Posted by: graemebird | May 21, 2007

Why ENERGY ECONOMICS Is Just That Little Bit Different.

I don’t mind saying that right now I have certain people I do look up to in terms of being very reliable in their thinking. One of them is of course our greatest living economist George Reisman.

But another is the scientist Arthur Robinson. And its not just their renaissance-man, sort of good judgement on many matters that I appreciate. But there are certain issues of CHARACTER and righteousness also that make me look up to these two. If there is a third it would be Angelo Codevilla but I’ll stop there since we don’t want to get into listing all the people who seem to make great sense to us at the moment.

But there is another thing. I have pondered and studied many of the things that concern these two characters from way back.

And we see an example of this here in my remembrances of taking a paper in ENERGY ECONOMICS more than two decades ago.

This is from Catallaxy. It should be considered a rough draft and I’ll try and polish it up a little later:

“Sorry birdie. I recall you mentioned once that you worked on a paper to do with energy/oil economics and assumed it was part of your dissertation or whatever they call it, i forget..”

Yeah well we had to do a sort of extended essay that must have been like a warmup to a dissertation.

I wish I could remember the name of the lecturer. An Indian bloke. He was great.
I’d stay behind to talk to him about this and that and HE’D THANK ME FOR STAYING BEHIND TO TALK TO HIM.

I remember that now because dover or someone else was talking about how depressing it was when the students didn’t seem to be interested.

I seem to remember that we moved from the lecture theatre to a tutorial room because the class size was so small. But to me energy economics is just that little bit different from the rest of the field. So I’ve always been pretty chuffed that I had the good sense to choose it as one of my final year papers.

Anyway in the tutorial room this terrific lecturer took advantage of the situation to start making coffees for us.

Because there was a certain level of group norms there that it was embarrassing to answer questions. And so I suppose he might have thought we weren’t really awake.

But anyway he’d have all these coffees on the make at the start of the lecture.
And he would say “You Hab Copy…. You Hab Copy…..”

Yeah he was terrific.
A while back in one of the meetings I was asking why it was we had WOODEN chep pallets in the factory. Since we had plastic pallets also and they were cleaner and more robust.

Now I should have known the answer. And part of it was that our customers have all their machinery rigged to chep pallets.

So that imposing plastic pallets on them would require a comprehensive retooling.
Of course we’d lose all the custom if we had the hubris to try that on.

But the point of it is that one cannot be flippant about capital investment and our pool of locally generated investment is pretty so-so in terms of quantity…. and compared to how things could be its also somewhat misdirected.

Energy economics is like the our chep pallet conundrum but 1000 times moreso.
You might think of it as network effects.

But network effects are in place for the keyboard that you see before you.
And a Lee-Kwan-Yew-Singaporean-style government (ie Willing to use compulsion but able to use it with some good sense)

could overcome these rather trifling barriers without too much costs involved.

Not so with energy.

Now there is no problem with capturing and distributing energy as such.
We have as much energy as we can gather.

The problem is with the capital goods necessary to gather, distribute and productively consume that energy.

So the idea that solar might take 3-10 times as much capital investment to produce a keta-joule of energy isn’t a ho-hum thing…. Its the REAL DEAL.

I’ve also been in other meetings some time ago as chairman of the safety committee.

What we’d find is that if a very costly capital expenditure measure could be shown to both improve safety and productivity at the same time there would be a very good chance it will be approved.

So naturally you wanted to have investments with these characteristics going ahead FIRST…. (by and large).

But if there is a problem with energy… if energy is high-cost or is rationed out….

……Then you will see the priorities of business change in ghastly and even ghoulish ways.

We called and approval of this sort a “CapEx”

That is to say an approval to make a sizeable capital expenditure….. A CAPEX.

A capex is something that couldn’t be just knocked up by the maintenance guys.

Capital expenditures of any sort are energy intensive in nature.

And capital equipment is basically energy using machinery that saves on human muscle power.

If Australia isn’t a good international citizen and doesn’t step in when the energy production of the Middle East falters…….. (WHICH IS NOW)

……. If the equivalent energy availability as expressed by a barrel of oil being 40, 30 or 20 USD isn’t available to poorer countries…

.. Than billions of years of life expectancy will be wiped out… And the level of deaths an injuries in poor countries will be far higher than it would be in the alternate situation.

Now with energy production and distribution at less than (lets say ) 20 USD going on in the context of a failure of governments to charge-through-the-nose….. (And I mean charge like a wounded bull) For PEAK-TIME (peak-time only) infrastructural use……

If you have cheap energy and you aren’t charging big-time for energy-use-at-peak-time…. And road-use-at-peak-time…… And drawing water from the rivers during low-level-time….

If you aren’t doing that than the low prices for energy will be wasted on us.

We’ll all clog up the roads in marvellous tanks with fantastic airconditioning, listening to sublime music and simply be tossing our energy paternity into the air.

And the other thing is if we don’t try and eliminate all sources of restriction to voluntary VOLUNTARY (note for Jason… voluntary… not Stalinist) capital accumulation…

… Then also this is a way of pissing our energy-bounty against the wall.

But having made all those caveats if countries so blessed as us cannot be turning out liquified-coal by the gigalitre so that little Hamisi can grow up to buy a two-ton-all-terrain-van and a dingo-digger and get about making his district in Africa a better place…

.. Then we’ve all got to have a good long look at ourselves.


The key finding of my proto-dissertation (pretty big essay) in energy economics…. and what makes energy economics just that little bit different was this:

Though the pace of change may seem to be speeding up the substitution away from the PRIMARY ENERGY SOURCE OF THE ERA…. is a slow process that defies any perceived acceleration in progress more generally.

Substitution from Wood to Coal to Oil was very slow and very smooth and it amounted to only about 1% per year.

Like the substitution away from wooden pallets conundrum X 1000.

The secondary finding of the paper itself… rather than the essay I produced… the contents of which I cannot rightly remember……

…. Was that we already knew more than two decades ago that things would be righteous so long as coal and nuclear weren’t obstructed.

These weren’t the media opinions we were studying. And the people I was referencing never for one minute got sucked into that energy shortage JIVE of the late 70’s.

Rather these were sober projections… based on the hyper-slow substitution-rates…

And the idea was that we could all have more and more energy every year but that if coal and nuclear were obstructed we’d be in trouble.

Well its been more than 20 years since then and we know whats happened.

Coal and Nuclear have been obstructed far more than any of us could have ever guessed at the time.


So anyway thats what I learnt from my paper in energy economics.

This is no time for any governmental spending spree on energy projects.

Rather this is a time to take (royalties aside) the production and distribution of energy right out of the tax system…..

… This is the time to carefully clarify the rules on infrastructural (trans-spacial) property titles… To micronise, list and record all those titles…. so that they become potentially tradeable even though many of them are underground.

.. This is the time to have almost exploitive peak-time infrastructural charges in return for massive tax cuts elsewhere…

We’ve just got to get very serious about this subject.



  1. Well its just terrible.

    But its the international guild of taxeaters getting their way.

    Washington is enemy occupied territory. And if a regime stays there long enough they fall into that Alice-In-Wonderland world.

    Bush kept his act up for about three years. But blood-sucker-central has, in the end, gotten its way in most matters.

  2. Well it sure seems that way.

    Still he’s only human.

  3. very interesting blog. thank you for the valuable infos.

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