Wednesday, March 29, 2023

If this weren't a family-friendly blog, we could have a lot more fun with this one

 Matt Levine gives us a great example of the sometimes Orwellian world of business names.

 Ethical Capital Partners! Yes look if you are setting up a brand-new private equity firm with five of your lawyer/cannabis-investor buddies for the sole purpose of buying a porn company, you will be tempted to name it, like, Porn Capital Partners, or We Bought a Pornhub LP, or 69/420 Capital Partners, or, I mean, I’m sure you have worse ideas. But “Ethical Capital Partners” is a much better idea. Just a thin but necessary layer of deniability there. Your public-pension-fund limited partners, at their board meetings devoted to environmental, social and governance issues, can be like “and this quarter we allocated some funds to Ethical Capital Partners,” and the directors will be like “ah yes that sounds very ethical, what exactly do they do again,” and then there’s an awkward silence and the investment team is like “well they do porn.” But if they don’t ask then it’s great.

It's a dirty little non-secret that investors will pay a huge premium for businesses that are cool, sexy, and/or are adjacent to the next big thing. By the same token, investors will often initially shy away from companies with negative class connotations (both in the economic and in the broader sense of the word). The legendary Peter Lynch made many fortunes by seeking out hopelessly uncool businesses with sound fundamentals then waiting for the market to turn efficient. 

If you own one of these enterprises and you don't want to wait for investors to come around, you can try to move into one of these hot fields (usually a bad idea) or you can just create the impression that you did and the easiest way to do that is a name change.  Let's say you owned a low-end shoe lace in 1960. You might change your name from Acme Laces to Lacetronics. In the early eighties, you might have tried Bio-Lace. And, of course, Laces.com would have been the default option a few years later. Cashing in on ESG by calling a porn company 'ethical' is par for the course (and considerably less embarrassing than trying to work in 'block chain').

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Tuesday, March 28, 2023

Electric cars

This is Joseph.

This video is quite entertaining to those of us following the saga of Tesla:


This is also the company that tried offering a steering wheel as an upgrade to a default steering yoke and then ran out of steering wheels to sell. Not all electric cars are Teslas, but it is quite remarkable how far the stock price of Tesla can go on hype. Given the price differential between Tesla and other car companies, it is clear that the valuation is based on continued fast growth. 

In general, I see electric cars as a good idea but, like a lot of good ideas, it is amazing how pushing too hard on it can cause problems. The sort of fast growth that Tesla projects has some practical infrastructure hurdles that are outside of Tesla's control. Here is a Peter Zeihan video talking about some of the challenges that going fully electric with cars would cause:


Electric cars are also a very good solution to one type of problem (commuting) and a very poor solution for inter-city travel. The long charging times (and issues like people poaching the charger) make it a much less efficient method of long distance travel. Commuting 15 miles to work, everyday, easy. Driving from New York to Los Angeles -- you need to build a lot more charging stations. To date we have not even worked out a universal charging plug, which is crazy, In a dense urban area, this sort of network lock in might even be a sensible strategy but for a cross country trek, it makes no sense to have multiple stations in Wyoming. Imagine if gas pump handles were not universal? It would pay havoc with the long distance travel world.

So what backs the stock. I go back to the first video. 

UPDATE: After I wrote this, I realized that it meshes very well with a point that Mark likes to make -- that the majority of the benefit would actually come from hybrid cars. Hybrid cars have long ranges and can handle not being around a charging station, Emissions are a big improvement. 

Consider:

and note that a Prius battery is a lot cheaper, has far lower storage capacity, and thus stresses things like lithium reserves less. It also is a lot less of a tragedy when it wears out. 

There is a huge opportunity to cut back on emissions here for commuter vehicles. Tesla gets you to zero, but maximizes costs to the grid and the need for a parallel infrastructure that is not yet even standardized. Driving a Prius for commuting halves the emissions of driving a normal sedan (and it has a longer range than a Corolla so it is actually a better cross country driver). The pick-up truck is even worse (let along the tank sized F350 where mpg is like 20% that of the Prius). 

Since less than 10% of sales are currently hybrid or electric, there is huge opportunity here for hybrids to massively impact emissions. And, I may be in trouble with my editor for this, if we taxed F350's to make then undesirable as commuter vehicles that would also help with emissions considerably. 


