April 26, 2008
Gregory Clark Says Fossil Fuels Substitutes Affordable

UC Davis economics historian Gregory Clark, whose name you might recognize as author of the book A Farewell to Alms: A Brief Economic History of the World, argues substitutes for fossil fuels are not so expensive that shifting to them will throw us back to a more primitive era of living standards.

Many people think mistakenly that modern prosperity was founded on this fossil energy revolution, and that when the oil and coal is gone, it is back to the Stone Age. If we had no fossil energy, then we would be forced to rely on an essentially unlimited amount of solar power, available at five times current energy costs. With energy five times as expensive as at present we would take a substantial hit to incomes. Our living standard would decline by about 11 percent. But we would still be fantastically rich compared to the pre-industrial world.

That may seem like a lot of economic hurt, but put it in context. Our income would still be above the current living standards in Canada, Sweden or England. Oh, the suffering humanity! At current rates of economic growth we would gain back the income losses from having to convert to solar power in less than six years. And then onward on our march to ever greater prosperity.

Clark paints too simple a picture by simply claiming that solar power costs 4 times more than current energy costs. Comparing energy sources by dollars (or Euros, Yen, or Pounds if you prefer) per million BTU (or currency per unit of energy) provides a useful method to look across energy sources. But such a comparison draws attention to the fact that there must be important other characteristics (e.g. portability, ease of storage, ease of burning, energy density) of each energy source that cause markets to price these forms of energy so differently. For example, heating oil costs over twice as much per million BTU as natural gas. These two forms of fossil fuel have very different market valuations.

Based on prices in the cash market, gas is valued at $11.27 per million Btu compared with $14.66 per million Btu for fuel oil, according to data compiled by Bloomberg. Heating oil at $23.88 per million Btu equivalent is more than double the price of gas.

Also, electricity contains about 3413 BTU per kwh. Well, 293 kwh equals 1 million BTU. Let us compare electricity to natural gas and heating oil in cost. This table of electricity costs on average per American state (one of my favorite web pages btw) shows Connecticut at 18.67 cents/kwh, Wyoming at 7.73 cents/kwh, Idaho at 6.35 cents/kwh, and Hawaii at 24.13 cents/kwh with the US average at 10.64 cents/kwh. Well, that ranges from $18.61 per million BTU in Idaho (so using straight electric heating in Idaho is cheaper than heating oil!) to $70.70 per million BTU in Hawaii (wow). People are willing to pay a big premium for energy in the form of electricity - at least for some uses.

All these numbers show that people are willing to pay higher prices for some forms of energy over other forms because of characteristics of those forms of energy. People are willing to pay more for liquid fuels rather than natural gas for transportation for example. Also, electricity costs more and people are willing to pay more for it because it can do things (e.g. power electronic devices) that oil can't directly power. Yet electricity is still quite unattractive for powering cars. If electricity was free the cost of batteries for a pure electric powered car would still put its cost of operation above a level most people would be willing to pay. For GM's forthcoming pluggable hybrid electric powered Chevy Volt the initial price will be $48000 or less if GM decides to sell it for a loss. Even switching to a new small car costs money since your used bigger car loses value more rapidly as gasoline prices rise and the new car costs money you wouldn't otherwise have spent.

The costs of substitutes will fall with time as advances in technologies enable easier substitution. Also, the costs of solar, wind, and other non-fossil fuels energy sources will drop. But we have limited ability to forecast the timing of those price drops. Right now the capital costs of equipment to allow us to use the substitutes (e.g. pluggable hybrids and electrification of railroads) are substantial and in many cases those capital costs add up to a higher price than the costs of the substitute energy sources as measured in price per million BTU. Additional costs include the premature obsolescence of existing capital plant and consumer products that rely in fossil fuels to operate.

If you want to get a sense of whether particular substitutes are already cost effective look at countries which have much higher energy costs than the United States. On that score what is notable about Europe is just how hybrids and electric cars get sold there in spite of gasoline prices about double the prices in the United States.

On the bright side, for some purposes you have plenty of cheap ways to reduce your fossil fuels usage right now. Depending on where you live and where you go you can ride a bicycle, electric bicycle, scooter, or a bus. You can replace incandescent bulbs with compact fluorescents. You can choose jobs closer to home and the next time you move you can choose a residence closer to your job and closer to stores. Insulation and sealants can reduce your heating and air conditioning bills.

