Thursday, October 11, 2007

Biofuel boondoggle exposes Green snake oil

FOR YEARS, ENVIRONMENTALISTS HAVE been opposing new energy production and the use of fossil fuels. They've banged on instead about abstinence, about "renewable" energy systems, about biofuels, and for some reason they've been taken seriously. There's been an assumption they know what they're talking about, and that their solutions are viable and been thought through.

They haven't been.

As would-be power producers here in New Zealand have been refused permission under the RMA to construct power plant after power plant (or been granted permission with so many conditions attached as to make production imposssible), environmentalists like Jeanette Fitzsimplesimons have applauded the refusals, and hailed such decisions as the end of "old energy" and the beginning of "new energy." As each consent was opposed and each new power station was declined permission to produce, the cry has gone up from environmentalists: "Let's use renewables."

But "renewables" just aren't available. What distinguishes "new energy" from "old energy" it seems is that while "old energy" is reliable and actually produces energy, so called "new energy" is still experimental, and doesn't. It's the modern day equivalent of snake oil. While "old energy" fuels world industry, "new energy" still requires your money to prop it up, and barely scratches the surface of the sort of capacity required for a modern industrial nation. Said Australian PM John Howard recently, (and accurately):
Let's be realistic. You can only run power stations in a modern Western economy on fossil fuel, or, in time, nuclear power."
Alan Jenkins from NZ's Electricity Networks Association issued a similar warning two years ago which has still been widely undigested, saying
It's very hard to invest in coal [because of Kyoto], nuclear's a sort of four letter word... hydro is suddenly becoming too hard... what's left? ...we can't do everything on windpower.
BUT WE DON'T LEARN, do we. The anti-industrialists are still taken seriously.

Take the example of biofuels, for which environmentalists like Jeanette Fitzsimplesimons have also been clamouring for years, and here we are just one year away from having them imposed upon us in the name of "lowering carbon emissions," and it turns out that biofuels are not only going to send food prices through the roof (and are already causing food fights in Europe and elsewhere), are not only going to cause increased forest clearance and decreased biodiversity, but as Der Speigel magazine summarises Biofuels 'Emit More Greenhouse Gases than Fossil Fuels':
A team of researchers led by Nobel-prize winning chemist Paul Crutzen has found that growing and using biofuels emits up to 70 percent more greenhouse gases than fossil fuels. They are warning that the cure could end up being worse than the disease.

Biofuels, once championed as the great hope for fighting climate change, could end up being more damaging to the environment than oil or gasoline. A new study has found that the growth and use of crops to make biofuels produces more damaging greenhouse gases than previously thought.
This is a classic example of "unintended consequences" from idiotic top-down technical-economic policies.

Does this bother the likes of Fitzsimplesimons? Do we hear themNot a whit! As my colleague Greg Balle says, the Greens and their fellow travellers should be taken severely to task for these atrocious policies and bad ideas that they wish to have imposed on transport, food and economic systems without even the virtue of decent research to back them up.

Instead, they get a free run in the media -- and now Fitzsimplesimons says it has become the fault of "gas-guzzling rich westerners" ahead of "the stomachs of the very poor."

The woman is mad. These Green idiot ideologues have been calling for biofuels for decades without having even the first clue as to the actual implications of such policies and at the first sign of a reality check they won't even take the blame for their crazy policies. This is Soviet era policy making on the hoof writ large once again, with fuzzy Lysenko-like Green "solutions" enforced by central governments globally.

WHY ARE THEY TAKEN seriously? Do they really know what they're talking about? Have they any clue at all about the full implications of wind, solar and other uneconomic technologies being made mandatory while reliable power production is slowly strangled? Why are they so ignorant about the powerful and positive effect of property rights on the environment? Why do they remain ignorant of the role of price signals in reducing scarcity? When will they stop meddling with the free market and let genuine solutions find their way through, as they have since time immemorial?

The easy certainties that many of them want enshrined in law would do less for the planet than just letting price signals, property rights and human ingenuity do the job they're supposed to: send information on resources and markets and avoid the destruction of environments, while leaving the productive free to invent new ways of doing thing.

And when will media commentators begin asking them serious questions to see if they have the first clue about the serious implications of their immature 'sky-is-falling' play-acting.

