4 ms·

Sure, the private cost of petroleum doesn't reflect the social cost. But you're saying it should be TEN MILLION TIMES dearer?

by gmac 10y ago

dredmorbius 10y ago
Based on the inputs of time and initial biomass, yes, roughly. Burning petroleum or coal is much more like burning diamonds than wood, economically and geologically. And if you look at the history of how we got here, especially the law and economics, the scientific basis for those assumptions was tremendously flawed. https://dge.carnegiescience.edu/DGE/Dukes/Dukes_ClimChange1.pdf https://dge.carnegiescience.edu/DGE/Dukes/Dukes_ClimChange1.... https://en.m.wikipedia.org/wiki/Rule_of_Capture https://en.m.wikipedia.org/wiki/Rule_of_Capture It's a complicated story, I'm working on putting it together.
- fennecfoxen 10y ago
  You know what? The linked paper's assertion of 89 metric tonnes of plant matter = 1 gallon gasoline today? That's a thing. Sure. Calling the overall use of fuels reckless? Also a thing. It's fine, really. Assigning gas a $20,000,000/gallon value based on crude extrapolations of what biomass it would take to replace gas, without doing hardcore economic modelling on the price elasticity of demand, the availability of substitutes, and explaining the assumptions you've made to determine what's the right discount rate to use on the future value of the stored resource – and, indeed, of the value of the environment and humanity's future in general? That's little better than pulling the numbers out of your ass. The world isn't linear enough to just do things like that.
  - dredmorbius 10y ago
    The price elasticity argument is a red herring. The availability of substitutes is something to consider, though to a large extent for mobile transportation fuels those simply do not exist. There are some remote possibilities that we might be able to come up with something. Electrical generation looks slightly more favourable, and would replace much coal use. The 15% or so of coal used in coking of iron for steel production, somewhat less so, though that's potentially fungible. There's a reason I'm suggesting order-of-magnitude ranges for pricing errors rather than specific dollar amounts to any level of precision, and I'm willing to suggest a 3-8 OOM range (1,000 to 100,000,000) range based on available data. A nonrenewable resource, economically, is one whose market price fails to account for the time costs of natural formation, such that rates of consumption exceed rates of restoration. The relevant number from Dukes' paper, by the way, isn't strictly the biomass required, but the accumulation period of that biomass: roughly 5 million years of ancient accumulation per present year of usage (as of 1997). Another source, Reinventing Fire (Amory Lovins et al) gives the value of 17 million times higher a usage than accumulation rate. Either way, this represents an off-books financing either in the form of debt (as many represent it) or a draw-down of capital stock or savings (as I prefer to view it), which present economic theory fails to account for. It needn't do this, and I've been exploring how and why the present circumstance and economic mythology (to use economist Thorstein Veblen's term) emerged. Adam Smith defines costs as the total factors of input, which would include natural factors and their factors, including formation time. David Ricardo presumed land rents (from which natural resource rents theory emerged) were based on "the original and indestructible qualities of the soil", two false premises. Boehm-Bawerk, Marshall, and Menger discussed theories of cost far more comprehensive than the minimalistic and incomplete marginal theories now dominant (and causing numerous problems throughout microeconomics). The formative papers on natural resource and exhaustive resource pricing (Gray, 1914, Hotelling, 1931) fail to cite any geological references. At the same time that this theory (or mythology) was forming and extractive fossil-fuel industries were forming, the understanding of geological scales and processes was itself undergoing a phenomenal revolution. As of Smith's time, understanding of the age of the Earth ranged from Ussher's ~6,000 years to ... "unknowably long" (Hutton), with estimates developing over the course of the 19th century of from hundreds of thousands to hundreds of millions of years, though Lord Kelvin and other estimates ranging in the 20-40 million year range, based on understandings of thermodynamics ... and an ignorance of radioactivity. It was in this period that the legal models of property over mineral resources were established, largely Rule of Capture, with significant jurisprudence in 1804 (Post v. Priestly), the 1880s (oil & gas, W. Va. and Penn.), and 1904 (Texas). That law saw modifications in the 1930s due to advances in geological structural but not temporal understanding, and still remains largely in effect today in Texas and elsewhere (Daintith, several publications). Chasing value manages to confound the fact that cost, price, and value are in fact three separate properties, though related. I call into question the environmental economic practice of trying to assign "use value" to various environmental factors without also taking into account the creation costs, net of environmental factors of production. I'm