Guest Post by Willis Eschenbach
I’ve spent the last week in the Solomon Islands, which is northeast of Australia. It’s a wonderful place for me to come back to, even if only for a week, as I lived here for nine years. It’s a curious place, one of the UNs “LDCs”, the “Least Developed Countries.” It is the most rural country in the Pacific, with about 90% of the people still living in small scattered villages on hundreds of islands. Most people from outside the Solomon Islands have never heard about it until I say that the capital city, Honiara, is on the island of Guadalcanal.
I wrote my last post from here in the Solomon Islands, about how energy and GDP are different ways of measuring the same thing. I got to thinking about the Solomons GDP ($1,600 per year, tied for 187th out of 225 countries with countries like Chad and Tajikistan) and the energy use in the Solomons. Here’s the Solos’ energy consumption by type of fuel:
Figure 1. Energy Use by Fuel Type, Solomon Islands. Photo Source
As an aside, looking at that chart, you’d think that the Solomons should be the poster child for alternative energy. Three-quarters of the country’s energy comes from biomass, what’s not to like?
What’s not to like is trachoma and lung disease from cooking over open fires, plus lots of unburnt hydrocarbons and brown carbon from wood smoke, huge inefficiency losses, and other issues. But I digress. Looking at that graph, I was reminded that we mark the dawn of human civilization by a single act – the domestication of fire.
Fire was our first use of a concentrated energy source, our first step towards a GDP greater than what humans can do unaided. Unfortunately, for much of the Solomon Islands, it remains the only energy available in concentrated form. Three quarters of the energy used is plain old garden variety fire. In addition to household use, it provides the energy for two of the very few ways that the rural islanders can make money – copra (dried coconut meat) and cocoa. Both require heat for drying.
Now, given the general equivalency of energy consumption and GDP, what does that mean for the Solomons? It means that this lovely environmentally correct bio-fuelled country will never climb out of its poverty without more energy. Fire is not nearly enough to fuel an economy in the 20th century.
What about the petroleum fuels? What are they being used for in the Solomons? Here is the breakdown:
Figure 2. What the Fossil Fuels (diesel, petrol, natural gas, kerosene) are Used For in the Solomon Islands. Photo Source
The main thing that sticks out is that, in great contrast to the US situation, more than half of the Solomons fuel is used for transportation. This is a consequence of the way things are transported here … mostly by outboard canoe. There are perhaps a hundred miles of paved road in the entire country. Everything is moved by boats large and small. The big boats take things to the provincial centres (such as they are), and people go to buy them in their small canoes powered by outboards.
The good news in the graph is that electricity sector is 100% diesel-powered, so at least there is hope there. The islands are steep and rainfall is abundant, and there are some good hydropower sites. That means some substitution is possible.
Overall, once again we see that development in Solomon Islands is a function of energy, and that as long as they are relying on fire and a handful of petrol, they will never fire up the economy in any significant manner.
Now, I started this whole island travelogue with a very specific point in mind. It has to do with a pet peeve of mine. This is the pernicious idea that the way to solve the “energy problem” is to make fuel more expensive through taxes, so people will use less of it and become more efficient in its use. (As an aside, I don’t see the “energy problem” as being people using too much fuel, but as being people who don’t have affordable fuel. But hey, that’s just me.)
There’s two problems with that “tax our way to energy freedom” idea. First, in the Solomons, a trip from Gizo Island to Kolombagara Island in a particular boat might take, I don’t know, call it ten litres of fuel. If fuel prices go up and the operator can only afford eight litres, he’s stuck. He can’t economize and get more efficient like the theory says he’s supposed to, the outboard engine burns so much an hour. And he can’t just use the eight litres he can buy, it will leave him marooned in mid-ocean. He’s stuck in port, and out of the game.
There’s a worse problem, though. This is that taxing energy is taxing the wrong end of the production process. This slows the whole production process down before it can be started. I saw this in Honiara when fuel prices got high in 2008. For a while you couldn’t buy fish in the market of the capital city. Why? Because fuel cost too much, so it wasn’t worth it for the guys to go out fishing … and a significant chunk of the fuel price in the Solomons is taxes to the Government.
This is taxing the wrong end of the production process. Countries should tax the outputs of production (in this case the fish) and not the inputs (fuel, fishing gear, and boats). You want to encourage people to fish by making the entry cost for production inputs as low as possible.
There’s also a more subtle problem with taxing the wrong end of the production chain. Output prices are typically some multiple of the price of production. This means that adding a dollar on the input side often leads to a two dollar jump in the final price … not good.
