An Economist’s Thoughts on The E-Cat — Part One: Will the E-Cat Supplant Traditional Energy Sources?

This is the first in a series of guest posts written by Paul Bennett, PhD Student in Economics at George Mason University in Fairfax County, Virginia. Each post will deal with a question pertaining to Andrea Rossi’s E-Cat technology

Will the E-Cat  supplant oil/coal/fission as the predominant energy source in the advanced economies?

Various bloggers have expressed their views on this, ranging from “all energy production will rapidly be replaced by E-Cats” to “it will take a long time and have little impact”.  As an economist, I have to point out that market forces will determine both the rate and the extent of this process.

The best parallel I can think of is the replacement of canals by the railways in England in the 1830s.  Between 1750 and 1830, the British built something like 4,000 miles of canals in their country that measures about 500 miles by 200 miles.  The economic impact of the canals had been dramatic: the price of coal in one town dropped by more than 50% when the canal was built; the price of coal at the canal wharf was 20% of what it was 5 miles away.

The canal companies were chartered by act of parliament and their tariffs were specified by law.  They were both legal and natural monopolies – until the railways came along. In the following 20 years, the British people built a railway system that not only matched the canal system, but expanded it.  To overcome the monopoly status of the canal companies, the railway companies frequently bought up the canal companies so that they could (a) build on their land and (b) assume their monopoly rights.

The interesting and relevant thing is what happened to the canals and their tariffs.  Firstly, the canals did not go out of business immediately.  Secondly, they did drop their tariffs by about 90%.  Thirdly, the railway operators were able to compete with the established canal system even though they had to invest in new infrastructure.  I conclude that if the cost effectiveness of the E-Cat is sufficiently large, the producers of energy (oil, coal, fission) will either reduce their prices to match the new energy source or go out of business.

My guess is that fission will disappear, coal will drop to a small fraction its current size and oil will continue to be a major source of power.  The costs of producing power by fission are largely operating costs (fuel preparation costs are included under this heading).  It will not be feasible to reduce these by 90% or even 50% (in fact many of the costs of fission are in the disposal of the waste and have not been adequately accounted for).  It will not be possible for fission power plants to reduce their costs to match the new benchmark for E-Cats.

Coal is similar.  The costs of coal derived power are now mainly the costs of extraction and conforming to environmental rules.  These cannot be easily reduced.

Oil is a different story.  The owners of the world’s most easily accessible oil reserves are currently taking about 80% of the price paid for each barrel of oil as pure profit (the cost of extraction of oil for these owners is a small fraction of the price they can fetch on world markets).  In the face of competition, the price of oil will be driven down.  The lowest this price can be driven to is the cost of extraction.  (Note.  This does not include any investment in further exploration for new oil reserves.)

If the cost of energy production from oil at this minimum price is still higher than the cost from the E-Cat, the world will very rapidly transition (could be as quick as 2 years) all energy production to E-Cats.  If the cost of energy production from E-Cats is higher than this, the two technologies will exist side by side.

Paul Bennett

  • Rick Gresham

    Call me a conspiratorialist if you will, but I’m convinced there are issues that will impact the adoption of any alternative to oil priced in US dollars. Coal, I think, is much more vulnerable but coal interests have strong influence over politicians from coal states.

    I’m not necessarily a fan of Ron Paul, but I found an interesting speech he made to the US House of Representatives that sums up a lot of the issues surrounding the dollar and oil.

    http://www.lewrockwell.com/paul/paul303.html

    In addtion, there are several quotes worth considering that have shaped fiscal policy in the US more than most are generally aware of:

    “Let me issue and control a Nation’s money and I care not who makes its laws”.
    Amsel (Amschel) Bauer Mayer Rothschild, 1838

    “The few who can understand the system will be either so interested in its profits, or so dependent on its favours, that there will be no opposition from that class, while, on the other hand, that great body of people, mentally incapable of comprehending the tremendous advantage that Capital derives from the system, will bear its burden without complaint and, perhaps, without even suspecting that the system is inimical to their interests.”

