Coyote Blog

The recent naming of GE's Jeffrey Immelt to head a presidential commission on, err, something or other seems to have been an occasion for bipartisan gnashing of teeth about what I call the growth of the American corporate state.  I was encouraged by the bipartisan negative reaction from the left, right, and of course the libertarians, the latter of whom have always understood the difference between being pro-capitalism and pro-business.

But all it takes is a nomenclature change of this corporate welfare to "green jobs" or "investment in the future" or "bridge to the future" or similar bullsh*t and suddenly many of the exact same people, at least on the left, are swooning again.  Why is it not obvious that, for example, green energy subsidies are just the same old corporate welfare?

Here is one aggravating example

Despite millions in government grants and subsidies, the Manitowoc company President Barack Obama called a glimpse of the future lost $4.2 million last year and cannot promise shareholders it will be profitable in the foreseeable future....

“We may continue to incur further net losses and there can be no assurance that we will be able to increase our revenue, expand our customer base or be profitable,” the report indicates.

Investors have responded to the company’s volatility, and Orion stock has plummeted in the past four years.  It closed 2007 at $18.82 a share.  By the end of 2010 it was $3.34.

Regardless, President Obama is putting his, and the U.S. taxpayers’, money on companies like Orion.

“It’s important to remember that this plant, this company has also been supported over the years not just by the Department of Agriculture and the Small Business Administration, but by tax credits and awards we created to give a leg up to renewable energy companies,” Obama said at the Orion plant on Wednesday.

The State of Wisconsin has also given its share trying to help Orion to succeed.  Since 2005, the state has given the company $350,000 in community development zone tax credits, $506,000 in economic development funds, and $420,000 from the Wisconsin Energy Independence Fund.  Plus the company got another $260,000 in stimulus funds for a State Energy project.

In addition to direct aid, public policy has also helped the struggling company.  Wisconsin law requires that 10 percent of all electricity sold in the state come from renewable sources by 2015.  Orion knows that without government intervention like that, there would be little prospect for the green economy.

“The reduction, elimination or expiration of government mandates and subsidies or economic or tax rebates, credits and/or incentives for alternative renewable energy systems would likely substantially reduce the demand for, and economic feasibility of, any solar photovoltaic and/or wind electricity generating products, applications or services and could materially reduce any prospects for our successfully introducing any new products, applications or services using such technologies,” the SEC report states.

By the way, in 2010, while the government was pouring taxpayer money into Orion, its founder and CEO was pulling his out, selling (by my count of SEC filings) 130,000 shares, despite equity prices that were at a five year low.    It is dangerous to draw conclusions form insider sales (we don't know what personal financial issues may be driving their actions) but it is interesting that the president and founder is taking the exact opposite point of view on the company's prospects than is President Obama.

The other day, environmental blog the Thin Green Line wrote:

At the American Geophysical Union meeting late last month, University of Miami geologist Shimon Wdowinski argued that the devastating earthquake a year ago may have been caused by a combination of deforestation and hurricanes (H/T Treehugger). Climate change is spurring more, stronger hurricanes, which are fueled by warm ocean waters....

The 2010 disaster stemmed from a vertical slippage, not the horizontal movements that most of the region's quakes entail, supporting the hypothesis that the movement was triggered by an imbalance created when eroded land mass was moved from the mountainous epicenter to the Leogane Delta.

I have heard this theory before, that landslides and other surface changes can trigger earthquakes.  Now, I am not expert on geology -- it is one of those subjects that always seems like it would be interesting to me but puts me in a coma as soon as I dive into it.   I almost failed a pass-fail geology course in college because in the mineral identification section, all I could think to say was "that's a rock."

However, I do know enough to say with some confidence that surface land changes may have triggered but did not cause the earthquake.  Earthquakes come from large releases of stored energy, often between plates and faults.  It's remotely possible land surface changes trigger some of these releases, but in general I would presume the releases would happen at some point anyway.  (Steven Goddard points out the quake was 13km below the surface, and says "It is amazing that anyone with a scientific background could attempt to blame it on surface conditions.")

The bit I wanted to tackle was the Thin Green Line's statement that "Climate change is spurring more, stronger hurricanes."   This is a fascinating statement I want to attack from several angles.

First, at one level it is a mere tautology.  If we are getting more hurricanes, then by definition the climate has changed.   This is exactly why "global warming" was rebranded into "climate change," because at some level, the climate is always changing.

Second, the statement is part of a fairly interesting debate on whether global warming in general will cause more hurricanes.  Certainly hurricanes get their power from warm water in the oceans, so it is not unreasonable to hypothesize that warmer water would lead to more, stronger hurricanes.  It turns out the question, as are most all questions in the complex climate, is more complicated than that.  It may be hurricanes are driven more by temperature gradients, rather than absolute temperatures, such that a general warming may or may not have an effect on their frequency.

Third, the statement in question, as worded, is demonstrably wrong.  If he had said "may someday spur more hurricanes," he might have been OK, but he said that climate change, and by that he means global warming, is spurring more hurricanes right now.

Here is what is actually happening (paragraph breaks added)

2010 is in the books: Global Tropical Cyclone Accumulated Cyclone Energy [ACE] remains lowest in at least three decades, and expected to decrease even further... For the calendar year 2010, a total of 46 tropical cyclones of tropical storm force developed in the Northern Hemisphere, the fewest since 1977. Of those 46, 26 attained hurricane strength (> 64 knots) and 13 became major hurricanes (> 96 knots).

Even with the expected active 2010 North Atlantic hurricane season, which accounts on average for about 1/5 of global annual hurricane output, the rest of the global tropics has been historically quiet. For the calendar-year 2010, there were 66-tropical cyclones globally, the fewest in the reliable record (since at least 1970) The Western North Pacific in 2010 had 8-Typhoons, the fewest in at least 65-years of records. Closer to the US mainland, the Eastern North Pacific off the coast of Mexico out to Hawaii uncorked a grand total of 8 tropical storms of which 3 became hurricanes, the fewest number of hurricanes since at least 1970.

Global, Northern Hemisphere, and Southern Hemisphere Tropical Cyclone Accumulated Energy (ACE) remain at decades-low levels.

The source link has more, and graphs of ACE over the last several decades (ACE is a sort of integral, combining the time-average-strength of all hurricanes during the year.  This is a better metric than mere counts and certainly better than landfall or property damage metrics).