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Testing to destruction

This is Joseph

One of the great paradoxes of Canada is how we can take a very good idea and then push it until it starts to show cracks. Today, the example is immigration. Immigration is a massive social good, creating benefits for everyone involved. But the question of just how much there should be is complicated. 

Canada's population's increase hit a million for the first time. The rate of 2.7% is on pace to match other fast growing countries, like Nigeria. The mix was 97% of growth due to international immigration. In fact, this is a very fast pace of growth:
If it stayed constant in years to come, such a rate of population growth would lead to the Canadian population doubling in about 26 years.

The United States is running around 0.38%, by comparison. 

So why do I worry that we are pushing this otherwise good things. Well, housing costs 40% more in Canada than the United States.  The conventional wisdom as to why (supply, low interest rates, and foreign buyers) are all deeply linked to immigration, except for the interest rates which do not explain why it is so much cheaper in Canada than the US (which has also had a period of affordable rates). Housing starts in Canada are low, for example Ontario is clearly under target. 

The issue is that you need to be able to house all of the new Canadians if you want a brisk growth rate. 

International students also create a risk if we ever stop being a popular destination for students. Ina  recent auditor report, Ontario noted that one College (Algoma):

As a result, international students accounted for 76% of Algoma’s tuition revenue for all campuses combined in 2020/21.

Obviously this makes the College extremely exposed to changes in the international studies market and means that a change in these volumes could impact the solvency of the institution.

That said, immigration is very, very good for a country. People do not want to move to weak and failing states. Immigration is a sign of strength and prosperity. But if you want to do a massive amount of it then it makes sense to plan for a general expansion of the capacity of the country.  

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Monday, March 27, 2023

“Gradually, then suddenly.” (I thought I'd have more time.)

I'm not surprised that we're seeing early signs of buyer's remorse, but I didn't expect to be so soon or so dramatic. As recently as the beginning of last week, the dominant narrative still had DeSantis with a comfortable hold on the nomination. There was some concern over Trump playing the martyr card over the indictment, but even if that did become a serious issue, that was hardly something you could blame the governor for. Hadn't not just Fox but the NYT, Politico, and the rest of the mainstream media had told us ad nauseam that DeSantis was a master politician who had made himself the new face of the Republican party. In the space of a few days, the convention wisdom has gone from optimistic to highly skeptical.

We were skeptical pretty much all along. It has been obvious for a while now that DeSantis isn't actually that good at politics. He lacks charisma and other relevant talents. He had a mediocre record until 2022, when he ran hard MAGA  in a heavily MAGA state where the Democratic party had recently imploded. On the national stage, he was if anything under-performing given the unprecedented PR build-up he'd received. These points are not so controversial now, but we were in a very lonely place when we made them back in August.






DeSantisis's only viable path to the nomination and to the presidency has always been actuarial, secure the number two spot and hope that something takes Trump out before the convention and Biden out before the election.
It's not clear who the Republicans could tap if not DeSantis, so don't expect the establishment to give up on him quite yet.
I have a number of DeSantis pieces in the draft folder. I'll still tey to get them out, but they won't seem nearly so prescient.
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Friday, March 24, 2023

The NYT is surprisingly comfortable with fascism, but they draw the line at putting ketchup on your steak

 

It often seemed like the problem the mainstream press (particularly the New York Times) had with Trump was based less on his far right, borderline fascist positions and more with the general boorishness of the man. This was certainly consistent with the relatively cozy treatment received by Jared and Ivanka. 

With the rise of Ron DeSantis, however, we got something close to a natural experiment for separating the effects of politics and personality. On every major policy issue, the governor was to the right (often far to the right) of the ex-president, but the former was a conventional politician from a conventional background with a conventional style. 

The relief felt by most of the press was palpable. Here was a potential leader of the Republican Party who wouldn't embarrass you (as long as you ignored his politics). Someone who wouldn't constantly give lie to the insistence that both parties were fundamentally the same, that the GOP was still the party of Bob Dole and the Rockefellers. 

DeSantis's treatment by the NYT et al. was, in its way, as positive as what he got from Fox. He was portrayed as a serious figure and a savvy politician. His abuses of power, his persecution of the LGBTQ community, his efforts to scrub the schools of an mention of civil rights, his alliance with anti-vaxxers, and all the other disturbing aspects of his administration were either downplayed or ignored. He might be moving the country closer to fascism, but at least he doesn't put ketchup on his steak.

