Blessed by the Potato

Oil prices have gone through the roof with the war in Ukraine, but even before that, gas prices in Toronto were about 25% higher than pre-pandemic. Despite that, gasoline consumption appeared to be hitting new highs in the fall of 2021. New cars are hard to come by, and the prices of used ones are up a lot following the pandemic for other reasons (supply chains, etc.), but still I was not seeing the interest in hybrids that we saw the last time gas prices spiked.

I was staring to think that maybe people forgot that it’s one of those things I spent way too much time learning way too much about, or maybe instead of accosting random Prius drivers in parking lots people had learned to research things on the internet themselves. I was starting to think that the price of gas didn’t matter.

Then gas prices hit ~$1.75 and it was like a tsunami of hybrid interest hit me. And it wasn’t just me and BbtP: Google trends shows that searches for Prius doubled from baseline in March of 2022, and those for PHEVs tripled. So there was a point where gas would get expensive enough that more people would get interested in burning less of it. I also noticed more people on the 404 and 400 driving the speed limit — slowing down is a good way to burn less gas (and much more immediate).

While I was expecting more to happen at $1.30 or $1.40/L, people did seem to get to a point where there was interest in change. It’s just that people seem to be able to tolerate much bigger changes in prices before getting to the point of demand destruction than we ever would have guessed before.

Which brings us around to the idea of the carbon tax. A carbon tax is an attractive idea for reducing GHG emissions: give carbon a price, and let the free market figure out solutions to reduce consumption. While I still think the approach is a good idea, after seeing how resilient demand can be in the face of sharp price increases, I think we need to increase it by about an order of magnitude a factor of ~3 to have any effect — the ~11 cents/L carbon tax is not moving the needle at all on people’s driving habits and consumer choices.

It may also be a good idea to re-think how we apply carbon taxes in a market with rapid swings in natural pricing: rather than a static carbon price, would it be better to set floor and quasi-ceiling amounts for gasoline directly? When the market is already setting a price that’s high enough for demand destruction, does an additional tax help further drive behaviour, or would it be better to cut it back as gas approaches $2/L to provide a modicum of relief? And vice versa, if gas prices start going back under $1.50/L, should a new responsive carbon tax make up the difference to keep the price high enough to maintain that reduction in use and behaviour change, or do we really think a $0.11/L carbon tax will do anything if the oil market corrects and gas drops back under $1/L?

In the most recent Rational Reminder podcast, Tim Nash mentioned an infographic on CoPower’s page that makes the bold claim that your investment portfolio could be releasing much more greenhouse gas (GHG) emissions than any of your daily life activities, trying to make the case that sustainable investing is an important step.

The little factoid on investing being more carbon intensive than consumption choices didn’t sound right to me, so I followed the link to the CoPower infographic. And while I don’t have a hard mathematical proof, the thing doesn’t pass the sniff test for me.

They say that relatively modest investments (~$200k) lead to releasing more GHG every year than the activities of daily life. But many of those companies provide goods or services that consumers use, so my first skeptical thought was that they’re double-counting (if you count the total emissions of your investment in Maple Leaf foods and Suncor right up through the goods they deliver, then you shouldn’t also count your consumption of meat and gasoline personally), which isn’t a fair way to look at it. Who is more responsible for causing the emission to be generated, the investor or the consumer? There is a tiny bit of chicken-and-egg to it, but really, the investors do not stick around long after the consumers leave!

I tried following the links back to MSCI’s methodology to check, but that basically just says they take the direct and indirect emissions and weight it to the index. It does not state in the methods one way or the other whether they would be double-counting the GHG that would be attributed to the consumer in personal life choice calculators (or since they’re including indirect emissions for each company, if they’re double-counting emissions across companies — e.g. counting the indirect emissions of one company from power use, then also counting those emissions as direct emissions from the power company).

But you can get the fact sheets of indexes from S&P and do a bit of spot checking, as they report the carbon intensity, e.g. 208 T per $1M invested in the TSX Composite. With a market cap of ~$2.5T, that means Canada’s publicly traded companies are responsible for 524 MT of the country’s total 716 MT of emissions. That would be a “smoking gun” of double-counting if it were more than the national total, but 73% is still high enough that I’m confident this is not saying what CoPower is making it out to say. After all, that figure is not counting government emissions, foreign owned company activities, not-for-profits, private companies, or personal consumption. Yes, some of those TSX-owned emissions would be in other countries and not be a part of the Canadian total, but just looking at that I think it’s pretty clear that this is not an apples-to-apples comparison.