So, normally I would argue with alarmists that correlation is not causation.   There is no point in arguing about causation, though, because the event he claims to have happened (more and stronger hurricanes) did not even happen.  The only way he could possibly argue it (though I am pretty sure he has never actually looked at the hurricane data and simply works from conventional wisdom in the global warming echo chamber) is to say that yes, 2010 was 40-year low in hurricanes, but it would have been even lower had it not been for global warming.  This is the Obama stimulus logic, and is just as unsupportable here as it was in that context.

Postscript: By the way, 2010 was probably the second warmest year in the last 30-40 years and likely one of the 5-10 warmest in the last century, so if warming was going to be a direct cause of hurricanes, it would have been in 2010.    And yes, El Ninos and La Ninas and such make it all more complicated.  Exactly.  See this post.

The Anti-Planner argues that mass transit will never be energy efficient, mainly because it is virtually impossible to improve occupancy.  The arguments for transit saving money all tend to include the line "will be efficient when occupancies increase" but he shows pretty clearly why that is probably not going to happen.

Also note pages 2-15 and 2-16 of this report.  Compare the trends of auto and airline energy intensity with rail and bus.  While cars and planes have decreased their energy use per passenger mile by quite a bit, rail has been flat and buses have been getting worse.  In fact, auto transit became more energy efficient than buses twenty years ago and continues to get better.   Airline travel has become nearly as energy efficient as Amtrak.

Bruce McQuain has this take from Obama's oil spill speech last night:

The rest of the speech was an exercise in what Obama does best "“ selling smoke. He begins it with a false premise:

But a larger lesson is that no matter how much we improve our regulation of the industry, drilling for oil these days entails greater risk. After all, oil is a finite resource. We consume more than 20% of the world's oil, but have less than 2% of the world's oil reserves. And that's part of the reason oil companies are drilling a mile beneath the surface of the ocean "“ because we're running out of places to drill on land and in shallow water.

Of course his claim about drilling in deeper water because we're running out of places to drill in shallow water is false. 97% of the shallow water on the Outer Continental Shelf -97%- has been placed off limits by government. The oil companies are forced into deeper water not by the lack of oil, but by government refusing to allow them to drill there.

As an aside, Daniel Foster makes a great point:

There's an added layer of irony here as well. As Planet Gore contributor Chris Horner rehearses at length in his book Power Grab, the prime architect of the cap-and-trade idea was "” you guessed it "” former BP CEO Lord John Browne. So there is a special kind of cognitive dissonance going on in the juxtaposition of BP bullying and carbon tax cheerleading.

Update, via Planet Gore:

So you have a Nobel winner who knows nothing about oil running the Energy Department and you have an environmental lawyer who knows nothing about drilling as the head of MMS, the oil-drilling regulatory body.

So, choosing key people in the Energy department and MMS based on their knowledge of about 2% of the energy world (wind and solar) is a problem?

Of course this was going to happen.

An audit of solar-power generation from November 2009 to January 2010 found that some panel operators were paid for doing the "impossible" -- producing electricity from sunlight during the night, El Mundo reported today, citing a letter from Secretary of State for Energy Pedro Marin....

Preliminary evidence shows some solar stations may have run diesel-burning generators and sold the output as solar power, which earns several times more than electricity from fossil fuels, El Mundo said, citing unidentified people from the energy industry. The power grid received 4,500 megawatt-hours of power from midnight to 7 a.m. in the months audited, El Mundo said.

Electric current is electric current.  However, in a country like Germany, the price that utilities are required to pay for electric current varies based on its source.  While electricity from, say, a diesel generator gets 4-5 Euro cents per KwH, ground-based solar gets about 48 Euro cents per KwH.  This is a 10x greater price paid solely for absolutely identical power manufactured in a different way.  So of course there is going to be fraud as to the current's source.

Every study I have ever seen has said that corn ethanol is only marginally energy-positive when its growing and production costs are considered and barely breakeven on CO2.  In other words, it costs a lot and does nothing, even before one considers negative effects to food prices and land use.

So of course, the Obama administration may soon demand that we subsidize more of it

Burdened by falling gasoline consumption and excess production capacity, ethanol producers appealed to the government on Friday to raise the 10 percent limit on ethanol in most gasoline blends to as high as 15 percent.

Ethanol plants are closing across the country and some ethanol producers are declaring bankruptcy. The appeal will require the Obama administration to decide whether to increase federal support for the industry, which has already benefited from an array of subsidies, tax credits and Congressional production mandates.

"Approving the use of ethanol blends up to 15 percent is a necessary and positive step," said Bob Dinneen, president of the Renewable Fuels Association, an industry lobbying group, "to ensure the full potential of a robust domestic ethanol industry."

The Environmental Protection Agency and the Energy Department have been testing higher ethanol blends. The E.P.A. has nine months to review the request, but it could decide before that to increase the blend cap slightly, to 12 or 13 percent.

Energy Secretary Steven Chu has indicated that he would favor at least a small increase in ethanol levels unless auto companies said there was a risk the change would damage their products.

At least the article is marginally honest - its starts with the true reason for the mandate - improving the bottom line of favored businesses, not energy or environmental policy.  Chu seems to be joining Krugman as another Nobel prize winner turned political hack.  In the past I have had Chu's supposed gravitas thrown at me in climate debates -- I think this should settle just how Chu makes choices between what science tells him vs. what politcal pressures are demanding.

Government bureaucracies do not exercise power by allowing activities to occur - they only have power, and thus have reason to justify their continued funding and jobs, when they say no.   Every incentive that they have is to say no.  When a government agency allows progress to proceed smoothly, it is doing so because some person or small group is fighting against the very nature of the organization.  Anyone who believes otherwise about government agencies is challenged to go build and open a new restaurant in Ventura County, California.  Here is the latest example:

The [weatherizing] program was a hallmark of the American Recovery and Reinvestment Act, a way to shore up the economy while encouraging people to conserve energy at home. But government rules about how to run what was deemed to be a ''shovel-ready'' project, including how much to pay contractors and how to protect historic homes during renovations, have thwarted chances at early success, according to an Associated Press review of the program.

''It seems like every day there is a new wrench in the works that keeps us from moving ahead,'' said program manager Joanne Chappell-Theunissen. She has spent the past several months mailing in photographs of old houses in rural Michigan to meet federal historic preservation rules. ''We keep playing catch-up.''

And of course, even in a skeptical article about a "stimulus" project, no one ever mentioned what productive activities the $5 billion was being used for by private individuals before the government yanked it away for this little catastrophe.

By the way, the overblown rhetoric award has to go to this:

''This is the beginning of the next industrial revolution with the explosion of clean energy investments,'' said assistant U.S. Energy Secretary Cathy Zoi. ''These are good jobs that are here to stay.''