          Politico: How Ron DeSantis won the Pandemic

 Some journalists have kept things in perspective. Josh Marshall has been characteristically clear-eyed. Jonathan Chait has been loudly banging this drum. Michael Hiltzik and the LA Times have, as usual, pushed back against the bullshit. The New Yorker has done good work here. 

And we should definitely single out Molly Jong-Fast.

DeSantis has his media cheerleaders on the right. Over at Rupert Murdoch’s New York Post, columnists have gushed over DeSantis, with one last week dubbing him “the sane choice to revive the US.” Some mainstream news outlets, meanwhile, though not heralding DeSantis, seem to be normalizing his authoritarianism. The New York Times is not alone in this department, but as the paper that most sets the nation’s news agenda, its framing of DeSantis certainly warrants scrutiny.

In one recent problematic headline, the Times, summed up DeSantis’s right-wing assault on education on in Florida, where book bans are on the rise, as the governor building “his brand.” Another recent Times article touted DeSantis’s “preparation and the way it allows him to control his political narrative.” (Sure, you’re able to control the political narrative when you rule like a despot and shut out the press!) That Times piece, as NYU journalism professor Jay Rosen put it, was “almost pure horse race,” with a focus on “either strategy decisions, or the management of postures and appearances.” 

A third recent Times article described DeSantis, along with South Dakota’s Kristi Noem and Virginia’s Glenn Youngkin as having “emphasized making their states family-friendly.” As New York magazine’s Rebecca Traister responded, “Stopped dead reading Times story this am by repetition of claim that DeSantis, Noem & Youngkin want ‘family-friendly’ states w/o acknowledgment of how they define ‘family-friendly:’ anti-trans, forced pregnancy, book bans, curtailed education. Why regurgitate their false frame?”

Jong-Fast left out the memory holing of the anti-vaxx element and the wishful analytics of the NYT data science team, but in her defense, there's just too much to cover in one piece.

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Thursday, March 23, 2023

Janan Ganesh points out one upside of a cult of personality

A couple of days ago, I wrote the following as part of a post on the increasingly nasty fight for the GOP nomination. It's a point we've been making for a while, but recent events have made it more important.

DeSantis, on the other hand, has a personal hold on almost no one. His support comes all but entirely from the combination of far-right positions, perceived viability, and a protected spot in the political hothouse, and the last two of those are quite fragile. When the fighting began in earnest, it was obvious he was going to lose that right-out-of-the-box shine quickly.

Janan Ganesh writing for the Financial Times hit on a similar idea and delved much deeper into the implications

There was always one benign feature of the Trump personality cult. Because millions of voters are unconditionally faithful to the 45th president, he doesn’t need to say or do anything in particular. His flock is there if he builds a wall against Mexico, and there if he doesn’t. It is there when he flatters the dictator of North Korea, and there when he threatens to crush him. It is there as he promises an infrastructure splurge, and there as his successor Joe Biden does much more to bring one about. It is even there when he recommends vaccines against Covid-19.

Trump doesn’t live or die by his policies. That is the point of a personality cult. He has no incentive to become ever more extreme (though also no incentive not to). I suspect he could turn into a pro-trade liberal and China dove and keep the greater share of his following.

DeSantis has no such license. What makes him so deceptively risky is that he must keep earning and retaining the trust of populist voters through his actions. His conventional Ivy League résumé, his photo-op with Biden during Hurricane Ian, even his personal stiffness: moderate Republicans hope that these are the marks of a pliable company man.

But these are also liabilities that he will have to counteract in a primary contest. So, expect more gestures in the vein of his Ukraine statement, or his call for a grand jury to look into vaccines, or his rolling war on woke. No US politician in recent years has been more resourceful in finding causes to fight. That owes something to imagination. It owes even more to insecurity about his place in his party.

 

 

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Wednesday, March 22, 2023

The Growth Fetish -- twelve years ago at the blog (SVB edition)

Linette Lopez (someone you should definitely be following) did perhaps the best deep dive on the collapse of SVB and on the culture that caused it. The whole thing is worth a read but I want to highlight this section because it dovetails with one of our longstanding threads.