Then, when the boats can go out and fish because the cost of inputs is low, the country should tax their output. Tax the fish in the markets. It will perhaps make the fish slightly more expensive for the customer … but at least there may be fish in the markets, instead of empty boats tied up by the markets. When the fuel prices were so high in 2008 and fish were either wildly expensive or unobtainable, the health of the kids suffered because fish is a main source of protein in the islands. That’s not a direction that I want to go.
In summary:
1. Taxing energy to force people to economize and become more efficient can be very counterproductive at the poor end of the economic spectrum. People are already using as little energy as they can possibly get away with, because from their point of view energy is already very expensive. In addition, they may not be physically able to economize or increase their efficiency.
2. If a country decides to use taxes as a (very blunt) instrument of energy policy, it should tax the outputs of production, rather than the inputs to production. This allows production to increase, instead of crippling it.
3. In the absence of often unavailable changes in efficiencies (see outboard motors above), forcing people to use less fuel through taxes means lowering the GDP. For places like the Solomon Islands, that’s the last thing we want to do, lots of folks there are way out on the economic edge already.
Finally, in the very best Solomons fashion, this is being written while I’m waiting for the departure at the airport, because the plane is two hours late. Or as they call that here in the Solos, “right on time” … wish me luck, when and if the plane arrives I’m bound back to Nowherica.
w.
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Willis, I’m curious if you’ve ever watched the TV program “Deadliest Catch?” A documentary series chronicling the real-life high-sea adventures of the Alaskan crab fishermen. This is the most deadly profession in the world. If you’ve never seen it, you might really enjoy catching a few episodes – both in terms of the economic aspects, and the comparison to the fishing conditions you’re used to in the Solomans! You can ‘cheat’ and watch online if you like at: http://watch-series.com/serie/deadliest_catch Each episode takes you out with a group of boats, shows you what problems each encounters, the different strategies employed, and the final results – including injuries and the financial breakdown on return for each crew. Its pretty amazing.
Willis, I’m curious – for electricity, has geothermal been considered also? You’ve a good bit of active volcanic activity there, right?
coconut oil as a fuel is a no no, much more valuable and healthy as a food. Jatropha is another good option, gives a diesel you can use without further processing.
Run of flow high efficiency turbines with smart alternators are a good option for mountain rivers.
Key is to get the local production of transport fuels up and generate as much power as possible cheaply and get all the citizens on the net free of charge. Then they can tap the global knowledge pool to make even further advances whilst maintaining their lifestyle.
Willis Eschenbach says:
November 17, 2010 at 8:58 pm
in the capital, where there is a market, the economics don’t work. Palm oil is cheaper here than coconut oil, but the local palm oil plantation still buys diesel to burn in their processing plant. They looked at burning some of the palm oil … too expensive.
Nice article Willis. Great climatologist, budding economic theorist. Shall we just vote you in as benevolent dictator now? 😉
I can think of some possible reasons why this mght be so, perhaps you can eliminate them for us.
Is it too expensive for the processing plant to use palm oil because of the cost of initial investment in converting to palm oil?
Is there a shortage of palm oil supply because local palm oil use is subsidized but limited because palm oil is an export commodity the government values as a source of foreign exchange currency?
Herr Diesel himself proposed using palm oil instead of mineral oil in his diesel engines. He was found floating face down in the English Channel. Nobody is too sure whether it was Big Oil or the secret services who offed him. 🙂
Seems that Rational Debate is anything but. A whole load of words and window p[anes to say nothing. Growing sugar cane and harvesting it is easy. Making it into ethanol is even easier, ask any American bootlegger and the Salomon Islanders are familiar with it. Indeed I find it very sad that such a nasty diatribe can be directed at a simple and practical observation.
The Salomon Islanders are not worried about global warming or global economics. They are worried about jobs, about fish about how to improve their lot.
I forgot, maybe Geothermal would be a good suggestion for them. That can be done cheaply as well.
I agree!
It has been shown that as a population develops so birth rate falls. This is important in a country like the Solomons because they could be considered isolated and reliant on local energy sources which will run out as population increases, Trees take a finite time to grow so biofuel is not a good renewable in their situation. (Or any situation to my mind).
In fact renewable energy is an oxymoron based on the first law of Thermodynamics.
Instead of telling third world peoples that they must stay in their squalor to save the planet, which James Cameron (Avatar producer) hypocritically tells them, we should help them into a more developed society. This will also help lower terrorist threat because these people will then have more to loose.
“2. If a country decides to use taxes as a (very blunt) instrument of energy policy, it should tax the outputs of production, rather than the inputs to production. This allows production to increase, instead of crippling it.
