No, no, no, this isn't the point of an experiment at all

There’s a horrible feature of modern life which is that on observing something being done people call for us to do it too. That’s not the way that either markets or experiments work. Markets, of course, being one of the ways that we conduct experiments. What is it that works among all the myriad things that can be tried?

Paris has turned its back on e-scooters – so will Britain soon follow?

Electric scooters were meant to be the clean, green commuting machines of the future – now, they’re the scourge of the city

It might be that electric scooters are the scourge of a city. It could be that the value they provide - that there is such value is proven by people using them - is greater than the scourge. Finding out the balance would indeed be interesting, that requires experiment and observation. At which point Paris is doing the experiment - we should therefore observe and see what the outcome is before committing ourselves either way.

Of course, e-scooters are a relatively trivial matter but this principle holds true for everything. That someone else is doing something is not an argument that we therefore should - it’s an argument for us to observe and then decide.

As, you know, happens in that most successful of all economic organisational methods, capitalist free marketry. The capitalists watch what succeeds then copy that, leaving the failures to die in the dust. Thereby we gain much more of the successful things and very much less of the failures. It’s an obviously useful principle.

How dirty do we want the rivers to be?

There’s been a lot of shouting about sewage overflow and so on lately. With the assumption obviously being that there should be no such overflow. All sewage should be completely treated and the rivers left pristine. This is, of course, incorrect.

We live in a second best world, one of scarce resources. Therefore resources we use to build an entirely new storm drain system, separate from the sewage one, must be diverted from some other possibly desirable usage. Therefore the actual question to be answered is how dirty will we allow the rivers to be? So we can have more of those other things? The answer being, well, quite possibly about as dirty as they are right now:

Investment to stop sewage discharges worth more than a £1bn will only stop 3.3 per cent of spills every year by 2030.

Water companies will be allowed to spend £1.1bn on work to improve over 250 storm overflows, reducing the annual average of spills by 10,000.

No, that does not then mean that spending £30 billion will stop all spills - the first part of any problem is the cheapest to solve, it gets progressively more expensive as we eat into the problem.

This is also something not to be solved by just demanding the capitalists do it. The reason the water companies need permission to spend this money is that their returns to capital are regulated. A higher capital base, they get to charge more. So that £1.1 billion will appear on water bills in the fullness of time - plus a return. This is also not something solved by nationalising everything. Whether it’s public capital invested to gain a return or taxpaid subsidy of the water system it all still comes out of our wallets. On the very simple grounds that our wallets are the only ones around. Everything, in the end, gets paid for by the people.

The plan also includes work to improve water quality at Ilkley on the River Wharfe, a designated bathing water site,

At what cost do we just tell the people of Ilkley to go use a swimming pool like civilised people because we’re not willing to pay for making the river any less dirty? We’re sorry to have to say this but that is the only important question here and there is no way out of it either. How clean do you want it - and how much does that change when you’ve got to pay for it?

Synthetic fuels - an environmental game changer

In the Adam Smith Institute we have long argued that government should set the targets rather than mandating the technology to achieve them. In this way we allow competing ideas to be developed that can achieve the goals in different, and often unpredictable, ways.

Governments have decided that petrol and diesel vehicles are to be phased out and then eliminated to remove the pollutants they emit. They are to be replaced by electric, or possibly hydrogen powered vehicles. This misses the point spectacularly. As Tim Worstall of this parish has pointed out, petrol and diesel engines are not the causes of pollution. The fuel they use is the cause, rather than the engines themselves.

If a non-polluting fuel could be devised, the engines could continue in use without the detrimental effects of fossil fuels, and if the new fuels were compatible with existing internal combustion engines, there could be huge savings to be made by going green in a far less costly way.

Step forward the new kid on the block. Two weeks ago Porsche committed itself to the mass production of synthetic fuels at plants in South America. Synthetic fuel – called eFuel by Porsche – is created by splitting water into oxygen and green hydrogen, then combining CO2 with the green hydrogen to produce synthetic methanol, which is then converted into eFuel, which can be used in regular combustion engines. Highly Innovative Fuels (HIF), backed by Porsche, uses a variant of the Fischer–Tropsch process, originally developed in 1926, to make complex hydrocarbons out of air and water.

In a demonstration, the automaker filled up a 911 Carrera and drove it on synthetic fuel for the first time. The potential is huge. Without using fossil fuels it can synthesize fuels for internal combustion engines, and even aviation fuel. The process releases oxygen into the air as it combines the carbon with hydrogen. Even without carbon sequestration being developed for its exhausts, it would be carbon neutral, with fewer particulates emitted than fossil fuels put out.

The European Union has sensibly stepped back from its plan to ban all combustion-engined cars from 2035. A new agreement will see the creation of a class of cars that can only run on carbon-neutral e-fuels.