The most clever product I've come across lately for cutting electric power usage is the American Power Conversion (APC) Power-Saving SurgeArrest power strip which detects when your PC turns off and then takes power away from peripherals whose use is tied to use of the PC. Basically, the parasitic power usage of peripherals is avoided by doing an automated switching off the power strip when the PC goes to sleep or gets turned off.

Share |      Randall Parker, 2008 April 26 05:23 PM  Energy Conservation

Engineer-Poet said at April 26, 2008 5:40 PM:

General efficiency improvements could cut electric demand by 7-11% over baseline scenarios (and eliminating immigration-driven population growth would cut even more).  This saving would be a substantial fraction of the amount of energy required to electrify transportation; my naïve calculation years ago (based on fuel consumption, not physical requirements) was that electrified transport would require an increase of about 40% over current US consumption levels.  11% savings elsewhere would put us 25% of the way to that goal (probably closer, when efficiency increases are factored in).

Randall Parker said at April 26, 2008 6:07 PM:


But the bigger cost of electrification is probably the new capital stock for the equipment that will use the electricity rather than the cost of the electricity.

Engineer-Poet said at April 26, 2008 9:16 PM:

Er, how's that?  Lots of this stuff is going to be built anyway (either new or to replace worn-out equipment), it's just a question of how efficient it's going to be.  Incremental costs will not be very large, and may even be negative in some cases.  Electric locomotives dispense with the engines, and are probably cheaper (and certainly have lower maintenance costs).

Randall Parker said at April 26, 2008 9:50 PM:


We aren't going to (expensively) electrify rail until the price of oil goes way up. That electrification along the rail tracks is expensive and wouldn't get built otherwise.

Also, a lot of diesel engines have lifetimes measured in decades. Retiring them early costs a lot.

The pluggable hybrids are going to be very expensive initially. With cheap gasoline prices we wouldn't migrate as rapidly until battery costs fell much further.

30 years down the line we'll be better off from making the transition. But in the short term the amount of destruction in capital stock value and the need to replace capital stock with more expensive replacement capital stock is going to pull down living standards.

SKurdakov said at April 27, 2008 2:24 AM:

Still, you may convert solar power to gasoline -

one of the link I took from your site

http://www.lanl.gov/news/index.php/fuseaction/home.story/story_id/12554 ( pdf from the page http://www.lanl.gov/news/newsbulletin/pdf/Green_Freedom_Overview.pdf )


also here http://www.amazon.com/Beyond-Oil-Gas-Methanol-Economy/dp/3527312757 - the detailed discussion on convention CO2 to methanol using reverse fuel cells etc ( which , using Mobil process, could be converted to gasoline ).

so here the price argument is valid - it just means - with no natural oil , with more high price the economy will go.

pond said at April 27, 2008 7:16 AM:

One other thing about this '11% hit to the economy' by switching to alternative energy sources, that the economist failed to address: all these other things come at costs that go beyond the price of the energy after the sources have been put in place. That is to say, if we go PV with silicon, that silicon has to be manufactured (itself an incredibly energy-intensive process, and one that I think uses a lot of water, which is also in short supplies these days) and transported to place. If we go PV with thin-film, we need all the raw materials of those metals, like Gallium and Copper -- and we're about to run out of copper if reports are true; mining also uses scads of water and energy.

I find it hard to believe that this guy even thought things through with his notion that today's economy would be just about where it is without any coal or natural gas or petroleum. Does he really imagine that jet aircraft would be flying today using steam engines powered by wood, the way the first locomotives were?

Sure, Herr Benz built his first cars to run on peanut oil, but I doubt Henry Ford would have sold so many Model T's if they had all depended on growing peanuts...that would have taken a lot of land. It is also doubtful that the 'flying machine' would have been anything but a rarity even today more than 100 years after its invention, without cheap and plentiful supplies of petroleum (an incredibly dense source of energy) to power them.

Seriously, it's hard to imagine that we would be much beyond the early Middle Ages had those early cities and smiths relied on charcoal alone, and there had never been coal to dig out of the ground and burn.

There is also the fallacy the economist displays which is in some circles called 'cornucopian thinking' -- which is the belief that even though the Earth is finite, mankind can go on increasing in population, and that the whole population can go on growing more prosperous, forever and forever. Switch to solar, 6 years later we're growing again bigger and better than ever!