In Silicon Valley the highest priority for any business is growth. That means if a certain trend is making money, the entire industry will pile in headfirst. Silicon Valley Bank thrived on these trends. It turned itself into the kind of asset VCs would want to own during the peak of this bubble: a high-growth business with a client list full of well-connected VCs, pedigreed startups, and depositors capitalizing on the latest craze. It was the Valley reflected back on itself in a bank balance sheet. SVB built its chummy relationships in classic tech fashion, winning over startups and their founders with an array of products meant to weave clients deeper into Silicon Valley's financial fabric. From direct equity investments to personal mortgages to founders, it was part of the plumbing that connected the industry. It was a part of tech culture, and it's that culture that ultimately did it in.

But to grow at the breakneck speed of its clients, Silicon Valley Bank executives had to change things in Washington. After the financial crisis, institutions with $50 billion or more in assets were designated "systemically important" and subjected to more-onerous rules. These requirements made the banks safer, but they also tamped down SVB's ability to grow. So the bank launched a lobbying campaign to neuter these regulations. The Trump administration and Congress finally gave SVB what it wanted in 2018, raising the "systemically important" threshold to $250 billion in assets.

Once that was accomplished, the bank was able to balloon, growing deposits from just under $50 billion in 2019 to nearly $200 billion in 2021. SVB's customers were growth-focused tech companies sensitive to interest-rate hikes. These customers all had the same sensitivity to rising interest rates and a slowing economy. They were startups depending on rounds of money that would get cut off in a downturn. They were crypto firms that faced the mounting threat of increased regulation. SVB took on a client base with a risk profile like none other in the country, and it then invested their money in assets that were sure to decline as rates rose. There was no hedging. SVB's balance sheet reflected complete trust in the Silicon Valley model: grow fast, grab customers, bet it all, and figure the rest out later. But, ironically, the very industry that the bank modeled itself on bailed at the first sign of trouble.

We've been thinking about investors' irrational focus on growth for a long time. 

Thursday, September 15, 2011

The Growth Fetish

[This is a big topic so I'm just going to lay out the bare bones for now and flesh things out later, hopefully with a little help.]

It's obvious that our economy is suffering from a lack of growth but for a while now I've come to suspect that in a more limited but still dangerous sense we also overvalue growth and that this bias has distorted the market and sometimes encouraged executives to pursue suboptimal strategies (such as Border's attempt to expand into the British market).

Think of it this way, if we ignore all those questions about stakeholders and the larger impact of a company, you can boil the value of a business down to a single scalar: just take the profits over the lifetime of a company and apply an appropriate discount function (not trivial but certainly doable). The goal of a company's management is to maximize this number and the goal of the market is to assign a price to the company that accurately reflects that number.

The first part of the hypothesis is that there are different possible growth curves associated with a business and, ignoring the unlikely possibility of a tie, there is a particular curve that optimizes profits for a particular business. In other words, some companies are better off growing rapidly; some are better off with slow or deferred growth; some are better off simply staying at the same level; and some are better off being allowed to slowly contract.

It's not difficult to come up with examples of ill-conceived expansions. Growth almost always entails numerous risks for an established company. Costs increase and generally debt does as well. Scalability is usually a concern. And perhaps most importantly, growth usually entails moving into an area where you probably don't know what the hell you're doing. I recall Peter Lynch (certainly a fan of growth stocks) warning investors to put off buying into chains until the businesses had demonstrated the ability to set up successful operations in other cities.

But the idea of getting in on a fast-growing company is still tremendously attractive, appealing enough to unduly influence people's judgement (and no, I don't see any reason to mangle a sentence just to keep an infinitive in one piece). For reasons that merit a post of their own (GE will be mentioned), that natural bias toward growth companies has metastasised into a pervasive fetish.

This bias does more than inflate the prices of certain stocks; it pressures people running companies to make all sorts of bad decisions from moving into markets where you don't belong (Borders) to pumping up market share with unprofitable customers (Groupon) to overpaying for acquisitions (too many examples to mention).

As mentioned before we need to speed up the growth of our economy, but those pro-growth policies have to start with a realistic vision of how business works and a reasonable expectation of what we can expect growth to do (not, for example, to alleviate the need for more saving and a good social safety net). Fantasies of easy and unlimited wealth are part of what got us into this mess. They certainly aren't going to help us get out of it.

