Saturday, June 30, 2018

Carbon bubble bursts in India

I talked here about how in India electricity from a new solar farm is now cheaper than the cost of electricity from a new coal power station. 

In an article in Asia Times, Tim Buckley of IEEFA explains how coal in India has gone from ginormous to ... not much:

In India, which until recently had the world’s second-largest coal pipeline, two seismic events have signalled the contrary to be true.

NTPC, the largest owner and developer of domestic coal plants in India, shelved its 4GW Pudimadaka Ultra-Mega Power Plant, due to be built in the state of Andhra Pradesh.
“Redesigning the project after acquiring 1,200 acres from the APIIC was found unviable… we have decided not to go ahead with the project,” an NTPC official told The Hindu newspaper.

This decision to cancel the largest new coal-fired power station planned in India is another step in the country’s remarkable Indian energy transition.

Since the start of 2010, as a result of shelved and cancelled projects, India’s coal plant pipeline has shrunk by a staggering 547GW. To give this some perspective, that is almost three times the total installed capacity of Germany.

Today, 88GW – or rather 84GW – are still reported to be “progressing” through approval processes

Though given current trends, this more accurately translates as “yet to be formally cancelled or put into administration.”

In fact, of the remaining pipeline, the Institute for Energy Economics and Financial Analysis (IEEFA) estimates no more than 10-20GW might actually see the light of day. That means more than 84% of India’s 2010 coal pipeline will have been cancelled.

What’s more, if India’s 2018 National Energy Plan forecast of 48GW of end-of-life coal plant closures by 2027 occurs, India is rapidly approaching peak thermal coal.

The coal industry will no doubt question this logic, but underlying it are numbers than can’t be disputed.

New imported coal-fired power costs between Rs5-6/kWh (US$75-90/MWh). Domestic coal is generally Rs3-4/kWh (US$45-60/MWh), depending upon if it is mine-mouth or 1,000km away from the coal mine. At the record low May 2017 auction, solar was priced at Rs2.44/kWh (US$38/MWh).

New solar costs less than half the price of new imported coal, and while the coal price has doubled over the past two years, IEEFA forecasts the price of solar to drop by double digits every year.

Last week Bloomberg New Energy Finance released its new energy outlook 2018 estimating the cost (LCOE) of wind and solar in India is down to US$40/MWh. It would not surprise us if that is revised down another 25% within the next year.

This brings us to the second seismic piece of news. On June 21, Indian New and Renewable Energy Minister RK Singh announced a 100GW solar tender, with an emphasis on battery storage and domestic solar manufacturing.

It follows on the heels of plans for 8-10GW of annual onshore wind installations, plus an ambitious 30GW of offshore wind by 2030 and the launch of an additional 10GW solar tender which will take place in July 2018: the biggest single solar reverse auction in history!

[Read more here]

The consequences for carbon asset prices and debt are now becoming obvious.

Deep in the jungles of eastern India lies an abandoned power plant, a warning symbol for the $38 billion of additional bad loans which are about to engulf the country’s banks.

Like many of India’s power stations, the Jharkhand project had all the markings of success when a group led by State Bank of India lent about $700 million five years ago to build it. There’s abundant coal and water in the area, a rail track was set to run through the premises, and its promise of 1,080 megawatts of electricity was alluring in a country that faces persistent power shortages and blackouts.

Yet today it stands deserted and Indian banks have had to write off three quarters of their loans, after selling the operating company to a specialist in distressed debt. Haircuts of that magnitude are now expected across the whole power sector in India, according to Bank of America Merrill Lynch, suggesting local banks face a new $38 billion wave of losses. That would be more than four times the $9 billion they’ve written off from a previous tide of bad loans from India’s troubled steel sector. 

[Read more here]

This has all happened in 8 years.  Coal has gone from a sure thing a massive liability.  The lessons for other SE Asian countries, and for banks and investors, are obvious.

Source: Why India’s solar sector has turned into a $100 billion investment magnet





Wednesday, June 27, 2018

Nevada renewables referendum

Source: PV magazine


A year ago, the governor of Nevada, Brian Sandoval, vetoed legislation which would have increased Nevada's renewable electricity target to 40% by 2030.  But the good citizens of Nevada decided that they really wanted to increase renewables in their grid, so they started to collect signatures to force a referendum (strictly, an initiative)  To put a referendum/initiative to the vote, 113,000 signatures are needed.  The organisers got more than 200,000 signatures for a referendum to increase the renewable electricity target to 50%, more than the target that the legislation set.  Voters favour the initiative by 68% to 20%.  Even Trump supporters are in favour.

It's pretty much a pattern.  Most ordinary people want renewable energy.  But politicians, some of whom are in the pay of ("receive donations from") fossil fuel interests, do not.  We need to keep up the pressure on politicians.   We're running out of time.  By 2030, global temperatures will have risen by another 0.2-0.3 degrees C.

[Read more here]

Sunday, June 24, 2018

Coal's outlook black

Sorry.  😎

OK, let's be serious now.

BNEF has just published their NEO (New Energy Outlook) 2018.  (Charts via J Pratt's blog.)

The decline in coal (to 11% of total generation by 2050) is assumed to be driven not by policy but by technology/costs.  BNEF forecasts significant further declines in the costs of solar (71%) and wind (58%) by then.  They're forecasting another 66% drop in li-ion battery prices by 2030.

I think the switch away from coal will happen much more quickly than BNEF does, for 3 reasons:


  1. Solar costs are probably going to fall much faster than 71% over the next 35 years.  Frankly, they could fall that much over the next 10 or 15.  Which would make solar plus wind cheaper than the operating costs of coal, just as is already the case in the US and elsewhere (see Solar gets ultra cheap in Australia and World's largest li-ion battery.)  As renewables' costs keep on falling, this can only get worse.  Why bother to dig, ship and burn coal when renewables can do it for you much more cheaply?
  2. Battery costs will prob'ly halve over the next 3 years, and halve again over the subsequent 3.  So we could see BNEF's forecast 66% decline happen not by 2030 but by 2025.   There is a ferment of new battery research and development and an explosion in battery gigafactory construction. The rapid cost declines of recent years will continue.  This means that backing up variable generation from wind and solar will get a lot cheaper very quickly.  Which only emphasises point 1.
  3. By 2030, global temperatures will have risen another 0.2 or 0.3 degrees.  The serious adverse consequences of that rise will be concentrating the minds of governments everywhere.  Coal won't be allowed to continue -- in other words, policy will not be neutral.  And countries which refuse to do their bit will be penalised.  Trump has already shown how easy it is to defy WTO agreements. If several large economies agree to ban coal and institute a carbon tax, and some others (Australia, say) drag their feet, their exports will simply be hit with punitive tariffs.  The world will fall into line.  