What nonsense! If he has some secret formula for this, I'm sure the German leaders would love to hire him as a consultant along with all the other European nations, who have committed to Kyoto Protocol and yet have only seen their CO2 emissions rise...

Randall Parker said at April 27, 2008 8:16 AM:


But what would be the efficiency of converting electricity to liquid hydrocarbons? There are a few energy costs:

1) Most obviously the ratio of energy used to energy in the synthetic fuel from the actual conversion process. It would not be 100% efficient. Would it be 50% efficient? 33%? 25%? 20%? What would be the ratio of energy in to energy out? 2? 3? 4? 5? Higher? I'd love to know this number.

2) The energy used to create the processing plant.

3) The energy used to perhaps create and haul raw input materials aside from electricity. Would it need biomass as a carbon source for example?

So what would be the net efficiency? To put it another way: what would the Energy Return On Energy Invested? (EREI or EROEI). That would let us know how much the resulting liquid fuels would cost.

My guess is that such a process would get run with wind or nuclear rather than solar because the wind and nuclear electricity would be much cheaper than solar at this point in time. So we can assume a pretty cheap initial electric cost per kwh.

That LANL Green Freedom PDF provides some interesting numbers. They claim that using a nuclear power plant to create the hydrogen that their approach would cost $4.60 per gallon. But they are assuming the plant can buy methanol for $1.60 per gallon. Is that a realistic assumption?

They also say a couple of innovations that they name could lower prices to $3.40 per gallon.

I wonder whether they used realistic numbers for the nuclear power plant construction given the recent run-up in construction cost estimates for new nukes. I also wonder how much higher the cost of nuclear power plant construction costs will go as Asian demand for raw materials and oil push up construction costs.

SKurdakov said at April 27, 2008 9:38 AM:

Building costs:

Let us take two points - near future and far future.

Near future: in spite of demand the relative share of syn fuels will be relatively low. There are still quite a bit of oil ( see wikipedia oil megaprojects http://en.wikipedia.org/wiki/Oil_Megaprojects ) so there will not be high urgency in much of raw materials. Actually - the more nukes are build , less they cost due to fast learning of approaches to speed up construction. So high costs are associated more with the lack of nukes building for quite some time.
It could be that prices will be hight - the question if they will be higher , than Clark takes into account? Seems no, it is hardly possible to imagine near term scenario of such kind.

Now - far future - here we have new nuclear designs which could produce electricity 2 cents/kWh ( Generation IV nukes + Carlo Rubbia energy amplifier, it is also possible some progress with solar and wind technology). At least thought progress in nuclear generation is slow it made some progress over last 20 years.

Now regarding efficiency

I think those processes which capture CO2 directly from air ( the process is described in LANL docs- no biomass actually needed - just a chimney , using waster heat from nuclear plant ) will be quite inefficient ( 50 % and also 50% efficiency of engines thus 25% total conversion efficiency), but this is not a major point still - the question is will the entire process "nuclear -> gasoline -> new nuclear plant" be energy positive? The answer - yes it will be.

Nuclear produces 93 times more energy http://nuclearinfo.net/Nuclearpower/WebHomeEnergyLifecycleOfNuclear_Power than consumes, now we make it 4 times less efficient, still we get a big net gain in energy.

Randall Parker said at April 27, 2008 10:54 AM:


That Oil Megaprojects page at Wikipedia was started by Stuart Staniford, "Ace", and "Khebab" from The Oil Drum. They make the point that they do not yet know how much is the typical slippage in first announced start dates is for the average oil megaproject. They only started that page last year and do not have a long enough track record of slip dates. Also, some of the dates they show there might already be due to previous schedule slippages. So just exercise caution in interpreting how much oil production is about to come online. 2008's added production could be less than that page shows.

The other part of the equation is declines in existing fields. Russia might have just started a one way trip of total declines. Or new projects in Russia might temporarily reverse total production levels back up again. "Khebab" thinks Russia is very near peak.

Short term nuke building costs: On the one hand, yes, there are cost savings associated with building additional nukes once the first few of a new design get built. On the other hand, rising raw materials costs and other construction costs have been pushing nuke building costs up. What's going to happen with commodities prices in the next year or two? Will they peak and decline as more productive capacity comes on line? I've read analyses that argue for a much longer lasting bull market in commodities.