 

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Tuesday, March 21, 2023

Godzilla vs. Rodan

You can't really root for either, but it's still fun to sit back and enjoy the spectacle.




2022 was a remarkably bad year for conventional wisdom pretty much across the board from the Red Wave to Russia's inevitable conquest of Ukraine to DeSantis eclipsing a rapidly fading Trump.

Marshall is being sarcastic here, since the rest of his timeline has been prominent Republicans and conservative influencers defending Trump and often attacking DeSantis. It's true that the indictments have turned up the heat, but the underlying trends we've been seeing for weeks haven't shifted. 

We all knew that Trump wasn't going to be a good sport and go away quietly. His relationship with the GOP has always been purely transactional. There was no reason for him to play nice for the good of the party and every reason for him to do everything in his power to get the nomination. Add to that his personal hold over a large segment (possibly a plurality) of the party and a vindictive nature, and you've given non-cult Republicans everything to fear.

DeSantis, on the other hand, has a personal hold on almost no one. His support comes all but entirely from the combination of far-right positions, perceived viability, and a protected spot in the political hothouse, and the last two of those are quite fragile. When the fighting began in earnest, it was obvious he was going to lose that right-out-of-the-box shine quickly.

Perhaps the best guide to the battle is Ron Filipkowski, who reads GOP/MAGA tweets so we won't have to.



A brief note to those making the "they all line up behind the nominee" argument. That was true in the past, and the rest of this post suggests it will be true if Trump wins, but are you really confident usually US political precedent to predict the behavior of this cult of personality?


Remember how the establishment press embraced Vance as an alternative to Trump?





 






One final interesting twist.
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Monday, March 20, 2023

Revisiting the cutting edge world of Tesla

A couple of months ago, the NYT argued that Elon Musk's long history of cutting corners with respect to ethics and safety was simply the price to be paid for advancing potentially life-saving technology.

Some of Musk’s most questionable decisions, though, begin to make sense if seen as a result of a blunt utilitarian calculus. Last month, Reuters reported that Neuralink, Musk’s medical-device company, had caused the needless deaths of dozens of laboratory animals through rushed experiments. Internal messages from Musk made it clear that the urgency came from the top. “We are simply not moving fast enough,” he wrote. “It is driving me nuts!” The cost-benefit analysis must have seemed clear to him: Neuralink had the potential to cure paralysis, he believed, which would improve the lives of millions of future humans. The suffering of a smaller number of animals was worth it.

There was, as we pointed out at the time, a subtle flaw in that argument.

With the complicated exception of SpaceX, none of Musk's businesses are on the cutting edge of anything. In autonomous  driving, AI, solar cell development, brain-machine interfaces, tunneling machines, and countless other technologies where Musk has promised revolutionary disruptions, his companies are, at best, in the middle of the pack and, in some cases, not making any serious effort at all. (On a related note, despite attempts to muddy the waters with creative statistics, Tesla spends far less than any of its major competitors on R&D.)

Now Faiz Siddiqui, writing for the Washington Post, has done an excellent deep dive into how Tesla slipped to the back of the pack in self-driving.

Some Tesla engineers were aghast, said former employees with knowledge of his reaction, speaking on the condition of anonymity for fear of retribution. They contacted a trusted former executive for advice on how to talk Musk out of it, in previously unreported pushback. Without radar, Teslas would be susceptible to basic perception errors if the cameras were obscured by raindrops or even bright sunlight, problems that could lead to crashes.

Musk was unconvinced and overruled his engineers. In May 2021 Tesla announced it was eliminating radar on new cars. Soon after, the company began disabling radar in cars already on the road. The result, according to interviews with nearly a dozen former employees and test drivers, safety officials and other experts, was an uptick in crashes, near misses and other embarrassing mistakes by Tesla vehicles suddenly deprived of a critical sensor.

 ...

Even with radar, Teslas were less sophisticated than the lidar and radar-equipped cars of competitors.

“One of the key advantages of lidar is that it will never fail to see a train or truck, even if it doesn’t know what it is,” said Brad Templeton, a longtime self-driving car developer and consultant who worked on Google’s self-driving car. “It knows there is an object in front and the vehicle can stop without knowing more than that.”

...