In the 1950s there was an urban myth that inventors had created a tablet that turned water into automotive fuel, but the wicked oil companies had bought the technology and suppressed it. It won’t be that simple or that cheap, but it does look as though people might well be driving with fuel almost literally plucked from thin air. And it will be much greener than current fuels.

Powering up Britain: A Curate’s Egg

There is plenty of good in the government’s two (not so) new strategy documents: energy security and net zero strategies. The latter is also more delusional than it should be, e.g. the rest of the world is, we are told, following our leadership.

No evidence is given for that. Focusing on the inadequate gives a distorted view but highlights where the government needs to think again. The strategies’ main problems, in descending order of immediate importance, are: under-estimating 2050 electricity demand, developing the networks needed to cope, under-estimating the need for nuclear and how many small and advanced modular reactors (S/AMRs) will be needed, financing their introduction, streamlining regulatory approval, sites and Scotland.

Because energy in 2050 will be almost entirely electricity, it is much more likely that the electricity provision in 2050 would need to increase five times to 209 mean GW, split 75, 58 (28%) and 76 renewables, nuclear and gas (with carbon capture and storage) respectively. Because the wind does not always blow nor sun shine, increasing the size of the wind fleet does not solve the problem of variability. An increase in wind capacity may not solve the problem.  In 2022, wind capacity was 28.6 GW. However, for half the days in the year, wind failed to supply even 4 GW at some stage of the day or night.

The existing plans, or lack thereof, for expanding the networks give no confidence they will be able to handle a five times increase in provision. The Electricity Networks Commissioner has been asked to report, in June, what can be done to speed up the network infrastructure planning approvals process but that is a side-track.  What we want to know is what the 2050 networks will look like and how they will be achieved, including finance. Some people consider this to be the single most important issue and yet government just kicks the can forward.

The new security strategy still claims to be aiming for 25% nuclear, not far off our estimate of 28%, but it says (p.31) that 24 GW of nuclear equates to a total energy market of 96 GW – clearly bunkum. The day of the full size (3 GW+) reactor is over.  By the time Sizewell C gets to be approved, if it ever is, we will not be able to afford it.  Only HS2 compares for equivocation destroying the financial justification.  We reckon about 100 S/AMRs will be needed (about the same number as Poland) and that would justify four suppliers manufacturing about 25 each.  They can be built in factories and taken by road to their sites. 

They can all be financed by the private sector except the first two of each model and that is where the argument lies.  HM Treasury, in its customary penny-pinching short-sighted mode, says it will only finance two suppliers but that would not be enough for market competition or creative development. The answer is quite simple: HM Treasury should tell the fossil fuel major companies that they should stop trying to maximise the indefensible (gas will be with us for some time anyway) and move into the 21st century by sponsoring one AMR each.  Otherwise, windfall taxes will be the least of their problems.  For a start, CCUS should be funded by them, not households or HM Treasury.  

As Professor Dame Sue Ion told the BEIS Select Committee, we have run out of time on nuclear.  We needed to be building them now.  Approval by the Office of Nuclear Regulation should only be needed for the “first of a kind” and, where that type is already approved by a major country, like the US, Canada or France, that should only take a couple of months, not the current four years.  Site approvals should be automatic where S/AMRs are to be located in existing approval sites or old power stations and otherwise decided within four weeks by a specialist team from HM Planning Inspectorate.

Finally, energy is a devolved matter and yet the new strategy only mentions Scotland once in the Security plan’s 84 pages (saying devolution will be respected) and five times in the Net Zero plan’s 126 pages.  “In 2005 the British Electricity Trading Transmission Arrangements (BETTA) were introduced and created the single integrated GB electricity market for the first time.” Before that, Scottish electricity supply was separate. Today the National Grid ESO and Ofgem operate equally across all Great Britain. The Future System Operator (FSO) will take over, maybe, in 2024. “The FSO will be in the public sector, with operational independence from government.” Quite how the UK and Scottish governments will interact with the FSO is unclear as is the way the two governments will cooperate to achieve the Great Britain objectives.

We biggest problem is that we and others have said all the above many times before and sent the evidence to the department.  They are not listening and that does not augur well.

Why would we want the subsidy junkies?

We’re told that this is an economic terror of the ages:

Chancellor Jeremy Hunt says the UK doesn’t want to be dragged into a “distortive global subsidy race” but Biden’s Inflation Reduction Act is industrial policy on a previously unforeseen scale, and it has kicked off a fierce battle to woo international capital.

While Britain sits on the sidelines complaining about protectionism, the industrial giants and technology trailblazers of the world will vote with their feet, shunning these shores in increasing numbers for the promised land, and taking investment and jobs with them in large numbers.

It sounds rather excellent to us.