The problem is, according to their calculations, that this will not be enough. 


The blue line in the chart above shows the annual output of CO2 if  BNEF's NEO 2018 forecasts pan out.  The pine-green lines shows how power generation emissions would have to fall if we are to prevent global temperatures from rising more than 2 degrees C. The purple line shows what emissions would do if we had a forced phase out of coal from 2025 to 2035.   And the reason emissions under this scenario don't fall fast enough to prevent 2 degrees C rise is because BNEF thinks we'll  keep on burning gas.  For the next 20 years, that seems possible, even plausible.  But after that, point 3 above will apply.  We'll replace peaking gas with storage and baseload gas with renewables plus storage.  Because we'll have to.

So the headline conclusions of BNEF are bad enough for coal, but in fact, the likelihood is that things will be even worse.  Black indeed.

[Read more here]

Another look at the world PMI

This chart shows a weighted average of the US (ISM/PMI blend), China (Official plus Caixin PMI blend), Europe and Japan PMIs.  Quite a sharp pullback.  And prelims for June (France, Germany, Europe, US) also down (not in chart, so next obs likely to be another downtick).  The weighted average for these countries/regions closely tracks the world PMI.   We're not going to see another 2008/09, but we're very likely to see another 2012.  Risks are high.

Hansen: projections and reality

It's been 30 years since Jim Hansen warned us about global warming.  "The greenhouse effect is here", he said on 23rd June 1988 to the US Senate.  What have we done since then?

The first chart below shows the three scenarios projected by Hansen back in 1988.  Scenario A has the highest growth in CO2, NO2, methane and CFCs, scenario B lower rates and scenario C projected stability, i.e., no increase in greenhouse gases. 

And at first you'll say, but hang on, his projected temperature is much higher than what actually happened.  The model was wrong!  Um, no.  Remember that to get these results his team had to project what would happen to the inputs to the model, i.e., the emissions/levels of the greenhouse gases I mentioned above.  Actual CO2 turned out to be pretty much what Hansen and co projected they would be.  But Hansen projected ongoing rises in CFCs , which are very powerful greenhouse gases.  In a rare win for co-operation and good sense, CFCs were phased out of production after the Montreal Protocol came into force in 1988.  If Hansen had factored in the levelling off in CFCs  in the atmosphere, he would have got a result quite close to what actually happened (see the second chart below).
(Source for both charts: RealClimate)

There's good and bad news from all this. 

The good news is that the world actually agreed to phasing out CFCs back in 1988, and that saved us 0.5 degrees C of global warming.   If we could agree then, we might yet be able to agree with CO2 and NO2.  Yes, fossil fuel industries now are bigger and more powerful than CFC industries were then, and yes, that well hadn't been poisoned by the Right's demented passion for coal.  But the power of coal and oil industries is dwindling.  The evidence of global warming gets every day more scary.  Most ordinary people, as opposed to politicians, are convinced that global warming is real and that we need to do something about it.  And the costs of renewables have fallen and keep on falling so precipitously that the switch to renewables is happening anyway, despite the rantings of the Right.  The opposition to a genuine climate agreement with teeth is diminishing, while the necessity for it grows every day more pressing.

The bad news is that Hansen's scenario C, which assumed that production of all greenhouse gases would stop immediately, still had temperatures rise by 0.5 degrees over the next 20 years, before slowly starting to decline.  This is because there are lags in the system.  For example, daily temperatures don't peak at midday when insolation is at its peak but a few hours later, when the sun's power is already waning.  These lags mean that even if we cut output of greenhouse gases to zero by 2050, temperatures will likely go on rising by another 0.5 degrees C up to 2070 before starting to gradually decline.  And by 2050, temperatures will already have risen another 0.6 degrees from the greenhouse gases which we will continue to emit into the atmosphere up till then.  So that means another 1.1 degree C rise in global temperatures.  The 1 degree we have had so far is bad enough.  What will another 1 degree do?

[Read more here]

Alexa

From the Ozzie cartoonist Jon Kudelka.


Saturday, June 23, 2018

Europe's growth has peaked


Back in 2010-2012, (northern) Europe's obsession with balanced budgets and fiscal rectitude led Europe back into a double dip recession.  You can see this in the PMIs, which were for the most part below 50, where 50 is the dividing line between growth and recession.  Recently, PMIs have started to fall.  Although they're still above 50, which means these economies are still expanding, they've falling back, which means they're expanding more slowly.

If Europe growth slows substantially, the fat will be in the fire.  Italy has voted in new political parties which are hostile to Europe.  Then there's the UK.  Slow or negative economic growth will just make everything harder, politically.  And more risky for markets.  And that's before we get into trade wars and the relentless tightening by the Fed.

Thursday, June 21, 2018

Delhi air pollution literally off the scale

From The Guardian:

Smog more toxic than can be measured by monitoring devices has blanketed the Indian capital this week, months before the start of Delhi’s traditional “pollution season”.

A thick haze was visible across the city from Tuesday and some government pollution monitors have recorded concentrations of 999 – the highest they can measure – as dust storms kicked up in nearby Rajasthan state blanketed the region.

Concern about north India’s air quality crisis is usually most acute after the Hindu festival of Diwali in autumn, when hundreds of thousands of Indians release firecrackers that combine with existing pollutants to form a poisonous haze over the region that persists for months until temperatures cool. Public health experts said pollution levels on some days in November last year were the equivalent of smoking 50 cigarettes per day.

India, home to 14 of the world’s top 20 most polluted cities, has the highest rate of respiratory diseases of any country. A leading lung specialist, Arvind Kumar, says the cancer patients he sees Delhi are younger, more often female and more likely to be non smokers than those outside the city.

Children are the most vulnerable: a 2015 study concluded about half Delhi’s 4.4m schoolchildren had stunted lung development and would never completely recover.

[Read more here]

Source: The Guardian

World GDP growth has prolly peaked


The chart shows the year on year % change in world real (inflation-adjusted) GDP (grey bars) compared with and index of world PMI (purchasing manager index) survey.  The PMIs are revealed quicker than world GDP, so they are a useful guide to what's happening right now, whereas GDP data are only released quarterly and with delays.  Even though the US is still strong, world growth is starting to slow as rising US  short and long rates start to bite.  A trade war would take world growth sharply lower.

➥ The composites for both series are my calculations using country contributions to GDP.  Latest Q1 Russian GDP is estimated.  Countries included make up 90% of world GDP.  The PMI indices come from Markit Economics


Caving away by the day

I talked here about beach erosion in WA (Western Australia).  For each centimetre of sea level rise, the beach retreats by one metre.

This is a report about how erosion in a beach town is threatening the Great Ocean Road.  Long stretches of the Great Ocean Road run along steep hillsides and are well above sea level, but there are places where it runs next to the beach.   The charming hamlet of Apollo Bay is one of these places.