Given that the first one was about steel mills and railroads and oil and electricity, if this new industrial revolution is all about caulking, I think I am getting nostalgic for the first one.

Next week I am on a panel talking about alternative energy.  These guys have already told me they don't want to re-fight the global warming science battle at this venue, and my guess is that there will be a lot of pragmatist corporate types who won't really care about individual liberty or role-of-government issues  -- they will only care if there is money to be made, even if it is by rent-seeking.  My best bet, I think, will be to discuss why alternative energy is a bad investment.  My sense is that it is a bubble investment, like goofy Internet stocks in the 1990's or housing in the 2000's.  Already, I think we see the crash in the corn ethanol business.

My two assumptions are

• I can't think of any industries that were initially heavily subsidized that eventually found their way to competing successfully and growing without subsidies.
• With the exception of agriculture, the public's tolerance for growing subsidies to a single industry eventually wanes.

I would love for commenters or emailers to send me contra-examples if they have them to either of these assumptions.  In particular, can you think of an industry that could not have grown initially without subsidies eventually prospering without subsidies.

To the second point, I looked at the numbers two ways.

1. In Germany, which is often held up as the model, feed-in tariff subsidies are between $0.06 (wind) and $0.50 (solar) a Kwh.  If the US reached a goal of 20% of its production in wind and solar (total production today is about 4000 billion KWh) then the subsidy would be between $50 billion and $400 billion a year.  It is hard to imagine these remaining popular for any period of time.  (lots of German numbers here and in the linked PDF)
2. Venture capitalists and investors are expecting the growth stocks they invest in to grow at, say, 30% a year.   Let's assume alternative energy companies grow at 30% a year and the number of companies, attracted to the growth and subsidies, doubles every two years.  In this scenario, assuming unrealistically that the supply curve for alternative energy is flat rather than upward sloping, the amount of subsidies to support this growth would have to nearly double every year.  They would increase 21-fold in five years and 440-fold in 10 years.   In fact, given the shape of real supply curves, new more expensive capacity at the margin is replacing cheaper and cheaper alternatives, resulting in the need to grow subsidies even faster to keep up.   Never has happened, never will.  Once the industry outgrows the government's willingness to grow subsidies, the whole thing crashes.

(PS - the subsidy could also be in the form of taxes that increase the cost of alternatives, or production and/or import restrictions on the alternatives).

Any help along these lines in the comments is appreciated.

Update: This seems relevant:

First Solar shares skidded 8% Friday to close at $116 after the company issued a murky business outlook beyond June. Until then, however, "orders look very strong," First Solar CEO Robert Gillette said in a post-earnings conference call.

This commentary, along with price pressure and expected subsidy cuts solar panel makers get from the German government is making investors a bit more wary of First Solar, whose shares have been on a bumpy ride the past 18 months....

First Solar, helped by government tax credits extended to businesses for using solar power, has rewarded its investors since going public in November 2006 at $20 a share. The stock peaked at $317 in May 2008. But the shares have been skittish ever since.

Germany, the world's biggest solar market, is weighing a 15% cut on so-called solar feed-in-tariffs. This could make solar installations less attractive.

First Solar projects 60% of its 2010 sales from German-related contracts, according to Wedbush Securities analyst Christine Hersey.

Remember from above, the German feed-in tariff for solar is around $0.58 per KwH, or fully $0.50 above the price paid for the fossil fuel base load.  At this subsidy level, the US would be paying $400 billion a year in subsidies and/or higher prices.

First Solar has grown at over 150% per year for the last 3 years so the 30% assumption above is conservative, as is the assumption about the number of competitors doubling every two years.

Another interesting note - First Solar makes a pre-tax margin around 33% of sales, which is over 6x larger than health insurance companies make (and are excoriated for).  Is it any wonder Germany no longer wants to keep subsidizing First Solar's bottom line to levels far above most equipment manufacturing companies.

Bloom Energy is introducing what looks like a 200kW fuel cell that runs on natural gas for about $700,000.  That compares pretty favorably with the current cost of at least $2,000 per KW to build a coal plant, especially when one factors in reduced distribution and pollution costs.  We have gobs of natural gas and are finding more all the time, and (unlike something like hydrogen) the distribution and storage infrastructure is already in place.  Hope it works.

I often critique new energy technologies here, and that critique is often confused with a hostility to new technologies.  This is far from the case.  Living here in Phoenix, I would love to have cheap solar cells to spread over my roof like carpet.  What I am opposed to is government subsidies for technologies that are not even close to economic compared to current alternatives.   I don't know the Bloom business model  (I am suspicious they have a large rent-seeking component if KP is funding them) but if they can make these work subsidy free, that's great.

Via Mises Blog:

The hidden hand behind this unsanitary calamity is the US government. The true origin of the mess was not in the hour before I arrived but back in 1994, when Congress passed the Energy Policy and Conservation Act.This act, passed during an environmentalist hysteria, mandated that all toilets sold in the United States use no more than 1.6 gallons of water per flush. This was a devastating setback in the progress of civilization. The conventional toilet in the US ranges from 3.5 gallons to 5 gallons. The new law was enforced with fines and imprisonment.

For years, there was a vibrant black market for Canadian toilet tanks and a profitable smuggling operation in effect. This seems either to have subsided or to have gone so far underground that it doesn't make the news. I've searched the web in vain for evidence of any 3.5 or 5.0 gallon toilet tanks for sale through normal channels. I wonder what one of these fetches in the black market. This possible source has no prices and an uncertain locale.

The toilet manufacturers, meanwhile, are all touting their latest patented innovations as a reason for the reduced hysteria surrounding the toilet disaster. I suspect something different. We have all gotten used to a reduced standard of living "” just as the people living in the Soviet Union became accustomed to cold apartments, long bread lines, and poor dental care. There is nothing about our standard of living that is intrinsic to our sense of how things ought to be. Let enough time pass and people forget things. So let us remember way back when:

• Toilets did not need plungers next to them, and thank goodness. Used plungers are nasty, disease carrying, and filthy. It doesn't matter how cute the manufacturer tries to make them or in how many colors you can buy them. In the old days, you would never have one exposed for guests. It was kept out in the garage for the rare occasion when someone threw a ham or something stranger down the toilet.
• Toilet paper was super thick and getting thicker. None of this one-ply nonsense.
• You never had any doubt about the capacity of the toilet to flush completely, with only one pull of the handle. The toilet stayed clean thanks to five gallons of rushing water pouring through it after each flush.

It concludes:

"Capitalism achieved something spectacular in waste disposal. Government came along and took it away from us."