UPDATE 1: Bloggger 'Classically Liberal' asks Which National Leader really Hates the Poor? [hat tip Lindsay M]
What would you call a government that intentionally promoted a policy that increased world hunger and gave subsidies to the better off at the expense of the poorer members of their own society?
UPDATE 2: So the Government's Energy Strategy is released again today, just as it was in December. As I said of the December release, this is not a hard-headed energy strategy to produce more of the energy we desperately need -- instead, "Ministers would tell state owned generators there was no need for new baseload fossil fuel generation for the next ten years" -- but a feelgood fumbling to fight a fiction with more top-down foolishness: Hugs, cuddles, electric cars, warmer houses and a renewed focus on "renewables" -- and more statements making it plain that the production of real industrial-level energy will become more difficult.

Why are they allowed to get away with this?

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19 Comments:

Blogger Greg B said...

We'd better hope Gore doesn't get the Nobel Peace prize!

10/11/2007 09:49:00 am  
Anonymous lgm said...

He should be awarded the Ig-Noble Prize for experiements with the gullibility of idiots.

The man will go down in history right alongside his inspiration, Lychenko. Hope he doesn't end up causing the deaths of as many as L did though.

LGM

10/11/2007 10:48:00 am  
Anonymous Anonymous said...

There have always been arguments about the carbon balance of biofuels and it largely depends on the premises you use particulalry around energy sources in processing and cultivation techniques.

many of these studies are use based so irrelevant to NZ. Eg if you use a typical NZ electricity supply rather than the US version, the numbers can change dramatically. These arguments are mainly around cultivated biofuels. There is little issue about biofuel from ‘waste’ streams like tallow.

But it also shows how such short sightedness leads to even more bad policy. The govt this week is getting itself into a real tangle as it is now wants to only use "sustainable" biofuels - but is really code for import protection for local producers under the guise of a "guideline" – note minister’s comments “I expect” most biofuels to be produced locally.

Unfortunately multinational oil companies tend not to do guidelines - they like the certainty of the law. That way everyone is clear and everyone is equal. A manager or lawyer in Houston, London or Singapore is really not going to care about the niceties of NZ politics when he sniffs commercial or legal risk, and the personal whims of a minister count for jack. And if they do regulate, I wouldn’t mind betting they will come up against the hard reality of international law – how will they stop imports from Singapore or Australia when we have free trade agreements?

This is driven by the Greens, and I suspect local producers who have had their hands out for govt money for years. They know that some of the most cost effective and reliable supplies are going to come from Malaysia, Indonesia, China and Thailand and they will find it hard to compete so they want protection and are hiding behind “sustainability”.

Having set a biofuel target well ahead of local capacity to produce and against officials’ advice, and with oil companies facing hundreds of millions of dollars in fines if they don’t meet the target, the govt are now sweating at the prospect of Indonesian palm oil or Asian ethanol coming in. As far as I’m aware not one company has actually committed to building plant in New Zealand capable of producing biofuel in the quality and quantity required (but I could be wrong).

So what did the Govt expect oil companies to do when there is nothing available in NZ? If I’m facing fines on the one hand and a ready supply elsewhere I know what decision I would make, especially if it integrates into my existing supply chain and doesn’t require me building new plant here. There are big biofuel blending plants being actually built in Singapore. So if I have a big terminal or refinery there, or in Australia, why not just blend it all up there put it on a ship and bring it in fully made up? That way I have lower investment required and am not going to be captive to local producers who might look to

One of the ironies is that Fitzsimons is worried about the impact on food production. well guess what Jeanette? the New Zealand ethanol mandate can only be reached through the conversion of corn and that was the specific pitch of one of the main protagonists of biofuels that got the mandate increased that is now driving people to look for offshore supplies because the local ones aren’t there. Oh the tangled web we end up weaving when regulation is self deluding…

As an aside this is another reason the govt won't ease up on SOEs, because then those SOEs would actually really have to act like real corporations rather than at the whim of a minister - witness all the guidelines and 'agreements' that exist with govt owned entities as shown in the Air NZ case.

Insider

10/11/2007 11:09:00 am  
Anonymous Anonymous said...