The figures on carbon intensity of investing are likely useful to compare investments relative to one another (e.g. if you want to invest in a low-carbon way), but I think CoPower is making a mistake directly comparing those figures to personal consumption choices — the figure of ~19 T of GHG per capita (or the 23 T for a couple that has already taken steps to reduce their emissions used as an example in the article) is already including much of the emissions of the companies you would invest in (otherwise, there’s only ~5.2 T/capita left to allocate after the corporate sector).

So no, investing $500k is not causing you to emit more than twice as many GHG as the rest of your life’s activities combined. By all means, make sustainability and environmentalism a part of your portfolio selection criteria if it turns your crank, but changing your consumption patterns will then change that of your investments.

A good point from the show to reiterate though is that collective effort is needed — but I think personal consumption choices still have more of an effect than investment decisions.

That said, it is possible to drive top-down change through companies you invest in in ways if your collective ownership can get control of boards. That can help create change that isn’t easily driven by market forces or where carbon intensity isn’t a big factor in purchase decisions. For example, investing in Toyota over Daimler/Mercedes may not help push toward reducing vehicle fuel consumption, at least not as much as choosing a Prius for your next car (esp. when that consumer preference shift is done collectively). However, you likely aren’t picking your healthcare products and services or electronics and software based on their carbon footprint — but you can pressure boards of those companies to make moves in that direction.

At the end of the day, while I can see why people would choose to try to use their investments as a tool (and for people who feel strongly about it, they can check out Tim’s stuff), my opinion is to keep it simple, invest broadly, keep fees (and effort) low, and then use your time and dollar savings to make direct changes that you want to see in the world.

There was an article in the Globe & Mail a while ago claiming that it’s best to go with a smaller house because the bigger the house, the bigger the associated bills. Ok, that makes perfect sense.

But then it went on to claim that “it would seem reasonable to assume that it would cost twice as much to heat (or air condition) a 3,200 square foot home than it would one that is 1,600 square feet. But, as reasonable as this seems, it’s incorrect; it actually costs more than twice as much. […] Circumstances vary, but it can cost up to three times as much or more to heat and cool a home that is only twice as big.”

Now that just doesn’t make physical sense to me. We all know how scaling laws work: assume you have a spherical house, then the surface area will scale by r^2, while the volume will scale by r^3.

Ok, we don’t live in spherical houses, but still, this guy’s math must be way off. So I thought about it, and scaling with houses is actually a problem without any clear answer. Let’s set aside the complications like your own body heat or the waste heat of your home server farm (everyone has that, right?) and just talk about heat loss through the outside walls: even narrowed down with all that ceteris paribus it’s still a tricky question because houses are not spherical.

The simplest case I can think of is to take a cubical house. It has 6 unit surfaces: the roof, floor, and 4 walls. Now if you make that house twice as big by adding a second storey, the roof and ground floor are the same, and you’ve doubled the size of your walls (8 unit-walls). So doubling your floor space was less than doubling in your heat transfer area: only 1.67 times as much.

There are other ways to double the size of a house. You could go longer: expanding your floor plan from a unit square to a 2×1 rectangle. You only save on one shared wall between the unit squares in that case, so you do nearly double the outside area: 6 unit walls facing the outside, 2 floors, 2 roofs… but that’s again a 1.67 times increase (though more roof and floor with fewer walls added). Oh yeah, that’s just the first case turned sideways.

If you want to go crazy with shapes you could try find a way to get really inefficient. If you built a really long house (or made a C-shaped house to fit it on the lot — same difference for walls) that was 5 times as big as our unit square house, then it would be 3.67 times as costly to heat… wait that’s still going in the way I thought it would, with bigger houses being more costly, but scaling less than the increase in space.

In fact, the only way the author’s math works out is if you do non-apples-to-apples comparisons, like one house at 1,600 sq.ft. with 8’ ceilings and one at 3,200 sq.ft. with 16’ ceilings to drive the volume up but not the livable space measured in square feet. Or maybe it comes down to one of the complications I ignored, like floors and walls being roughly equivalent in terms of heat loss… but I doubt it.

He does mention more windows and doors just after the part I quoted, but again that doesn’t make sense to me. Yes, I lose more heat through my door than through a solid wall, but my house has two doors. A slightly bigger house would still have two doors. My parents’ house, which is maybe 2.5-3 times the size of our house, does have four doors, and my friend’s parents’ house, which is in-between, has three. But again, the number of doors are not scaling up faster than the increase in the size of the house. And the portion of the walls that are windows is not really any different with the bigger house.