Via Anthony Watt, from the Oregonian

State officials deliberately underestimated the cost of Gov. Ted Kulongoski's plan to lure green energy companies to Oregon with big taxpayer subsidies, resulting in a program that cost 40 times more than unsuspecting lawmakers were told, an investigation by The Oregonian shows.

Records also show that the program, a favorite of Kulongoski's known as the Business Energy Tax Credit, has given millions of dollars to failed companies while voters are being asked to raise income taxes because the state budget doesn't have enough to pay for schools and other programs....

According to documents obtained under Oregon's public records law, agency officials estimated in a Nov. 16, 2006, spreadsheet that expanding the tax credits would cost taxpayers an additional $13 million in 2007-09. But after a series of scratch-outs and scribbled notes, a new spreadsheet pared the cost to $1.8 million. And when energy officials handed their final estimate to the Legislature in February 2007, they pegged the added cost at just $1.2 million for the first two years and $4.1 million for 2009-11.

The higher estimates were never shown to lawmakers. Current and former energy staffers acknowledged a clear attempt to minimize the cost of the subsidies.

"I remember that discussion. Everyone was saying, yes, this is going to be a huge (budget) hit," recalled Charles Stephens, a former analyst for the Energy Department who left in 2006. "The governor's office was saying, 'No, we need a smaller number.'"

Hmm, sounds eerily like what is going on with the health care bill in Congress.

Update: It turns out that all of the "green" companies so far have sold their tax credits for cash to companies like Wal-Mart and US Bank.  This is no enormous problem (though the optics are terrible for the state) but it is yet another reason why the Oregon budget gets busted by this program -- a startup solar company won't use tax credits for years as it will take some time to be profitable (if they ever are) but Wal-Mart can use them right now.

Having read this:

In his proposed budget for 2010, Chu wanted $480 million to start eight Energy Innovation Hubs, or "Bell Lablets," as he called them, to stimulate research in areas ranging from solar energy to new materials for the electric grid. Each would receive $35 million to get started, and $25 million more in each of the following 4 years.

Last week Congress poured semi-cold water on the idea....Its skepticism was no surprise, having been included this summer in reports accompanying the spending bills in the House of Representatives and Senate (House, Senate versions). In August, Science reporter Jeffrey Mervis described how Chu admitted to a mediocre job of selling the idea and overcoming congressional concerns that the concept was poorly thought out and not well-coordinated with other energy research at the Department of Energy. House appropriators were particularly unkind to the idea, noting:

A new set of centers with overlapping research goals risks adding confusion and redundancy to the existing fleet of research and development initiatives

So since everyone agreed it was a bad idea, they killed it right? Ha ha, cute idea, actually voting and spending money based on efficacy. In fact, they gave Chu quite a bit

Conferees to the Energy and Water spending bill approved funding for three of the centers, two in energy efficiency and renewable energy and one in nuclear energy.

If they really make no sense, how about "zero"

We Phoenicians, who live in one of the best solar sites in the world, have been anxiously awaiting a solar electric technology that makes economic sense.    I have a couple thousand square feet of nice, flat room that is just begging to get be off the grid.  Already, solar is economic for individuals in Phoenix, but only if you are willing to soak American taxpayers and your neighbors for 85% of the costs.  It would be nice if it were, you know, actually economic and not just subsidy bait for tens of thousands of dollars.  I have dug into many analyses that claim that solar has a 5-7 year payback, but never seen one that achieved these returns without substantial subsidies and rebates (beware the term "energy payback" which is not the same thing as investment payback (pdf))

For a while I have said that I thought traditional silicon/germanium IC-like wafer processes for making solar cells was just never going to get there, and that some other technology was necessary.   This might be one such example:

JA Solar, one of the big players in the solar industry, is working with Innovalight to commercialize the latter's method for making silicon-ink-based, high-efficiency solar cells, the companies said this week.

... The solar cells are created by pouring an ink solution incorporated with silicon nanoparticles and then decanting the excess liquid to leave behind a crystalline silicon structure.

At the time of the 2007 announcement, Sunnyvale, Calif.-based Innovalight claimed its method not only resulted in solar cells that were cheaper to produce by as much as half, but that the crystalline structure resulting from the process made its cells more efficient at converting electricity.

Those claims now appear to be validated.

On Tuesday, Innovalight announced that an independent study of its method by the U.S. Department of Energy's National Renewable Energy Laboratory and the Fraunhofer Institute for Solar Energy Systems in Germany confirmed that its silicon ink-based cells "demonstrated a record 18 percent conversion of efficiency."

The 18% conversion efficiency is close to a record for thin films, but must be the "record" for production models, since higher conversions have been achieved in the lab.  18% is very good for a production device, particularly if it is cheaper to manufacture than current cells.

I probably have posted on the electricity generating speed bump more times than it deserves, but Glen Reynolds linked this story and I am seeing it linked uncritically all over.  Here was the email I dashed off to Instapundit:

The speed bump / power device at the Burger King in New Jersey is the silliest technology I have ever seen and I am amazed that so many people praise it or write uncritically that it provides free power.  Energy is never free, it comes from somewhere.  In this case, the energy is actually stolen from the car.  The electricity power produced is equal to or less than the extra power the car has to expend going over the bump.

This electricity might be "free" if it is used where cars are braking anyway, say on a long down ramp in a parking garage, or on a suburban street or school zone where speed bumps already exist.  But the Burger King example, and in fact most of the examples I have seen of this installation, are just vampiric theft, very similar to what the US Government does in many of its programs, creating a large benefit for a single user and hoping that distributing the costs in small chunks across a wide number of people makes these costs invisible.

I wrote more about the technology here.

Climate activist Adam Sacks at Grist:

We must leave behind 10,000 years of civilization; this may be the hardest collective task we've ever faced.  It has given us the intoxicating power to create planetary changes in 200 years that under natural cycles require hundreds of thousands or millions of years"”but none of the wisdom necessary to keep this Pandora's Box tightly shut.  We have to discover and re-discover other ways of living on earth.

We love our cars, our electricity, our iPods, our theme parks, our bananas, our Nikes, and our nukes, but we behave as if we understand nothing of the land and water and air that gives us life.  It is past time to think and act differently.

If we live at all, we will have to figure out how to live locally and sustainably.  Living locally means we are able get everything we need within walking (or animal riding) distance. We may eventually figure out sustainable ways of moving beyond those small circles to bring things home, but our track record isn't good and we'd better think it through very carefully.

Likewise, any technology has to be locally based, using local resources and accessible tools, renewable and non-toxic.  We have much re-thinking to do, and re-learning from our hunter-gatherer forebears who managed to survive for a couple of hundred thousand years in ways that we with our civilized blinders we can barely imagine or understand.

