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EROI: Why Alternative Energy Will Be the the Future Conventional Energy

Posted By Austin Zwick, Monday, December 4, 2017

 Image result for Green energy

Author's Note: This is a bit longer, and with more academic citations and footnotes, than I usually write. But I feel like I have something important to say worthy of a longer read.

“We will make electricity so cheap that only the rich will burn candles,” said Thomas Edison as Bell Labs brought about an energy revolution. It was not the first, nor will it be the last. The conventional energy of the future will be created out of our research investments in the present. Coal power plants across the US are currently being retrofitted for – and replaced by – natural gas. These, in turn, will be replaced by a combination of wind, solar, nuclear, and/or another source that has yet to be invented. Petroleum, an ideal transportation fuel as it carries the greatest energy per unit volume[1], too, will eventually be displaced by more sustainable alternatives. Although the day may still be on the horizon, the age of fossil fuels will come to an end. This “Green Day” – defined as the first day in which sustainable energy sources overtake fossil fuels in providing the majority of both (a) transportation fuel and (b) electricity into the grid – will not be forced upon society through a government agenda of enlightened environmentalism, but instead will slowly be a transition as a result of natural market forces. A combination of increasing costs for fossil fuels – the rising of “scarcity rents” as described by Hotelling (1931) – along with falling costs of its substitutes – powered by industrial and technological innovations –  will one day tip the scales to turn today’s “alternative” fuels into the “conventional” fuels of tomorrow. This transition will change the geography of energy; having far reaching social, political, and environmental ramifications on society. It is up to energy scholars, planners, and policymakers to ensure that the transition is so smooth that no casual observer notices that it has even happened.

This future state becomes evident by following current trends in Energy Returns on Investment (EROI) for different energy sources. EROI[2] is the “ratio of total energy produced during that system’s normal lifespan to the energy required to build, maintain and fuel the system” (Gagnon, 2008). Similar concepts include energy ratio (Smil, 1994; Uchiyama, 1996), external energy ratio (Mann and Spath, 2001), energy payback ratio (Gagnon, 2008; Meier, 2002) and Lifecycle Energy Assessments (Heinberg 2009; Mulder and Hagens 2008; Murphy et al. 2011). Although these studies have been characterized by differing terms and inconsistent methodologies[3] (Murphy et al., 2011; Brandt and Dale, 2011), they all hint at the same idea: it takes energy to make energy. The more energy that is captured compared to what is needed in its production, the more value can be provided to the user at a lower cost.[4]

No matter the terminology, all use a similar scale where high ratios indicate greater efficiency while lower ratios indicate lower efficiency. Though government policy enacted through taxes and/or subsidies may skew short-term consumption towards a particular source, long-term consumption will always bend towards more efficient sources by the power of market prices. The exception is when global consensus is reached by government entities that a certain form of energy is too detrimental and therefore a universal tax is placed on its use with the goal of incorporating the cost of its externalities into its price. If EROI alone was taken into account, coal would still be king at an EROI of 46:1 (Hall et al., 2014). Yet because externalities include sulphur dioxide (a key source of acid rain), nitrous oxide (300 times more potent of a greenhouse gas compare to CO2), and “air pollutants… known to produce heart and lung diseases, aggravate asthma and increase premature deaths and hospital admissions.” (David Suzuki Foundation, 2017)[5], the world is moving away from coal. Universal carbon taxes, equivalent cap-and-trade schemes, or other international government regulation as signposted in the Paris Agreement will further accelerate this process. Canada recently announced a complete transition away from coal by 2030 to meet its climate targets (Viera and McKinnon, 2016), while China suspended the construction of new coal power plants in 29 out its 32 provinces out of health and environmental concerns (Stanway, 2017). How far behind are other, comparatively less harmful fossil fuel sources?