So I will conclude for now that yes, a larger house will cost more to heat and cool, but it’s likely to scale less than the difference in size, because math. Fortunately, the massive building boom of recent times means that somewhere out there are a few developments with good test houses, ones built with the same insulation and materials and styles, but to different sizes. If anyone has some experimental data to back up (or refute) the spherical house reasoning, I’d love to hear it.

Netbug sends along this opinion piece on electric cars after discussing it with his family, saying “I’m sure the math is sound, but I think he’s missing the point… Can you refute the article articulately or am I way off base?”

I’ve only read it twice, but I’m sure he’s missing the point. Moreover, I’m not sure the math is sound. He uses a particularly bizarre way of figuring the cost/savings of EVs, and even then gets his figures wrong.

Let’s start with his assumptions about fuel economy for gas cars. Note that he does not spell them out. To maintain consistency, through most of this I’ll be using US units, figures, and data sources.

A CAFE compliant new car will offer an average fuel economy of 33.3 mpg while a CAFE compliant new light truck will offer an average fuel economy of 25.4 mpg.

Well, right off the bat, that’s untrue. CAFE is not a measure of any particular car, it’s a fleet average, and it includes the contribution of electric vehicles and hybrids (plus some voodoo about ethanol credits). Moreover, it uses a modified scale/test procedure: 33 MPG for CAFE terms is more like 25 MPG on the current EPA test, and even lower real-world. Look up the EPA ratings. I picked a Ford Focus (compact car): it’s at 28 MPG combined. Even compact cars aren’t at the numbers he’s using. According to Natural Resources Canada, the average fuel consumption of the current light vehicle fleet is just under 11 L/100km, or 21.8 MPG.

Now, there is room to quibble there: that’s for a range of cars from new to 10+ years old, whereas new cars will be slightly better. Still, your comparison car is not going to be getting 30 MPG, and especially not when you consider that you should be comparing to the city mileage since EVs are for urban settings.

At 30 mpg, the owner of a new light duty vehicle will consume about 420 gallons of gas per year

He didn’t go through his math, but let’s go backwards: 420 gallons * 30 MPG = 12600 miles/year. That’s probably a reasonable figure to use (I’ve seen 15k mi as more common, but that may just be a case of rounding to a prettier number; not sure what the figure is for those with daily driving commutes). At 22 MPG, that’s more like 572 gallons.

Then he goes to another paper, and somehow gets that electrification doubles the cost of the car (from $19k to $39k). That again is a pretty suspect analysis. For instance, a general rule-of-thumb is that the engine & transmission are 20-40% of the value of a car, yet that paper somehow found that the engine & transmission were just 13% of the cost of a gas car. Moreover, we can buy EVs on the market today that do not cost that much — the Nissan Leaf is “only” $35k (USD), the Prius plug-in has a gas engine and a plug-in battery, is larger and nicer than a $19k comparable car, and is only $32k (USD). Indeed, from looking at US manufacturer’s websites, a compact car with automatic transmission is more like $21k than $19k, and that’s still not adjusting for non-driving features.

The ultimate obscenity is that a conversion from gasoline drive to electric drive will not reduce the total amount of energy used in transportation.

This statement is unsupported by the author, and with good reason: it is patently false. Half the reason to go to electrification or hybridization is the efficiency gain: electric motors are just simply more efficient at turning chemical potential energy into kinetic energy than internal combustion engines. Plus, you can shift the source of that energy from oil to natural gas, hydro, or other renewables.

So, if we re-do his analysis with more realistic numbers (all US figures), we have that the incremental cost for an EV ($21k to $35k) is $14k. That’s saving 572 gallons of gas/year, or 14.1 bbl/yr, or 212 bbl/car lifetime. That works out to a cost of $66/bbl. Which is less than the current cost of oil. Now, this is not the method I would have chosen to make a comparison, but even using his analysis the point he’s reaching for isn’t made.

He also forgot a lot of factors that make EVs a better choice.

Direct financial ones like: Less mainenance cost (no oil changes, spark plugs, timing belts, water pumps, brake pads, etc., etc., etc.), lower fueling costs (oil is an expensive and volatile commodity).

