Allright, we're live back on this week's office hours. And I have Mark Jacobson here from UC San Diego, School of Economics. He's a professor here. obviously, you guys who watch the videos this week saw his lectures. So we're going to talk about some things. A couple of questions here we've already got up there. There was one that I liked right from the beginning. So here's one we're looking at. And it says, part of the discussion in this week's course was focused on reasons for recognizing and controlling the hidden cost of fossil fuel combustion. And, and there's a lot of those costs that are hidden that we don't pay directly. But here's what the question actually asks. Has any modeling work been done that optimizes the allocation of the funds generated from, say, an emission tax. And I assume that means allocate some to the different parts that >> I believe the use of the money. >> The but, yeah, the use, the, the, the use of the money to mitigate some of those problems. So I, I'm going to, I'm going to let Mark start with that. And then I, I have a couple comments I want to make and I'll let him talk about those as well. >> All right. So the, the answer is yes. There's lots of modeling work that's been done to think about how to allocate funds. The answer is often not what's, environmental. Uh,the most environmentally-minded people might expect, which is to say, well maybe it would make sense to take this money we get from the tax and use that to rebuild wetlands or, or provide other sorts of environmental mitigation. the, if, if you want, so the answer is if you wanted to do those things, you should have been doing them anyway. And it's quite possible that the tax revenue would not be enough money, to do all of the other things you should do in terms of conservation. Particularly, think about think about a case where we've really limited the amount of carbon, right? There's not going to be much tax revenue because there's not much, there's not much carbon and maybe you still want to be doing a lot of conservation things. << Mm-hm. And so the key thing is, it cannot exist, is to really disconnect those two. There's an ideal tax. It will bring in some revenue. There's lots of things you should be doing with tax revenue. And they're completely separate. It could well be that you wanted to do, spend a lot more than you get or could be you want to spend a lot less than you get. And the, the modeling suggests that the best thing to do is to reduce taxes that you otherwise don't like. effectively. And once you've, once the government has spent as much money as it needs to spend on education and conservation and, and, and the military, whatever else our priorities are. You take that pile of money, and then you think about all the funding sources. And if you have too much, you can reduce some some other funding source. There's no direct link. This is sometime controversial. But that's the, that's the economics of it. Just the two should never be linked. >> Okay. So, so when you say the two should never be linked, though, what you're saying is that the, the taxes you collect should not be directly linked to the carbon that you're using? >> It should be linked to the carbon. But they shouldn't be linked to, say, spending on a particular project. >> The priorities. >> Right. >> Right, got it. >> It shouldn't be, we say, and we do the same thing with, [CROSSTALK]. >> That's not the most efficient way to allocate those resources. >> Right. There's, there's a certain amount of government spending that we like to do. >> Yep. Yep. >> That's the efficient ideal amount of government spending, some of which is on forests, and conservation projects, and carbon. >> Yep, yep, yep. >> You know, whatever, subsidizing solar and things right? There's some amount of that that is efficient for the government to do. That's disconnected from how much revenue we might happen to raise with a particular tax, might be more, might be less. There's no reason it needs to be exactly the same. >> Got it. So, so, so that's what concept one. But in concept two that I want you to, to maybe mention something about which is obviously the higher the price for fossil fuel. The higher the price for gasoline, the more we are going to conserve it. In fact, one of the things that you really see shows up, you know, when we went 3 bucks a gallon to 4 bucks a gallon. You know, all of the sudden there weren't so many errands that people had to run every weekend. And they started to become much more efficient at those. Because when the price of fossil fuel is so low that it doesn't really impact your day-to-day economics, then you're going to use more of it right? >> Yes. That's the key, that's the key sort of idea behind any sort of price. >> Yep. >> Is that with the price, people avoid paying that price. >> Yeah. >> And they find lots and lots of creative ways to do that. >> Yeah. >> Whereas, if you tell them the way you're supposed to save gas is by buying more efficient cars so the government is going to mandate more efficient cars. >> Yeah. Doesn't make people drive any less. >> No. >> And maybe actually driving less was the right way. But, but, so the government, it's very hard for the government to know which was the best way to reduce gasoline use. And the price finds it, that's sort of the idea. >> Okay, so, so, let me ask you a specific one, and maybe you know this answer, maybe not. So we have cap and trade now in the state of California. And, it just started, but there have been some funds from that >> Mm-hm. >> that are now in the coffers of California. But, as far as I know, we haven't actually not spent those to mitigate or to, to reduce carbon in any way. They've sort of just piled up. We haven't done anything with them, as far as I know. So, >> Yes, there's great debate about what to what to do with those. >> Yeah. >> Of course, lots of people would like to get their hands on that, so. >> Yes. [LAUGH] Yes, that I'm certain of. >> Of money. I think from model, once you look at the British Columbia carbon tax, which has raised a huge amount of revenue. >> Okay. >> And they promised the people, in fact, wrote it right into the law of the carbon tax. They said, we're going to be raising this carbon tax revenue and every year we're giving you a report of how much money we raised. >> Okay. >> And it's going to perfectly balance with how much we cut your taxes and other things. >> Oh, okay. >> So we're going to raise more carbon tax revenue, we're going to cut the sales tax more, we're going to cut the income tax more. >> Okay. >> And they, and they, they said like we're, you know, the size of government, the total amount that British Columbia government is spending is something we're happy with. And we do lots of conservation projects. >> Uh-huh. >> And lots of education. And all sorts of other things. And we don't want to change the total size of government with the carbon tax. >> Okay. >> That was the, that was the goal. Now, now with this auction revenue in California. And of course it's always hard to know if the size of government has changed because you don't know what it would have been. >> Yeah. >> But they, but they did write it right into the law and they put out this report every year and they say like here's exactly where we gave you the money back. Whereas. >> Okay. >> And it's a little bit frustrating in California, we don't see that yet. >> Right. >> We don't see exactly where the money is coming back. And, and, and certainly politically, there's, there's a case to be made that if people associate a carbon tax with increasing the size of government, that could cause you political trouble. And there's no reason that that needs to be the case. There's no reason that a carbon tax has increased as the size of the government. The size of the government is a separate issue. >> Okay