Nuclear energy lifecycle: I agree it is quite positive. But see figure 9 at this page for a range of calculated values for the energy return on energy invested for nuclear power. In recent years the ratios calculated have been between about 15 and 60. Still quite good. But less than 93.

SKurdakov said at April 27, 2008 11:43 AM:

in Russia we have some more oil. The problem is rather that bureaucrats took the grip on most assets. So the situation is - no new investment ( thought there are some new fields ), thus we naturally have a decline, but what former prime minister ( now in opposition ) says is that, given that private companies are allowed to invest there will be more oil. It is quite possible that highest bureaucrats might find in profitable to allow some private investments when prices will go even higher.

For me the question is not that commodity bull market lasts ( maybe it will last for coming decades ) but if it really hurts and if really starts to affect to appearance of new tech ( like http://www.ted.com/index.php/talks/view/id/227 , for example - the efficiency here might be very high and the inputs might be raw sun heat ).

I think that eventually in 10 15 years the problem with oil will be resolved ( maybe again with the help of http://www.ted.com/index.php/talks/view/id/227 like technologies ), there still will be new problems. But the solution here is clever allocation of investments into new promising technologies.

Here in Russia we had a strange situation in past decade - PhDs become taxi drivers etc, but these guys could use their skills in developing new tech ( or at least refine it, like Japans did on older western tech ).

So I see a need to activism - push totalitarian governments, like Russian one, to be more open and efficient, to push for funds to support research in energy science etc.

at least, there are many 'conventional' alternatives from heavy oil to crystallized methane on sea floor which could provide few centuries of energy before there will be no other way as to use something like LANL tech.

Engineer-Poet said at April 27, 2008 3:28 PM:
We aren't going to (expensively) electrify rail until the price of oil goes way up. That electrification along the rail tracks is expensive and wouldn't get built otherwise.
The claim is about $1.5 million/mile for catenaries and poles, new rail and upgraded signals (probably much less for just overhead wires).  Over about 94,000 miles of road, that's roughly $141 billion to displace 3.8 billion gallons/year, or roughly $37/gallon/year.  Given that diesel is likely to cost upwards of $5/gallon very soon, this would be an extremely profitable investment.
Also, a lot of diesel engines have lifetimes measured in decades. Retiring them early costs a lot.
The diesels are sunk costs, and they cost a lot to run.  If they were removed and mothballed, the locomotives could be equipped with power-conversion gear and ballast.  Electrified locomotives can also accelerate faster than diesels, so the conversion yields more profit than the original.
The pluggable hybrids are going to be very expensive initially. With cheap gasoline prices we wouldn't migrate as rapidly until battery costs fell much further.
Let's see.  A car equivalent to an Aptera might cost $20,000 and get 25 MPG, so consider the premium at today's low volumes to be $10,000.  Driven 40 miles/day 300 days a year, it would cover 12,000 miles/year and save 480 gallons/year of fuel.  At $5/gallon, this is $2400/year.  Electric cost at 80 WH/mile and 10¢/kWh is $96/year, for a net savings of ~$2300/yr; it pays off in about the length of the typical car loan.

Don't take GM's figures as normative.  GM wants to build big trucks (because the UAW's wages demand big-truck margins), and knows that either Toyota or BYD will eat them alive if they build the cars the US consumer really ought to be buying.  Both GM and the UAW are going down.

Ned said at April 27, 2008 3:33 PM:

For a really fine all-electric car see: http://www.teslamotors.com/. It gets about 220 miles on a single battery charge. Plus, 0-60 mph in under 4 seconds! Oh yes, the cost? Only $109,000. But it's still way cool.

Randall Parker said at April 27, 2008 4:21 PM:


AlanFromBigEasy says he's seen 2004 numbers at $2 million per mile for single track and $2.5 million per mile for double track electrification. He's talking about intercity heavy rail I think. Your link appears to be constructing light rail that runs at much lower speeds.

Given the big rise in steel, copper, and other construction materials I wonder what the cost would be. But even if it was $5 million per mile we could go coast to coast 3 times for $45 billion. Not much in a $14 trillion yearly economy.