Plus, environmental factors like: Less total pollution (even on a 100% coal power source, an EV is arguably cleaner than a conventional car, and most places are only a fraction coal-powered); pollution shifting (no more smog in city centres!); self-reliance (you can make your own electricity if you’re a doomer, whereas refining your own gas is hard; plus, the cars are quiet and good for sneaking up on zombies). And that efficiency gain.

So right now, going with an EV is close to break-even (though maybe just one the far side). You get all the nice stuff on top of that, but it’s also new, unfamiliar technology. That’s why the subsidies come in: to help make it not only better, but cheaper, to get the ball rolling.

I’m sure the author was cautious in his conclusion, pointing out that his back-of-the-envelope paper, pencil, and calculator analysis could have some holes, that it’s a bit of a strange approach to take (cost per barrel of oil offset?) and that EVs might in fact make some sense…

Electric drive proponents are selling a house of cards based on fundamentally flawed assumptions and glittering generalities that have nothing to do with real world economics. Their elegant theories and justifications cannot withstand paper, pencil and a four function calculator. Shiny new electric vehicles from General Motors (GM), Ford (F), Nissan (NSANF.PK), Toyota (TM), Tesla Motors (TSLA) and a host of privately held wannabe’s like Fisker Motors and Koda are doomed to catastrophic failure. Their component suppliers will fare no better.

Oh wow, he really got the whole foot in there, didn’t he.

Now, as usual, I’m not saying that EVs are going to suddenly take the market by storm: there’s a lot of range anxiety to conquer. They’re not suitable for everyone. But no car is. There are about 1.5M families in the GTA alone; of those, about half have 2 or more cars. I’d estimate that something like 15% of those have (or could easily have) one car that is largely used just for commuting within the GTA — in other words, there’s potentially a market for about 100k EVs in the GTA alone. It’s a niche, but a respectably large one; one that’s worth developing. The economic argument may not be a slam-dunk on its own, but it’s a far cry from a house of cards doomed to catastrophic failure.

I recently was pointed to Canadian Doomer’s site, where I saw this comment:

“Ontario Hydro is paying $0.80/kwh to those who sell them electricity on the MicroFIT program. But consumers are paying $0.05 to $0.10/kwh. This makes absolutely no sense, unless Ontario Hydro knows that they will soon be charging consumers MORE than $0.80/kwh. Look at your hydro bill and imagine it multiplied by 8.”

Well, no, it’s the price they have to pay to get solar off the ground. Very few people wanted to pay ~8x the price of grid power to buy their own solar panels, so the companies weren’t making panels, so the panels were expensive, etc… By offering enough money that PV would be profitable, it bootstrapped the industry, and broke the vicious cycle. The industry has already brought the price down by huge amounts (panels now cost half or a third of the price in just 3 years), and the government is going to cut microFIT any day now (they’ve already started dragging their feet with applications).

That lead CD to ask the follow-up question:

“Why does Ontario Hydro care so much about getting solar off the ground when they’re not making money on it?”

The short answer is that it’s because it’s the right thing to do.

The longer answer is to first up realize that Ontario Hydro is not an independent company: this isn’t Capital Power or Emera or Fortis offering money to install panels, it’s the government. And sometimes the government subsidizes things for social rather than strictly economic reasons.

Consider other breaks offered recently for green technologies:

The federal government was offering up to $2000 to buy a hybrid car, until just a year or two later, they changed their minds and took that incentive away. Many provincial governments (including Ontario) also offered rebates of several thousand dollars ($2k in Ontario) for hybrid cars (and similarly, no PST on bicycles). Those rebates by our government as well as others around the world — notably the US, which had various tax credits as well as other incentives to buy hybrids like free parking and HOV lane passes — were very helpful in getting this fuel-efficient technology off the ground. Hybrids are now reasonably mainstream, something like 4% of the overall passenger car market, and still growing quickly. However back 10 years ago, a hybrid was a very difficult sell: they were more expensive than a traditional car, there was a lot of uncertainty over how reliable they would end up being (a sentiment that still persists, even with over a decade of experience), how much they would cost to maintain… and all that was on the back of gas prices that were still measured in cents per litre. So those subsidies helped level the playing field until the cost of the cars and the price of gas brought us to where we are today, where $1.20/L looks cheap, and it seems stupid to buy anything other than a Prius. And while I tend to focus on how awesomely quiet my car is and the gas savings, the fact is that the gas savings is in part a side-effect of the hybrid’s original goal, which was to reduce pollution — an important social goal in an urban country.

