Easy access will determine future energy use

Easy access will determine future energy use

Interview with Prof. Maurizio Masi, full professor of  Politecnico of  Milan

Why is the concept of externality – well known in the academic world – neither recognised nor applied when it comes to planning or implementing energy policies?

Simply because politics itself is not technically prepared and no effort has been made to make it more aware. If I look at the US, where quantification of the impact of military spending on the final price of a gallon of gasoline dates back to the end of the last century, there are very few politicians who are sensitive to this issue today. Just search the words “true cost of energy” on the web. Moreover, without giving anyone the benefit of the doubt, I’d say it’s more profitable politically to manage incentive policies than to find a common basis for this calculation. Remember that the cost of externalities is hidden since it is included within general taxation. The consumer does not see it in the cost of a product or service. Finally there is also a technical problem: the quantification of externalities is affected by many uncertainties. Numbers change a lot based on whether you make “realistic” or “eco-catastrophic” assumptions. The easiest quantification is perhaps the amount of “secure energy supply” within military spending; estimates related to the health impacts of burning petroleum products or to climate change (desertification, changes in seas levels, typhoons frequency increase, etc.) are considerably more uncertain. Just the fact that we’re talking about making estimates rather than quantifying values shows how complex the subject is. If we consider it from an Italian perspective the uncertainty of these numbers is small in comparison with the way leading political figures treat our macroeconomic statistics, which can reach an order of magnitude. The problem of energy prices, however, is a worldwide problem, and in that sense our country is an absolutely marginal actor, accounting for just over 2% of the energy budget of the planet. Any action we might undertake, even the most drastic, would not shift the terms of the problem, which is global and cannot be solved locally. Indeed, it is the classic problem where the global optimum is not the combination of the partial ‘optima’.

How could economies of scale change if externalities were considered as part of the economic competitiveness of different energy sources?

An absolute solution does not exist. The impact would be different from country to country. It is easy to compute expenses such as military ones that can also be justified in terms of national security. But while it may be “easy” to count the maintenance costs of the 6th Fleet of the US Navy in the Persian Gulf, the question then arises of whether these costs should be ascribed only to the US or to all of their allies. It’s even harder to compute the impact of healthcare costs on a barrel of oil. How is it possible to separate, for example, the contribution to pulmonary diseases of bad habits (such as smoking) or of general pollution from that of microparticulate produced by the combustion of petroleum products? To be more specific, in Milan water treatment plants that release nitrites and nitrates from the oxidation processes are significant sources of microparticulate. Just smell how the odour of the air changes during the days when the south wind blows, as these plants are located to the south of the city. This kind of evaluation was tried 10 years ago by the city of Paris. Looking at the numbers it is clearly visible that the greatest risk is to double-count costs. It is not an easy field. In a country like ours, then, we must take into account externalities such as those related to the landscape, for example: how does an energy production plant integrate into the landscape? Not all renewables have the same impact. Many small plants have a different impact from a big plant. Just as if you install them in totally rural areas or anthropic contexts. You have to factor in the depreciation costs of existing and future infrastructure. The spread of petroleum products nationwide took practically a century to reach its current maturity. People often neglect the fact that natural gas distribution today is far more widespread than electricity (just compare the length of the two networks). To take the comparison further, the gas network is already able to accept changes in supply or the local input of biogas. It also has strategic storage points that can absorb consideration variations in supply and demand. The electricity network is, due to its very nature, much more rigid as regards the possibilities of managing fluctuations. It requires a significant investment to be transformed into a more modern “smart grid”. I think there will be a strong tendency in the coming century to increase electricity’s share compared to heat (especially because of the transition to electric mobility). But these will be transitions that take at least 50 years. Transitions in all commodities markets are slow because they require huge investments. The energy sector does not respond to momentary trends. Just to give one number, it takes over 10 years to build a nuclear power plant. About the same time as it takes to start production of an oil or gas field from its discovery. We also must take into account the “size” of the problem. Today the energy budget of human activities on the planet is in the order of 17 TW, which is about 2.5 kW/person. It is as if each of the 7 billion inhabitants of the Earth had a toaster or a small appliance constantly turned on, all day, all year. By comparison, our energy requirement is less than 100W. So human activity needs about 25 times the basic energy (the powering) for our sustenance.