Even without such a tax, fossil fuels are losing their EROI advantage. Figure 1[6] below reflects EROI ratios with current energy returns of fossil fuels with today’s technology. An EROI ratio of 1:1 indicates that it took as much energy to produce that unit as is available to consume. Corn-based biofuels show little promise as they have EROI ratios calculated at 1.3:1 (Yaritani and Matsushima, 2014) or even below 1:1 (Pimentel and Patzek, 2005) depending on the methodology, barely more than what it takes to produce them. The incentive for their continued production is based off of continued subsidies by the US federal government. Likewise, the EROI from the Canadian oil sands, because of the necessary inputs on the front-end and the refining on the back-end, is only slightly better at 2.5:1; meaning that it only produces 1.5 times the energy it took to produce it after costs of production are subtracted. When the price of oil is sufficiently high, profits can still be extracted from these sources – but they still face a disadvantage compared to others.

Moving from bottom to top of Figure 1, fracking for shale oil has become considerably more efficient over time and can now be done profitably for as little as $35 a barrel (Mlada, 2017). Fracking for natural gas is only slightly more expensive per MmBTU, mainly due to back-end costs including compression, transportation, storage, and others. If the lower price is sustained, indicating greater energy efficiency, fracking will displace more expensive, unconventional forms such as the oil sands and offshore drilling. But it is impossible to tell how long the current ratios will last. Aucott and Mellilo (2013) find exceptionally high EROIs for the early fracking wells, but they also note their numbers may be misleading because the earliest well sites were in "sweet spots” – places with a combination of favorable geology and minimal government regulation – and will soon be depleted.

This temporary boost in EROIs is underlying cause of the collapse of oil prices in late 2014 as the market became flooded with cheap energy. But this will not last. Yaritani and Matsushima (2014) find natural gas from fracking to be between 17:1 to 12:1 depending on methodology, while Berman (2015) estimates that the EROI of the unconventional natural gas industry will stabilize between 10:1 to 5:1 in the long run. Though the EROI of fracking could be higher as the industry becomes exceedingly efficient, it also may face increased government regulation that offset these efficiencies. This decline in EROIs of unconventional oil and gas would follow the same larger pattern of decline in EROIs for the discovery and production of all petroleum and natural gas over the past few decades (Smil, 1994; Hall, 2008; Guilford et al. 2011; Gagnon 2008). Conventional oil and gas have fallen from 30:1 in 1995 to about 18:1 today (Gagnon, 2008; Yaritani and Matsushima, 2014).[7] These falling EROIs will be reflected in long-run price increases of fossil fuels as “scarcity rents” rise in accordance with the additional expenses to obtain these resources.[8]

This would not be a cause for concern itself, except for the fact that high oil prices are directly tied to economic growth. Economists estimate that a 10% rise in oil prices translate to an approximate global GDP loss of approximately 0.55 percentage points (Awerbuch and Sauter, 2005; Birol, 2004; Jones et al., 2004; Mork et al., 1994), while a sustained oil price of greater than $100 per barrel can induce global recession (Rubin, 2009). Furthermore, Gagnon (2008) theorizes that industrial society needs a minimum EROI of 3:1 to stay above this “Net Energy Cliff”, a ratio necessary for widespread motorized transit. Hall (2008) similarly argues that an even greater EROI of 5:1 is necessary to maintain even a limited functioning industrialized civilization. As the quality and quantity of each fossil fuel source is sliding down the EROI curve over time, a society dependent solely on fossil fuels would be slowly moving towards the Net Energy Cliff. Though exceptionally controversial, popular literature (Roberts, 2004; Heinberg, 2015; Kunstler, 2012) on “peak oil” warns of a day of reckoning where unprepared “society” is forced to make a sudden transition to alternative energy due to resource depletion, and dire consequences are the result.