Authorities have been accused of inaction as a car park in one of Victoria's premier tourist towns erodes "by the day," potentially threatening one of the state's major touring routes.

Apollo Bay locals have watched for months as the Tuxion Road car park falls into the sand, bringing the sea ever closer to the Great Ocean Road.

Pounding waves during the weekend's storm exacerbated the damage.

Parts of the beachside walking track are gone. There's now only five metres of land before the shoreline reaches the road.

Locals have been watching the section, about two kilometres in length, for a couple of months.

Apollo Bay Bakery co-owner Sally Cannon says the erosion is now progressing at an "alarming" rate.

"The car park is just caving away by the day," she told The Age. "Yesterday there were bollards. Today they're not there."



[Read more here]

This striking photograph sums it up very well.

Damage at the car park on Monday.
Photo: Sally Cannon


Sea level rise: denial by bullshit

From Open Mind:

Sea level rise is such a huge problem, and is so undeniable, that climate deniers have gone loony trying to blame it on anything and everything but global warming. It’s not working; the recent idiocy from congressman Mo Brooks trying to blame sea level rise on rocks and dirt filling the oceans didn’t increase doubt about human cause like he hoped, rather it raised extreme doubt about his competence. He, and his idea, quickly became a laughingstock. Others have been ridiculed for similarly ridiculous ideas. Now Roy Spencer has joined the crowd with something almost as dumb as rocks.

His “thesis” is that sea level rise before 1950 had to be all natural. His thesis is wrong. He further supposes that since 1950 it has continued to rise at the pre-1950 rate for entirely natural reasons. His further supposition is wrong. Only by using such blatantly false suppositions can he conclude that the human contribution to sea level rise is only 0.3 inches per decade (that’s 0.76 mm/yr). His conclusion is wrong.



[Read more here]



Note:


  1. The exponential slope of the atmospheric CO2 chart.  For global warming to stop, we need that line to be flat, which means we need to stop adding to the CO2 in the atmosphere by cutting emissions to zero.  Think of it as a bathtub with a very tiny plughole.   Until we turn the taps of altogether, the level of water in the bathtub will keep on rising--until it overflows.  Natural processes remove CO2 from the atmosphere but it will take thousands of years.
  2. The sharp down-spikes in the two series in the bottom chart are due to volcanic eruptions.  Volcanoes release SO2 into the upper atmosphere which forms 'aerosols' which reflect incoming infra-red from the sun back into space.  These particles quickly, within a couple of years, fall to earth, so the cooling effect is temporary.
  3. The global temperature anomaly, after allowing for volcanic eruptions, is rising in the same exponential way as CO2.  If we want to stop that rise we have to cease adding to the level of atmospheric CO2.
  4. The rise in global temperatures has been just under 0.2 degrees C per decade over the last 30 or 40 years.  We have already increased them by 1 degree C since pre-industrial times.  If it takes another 30 years to reach zero emissions, temperatures will rise by another 0.6 degrees.  
  5. Time is running out.  The bath is close to overflowing.


Tuesday, June 19, 2018

US advance indicators level off a tad

The US has a number of regional Fed surveys, plus the national ISM (formerly the NAPM) and the PMI surveys.  These come out early in the month and are well correlated with the economic cycle.  The thick green lines shows the average (for manufacturing) for the ISM and the PMI surveys, the blue dotted line shows the ISM alone and the red dashed line the PMI alone.  No signs of a precipitous plunge, but there does appear to be a levelling off.  Given the rise in the Fed's discount rate and the massive sell-off in Treasuries (10 year yield up from 1.38 in July 2016 to 2.94 now) that wouldn't be at all surprising.  Will there be a recession?  I'll keep you posted.



➥ "Extreme adjustment" refers to a statistical process whereby extreme points (up or down) are reduced to fit closer to the nearby data averages.  For example, the extreme adjustment algorithm would adjust the data point for a strike, say, or a hurricane, if it only lasted 1 month, but would not if its effects lasted 12 months.  The original algorithm was invented by the US Bureau of the Census.

Coal trends down, slowly

I alternate between optimism and pessimism about global warming and environmental degradation. 

Sometimes I am optimistic; when I see how renewables are getting ever cheaper; when I see how EV sales are booming; when I see the way so many people (the vast majority, in fact) know that there is a problem and express their willingness to do something to stop global warming.

Sometimes I am pessimistic.  When I get into arguments with denialists who appear to me to be either stupid or dishonest; when I see how slowly the transition is happening (even though I am very certain that it will accelerate over the next decade); when I see incontrovertible and mounting evidence that the climate is shifting in a very not benign direction; when I talk to people who still maintain that switching to renewables will cause the economy to crash.

So here's a piece of good news.  The amount of electricity produced from burning coal appears to have levelled off and this year may have started declining.

In the chart below, the change in electricity production from coal is represented by blue (of course!  why wouldn't you?), gas by black and wind/solar by pink (leftists everywhere!)  The years 1998 and 1999 which were years of deep global recession and 2010 was when the global economy especially China rebounded strongly.  So these are aberrations in the longer-term trends.  What is clear over the last 20 years is that for most of that period, the increase in the global demand for electricity was mostly supplied from coal and some gas.  There's a lot of blue.  Equally, there's hardly any pink.  But from 2010 onwards, there's more and more pink, and from 2014 onwards, the blue starts to disappear.  But wait a minute, what about 2017?  The blue bar gets larger, though so does the pink.  That's explained by China.  Hydro electricity production (light grey) was down, because of drought, so their coal power stations were run at slightly higher capacity.  In 2018, the pink bar will expand again, and the blue bar will narrow.  If China gets rain this northern hemisphere summer, the blue bar will be tiny.  In 2019, the pink bar will expand again, and the chances are very high that the blue bar will be negative.  Each year after that it will be more negative, because by then new wind and solar farms will be cheaper than the operating costs of coal mines nearly everywhere in the world.



(Source: IEEFA)

Saturday, June 16, 2018

Annual Antarctic ice loss triples in just 5 years

The Thwaites Glacier in Antarctica is increasingly being viewed as posing a potential planetary emergency.
(Source: The Age)


Antarctica's ice sheet is melting at a rapidly increasing rate, now pouring more than 200 billion tonnes of ice into the ocean annually and raising sea levels half a millimetre every year, a team of 80 scientists has reported.

The rate of melting has tripled in the past decade, the study concluded. If the acceleration continues, some of scientists' worst fears about rising oceans could be realised, leaving low-lying cities and communities with less time to prepare than they had hoped.

The result also reinforces that nations have a short window - perhaps no more than a decade - to cut greenhouse gas emissions if they hope to avert some of the worst consequences of climate change.