So back to the solar subsidy: by guaranteeing a certain return on the panels, people became interested in purchasing them. The government could stand up and say that, for at least the next few years, there would be a certain level of demand for panels, which allowed panel manufacturers to go to their investors and raise money to build factories and invest in R&D to make more efficient and cheaper panel technologies, and basically got the whole ball rolling. Ontario and Germany really lead that area*, and factories really started churning out panels to meet the new demand, and to build capacity in the hopes that a certain superpower with a lot of desert would also decide to start subsidizing solar energy in the future (let’s call it “Nerizonda”). In just a few years we’ve gone from a world where you had to be an eco-nerd and know someone at NASA just to get a panel, to one where salesmen call up on a weekly basis to let you know how much the panels are on sale this week. Indeed, the build-up has been so rapid that now we’re facing a glut (exacerbated by Germany and other nations scaling back their subsidies for new projects now that they can declare victory), and panels can in some cases be had for below cost.

Now, the solar subsidy could have come in many forms: the government could have directly purchased the panels themselves, and installed them in parks or on government buildings, or even installed government-owned panels on private homes. They could have subsidized the purchase price directly. Instead, they chose this strange scheme that involved all the overhead of metering the panels, and making regular payments (or deducting from the power bill) for 20 years running. And that decision comes down to politics: the budget looks cleaner with a long-standing trickle of money for a program than it does with a big buy over just a few years, even if the total cost is the same. Furthermore, to give Dalton a little bit of credit for being political operators, there was going to be a big delay between starting the MicroFIT program and when the bulk of the payments would start rolling out the door, and in-between was another election. So for the 2011 election, hardly any microFIT payments would have shown up on the budget, and by the ~2016 elections, the program will have ended; off the radar either way.

It’s also important to note that there were several levels to the FIT program: for large commercial solar farms, the rate was less than half what an individual could get under the MicroFIT program. So from a “this is how much OPG expects power to cost in the future” point of view, that might be the upper-end figure to use. Why pay more for smaller systems? Several good reasons:

• In part as an experiment. People have been talking about distributed generation for years, and the government wanted some data on what that would actually look like. Which meant that you had to find some way to get people to put some kind of generator in their homes, and test out how well the load-balancing and monitoring systems worked. So getting solar out there in particular was a bit of a bonus on that front.
• In part to raise awareness. You can give money to a big corporation like Samsung to build a giant solar farm in the middle of nowhere, and accomplish your goal of bootstrapping the industry. But if you can get it on people’s homes they’ll see it every day, they’ll talk about it with their neighbours, and it’s also nice to pay your own citizens rather than a faceless corporation. From a political point of view, that also helps make it an issue you can focus on in an election if you want to.
• In part for long-term efficiency synergies. A giant centralized solar farm is a great way to quickly get solar power on the grid if that’s your only goal. But one of the beautiful things about solar is that its nicely correlated with peak air conditioner demand: just as the sun is beating on your house is also when your panels are at their maximum output. That benefit could potentially go away if Toronto is getting sun while the solar farm on Lake Huron is experiencing clouds. Though you need more inverters and monitors, you don’t need any transmission capacity to be built or maintained, since the generation is right at the site of demand. And on top of all that, you get the synergies that come with rooftop solar: the panel itself helps to shade a house and keeps it cooler than a typical asphalt shingle, further reducing peak power demand.
• In part for short-term inefficiencies. The fastest, most efficient way to get X number of panels installed and tied into the power grid is to go with a giant centralized solar farm: make braces and connect panels in assembly-line fashion in a consistent, controlled environment. You can even bulldoze any hills if you can’t find a naturally flat spot. But when you’re introducing a program in the middle of a recession, maybe you don’t necessarily want to be as efficient as possible, maybe you also want a little bit of economic stimulus for good measure: help create jobs for guys to crawl around roofs and take measurements and figure out where the bolts should go.

As for that central question of why? Well, because it’s a green, emission-free, renewable energy source. It has some side-benefits (correlated with air conditioner demand, cooling synergies), but also some negatives (inconsistent, extremely difficult to plan power loads with, expensive even after the cost reductions from recent investments). It has a good image, and getting to some single-digit percent of our power mix being wind and solar is something we can do a little chest-thumping over (never underestimate the importance of chest-thumping, it’s a trillion-dollar industry). Plus, innovations that are created for stationary solar may translate to other applications (space systems, remote self-sustainability).

* – I’m going from memory here folks, apologies if I forgot any other pioneers.