates of assistance (up to approximately 60%).

This structure of support and protection is not economically sustainable. It is rather close to economic madness to pursue the sort of self-sufficiency or industrial policy ambitions that have guided EU policy towards biofuels. The total cost of every unit of biofuel becomes far too high, which slows down the readiness to shift away from fossil fuels.

The biofuels policy in the European Union is a classic example of “green protectionism” – protectionism that is not motivated for the benefit of the environment, but which uses environmental concerns to pursue non-environmental objectives. The European Union runs an extensive policy for subsidies to biofuel production. Border protection increases the level of subsidy by giving a market support from consumers to producers. Standards are used to favour domestically produced biofuels. It is difficult to escape the picture of a policy driven by industrial ambitions rather than environmental concerns. The intention and/or the effect of Europe’s policy is associated with beliefs of self-sufficiency. Obviously, trade is not considered to be an integral part of an environmental ambition to shift from fossil fuels to biofuels.

Senator Dianne Feinstein introduced legislation in Congress on Monday to protect a million acres of the Mojave Desert in California by scuttling some 13 big solar plants and wind farms planned for the region.

But before the bill to create two new Mojave national monuments has even had its first hearing, the California Democrat has largely achieved her aim. Regardless of the legislation’s fate, her opposition means that few if any power plants are likely to be built in the monument area, a complication in California’s effort to achieve its aggressive goals for renewable energy.

I think that there is an important lesson here that even “clean” energy sources have environmental downsides.  Its funny how things come full circle – thirty years ago I used to argue with people who had obsessive concerns about nuclear waste.  I would say that the volume of waste was really small, and in fact coal and oil were no different in that they generated a lot of waste but that they spewed their waste all over the atmosphere — at least nuclear waste was compact and defined and easy to store.

Anyway, I actually think Feinstein is correct here.   Here is the origin of the plot of land:

For Mrs. Feinstein, creation of the Mojave national monuments would make good on a promise by the government a decade ago to protect desert land donated by an environmental group that had acquired the property from the Catellus Development Corporation.

“The Catellus lands were purchased with nearly $45 million in private funds and $18 million in federal funds and donated to the federal government for the purpose of conservation, and that commitment must be upheld. Period,” Mrs. Feinstein said in a statement.

I have some bias in this, because my personal charities of choice tend to be private land trusts, that use private funds to buy lands for conservation.   I have always argued from an individual liberty angle that people who want land conserved shouldn’t be demanding that government take it, they should be putting their money where their mouth is and helping to buy the land.  This story actually gives me another argument, because you can see that the private conservation buyers made a mistake in giving it to the Feds.  The Bush Administration, looking to score a PR victory in the alternative energy front, reneged on the promised conservation and committed the land to solar projects.

With water supplies drying up in the next 10 years, the Salton Sea poses an economic and ecological threat to the Coachella Valley and large portions of Riverside and Imperial counties. And while plans to restore the Salton Sea exist, government funding and determination to tackle this potential multi-billion disaster have not materialized.

Why is this funny?  Because the Salton Sea is the result of a man-made environmental disaster about a century ago.  The lake formed when floodwaters from the Colorado River roared down a man-made canal, breached a dike, and formed the lake.  Since then, this record “spill” which dwarfs the sum total volume of every oil spill of all time has been slowly drying up like a puddle on the garage floor.  I suppose I am OK retaining it if people have gotten used to it, but I find it funny that the natural reversal of a man-made ecological disaster is itself an ecological threat.

The following, by the way, has to be the dumbest idea of all time from an economic and energy balance perspective:

The Imperial County Board of Supervisors and Imperial Irrigation District have voted to explore the Sea to Sea Plan, which not only brings water to the sea, but generates hydroelectric energy that will be used for desalinization of water that can then be sold to water users throughout the Southwestern United States and Mexico. This new, reliable water supply will generate funds for further Salton Sea restoration.

So we pay money to pump water out of the Sea of Cortez, but then somehow have this generate electricity that pays for desalinization to then pump the water back out of the Salton Sea for irrigation.  Sorry folks, but I think the second law of thermodynamics says this won’t work.

Update: OK, from here, one source says the water generates energy via hydroelectric plants, which seems odd (pumping water up and then harvesting the energy going down never balances, though this is used in certain California lakes as a method of energy storage) while one source says the power is geothermal.  Hmm, does “half-baked” come to mind reading this?

Update #2:  Shouldn’t desalinization occur as close as possible to the source?  Otherwise you are paying to pump tons of salt you are going to eventually remove.

Related:  the total BS that is the Volt’s 230 mpg rating.

I know this might sound retro to some readers. But we need to finish what the early 1970s environmental pollution control laws set out to do: clean up all the sources of air and water pollution. The environmental movement has run out of steam and gotten distracted. Get back to the basics.

Agreed.  Another point I often make – we don’t know how to keep growing China without creating CO2, but we do know how to grow China without making the air in cities like Beijing breathable.  Instead of talking to them about CO2 capture, what about air pollution 101 type things like ash bags and exhaust scrubbing?

And while I am on the topic, do we have to keep destroying the Amazon just to clear land to grow more plants for ethanol that in the end does nothing to abate CO2 emissions?

If they want me to use less water, then raise the price beyond the ridiculously low prices we have now, prices that clearly do not match supply with demand.  It is not we consumers in Arizona that are draining Lake Powell, it is politicians who price water below any kind of reasonable supply/demand clearing price to gain some incremental love at the ballot box  (also, politicians prefer command and control legislation of the shower head variety to allowing the price mechanism to work automatically).  More here.

All the problems in these pictures are ones we demonstrably know how to solve while still allowing for the economic growth that is pulling a billion Asians our of poverty.  The same cannot be said for our current ability to eliminate CO2, and therefore most combustion, without imploding our economy.