Antarctica, the planet's largest ice sheet, lost 219 billion tonnes of ice annually from 2012 to 2017 - approximately triple the 73 billion tonne melt rate of a decade ago, the scientists concluded. From 1992 to 1997, Antarctica lost 49 billion tonnes of ice annually.

The study is the product of a large group of Antarctic experts who collectively reviewed 24 recent measurements of Antarctic ice loss, reconciling their differences to produce the most definitive figures yet on changes in Antarctica.

Their results - known formally as the "Ice Sheet Mass Balance Inter-comparison Exercise" (IMBIE) - were published in the journal Nature on Wednesday.

"The detailed record shows an acceleration, starting around 2002," Beata Csatho, one of the study authors and a glaciologist at the State University of New York at Buffalo, said in an email.

Csatho noted that comparing the first and last five-year periods in the record reveals an even steeper acceleration.

"Actually, if you compare 1997-2002 to 2012-2017, the increase is even larger, a factor of more than 5!!"

Looking closer, the rapid, recent changes are almost entirely driven by the West Antarctic ice sheet, which scientists have long viewed as an Achilles' heel. It is known to be losing ice rapidly because it is being melted from below by warm ocean waters, a process that is rendering its largest glaciers unstable.

West Antarctica lost 159 billion tonnes of ice a year from 2012 to 2017, compared with just 65 billion tonnes from 2002 to 2007.

The growth is largely attributable to just two huge glaciers - Pine Island and Thwaites. The latter is increasingly being viewed as posing a potential planetary emergency, because of its enormous size and its role as a gateway that could allow the ocean to someday access the entirety of West Antarctica, turning the marine-based ice sheet into a new sea.

Finally, the largest part of the continent, East Antarctica, has remained more stable and didn't contribute much ice to the ocean during the period of study, the assessment said. However, in the past  five years, it too has begun to lose ice, perhaps as much as 28 billion tonnes a year, although the uncertainty surrounding this number remains high.

What's happening in East Antarctica is extremely important because it has by far the most ice to give, being capable of raising sea levels by well over 30 metres. A single East Antarctic glacier, Totten, has the potential to unleash as much total sea level rise as the entire West Antarctic ice sheet, or more.

[Read more here and here]

Yet Florida, as just one example, still votes for the denialist Republican Party.

Slowing tropical cyclones very bad news

Hurricane Harvey caused $126bn of damage. Image: By Jill Carlson (jillcarlson.org), via Wikimedia Commons


A report from Climate News Network:

Tropical cyclones are moving more slowly. As temperatures rise, the pace at which a hurricane storms across a landscape has slowed perceptibly in the last 70 years. But the slowdown means each hurricane has more time to do more damage and deliver more flooding.

“Tropical cyclones over land have slowed down 20% in the Atlantic, 30% in the northwestern Pacific and 19% in the Australian region,” said James Kossin, of the US National Oceanic and Atmospheric Administration’s national centres for environmental information.

“These trends are almost certainly increasing local rainfall totals and freshwater flooding, which is associated with a very high mortality risk.”

He reports in the journal Nature that thanks to atmospheric warming as a consequence of the profligate combustion of fossil fuels in the last century, the summer tropical circulation has slowed and, along with it, hurricane and typhoon speeds. Overall, since 1940, cyclone movements have slowed by 10%; over some land areas, they have slowed much more.

But as the temperature goes up, the capacity of the atmosphere to hold moisture increases – by at least 7% with each degree Centigrade. That means a tropical cyclone – a whirling system of terrifying winds bearing huge quantities of water – has both more water, and more time to drop it over land.

And Dr Kossin cites the example of Hurricane Harvey which in 2017 dumped more than 1.25 metres of water on Houston, Texas and the surrounding countryside in just five days. Devastating floods displaced 30,000 people, and 89 died. Economic losses were assessed at more than $126bn.

[Read more here]

$126 billion!!!!  And the denialists still maintain that it's "too expensive" to reduce carbon emissions.  The effects of global warming are being felt right now.  We don't have to wait for decades to go by to feel the impact of climate change.  All that will happen is that the effects will just get worse.  Start slashing emissions now, world, before it's too late.

Friday, June 15, 2018

Went to hell

Another zinger from Jim Carrey




Zombie Apocalypse chargers



Tesla will start rolling out new superchargers which will be about twice as powerful as existing chargers (200 to 250 kW) , thus cutting the time taken to charge a Model S to 80% from 40 minutes to 20.  These will run off their own solar and batteries and could in principle be off-grid.  Hence Musk's description of them as  ‘zombie apocalypse-proof’.  Nice.  One thing less to worry about.

I'm most definitely not denying Musk's passion to move the world to a fossil-free future, but he's probably also making a virtue of necessity.  These new superchargers will draw lots of power, and a bank of them might require their own substation, plus upgrades to the power lines feeding them.  So solar panels, with batteries to provide power at night, prob'ly makes sense anyway. 

You'd have to have fairly large arrays of solar panels.  Just to charge up one car you'd need 3x250 kw (assuming a capacity factor of .33) or 750 kW minimum, unless of course you only got one car a hour or fewer so that the batteries would have time to charge up.  If the charger is in constant use 24/7, then you'd need at least twice 750 kW, so that there's a surplus to store for night time.  5 kW of solar panels will cover 350 square feet (about 32.5 square metres.)  So 1500 kW of panels would need 10,000 square metres of panels.  Minimum.  That's a square 100 metres by 100 metres, or, putting it another way, 14 suburban house blocks.  Mind you, that would handle 72 Teslas a day, but still.  Hard to fit into a typical urban site,  but fine for sites outside cities.  So my guess is that's where these new version 3 superchargers will be located. 

If you live in a city, you're on your own when the zombie apocalypse comes.


Solar gets ultra cheap in Australia

In 2016 when I attended the Macquarie Bank companies conference in Sydney, I asked the CFO of AGL (one of Oz's largest energy utilities) why their new solar farm would cost A$100/MWh, when at that stage, converting from US dollar costing, it should have been A$20 to A$30 cheaper.  His answer, in essence, was that they were just starting down the learning curve: the site was far from the nearest big town, they were struggling to find workers, etc.  PPAs (Power Purchase Agreements) aren't published in Oz, unlike the case overseas, so we had only snippets released by AGL and Origin (the two largest electricity and gas utilities) about what renewables were costing.  But last year, they were talking about solar at A$75/MWh.  According to RenewEconomy, this year at the Energy Australia conference, the talk in the corridors was of A$40/MWh.   This is -- obviously -- a dramatic decline, and reflects rising economies of scale, learning curve improvements, and the rapid cost declines in PV cell manufacture.

 AGL also stated that coal costs somewhere between A$100 to A$110/MWh.  That's without the externalised costs of coal (pollution, global warming) being included in the calculation.  When they do their projections, any investor in coal mines or power stations has to consider the very real risk that carbon is going to be priced in the future, as global temperatures rise.