After Tesla announced it was removing radar in May 2021, the problems were almost immediately noticeable, the former employees said. That period coincided with the expansion of the Full Self-Driving testing program from thousands to tens of thousands of drivers. Suddenly, cars were allegedly stopping for imaginary hazards, misinterpreting street signs, and failing to detect obstacles such as emergency vehicles, according to complaints filed with regulators.

...

The data showed reports of “phantom braking” rose to 107 complaints over three months, compared to only 34 in the preceding 22 months. After The Post highlighted the problem in a news report, NHTSA received about 250 complaints of the issue in a two-week period. The agency opened an investigation after, it said, it received 354 complaints of the problem spanning a period of nine months.

Months earlier, NHTSA had opened an investigation into Autopilot over roughly a dozen reports of Teslas crashing into parked emergency vehicles. The latest example came to light this month as the agency confirmed it was investigating a February fatal crash involving a Tesla and a firetruck. Experts say radar has served as a way to double check what the cameras, which are susceptible to being washed out by bright light, are seeing.

“It’s not the sole reason they’re having [trouble] but it’s big a part of it,” said Missy Cummings, a former senior safety adviser for NHTSA, who has criticized the company’s approach and recused herself on matters related to Tesla. “The radar helped detect objects in the forward field. [For] computer vision which is rife with errors, it serves as a sensor fusion way to check if there is a problem.”

 Longtime followers of this story will remember Dr. Cummings, fighter pilot and real engineer, This isn't a post on how Musk handles criticism, but if it were, hers would be the first case I'd mention.

 

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Friday, March 17, 2023

Charging for a feature, then charging more to remove that feature... Where have I heard that before?

For those who think the Tesla CEO gets all of his ideas from an old Thunderbirds Are Go! DVD, this clearly comes from a more sophisticated source.






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Thursday, March 16, 2023

Thursday Tweets -- "Residents hope the next sister city comes with a Google search"



Political analysts have been making the same mistake with DeSantis they did with Walker, assuming that the air of inevitability shown in the safe and protected phase of the campaign will hold up when the bullets start to fly. As we've been pointing out since at least August, DeSantis is a weak politician. The unprecedented build up he's gotten from the conservative (and often the mainstream) press failed to hide just how devoid of charisma and personality he is.  His likeliest path to the nomination was to stake out a position to the right of Trump (particularly with the anti-vaxxers), then hope that disease, death, or imprisonment would take out his rival, leaving him to fill the vacuum with his personal void.

Now that the battle is heating up, you can see the oracles start backing away from the next-big-thing narrative, perhaps thinking of how earlier predictions turned out.

 


Quick side note, Tom Bonier has become the political numbers guy to watch.

And, of course, Chait is always worth listening to.

 From a policy standpoint, DeSantis was to the right of Trump on every issue except Ukraine. We knew that wasn't going to last.



 

Putin's unpopularity makes his hold on Fox et al. all the more remarkable.


Of course, there are still those in establishment warrens like the Brookings Institution trying to paint DeSantis as a normal politician, but they aren't getting much traction.
There is no real place for normal in today's GOP.


 

Excellent points from Grossman and Sewer.

 

 The irony of Bannon playing the Hitler card

 

Forget all that stuff we said about the collapse of Silicon Valley Bank, the WSJ has the real scoop.

I also learned BLM = HBCUs
Wokeness is so much better an explanation than incompetence and bad business practices.

Since the WSJ has explained everything, I guess we can skip this article from Linette Lopez.


From crypto to AI

My favored measure is avoiding nature/nurture debates, but this is good too.



And we'll close out the topic with Dean Baker


 Great thread on military technology from our favorite historical blogger.



Dis-disinformation


Cool legal thread (I had no ideas the statute of limitations worked that way).

...


Those cute toddler videos just got a little more depressing.

Any Ag nerds in the audience?

The GOP and Social Security

Also the party of local control and parents' rights

Not often that we praise the Cato Institute.

About a year ago, Josh Marshall set up a couple of lists on the war in Ukraine. They were enormously useful, providing timely and insightful news and commentary from trustworthy sources. Based on that track record, this should definitely be worth your time.









A classic example of foregrounf/background staging of comedy.