At any one time there are vast numbers of proposals being put forward. Proposals for businesses to do this, or that, or t’other. The interesting trick is to be able to sort through them to find which are worth doing, which are not. We have that method, the marketplace. Those which are worth doing are those which add value - make a profit. For that’s what profit is, the excess of revenue over the costs of the resources in their alternative uses.

This also tells us which are not worth doing. Like, those which require subsidy. For a demand for subsidy is, by definition, an admission right there at the starting gate that the business idea will not be value additive. It requires the subsidy exactly because it will not be profitable, will not produce revenues greater than costs.

So, others out there wave subsidy - the subsidy junkies will all go there. We will be left with only those business ideas which are profitable, which do add value. On the very simple grounds that they will be the only ideas that will prosper in our subsidyless economy.

Our economy will therefore add value - get richer - their economy will not. Bit of a blow to them, obviously, but sounds pretty good for us.

Perhaps e-fuels always will be more expensive - so what?

On this idea that e-fuels - artificially made petrols etc which are net zero emissions - may or may not be viable:

The process is convoluted, meaning mile for mile it will probably always be more expensive to make synthetic petrol rather than to use green electricity to charge a battery.

We think that probably there is carrying an awful lot of weight. But that’s also an irrelevance.

For the calculation is not what is the lowest cost of fuel per mile travelled. It’s what’s the lowest system cost per mile travelled. So it’s necessary to include the cost of the car itself. And of building out the infrastructure to do the fueling and so on.

But even that’s still not right. For the task before us - assuming that CO” and climate change are a problem that must be dealt with - is not to plan a net zero world. It is to allow to come to fruition the net zero world that us 8 billion consumers prefer.

That is, any solution which produces net zero is viable within that insistence of gaining net zero. Whether it’s bicycles, electric cars, e-fuels or the invention of teleportation. Any policy must therefore allow, on equal terms, any of those net zero possibilities to duke it out in the marketplace in order to find out which us 8 billion consumers prefer.

For that’s what markets do for us. Allow that consumer preference to make itself heard and thereby maximise consumer utility - the aim of all economic policy in the first place. Within, of course, that constraint of not causing significant harm to others through the externalities of the actions.

The implication of all of this is that no decision need be made upon e-fuels for the answer is obvious. Electricity into a battery is emissions free (whether the production of the electricity is or not is something to be dealt with at the level of the electricity production plant) and so are e-fuels into a car. Therefore both must be treated equally. Then see which consumers prefer.

Possibly some will prefer the ICE and the e-fuels, maybe near all will. Or those touted benefits of the EV will convince all. Who knows? The point here being that we’ve already got our method of working it out. Allow any method of meeting the net zero constraint to strut its stuff and see what people do.

You know, the marketplace.

Our suspicion - and it is not more than that at this point - is that e-fuels will be the winning solution to air travel, might be for cars and are likely to be a substantial minority of car choices at minimum. But as we say that’s a suspicion. The thing we know is that we’ve already the system to answer the question. That market suitably adjusted for externalities and a few decades are all that is required.

At last

After years of lobbying, Westminster Council finally granted our request and renamed Great Smith Street as Adam Smith Street…

The absurdity of trade policy

We do grasp the justification that people use for trade barriers and tariffs. But why should British, domestic, producers have to face that competition from those nasty foreigners? To which the correct answer is that we should be running the economy for the benefit of consumers, not producers - the competition is the very point of trade.

But even if we put that simple truth to one side we still have this:

The UK will officially join CPTPP next year, after legislation has been passed and ratified. The Treasury estimates the deal will be worth £1.8bn a year for the economy within a decade.

Other allowances made under the terms of the deal include reduced tariffs to accommodate imports of bananas from Peru, crab sticks from Singapore, and rice from Vietnam.

For at least two of those three we have no domestic production at all. Rice and bananas simply do not grow on or in our sceptered and silver girt isles. So why does it take some grand and vast international agreement to stop taxing ourselves into poverty on these items?

Now that we have left the European Union such import tariffs are our own decision - as evidenced by this deal itself. But how did we end up with a polity that hasn’t, doesn’t, make us richer by doing the obvious thing that we’ve now the power to do? Make us all richer by abolishing import tariffs?

Answers on a postcard to Ms. Badenoch please.

Let us have our liberty and laugh

In banning nitrous oxide the government has once again shown its aversion to individual freedom. According to the government, people taking laughing gas risk psychological harm and damage to their nerves. The substance is said to contribute to anti-social behaviour, the littering of public spaces, and to making those environments unsafe for children.

Stopping users from harming themselves, and others around them, is said to warrant a prohibition on its consumption. No liberal can accept this case, for the individual harming himself is no warrant to restrict his freedom, and, the harms to others, while wrong, cannot condemn the consumption of nitrous oxide itself.

Everyday millions of people smoke, drink, and eat themselves into poor health and an early death, and we accept they should be free to do so. By the same reasoning individuals should be free to take laughing gas, even if it does result in poor health and an early death, too.