and do people know, is the one in British Columbia sort of received well so far? >> It has lasted longer than I think many of us expected. >> Okay. >> It has been quite well received actually. It's much better than the one in Australia which was repealed just recently, as you know. >> Yeah, yeah, yeah. >> In Australia. >> Well, that was a change of government though. >> It was a change of government but, part of the reason for the change of government might even have been that. >> Yeah. >> Yeah, the carbon tax, or a small part of it. And they were using the money to reduce social security taxes. And they also had a system where they were sort of telling people what they were reducing. >> Okay. >> Again it wasn't increasing the size of government necessarily. >> Okay. All right. So then I guess for California, it's going to be stayed tuned and we'll see how that battle goes. >> Stay tuned for California. >> But I have to say, after going many times up to Sacramento and talked to them. What a lot of people don't know we have several bills in California. You know ones called AB 118. You know, a, a couple of new ones that've come out. And last year, we had $400 million set aside for low carbon fuels. And because the legislators couldn't decide how to spend that, our governor took that money, borrowed it he said. But took that money, to pay for prisons. And college system, UC system. So Mark and I benefited from that. >> We're all very grateful. >> We're all very grateful for that one, but that money has to go back and do something to reduce carbon footprint in the state. And, and so far it has. And you know I, I think it's one of those things that the voters in the state of California are, are forward leaning. They want to reduce our carbon footprint. And unfortunately, those bills were written that didn't have specific instructions on what to do with those funds to reduce them. So at least as of today, very little has been done with them. But you know, maybe this year, maybe we'll finally get around to putting it in. Okay, so here's another question. And I think this is a really important one that we need to think about. And, and I'm going to let Mark specifically address this. But, and, and the question is this. What are the economic advantages for a developed country, so like the United States or Europe, financing and developing renewable energy and sustainable projects in developing countries? So before Mark answers that I will tell you guys that one of the other students on this class is from Nepal. And runs an NGO there which is trying to bring energy to Nepal and so he, he sent us an email and said hey, I'm in San Diego. So we actually filmed last Friday a lecture with him and it will posted in week 10 of this class. So in 2 more weeks, we're going to have a lecture to hear about energy in Nepal. It's amazing, right. In the United States, 10,000 watts a day, yeah 10,000 watts per day is the consumption of, of an average American. And they are trying to get 5 watts per day into their homes, okay? 5 watts per person- >> Which is enough to run a, a light and a- [CROSSTALK]. >> It, it, it, it's amazing- >> Very valuable thing, so yeah- >> It, it, it, it's amazing. With one 16-watt photovoltaic panel, which is only about a meter square- >> [INAUDIBLE]. >> Right. That power's enough, to really make a difference. 16 watts a day. About 5 bucks per person. Okay, go back to this question. >> Of course. >> Which is the economic advantages for us in the developed world of actually financing and paying for energy projects in developing countries. >> So, so the answer here has to do with, with something very fundamental about economic efficiency of how you reduce carbon emissions. Around the world or even across states or across sectors within those states, which is that you want to find the lowest cost productions in carbon. All right? And so, it might be the case that the U.S., or Europe, or somebody would like to make a committment to reduce emissions by 10%, 15%, whatever it is. And it could be that we say, okay well we could do all of that. Let's call it a 50% cut. We could do all of that 50% cut in California say, or in the U.S.. Or we could do 40% other than the U.S. and buy renewable energy projects that would not otherwise have been done. This is always the key. They have to be additional, they have to be something new, right? To buy projects that would not otherwise have been done in a developing country. And maybe that's a cheaper way to get that last 10%. I mean we find it, you know, pretty easy to get the first 40%. But then to get the. >> Yep. >> That last 10% in the U.S., we might be really looking at some really painful sort of measures working up to more expensive stuff. Where there's these really cheap projects, relatively. >> Mm-hm. >> that, that we could sponsor in developing countries. And the nice spin of this is that there's kind of a double benefits in that, right? One is that we find it cheaper to meet our carbon goal. >> Mm-hm. >> But the other thing is, is these can have really valuable benefits for, for education, for getting energy to people's homes. >> Right. >> And developing countries that would otherwise not have any, so you can have sort of these two, two benefits at once. Now as I mentioned, the real risk here is are these projects that get done, are they additional? >> Right. >> And there was, there was a lot of fighting over this with what was called the clean development mechanism a few years ago. Projects being done a lot of them were, were done in China, a fair number of Brazil, a number of other countries did these projects. They got the credit for them. Countries in Europe, therefore, didn't have to reduce as much because these projects were being done overseas. But then, it was discovered that some of the projects were things that might have been happened, happened anyway. Right? Wind farms that might have gone up anyway. >> Mm Hm. >> And so then you did, you thought you did this project, but, of course, it was going to happen anyway and so, so there's sort of this missing carbon. >> Yeah. Okay and then the other thing I want to bring up is that, you know, the sort of, sort of philosophical, you know, what, what is our moral obligation to the rest of the world. And I, the, the one thing I do want to point out, right, is in the United States at least. We spend close to $500 billion a year on defense. 40% of the entire world's defense expenditures come from us. About a third of that is to keep the supply lines open so fossil fuel can flow to us. But obviously a big part of it now, and anybody who watches the news realizes that we spend a fair amount of our time sort of being the police force for, for the rest of the world. Every time you introduce energy into a developing country and allow those people to get education, you reduce the conflicts in that area. So although it's a much longer term proposition you know, it, it, the cost benefit analysis is pretty good. Right? We, we can look at electrification in Sub-Saharan Africa. We can look at electrification in main parts of the world and we can see that the conflicts there go down. So when the conflicts there go down, that is the benefit to us, so. It's, it's not a direct. >> It's a triple, a triple benefit, sometimes. >> Yeah. >> Yeah. >> Yeah, yeah, and, and, and so that's one of those things that's a little hard to measure, but people who have done it, you know, sort of come up with at least a third of our military budget. Which is a third of our total budget, so 1/9th of our total budget. You know, is spent on conflict resolution in the rest of the world. And that would be reduced, how much it would be reduced? I don't know. But it would be reduced if we could put energy projects into there. Then add on top of that, this sort of moral obligation of how do you get