Adding six hours of storage to solar (or wind) would cost A$30/MWh extra to the cost of wind and solar now, and half that in 5 or 6 years' time. Suppose you add 6 hours of storage to new wind or solar PV farms, the average cost of 50% wind plus 50% solar with 6 hours of battery storage would be A$80/MWh now, and A$50-A$60 in 5 years--much less than new coal.  Or we could use solar thermal (CSP) which costs A$75/MWh and delivers baseload/dispatchable electricity.  Is 6 hours storage enough?  Yes, provided there is a blend of solar and wind, and the penetration of renewables in the grid is less than 50 or 60%.  The falling costs of storage will allow cost-effective expansion of renewables to 80 or 90% of electricity generated within 10 years.  And because of rapid cost declines in the whole spectrum of renewables, that percentage is very likely to be reached by then.

[Update 27/06/18:  RenewEconomy reports that AU solar is now down to $50/MWh]

Thursday, June 14, 2018

The handshake

From the incomparable Cathy Wilcox


Negative emissions

Global temperatures are rising by 0.2 degrees C every decade, on average. The plan to reach zero CO2 emissions by 2050 therefore means that temperatures will rise by at least 0.6 degrees by 2050.  I say at least because as we stop burning coal, we'll also emit less sulphur dioxide.  Sulphur dioxide aerosols help cool the earth.  The impact of the the rapid rise in Chinese and Indian CO2 emissions on global temperatures has been partially offset by the concomitant rise in SO2 emissions.  As their electricity grids switch to renewables, nuclear and gas, SO2 emissions will decline.  The cooling impact of SO2 emissions is short-lived--we know that from the effect on global temperatures of volcanic eruptions.  So reducing SO2 emissions will lead to a rapid rise of global temperatures back to where they should have been based on CO2 emissions.  This will make the observed temperatures rise faster than they have done.

And that assumes we reach zero emissions by 2050.  We might not.  Even though falling costs will drive the replacement of fossil fuels by renewables in electricity generation and transport, there will still be emissions from iron and steel, cement, air travel, agriculture and land clearance.  So analysts are looking for ways to remove CO2 from the atmosphere.  Carbon capture and storage is one way to stop the CO2 emissions of a coal power station reaching the atmosphere.  The gas is extracted from the exhaust flues of power stations and buried underground.  But there are a few flies in the ointment.  First, the gas may leak from its underground reservoirs.  Second, the process is expensive.  It adds as much as 100% to the cost of electricity generated by coal.  And all that does is stop new CO2 from entering the atmosphere.  It doesn't do anything about existing CO2.

So what we need is some process which can extract CO2 from the air and bury it permanently underground.  We do in fact have both, and I've talked about them before:

Turning CO2 to rock
Extracting CO2 from the atmosphere
Carbon capture and storage


The BBC has recently published two articles about the process of capturing CO2 from the atmosphere and turning it into rock:

Key 'step forward' in cutting cost of removing CO2 from air
Turning carbon dioxide into rock - forever

People have got quite excited by the Carbon Engineering project.  The company has managed to cut the cost of extracting CO2 from the atmosphere to $100 per tonne of CO2.  This is a lot cheaper than it was.  But it's still $100/tonne.  That's much more expensive than switching to wind and solar and EVs.  Wind and solar are cheaper than coal and gas.  EVs will soon be cheaper than petrol/diesel cars.  Since big chunks of the population, especially in America, still think that somehow switching to renewables is costly and will reduce GDP, who on earth is going to pay $100/tonne to remove CO2 from the atmosphere? 

Of course, by 2050, we may all be feeling very differently as catastrophic climate change takes hold.  And for the production of cement, we will need CCS because cement is produced by driving off the CO2 from limestone, which consists of calcite (CaCO3) and dolomite (CaMg(CO3)2).  However, that will be cheaper to do because we will be able to take the CO2 directly from the exhaust flues of the cement factories.  Right now, the Carbon Engineering project is producing synthetic liquid fuels. That means they're not actually reducing the amount of CO2 in the atmosphere, because when the fuel is burnt,  the CO2 will go straight back into the air.  However, they're preventing a rise in CO2, because for each litre of synthetic fuel burnt, a litre stays in the ground.  And apparently making the synthetic fuel moves them closer to covering their costs.

"This is a real step forward, and it's not just our company saying it," Prof David Keith from Harvard University, and a founder of Carbon Engineering told BBC News.

"I hope this changes views about this technology from being this thing which people think is a magic saviour which it isn't, or that it is absurdly expensive which it isn't, to an industrial technology that is do-able and can be developed in a useful way."

Prof Keith's "useful way" is not to simply suck carbon out of the air but to use the extracted gas as a key raw material for synthetic liquid fuel. The company is currently making around one barrel a day by combining the pure CO2 with hydrogen derived from water, using renewable energy.

"What Carbon Engineering is taking to market is first of all carbon neutral fuels, in that sense we are just another emissions-cutting technology, there is no net removal from the atmosphere," he said.

"We see our long-term fuels plant as being roughly 2,000 barrels a day, but the next one we build will be the first real commercial plant but will be 10 times smaller than that - we are developing that right now, looking for very cheap solar or wind power and looking for investors."

The firm believes that this approach to liquid fuel has major advantages over biofuels in that it uses far less land and water. Prof Keith said that if their fuel gets the same subsidies as other carbon neutral approaches then they will be able to raise funds and build plants very quickly.

[Read more here]

So, useful, but not a game changer. 


Before and after: porous basalt (left) and basalt with mineralised CO2 within its pores (Source: BBC)


Turning CO2 into rock involves dissolving the CO2 in water and pumping it into basalt rocks underground.  The acid produced by dissolving the CO2 reacts with metals (calcium, magnesium and iron) to produce rock. 

Sandra Snaebjornsdottir, a geologist working for CarbFix, has the evidence in her hands: a cylindrical sample drilled out from the site shows a smattering of chalky crystals encrusted in the basalt.

"These white bits are carbonates, or mineralised CO2", she says. "Fresh basalts are like sponges, with plenty of cavities that are filled with the CO2.

"Iceland is particularly favourable for this type of CCS simply because of the amount of basalt it's got".

Last year, 10,000 tonnes of CO2 were "digested" by CarbFix.

Yet this is tiny fraction - less than the yearly emissions of 650 Brits or 2,200 American cars.

And it becomes even more insignificant against the 30-40 gigatonnes of CO2 (a gigatonne is a billion tonnes) that modern humans pour into the atmosphere annually.

Despite its relatively small scale, experts anticipate CarbFix could be easy to repeat - thanks to the ubiquity of basalt around the world.

"Basalt is actually the most common rock type on Earth, it covers most of the oceanic floors and around 10% of the continents. Wherever there's basalt and water, this model would work", says Sandra Snaebjornsdottir.