Yep, let's all return to that sustainable world of 8000BC, scrap the worldwide division of labor and all our technology, and go back to subsistance farming and travelling by horse.  Gee, what a happy time that was...

Interestingly, this guy is making an incredibly common failure among physical scientists -- the attempt to apply conservation of mass/energy physical models or bacteriological growth models to economic growth:

Endless growth is an impossibility in the physical world, always"”but always"”ending in overshot and collapse.  Collapse: with a bang or a whimper, most likely both.  We are already witnessing it, whether we choose to acknowledge it or not.Because of this civilization's obsession with growth, its demise is 100 percent predictable.  We simply cannot go on living this way. Our version of life on earth has come to an end.

Here is what I wrote, in a post titled "Physics, Wealth Creation, and Zero Sum Economics"

My guess is that this zero-sum thinking comes from our training and intuition about the physical world.  As we all learned back in high school, nature generally works in zero sums.  For example, in any bounded environment, no matter what goes on inside (short of nuclear fission) mass and energy are both conserved, as outlined by the first law of thermodynamics.  Energy may change form, like the potential energy from chemical bonds in gasoline being converted to heat and work via combustion, but its all still there somewhere.

In fact, given the second law of thermodynamics, the only change that will occur is that elements will end in a more disorganized, less useful form than when they started.  This notion of entropic decay also has a strong effect on economic thinking, as you will hear many of the same zero sum economics folks using the language of decay on human society.  Take folks like Paul Ehrlich (please).  All of there work is about decay:  Pollution getting worse, raw materials getting scarce, prices going up, economies crashing.  They see human society driven by entropic decline....

[But] the world, as a whole and in most of its individual parts, is wealthier than in was in 1900.  Vastly more wealthy.  Which I recognize can be disturbing to our intuition honed on the physical world.  I mean, where did the wealth come from?  Out of thin air?  How can that be?

Interestingly, in the 19th century, scientists faced a similar problem in the physical world in dating the age of the Earth.  There was evidence all around them (from fossils, rocks, etc) that the earth had to be hundreds of millions, perhaps billions of years old.  The processes of evolution Darwin described had to occur over untold millions of years.  Yet no one could accept an age over a few million for the solar system, because they couldn't figure out what could fuel the Sun for longer than that.  Every calculation they made showed that by any form of combustion they understood, the sun would burn out in, at most, a few tens of millions of years.  If the sun and earth was so old, where was all that energy coming from?  Out of thin air?

It was Einstein that solved the problem.  E=mc2 meant that there were new processes (e.g. fusion) where very tiny amounts of mass were converted to unreasonably large amounts of energy.  Amounts of energy so large that it tends to defy human intuition.  Here was an enormous, really huge source of potential energy that no one before even suspected.

Which gets me back to wealth.  To balance the wealth equation, there must be a huge reservoir out there of potential energy, or I guess you would call it potential wealth.  This source is the human mind.  All wealth flows from the human mind, and that source of energy is also unreasonably large, much larger than most people imagine.

One of the justifications for diverting highway money to ridiculously expensive light rail systems is that light rail supposedly reduces energy consumption.  Really?  This is via the most recent report from the DOE's Transportation Energy Book, as highlighted by the Anti-Planner (click to enlarge):

The figures for cars are from tables 2.12 and 2.13 of the same report.  Even the best light rail systems are not substantially more efficient than cars, and this gap will likely continue to close, as it has for years, as cars get more efficient.

A Note on Freight: By the way, passenger rail promoters in the US always point to the Europeans as having a better rail system.  But while the Europeans put more of their passengers on rail than does the US, they put less of their freight there.  I would argue that the US system is much more "green", as the differences in energy use between a ton mile of freight on road vs. rail is much larger than the difference in energy use of a passenger mile on road vs. rail.  And besides, from a lifestyle standpoint, would you really want more freight on the roads?  (This is a real tradeoff -- unless one spends the absurd amount of money to build two separate systems, a rail network can be optimized for freight or passengers -- the two do not coexist very well on the same tracks).

Postscript: Just to head off the obvious rhetorical battles -- the incremental energy efficiency of moving one driver to a light rail rider of an existing system is very high.  The car consumption goes away and the train does not incrementally increase its energy use much with one more passenger.  So at the margin, it is correct when someone tells you that it saves energy to shift your commuting to an existing light rail line.  However, it does not make sense, from an energy perspective, to build a light rail line in the first place.  The investment is too high, the energy savings are negligible or non-existent, and the operating cost are so high that light rail tends to crowd out bus operations that help the poor.  As I have written before, for every light rail system I have checked, the cost to build the system is enough to buy every daily rider a Prius and the operating deficit enough to keep every one of these Prius's filled with gas.

Update:  I further understand that cars in the city likely have lower gas mileages than these averages, particularly for commutes that might be substituted by light rail.  But light rail is sold as if it is substantially more energy efficient, and it really would have to be orders of magnitude more efficient to justify the capital costs that are so much higher than for an equivalent capacity of roadway.  The efficiency is just not there.

Why?  Because we don't have daylight savings time.  I have argued for years that DST may have made sense when electricity demand was driven by lighting, but air conditioning actually reverses the equation, putting people at home during more of the cooling hours.   The Liberty Papers links to a study with similar results:

Our main finding is that"”contrary to the policy's intent"”DST increases residential electricity demand. Estimates of the overall increase are approximately 1 percent, but we find that the effect is not constant throughout the DST period. DST causes the greatest increase in electricity consumption in the fall, when estimates range between 2 and 4 percent. These findings are consistent with simulation results that point to a tradeoff between reducing demand for lighting and increasing demand for heating and cooling. We estimate a cost of increased electricity bills to Indiana households of $9 million per year. We also estimate social costs of increased pollution emissions that range from $1.7 to $5.5 million per year. Finally, we argue that the effect is likely to be even stronger in other regions of the United States.

How can you get free power?  Well, one way is to steal it from other people.  And if you steal it in small enough bites from a lot of people, they may never notice.

This seems to be the basic idea in this article in the Guardian, whose author clearly attended lots of journalism classes while studiously avoiding any class that might have made mention of the first law of thermodynamics.

"Green" speed bumps that will generate electricity as cars drive over them are to be introduced on Britain's roads. The hi-tech "sleeping policemen" will power street lights, traffic lights and road signs in a pilot scheme in London that could be rolled out nationwide.

Speed bumps have long been the bane of motorists' lives, but these will capture the kinetic energy of vehicles.