The solution to this dilemma is for what is now called “alternative energy” – solar, wind, wave, etc. - to become the “conventional energy” of the future. What differentiates these sources from fossil fuels is that the declining EROI framework in Figure 1 no longer applies, as these sources (1) will have increasing EROIs over time through continual technological improvement, and (2) do not face resource depletion (scarcity) rents. Wind and solar have competitive EROI returns in the present, but the future is even more promising. Technological breakthroughs for wind and solar power are announced almost on a weekly basis. Recent studies put the EROI of wind power at up to 18:1 in 2010 and then rising to a maximum of 20:1 by 2012 (Kubiszewski et al., 2010; Lambert et al., 2012). The most recent meta-study on photovoltaics put the EROI at 7:1 (Gupta and Hall, 2011), but Mann et al. (2013) describes how the current rapid rate of small efficiency improvements in capturing sunlight is leading to large differences in the EROI. At the current pace of improvement, module efficiency by 2020 will reach 21%, equivalent to an EROI of 25:1, which is a greater EROI for all but the most productive fossil fuel sources. That said, EROIs on renewables need to be tempered, given the current lack of large-scale electricity storage partially mitigates their usefulness. A problem which companies, like Tesla, are zealously trying to solve to establish future market dominance; leading to an ‘arms race’ within the battery industry (Browne, 2017).

Until the grid is updated, Nuclear power, though not traditionally considered an alternative energy source, will most likely have a role to help maintain the “baseload” production – the minimum amount of electricity needed for the grid at any given time. Nuclear power allows for electricity creation to respond to fluctuations in demand, as opposed to all other alternatives which merely scavenge energy from the environment on semi-predictable patterns. EROI estimates for nuclear power greatly vary mainly due the many kinds of technology and differing regulatory frameworks that add to the cost of production, with some studies putting the number between 40:1 and 60:1 while others place it much lower. Most studies find that the EROI of nuclear is currently greater than or equal to 5 (Lenzen, 2008), which is where Hall (2008) places the Net Energy Cliff. Like renewables, nuclear can break free from the declining EROI patterns of fossil fuels through increased investment in research, development, and deployment of newer technologies.

What is exciting, is not where these technologies currently at, but where they are going. And the necessity (e.g., climate change) for them to get there. Carbon taxes may accelerate the trend, but it is not the driver of our future energy transition. Market forces still dominate, and the biophysics of EROI is its underlying fundamental mover. Soon enough, due to the increasing EROIs of renewable energy and the decreasing EROIs of fossil fuels, the Green Day will be upon us. This will shift the geographies of energy, which may leave current jobholders – and the places they reside - behind. What then? What new inequities will changing the “engine under the hood” bring? What to do when these workers exercise their political voices to have politicians hold back the transition altogether? Figuring out how to integrate these potentially forgotten people, such as coalminers in Appalachia, into a shared future may be one of the most pressing questions of economic and social geography going forward.

References

Aucott, M. and Melillo, J. (2013). A Preliminary Energy Return on Investment Analysis of Natural Gas from the Marcellus Shale. Journal of Industrial Ecology, doi:10.1111/jiec.12040

Awerbuch, S. and Sauter, R. (2005). Exploiting the oil-GDP effect to support renewables. University of Sussex, Sussex, UK.

Berman, A. (2015). Shale Plays Have Years, Not Decades of Reserves. Houston Geological Society, Retrieved from https://www.youtube.com/watch?v=5Ae1fg44l7E

Birol, F. (2004). Analysis of the Impact of High Oil Prices on the Global Economy. IEA, Paris, France.

Brandt, A., and Dale, M. (2011). A General Mathematical Framework for Calculating Systems-Scale Efficiency of Energy Extraction and Conversion: Energy Return on Investment (EROI) and Other Energy Return Ratios. Energies, 4(12), 1211-1245. doi:10.3390/en4081211

Browne, R. (2017). “Elon Musk's Tesla could soon be overtaken in the global 'arms race' for batteries, strategist says.” CNBC News. August 7, 2017.  https://www.cnbc.com/2017/08/07/elon-musks-tesla-could-soon-be-overtaken-in-batteries-arms-race.html

David Suzuki Foundation (2017). Coal-fired power worsening health and climate nation-wide. Posted  November 21, 2016. http://www.davidsuzuki.org/media/news/2016/11/coal-fired-power-worsening-health-and-climate-nation-wide/

Gagnon, L. (2008). Civilisation and energy payback. Energy Policy, 36(9), 3317-3322. doi:10.1016/j.enpol.2008.05.012

Gold, R. (2014). The boom: How Fracking Ignited the American Energy Revolution and Changed the World. Simon & Schuster.