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Wednesday, March 15, 2023

"Everything you need to know about the wild world of heat pumps" is nowhere near everything you need to know about heat pumps

 



I had such high hopes for this MIT Technology Review article by Casey Crownhart . Finally, someone was talking about an important, ready-to-go technology for addressing climate change and the power grid. Unfortunately, other than a handy introductory explanation of how heat pumps work, we get the same old narratives, biased - - biased in favor of a technology I actually have been pushing, but biased nonetheless - - with all the same old bad habits, getting key details wrong, using questionable examples, making big logical leaps, omitting important problems, and ignoring the most promising aspects of the technology.

The claim that heat pumps don’t work well in really cold weather is often repeated by fossil-fuel companies, which have a competing product to sell.

There’s a kernel of truth here—heat pumps can be less efficient in extreme cold. As the temperature difference between inside and outside increases, a heat pump will have to work harder to gather heat from that outside air and disperse it into the room, so efficiencies drop.

...

There are heat pumps running everywhere from Alaska to Maine in the US. And about 60% of buildings in Norway are heated with heat pumps [Norway is an interesting case but a bad example. It has abundant electricity almost all of which comes from hydro which plays by a very different set of rules with respect to the power grid. -- MP], along with 40% in Sweden and Finland. [Sweden and Finland rely heavily on ground-source heat pumps, but we'll get back to that -- MP]

That first link points to a quite good Washington Post article by Anna Phillips on the increasing popularity of heat pumps in Maine, which is caused less by their advantages in winter (as the MIT piece implies) and more by the need for summer AC in New England due to climate change. Phillips also doesn't assume an argument can be ignored just because it comes from someone associated with the gas industry. 

Again from the WP:

The Maine Energy Marketers Association raised questions about heat pumps’ viability by suggesting they would tax the region’s electric grid. In 2021, ISO New England, the state’s power grid operator, warned of rolling blackouts because of supply chain issues affecting natural gas. Yet the trade group’s president blamed the situation on the state’s promotion of heat pumps.

“Our power grid is not equipped to handle the demand that is now being put on it,” Charles Summers said in a radio interview. Summers said he and his fellow industry group leaders in New England had sent letters to their governors “asking that states pushing so hard toward electrification, pushing complete conversion to heat pumps, just tap the brakes for a few minutes.”

 Strain on the power grid is the main devil in the details of electrification, whether you're talking about heat pumps or EVs, but it receives disturbingly little attention from journalists and commentators. Here is the only mention of the grid in the MIT piece.

 Heat pumps run using electricity from the grid. While fossil-fuel plants still help power grids around the world, renewables and low-carbon power sources also contribute. So with the current energy mix in all major markets, heat pumps are better for the climate than directly fossil-fuel-powered heating, Monschauer says.
[It's a bit a a digression from our primary point but ramping up immediate demand for electricity will almost inevitably shift the generation mix toward natural gas, particularly in situations where solar isn't much of an option such as winter in New England.]

 One of the main disadvantages of using electricity instead of something like natural gas or oil to heat or cool a house is that the power grid is far more affected by spikes. If everyone gets home at 5:45 On a winter's day and turns on their heat pump, or if everyone cranks up the AC on a hot Saturday afternoon, the results can be disastrous for the power grid, ranging from brownouts all the way to cascading power failures. By the same token, if everyone decides to conserve at the same time it really doesn't do a lot of good with electricity compared to something like heating oil.

Particularly with heat pumps, this problem can be a double whammy. A massive cold front/heat wave will cause a huge increase in people turning on the heat while at the same time making heat pumps far less efficient. We've already seen something like this in summer since the vast majority of air conditioners run on electricity. The existing infrastructure simply couldn't handle it if everyone currently heating with gas or oil suddenly went over solely to electricity.

Unless..

What if there was a way that you could get everyone to use their heat pump only when it was somewhere between 50 to 60° outside? 

From the Department of Energy:

Geothermal heat pumps (GHPs), sometimes referred to as GeoExchange, earth-coupled, ground-source, or water-source heat pumps, have been in use since the late 1940s. They use the relatively constant temperature of the earth as the exchange medium instead of the outside air temperature.

Although many parts of the country experience seasonal temperature extremes -- from scorching heat in the summer to sub-zero cold in the winter—a few feet below the earth's surface the ground remains at a relatively constant temperature. Depending on latitude, ground temperatures range from 45°F (7°C) to 75°F (21°C). Like a cave, this ground temperature is warmer than the air above it during the winter and cooler than the air in the summer. The GHP takes advantage of these more favorable temperatures to become high efficient by exchanging heat with the earth through a ground heat exchanger.