everyone in the world and, and raise their standard of living. Okay, here's a question that has been sent in from Steven T. And Travis has forwarded it to us and it says it is projected that there will be 10 billion people and that if we were all [LAUGH] to live as Americans do. Yes, well if had 10 billion people and we were all living as Americans do, that would be a frightening scenario. But that we would need 100 terawatts of energy. And the question is is that. >> Really a reasonable projection, and could we even deliver that energy to people. So, that is absolutely a reasonable projection if everyone were to live at U.S. standards. I'm, I'm going to let Mark comment on that. >> No. No. [CROSSTALK]. Okay, start. >> Well, so look. it, it's completely unreasonable to think that you could possibly have 10 billion people on the planet consuming the amount of energy that Americans consume. Right. We are 5% of the world's population, and we consume 23% of, of the world's energy, right? We used to be at 25%. We used to be number one, the Chinese have overtaken us. They're, they're now. So between us and the Chinese, we're half. If everybody else on the planet, came up to that. Lord, knows what the pri, [LAUGH] what the price of a barrel of oil would be. In, in the many, many hundreds of dollars. And we would run out of those reserves in less than 30 years I think, if my calculations right. And that would be all petroleum, all natural gas. We would just burn through it. So, clearly that is not something that, that is a reasonable projection we simply, physical limitations, we cannot get there. >> I would take a somewhat more optimistic view in talking about energy services. >> Okay. >> Perhaps playing Devil's advocate here, obviously very difficult to, to for everyone to consume. As much as Americans do and still have the function and all, but, but, let's suppose that, that, technological progress, which has been remarkable in terms of how much raw energy input you need to consume a [CROSSTALK] certain amount of energy service. The energy service I have in mind here is getting from one place to another. >> Yep. >> Having a light to read your [UNKNOWN] so. So if, if, if, if we're lucky. If we take sort of the optimistic view that the cyclondical progress will sort of continue exponentially it, it, it may be possible for a lot of people to consume energy services that are equivalent to what Americans consume today. Clearly the, the hope is that we have the efficiency we don't need that all. >> Okay. So that's a good point so what I was going to say is sort of the, the exact same point but in a different sense and that is that, right now we are horribly inefficient in the United States at the way we consume energy. So the idea that each of us have an individual car, that gets 10 or 15 miles a gallon. You know, some of them are much higher than that. But, but, but still the average is about 22 I think. So, that you drive around this enormous 6,000 pounds of metal to get you from one place to the next. That's just a horribly inefficient way to consume energy, where as mark points out all you really want to do get from point A to point B. So, impossible that we could have 10 billion people living the way American's live now. Could you have 10 billion people though, living on this planet, that still have the services we want from energy, but are much, much more efficient than the way we consume them in the United States now. And that is the hope, right? That, that one we would have a possibility to do that. We'd have to do a couple of other things as well. We, we couldn't consume beef the way they do in America. >> Right. >> That, that would tax other resources. But if we became vegetarians or at least ate less meat and, and converted, you know, no more beef, go to chicken, go to fish. Things that are more efficient. I don't know. We'd have a hook. >> One thing that I would put, put as a real risk that I think people need to be aware of thinking about this sort of question, is the longevity of capital, energy using capital. >> Mm-hm. >> So, so I just saw that, that China's Annualized car sales are now 20 million vehicles per year. That's about 10 million in the U.S. Right? And almost all of those 20 million vehicles per year, double the U.S. of course, consumption of new cars. Are going to last a long time, and they're all gasoline kind of cars. Cars last 15 years, probably even 20 years now. >> Yep. And so the, there is this sort of risk that we lock ourselves into, into inefficient- >> Yep. >> Capital and it lasts two decades or more, this is, this is a problem. The same can be said for construction of power plants. Every coal fire power plant we build. Sure it's terrible for carbon emissions right now and we worry about that. But, I'm almost even more worried about how long it's going to live. How bad it's going to be in the future. >> That's right and, and, By the way boats and trains and planes, have to last at least 40 years. So when you buy a new, [CROSSTALK], yes. When you buy a new plane, you are going to fly that thing for 40 years to, to pay it off. Same, same with, a train. So that means any one bought or sold today is going to be the same thing. Now they make efficiency improvements on the engines. In fact, I just saw that, that, that about 10 or 12%. Improvement on fuel use in planes, over just the last three or four years. So, we're making improvements on that but there's somethings that technology isn't going to help. Al, although, sort of one of the interesting ideas that, that will be presented in the, in the Nepal lecture, and actually as Mark just pointed out. You know, you can get by on five watts of energy per day. And, and the reason you can do that is because there are now LED bulbs that one watt bulb puts out 90 lumens. So 90 lumens is the light from 90 candles. So so 90 lumens will light up a desk. It won't light up a room. But it, it'll light up a desk and you can sit and read at it. >> So a lot. >> Yeah. So one, one watt is 90 lumens. So, so with one watt you can illuminate you know, a desk, enough to read and do anything. So there are, there are many ways that are coming that will be great improvements, but it's going to take a while to incorporate those in to our day to day lives. Part of that, will be when it gets expensive. The, the minute fossil fuel, you know, the price goes up. >> That drives innovation. >> Exactly. Then we are suddenly going to find new ways, you know, to become much, much more efficient. Okay. Here's another question. It's one that I can't completely answer, but I can at least give, you know, a directional answer so. Nicola says, I saw a estimate that biofuels require 100 gallons per kilowatt hour water compared with less than half, I think that must mean half a gallon, for fossil fuelable electricity, full life cycle. So those numbers are way off. But, but, we'll, we'll discuss those in a minute. But the question is, are biofuels vial given the limitations unavailability of freshwater? So, so this is a big concern. Right now, those of you who've watched all the lectures will know that the actual number one consumer of water is fossil fuel power plants. It's called once through cooling. That's when you pull water out of a river and run it through your power plant and cool it and then put it back into the river. So that's actually the biggest use of, of water in the United States and in the world. So the half a gallon per kilowatt is, is not even close when you consider once through things. but, you know, you can also make the argument that you don't really use those. You just sort of pull it out and [CROSSTALK]. >> I mean, some of it goes off as steam. And that's- >> Some of it goes off as steam, and some of it simply goes back in. Although once it's, for whatever reason once, once it's been through a power plant