    Letter written from London by the Rothschilds to their New York agents introducing their banking method into America:

    http://www.infowars.com/rothschilds-rockefellers-trillionaires-of-the-world/

    Chart 1 reveals the linear connection between the Rothschilds and the Bank of England, and the London banking houses which ultimately control the Federal Reserve Banks through their stockholdings of bank stock and their subsidiary firms in New York. The two principal Rothschild representatives in New York, J. P. Morgan Co., and Kuhn, Loeb & Co. were the firms which set up the Jekyll Island Conference at which the Federal Reserve Act was drafted, who directed the subsequent successful campaign to have the plan enacted into law by Congress, and who purchased the controlling amounts of stock in the Federal Reserve Bank of New York in 1914. These firms had their principal officers appointed to the Federal Reserve Board of Governors and the Federal Advisory Council in 1914. In 1914 a few families (blood or business related) owning controlling stock in existing banks (such as in New York City) caused those banks to purchase controlling shares in the Federal Reserve regional banks. Examination of the charts and text in the House Banking Committee Staff Report of August, 1976 and the current stockholders list of the 12 regional Federal Reserve Banks show this same family control.

    http://land.netonecom.net/tlp/ref/federal_reserve.shtml

    “Capital must protect itself in every possible way, both by combination and legislation. Debts must be collected, mortgages foreclosed as rapidly as possible. When, through the process of law, the common people lose their homes, they will become more docile and more easily governed through the strong arm of government applied by a central power of wealth under leading financiers. These truths are well known among our principal men who are now engaged in forming an imperialism to govern the world. By dividing the voter through the political party system, we can get them to expend their energies in fighting for questions of no importance. It is thus by discreet action we can secure for ourselves that which has been so well planned and so successfully accomplished.”

    Montagu Norman, Governor of The Bank Of England, addressing the United States Bankers’ Association, NYC 1924

    http://www.publiccentralbank.com/
    http://www.unitedearth.com.au/banking.html

    The 1953 Iranian coup d’état (known in Iran as the 28 Mordad coup[1]) was the overthrow of the democratically elected government of Iranian Prime Minister Mohammad Mosaddegh on 19 August 1953, orchestrated by the intelligence agencies of the United Kingdom and the United States under the name TPAJAX Project.[2]

    http://en.wikipedia.org/wiki/1953_Iranian_coup_d'%C3%A9tat
    http://en.wikipedia.org/wiki/Kermit_Roosevelt,_Jr.

    This was done in retaliation for Iran nationalizing British oil assets and essentially tossing the Brits out of Iran’s oil game.

    I certainly am not an expert or even particularly knowledgeable in any of this. My point is, if the US is willing to overthrow governments and go to war (repeatedly) to maintain the dollar’s hegemony (Google dollar hegemony, you’ll find more than you’ll care to read) largely through it’s linkage to oil, do you think any technology that threatens dollar hegemony by devaluing oil will be looked on favorably by anyone in the US or UK that has acted to protect that relationship in the past?

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  • Brad Arnold

    In my opinion, the easiest and simplest analogy to the economic effect the emergence of LENR technology is the effect the rise and fall of energy prices (oil and natural gas) have on our economy.

    http://www.cbo.gov/doc.cfm?index=7420

    When LENR hits the market, it will predictably lead to lower oil and natural gas prices, and we pretty much know what happens then. I wouldn’t over think it.

  • Yu Chem

    Nice economic forecast.
    Unfortunately, it takes economic factors in consideration. Think about other:
    – Nickel (or whatever will be used in future LENR) reactors is not equally distributed around the Earth. Some countries do not have it. It is not always same countries which have oil.
    – Population (driven by politicians and lobbyist) may oppose usage of some energy sources despite their economical efficiency. Think about use of cannabis other than for pleasure.

  • Claudio Corsi

    The real change will happen when the internal workings of the ECat become common knowledge, and like all other things that start off in the lab, someone will be doing it in their garage. Hobbyists and tinkerers will get a hold of it, and it will become truly disruptive when it is reduced to something someone can build themselves.

    As long as it is driven by market forces it will be along time before it becomes a cheap and clean source of energy for everyone. This is simple because the people who are vested in the current energy economy will not sit idly by and let another company undercut the massive profits they have been making until now.

    Just my two cents.

    • Paul

      Don’t under estimate the profit motive. If the Victorians with their limited resources could replace 4000 miles of canals with a larger network of railways in 20 years, against the entrenched political and economic powers of the time, I am sure that the E-Cat technology will replace conventional power generation much more quickly – political and economics powers not withstanding.