Guilford, M., Hall, C., O’Connor, P., and Cleveland, C. (2011). A New Long Term Assessment of Energy Return on Investment (EROI) for U.S. Oil and Gas Discovery and Production. Sustainability, 3(12), 1866-1887. doi:10.3390/su3101866

Gupta, A. and Hall, C. (2011). A Review of the Past and Current State of EROI Data. Sustainability 2011, 3(10), 1796-1809.

Hall, C. (2008). The Oil Drum | Why EROI Matters (Part 1 of 6). Theoildrum.com. Retrieved 21 April 2015, from http://www.theoildrum.com/node/3786

Hall, C., Lambert, J., and Balogh, S. (2014). EROI of different fuels and the implications for society. Energy Policy (64): 141–152.

Hamilton, J. (2008). Understanding Crude Oil Prices. NBER Working Paper 14492 http://www.nber.org/papers/w14492

Heinberg, R. (2009). The End of Growth: Adapting to Our New Economic Reality . Gabriola Island, BC: New Society Publishers.

Heinberg, R. (2015). Afterburn. Gabriola Island, BC: New Society Publishers.

Hotelling, H. (1931). The economics of exhaustible resources. Journal of Political Economy, 39, 137-175.

Hubbert, M. (1962). Energy Resources, A Report to the Committee on Natural Resources: National Academy of Sciences, National Research Council, Publication. 1000-D . Washington, D.C.

Israel, B. and Flanagan, E. (2016). Out with the coal, in with the new. Pembina Institute.

Jones, D., Leiby, P., and Paik, I. (2004). Oil price shocks and the macroeconomy: what has been learned since1996. Energy Journal 25, 1–33.

Kunstler, J. (2012). Too Much Magic: Wishful Thinking, Technology, and the Fate of the Nation. Grove Press.

Lenzen, M. (2008). Life cycle energy and greenhouse gas emissions of nuclear energy: A review. Energy Conversion and Management 49:8, 2178–2199

Mlada, S. (2017). The oil price is falling but so is the breakeven price for shale. Oil & Gas Journal. Feb 2, 2017 http://www.ogfj.com/articles/print/volume-14/issue-2/features/north-american-shale-breakeven-prices.html

Mann, M. and Spath, P. (2001). A life cycle assessment of biomass cofiring in a coal-fired power plant. Clean Prod Processes, 3(2), 81-91. doi:10.1007/s100980100109

Mann, S., de Wild-Scholten, M., Fthenakis, V., van Sark, W., and Sinke, W. (2013). The energy payback time of advanced crystalline silicon PV modules in 2020: a prospective study. Progress In Photovoltaics: Research And Applications, 22(11), 1180-1194. doi:10.1002/pip.2363

Meier, P. (2002). Life-cycle assessment of electricity generation systems and applications for climate change policy analysis.

Mork, K., Olsen, O., and Mysen, H. (1994). Macroeconomic responses to oil price increases and decreases in seven OECD countries. Energy Journal 15, 19–35

Mulder, K. and Hagens, N. (2008). Energy return on investment: toward a consistent framework.

Murphy, D. and Hall C. (2010). Energy return on investment, Peak Oil, and the end of economic growth. Ann. NY Acad. Sci. 1219, 52–72. doi:10.1111/j.1749-6632.2010.05940.x

Murphy, D., Hall, C., and Powers, B. (2011). New perspectives on the energy return on (energy) investment (EROI) of corn ethanol. Environ. Dev. Sustain. 13, 179–202. doi:10.1007/s10668- 010-9255-7

Pimentel, D. and Patzek, T. (2005). Ethanol Production Using Corn, Switchgrass, and Wood; Biodiesel Production Using Soybean and Sunflower. Nat Resour Res, 14(1), 65-76. doi:10.1007/s11053-005-4679-8

Roberts, P. (2004). The end of oil. Houghton Mifflin. New York, New York.