Peter Hughes, the designer behind the idea, said: "They are speed bumps, but they are not like conventional speed bumps. They don't damage your car or waste petrol when you drive over them - and they have the added advantage that they produce energy free of charge." An engineer who formerly advised the United Nations on renewable energy sources, Hughes added: "If it [the energy] wasn't harnessed by the speed bumps, it would go to waste."

The ramps - which cost between £20,000 and £55,000, depending on size - consist of a series of panels set in a pad virtually flush to the road. As the traffic passes over it, the panels go up and down, setting a cog in motion under the road. This then turns a motor, which produces mechanical energy. A steady stream of traffic passing over the bump can generate 10-36kW of power.

OK, I am willing to believe that you might be able to recover some net energy from a system with this kind of dynamic speed bump replacing an existing static bump  (but I am skeptical, and would want to see the math).  Of course, if you really have a road with a speed bump and so much traffic that it will generate this much power and repay a large investment, then you probably have a road/traffic design issue.

But the article seems to be positing that towns could install these as flat devices --"virtually flush to the road" --  that drivers would hardly notice.  Power from these devices would help the town power its lights and other devices.  But unless these guys have invented the perpetual motion machine, there is no free energy to be had here.  In fact, due to that nasty old spoil-sport, the second law of thermodynamics, there has to be a total system loss.  The device might only steal the equivalent energy of a thousandth of a gallon of gas from each driver, so the driver of each car won't really notice, but the total system expenditure of the thousands of drivers who power the device will still be there, just hidden.  This is a new stealth tax on drivers, dressed up in green clothing.

Next up:  Britain proposes to put windmills on the roofs of electric cars as a power source.  After all, when you are driving at 60 miles per hour, all that wind energy coming past your car is just lost, right?  Once you got the car up to speed, it would just generate its own electricity.  LOL.  I shouldn't laugh, there is probably a billion or so for this in Obama's stimulus bill.

via Tom Nelson.

A while back, I criticized a story in the NY Times, as quoted by Kevin Drum, that said that California had among the lowest per capita electricity usage of any state (true) and that this was because of the intelligent regulation regime in the state (yes, but not the way they meant).  The implication of Drum's argument was that there was some sort of efficiency ideal that a smart group of technocrats could reach at limited cost to the state (false). Specifically, Drum argued:

Anyway, it's a good article, and goes to show the kinds of things we
could be doing nationwide if conservative politicians could put their
Chicken Little campaign contributors on hold for a few minutes and take
a look at how it's possible to cut energy use dramatically "” and reduce
our dependence on foreign suppliers "” without ruining the economy. The
energy industry might not like the idea, but the rest of us would.

My response, in part, was this:

Well, here are the eight states in the data set above that the
California CEC shows as having the lowest per capita electricity use:
CA, RI, NY, HI, NH, AK, VT, MA.  All right, now here are the eight
states from the same data set that have the highest electricity prices:  CA, RI, NY, HI, NH, AK, VT, MA.  Woah!  It's the exact same eight states!  The 8 states with the highest prices are the eight states with the lowest per capita consumption.
Unbelievable.  No way that could have an effect, huh?  It must be all
those green building codes in CA.  I suspect Drum is sort of right,
just not in the way he means.  Stupid regulation in each state drives
up prices, which in turn provides incentives for lower demand.  It
achieves the goal, I guess, but very inefficiently.  A straight tax
would be much more efficient.

As part of a presentation I am working on about global warming and proposed California CO2 abatement bill AB52, I had the occasion to do a bit more research.  All of my data is from the Energy Information Administration, whose page URLs keep changing and thus breaking my links but this index page to data seems to stay the same.

I found three factors that seem to be the main drivers of state electricity demand (which is measured in all of the charts below in thousands of kw-h per capita).  The first factor is climate, and certainly California has one of the milder climates.  The chart below looks at residential electricity demand vs. cooling degree days (weighted for population location).  Each data point is a state, with California is shown as the red data point:

We get something similar for heating degree days, with electrical use going down as the climate gets milder, though not as good of a fit, which is not surprising since electricity is less important to heating than cooling.  Since California is well below the line, mild climate can be said to explain some of its lead on other states, but not all.

So I looked next at the percentage of electricity demand that goes to industry.  More heavily industrialized states will have a higher total per capita demand, because heavy industry chews up electricity that other types of businesses do not.  It turns out that California has a relatively low industrial use, which is not surprising given the regulatory environment there and the degree to which industry has been chased out of the state (one would have to be a madman to, all things considered, set up a new factory in California).  So here is the same type of chart of total electrical per capita use by state vs. the % industrial demand, again with each data point a state and California in red:

Again there is a pretty strong relationship, and again we see some but not all of California's low per capita consumption explained.  In effect, states on the left have exported their high-electricity-use industries to the states on the right (or to other countries).

I have saved the most obvious relationship for last:  price.  It turns out unsurprisingly that the states with the highest electricity prices have the lowest per capital consumption:

Rolling climate, industrial intensity, and price together, these factors seem to explain at least 80% of California's efficiency lead over other states.  California government regulatory policy does indeed drive lower electrical consumption, just not exactly the way they would like you to think.  By chasing industries out of the state and raising electricity costs above those of almost every other state, California has reached a lower per capita consumption level.

I have not been able to figure out how Obama gets to a 5 million job creation number from his alternative energy plans.  As I pointed out,

OK, so the total employment of all these industries that might be
related to an alternate energy effort is about 2.28 million.  So, to
add 5 million incremental jobs would require tripling the size of the
utility industry, tripling the size of the utility construction and
equipment industry, tripling the size of the auto industry, tripling
the size of the aircraft industry, and tripling the size of the
shipbuilding industry.  And even then we would be a bit short of
Obama's number.

But now I think I am starting to understand.  Tom Nelson gave me the clue with this article from the town of Frankfort, Kentucky:

Commissioners again discussed the possible creation of a sustainability coordinator position for the city.

Andy MacDonald, of the Mayor's Task Force on Energy Efficiency and
Climate Change, told commissioners that the creation of the position is
"the next critical step" to reduce the city's environmental footprint.

Commissioner Doug Howard brought up the possibility of asking the
city's recycling coordinator to fulfill part of the proposed position's
duties until money is available.

OK, so we need both a recycling coordinator and a sustainability coordinator for a town of 27,741 people (2000 census).  At this rate, that would imply nearly 22,000 government jobs across the country just in the government recylcing and sustainablity coordination field.  Now I am starting to understand.  Obama means five million new government jobs.