      I have zero doubt that the problem of converting heat energy into electrical energy will be overcome within a year. Dr. Rossi believes this and I have no problem agreeing with him. Once an efficient way has been discovered to produce electricity, the adaptation for automobile use will follow almost immediately – we already have hybrids. Just replace the gas motor with a steam driven one.

  • Brad Arnold

    According to the book “Secrets of E-Cat” using LENR nickel ought to have an energy density 100,000 times that of diesel fuel. There is literally no way that other forms of energy can compete (especially because LENR is clean and the fuel is abundant).

    The only reason we wouldn’t immediately transition rapidly is because LENR technology is still in it’s infancy, and it will take time to engineer applications which replace current fossil fuel infrastructure. Since most electricity is generated with heat, that seem like the most immediate largest application.

  • http://www.replication-meyer.be.ma Stanislas Bauer

    Very interesting economy lesson. Anyway, don’t worry:

    1) we are still waiting a really convincing demonstration, driven by university experts, not only the little show of Mr Rossi. When I will see the first energy bill of an e-cat heated home, perhaps I will be convicted !
    2) the replacement will be progressive: lot of people will wait more convicting equipments and competitor responses.
    3) the application is limited to heating devices. The first applications will be professional use devices, driven by trained personals.
    4) for this moment, it is not an automotive solution.

    In any cause , petrol wil be replaced a a complete and evolutive panorama of solutions, comming gradually.

    In any case, government’s have interrested to promote these solutions driving to partial energetic independancy. Of course, these solution will be taxed in order to replace traditionnal energy taxation.

  • Martin6078

    I´m shure the concurents will be drop in prize and increase their offer,but renewable energies will get difficulties exept geothermal. Coal will dissarear completely, Oil and gas becomes cheaper to a certain point.Fission will growing up and be more developed. Travelling Wave Reactors, Hyperion Power Module,etc!The nuclear waste story,it´s no waste,it´s real money.Transmutation and reprocess can reduce the amout of “waste” and the time for storage rapidly.New concepts of nuclear reactors are build and planned,which need no reprocess or storage for ever.For a short period of time of a few decades only is necessary. The way to eliminate radioactive radiation by brown gas ist well known since 1992.Why will it never appied?
    But in longterm fusion will replace all…
    BRGD:

    • Anthony Scalzi

      Coal will not disappear xompletely; we still need a sizable amount for the smelting of steel, which currently accounts for ~10% of coal usage.

      • Paul

        Good point. The smelting of steel is an interesting special case. In fact any use of fossil fuels that is not purely a source of energy (heat or electrical) may continue to be cost effective. It is possible that a new smelting process will evolve whereby the heat energy is supplied by electrical energy E-Cat will not get hot enough) and the coal is used only as a carbon source. The smelting would have to be done in the absence of oxygen of course. This way the environmental impact would be minimal. But either the fine for adding CO2 to the atmosphere would have to be quite high or the cost of E-Cat produced electricity would have to be very low for this to be competitive.

      • Martin6078

        Antony Scalzi. Yes, you´re right due the reduction of iron ore in the blast furnace coal ist used mandatory. My intention was the production of energy only. We need coal and oil of course for other industrial matters like plastic- and petrochemy produkts furthermore.
        Yours sincerely

      • D2

        Oil won’t completely disappear either because it is instrumental in the making of plastics; but, I think the point is if the E-Cat cost to produce power is lower than extraction costs of oil then it will rapidly replace oil as the main power resource for the planet. I think this especially true for the US because of their desire to reduce foreign dependency on power resources as quickly as possible.

  • georgehants

    With all due respect, one might think that looking at the science of Economics that is clearly nothing but Dogma and guesswork, one might have to say, time for them to start being sensible, admit their system is a failure and start replacing it with a new system that is fair for all.

    • RichyRoo

      You are right that economics is a ‘failed system’ but economists dont design the system, they attempt to describe the natural system which evolves when humans trade. Its not up to economists to replace ‘the system’ thats up to people, its up to economists to change their theories.

  • Penguin

    This is all assuming that the e-cat gain factor, steam temp & pressure can be improved to allow the assumed cost effective electricity generation.

    I’m sure that the upcoming tests in Uppsala will provide some interesting information wrt these economic predictions.

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  • h_corey

    Ok fine.
    Wind, Solar, Geothermal all gone. They cannot compete with a economics that demolish nuclear/coal economics.