Smil, V. (1994). Energy in World History. Westview Press.

Stanway, S. (2017). China suspends new coal-fired power plants in 29 provinces: report. Reuters. May 12, 2017. http://www.reuters.com/article/us-china-power-capacity-idUSKBN1880P4

Uchiyama, Y. (1996). Life cycle analysis of electricity generation and supply systems. Presentation, IAEA proceedings series; Vienna, Austria.

Viera, P. and McKinnon, J. (2016). Canada Aims to Fully Phase Out Coal Power by 2030. Wall Street Journal. Nov 21, 2017. https://www.wsj.com/articles/canada-aims-to-fully-phase-out-coal-power-by-2030-1479739247

Yaritani, H., and Matsushima, J. (2014). Analysis of the Energy Balance of Shale Gas Development. Energies, 7(4), 2207-2227. doi:10.3390/en7042207



[1] An observation that was first made by former Secretary of Energy Stephen Chu (Gold, 2014).

[2] Calculated as EROI=Eout/Ein

[3] Disagreements include (1) where to stop counting inputs, from point of extraction to point of use; (2) what exactly counts as inputs; and (3) which variation of a certain technology to include.  

[4] The numbers presented in this paper should be understood at averages with their own standard errors, unless noted otherwise.

[5] David Suzuki Foundation in summarizing research from the Pembina Institute, Israel and Flannigan (2016).

[6] Numbers in Figure 1 are not intended to be precise, as significant debate remains on the best methodology. The intention of the graphic is to illustrate (1) the relationship between EROI and market costs and (2) relative position of various energy sources bases on previous literature.

[7] Coal follows this same pattern. Falling from 80:1 in the 1980s to a mean of 46:1 today (Hall et al., 2014).

[8] Hotelling (1931) showed that, for depletable resources, prices should exceed marginal production costs, even if the oil market is perfectly competitive. Profits are derived from these ‘scarcity rents, which serve as the incentive for a producer to continue to offer supply in the present instead of withholding supply until the price rises even further. This ‘Hotelling principle’ is explicably tied to speculation and may be a factor that drives prices even higher in oil markets (Hamilton, 2008).

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Only Geopolitical Events Can Save Coal and the Canadian Oil Sands Now, and That’s A Good Thing

Posted By Austin Zwick, Wednesday, July 12, 2017



Uncertainty lies ahead for the coal industry

Three months ago, I gave a talk at the Institute of Municipal Finance and Governance (IMFG) about the Local Governance and Public Finance Challenges of the Fracking Boom: Lessons for the US and Canada. One of the nuggets of information that got the largest crowd response was pointing out that, because of the speed and lower cost of fracking, the Canadian Oil Sands simply cannot compete at $50 a barrel. There is no new investment into the oil sands now and once the equipment is depreciated and the current capital runs the course its natural life, that’s it. There is no new investment already as major players are pulling out. Five – maybe 10 years from now – speaking of the oil sands will be an anachronism. America is looking at the same story when it comes their coal production. Good for the climate. Even better for the local air. Bad for jobs in current mining communities.


US Energy Production by Source Type (Data Source: EIA 2016). Note the downturn in coal production at the same time as the increase in natural gas starting around 2007. Also “Other Renewables” – consisting of wind, solar, etc. -  make up less than 2 percent of production. They still have a long way to go.

When looking at economic production costs and global prices, there is one factor that I did not consider: the uncertainty of geopolitical events. Qatar could be embargoed by OPEC. The Venezuelan state could collapse. Militants could take over the Niger Delta. As modern industrial societies need fossil fuels to function, any one of these incidents could be game-changers for global energy markets. There is no imminent, suitable alternative to power our homes, cars, and factories. As such, it’s a price inelastic good and therefore small changes in supply and demand can lead to large price fluctuations. Even if one or two percent of global supply is instantly cutoff, the price of oil could quickly shoot back up to north of $100 a barrel. At such prices, fracking will skyrocket past its 2012 peak, but it will also make coal and the oil sands financially viable once more.