still thinking through full implications of this: entropy increases, so there's a net loss throughout the system, but there are more and less sustainable rates of such loss. I stand by my point that the problem is not, as @marcgcombi's (now flagged) comment states, that renewable resources are too expensive, but that nonrenewable resources have been fantastically under-priced by market forces. The good news in my critique, though, is that this may be a problem which can be addressed through market mechanisms: a full accounting of the formation and replacement costs of fossil-fuel resources would make the extraction of them at present rates economically and financially unsustainable. A retroactive application of debits to account for the squandered resources would turn coal-, oil- and gas-extracting firms and nations into the biggest financial catastrophes ever (though nonsustainable ag processes might be another similar case). Getting back to the price-elasticity question: if your market price fails to account for true costs of production, you are nowhere near an equilibrium point. Computations of elasticities are then the equivalent of premature optimisation in software: you've first got to get the correct outputs and functioning. More generally: we're aware of what the long-term stable equilibrium point of human activity was prior to mass consumption of nonrenewable fossil fuel resources. Net energy throughput per capita was about 1/100th of the present value (~1/1000th for the US), and total supported population roughly 1/16th present values. We found ourselves on an over-capacity lifeboat but with an immense supplies cache. We've mistaken that supplies cache with the capacity to sustain ourselves indefinitely, a story which I suspect will end poorly. I'm quite aware that this is not orthodox economic thinking. (It is well within the mainstream of ecology, biology, and physics, however.) I'm also aware that it's rather better supported in economics, finance, and geology, as well as legal miscarriage, than very nearly all of what is orthodoxy.
    - kbenson 10y ago
      > We found ourselves on an over-capacity lifeboat but with an immense supplies cache. We've mistaken that supplies cache with the capacity to sustain ourselves indefinitely, a story which I suspect will end poorly. Well put. This is why I get excited about SpaceX news. It, and other commercial space ventures, seem like the very beginnings of a formation of a plan to shuttle people to the other lifeboats we see around us. It doesn't actually solve the problem, but often it's easier to make better decisions the second time around... > I'm quite aware that this is not orthodox economic thinking. I wouldn't say it's entirely unorthodox economic thinking, just unorthodox practice. I would hazard most economists understand this, and likely agree to a greater or lesser degree, but sit somewhere around "believe it will self correct", "don't know how to change it" and "don't think it's a problem" on what to do about it depending on ideology.
      - dredmorbius 10y ago
        SpaceX is interesting and hugely impressive -- I'd thought the prospects of flying a stage back under rocket power were nil and am openly eating my hat given Musk's accomplishments here. That said, I'll maintain that outer space is, net net, a sink, not a source, and that there is no Earth2 within reach. At best we've a handful of solid bodies, most of which are moons of Jupiter and Saturn, and possibly some interesting mineral resources. The fundamental problem we've got to tackle is one of understanding the concept of, assessing the magnituded of, and living within, limits. I don't see much sign of that having happened. As for the economics, there are a number of places at which I depart sharply with orthodoxy, and I'm trying to assess just what those are. There are a few economists from whom I find some agreement and inspiration, though that's only a few, and going through and assessing theory is time consuming.
    - fennecfoxen 10y ago
      You're right to disconnect the cost, price, and value of a resource, but you seem to ignore that while computing the results you arrive at, and get nonsense contaminating what would otherwise be a good point. As long as we're pretending to talk economics of any sort, orthodox or otherwise, the only cost that matters is the opportunity cost. All those millions of years replacing the oil in the ground? There's no opportunity cost to that. No one gave up any second-best alternative. That was just the ecosystem doing it's thing. And, it's a sunk cost, to boot. It is fact now. There is nothing to do about it. So the only questions that matter here are what is the best possible alternative that we could possibly imagine for the future which we give up by extracting this gallon of gasoline and how should we compare that to 2017 dollars (how to discount the future, or even whether to do so). If you think we can achieve output with same value as humanity currently regards 10 million bushels of corn by leaving just 1 gallon of gasoline's worth of petroleum in the ground, I'd like to hear why and how, because that's an extraordinary claim, and if they were actually real we could pay for a lot of alternative energy sources with these fantastical savings.