And just after I finish typing out comes the new govt energy strategy with this line

"Providing a clear message to state-owned electricity generators on the government’s view that there should not be a need for new baseload fossil fuel generation for the next ten years."

ie you (yes Genesis Energy I am looking at you and your evil gas powered station ideas) might think it is a good idea and there is a commercial opportunity, but we in the Beehive know better, so don't even think about it (even though we have asked you to act commercially, just ignore that bit of the law)

Insider

10/11/2007 11:39:00 am  
Anonymous lgm said...

Faced with the fines as outlined in the scenario disclosed above there is also the option to accept the fines and pass them on (with an added margin included for administration, finace overhead and profit) to the consumer. This would increase the cost of the fuel at the retail pump but it would also result in a larger profit for little or no investment and absolutley no risk at all! Further, one could blame the price increase on green policy. The poor saps at the pump will have no option but to realise who has driven up their costs. Politically this could be a useful ploy as it would put pressure on an excessively wealthy and unpopular government.

A second approach would be to use NZ as a test case to see what it would take to break the green attack on industry. Simplified, the approach would be to refuse to use "sustainable" biofuels feedstock. Then stop supplying any fuel at all for a time and demand the government back down.

An Altlas strategy!

Banker

10/11/2007 11:43:00 am  
Anonymous Anonymous said...

lgm

The fines are calculated to be more expensive than complying. But they are ridiculously so - about $350 million. COmpare that to the $2 mill fine paid by Coppers Arch over illegal conduct or Fay Richwhite for tranzrail. Anyway, companies would be stupid and negligent to deliberately break the law.

But if they can't comply, then no supply....

I think the latter approach is better - dare them to regulate and until they do, do what is best for the business and get the product where you can at terms most advantageous. If that makes a monkey out of the govt then so be it.

Anyway that is small beer compared to the restrictions on energy generation that have been signalled in the energy strategy. That is going to push up costs across the whole country in addition to the carbon tax we are going to have to pay.

Insider

10/11/2007 12:44:00 pm  
Anonymous spam said...

Hmmm.... so on one hand, the government is asking the oil companies to come here and search for gas, and on the other saying 'but if you find it, it can't be used for generation'.

The reason the new zealand gas market is in such a state at the moment is that there was so much over-supply from Maui that any more gas discoveries couldn't be brought to market (eg. Kupe sitting undeveloped for 15 years or so).

This policy is going to kill any future exploration. Even the great southern basin, if oil is found, will have associated gas that needs to be used for something!

10/11/2007 12:58:00 pm  
Anonymous AVO said...

Insider, I disagree with your comment that "There is little issue about biofuel from ‘waste’ streams like tallow." The adverse consequences of using tallow as biofuel are essentially the same as for using cultivated crops. Tallow is a valuable commodity used in manufacturing soap, animal feeds and other products; and for most uses it competes with oils from cultivated crops. Use of tallow for biofuel production will require more oil crops to be grown to meet market demand for natural fats and oils in the non-fuel market.

10/11/2007 01:40:00 pm  
Anonymous Anonymous said...

Avo

I was meaning there is little debate about the carbon balance of biofuels from waste streams. AS for substituting for other crops, Yes, but neither are irreplaceable and vital in feed or soap.

Spam

There is little likelihood that any gas found in the GSB – and there is a big ‘if’ on that; despite the govt trumpeting it, no-one has committed to drill a hole there – being used in New Zealand anyway.

This is for two reasons. First, for it to be commercial, it needs to be a really big discovery – two to three times bigger than Maui. Second, and this is slightly circular, because there are no customers for the gas nearby and it is too far from other markets to be of use it is unlikely to be profitable to pipe it ashore, so for it to be exploitable it needs to be viable as an LNG project, and that will be exported.

One alternative is that someone (the govt) takes the risk of building a big pipeline to the NI to feed the gas and power station networks. But the energy strategy kills that option (which would be REALLY expensive anyway – a longer but much simpler pipeline from PNG to Q’land was not economic even with big big customers).

You also can’t build a gas plant in the SI as there is just no local need and it could be quite wasteful to send the power north, even if you could. But you could potentially substitute the hydro supply to Comalco with a gas plant. But again expensive and the demand may not be enough to commercialise an offshore field.