In order to protect both the climate and the local air we breathe, there are two strategies that are usually mentioned: (1) an international carbon tax, and (2) investments into renewable energy research and implementation -  particularly wind and solar but also nuclear. We should do these, but I would add a third that is counterintuitive: (3) maintaining world peace and trade networks that keep oil and natural gas prices low. The normal thinking goes that cheaper fossil fuels are, more we’ll use of them and this will slow our transition to alternative energy. This - in general - is true. The laws of supply and demand.

But here is where the rub lies: not all fossil fuels are created equal. Some do significantly more damage to the environment and human health than others. Coal and the oil sands are by far the worst in this regard. Allowing cheaper fuel from fracking – natural gas for powerplants, cleaner oil for transportation – to displace these sources is something that should be commended.

Cesur et. al (2016) found that :

“… natural gas networks has indeed led to a significant improvement in air quality. Furthermore, we show that the mortality gains for both the adult and the elderly populations are primarily driven by reductions in cardio-respiratory deaths, which are more likely to be due to conditions caused or exacerbated by air pollution.”

Lueken et. al (2017) publicized their findings in Scientific American:

“Tens of thousands of Americans die every year from old-fashioned air pollution, generated by electric power plants that burn fossil fuels… if all coal-fired power plants in the United States switched to natural gas—an extension of a trend that is already underway…  We found that such a shift would have tremendous positive effects on human health in America. We estimate that low natural gas prices and state policies that move utilities away from coal are savings tens of thousands of lives and tens of billions of dollars each year.

Both of these studies discuss particulate matter as the main culprit. A type of pollution that is unique to the dirtiest forms of energy. This has flown beneath the radar, but cannot be understated: MOVING AWAY FROM COAL AND THE OIL SANDS IS THE GREATEST UNHERALDED ENVIRONMENTAL ACCOMPLISHMENT OF OUR GENERATION.

Coal kills more people each year (52,000) than the number of jobs it employs (51,000) in the United States. No wonder natural gas has been dubbed a “bridge fuel” between yesterday’s dirty coal and tomorrow’s green energy revolution. A full transition to renewable energy will be the greatest accomplishment of the next generation, and possibly in all of human history. A goal we should strive for, but one that is still a few decades away. In mean time, a continuation of low oil and natural gas prices brought about by world stability will continue this quiet revolution of natural gas. The policy implications of this may seem abstract, but in neighborhoods throughout the country people will breath cleaner air and live longer for it.

What will this mean for your community? Post below!

Tags:  climate change  Coal  energy prices  Fracking  geopolitical events  health  Oil Sands 

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The Mining Industry: A Hidden Culprit Behind Toronto’s Overheating Housing Market?

Posted By Austin Zwick, Tuesday, June 27, 2017

Image result for toronto bubble

When US Housing prices deflated, Canada's kept climbing

I don’t want to talk about whether Toronto’s housing market is a bubble or not. The media has a fascination over that question as can be seen here, here, here, and many more. Economists, who are far more qualified than I, debate that point to death. Even government entities are mixed about it.

But it is undeniable that Toronto’s housing prices have risen far more and far quicker than anyone expected. Consequences include low-income families being gentrified out of their homes by rising rents, middle-class families who find buying their first home farther away with each passing year, and even those who can afford to buy must enter bidding wars where success is dependent upon unconditional offers – asking for an inspection is a deal-breaker and even seeing the house in-person might be too much to ask.

But how’d did this come about? There is no shortage of theories, but I want to posit one that may be overlooked: Toronto has become the global capital of the mining industry – or more specifically the capital of mining finance - and that has led to the city’s rapid transformation.

The mining industry that has become exceptionally more international and more mobile in the past decade. In a free market environment, headquarters and the professional/knowledge workers employed in them are being pulled into ever-larger clusters with the goal of gaining competitive advantage. The Toronto Stock Exchange (TSX) now hosts 75 percent of all mining companies in the world. I posit that the finance industry is crossing sectors from mining to housing, as the workers in this industry walk out of their office doors and head to their ever-more expensive homes outside.