And then there are those countries that tax the inputs, tax the outputs, tax the income leftover in the middle of the inputs and outputs, and tax the estate after death.
Willis, Your clear and direct observations in this post proves again how stupid us Humans can be. The profile of the Solomon Islands appears to be the idealised profile that the UN, Greenpeace and the WWF wants the world to conform to. My forefathers in the UK were rural tribesmen; my long family histories tell me just how grim their their battle for survival in a wood and peat-fired economy was and how short their lifespans; no sensible person would want to return to that.
Your analogy of taxing the fishermen’s fuel is amply demonstrated in the UK right now, where those in control are effectively taxing sources of energy mercilessly, such as petrol and deisel, then wondering why the economy is barely moving. Sequestering our money (tax) in windpower as a source of energy is as sensible as burying that money in a hole in the ground; the UK government focusing on the banks as being the cause of the slow economy for not lending money to small traders and manufacturers to finance their businesses seems to me to be a diversion rather than a rational argument. I guess the natural urge of government everywhere is to impose measures which do more harm than good, thus worsening a situation they are attempting to improve. Somehow, humanity needs to free itself from the shackles of Statism and be free to make our own choices again. I learnt early in my career in education that kids will learn very rapidly and well when they are responsible for their own learning and guided toward making important discoveries for themselves. Overprotecting them and spoonfeeding information to them is wildly counterproductive.
Fossil fuel energy is only going to be getting more expensive, regardless of taxation (unless it’s subsidised) because the low hanging fruit has been had. The investment in ‘longer ladders’ every year has to go on the price of the fruit. Course if we’re just talking about tax policy, that’s fine, but it won’t address the underlying cost increase issue.
I can’t see how the Solomon people can make imported fuel (or any imports) cheaper. They can make imports more affordable, by raising their GDP, but do they have resources to exploit? Seems to me the only reason 1st world countries are developed, is because they exploited their own, and then other countries resources.
I can’t offer any economic solutions to aid Solomon development. But I think some issues could be helped in the short term:
“What’s not to like is trachoma and lung disease from cooking over open fires, plus lots of unburnt hydrocarbons and brown carbon from wood smoke, huge inefficiency losses,”
Seems the issues with open fires could be addressed with a little education, low cost rocket stoves, and maybe low cost evaporation coolers for those without power.
There are two ways to eliminate the poor from the face of the earth.
Method 1: Provide cheap energy to the poor.
Method 2: Make the very poor even poorer and let them die of hunger by making energy more expensive, thus pushing down another layer of poor human beings into extreme poverty, and let them die of hunger….. repeat the process until the global population goes down to below a billion.
Method 2 is the preferred method by those who preach that the planet cannot take more than a billion humans. Is this a revised version of the Holdren-Ehrlich population-killing formula?
Intentionally or not, this process may have already commenced.
Grey Lensman says:
November 18, 2010 at 12:48 am
Making …ethanol is even easier
Geothermal would be a good suggestion for them. That can be done cheaply as well.
Fuel grade ethanol is not easy to make. Even triple distillation only produces ~96% pure, not a good enough purity level especially as this alcohol will also absorb water from the atmosphere.
Volcanic areas are not necessarily good geothermal areas. In my experience (in NZ) the geothermal areas are reasonably remote from the active volcanic zones. Nor is geothermal cheap for a financially limited country. A new geothermal station was recently opened just up the road from me, 100 MW for NZ$300 million. I would doubt that this cost included the cost of surveying the geothermal field as this was done in the 1940/50’s.
p.s.
Compared to the cost of a proposed wind farm on the Waikato coast, this $300 million is cheap, although I am unable to understand the published figures: 150 turbines giving 540 MW (presumably under optimum conditions i.e. rarely) for $1.2 Billion. Do ~4MW wind turbines even exist?
Alexander K puts it very well
Quote
The profile of the Solomon Islands appears to be the idealised profile that the UN, Greenpeace and the WWF wants the world to conform to.
Unquote
The reality is Islanders are not interested or able to undertake usd 50 million projects such as high tech ethanol refineries manufactured in the USA. They want and need simple cheap and cheerful solution that work in the local environment. Say USD 5 million the can afford. After all is that not the function of the IMF or the World Bank or the UN Development fund and hundreds of other green funds. Well the operative word is not. They refer to enforce the USD 50 million route, secured on mortgages of the land and work of the people.
I look at all the academic studies done in the region. Nor one, despite finding some interesting and practical solutions, is applied, but instead sits moldering in a library or internet file.
What these people need is simple help and direction and some of the gravy train, they will do the rest.