Large basaltic areas are found in Siberia, Western India, Saudi Arabia and the Pacific Northwest.

And scientists are now looking at testing the model on the oceans to take advantage of the large areas of submarine basalt formations.

Potentially, basalt could solve all the world's CO2 problems says Sandra: "The storage capacity is such that, in theory, basalts could permanently hold the entire bulk of CO2 emissions derived from burning all fossil fuel on Earth."

[Read more here]

Two snags.  One, this costs.  In my earlier post the plant is quoted as saying $17/tonne.  And that's from using a concentrated flue gas.  If the CO2 had to be extracted from the atmosphere, then you'd have to add another $100.  Two, the process uses a lot of water. 

I'm not carping.  These are both potentially useful advancements.  As we move down the learning curve/ economies of scale the costs will fall.  However, by far the cheapest option is to slash emissions as fast as we can.  It will be much cheaper to switch to renewables than it will be to try and remove CO2 from the atmosphere after we've burnt the fossil fuels. 





Monday, June 11, 2018

Unemployment and growth in the US

The chart shows the year-on-year percentage change in real (inflation-adjusted) US GDP compared with the 6 month change in the unemployment rate, inverted.  So, if the unemployment rate was 6% 6 months ago and is 4% now, that would show as +2%.  Why inverted?  Because when growth improves, unemployment falls; when the economy goes into recession, unemployment rises.  Unemployment is inversely related to the business cycle.

The relationship between these two indicators prior to 2011 is very good.  Since 2011, there is still a relationship but the red line (the change in unemployment, inverted) is higher relative to GDP than it used to be.  Which means unemployment has fallen faster in this recovery than you might have expected.   Put another way round, lower economic growth this cycle has nevertheless led to a bigger than normal fall in unemployment. Which in turn implies that productivity growth has been lower than it was historically.  Following from that, it suggests that the US long-term sustainable growth is lower, because sustainable growth equals long-term productivity growth multiplied by the growth in the labour force.

Why has productivity growth been lower this cycle?  Partly because experienced baby-boomers have been retiring and have been replaced by youngsters.  Partly because company investment in plant and equipment has been lower than in the past.  Soaring profits have been used to buy back shares, not to invest in new capacity.  Whatever the reason, it ought to be concerning the US government.  If there were any grownups left, that is.

(Click to enlarge)

EVs have 11 times fewer fires than ICEVs

Every Tesla which catches fire is reported in the media.  It's news!  But when a petrol(gasoline) car catches fire it's not.  People get the impression that EVs are more dangerous than ICEVs.  So just how prone to fires are EVs?

Because we have fewer EVs on the road than petrol cars, you would expect to have fewer fires in total from EVs.  And you do.  In fact, though, you have far fewer fires than you'd expect. 

Gasoline powered cars are about 11 times more likely to catch fire than a Tesla. The best comparison is fires per 1 billion miles driven. The 300,000 Teslas on the road have been driven a total of 7.5 billion miles, and about 40 fires have been reported. That works out to five fires for every billion miles traveled, compared to a rate of 55 fires per billion miles traveled in gasoline cars.

[Source: Inside EVs]

An ICEV burns out

Sunday, June 10, 2018

US auto sales slipping

I'm not sure why.  Is it a harbinger of economic downtown?  Sales of consumer durables, especially cars, tend to lead economic downturns.  You can see that in the chart, below (click to enlarge).  Are car sales slipping because interest rates are rising?  Or is it because oil prices are rising?  Of course, EV sales are exploding.


World's largest li-ion battery

From PV-magazine:

Back in the quaint days of late 2017, the world was awoke by a batch of bids of momentous size – and shockingly low pricing – in a solicitation by Xcel Energy. In fact, the median bid on 16 GW of solar+storage came in at only 3.6¢ per kilowatt-hour (kWh). This price was only 0.65¢/kWh more than the 30 GW of solar-only bids.

For perspective’s purpose, according to the EIA in 2016 either operations or maintenance for ‘fossil steam’ electricity sources were above 5¢/kWh for existing facilities across the USA. This is before fuel costs estimated at an average of 2.5¢/kWh.

Yesterday saw the close of another public step in this proposal process.

The individual solar power project range in capacity from 72 to 250 MW. The individual energy storage projects range from 50 to 125 MW, with two and four-hour ratings. The total solar to be deployed under this plan would be 707 MW-AC, with 275 WM/1,000 MWh of energy storage.

The solar power bids ranged from 2.3-2.7¢/kWh, while solar plus storage ranged from 3.0-3.2¢/kWh. While it makes for an imperfect comparison as solar project costs vary, the solar vs solar+storage delta is 0.5-0.8¢/kWh.

Even more eye popping was the wind power pricing that ranged from 1.1-1.8¢/kWh.  When these bids came out back in January, CarbonTrack.org noted that at 3.6¢/kWh for solar+storage 74% of coal would be would priced higher. With the new pricing of the solar+storage turning out to be 3.0-3.2¢/kWh – 100% of coal powered generation is now more expensive.

[Read more here]

Source: PV-Magazine


I used to think that battery storage would be behind-the-meter (as in household/small business Powerwall batteries) plus grid-level storage.  In fact, it looks as if the majority of storage will actually be at generator level, at wind or solar farms, because this reduces the cost of curtailment or low wholesale prices, while providing the "firm" output utilities require.  Future wind and solar farms will have several hours of attached storage (existing ones will retrofit storage), and this will provide quasi-baseload/dispatchable electricity much more cheaply than coal--as the bids quoted above show, at one third the cost of coal.  As it goes in Colorado so it will go everywhere in the world.

Tesla battery breakthrough

From Electrek:

Elon Musk is generally careful not to use the term “breakthrough” when describing advancements in battery technology but he has used it this week to talk about Tesla’s latest advancements in battery energy density and cost.

Tesla’s CEO even gave us a pretty good idea of the automaker’s current battery costs.
Home Solar Power
One of the automaker’s most important goal is to achieve a battery pack cost of $100 per kWh.

At that cost, the battery pack isn’t a bottleneck to achieve price parity with gas-powered cars, which would make any of Tesla’s vehicles even more competitive.

Tesla has always been careful about not revealing its battery cost and CTO JB Straubel reiterated that at the meeting this week.

But Musk later did reveal a few interesting details and price points.

After thinking about it for a moment, Musk added:

“We think we have come up with some pretty cool breakthroughs on energy density and cost of the battery pack. It’s going to be pretty great.”

The CEO thinks that the company is on pace to achieve a battery cell cost of $100 per kWh by the end of the year depending on commodity prices remaining stable in the next few months.

While we are only talking about battery cell costs and not the cost of the whole battery pack, it would still be an impressive price point.