So basically, get used to the idea of any gas that might exist going to Japan, India and China.

Insider

10/11/2007 02:52:00 pm  
Anonymous Anonymous said...

I think the strategy is reasonably clear and coherent. But it is not an energy strategy though it is a climate change strategy. And that makes sense if that is your policy priority.

Of course it will be you suckers in Auckland that will feel the pinch because they won’t allow a gas plant near you to manage your increasing demand and you will have to rely on distant unreliable wind farms.

I think it is hilarious all the twisting arguments around the regulatory changes that are going to come about. Parker says the RMA is a great document and works really well, in fact it is so good and works so well that they are going to make greater use of the call in mechanism! This has only been used 3 or 4 times and only for projects of ‘national significance’. The implication being now that every wind farm is going to be seen as nationally important.

Why? Because the RMA works so well that it takes too long…..make of that what you will.

Jeanette Fitzsimons must get most ironic headline award with her media release “Families, drivers, business and climate are energy efficiency winners”.

My other ongoing hilarity is the Minister’s obsession with electric cars. Does he not understand, we buy USED cars from Japan because we are relatively poor. If we can’t afford new cars now, what makes him think we can be a leader in adopting cars that do not yet exist and, if it follows other similar technologies like hybrids, will be more expensive than conventional vehicles.
PS don’t ask how much extra cost this is going to put on your power and fuel bills – you don’t want to know and in fact it got precisely no mention in the releases just made.

Insider

10/11/2007 03:20:00 pm  
Anonymous Anonymous said...

First time in the blogosphere today and i must say congrats to the blog responders here mostly slightly more measured and less personal than a lot of the Kiwiblog lunatics...although the consensus seems to be something along the lines of "sustainability = bad idea"??

The Greens managed to get a few alterations to the government bill being discussed in - explained there http://greens.org.nz/searchdocs/PR11272.html

but I suppose the most prescient point from Fitzsimmons is:

“In the end, there is a limit to how much one limited resource, oil, can be replaced by another, namely high quality food producing land. The most sustainable sources of biofuel in New Zealand will be first of all wastes or low value by-products, such as tallow and whey, and then second generation biofuel such as cellulosic ethanol from wood, which can be grown on second class land without extra water or nitrogen, or biodiesel from algae grown on sewage ponds,”

10/11/2007 04:24:00 pm  
Anonymous LGM said...

Have you seen the new "Energy Efficiecy Strategy" released by the government yesterday. After years of plotting and promoting her ideas Jeanette F and the Greens have finally started to get their way.

There are immediate problems for electricity supply and costs to the consumer (Kiwis need to be ready for power cuts and runaway prices!). The car importers are to be forced to seek a 15% reduction on fuel consumption in their products (although how this is to work God knows, as NZ imports what others manufacture and the numbers are so tiny that no-one is going to build special models for that dump). Subsidies to buses, trains and whatever public transport boondoggles that the govt can dream up will be increased. And commuters will be forced to use the resulting cattle conveyance systems. Tney'll claim success as the patronage rises modestly (even though few will have made the choice voluntarily). New regulations for landlords will drive rents up. Rentals will become much more expensive. Some landlords will remove their properties from the market.

Two results to note.

New Zealanders are being told they have no right to choose for themselves. They must only operate according to the government's choices. Jeanette and her band know how you must live your life and live it according to their dictates you will.

Standards of living will fall as costs drastically rise. Watch for unrest, as those on fixed wages and salaries realise they can't cope with increases in cost and the reduction in choice. Should start to see some decent industrial strikes as the pressure to get wage rises is expressed. Initially the govt will deal with this by offering incentives and welfare.

BTW don't expect the National Socialists to do anything about it. Even if they come to power they'll keep the new policy in place.

LGM

10/12/2007 06:25:00 am  
Anonymous spam said...

@insider:

To be viable for export (as LNG), it needs to be huge. No way that will happen, so it won't be exported.

I was actually referring to associated gas from oil - the oil may be viable, but its not really acceptable to just flare the gas.

As for a pipeline to the North Island: I agree, it is expensive, but it is justifiable (and is economic at smaller reserves than an LNG plant).

10/12/2007 09:30:00 am  
Anonymous Anonymous said...