and coals you can't drink it anymore used for agriculture, I don't know why. But anyway, so we don't allow those in the United States anymore. We no longer allow one through cooling. That's got to be evaporative cooling. So when you go to evaporative cooling, then you actually do put that moisture up into the atmosphere, but. >> You reduce the efficiency of your power plant. Right? Or, or you're reducing. >> Yep. Yep. If, if you don't keep them cool, they're not as efficient. But it's a, it's an absolutely important question for us to answer which are biofuels you know, a viable option given that water, fresh water especially, is going to become limited in the future. So this is something where you have to do what's called a life cycle assessment. You have to look at exactly how much water you use. I, I think all of us who sort of work in the industry of actually trying to make biofuels we always think about using [INAUDIBLE]. So in the case of algae, we would grow this stuff either in salt water. Or we would grow it in, waste water, municipal waste water, or some of the waste water that you use. And that will greatly reduce your fresh water footprint, but it doesn't reduce it to zero. Okay? You still need fresh water for cleaning, for part of the process, or whatever. This is enormously different dependent upon which fuel you use. So, actually in the case of palm oil, or Jatropha. Where you're just squeezing the oil out of the palm seeds. Those, those actually don't consume a huge amount of water. And they, they have a relatively low water footprint. In the case of corn ethanol, it is enormous. >> And they probably could water with gray water? >> the, you, they could but right now they don't. So, you know we, we take 40% of our crop and and much of it's done by rain. So you're not going to capture that water anyway, but not all of it. Some of it is done by irrigation and that means your pumping water out of the ground so. That, that depends on which biofuel you're using. And, and absolutely people think about this a lot. Okay? >> I, I agree. Let's just say, all the life cycle analyses and all the thinking about the regulation to pick the biofuel that uses the least water, and then. >> Yeah. >> To force the people to put their money where their mouth is. Making the algae. And actually use salt water or gray water >> Yeah. Yeah. Yep. >> As opposed to freshwater that might be cheaper and better and more productive for the process. >> Yeah. >> Yeah the best way to do that, in economics, is to price the water. If we're all paying the correct amount for water, an amount of water that includes the cost of the energy to get it to us. That includes the value, alternative values for that water. Say, leading in the stream for fish or, kayakers or whatever, right? So, if it's the price of water were sufficiently high we don't even have to worry about this. The right biofuels will emerge. >> Yep. >> On their own, because they have to pay the correct amount for the research. The only time- >> Yep. >> This becomes a problem is if water is way too cheap. >> [LAUGH] Yes. >> And then, people get tempted the people creating the biofuels get tempted to use this water that's too cheap. And then we've got to make a rule and then we have to worry about questions like this, but if the price of water was right, this question wouldn't even be, be needed. Right? because, because the, the water would be going to the- >> Yeah. >> Correct uses. >> So, so the reason I'm laugh, the reason laughing is because what I love about economists. I love about these guys is that there's no moral decision ever in there, right? It's as if the water was the right price then, the right outcome would come from it and that's absolutely mathematically true but as Mark well knows, the problem with that is there's so many things we do in this country and worldwide. We put an emotional and moral, whatever decision on top of. We're never complete capitalists, right? So, so for example, we subsidies corn enormously. >> We subsidize water enormously. [CROSSTALK]. >> Yeah, the disparity on water cost is amazing. Over in Imperial Valley, the get water at $15 an acre foot, and here in San Diego, we spend a little over $2,400 an acre foot. Same water, it comes out of the same pipe but they get it just be bit cheaper than us. Okay. But anyway, good thing to think about in cola and it, and it, we need to do that on every biofuel that we look at. Okay. Here's a little different one. He said, I would like to know, this comes from Mike M. I would like to know the research that measured electric power as more dirty, than the gasoline fleet. I own an electric car. And the compromise that I must make to use electric cars are going to be hard to justify if electric power is the worst. Okay. I can tell you a little where I think this comes from. So, where I think this comes from is right now, I don't think it was. I don't think it was you, but maybe. One of the economists here at UC San Diego did do the calculation >> It was Josh [INAUDIBLE]. >> And what Josh came up with was that right now, because electricity in San Diego some of it comes from outer state, out of state, Arizona where they burn coal to generate that electricity. If you count a coal fired power plant as providing the electricity for your car. Then you have a higher carbon footprint, with an electric can in San Diego, than if you were to go buy a Prius, just a high mileage hybrid. >> Yeah, I've heard of that. So, so the average electricity that come into San Diego, now we don't know [UNKNOWN], where he lives. Now, this is, this is the key question. >> Right. >> There are some beautiful maps that these researchers have produced and in most of California, you know, almost all of the West Coast, electric cars are as good as the Prius, maybe even a little better in the terms of the amount of CO2 they're putting out. Where in Texas, it is worse than a compact gasoline car and much worse than a Prius. Add this just has to do with the electricity mix in these states. >> Right. >> Now the, the hope of course is if we get enough electric cars out there, yeah, they're not much cleaner than gasoline now on CO2. But this gives us a chance in the future to generate- >> Right. >> The electricity more cleanly and then instantly, we don't have to wait the 20 years I was telling you about for- >> That's right. >> For new cars, right? New gasoline powered cars that are going to burn gasoline for 20 years. Right? As soon as the electricity grid, grid flips over, all the electric cars existing electric cars that are out there will suddenly become much cleaner. >> Yep. >> I will, I will point you to another study. I can, I can go see the link, I don't have it right now. But there's just some amazing pictures of local air pollution. So one of the real benefits of electric cars is local air pollution. How much, how much damage are you doing to asthma cases? How much damage are you doing to the kids at the schools you drive by, in terms of their test scores and so it's it's amazing how important local air pollution is on all those things. >> Yep. >> There's some maps now, where your local air pollution appears when you're driving an electric car versus a gasoline car. So if you drive a gasoline car, and they do this by a city chart, you're driving a gasoline car in the city you see all this red and all this damage from the local air pollution being done in, in your city. Mainly, to kids and the elderly within the city. And then with a, with a electric car, the damage is other places it's still there, and in particular in places where that electric car is mostly drawing coal, you see big red spikes around the coal fire power plants. Which are not in the city, they're out in the country side. But it's just kind of interesting to the spatial difference. It's really stark