I’ve just returned from a 2 year assignment in the Solomons, been back in civilisation for 3 weeks.
Willis doesn’t go as far as I know he could in describing the conditions there.
I lived in a village on the outskirts of Honiara, we didn’ t have electricity, water supply, if you wanted to go to the market of Honiara you walked because there were no roads for nearly 8 kilometres, before we got to Mount Austin. If your children got sick, you waited, and waited, then if they were almost at deaths door, you took them to #9, which when I left, had a 80% child mortality rate, due to the fact that everyone either waited too long, or couldn’t afford to get them there sooner.
Malaria is endemic, on a good week I would have half my work crew away with Malaria, on a bad week, I would be working on my own
The price of fish in both markets, Central and Kukum Fish Market fluctuated from a low of SBD$10 per pound to $40 per pound depending on the price of fuel, the weather, and the amount of catch, over the 2 years I was there.
meat, as mutton, lamb., beef, pork, runs at SBD$30 per lb for mince beef, a 6 pack of sausages will cost between SBD $30 and SBD$45.
We paid our crew SBD$250 per week which for Honiara is a good wage by local standards.
When I left SBD$100 = US$12, NZ$17, AUD$14,
Very few of the people that live in Honiara or Auki have electricity to their homes, due to the cost, there is a diesel surcharge of I think from memory, SBD$1.85 per KwH, supply is SBD$3.90 per KwH, please check those figures, I never had to pay them as I wasn’t hooked up, but I remember those (or close) being quoted to me from another aid worker.
There are 3 diesel generators supplying Honiara with electricity, all in various stages of disrepair, it was not infrequent to have power outages in Honiara for several days in a row, or black outs for several hours each day due to the generators failing. Most businesses in Honiara have back up genrators on standby, embassies, consuls, commissions etc.
The Solomons are heavily aid dependent, and the government is pushing the AGW line as much as it can, aided by the British High Commission, which has pushed their own version of Al Gores dvd on schools throughout the Solomons.
There is no hope at present of getting any form of bio fuel program in place due to the fact that 95% of the people there are involved with producing enough food just to survive, to take productive land and put it into bio fuel would cause starvation, and destroy what little rural economy exists now.
All land outside of Honiara is owned through the wantok system, tribal, family, and affiliates, to change it to another form will take several years, due to the mishaps, and misfortunes that have have occurred already with outside mining companies, mineral prospecting, and forestry destroying the villages incomes, production and sustanability.
There may be a place for Geo thermal, but as there are very few active geothermal islands, Savo being the main one closest to Honiara, and seperated by Iron Bottom sound, and an major earthquake fault line, it is hard to envisage any form of geo thermal working.
When I left 3 weeks ago, the intial stages for a hydro generating capability had been approved for East Guadacanal, the actual construction is still 5 years away at least due to the number of land owners, tribes and wantok claiming rights on the area selected.
Taxing and increasing the cost of fuel puts development further out of the reach of everyone there, there is continual forest and habitat destruction because that is the only fuel most of the people have to cook with, and their main cooking method is an umu, heating rocks with fire, then cooking on top of the rocks.
I could go on and on and on, as Willis no doubt knows, my continual source of frustration over the past 2 years has been reading internet exchanges from people who have not lived there, telling me how growing sugar cane, sugar beet, bio fuel, doing this that or the other, will solve everything, and that is without getting involved with the wind farms and solar panel election bribes that the politicians use every 4 years.
If you want to see how the world would look if we keep increasing the cost of electricity, go and live in the Solomons.
It’s quite possible to tax inputs to the point where the common use of such inputs makes much consequent production uneconomic, just as it is to envisage output taxes doing the same. It’s all to do with the value of the marginal physical product of labour and when that is relatively low(ie because of the dire lack of productivity raising capital associated with it), it only needs a mild level of any taxation along the production to market chain to hammer labour into very localised, subsistence pursuits, thereby further limiting the breadth and depth of market returns to labour. It is only by creation of a surplus (ie real saving and capital investment) that the value of the marginal physical product of labour can ultimately be increased. Taxing production at any stage and applying that to communal investment may or may not be more effective in lifting productivity vis a vis private decision-making, but that will largely depend on the calibre of the institutions and those who fill them. Why have some cultures produced better public institutions in that regard is an interminable conundrum.