I generally have a bet I make for new light (and heavy) commuter rail systems.  I bet that for the amount the system cost to build, every single daily rider could have instead been given a Prius to drive for the same money; and, with the operating losses and/or subsidy the system requires each year, every one of those Prius drivers could be given enough gas to make their daily commute.  And still have money left over.  I have tested this bet for the systems in Los Angeles and Albuquerque.

Well, it turns out I left something out.  Many people are interested in commuter rail because it is perceived to be greener, which nowadays generally means narrowly that it uses less energy and thus produces less CO2.  But in fact, it may not.  Blogger John Moore sent me a link to this article by Brad Templeton analyzing energy usage in various transportation modes.  While a full train can be fairly efficient (just as a full SUV could be if 7 passengers were in it), cars and trains and busses are seldom full.  When you look at their average load factors, trains are seldom better than cars:

In fact, a car at its average load factor (1.57 pax) has about the same energy use as busses or light rail per passenger mile.  The analysis is difficult to do well, but even with errors, its clear that rail projects do not dominate over car travel in terms of energy use  (One must be careful to differentiate rail project construction decisions from individual choice of mode decisions -- an individual at the margin shifting from car to train saves a lot of energy;  a city choosing to invest in a large new rail system to entice drivers off the road does not).

In fact, relevent to my bet, Mr. Templeton says this:

My first conclusion is that we would get more efficient by pushing
small, fuel efficient vehicles instead of pushing transit, and at
a lower cost.

He explains his results, which are counter-intuitive to many

A full bus or trainload of people is more efficient than private cars,
sometimes quite a bit more so.   But transit systems never consist
of nothing but full vehicles.   They run most of their day with light
loads.  The above calculations came from figures citing the
average city bus holding 9 passengers, and the average train (light
or heavy) holds 22.   If that seems low, remember that every packed
train at rush hour tends to mean a near empty train returning down
the track.

Transit vehicles also tend to stop and start a lot, which eats
a lot of energy, even with regenerative braking.   And most
transit vehicles are just plain heavy, and not very aerodynamic.
Indeed, you'll see tables in the DoE reports that show that over the past 30 years,
private cars have gotten 30% more efficient, while buses have
gotten 60% less efficient and trains about 25% worse.   The
market and government regulations have driven efforts to make cars
more efficient, while transit vehicles have actually worsened.

In order to get people to ride transit, you must offer frequent
service, all day long.  They want to know they have the freedom to leave at
different times.  But that means emptier vehicles outside of
rush hour.   You've all seen those huge empty vehicles go by, you just
haven't thought of how anti-green they were.    It would be better
if off-hours transit was done by much smaller vehicles, but that
implies too much capital cost -- no transit agency will buy enough
equipment for peak times and then buy a second set of equipment for
light demand periods.

A lot of his data can be checked at the US Department of Energy data book here.  In particular, you can see the key numbers in table 2.12.  After perusing this data for a bit, I had a few other reactions:

• Commercial air travel gets a bad rap.  On a passenger mile basis, it is really not worse than driving and only about 20% worse than Amtrack  (and probably the same as Amtrak or better if you leave out the Northeast Corridor). (table 2.14)
• Busses have really gotten way more inefficient over the years, at the same time cars have become substantially more efficient.  While the government criticizes its citizens for not practicing enough energy conservation, in fact its citizens have been buying more and more fuel efficient vehicles while the government has been buying less efficient vehicles.  (table 2.13)
• While passenger cars have increased substantially in efficiency, over the road trucks have seen no progress, and have actually gotten less efficient over the last 10 years (table 2-18)

Make sure to read the whole article.  I think the author is pretty fair at achnowleging where the uncertainties are in the analysis.  He also has comparisons of mass transit energy numbers between cities.  A few individual cities seem to beat even the most efficient cars -- most, including places like New York, do not.

Postscript:  I don't think numbers for New York include taxis.  If they did, New York would likely look terrible.  From an energy standpoint, taxis are a horrible transportation option, perhaps the worst possible.  It would be interesting to know how many New Yorkers who look down on SUV's routinely get around town using taxis.

Via TJIC:

Harvard plans to sharply reduce its greenhouse gas emissions in the
next eight years, Drew Faust, the university president, said.

The initial, short-term goal for the university will be to
reduce greenhouse gas emissions by 30 percent from a 2006 baseline by
2016, Faust said yesterday in a statement.

In the winter of 1990, my Harvard-owned apartment had its heating fail.  I called the administration for weeks before anyone would show up to look at it.  By this time, I actually had ice on the inside of my window panes.  Walking into my freezing apartment, a maintenance guy placed a thermometer in the center of my room, and then just stood there staring at it for 5 minutes.  At this point he had not asked me about my problem, nor looked at anything remotely connected with the heating system.

He suddenly sprung into action, looked at the thermometer, and started to walk out of the room.  "Wait," I said.  "What is wrong?  Do you know how to fix it?"  The Harvard maintenance guy says "Your room is only 53 degrees -- by state law we don't have to do anything unless it is below 50.*"  And then he walked out, with me screaming at his back.  Only when I sent a letter to the University, copied to the fire marshal, explaining that all was well because I found the room stayed pretty warm if I kept the oven on "broil" 24 hours a day and left the oven door open all the time, did I get any action to fix my heating.

It is scary to think that a university so reluctant to spend any money on heating rooms even 20 years go now wants to reduce its energy use by 30%. 

Of course, we all know how these things work:  creative accounting.  The Enron guys were saints compared to the accounting games played in the carbon accounting and offset world.  Harvard will probably say that "Well, we were planning to build a massive coal-powered electricity plant right in the middle of Harvard Yard, and by cancelling the project, we have reduced our emissions 30% over what they would have been and therefore made our goal.  Don't laugh - the UN and EU are doing EXACTLY this every day.

* Note that I cannot remember the exact legal standard quoted to me, but I think it was 50.

Kevin Drum and Alex Knapp write that there appears to be $20-$50 billion in federal energy subsidies each year going to the oil industry, and that this should be a target for elimination before any windfall profits tax.  I wrote in the comments:

I agree 100%.  Let's cut all the subsidies.

However, before you get too excited, my guess is that most of the
money marked as "oil company subsidies" really in fact goes to non-oil
projects like alternative energy. In the same way that a huge portion
of federal "highway" funds don't go to highways but to silly
politically correct failing transit projects, my guess is that,
similarly, "oil industry" subsidies go for a lot of silly alternative
energy projects.

I personally don't care where it goes. I am all for eliminating all
of this subsidy mess, equally, whether it's for oil exploration or
energy-from-donkey-poop or for CEO salary enhancement. But recognize
before you make this the liberal rallying cry, much of this subsidy
money may well be going to liberal pet projects.