Bay Street in Downtown Toronto

How did Toronto become the global capital of mining?

Canada is big. Very big. Second largest country in the world by land area big. But most of that land is uninhabitable. Because of the weather and the soil can’t support agriculture so far north, ninety percent of the Canadian population lives within 100 miles of the US border. But between the sparse signs of civilization lies incredible mineral wealth. Over 220 active mines extract over 60 minerals, as it’s a key driver of employment and external investment in the country. Canada's economy is dependent on resource extraction.

The country (a) prioritizes infrastructure investment, (b) protects the rule of law, (c) maintains a fair and predictable regulatory landscape, (d) promotes free trade, and (e) is welcoming of foreign investment and foreign workers. A combination that, although common in the western world, is exceptionally rare when it comes to resource-dependent countries. Rather, most countries suffer from “the natural resource curse” which is the paradox that those with extraordinary mineral wealth experience slower growth and instability as they tend to be plagued with corruption, armed conflict, and a poor record of human rights and business protections.

Toronto serves as Canada’s business capital with Bay Street - Canada’s Wall Street – as the focal point of a knowledge ecosystem of researchers, government, and business administration. The city serves as the bridge between the broader world economy and the development of Canada’s natural resources. To take advantage of Toronto’s business environment, to partner with other firms, and to raise capital, it has become advantageous for mining companies to co-locate in Toronto. This agglomeration of mining has flooded Toronto with investment dollars. This wealth has spilled over into the housing market.

Because of bidding wars, all houses sell for over asking in Toronto. Asking prices are only what the bidding starts at.

How is the government responding?

As financiers bid up the price of housing, Toronto faces a worsening housing affordability crisis. CEO Evan Siddall of Canada Mortgage and Housing Corporation (CHMC) – the public entity responsibility for regulating the housing market with the dual goals of promoting homeownership while maintaining financial stability - expressed concern about the level of indebtedness Canadians are taking on to purchase homes. The Bank of Canada Governor Stephen Poloz has issued a warning about the “unsustainable” rise in Toronto real estate prices, but stopped short of referring to it as anything but reflecting fundamentals of job and population growth. The federal government has tightened house lending rules by (a) introducing tougher requirements to qualify for a mortgage and higher minimum down payments, (b) increasing reporting requirements to catch tax-dodgers, and (c) tightening rules on mortgage lenders including more stringent stress tests.

The Ontario (provincial) government recently passed a series of reforms into law intending to make housing more affordable for residents. This includes (a) expanding rent control policies to cap how fast rent can be increased on current tenants and further protections for them from being unduly evicted; (b) creating new policies that would expand housing supply by expediting condo approval near transit nodes, promoting greater infill development, and investing in government rental housing; and (c) following British’s Columbia’s lead, placing a 15 percent tax on foreign homebuyers to ensure that residential units are homes for locals foremost instead of a financial investment for those living abroad. Even though the policies have only been in place for a few weeks, anecdotal evidence suggests a cool-down of Toronto’s housing market

Image result for mining workers

Canadian oil sands workers. Oil is Canada's biggest natural resource extraction industry.

But is mining really responsible for the rise in prices?

We don’t know, but it is worth further research. Financial capitals – London, New York, Singapore, Tokyo, etc. – throughout the world have seen dramatic prices increases. As Toronto joins the finance club, it would make sense for the pattern to follow. After all, Toronto still looks cheap in comparison. But there is yet to be hard evidence to prove this relationship.

Maybe Toronto is being hit by a different kind of resource curse: one where the finance of the industry makes the business capital too expensive to live in for regular folks. It's impact felt downtown instead of the hinterlands.

Do you find this argument convincing? Why or why not? Post below!

Tags:  Bubble  Finance  Mining  Resource Curse  Toronto 

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Canada May Soon Kill American Coal Communities. What then?