As for an abject abhorrence to ‘engineering’ change through the application of taxation, that is a rather naive view of complex, developed industrial societies like ours. IMO it is the great presumptuous failing of libertarian, free market adherents to believe that our current taxation paradigm is somehow sacrosanct and doesn’t already ‘engineer’ our socioeconomic outcomes in quite profound ways. Indeed it is that smug hubris on the market side of politics which I believe has been its great undoing of late and allowed the socialist grand planners to again aspire to the commanding heights in the name of the environment. In that regard I’m a market green and can easily envisage another ‘free’ marketplace paradigm far different from the one we’ve ‘engineered’ now. Make no mistake, the left understand the failings of that current science of muddling through and have tapped into that underlying disquiet for their own nefarious ends. You need to understand that AGW wasn’t believed for the true science behind it but rather because it struck a deep environmental chord with the general populace and that hasn’t gone away with a few EAU emails and a bloody nose at Copenhagen.
JDN. Production price is what most accountants would call “cost of production” or simply “cost”. Output price is what most call “selling price”. A business will always have selling price equal to a multiplier of cost. Even before computers when all we had was an abacus or fingers. If the multiplier is one or less then it’s called “bankruptcy”. What you’re referring to is consumer (ultimately) demand-supply as a driver of prices. You also ignore competition.
The fact remains, however, that you won’t be producing if your price multiplier is less one or less than cost. Only then can you assess demand-supply and the next step is whether you can beat the competition on price. If not price, then quality. If not quality, then you pray demand far exceeds supply. Then, along the way, you need to factor in all the various risk items from earthquakes, floods, etc., including the fisherman that fails to find fish.
Picking one economic component of private capitalism makes for an interesting argument but doesn’t really present the entire picture. Consider this:
“Energy is live. Cheap energy is prosperity.”
Someone tell me that’s false?
Richard nice points. NZ 300 million bet they could have done it for NZ 100. Just look at the turbine hose, a large garden shed would do not an art gallery.
The you add “but thats cheap compared to the wind farm’. I bet it is and it provides constant base load as well.
With geothermal its getting the heat at lowest cost following ALARP principles. Just compare the scantlings of the first iron bridges with those built now. Go for it but distribute the heat sources to minimise risk
Regarding total costing, work for a few years in an Asian context and you learn how to build low cost. Not cutting corners or relying on cheap labour, just getting the job done without braking the bank.
When you start with poor people, their expectations are small and their bank balance even smaller. So you need to sart with
“How can we do it”
Then go from there.
Richard
Is this the plant
http://www.power-technology.com/projects/mokai/
Look interesting and so much better than wind
But they need to get the costs down
One rationale for taxing fossil fuels is to price in the negative externalities. Burning fossil fuels causes global warming, raises sea levels and threatens the lives and wellbeing of islanders, or so the theory goes.
What would happen if each and every Solomon Islands Dollar collected in fuel taxes was used to build dikes to hold back the onrushing ocean? Little tiny dikes.
Who will have their picture taken at that ribbon cutting ceremony?
Excellent post – but can we please stop the incorrect use of the word “literally?” It’s one of my pet hates!
Rational Debate says:
November 17, 2010 at 11:51 pm
Having fished commercially for a number of years in the Bering Sea (for salmon in Bristol Bay and for herring in Togiak), Deadliest Catch is one of my favorite shows. I also like “Bristol Bay Brawlers”, which is about the Togiak herring fishery.
I can assure you that it is much more fun to watch than to do … but dang, the money is good. Having said that, I do recall setting nets in brash ice with an atmosphere full of blowing sleet and wondering “What am I doing here?” …
And yes, commercial fishing is deadly in general, and particularly in the Bering Sea.
w.
Rational Debate says:
November 18, 2010 at 12:00 am
There are volcanoes, but no hot spots I know of that are near enough to Honiara to do any good.
David, UK says:
November 18, 2010 at 4:38 am
My usage was quite deliberate. Since the Solomons runs their economy on burning biomass, they are literally rather than figuratively firing up their economy. Save your pet hate for when someone actually misuses the word.
tallbloke says:
November 18, 2010 at 12:27 am
As far as I know it’s straight economics. The guys out at GPPOL (Guadalcanal Plains Palm Oil Ltd.) say that their diesels would work well with a palm oil blend … but they can sell a litre of palm oil for more than they pay for a litre of diesel.
Brew ethanol for the outboard motors. Then you can buy a new motor. Ethanol blends are bad on outboard motors.
The intellectuals always have solutions that hurt the people they claim to help.
Willis, a question. Are your thoughts on energy and economy now just being developed or are you simply expressing thoughts already cemented in your mind? It seems by your writings, a veil is being lifted as you write, and its nice to see.
An old thought…….I’ve never once seen an economy taxed to prosperity.
Currently, in the U.S., class envy is the singular most causative issue in keeping the economy in the doldrums. Much more to say, but late for work!