When I was a student I would've been VERY happy to pay another $5 a week for this 'insulation' thing that other people apparently had. I believe the govt was going to subsidize insulation installation anyway, at either the low-income tenants' end or the landlord's, not sure it matters though.

10/12/2007 10:30:00 am  
Anonymous Anonymous said...

Spam

I’m not quite sure what you are saying.

It has to be large but not huge. LNG is likely to be a minimum of a $1 billion investment. Maui was about 3.5 tcf in comparison and probably not pass the threshold for LNG. In PNG which is onshore and a proven area they are looking at a about 10tcf resource.

ExxonMobil have stated they think GSB is a gas resource. For it to interest them and for it to be viable given the conditions and the virgin territory, it has to be a large field capable of doing LNG (discounting they could be fibbing and they see oil). They are not interested in domestic markets. They are a global company with global customers.

A pipeline north would be probably cost $500m and no one is going to do that without customers lined up first and the govt has killed that off.

Gas can’t be flared under the rules so either has to be reinjected or processed. There is no gas infrastructure in Invercargill or Dunedin I believe so it would require that to be built before a pipeline could be run.

Insider

10/12/2007 12:41:00 pm  
Anonymous spam said...

The pipeline would likely cost even more than that: a good rule-of-thumb is $USD 70k / inch.mile. The line from wellington north is too small, so the pipeline would likely have to go right-through and join the Maui pipeline. Not sure of ditance, but estimate it as around 1200 km / 720 miles? Assume you need a 24" line. Based on the rule-of-thumb, thats a total installed cost of around 720*24*70000/0.76 = $NZ 1.6 billion. And steel prices have increased quite a lot, so the 'rule of thumb' is probably low (and it ignores compressor stations etc).

That said, 1 TCF is a bit more than 1000 PJ (around 1100 PJ IIRC), and at a gas price of $5/GJ (assumed market rate, probably not too far wrong), that 1100 PJ is worth about NZ$ 5.5 billion. Add in offshore development costs, and it suggests that a reasonable-sized field can economically support a pipeline north. Throw-in some offtakes to Dunedin, ChCh etc (they do have old coal-gas reticulation lines), and it all helps.

An LNG plant probably costs slightly more that a pipeline. Not sure of the costs, but Wikipedia suggests $US 1-3 billion. OK - it can be exported at the world market price, which is probably higher than $NZ 5/GJ! However, I have heard economic field sizes for LNG as being 5(!) TCF (although some suggestion that Floating LNG might be more economic for smaller fields - but FLNG would be very difficult given the metocean conditions in the southern ocean!). Not sure why this is so much more than for a gas pipeline, but I suspect its because the OPEX for LNG is very, very high (a lot of compression duty).

So what I'm saying is that I believe that if there was a gas market, then a pipeline would be economic with a medium-sized field. However, I believe that the field size would have to be much larger to support LNG.

10/12/2007 02:01:00 pm  
Anonymous Anonymous said...

Spam

I agree pretty much on what you say, but one of the big things about gas projects is that they usually pre-sell their volume. So to build the pipeline you need the customers lined up and I don’t think they will be there due to competition, govt policy or lack of infrastructure. Maui was a lot simpler, a lot closer to market, had no competition and it had big sign on customers. None of which exist for GSB.

As for your numbers, I’m slightly concerned that they are a bit too simple for a business case. I think it will be a bit more complex than that as result of the comments above.

Insider

10/12/2007 03:06:00 pm  
Anonymous Spam said...

Yeah they "usually" pre-sell the gas, which gets a bit difficult because they can't sell the gas until they have proven reserves, and they can't have proven reserves until they take Final Investment Decision. Its not necessary though - for example, Pohokura was a long way down the development track whilst the shareholders were still arguing in court over whether they could sell the gas combined, or had to sell it individually.

What the GSB does have though, is a gas supply / demand forecast showing a shortfall opening-up in 2010+.

Yes, my economics are simplistic, but for the pipeline, they're OK for screening (ignoring the offshore development costs though).

10/12/2007 03:38:00 pm  
Anonymous Anonymous said...

Yes but GSB - if there is something there and it is commercial - would not be in production till about 2017...

Insider

10/12/2007 04:31:00 pm  

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