Do you think there could be greater openness among public decision makers towards the scientific community so that they can be supported in strategic energy decisions?

This would be like reinventing the wheel. The debate about a national energy plan, which does not exist – I think that the last serious attempt was at the time of Minister Donat Cattin – is all based on emotional contingencies. So-called “opinion leaders” talk on TV but they are anything but technical experts. Even among experts there are conflicting opinions. But by looking at actual numbers your strategic choices are more limited. You have to remember that energy is a commodity and so it has to be produced at the lowest possible cost. As I said before, in addition to production costs you have distribution costs (and therefore the cost of the networks) and externalities, leading to considerable uncertainties in calculations. In a modern consideration, we have to add in factors of ease of access. Our society is increasingly linked to concepts of mobility/freedom and rigidities are barely tolerated. I think the concept of freedom of access will be the core concept that will affect the future evolution in the use of energy sources in this century. And I also believe that we will not consume less energy, even though the increase in energy demand will be driven by the needs of emerging countries, as is clearly visible from IEA data.

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Do you think that your students’ education is adequate to ensure awareness about energy issues and the proper consideration of externalities? Could a greater emphasis on the impact that different energy technologies have on the “Earth system” be useful in raising awareness in energy companies of the future and giving them a more objective approach to the topic?

I look at my university, the Milan Polytechnic. The “true costs” concepts are explicitly treated in undergraduate teaching. In addition, teaching is not focused on a single energy source but it examines a fairly complete energy mix, from nuclear to integrated gas cycles, from photovoltaic to wind power, from hydroelectric to geothermal. We can add to this a strong focus on distribution networks and the idea of “smart grids”, including problems of accumulation. I really believe that we are able to offer our students a complete view of the energy problem. On the other hand, we are increasingly moving towards producing engineers who, rather than “look” for work, “create” work; not in the sense that they are ready to become entrepreneurs but because they are able to create the innovative conditions that help companies prosper.

From a technological point of view, what do you think could be an optimal energy mix, taking into account economic aspects and externalities?

The technology mix is affected by the sources available in each country, by past infrastructure investments and those that will be made in the future. It is not wise economically to throw away investments that have already been made. In the computation of externalities we cannot give too much importance to healthcare costs in a country where life expectancy at birth is over 80 years. If we place ourselves on a timescale of 50 years or so, I still see in Europe, in the US and even in the BRICS hydrocarbons remaining dominant, in particular natural gas. This is a low-cost energy source, available in large quantities, that from an environmental point of view is more sustainable than the use of liquid hydrocarbons (H/C ratio = 4 rather than 2, which means it produces, for the same calorific power, almost half the CO2 emissions). This is a source that is reaching its maturity right at this time. I’d add another consideration resulting from the saying “don’t put all your eggs in one basket”. Having energy available at a competitive price is essential for the economic prosperity of a country. Well, I believe that we should not have an energy mix very different from that of our main competitors. Focusing only on one particular energy source, especially if it goes against the main trends, can prove a risky bet. Things can go well, but the most likely outcome is the opposite. It will have to be an energy mix that can support our manufacturing system, which is de facto the only one capable of supporting employment (a fact the European Union unfortunately realised late in the day). As for the entire European Union, energy demand, which reflects the demographic trend almost linearly, will remain substantially stable. In uncompensated terms, the penetration of renewables will rise, exceeding 20%. But with the increase in wind or solar farms, net production from hydroelectric systems will be reduced. It will increasingly move towards storage, given that pumping today represents the most efficient way of storing energy. Despite all the work on electrochemical systems, I see battery development more aimed at mobility solutions rather than stationary storage, mainly because of the huge size of the problem (17 TW today, over 25 TW in 2050).

Did you take Behind Energy’s Energy Test? What score did you get? What was the question that “surprised” you most?