As for the cost at the pack level, Musk sees Tesla achieving that important price point of $100 per kWh for the overall battery pack in less than two years.

[Read more here]

So $100 by 2020.   Extraordinary.

Apart from the battery, EVs are cheaper to produce than ICEVs (petrol/diesel cars) because they're much simpler.   At a battery pack cost of $100/kWh, EVs will not just have the same sticker price as ICEVs--they will be cheaper than ICEVs.  So, cheaper sticker price, cheaper "fuel" cost because of EVs' higher efficiency and cheap electricity, much cheaper maintenance, smoother and quieter ride .... EVs won't achieve 50% of sales by 2040, as some analysts now forecast.  That'll happen before 2025.

Not all of those cars will be Teslas.  But a big chunk of them surely will be.  Many of the rest will be electric bubble cars, because being so small and light, they'll need smaller batteries, making them very cheap.  Like this one:

The Microlino EV (Source)
You can read more about the Microlino here.

By the way, this means batteries for stationary storage will also get cheaper.   Musk expects Tesla's battery sales each year for the next several years to equal total sales for all previous years.  That's an extraordinary growth rate.  I believe it.  Musk also said that solar panel and solar roof tile sales were being held back because 74% of rooftop solar customers want storage.  As Tesla has a big backlog with the Tesla Powerwall, expanded production will lead to a surge of Tesla solar panel sales too.

Trump and the allies

This really sums it up.  A picture from the G7 conference in Canada, via David Mack.  And Trump wanted Russia to be invited.  He ditches allies who have supported the US for seven decades to cosy up to a dictator who threatens neighbouring countries.

The Great Leader has just announced that Trudeau lied (who cares about the details?), and therefore he's going to put tariffs on imported cars.  Does he know that the US and Canadian car industries are intertwined?  Does he realise that punitive US tariffs will simply be followed by retaliatory punitive tariffs on US exports by the US's trading partners? 

When will this peak stupid stop?




Saturday, June 9, 2018

When we're finished with it

A cartoon by Cathy Wilcox.



Tesla close to break-even on Model 3

Inside EVs reports that at 10,000 Model 3 assemblies per week, the cost per Model 3 will be just $28,000 -- $18,000 for material and $10,000 for labour.   The minimum price the base Model 3 will be sold for is $35,000.  But just add autopilot, which costs about $5000, and has no marginal cost of production, and you can see how profitable this could be for Tesla.  Provided it reaches 10,000 Model 3 units per week

We hear time and time again that automakers are losing money on EVs. Some people believe that an actual dollar amount is lost or absorbed every time an EV is sold. It’s not that simple. There are so many variables involved here when factoring in development costs, volume, etc. It’s a huge, tricky math problem that’s not so easy to comprehend.

With this being said, Tesla CEO Elon Musk’s recent Tweets about holding off on lower-priced models until volume is higher – so Tesla doesn’t die – makes perfect sense. For a myriad of reasons, as production increases, the automaker should be able to more easily turn a reasonable profit on less expensive trims. Now, a German firm that specializes in vehicle teardowns has put a number out there.

The German company recently spoke with WirtschaftsWoche. An engineer shared:

If Tesla manages to build the planned 10,000 pieces a week, the Model 3 will deliver a significant positive contribution to earnings.

In fact, it was revealed that the materials and logistics involved in building the Model 3 add up to about $18,000. Labor costs were determined to be about $10,000. This may not include some of the other factors that we spoke to above, but it’s pretty telling, nonetheless. It correlates well with Musk’s recent Tweet confirming that Model 3 production cost could definitely come down to ~$28,000 once production reaches 10,000 units per week.



[Read more here]

So the question is, will Tesla survive long enough to reach production of 10,000 cars per week?  The bears and short-sellers think not. The media are full of stories about how Tesla will have to come to the market for more money,

Clean Technica has an interesting article about how close Tesla is to break-even.  Obviously, once it reaches break-even, the chances are extremely high that it will survive.  The author of the article, Eric Kosak, calculates that at a weekly production rate of just 3,800 Model 3s per week to cover the operating expenses of its automotive division.  (Current Model 3 production is about 3000 per week)  That excludes interest expenses and if you include them then the required production level is 5,600 Model 3s per week.  I think it is very probable that Tesla will reach Model 3 production of 5000 cars per week either in the last week of June, or, if they want to postpone reaching 200,000 total production (and thus losing the Federal Tax Credit) until the 1st day of the new quarter, in the first week of July.  I think they'll reach 10,000 per week by end 2018.

What will the short sellers do then?  (Short selling is selling shares you don't own in the hope that you can buy them back later at a lower price.  If the price goes up you lose money because you have to buy them back at a higher price than you sold them for.)

Tesla will be very profitable.  While changing the world for the better.




A thousand posts: why I write this blog

Source: The role of neoliberalism in Spain's constitutional crisis



When I began this blog 8 years ago, what I really wanted was a place to discuss things.  Well, and vent about them too.  I worked in a place where no one else really understood or cared about economics and there was no one to talk to about the big issues in economics and their interaction with politics.  It was oddly lonely, because everywhere I'd worked before had teams of investment professionals and we'd often discuss economic theory because it interested us, and because to forecast the economy and markets you have to understand them and their dynamics.  And that means understanding where theory is applicable and right, and where and why it's wrong.  I thought maybe with a blog, I'd at least set up conversations even if it was just with myself.  I'd have to consider the facts after finding what they were, think the argument through, then try and write it down in such a way that it appeared simple and logical without being too complicated, because after all, my goal was and is to convince.

It seemed to me then that the big issue in economics was whether the neo-liberal policy consensus was in fact working.  The theory was that increased inequality was a price we had to pay for higher growth.  But the evidence has been accumulating for many years now that growth rates haven't risen as inequality has increased.  In fact, recent IMF and other research suggests that past a certain point--and we have passed that point in the anglophone economies--increased inequality reduces  growth.  And what's the point of economic growth if all the gain goes to the rich?  The neo-liberal belief system also says that markets can be trusted to regulate themselves.  Well, maybe the market in cafés is a perfect market and can be trusted to self-regulate, because in any geographical area there are dozens up to hundreds of cafés, but the market for banks or utilities or airlines isn't.  In fact, most markets are oligopolies, and the theory of perfect markets which underpins the whole laissez-faire approach doesn't apply.

And it became obvious to me that banks in particular could not be trusted.  The GFC (great financial crisis) of 2008 made this abundantly clear.  In the crisis, banks were saved with public money, i.e., money paid by taxpayers.  In Spain and Ireland, the rise in government deficits as a result of this led to swingeing cuts in welfare and rises in taxes hitting the poorest hardest.  The poorest suffered so that bank shareholders and executives could get bonuses.  The third plank of neo-liberalism is that government debt should be low, which logically means that governments shouldn't run deficits.  The problem with that is that when the economy is in recession, attempting to cut the deficit by raising taxes and cutting expenditure can actually make the deficit bigger, because the already weak economy goes even further backwards.   We could all see this by the pathetically slow recovery in Europe after the GFC.