right- Good crowd in the city does almost no damage to people in the city in terms of local air pollution. It's all outside the city where the power is coming in. It's remarkable. >> Yeah, I just saw a little thing. >> They can see that. >> Yeah, and I'll post that for you guys. I just saw a little thing popped up that said Mike is from Tulsa, Oklahoma. Tulsa, Oklahoma, huh. Oh, hey. >> It's probably coal fire. >> It's probably coal fire. It's going to be borderline. >> Yeah. >> It's going to be borderline. Your hope is that they switch the grid over before your car [UNKNOWN] >> Yeah. But look, Mike, I, so I'm buying an electric car this summer as well. You know, yeah. No, I've been out looking for. And, and I think it's one of these things. It's, it's always a chicken or egg problem. >> Yeah. >> Right? Which is, how are we ever going to switch the grid over, and, and really get it to be renewable power. If everybody's got a gasoline car and therefore they don't really need it. >> Right it takes a long time switch over. >> It takes a long time to switch over, so if you buy a new car today it's 15 to 20 years you're going to run that thing. >> Also the other, the other advantage of these ideas is learning by doing. And the fact that if we don't, if we don't have early adopters out there willing to try these technologies. Buy them, see how well they work. They will never sort of come to full, to full life- >> That's right. >> And their costs will fall and so on, so. >> Yep. >> So I would take pride in, in that- >> Yeah. >> Even if the immediate emissions are not, as low as they could be. >> Yeah, and so you could do two things, Mike. One. You know, from Mark and I, stay the course, get your electric car and drive it around Tulsa, proud as you can be. And then the second thing that you can do, if you put photovoltaics on your roof, then just charge your car between you know two, and you know ten in the morning and two in the afternoon every day. And then you are absolutely. An enormous benefit to the community because now you are putting renewable energy into that car and you are not driving around putting out gasoline. And I just wanted to. >> [INAUDIBLE] Willard. >> Yep. >> It is very interesting to me about electric cars, which is they encourage you to. I should say that, your, your local utility and the power producers will encourage you to charge it at night. >> Yeah. >> Why do they encourage you to charge it at night? It's because that's when most of the electric power's coming from coal- >> Yeah. >> Which is the cheapest. If you charge it during the day, most electric power's, a lot of electric power's coming from natural gas. Which is much cleaner, maybe a [INAUDIBLE] which you mentioned reminded me of this. >> Yeah. >> So charging engine during the day is more expensive because you're using more expensive electricity sources. Natural gas, PV and whatever, but it's actually better for the environment. So in the very there's, there's an interesting economic tension that hasn't been resolved yet. Yeah, in terms of we think about charging archives. >> Yep. So I'm going to get a new electric car and Mike, if you have an opinion on the one you've got and you like it, let me know because I haven't picked one yet. I, I have a friend who's got a Tesla but I just cannot pay 90,000 bucks for a car. Just will not do it. >> Well, come with a cheaper one. You may have to wait. >> Yeah, but that, but that's not. I think that's more than a year now. I think it's the Fall of 2015. >> [UNKNOWN] that are very happy and [UNKNOWN]. >> Okay. So at any rate, I'm looking at them now and I'll decide. Okay, so let's see. Here's one, not 100% certain what. Says, what do you think of citizens climate lobby, which I'm not 100% certain that is proposal, to return the carbon tax revenues to tax payer to cushion impacts of higher energy prices for carbon tax? So I'll let Mark answer that because that's a straight economic question. So I think what they're asking is, put a tax on carbon and then rebate the people who can't afford that. Yeah there's so, so the only caution this goes right back to my comments earlier which is there's no reason to think that a carbon tax necessarily has to change the size of government. Right? And it, it's you, if we can agree that we're going to add a carbon tax and we decide not to change the total size of the government, then yes our money's going to come back somehow. Not necessarily because the size of government didn't change and now we have more revenue. So we're going to, we're going to end up reducing other taxes and giving it back. The only risk in giving back is you have to make sure you give it back to people in a way that, that they don't associate with their energy use. Right? If you, if you put a carbon tax and then you give the money back to people by giving them a lower electric bill,. What do you think that's going to do to their electricity usage? The key, the whole way the carbon tax works is by making electricity a little bit more expensive. Other things you can do for enjoyments or whatever a little bit less expensive relative to electricity, and get people to shift their consumption. We're probably giving money back, but we need to be careful how we're giving it back. Yep, that's an economics question, not going to get involved with that one. Except to say that I, I, I love the idea that, and I think people would be much more acceptable. I did not know about the British Columbia thing. But I think if we actually told the taxpayers. Listen, we're going to put a tax on carbon, but we're not going to spend that money to increase the size of government of something else. That it's going to go straight back to you guys. We're only putting that tax on as an incentive to reduce the amount. >> [CROSSTALK] Switch to other things. >> Yep. >> Yeah. >> To, to, to get you guys to switch to something else. I don't know this one. In Los Angeles today 40% of the source electricity comes from burning coal. I'm going to, I'm going to click that one up just because Bill I'm going to challenge you. So this comes from- >> Yeah it's a little high to me, but maybe. >> Yeah, so, so, he says that in Los Angeles today 40% of source of the electricity comes from burning coal. So in California not, we're down to about only 2% of our electricity coming from coal. The reason that number can be much higher sometimes though. Is because we do buy electricity from out of state. So we will get it from Arizona, from four corners, and they do burn coal there. But we're doing much better in California. We're going to hit our 20% renewable power, this year. You know, we're, we're on track, that was supposed to be 20% by 2020, and now we're talking in California of 30% by then. We've done really good on getting photovoltaics up on buildings and on individual houses. So in, in California at least, I, I think we're on a, we're on a pretty good path to be 33, 30% renewable power by 2020. So that, about six years from now. And that, that may accelerate even more as some of these big photovoltaic projects come online. I would just quickly say that, there, there's this issue of contact shuffling. Which is very sieroulsy difficulty when individual states try to reduce their carbon emissions or get more renewables. The EPA's new clean power plan is going to need to pay a lot of attention to this as well, because that's a state by state regulation. And they, the issue comes with yes. LA imports a fair amount of power from neighboring states. >> Mm hm. >> If you say that all of that power they imported was generated by coal. Might be able to get as high as 40% I'm not sure but you could get a bigger number. If you say that all the power we imported was from natural gas, then you gotta respond with the problem is all the electrons are the same. And so if you look at those electrons coming in, you don't really know which, which ones they are right. This, is this a coal electron or a gas electron. And of course, if the state has some individual rule or some individual target, it's going to buy its power from the natural gas plants in neighboring states rather than from the coal plants in neighboring states. >> Yep. >> And that might not really change the generation in neighboring states. It just means that the coal power in say, Arizona, stays in Arizona, and the natural gas power in there comes to California. Or vice versa because it's very hard to tell which electron is which and, and, and so dealing with that sort of what's called contract shuffling or contract reshuffling of whose power is where is a big challenge. When there's trade and all that. >> Okay and then, and then the new EPA rules there's no question for this but I'm going to bring it up. So many of you have probably seen that the Obama administration and the environmental protection agency. Has put out a well, it's not a bill yet. They're just in discussions per year. They sort of put out a request for information about reducing the carbon output from coal fired, the CO2 output from coal fire, coal fired power plants and this, this debate you know, is just starting to rage now. You know actually on the news last night, on the national news last night they had some knucklehead in Georgia screaming at the top of his lungs about overstepping government regulation, how dare they reduce carbon from his coal fired power plant. I think the thing that amazing me the most about this debate, and this kind of goes to what Mark was just saying, which is. You know, if, if, you're polluting from one power plant, you know, because it's coal and much less pollution from a natural gas plant, we have to have some way to regulate that rather than the electrons, right? Because the electricity coming out of those things, once it's on the grid. You can't separate them because they're the exact same thing. We know that the pollution put out from that coal fired power plant and the economic consequences from burning that coal are much greater than those from a natural gas plant. So part of the EPA rules is to put a regulation on top of this but I think the thing that I find amazing about this. Is this idea from people that the fact that they're spewing pollution out of their smokestack, you know, in Georgia, as the case may be, that is causing damage in other states that they shouldn't be responsible for that. And, and I just find that attitude. You know, in, in many ways I just don't get it, right. It's like, well I suppose if I didn't buy car insurance and smashed into other cars at the parking lot and tell people, that's not my problem that's your problem, right. It's overstep of government regulation to regulate that. I, I just find it phenomenal. That people can cause damage which we can calculate. Right? It's not like a big damage, I mean some of these things we can absolutely calculate. And that they would think that they're not responsible for it, simply because they weren't in the past. Right? >> Yeah it's not just electricity that crosses borders right? >> Yep. >> Point, so the damages cross borders too and >> Yep. Yeah no if we could find a way to keep all of the you know pollution damage from the coal fired power plants right there, then I'd be all for it. Don't regulate it, right? >> [INAUDIBLE] of an externality, right? >> Yeah, exactly. [CROSSTALK]. >> Effect others in a non-priced way. >> Yeah, yeah. So, you know, th, this debate is just starting. It's obviously going to heat up a lot more because, you know, it's set that this will become regulation in 2015. I think May or June of 2015. So the, the debate's going to kind of rage on for the rest of this year. And I think it's something that, that we're going to watch probably. Quite disappointed [NOISE], you know, as people yell and scream about this. Okay let's see if there are some other good questions we want to ask here. Which one do you want. >> I'm going with this one, this one here on the EUD's. >> Here? >> Yeah, unless you want to take. >> We'll take this one right here. >> So this is, so what if we can totally ween ourself off of fossil fuels? Stopping Chris [INAUDIBLE] gasoline drops to $2 a gallon, until EVA's drive them off the market, or maybe this is [INAUDIBLE] until EV's are driven off the market, what do you think? So, there's, one issue I just wanted to raise, I'm not sure it's the exact question, but is, what is going to happen to the price of gasoline, and the price of coal, or natural gas, if we start heavily subsidizing renewables, or really get a lot more renewables. It's the market and there is this risk that the price of these fuels will fall. Something that's known as the, the Green Paradox, in, in, in economic circles and it's this notion that there's these folks sitting out there on oil wells. It's pretty cheap to produce this oil and not just trying to decide when, when to produce it. >> [UNKNOWN] >> And if, if they realize that there's going to be a lot of electric vehicles coming. Right? They're going to actually ramp up the production of oil now to sell it now because, because nobody's going to want to buy it in the future. The price of gasoline might fall to $2 a gallon. So, I don't know, if I, if I'm sitting on oil I don't want to wait until gas is $2 a gallon to produce that oil. >> Yeah. >> I'd get it outta the ground now. Alright and so there's this real risk that that incentives like that, as soon as really big climate regulation is on the horizon, there becomes an incentive to produce the fossil fuel more quickly. This is a real risk, it's real, I think it's a very interesting challenging but concerning as well. I hope that they move forward a solution to that but okay >> You can take another crack at this. Maybe that was the wrong interpretation. >> No, no, no, I think, I think that's right. I think what they're asking is. Exactly that, you know, so gasoline drops $2 a gallon and you know then, well that had the consequence of, you know, will EV's simply drive, electric vehicles drive those cars off the market. So. You know and- >> But the more they try to drive them off the market, the lower the price of gas is going to fall right? >> Yep. >> And that's the, that's the force that needs to be dealt with somehow. >> Yep. So one of the really interesting quotes that I heard, believe it or not, from one of the ministers of Saudi Arabia. One of the oil ministers who was at a renewable energy conference. And his comment was, I mean he opened his talk by saying the stone age didn't end because we ran out of stones. Right? Then he went on to explain that what he means by that is that the stone age ended because we got better technology. Because we learned how to make iron, we learned well first, bronze, then iron, then metals. Those were better building. So, so by that what he meant was that you know, the end of fossil fuel won't necessarily come because we run out of fossil fuels. It would be because we get a better technology that will replace it. You know, right now we are not in any danger of that at all. All right. You know, as Mark said earlier. You buy a car today, you're counting on 15 to 20 years to drive that. Plane's 40 years. And you know, we're going to sell 19 million cars this year in, in the United States. And that many again in China and India's coming up just as fast. And, and those are not electric cars right now. Those are still. Primarily gas cars. So I would say there's very little danger that electric vehicles are going to drive the price of gasoline down. >> Driving the gasoline off the [CROSSTALK] well they might eventually. >> That, that, that may be eventually but. >> [CROSSTALK] But then they can start driving the price of gas down, but then on its head maybe gas price wouldn't rise as fast as it would. >> Yeah, okay, so what I was going to say is, I do not. Perceive that we would put electric cars on the road fast enough to actually cause the price of fuel to crash. >> [INAUDIBLE]. >> What I would hope is that we could put electric cars onto the highway. >> At a fast enough rate, that we could at least mitigate some of the increase in petroleum prices that's likely to come in the next few years. Now my guess from watching the fossil fuel industry for the last few years, is that in about another two years people are going to recognize that fracking only increase are, are oil reserves about 9 or 10%. Right now in the United States, I think it's widely believed that fracking is going to double our oil output. We're at about 8.5 million barrels per day. And I keep hearing, I there was a headline this week. >> A lot of wild optimism on, on that [CROSSTALK]. >> I, I saw a headline this week that, that, you know, energy independence, you know, 2018. That's four years away. And, and no analysis from sober people, including Exon, Chevron, BP, Shell, the Department of Energy says that fracking is going to do anything other than increase our reserves about 10%. Okay. When people realize that, I, I, I think what's going to happen is the price of oil is going to go up dramatically. And what I hope is that, electric vehicles and alternative forms of transportation [CROSSTALK]. >> I'll give them a boost if that happens. >> Yeah. >> Yeah. >> Yeah. Well, I at least hope they'll mitigate a little bit of that panic. Because otherwise the price of oil, could go very high. And as all of you who know, who have taken this class, the concern is not that oil goes to higher than $50 a barrel which $6 a gallon at the gas pump, it's that the price of corn and wheat also go up another 75%. >> That's what we have algae for, right? >> That's why we have algae. And I've got to get, you know, I've gotta get back to work on that and make, make- >> [LAUGH]. >> And make sure I keep that going. >> Okay. >> Okay. Let's see well here. This one we really need an engineer for. It's not really an economics question, but I want to ask it anyway, and then maybe an engineer will send us the answer. >> [LAUGH] >> And he says, he says, considering how many of the day to day appliances run in direct current. Would it make sense to foster affordable tag decentralized grid distributing DC power for the buildings? So as I said, we really need an engineer to answer that. The reason we have, I do know this, direct current does not travel very far. Right? >> Yeah, a lot of copper. >> Yeah, yeah, yeah, you need a lot of copper and you lose a lot of power when you try to push it. So, direct current has to be local. All right? Having a decentralized grid is a good idea, but you're not really taking advantage of the grid if you're on DC that has to be alternating current. So, portable tech makes direct current. So what we do right now, is we take portable tanks and we convert those to alternating current and then we can be on the grid. So, by having a whole bunch of decentralized little power plants, little portable tank things contributing to the grid, you make the grid more stable. So there's the benefit of that. So,could you use those locally? Yes, you could. But that means, you would have to be running your appliances only between, you know, ten in the morning and two or three in the afternoon. >> Spikes, they worry about. Right? >> Yeah, yeah [CROSSTALK]. >> So there are times when you're using a huge amount, times when your house is using very little energy at all. >> Right. >> And times when it's using a huge amount and your sort of local network is not going to be able to keep up with that. That's why you need a big network, because when everybody turns their air conditioners and their stoves and whatever on in the afternoon. >> Yep. >> You can feed a huge amount of power into that area. >> Yep. >> And that's, likely difficult to go with, depending on engineers you have. Probably- >> Yep. >> Difficult on on directing it. >> Well, it's, it's the one thing, it's the one thing that I do know about the engineering. Right. The more of these things you put together, the more stabilized the power source becomes. But one solution around this of course, is to get local storage. So yeah, so. So we've done it here at UC San Diego. We got from BMW, a whole bunch of their used car batteries and, and we have those out here now. So what we use those is for short-term storage of our photovoltaic power. So we can store that short-term, when it's being made between 10 and 2 or 3 in the afternoon, we store it and then when we have peak demand between 4 and 7 at night then we can deploy it. So great, great idea to get decentralized stuff. But it would have to come with some sort of energy storage, I think to really make it you know, functional. Okay. Let's see what else we have on here. >> Lets just, we have at the top you have one there's a bit of engineering here, which Low, low voltage DC does not travel far, high voltage DC travels very well. >> Oh. >> And not as easy to transform so there's, there's part of your answer. >> Okay. There it is. >> We'll wait till more [CROSSTALK]. >> So, so. So, yes. So, Paul Mum wants to be an engineer, because he says, low voltage DC does not travel far. High voltage DC. >> Travels well. >> Travels very well. But traditionally, not as easy to transform the lower voltage for appliances. Okay? Now, you know? Okay. >> All right. >> All right. Well, thank you for that, supplying that answer for the students. But my 12 volt light system, by the way, in my yard is really nice. >> [LAUGH]. >> I run it by portable tags and it looks very good at night. Stores it up during the day, runs it for about three or four hours at night. Runs out of power, but I don't care. I'm asleep by then. Okay. So here's one. And I'll try to an, well I'll see if it, that didn't make any sense. So, any good suggestions, how we can include system cost in the levelized cost of energy calculations? Mark, do you have a good idea on that one? >> I can, I can, I can offer something Grouse says [UNKNOWN]. But, renewables tend to have high upfront costs, fixed costs, we might call them, system costs. And then, very little operating cost in the future. >> Okay. >> And it, it does create a problem because in, in any sort of competitive industry. You learn to compete each other down to your variable cost, to your current cost in sales. Even if that means, losing money on the fixed, the upfront capital cost or levelized cost. And traditionally, ask for this in long-run contracts. I don't know, if that's [INAUDIBLE] at you here but you, if you know that the system that you install is going to last for 20 years or 40 years, you, you price that electricity, you, by a really long term time contract that's going to level by the terms of costs in the sense of per kilowatt hour you get back all the capital investment. >> Okay. All right. >> Yeah. Quick answer but that's the way, it tends to be the solution as the longer and longer the contracts, the more upfront system costs you have. >> Okay. So you sort of amortize it over a long. >> Mm-hm. >> Period of time so it's not, not a big spike up front. >> Yes. >> Okay. Here's one. And this is more of a policy question than an economics, but what would need to be done to encourage many public facilities to use solar power? For example, there's no reason for all the schools in Southern California [CROSSTALK] to not run on solar power. So, so that is exactly right. So why don't you tell us, what are the economic incentives we're going to need to put out there to get these. >> Some of them are out there already. In fact, the state, the states and public facilities really does have a lot of programs you can take advantage of, and you see San Diego has installed a tremendous amount of rooftop. So a number of the universities have there's no reason the public schools couldn't couldn't take advantage of some of those same incentives. we, we worry some about agency problems within, sort of within an economic unit say of the school, like who's really in charge of saving energy. Right? In the school and who gets, who gets to keep the savings if installing new stuff solar generated enough credits, enough sort of rebates and so on from the state. If it generated enough of those to reduce the energy bill of the school, in, in net. >> Mm-hm. >> Who gets to keep the savings? Can we hire more teachers with that? Can we buy textbooks with that? Or is that just money that itself goes back to the state, and so nobody in the school district really has the proper incentive to to do that. Right? So you, it's, I think lining up incentives is something you need to think about. Make sure that if you're going to give an incentive to install solar power, because you think it's a really good idea on public buildings. Make sure that whoever, you're giving that incentive to really gets to keep it, and really sees that they, that they get that right, they have that incentive. And then pretty soon one school does it and they get to hire a few more teachers, the next school district over will say wow, you know, we can, we can, >> Yeah. >> Improve the quality of education and improve what our goals are, as a result of this right, so money just drifts away. Again, there's no real, no real incentive for us to stay with that decision maker. >> Yes. And then one of the other problems we have which is just now starting to show up in our, in California with our portable tax, and that is that we have our utilities are monopolies. so, so here in San Diego it's it's San Diego Gas and Electric but that means their the only, you know, there is no competition between these. So we expect those companies to maintain the grid and then in exchange for that, or as part of them maintaining all of the electrical wires and making sure after there's a storm they get repaired, et cetera. They get to add those costs on to the, the electricity bill that gets shipped to us. So we're buying electrons, right? And we're paying for electrons but in fact, as part of that, we're paying for the entire infrastructure. So the problem becomes when you put up portable tanks and you're generating electricity at your house, and you're shipping electrons out and shipping and bringing elec, so you're shipping them out when you make a lot of them in the day. Pulling them back in at night when you don't need them. But if you balance that exactly right. So if your photo will take electrons out, as the exactly the same amount of your electrons in, in theory your electricity bill is zero. So then the problem becomes well, if your electricity bill is zero then whose actually paying for the maintenance of the grid? And so San Diego Gas and Electric has now wants to charge anybody who has [CROSSTALK] a connective charge, you know, they, they charge you just to be on the grid. You're paying your part of maintaining that whole grid. And there's been enormous resistance to this. >> Yeah. because it really drives up costs, if you're living alone in a very small apartment, your electric bill is typically ten bucks a month, 20 bucks a month, and now you've got a $50 grid connection. It's really a much bigger chunk for people whose bills are small to start with than for people who's bills are large to start with. It's very hard to distinguish. Hart Electric Company can easily distinguish who's someone living in a very small space for example, and that's why they have a small bill, versus someone who's putting a lot of TV back on the network, and they also have a small bill. They end up having to charge those two people the same connection fee, and it ends up being unfair, in some ways, which is why there's a push back, the solution is tough. >> Okay. So, you don't have a solution for us today? >> No solution for that one, no. >> [LAUGH] Okay. All right. Well, we're going to have to work on that for next. Mark will come up with a solution by next week, and let us know, and I'll relay that to the governor, and, so, we've got time, we've only got a few minutes left here, we've got one last question, we're going to throw this one up, because I know Mark can answer this one really quick and easy. And the question is carbon tax or cap and trade. And I will simply preface this by saying, we don't have carbon tax, we have cap and trade. And Mark will tell us, why we have the wrong thing. >> [LAUGH] Well, yes. And so they, there are worlds in which the two are equivalent. Okay? So there's, there's, there's, there are arguments for them both providing some incentives to people to reduce to reduce their emissions. >> Hm. >> In my slides actually I, I made a short list of reasons why a carbon tax might be might be superior. I'll just try to summarize it, a couple of them. One is, is, it's administratively much easier. You don't have these permits. You don't have to worry about someone cornering the market on permits. >> Market. Yeah, yeah, yeah. >> Or who exactly has to have a permits or not. You don't have to worry about new entrance. So, with the cap and trade system, you often give the permits away for free to existing companies. And if somebody tries to enter, instead of them having to buy the permits from the companies that are already. There's, there's many logistical issues. There's solutions to all those problems. But they, they can be complicated, But the big one, the most important one, the more I look at what's going on with cap and trade systems around the world, there's a number of them now the big advantage of a carbon tax is that it provides a consistent, constant pricing so that people make the investments. Right. So, the, the, particularly, with the recession. The recession was the sharpest example of this. The price of permits in cabin trade systems plummeted [CROSSTALK] People who had made investments to try to save carbon, or save energy lost their share. Because the price of carbon was cheap now, and they couldn't, they couldn't get their money back by selling by selling permits, whereas the tax. So people who made the right investments, would be the ones who were rewarded. Right? So there's, the'res a number of reasons, there's arguments on both sides. But I personally just feel that a carbon tax is just simpler, it provides a better signal to people. Easier to harmonize with other systems. It's just it's just very simple and elegant in many ways, economically. >> And then, I think the reason we even have cap and trade is because it's sort of easier for people to stomach, right? Because you put in the cap today and then you don't have to trade for that until the future. >> Right. But we want to get the incentive out there right away [CROSSTALK]. >> I, I, I, I know, but many people won't accept that they're like no [CROSSTALK] I'm not going to pay more today but if you put a cap on it it sort of. Pushes it out, and then eventually you arrive there. And so apparently it's less painful, because it comes out slowly rather than put, all at once. >> You can, you can wrap the text up. Again, British, read about British Columbia, not enough people know about their story. And they, they they ramp their toxin very slowly and that's, it's a fascinating thing to look at. So just look it up on the web, you'll get some big government websites. British Columbia government. >> Okay. [CROSSTALK] All right. That's all we have time for today. Thank's very much for tuning in. thank, we'll all thank Mark here. Yes, I can hear you all applauding out there. And thanks very much for sticking with the class and a couple more weeks to go. And thanks and we're signing off for today. >> Bye-bye.