Yes, I got 3 out of 6. I must say that I overestimated the conflicts at 60% vs 40%, as well as defence costs compared to Exxon profits, because I had in mind the report by the US National Defense Council Foundation, which estimates military spending in the Persian Gulf area at $137B/year. Another figure comes from the analysis by Diane Francis (Financial Post, 22 Nov. 2007) who calculated the military externalities for the oil imported into the US from the Persian Gulf in the order of $23/barrel. This variability in the literature only confirms the existing uncertainties in the calculation of externalities. I’d state this as a criticism of your test. The questions and answers are based on an analysis of a single source. Scientifically it would be right to show existing uncertainties. This is done also on the measurement of physical size. Each measurement is affected by error, let alone the estimate of macroeconomic data. It is one of the conclusions of the program ExternE of the European Union (The results are subject to uncertainty and have to be used with caution in cost-benefit analysis). I’d disagree with you on the medical data. It should be decoupled from the effects of the increase of the average age. You cannot consider as externalities all medical expenses related to lung disease, which follows a natural progression that is also linked to the age of the patient and which is also present in areas with high air quality. In my opinion, pointing the finger at all these costs is the real problem today in the calculation of externalities. In fact, it was shown that by applying the same accounting principle, the true cost of a pack of cigarettes would be about $200, if you include the costs associated with reduced life expectancy. Thus, there is a general lack of consensus, at a European level, in the use of these data.

What will be the main factors influencing the future penetration of renewable energy sources?

I do not believe the advocates of eco-catastrophe, who wrongly made forecasts linking the end of development to global warming. In this regard, I’d point to the latest findings that completely contradict the forecasts made about 10 years ago, as was well illustrated in a recent conference held at the Accademia dei Lincei. Linear extrapolations cannot be applied in complex systems. You need equations that can describe the physical phenomena that occur. Global warming models have always neglected the contribution of atmospheric aerosol, which has a cooling effect and thus compensates the effects of greenhouse gases. All this serves to make people understand how complex the problem is. I recognise the merit of the IPCC in giving attention on a possible problem, but, in hindsight, it was completely wrong in its forecasts. The net effect, however, has been that of bringing greater understanding, although not definitive, of the phenomena that regulate the planet’s climate.

I believe economists’ forecasts even less; they are systematically wrong in their projections on the future. Only a few months ago people were assuming a barrel of oil would cost close to $200, while today it is practically a quarter of that value. They base all their estimates on linear statistical models that do not take into consideration the effects of technological progress, or only with hindsight. Political and social effects are then overlaid on everything. Neither do I believe in the need for security of supply, safe from external blackmail. If I look at Europe, it is constantly being blackmailed over energy. However, whenever we need to buy energy, producer countries seem to have a desperate need to sell. The conclusion is that “it is difficult to make predictions, especially about the future”, to quote a classic aphorism of Yogi Berra, the “Trapattoni” of American baseball. The future is in our dreams. To get back to estimates on the energy mix and penetration of renewables, the situation will be completely different between the north and south of the world. The global energy balance will be surely influenced by the actions of emerging countries, where the greatest future investments will be made. Here the “freedom models” will be born. Why build distribution networks based on a 19th-century concept of concentrated energy production and its subsequent widespread distribution? Why not rely instead on a large amount of micro production, even at a family or tribal level, with use in situ of the energy produced? It is the same evolution that led to the success of the car, the first true instrument of freedom in personal mobility, and that, in more recent times, has led to the replacement of mainframes with personal computers and then tablets. And to the virtual disappearance of fixed telephony compared with mobile technology. To paraphrase Chatwin, “man is intelligent because he is mobile.” This transition moves us unequivocally towards the use of electricity, rendered transportable with batteries, and so to its generation from renewable sources. All this is also associated with a distribution pattern of the world population. Urban populations in large megalopolises will have to be served by more traditional sources, with concentrated generation, due also to the high energy intensity required. Those living in rural areas will be probably be powered by renewable sources, with local production. Think, for example, of the rural electrification in Africa or Central Asia. This allows me to conclude by underlining what, in my opinion, is the real driving force of the world: people’s expectations. Their desires dictate future development models.

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