Engineer-Poet said at April 27, 2008 4:34 PM:

The numbers I had included rails and signals, and the rails wouldn't be required for straight electrification.  But I'll defer to Alan on that one.

At 94,000 miles @ $2 million/mile and 66,000 miles @ $2.5 million/mile (pessimistic, assuming no triple-track mileage and no economies for triple-track), the total would come to $353 billion.

Randall Parker said at April 27, 2008 5:28 PM:


Suppose we can build pluggable hybrids for $40,000 each. Suppose we only need 50 million of them since not everyone drives a lot and some can bike or take buses. Okay, 50 million times $40,000 equals $2 trillion. We could switch most of our cars to pluggable hybrids for one seventh of one year's GDP.

Here's the general question: what are the most expensive things to shift over to more efficient and more electric ways of operating? We are looking at a few hundreds of billions to electrify rail. We are looking at a few trillions to shift to pluggable hybrids. We can afford all this. Though we'll take a living standard hit for some years to make the transition.

So what are the really big expenses?

aa2 said at April 27, 2008 8:40 PM:

Very interesting calculations, it doesn't sound like it will cost as much as I thought. Also to upgrade the electricity system, say to add 100 gigawatts of nuclear power. At 2.5 billion per 1 gigawatt reactor that is 250 billion, which imo is a high estimate. If the country spent 750 billion between now and 2020, they could also upgrade and replace transmission lines, substations, build more redundancy and so on.

I guess one thing to consider is the amount the USA is spending importing liquids oil. Say its 12 million barrels a day, at 110 dollars a barrel, and 365 days a year = 480 billion a year. Just a year ago at 70 dollars a barrel it would be 306 billion.

Engineer-Poet said at April 27, 2008 8:59 PM:

Generating capacity is a good-sized one, but if you assume 150 GW @ $2000/kW that's only $300 billion.

I still think $40,000 is a wrong figure to use, for several reasons:

  • It's an estimated sales price, not the cost difference over conventional.
  • It's GM's figure, which they have political reasons to exaggerate and others with much lower economies of scale are already undercutting.
  • Most of it is for the advanced battery, which has many options which are cheaper and may perform almost as well (Firefly Energy).
We should look at this in several different ways:
  • What would an extra fixed increment ($5000, $10000) buy in terms of electric range and fuel savings in typical usage?
  • What's the economic break-even point at various fuel prices and battery costs?
  • How do you price things like immunity from disruptions of petroleum supply?
I'm not sure how to answer those questions, but if you don't ask the right ones the answers don't matter.

Engineer-Poet said at April 27, 2008 9:04 PM:

Oh, my 3.8 billion GPY figure is way low.  Mass electrification would allow a large amount of freeway freight traffic to switch to rail, so the savings would be a substantial fraction of 2.9 million bbl/day or 44.6 billion GPY.  The economic payback time would be substantially shortened.

aa2 said at April 27, 2008 11:58 PM:

I read once BYD estimating their plug-in system would cost 8,000$ more then a regular car. But there could easily have been translation problems or the journalist misunderstanding. If the Volt is 48,000$ for arguments sake that would be a maybe 20-25,000$ premium over a normal gaslone car.

I estimate it could save 75% of the gas for many drivers. So if you compare to a 25 mpg vehicle and an above average driver driving 25,000 miles per year.. That is 1000 gallons used, at 3.70$ a gallon, 3,700$. 75% savings would save 2,775.00 a year in gas.. but would cost an extra maybe 350.00 in electricity. So a savings of $2,400 per year. If oil say goes up by 250% and the price at the pump doubled to 7.40$ a gallon, the savings would be 5,200$ a year.

The prius is a 2,500$ premium I'd estimate and gets 45 mpg.. versus 25 mpg for arguments sake for a similiar car city, and doesn't need electricity to fill it up. For our same heavy city driver of 25,000 miles per year and 3.70 a gallon, they pay $3,700 a year. The prius driver pays $2,055 a year. So that is paying for itself in like under 2 years for that driver.

Engineer Poet said: "How do you price things like immunity from disruptions of petroleum supply?"

I think that is going to be a growing factor. Even if I merely broke even after 8 years for me it would be worth it for the freedom. Freedom is hard to put a price on but I'd say its worth a lot. I'm in Canada and I already am paying about 4.70 a gallon too.

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