None of these things are absolutes.  On the whole, markets prolly are better than bureaucratic diktat.  But not always, and certainly not with banks.  Banks need to be tightly regulated.  Governments prolly shouldn't run debts during booms, because that would leave no space to run them when they're needed during downturns. But they should during recessions.  And borrowing money to acquire long-lasting assets like roads, railways, hospitals, power stations, etc, is perfectly sensible and useful.  Obviously people who work hard or are massively creative (Elon Musk, for example) should earn more than hoi polloi.  But ever increasing inequality is bad not just for economic growth but also for democracy.  Sharply economically divided societies are also going to be sharply divided politically.  Hungry and angry people aren't interested in polite disagreement and live and let live when they see the rich getting ever richer.  The rise of extreme right-wing parties is dangerous for democracy, just as extreme left-wing parties were.  Getting poor people to vote for right-wing policies is hard.  So right-wing parties have to manufacture "enemies": Mexicans, immigrants, gays, foreigners, dole bludgers (who "parasite" on ordinary folk)  It's a technique which manufactures and disseminates hate.  That's bad for society and for democracy.

The problem was and is that advocates of neo-liberalism are in the grip of quasi-religious belief system.  If you point to the failures of modern capitalism and neo-liberalism, they counter that we haven't got enough deregulation, we haven't got low enough taxes, we haven't cut welfare enough to increase the incentive for the poor to work harder, while if there is a deficit, we should run a surplus to release more funds for private enterprise which is always (they say) better and more efficient than governments.

Over time, I started to get more and more worried about climate change.  Global temperatures have been  rising on average by 0.2 degrees C per decade since the 1970s.  That means by 2050 they will have risen another 0.6 degrees, at least, because it is highly likely that aerosols (i.e., sulphate particles) released during the burning of coal and oil have hitherto limited that increase.  As we slash coal burning with renewables replacing coal, sulphur dioxide emissions will fall, and this will cause temperatures to rise even more rapidly.   Even 0.2 degrees C per decade is frightening enough.  0.3 or 0.4 would be terrifying.

It's perfectly obvious that global temperatures are rising and that is us making that happen.  The right-wing obsession with neo-liberalism leads to climate denialism.  Climate action is collective, right?  We all have to do our bit.  We have to agree to take action, all of us, because it's no good me cutting emissions if you increase yours.  The Right thinks that's tantamount to socialism.  Plus, you know, markets are always right.  If people want to burn oil and coal, let them.  The increasing economic and political division in developed economies which was a direct result of neo-liberalism made action to prevent or reduce global warming even harder.  The Right was against it simply because the Left was in favour.

I have tried to present the facts on climate change/global warming without blaming the Right for everything.  Unfortunately, my contempt for the Right has risen over time as it has become obvious that far from being genuine conservatives (who are supposed to conserve) they have devolved into semi-fascist bullies who spend a lot of time denying indisputable facts.  Don't get me wrong.  The Left is deeply flawed.  But climate change is the greatest crisis facing our civilisation.  And the Right doesn't want to do anything about it.

To leaven the serious articles I put in cartoons that I like.  Sometimes they're funny, sometimes not.

Anyway, thank you all for reading it.  I hope my next thousand posts will be as interesting.

Thursday, June 7, 2018

The new cover of Time magazine

From Time Magazine



The new American Aristocracy

This is a fascinating and revealing article in The Atlantic.  I can't possibly do justice to it.  I'll include just this section:

None of this matters, you will often hear, because in the United States everyone has an opportunity to make the leap: Mobility justifies inequality. As a matter of principle, this isn’t true. In the United States, it also turns out not to be true as a factual matter. Contrary to popular myth, economic mobility in the land of opportunity is not high, and it’s going down.

Imagine yourself on the socioeconomic ladder with one end of a rubber band around your ankle and the other around your parents’ rung. The strength of the rubber determines how hard it is for you to escape the rung on which you were born. If your parents are high on the ladder, the band will pull you up should you fall; if they are low, it will drag you down when you start to rise. Economists represent this concept with a number they call “intergenerational earnings elasticity,” or IGE, which measures how much of a child’s deviation from average income can be accounted for by the parents’ income. An IGE of zero means that there’s no relationship at all between parents’ income and that of their offspring. An IGE of one says that the destiny of a child is to end up right where she came into the world.

According to Miles Corak, an economics professor at the City University of New York, half a century ago IGE in America was less than 0.3. Today, it is about 0.5. In America, the game is half over once you’ve selected your parents. IGE is now higher here than in almost every other developed economy. On this measure of economic mobility, the United States is more like Chile or Argentina than Japan or Germany.

The story becomes even more disconcerting when you see just where on the ladder the tightest rubber bands are located. Canada, for example, has an IGE of about half that of the U.S. Yet from the middle rungs of the two countries’ income ladders, offspring move up or down through the nearby deciles at the same respectable pace. The difference is in what happens at the extremes. In the United States, it’s the children of the bottom decile and, above all, the top decile—the 9.9 percent—who settle down nearest to their starting point. Here in the land of opportunity, the taller the tree, the closer the apple falls.

All of this analysis of wealth percentiles, to be clear, provides only a rough start in understanding America’s evolving class system. People move in and out of wealth categories all the time without necessarily changing social class, and they may belong to a different class in their own eyes than they do in others’. Yet even if the trends in the monetary statistics are imperfect illustrations of a deeper process, they are nonetheless registering something of the extraordinary transformation that’s taking place in our society.

A few years ago, Alan Krueger, an economist and a former chairman of the Obama administration’s Council of Economic Advisers, was reviewing the international mobility data when he caught a glimpse of the fundamental process underlying our present moment. Rising immobility and rising inequality aren’t like two pieces of driftwood that happen to have shown up on the beach at the same time, he noted. They wash up together on every shore. Across countries, the higher the inequality, the higher the IGE (see Figure 2). It’s as if human societies have a natural tendency to separate, and then, once the classes are far enough apart, to crystallize.

[Read more here]

In this chart, the higher the number on the left hand axis, the lower inter-generational mobility.
The label should read Inter-generational  earnings elasticity (IGE)


I strongly recommend that you read the original article in full.  It's how quality journalism should be.

Also, if you haven't already, you should read F Scott FitzGerald's The Great Gatsby, which is an utterly brilliant masterpiece, and watch the the 1974 film by Jack Clayton.  We are back in the 20s with income distribution, politics, and debt.  Will it all end as badly as the 20s did ten and twenty years later, in war and genocide and millions of dead?