Perhaps though it is believed individuals should be free generally, even to moderately harm themselves, but not free to consume those substances which may seriously harm them, which some might say includes laughing gas.

If you believe people should be free to moderately harm themselves only (e.g. by drinking), they should still be free to take laughing gas too. According to the government’s own drug advise service, FRANK, most of the negative effects come in the form of severe headaches, dizziness, and short-lived paranoia. Not much worse than a heavy drinking session.

Of course, if someone uses loads of laughing gas there is a danger of nerve damage via victim B12 deficiency, and death is possible too. The ONS has found the number of annual deaths due to nitrous oxide to be just five though, tragic, but almost nothing compared to the 9,641 alcohol specific deaths recorded in 2021.

Even adjusting this figure of five to assume everyone does laughing gas though (as opposed to only 2.3% of people currently) only produces the figure of 217. So basically, if you believe alcohol should be legal, then you have to believe laughing gas should be legal too.

To drive home this point, it is worth pointing out even the government’s own Advisory Council on The Misuse of Drugs has urged against criminalising laughing gas, believing the penalty of the Misuse of Drugs Act 1971 (for Class C substances it’s two years jail or an unlimited fine), which would be applied to it, would be disproportionate to the harm it does to its personal users. This is in addition to the burden commercial users such as chefs and dentists would have to undergo, due to additional regulation and checks.

At this point I expect many paternalists will suddenly shift the whole weight of their case onto the prohibition being warranted to stop harms to others, with anti-social behaviour being the chief example. This is ridiculous. If someone peacefully takes laughing gas, as almost everyone does, it is wrong to punish them simply to pre-emptively stop the noise nuisance, trespassing, and rowdy behaviour of a tiny minority of irresponsible users (who should, of course, be punished). And this is what a prohibition would do.

What is the state going to do next, ban steak because it increases testosterone levels, which in turn increases the probability of physical violence. Clearly this argument would warrant banning alcohol, too, which relates to about £2bn of violent and non-violent crime annually. And no liberal can countenance that!

No doubt if there was a drug which, once taken, made all its users commit crime, it would be permissible to prohibit it on the harm principle. However, for the vast majority of drugs, certainly including laughing gas, this is very far from the case; it ultimately remains a choice to engage in anti-social behaviour.

And if it does not remain a choice, if someone creates a noise nuisance, how could they be punished for it? Given everyone believes these users should be punished, it is clear most people really do believe they are responsible after all. Hence, they cannot argue for prohibiting laughing gas because it is responsible for anti-social behaviour, for they have conceded the individual actually is responsible.

We can now move onto the flimsiest arguments put forward by the government. First, there is the matter of cannister litter. The preceding argument applies just as well to this case: Why should those who put their rubbish in the bin have their liberty restricted because some are too lazy to do so. Second, Michael Gove argued people need to feel public spaces are being looked after in a way that means they are safe for children. How though is taking laughing gas making parks unsafe for children?

Well, it could be argued it increases the chance of crime, but that befalls the above objection as well. I think the only argument here is children viewing the practise is a bad influence. Maybe. But if we wish to live in a free society this is just something we must accept, or, the alternative is prohibiting all sorts of behaviour in public places, e.g., smoking, drinking or preaching religious or political nonsense.  

In sum, it is clear individuals should be free to enjoy laughing gas if they so please. To prohibit its use is to adopt a pernicious paternalism, or worse, to punish innocent users simply to pre-emptively stop the tiny number of irresponsible users who may commit anti-social behaviour. In a liberal society neither of these justifications are acceptable. It is about time the government stops treating adults as if they are children, and instead allows all of us the liberty to laugh in life, whether that be at our own mistakes, or at all the highs we may achieve.

This doesn't sound like a very good idea to us

The Resolution Foundation says that:

In a report highlighting the continued weakness of private and public sector investment, the Resolution Foundation said radical solutions were needed to improve the UK’s performance, including giving parliament and local governments more power over spending that could boost growth.

The first stage of their argument is that there simply should be more public investment. We disagree - we have before us the example of HS2. This is a gargantuan waste of money that will make the country poorer as even the government’s own cost benefit analysis states - when read properly that is. More public sector investment, given the incompetence of public sector investment, is therefore contraindicated.

The second stage is that because the Treasury acts as a firewall against at least some of the money wasting excesses therefore the Treasury should be removed from the process of wasting money. Our problem with this is that it’s an idea which has been tested in recent years. Local councils have been able to borrow at concessionary rates to invest. Those that did so are all largely going bust as a result - vide Croydon and such places.

That is, politics is bad at investing money, local politics is worse, therefore we shouldn't be using politics to decide investment and most certainly not local politics. After all, the aim of investment is to get richer not, as recent experience tells us about political investing, to become poorer.