As with any heat pump, geothermal and water-source heat pumps are able to heat, cool, and, if so equipped, supply the house with hot water. Some models of geothermal systems are available with two-speed compressors and variable fans for more comfort and energy savings. Relative to air-source heat pumps, they are quieter, last longer, need little maintenance, and do not depend on the temperature of the outside air.

And from Wikipedia:

The US Environmental Protection Agency (EPA) has called ground source heat pumps the most energy-efficient, environmentally clean, and cost-effective space conditioning systems available. Heat pumps offer significant emission reductions potential, particularly where they are used for both heating and cooling and where the electricity is produced from renewable resources.

By comparison, here's the entire discussion of ground-source heat pumps from the MIT piece.

There’s already a wide range of heat pumps available today. About 85% of those installed are air-source heat pumps like the one I’ve described. These come in a wide range of shapes and sizes. But other models—so-called ground-source or geothermal heat pumps—gather heat from underground instead of collecting it from the air.
Just to summarize, the technology with the most promise for reducing the climate change impact of heating and cooling only gets one sentence while the biggest challenge we have to address doesn't even get mentioned. This is more or less what we've come to expect from coverage of global warming stories, which given the magnitude of the problem, isn't acceptable at all.


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Tuesday, March 14, 2023

Housing starts and neighborhood character

This is Joseph.

Mike Moffatt is at it again. He looks at the growth in non-permanent residents in Canada from 2014 to 2022 and it has increased from 253,525 to 732,135. In eight years. It was pointed out that this excludes those without papers. It also excludes new permanent residents, intended to be at the 500K mark for the country as a whole (Ontario is 40% of the population). 

It is very hard to get concrete numbers, but the sort of numbers the government gives are small for this type of population growth. Between 1991 and 2021, Toronto grew from 3.9 M to 6.2M people. In 1991 a one bedroom in Toronto was $592 per month ($998 in 2021 dollars). Instead the cost grew to $1,439 for a one bedroom in Toronto in 2021 and $1,527 a year later. 

There are lots of absurd examples of preserving character (the 1940's outhouse is just too scenic) that exist but the central tension is that you cannot maintain neighborhood character everywhere and have the city expand by 60% in population in a generation and keep all of the neighborhoods the same. I mean that could be a goal, keeping things in statis, but if you are pursuing that goal there is an issue here. 

We have transitioned from 28 million Canadians in 1991 to 38 million in 2021 (36% growth), so the whole country has been robustly growing in population over this time period. But, seriously, student permits went from 139,890 to 411,985 over that 8 year period. This tells me schools are using international students to balance their books but that these measures are only going to increase housing scarcity. This answers the question of where the low end housing is going -- students compete for the same housing as low income Canadians. 

Canada is also unusual in that it is a settler nation. One issue that this really brings tot he forefront is the terrible treatment that first nations experience. From Statistics Canada:
In 2018, among Indigenous people responsible for housing decisions within their households, about 12% of off-reserve First Nations people, 10% of Inuit and 6% of Métis said that they had experienced unsheltered homelessness in the past. The corresponding proportion for non-Indigenous people was 2%.

 A shortage of housing disproportionately hurts the most vulnerable members of society and there is no question that off-reserve First Nations are extremely vulnerable. What use are land acknowledgements if we can't help these people with basic housing in a climate that drops to -30 C (a credible winter temperature in Winnipeg)?  

Compared to this is the question of neighborhood character? 

The real question is if Canada has the will to build housing to match the aggressive immigration targets that it sets. Many states in the United States, including California, have responded to the housing cost spiral and it has been a while since the least affordable housing was in the US. Back in 2017 Vancouver was less affordable than either Manhattan or San Francisco, and the situation has not improved (3 years later, Toronto crossed this threshold too). At this point, corrected for salary, not even rents are cheaper in Toronto. 

This is a remarkable state of affairs that one presumes must come to an end eventually, but hopefully with less human cost. 

Postscript: This twitter thread came out after I wrote this piece but highlights the issues rather well. The one piece I neglected was that the richest parts of Toronto are in population decline as the detached houses becomes less and less occupied. 
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