Sure, the private cost of petroleum doesn't reflect the social cost. But you're saying it should be TEN MILLION TIMES dearer?

by gmac 10y ago

Sure, the private cost of petroleum doesn't reflect the social cost. But you're saying it should be TEN MILLION TIMES dearer?

dredmorbius 10y ago

Based on the inputs of time and initial biomass, yes, roughly. Burning petroleum or coal is much more like burning diamonds than wood, economically and geologically. And if you look at the history of how we got here, especially the law and economics, the scientific basis for those assumptions was tremendously flawed. https://dge.carnegiescience.edu/DGE/Dukes/Dukes_ClimChange1.pdf https://dge.carnegiescience.edu/DGE/Dukes/Dukes_ClimChange1.... https://en.m.wikipedia.org/wiki/Rule_of_Capture https://en.m.wikipedia.org/wiki/Rule_of_Capture It's a complicated story, I'm working on putting it together.

fennecfoxen 10y ago
You know what? The linked paper's assertion of 89 metric tonnes of plant matter = 1 gallon gasoline today? That's a thing. Sure. Calling the overall use of fuels reckless? Also a thing. It's fine, really. Assigning gas a $20,000,000/gallon value based on crude extrapolations of what biomass it would take to replace gas, without doing hardcore economic modelling on the price elasticity of demand, the availability of substitutes, and explaining the assumptions you've made to determine what's the right discount rate to use on the future value of the stored resource – and, indeed, of the value of the environment and humanity's future in general? That's little better than pulling the numbers out of your ass. The world isn't linear enough to just do things like that.
- dredmorbius 10y ago
  The price elasticity argument is a red herring. The availability of substitutes is something to consider, though to a large extent for mobile transportation fuels those simply do not exist. There are some remote possibilities that we might be able to come up with something. Electrical generation looks slightly more favourable, and would replace much coal use. The 15% or so of coal used in coking of iron for steel production, somewhat less so, though that's potentially fungible. There's a reason I'm suggesting order-of-magnitude ranges for pricing errors rather than specific dollar amounts to any level of precision, and I'm willing to suggest a 3-8 OOM range (1,000 to 100,000,000) range based on available data. A nonrenewable resource, economically, is one whose market price fails to account for the time costs of natural formation, such that rates of consumption exceed rates of restoration. The relevant number from Dukes' paper, by the way, isn't strictly the biomass required, but the accumulation period of that biomass: roughly 5 million years of ancient accumulation per present year of usage (as of 1997). Another source, Reinventing Fire (Amory Lovins et al) gives the value of 17 million times higher a usage than accumulation rate. Either way, this represents an off-books financing either in the form of debt (as many represent it) or a draw-down of capital stock or savings (as I prefer to view it), which present economic theory fails to account for. It needn't do this, and I've been exploring how and why the present circumstance and economic mythology (to use economist Thorstein Veblen's term) emerged. Adam Smith defines costs as the total factors of input, which would include natural factors and their factors, including formation time. David Ricardo presumed land rents (from which natural resource rents theory emerged) were based on "the original and indestructible qualities of the soil", two false premises. Boehm-Bawerk, Marshall, and Menger discussed theories of cost far more comprehensive than the minimalistic and incomplete marginal theories now dominant (and causing numerous problems throughout microeconomics). The formative papers on natural resource and exhaustive resource pricing (Gray, 1914, Hotelling, 1931) fail to cite any geological references. At the same time that this theory (or mythology) was forming and extractive fossil-fuel industries were forming, the understanding of geological scales and processes was itself undergoing a phenomenal revolution. As of Smith's time, understanding of the age of the Earth ranged from Ussher's ~6,000 years to ... "unknowably long" (Hutton), with estimates developing over the course of the 19th century of from hundreds of thousands to hundreds of millions of years, though Lord Kelvin and other estimates ranging in the 20-40 million year range, based on understandings of thermodynamics ... and an ignorance of radioactivity. It was in this period that the legal models of property over mineral resources were established, largely Rule of Capture, with significant jurisprudence in 1804 (Post v. Priestly), the 1880s (oil & gas, W. Va. and Penn.), and 1904 (Texas). That law saw modifications in the 1930s due to advances in geological structural but not temporal understanding, and still remains largely in effect today in Texas and elsewhere (Daintith, several publications). Chasing value manages to confound the fact that cost, price, and value are in fact three separate properties, though related. I call into question the environmental economic practice of trying to assign "use value" to various environmental factors without also taking into account