Anyone have any better idea where this money goes that they are referring to?

California is apparently trumpeting its "leadership in energy."  The centerpiece of its claims is its low per capita electricity use.  Arnold is making the claim now, but Kevin Drum was pushing this a while back when he said:

Anyway, it's a good article, and goes to show the kinds of things we
could be doing nationwide if conservative politicians could put their
Chicken Little campaign contributors on hold for a few minutes and take
a look at how it's possible to cut energy use dramatically "” and reduce
our dependence on foreign suppliers "” without ruining the economy. The
energy industry might not like the idea, but the rest of us would.

Max Schulz of the Manhattan Institute is not impressed:

California's proud claim to have kept per-capita energy consumption
flat while growing its economy is less impressive than it seems. The
state has some of the highest energy prices in the country "“ nearly
twice the national average "“ largely because of regulations and
government mandates to use expensive renewable sources of power. As a
result, heavy manufacturing and other energy-intensive industries have
been fleeing the Golden State in droves.

Neither am I.  I addressed this issue a while back in response to Drum's post, but since the meme is going around again, I will excerpt from that old post.

The consumption data is from here.
You can see that there are three components that matter - residential,
commercial, and industrial.  Residential and commercial electricity
consumption may or may not be fairly apples to apples comparable
between states (more in a minute).  Industrial consumption, however, will not be comparable, since the mix of industries will change radically state by state.....

Take two of the higher states on the list.  Wyoming, at the top of
the per capita consumption list, has industrial electricity consumption
as a whopping 58% of total state consumption.  KY, also near the top,
has industrial consumption at 50% of total demand.  The US average is
industrial consumption at 29% of total demand.  CA, NY, and NJ, all
near the bottom of the list in terms of per capital demand, have
industrial use as 20.6%, 15.1%, and 16% respectively.  So rather than
try to correlate electricity consumption to local energy regulations,
it is clear that the per capita consumption numbers by state are a much
better indicator of the presence of heavy industry. In other
words, the graph Drum shows is actually a better illustration of the
success of CA not in necessarily becoming more efficient, but in
exporting its pollution to other states.  No one in their
right mind would even attempt to build a heavy industrial plant in CA
in the last 30 years.  The graph is driven much more by the growth of
industrial electricity use outside CA relative to CA.

Now take the residential numbers.  Lets look again at the states at
the top of the per capita list:  Alabama, South Carolina, Louisiana,
Tennessee, Arkansas, Mississippi, Texas.  Can anyone tell me what these
states have in common?  They are hot and humid.  Yes, California has
its hot spots, but it has its mild spots too  (also, California hot
spots are dry, so they can use more energy efficient evaporative
cooling, something that does not work in the deep south).  These
southern states are hot all over in the summer.  So its
reasonable to assume that maybe, just maybe, some of these hot states
have higher residential per capita consumption because of air
conditioning load?  In fact, if one recast this list as
residential use per capita, you would see a direct correlation to
summer air conditioning loads.   This table of cooling degree days weighted for population location is a really good proxy for how much air conditioning is needed by state.  (Explanation of cooling degree days).
You can see that states like Alabama and Texas have two to four times
the number of cooling degree days than California, which should
directly correlate to about that much more per capita air conditioning
(and thus electricity) use....

OK, now I have saved the most obvious fisking for last.  Because
even when you correct for these numbers, California is pretty efficient
vs. the average on electricity consumption.  Drum attributes this,
without evidence, to government action.  The NY Times basically does
the same, positing in effect that CA has more energy laws than any
other state and it has the lowest consumption so therefore they must be
correlated.  But of course, correlation is not equal to causation.
Could there be another effect out there?

Well, here are the eight states in the data set above that the
California CEC shows as having the lowest per capita electricity use:
CA, RI, NY, HI, NH, AK, VT, MA.  All right, now here are the eight
states from the same data set that have the highest electricity prices:  CA, RI, NY, HI, NH, AK, VT, MA.  Woah!  It's the exact same eight states!  The 8 states with the highest prices are the eight states with the lowest per capita consumption.
Unbelievable.  No way that could have an effect, huh?  It must be all
those green building codes in CA.  I suspect Drum is sort of right,
just not in the way he means.  Stupid regulation in each state drives
up prices, which in turn provides incentives for lower demand.  It
achieves the goal, I guess, but very inefficiently.  A straight tax
would be much more efficient.

Glen Reynolds brings us this:

A provision in the US Carbon Neutral Government Act incorporated
into the Energy Independence and Security Act of 2007 act effectively
bars the US government from buying fuels that have greater life-cycle
emissions than fuels produced from conventional petroleum sources.

The United States has defined Alberta oilsands as unconventional
because the bitumen mined from the ground requires upgrading and
refining as opposed to the traditional crude pumped from oil wells.

California Democrat Representative Henry Waxman, chairman of the
House Committee on Oversight and Government Reform and Republican Tom
Davis added the clause.

Uh, right.  Since we all burn pure unrefined crude oil pumped right from the oil well in our car. 

Here is what a traditional crude oil goes through before it becomes gasoline:

• Water and salt must be removed
• The oil is heated up to over 700 degrees, and is separated into its fractions via distillation.  Oil is made up of hydrocarbon chains of many lengths, from short ones (methane, ethane, propane) to very long ones (asphalt, heavy motor oils).  Gasoline is somewhere in between.
• Each fraction generally has to be de-sulfurized.  This generally occurs by injecting hydrogen into the fraction across a catalyst bed to remove the sulfur as Hydrogen Sulfide, a dangerous gas that must be further processed to produce pure sulfur.
• The gasoline fractions in a typical oil are nowhere near large enough for the relative demand.  So additional steps must be taken to produce gasoline:
  • Very heavy fractions have their molecules cracked at high temperatures, either in cokers, high temperature crackers or in fluid catalyst bed crackers.  These processes either remove carbon in its pure form or remove it by combining it with hydrogen
  • Certain fractions are reformed in combination with hyrdrogen, sometimes across a platinum catalyst, to produce molecules with better properties for gasoline, including higher octane.
  • All over a refinery, there are small units that take individual fractions that use a variety of processes to create specific molecules that have useful properties
• All of these different fractions and products are blended in various proportions to make different grades of gasoline.  These blends and proportions can change from city to city (to meet environmental regulations, Phoenix must have a gasoline blend that is unique in the US) and must change season to season (gas that burns well in winter will vapor lock in the summer time).

I am sure I left tons of steps out, but you get the idea.  Below are my old digs at Exxon's Baytown Texas Refinery, where I worked as an engineer for 3 years out of college: