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We'll run out of beer before we run out of oil

by Jerome a Paris Mon Feb 26th, 2007 at 09:48:12 AM EST

Today's story is about beer, and about the unexpected consequences that the combined energy and global warming crises have on its price, but it also more generally about the unpredictable links we find between apparently unrelated issues as we push the limits on the exploitation of the earth's resources.

The immediate story is this:

Blow for beer as biofuels clean out barley

The rapid expansion of biofuel production may be welcome news for environmentalists but for the world's beer drinkers it could be a different story.

Strong demand for biofuel feedstocks such as corn, soyabeans and rapeseed is encouraging farmers to plant these crops instead of grains like barley, driving up prices.

Jean-François van Boxmeer, chief executive of Heineken the Dutch brewer, warned last week that the expansion of the biofuel sector was beginning to cause a "structural shift" in European and US agricultural markets.

One consequence, he said, could be a long-term shift upwards in the price of beer. Barley and hops account for about 7-8 per cent of brewing costs.


"In the US, land that was cultivated for growing barley has been given over to corn because of the ethanol demand," said Levin Flake, a grains trade analyst at the US department of agriculture.

The biofuels boom, motivated by a combination of subsidies and regulation, is already creating plenty of problems while doing very little to solve the underlying issue, our gas-guzzling habits...

Ethanol is now required as a fuel additive in the USA as a substitute to MBTE, an additive that was found to be noxious; it is also seen as a home-grown substitute for gas produced from oil, and a renewable one at that, thus helping to solve two problems in one go: dependency on Middle Eastern oil, and carbon emissions. The problems with that approach are numerous. The first one, endlessly discussed, is that biofuels provide a pretty weak substitute for oil, as their production (at least for so-called 'first generation' biofuels such as those made from corn) still requires a lot of oil in the context of our current energy-intensive agriculture. The second, which is slowly emerging, is the ripple effects that the rapid switch to biofuels is creating in other sectors, starting with the impact on corn prices (as demand for the crop skyrockets), and continuing with similar consequences on other crops that are now being displaced by corn as farmers try to take advantage of higher prices. What we are seeing is what appears to be increasingly desperate efforts by our industrial model to switch from one input to another as shortages appear - and propagate, and we keep on discovering new bottlenecks.

Resource scarcity is spreading, and the looming shortages implied in these skyrocketing prices suggest with increasing force that we are really going to need to start thinking about the demand side of the equation, instead of always looking for new solutions on the offer side. All our resources are at stake, and it's simply not going to be easy to reduce demand for one by finding substitutes - we're going to have to learn to do with less of *everything*, soon. :: ::

In this context, KKR's announcement that it was purchasing TXU for a record $44 bn (in the largest private equity deal ever) comes with an interesting twist, and a highly relevant one here:

How Green Green-Lighted the TXU Deal

It's a turn of events in a bitter feud between environmentalists and the highly profitable Texas utility giant that no one could have predicted.

Until two weeks ago, representatives from the Environmental Defense and the Natural Resources Defense Council (NRDC) thought they were in for a long, drawn out battle with TXU over its unprecedented $10 billion plan to build 11 coal-fired plants in Texas. The plants would have more than doubled the amount of carbon dioxide the company sends into the atmosphere. Indeed, TXU's plans had turned into a national referendum on coal-generated electricity. City mayors, business and religious leaders, and the state of Oklahoma joined forces with the environmentalists to fight the project.

But instead of fighting, the environmental groups helped to broker a deal with the private equity groups, sharply reducing the number of coal-fired plants to be built in Texas. Given the fierce resistance to TXU's plans, the private equity firms had decided that they would only go ahead with their takeover bid if they had buy-in from environmentalists and could work to turn TXU into a leader on environmental issues. That led to William Reilly, a longtime conservationist-turned-private equity investor at Texas Pacific Group, to reach out to environmental groups and get them involved in working out a deal under the type of deadline more common to boardrooms than environmental meetings.


But Reilly and his other private equity partners didn't want to go ahead without an agreement from the environmental groups to pull back their opposition and support the buyout. "Smart money knows that global warming is real and that a sophisticated approach to this is good business," says David Hawkins, one of the negotiators for the environmental groups.

What this means is another linkage in that tale - that of Wall Street big money with "greenery". One of the reasons for the skyrocketing corn and other related crop prices is the sheer amount that has poured into the sector in record time, lead by private funds and private equity firms who are seeing great opportunities to make money in fast growing sectors with a good image. They are investing massively in all sorts of new technologies, from wind to solar to various carbon sequestration or compensation mechanisms, and are helping develop the industry at record speed.

While this is obviously a good thing, and it is helping the renewable energy sector grow and be taken seriously (and it is helping the traditional energy sector shed its most polluting practices, as in the case of TXU above), it is also ensuring that other bottlenecks are being reached increasingly fast.

Fundamentally, the muscle of the financial firms in that sector is still focusing on improving the offer side of the equation. It's great, but it's not enough. We need to find smart ways to reduce our consumption of energy, or we'll end up running out of beer before we run out of fuel in our desperate quest for endlessly available energy.

Out of beer and out of Tortillas...! What was it about the story of the butterfly in China and the weather in the American plains ???? (snark)

"What can I do, What can I write, Against the fall of Night". A.E. Housman
by margouillat (hemidactylus(dot)frenatus(at)wanadoo(dot)fr) on Mon Feb 26th, 2007 at 09:59:39 AM EST
This is not the butterfly effect: this is the Bak sandpile model, mass extinction version, applied to economic sectors.

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Mon Feb 26th, 2007 at 10:01:51 AM EST
[ Parent ]
Oh. I see. Or actually, I still don't.

In physics, the Bak-Tang-Wiesenfeld "sandpile" model is the first discovered example of a dynamical system displaying self-organized criticality. It is named after Per Bak, Chao Tang and Kurt Wiesenfeld.

The model is a cellular automaton. At each site on the lattice there is a value that corresponds to the slope of the pile. This slope builds up as grains of sand are randomly placed onto the pile, until the slope exceeds a specific threshold value at which time that site collapses transferring sand into the adjacent sites, increasing their slope. This random placement of sand at a particular site may have no effect and it may cause a cascading reaction that will effect every site on the lattice. These "avalanches" are an example of the Eden growth model.


This system is interesting in that it is attracted to its critical state, at which point the correlation length of the system and the correlation time of the system go to infinity, without any fine tuning of a system parameter. This contrasts with earlier examples of critical phenomena, such as the phase transitions between solid and liquid, or liquid and gas, where the critical point can only be reached by precise tuning (usually of temperature). Hence, in the sandpile model we can say that the criticality is self-organized.

Once the sandpile model reaches its critical state there is no correlation between the system's response to a perturbation and the details of a perturbation. Generally this means that dropping another grain of sand onto the pile may cause nothing to happen, or it may cause the entire pile to collapse in a massive slide. The model also displays 1/f noise, a feature common to many complex systems in nature.

Is Sven around to say something useful about self-organization and confuse me even further?

by Nomad on Mon Feb 26th, 2007 at 10:17:24 AM EST
[ Parent ]
Where's the "strange attractor" slider ? :-)

"What can I do, What can I write, Against the fall of Night". A.E. Housman
by margouillat (hemidactylus(dot)frenatus(at)wanadoo(dot)fr) on Mon Feb 26th, 2007 at 10:21:30 AM EST
[ Parent ]
Psst, Nomad!

Bak-Sneppen model

The Bak-Sneppen model is a simple model of co-evolution between interacting species. It was developed to show how self-organized criticality may explain key features of the fossil record, such as the distribution of sizes of extinction events and the phenomenon of punctuated equilibria. It is named after Per Bak and Kim Sneppen.

The model dynamics repeatedly eliminates the least adapted species and mutates it and its neighbors to recreate the interaction between species. A comprehensive study of the details of this model can be found in Phys. Rev. E 53, 414-443 (1996). A solvable version of the model has been proposed in Phys. Rev. Lett. 76, 348-351 (1996) , which shows that the dynamics evolves sub-diffusively, driven by a long-range memory.

One feature of the model is that, although the average extinction rate is small, sometimes large "mass extinctions" happen in a cascade.

Bak suggested this might also work as a model of companies going in and out of business.

The feature that all these systems have in common is that a local failure disrupts the neighbouring sites and can lead to avalanches.

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Mon Feb 26th, 2007 at 10:23:07 AM EST
[ Parent ]
This is not quite right

The model dynamics repeatedly eliminates the least adapted species and mutates it and its neighbors to recreate the interaction between species.

At some level it doesn't really matter how you interpret the model, but giving an interpretation that makes no sense in its target domain is counterproductive.

Clearly, one species going extinct doesn't cause mutations in other species it interacts with. What it does is change the "fitness landscape" for those species. Hence, a well-adapted species interacting with a maladapted species risks extinction, too, despite being well adapted. If the maladepted species goes extinct, the "fit" species may lose its fitness as a result to the change in the environment.

The Bak-Sneppen model in a nutshell...

  • Take a large number of "species" interacting with only a small number of other species. Any large, low-connectivity graph will do, but for visual purposes one can arrange the species on a line [circle, by linking the endpoints] and use only nearest-neighbour interactions
  • Assign a random "fitness" value to each species. It doesn't matter what distribution you use, but for that reason the model is equivalent to using a uniform distribution between 0 and 1. To do this at home, you can use dice, or coins, or I-ching sticks, whatever.
This is the setup of the model. Now, Bak's key insight in all this is "extremal dynamics". Instead of following time forward at a constant rate, simply study the "next event". The models are in discrete time, the time scale is irregular, and no mere than one thing happens at a time. For each "event":
  • The least fit species goes extinct and gets replaced by a new species
  • The new species and its nearest neighbours are assigned new random "fitness" values
  • If one of the three species is now the "least fit", it goes extinct as part of "the same event"

Amazingly, this simple model presents some of the same statistical properties as the fossil record, including mass extinctions.

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Tue Feb 27th, 2007 at 05:30:01 AM EST
[ Parent ]
That is a bad picture - it shows the result of dropping the grains of sand on a single point, and so is not represenative of the model. In addition, the model is dynamic so a snapshot conveys very little.

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Tue Feb 27th, 2007 at 05:14:40 AM EST
[ Parent ]
Something is fishy about the TXU story. First of all KKR is famous for squeezing "excess" costs from a company they take over before flipping it.

Today's NY Times indicates that this hasn't been always profitable. For a utility the areas where one can cut costs seems rather limited. The local unions are already anticipating cutbacks. This usually comes at the expense of maintenance which gets "deferred".

I also don't believe they will stick by their limits on new plants, the green groups they are negotiating with don't have any legal standing. For KKR to flip the company they need to boost revenue and that can only come from growth, which means more generating capacity not less.

Once TXU is private there will be no outside review of what is happening internally as the SEC doesn't require filings of companies that don't sell shares to the public. This is when the mischief will begin.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Mon Feb 26th, 2007 at 10:08:43 AM EST
We don't know KKR hand on energy, cutting overall electricity production might mean more profit as peak prices rise.
by Laurent GUERBY on Mon Feb 26th, 2007 at 03:16:13 PM EST
[ Parent ]
more generally about the unpredictable links we find between apparently unrelated issues

The much greater concern is how very predictable links are ignored. Surely it is more than obvious that if one diverts agricultural products to fuel feedstock there will be less for alimentary purposes. This, however, is not a concern of the market, if such a diversion is deemed 'profitable'. The question asked right now, by everyone who is in any meaningful way a 'player', is: "What do we have to change in order for everything to remain essentially the same". "How do we go about this transition in such a way as to ensure the 'right' of profit capture at the top?" The problem with 'the market', and 'market solutions' is that this will always be the overriding concern.

How will we handle the unpredictable when the predictable is already ignored when inconvenient? I think, not very well.

by someone (s0me1smail(a)gmail(d)com) on Mon Feb 26th, 2007 at 10:29:36 AM EST
It is the unpredictable consequences of predictable links that pose the most problems. Unpredictability can even be used to deny that there is a problem in the first place, as in "we don't know what the ocnsequences of anthropogenic climate forcing will be, so forcing is not a problem".

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Mon Feb 26th, 2007 at 10:55:00 AM EST
[ Parent ]
What is most worrying is how predictable consequences of predictable links are disregarded if there is a profit to be made. It shows a complete lack of interest in acting for 'the greater common good'. Or perhaps that 'the greater common good' has been successfully equivated with 'maximum profitability'. (According to the terms that are defined for 'profitability' by the 'market', of course.)

Of course we will not proceed with caution with respect to unpredictable consequences. Even predictable ones can be ignored, if what, we can make another appeal to 'comparative advantage' and 'efficiency'?

by someone (s0me1smail(a)gmail(d)com) on Mon Feb 26th, 2007 at 11:28:14 AM EST
[ Parent ]
Talking about predicable links: while the governments do there very best to achieve they goals for the reduction of the emission of CO2 they take measurement who will be disastrous for other part of the world.
F.e. they give some subsidises to companies who invest in CHP (Combine heat & power), if the engine work with renewable energy sources they even give some `green electric certificates', so the energy for these companies will be cheaper. Only for this year and only for Belgium there is a company who want to invest in 16 chp's, lend them to other companies, capture the green certificates, and the money. These CHP's will work on palm oil. If you askes where the palm oil comes from and is there enough palm trees, he say `you only have to collected them in the third world'. That here where planted on land who was a forest is not of his business.
So the government (I know about the Belgium government, but I think there are others too) subsidises the forest destruction in name of saving the planet.  
by velaga on Mon Feb 26th, 2007 at 03:36:02 PM EST
[ Parent ]
I am reminded of the Simpsons episode where Mr Burns loses his nuclear power plant and tries to become ecologically-friendly. By the end of the day, he's only succeeded in being more ecologically destructive. There's a lesson in there: you can't fake concern for the common good using selfish motives.
by richardk (richard kulisz gmail) on Tue Feb 27th, 2007 at 02:12:06 AM EST
[ Parent ]
was snark, reference was to the 2nd amendment zealots (which I'm in more sympathy for these days) reference to the confiscation of guns only from their cold, dead hands.

"I said, 'Wait a minute, Chester, You know I'm a peaceful man...'" Robbie Robertson
by NearlyNormal on Mon Feb 26th, 2007 at 12:26:24 PM EST
I know nothing about private equity buy outs, but from what little I do know about the electric power industry, I bet what KKK really wants is the transmission lines and retail operations, not the coal plants:

"As part of the buyout, TXU said it plans to reorganize into three independently managed businesses. Each of the three parts would have its own name, management team, headquarters and board of directors, an arrangement that raised the possibility that TXU might eventually be split into pieces.
TXU's power-generation business will be renamed Luminant Energy; its energy transmission and distribution business will become Oncor Electric Delivery; and TXU Energy, its retail arm, will keep its current name, the company said."

 From NYT:  In TXU's $45 Billion Deal, Many Shades of Green,

Texas is #2 in the USA in terms of wind power potential (North Dakota #1, Kansas #3) but the main problem is getting it delivered to a market- so the real investment needed is in the distribution grid. Kansas is thinking of building a transmission grid with state bond money and then opening it up for private investment funded wind farms to use. Sort of like a second land rush that opened up the plains a century ago.

As for beer, I'm sure it will outlast SUV's and suburban sprawl. I recall hearing that agriculture first developed from the need for home-brew ingredients, not just to make bread. And I've tasted native beers in my travels made from seaweed, watermelon, corn or sausage fruit, so there is no end to human ingenuity when it comes to getting drunk.

On the more general question of linkages and unintended consequences, I have been thinking for some time now about how technological transitions actually do occur. It is hard to think of the jump from a world lit only by fire to the electric light bulb and centralized power distribution system we have now. But then you fill in steps from tallow candle to whale oil lamp (biofuels) to kerosene lamp (refined fossil fuel) to Victorian gas light (central distribution) and here we are. So, what's the next step?

by dorothy in oz on Mon Feb 26th, 2007 at 01:00:35 PM EST
Well, if you listen to the greens then the next step is to go backwards a couple centuries, back to biofuels and decentralization. If you listen to the industrialists, the next step is even greater centralization and use of nuclear energy.

Of course, nuclear energy => radiation => plutonium => hiroshima => evil.

Meanwhile, decentralization => reduced production => poverty => starvation => depopulation => cultural stagnation => deindustrialization => rising violence => child abuse => cultural devolution => infanticide as birth control => tribalism => noble savage => good.

But don't listen to me, I hate greens and since there is no objective truth it's only "my opinion" speaking.

by richardk (richard kulisz gmail) on Tue Feb 27th, 2007 at 02:21:36 AM EST
[ Parent ]
You're the first centralist anarchist I've ever encountered.

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Tue Feb 27th, 2007 at 05:17:07 AM EST
[ Parent ]
I scored -10.0, -7.54 on the political compass, so I'm less of an anarchist than I am a communist. Here are some thoughts to consider:

  • reality has a totalitarian bias, people ignore it at their peril
  • absolute truth is a totalitarian concept, relative truth a sign of mental retardation
  • universal human rights are a totalitarian programme

  • it's better to achieve good humanist goals using bad totalitarian methods than it is to achieve evil misanthropic goals using good democratic methods

Friends of the Earth and Earth First! are my enemies. These anarchy-ists meddle in things they do not understand at my peril.

Given the above, you might guess that I follow Bob Black in calling myself an anarch and not an anarchy-ist. I am a consumate enemy of all ideology.

Or perhaps the notion of "authoritarianism" understood by most anarchists is simply too narrow and arbitrary. If you interrogate it philosophically, you soon discover it hollow of meaning. Then the real insights begin.

by richardk (richard kulisz gmail) on Tue Feb 27th, 2007 at 09:05:36 AM EST
[ Parent ]
it's better to achieve good humanist goals using bad totalitarian methods than it is to achieve evil misanthropic goals using good democratic methods

Cue in Pol Pot.

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Tue Feb 27th, 2007 at 09:07:57 AM EST
[ Parent ]
Come on Migeru, is the death of millions really *achieving* humanist goals? Your reading comprehension is suffering. And don't even bother to claim that the ends and the means aren't separable. Earth First! proves they are.
by richardk (richard kulisz gmail) on Tue Feb 27th, 2007 at 08:48:00 PM EST
[ Parent ]
You don't know whether you'll achieve them unless you attempt it, and attempting totalitarian methods is not likely to achieve humanist goals. For every example you can come up with I can come up with a counterexample in the same historical period and political context.

Hey, I like the enlightened despots of the 18th century, too. It's just that they caused a lot of problems in their attempts to institute progressive reforms by totalitarian methods.

My point is that you may be trying to emulate your favourite enlightened despot and end up emulating Pol Pot.

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Wed Feb 28th, 2007 at 04:28:37 AM EST
[ Parent ]
Arthur Koestler's "The Yogi and the Commissar" book might be worth reading ???

After all, he was the only author whose books were shown in a bonfire in a propaganda poster, under Hitler's time, but also in Staline's Russia!
He used to hang them on each side of his office door at his home... Ending useless political arguments by showing the interlocutor... The door!

"What can I do, What can I write, Against the fall of Night". A.E. Housman

by margouillat (hemidactylus(dot)frenatus(at)wanadoo(dot)fr) on Tue Feb 27th, 2007 at 12:30:19 PM EST
[ Parent ]
one weirdly fascinating thing to me is that favourite expression "demand is inelastic" -- obviously utter nonsense, when the physical reality is that supply is inherently inelastic i.e. limited.  yet a great huge chunk of the orthodoxy of our time is based on this contraphysical notion of inelastic [well, unshrinking anyway, very elastic indeed as concerns expansion] demand on an infinite source.

now we see the inelasticity of sources and sinks, it is obvious that demand is the elastic term.  it can be moderated voluntarily, or involuntarily (K selection vs R selection anyone?).  but it will be moderated, because supply is inelastic.

if the definition of poverty [aka responsible household management] is having to choose between A or B on a limited budget, and the definition of  (relative) wealth [aka being an irresponsible spoilt brat] is being able to avoid the decision altogether and always have A and B, then that portion of the human race which thought it was irresponsibly wealthy is about to find out it is realistically poor.  I foresee an awful lot of whining and tantrums...

what will it come down to?

beer or cars?

beef or food security?

guns or butter?

or even...

industrial capitalism or a recognisably human future?

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Tue Feb 27th, 2007 at 08:40:36 PM EST
One of the farmers who organized the Pennsylvania Association for Sustainable Agriculture's annual meeting put it nicely: "The ethanol craze means that we're going to burn up the Midwest's last six inches of topsoil in our gas-tanks."

      The American public is in chill mode in more ways than one. We are finally freezing our asses off in the Northeast after a supernaturally mild December and January, and the heating oil trucks are once again making the rounds of the home furnaces (and running down their inventories). But we're also chillin' on the concept that there is an energy problem per se. The public is convinced that we are one IPO away from attaining the sovereign rescue remedy that will permit us to continue running our Happy Motoring utopia.

      The public is bombarded daily with feel-good news about new bio-engineered bacteria that can turn sawmill refuse into high-test gasoline, cornucopias of miracle diesel beans, lithium batteries that will take you from Hackensack to Chicago on a single charge, and still (despite all the evidence against feasibility) hydrogen-powered SUVs. The public is convinced that we will enter a nirvana of "energy independence" just-in-time -- the same way that WalMart miraculously restocks it's shelves.

       The truth is, we will never be energy independent as long as we remain a car-fixated society. It's that simple. If we can't let go of the sunk costs associated with Happy Motoring, we're probably not going to make it very far into the future, either as a nation or a viable economy or as an orderly society. By sunk costs I mean our previous investments in car-oriented infrastructure.

From the ever-irascible Kunstler

"Sunk Costs" would make a good title for a diary or a whole blog, come to think of it.

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Wed Feb 28th, 2007 at 12:17:37 AM EST
[ Parent ]

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