(Mar. 02, 2010) Dr. Jaccard said: “When the price of oil fell in the 1960s…”

Neither the nominal nor the inflation-adjusted price of oil changed much during the 1960s—at least compared to other decades. After a significant post-WW II hike, the inflation-adjusted price of oil fell during the 1950s and did not really change much until 1974, when the price went through the roof.

The oil prices started to dive again between 1987 and 1999, after which they sprang up but never reached the inflated-adjusted equivalent of 1980/81 price levels. We are not able to estimate the world price of crude with enough certainty to distinguish between a $20 and $19/bbl annualized price estimate in the official table below.  Statistically, those prices are the same.

What could matter is the rate of change in the price of oil relative to the rate of change in median household income. Households can maintain commodity consumption levels with little pain if their incomes are going up faster than commodity prices. This table shows that real oil prices did fall while real household incomes increased in the 1960s, but nothing like what happened in the 1980s and 1990s.

Dr. Jaccard said: “…in the 1960s we stopped building coal-fired power plants and started building oil-fired plants”

Ah…no.

This table shows that we built coal-fired power generation capacity consistently through the 1960s, 1970s and 1980s. We built over 3,000 MW of coal-fired power supply in the 1960s and more than double that capacity in the 1970s.

100% of the 6,957 MW of coal-fired generation capacity that came on stream in the 1970s was completed before the end of 1974.

It takes 5 to 7 years to get a fossil-fuelled power plant through the siting, permitting and construction process, which means that virtually all of that coal-fired generation capacity that was planned, approved and built over a period of relatively stable oil prices and just before oil prices drove through the roof.

Dr. Jaccard said: “…when the price of oil went up, we started building natural gas plants”

Ah…no…again.

As noted above, the price of oil increased, rather suddenly, in 1974, peaked in 1980 and crashed in 1987.  But as this table shows, Canadians built 71% of our oil-fired power generation capacity over the 1970s and 1980s, with the oil-fired generation construction boom really taking off in 1973—coincident with peaking oil prices.

We did build about 24% of our gas-fired power generation capacity in the 1970s, but: (1) we built three times more coal-fired and 1/3 more oil-fired generation than gas-fired capacity over that period and (2) while oil prices were high and gas prices were low in the 1980s, we built nearly no new gas-fired generation capacity. In fact, we built 46% of our gas-fired generation capacity since 2000, the period over which the price of gas has  increased continuously before finally hitting its peak in August 2008.

It might also be worth noting that since BC has had a carbon tax, demand for the taxed carbon-based fuels has increased in BC—in both absolute and per capita terms—at a faster rate than consumption for those fuels has increased in any other Canadian province or US state.

I believe that climate change and managing anthropogenic GHG emissions are key challenges that our generation must address. But I also believe that market regulation is the answer.

Dr. Jaccard’s recommended regulatory and policy recommendations are ineffective and inefficient, largely because they are made to fit a theoretical world and not the real one we live in. It is not sufficient for Dr. Jaccard to look up the facts and integrate them—although that is a first step—into his modelling. Most importantly, he needs to start asking and exploring one key question: why does the world not actually work as per his theory?  It is only through the exploration of the variance between his modelled world and the real one we live in that he can position himself to truly grasp how investment and consumption decisions are formed and to then develop policy and regulatory recommendations that have a chance at being effective and efficient.

Having said that, Dr. Jaccard is correct to site “density” as a priority objective, though my guess is that he and I would disagree about how to achieve that objective.

Aldyen Donnelly, March 02, 2010