Posted By Austin Zwick, Tuesday, May 30, 2017

Coal workers heading home at the end of a shift (Nov. 12, 2015)

By placing a 20 percent tariff on Canadian softwood lumber, President Trump fired the first shot in a potential trade war with Canada. British Columbia (BC) Premier Christy Clark responded with an open letter asking Canadian Prime Minister Justin Trudeau to consider banning imports of thermal coal from the United States. A proposal that the Trudeau government is taking seriously, as it aligns with their well-publicized goal of phasing out all coal power generation by 2030. Doing so may very well be the nail in the coffin for coal communities in places from West Virginia to Montana. If this policy change occurs, what might happen to these places afterwards? There are no good answers.

What is thermal coal?

 

Ranks of Coal from Lignite to Anthracite

Coal is a fossil-fuel rock that is made up of mostly carbon, with remaining portions of water, air, hydrogen, and sulfur. It’s often mixed with additional impurities that do damage to the local air and environment when burned (see below). But the open letter was not intended completely phase out coal, but rather thermal coal specifically. As on the chart shown above, there are four main kinds of coal: lignite, sub-bituminous, bituminous, and anthracite. Lignite to low-grade bituminous is used exclusively for electricity generation, known as thermal coal. This most plentiful kind of coal has a lower carbon content and more impurities than higher-grades, making it the most environmentally damaging. High-grade bituminous coal is known as coking coal, which is used to produce coke - a key input in steel production. Anthracite, the rarest of coals, is very high carbon and burns much cleaner compared to other coals. It’s prized for its minimal impurities and therefore used almost exclusively in industrial production.

Why do the impurities matter?

Coal Exhaust from a power plant (Nov. 18, 2014)

Gases released during the burning of coal include carbon dioxide, hydrogen sulfide, ammonia, nitrous oxide, and sulphur oxide. The last two are the cause of acid rain, while nitrous oxide is 300 times more potent of a greenhouse gas than CO2. Additionally, burning it releases coal ash into the local environment and often includes trace amounts of toxins including lead, germanium, arsenic, and uranium. The David Suzuki Foundation points out that, “Air pollutants from coal plants are known to produce heart and lung diseases, aggravate asthma and increase premature deaths and hospital admissions. Coal plants are also a significant source of mercury that is harmful to children exposed during pregnancy and in early life.” This has lead health and environmental groups, such as the Pembina Institute, to call for Canada to completely phase out coal for electricity generation by 2030. A call that Trudeau answered.

Why the Open Letter?

President Trump and Prime Minister Trudeau (Feb 17, 2017)

As the United States moves away from coal - more due to it no longer being price competitive compared to natural gas from fracking, not environmental regulation -  coal companies cite port expansion on the as a necessary lifeline to their declining industry as American ports currently lack the capacity to meet East Asian demand. But West Coast states have continued to deny expansion permits to based off of environmental concerns. As the next best alternative, American coal companies have turned to Canadian ports in British Columbia.

This puts the Province’s pro-environmental politics at the center of a critical juncture in coal’s supply chain.  As BC does not use coal for electricity production and do not produce much thermal coal themselves, they have little incentive to help the industry and every incentive to hurt it. Even if Trudeau doesn’t ban thermal coal imports because of the softwood dispute, Christy Clark wants to tax the thermal coal industry out of existence.

What do American coal communities do now?

Done05

Mayor of Appalachia, VA after working a night shift in a coal mine (Oct. 26, 2012)

That is the question. There is no easy answer. East Coast mining companies have already started filing bankruptcy, and Rocky Mountain mining companies may soon follow suit. Unlike the boom-bust ghost towns of mining’s past, these communities continue to exist long after their economic underpinnings dissipate. They are left with devastated environmental landscapes, and often struggle with health problems from black lung to obesity. Without work, what then?

Some scholars, like Ed Glaeser, believe that the only answer is to stop subsidizing places – in effect, abandoning them – and instead subsidize people to retrain and move elsewhere. But is it fair to uproot whole communities? To ask people who have lived their entire lives in one home to move across the country?  

What are your thoughts? Any ideas? Post in the comments below!

Austin Zwick
PhD Candidate in Planning
University of Toronto

 

Tags:  Appalachia  British Columbia  Canada  Coal  Energy  Western US 

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