the creation costs, net of environmental factors of production. I'm still thinking through full implications of this: entropy increases, so there's a net loss throughout the system, but there are more and less sustainable rates of such loss. I stand by my point that the problem is not, as @marcgcombi's (now flagged) comment states, that renewable resources are too expensive, but that nonrenewable resources have been fantastically under-priced by market forces. The good news in my critique, though, is that this may be a problem which can be addressed through market mechanisms: a full accounting of the formation and replacement costs of fossil-fuel resources would make the extraction of them at present rates economically and financially unsustainable. A retroactive application of debits to account for the squandered resources would turn coal-, oil- and gas-extracting firms and nations into the biggest financial catastrophes ever (though nonsustainable ag processes might be another similar case). Getting back to the price-elasticity question: if your market price fails to account for true costs of production, you are nowhere near an equilibrium point. Computations of elasticities are then the equivalent of premature optimisation in software: you've first got to get the correct outputs and functioning. More generally: we're aware of what the long-term stable equilibrium point of human activity was prior to mass consumption of nonrenewable fossil fuel resources. Net energy throughput per capita was about 1/100th of the present value (~1/1000th for the US), and total supported population roughly 1/16th present values. We found ourselves on an over-capacity lifeboat but with an immense supplies cache. We've mistaken that supplies cache with the capacity to sustain ourselves indefinitely, a story which I suspect will end poorly. I'm quite aware that this is not orthodox economic thinking. (It is well within the mainstream of ecology, biology, and physics, however.) I'm also aware that it's rather better supported in economics, finance, and geology, as well as legal miscarriage, than very nearly all of what is orthodoxy.
  - kbenson 10y ago
    > We found ourselves on an over-capacity lifeboat but with an immense supplies cache. We've mistaken that supplies cache with the capacity to sustain ourselves indefinitely, a story which I suspect will end poorly. Well put. This is why I get excited about SpaceX news. It, and other commercial space ventures, seem like the very beginnings of a formation of a plan to shuttle people to the other lifeboats we see around us. It doesn't actually solve the problem, but often it's easier to make better decisions the second time around... > I'm quite aware that this is not orthodox economic thinking. I wouldn't say it's entirely unorthodox economic thinking, just unorthodox practice. I would hazard most economists understand this, and likely agree to a greater or lesser degree, but sit somewhere around "believe it will self correct", "don't know how to change it" and "don't think it's a problem" on what to do about it depending on ideology.
    - dredmorbius 10y ago
      SpaceX is interesting and hugely impressive -- I'd thought the prospects of flying a stage back under rocket power were nil and am openly eating my hat given Musk's accomplishments here. That said, I'll maintain that outer space is, net net, a sink, not a source, and that there is no Earth2 within reach. At best we've a handful of solid bodies, most of which are moons of Jupiter and Saturn, and possibly some interesting mineral resources. The fundamental problem we've got to tackle is one of understanding the concept of, assessing the magnituded of, and living within, limits. I don't see much sign of that having happened. As for the economics, there are a number of places at which I depart sharply with orthodoxy, and I'm trying to assess just what those are. There are a few economists from whom I find some agreement and inspiration, though that's only a few, and going through and assessing theory is time consuming.
  - fennecfoxen 10y ago
    You're right to disconnect the cost, price, and value of a resource, but you seem to ignore that while computing the results you arrive at, and get nonsense contaminating what would otherwise be a good point. As long as we're pretending to talk economics of any sort, orthodox or otherwise, the only cost that matters is the opportunity cost. All those millions of years replacing the oil in the ground? There's no opportunity cost to that. No one gave up any second-best alternative. That was just the ecosystem doing it's thing. And, it's a sunk cost, to boot. It is fact now. There is nothing to do about it. So the only questions that matter here are what is the best possible alternative that we could possibly imagine for the future which we give up by extracting this gallon of gasoline and how should we compare that to 2017 dollars (how to discount the future, or even whether to do so). If you think we can achieve output with same value as humanity currently regards 10 million bushels of corn by leaving just 1 gallon of gasoline's worth of petroleum in the ground, I'd like to hear why and how, because that's an extraordinary claim, and if they were actually real we could pay for a lot of alternative energy sources with these fantastical savings.