Ideas in Progress

Back on Sept. 13th I linked to a news article about a German group that invented a way to turn dead cats into diesel fuel. The article reports being able to get 2.5 liters (0.016 bbl) of diesel per cat at a cost of only $0.30 per liter ($1.14/gal). Since we use about 1 billion barrels of diesel* a year, that means we’d need 62.5 billion cats a year to meet our present rate of diesel consumption. There are only about 70 million cats in the United States.

This illustrates a problem with a lot of these gimmicky alternative fuel proposals like making fuel out of French fry grease or turkey guts. In small quantities (enough for some test programs and publicity stunts) you can get these ingredients for free. But to produce the huge amounts of fuel our economy consumes, you’d need to greatly increase the production of these currently cheap feedstock. Once you need more of these cheap feedstock than are currently available you must begin producing them deliberately, and that means they stop becoming cheap. For example, let’s look more at what it would take to supply all of the United States’s diesel needs with cats. Assuming that house cats live to be 15 years old, then the average person would need to keep over 3,000 cats as pets in order to keep up with diesel demand using dead pets. Since that seems unlikely, we must consider raising cats as livestock. If each cat weighs 10lbs, then 62.5 billion cats means we must raise 625 billion pounds of cat a year. Compare that with other livestock such as cattle. We have about 100 million head of cattle in the United States. At 2,000 pounds each, that means we have about 200 billion pounds of cattle at any given time. So the amount of cat that would need to be raised is high, but not unthinkable. Unfortunately, mass doesn’t tell the whole story. If anyone thinks managing hundreds of cats would be the same as one cow, they must not have much experience with animal husbandry. And for those of us with allergies, the idea of living in a nation with billions of cats sounds a lot worse than drilling a few new holes in northern Alaska. So far, we have still only considered replacing current diesel consumption. Replacing gasoline consumption with cat diesel would be even harder.

I think we can safely say that if dead cat diesel alternative fuel caught on, supplying cats would be a major economic consideration. Wholesale prices of diesel are currently about $1.85/gal, which seems higher than the cat diesel price given of $1.14/gal. The cat diesel price probably assumes free cats, so that means that cat costs can run as high as $0.47/cat before oil based diesel is competitive. This assumes the $1.14/gal given in the article is an accurate cost that includes such things as taxes, and amortization of the refining equipment and other capital expenses. As I will explain later, I suspect it is reasonably accurate except perhaps for the taxes.

This brings up another danger, however, in analyzing gimmicky alternate fuel proposals. Normal refining is a mature field, and the costs are well known. The costs given in press releases on alternate fuels have to be considered more skeptically. Aside from the already mentioned problem of underestimating feedstock costs, the alternate fuel proposal may either ignore the cost of capital equipment entirely and give only marginal costs, or it may make overly optimistic estimates of the cost of building an alternative fuel refinery (which may be an immature technology depending on the method) by basing it on conventional refinery costs (which is a mature technology). For an example of how maturity can affect costs, imagine how many people would be able to truthfully answer a job listing for a chemical engineer with 10 years of cat refining experience, as opposed to the number that have the same amount of petroleum refining experience.

Taxes are yet another cost that must be considered. Alternative fuel supporters may suggest that their favorite fuel could be made more competitive if it were given special tax breaks. Well, special tax status may make a fuel more profitable, but it doesn’t make it more economical. Consider the case of tax breaks to encourage people to buy hybrid or electric vehicles instead of traditional internal combustion engine powered ones. The hybrids and electric vehicles can conserve petroleum and reduce vehicle tailpipe emissions by getting better fuel economy. The hybrids and electric vehicles, however, consume more of other types of resources, like copper for the electric propulsion system and heavy metals for the batteries. The mining of these raw materials and the maintenance of the hybrid or electric vehicle will create additional types of pollution that normal cars don’t have. So now, before we can decide if we want to encourage people to buy hybrid or electric cars (and how much to encourage them), we need to figure out some way to compare the relative scarcity of the raw materials each requires, the amount of the raw materials (including human effort) each vehicle requires, and the relative damage to the environment of each of the types of pollution involved. It is very easy for a central planning committee to make decisions that let them feel good about themselves, but it is very, very hard to weigh all of the factors needed to make the correct decision. And, of course, since technology, consumption, people’s habits, and available information change all the time the value and importance of all these factors must be constantly reconsidered. Fortunately, we don’t need to invent some new way to weigh the relative importance and scarcity of all the things that goes into building and maintaining vehicles. Engineers have already come up with a figure of merit to describe the sacrifices society must make to produce some product; it is called cost and is usually measured in dollars. Typically products even have this helpful figure of merit printed on the outside of their packaging to assist consumers in deciding which things they want to buy.

The point of this long winded explanation is that the cost of an item is actually a very good estimate of the quantity and scarcity of the raw materials (including human effort) that goes into making something and the operating cost of a piece of equipment is a very good estimate of the quantity and scarcity of the raw materials needed to keep the equipment running. In a properly functioning market economy, price automatically functions** to provide the essential piece of information needed for efficiently distributing resources that planned economies find so impossible to calculate. Think about how many man-hours (and now computer cycles) are spent by sellers all over the country just considering how best to price their product, and by buyers considering what items to buy, and the negotiating that goes on between the two. That represents a tremendous amount of brainpower directed at the problem of what resources are more important than others. Central planning committees would kill (many literally) to have that kind of resources at their disposal but to us it is so distributed that the efforts seem invisible and the results of the calculations capricious. If we subsidize people to buy more expensive cars or more expensive fuels then it may make us feel warm and fuzzy inside, but in reality it will almost certainly also mean that we are inducing them to consume more (and/or more valuable) resources and to create more waste.

Of course, as the Greens love to point out, the price that items have in our economy often overlooks costs that are borne by society at large instead of the individuals doing the buying and selling. This is true, and if we use taxes correctly then we can correct prices to even better reflect these societal costs. For example, if we discover that carbon dioxide emissions are causing global warming problems we could pass on the cost of maintaining a carbon sequestration program to fuel users by having an appropriate amount of tax tied to the carbon content of fuels. Or, if we decide that using natural petroleum causes us national security problems because of the instability of the supplier countries then we could add a tax to it that would pay for the additional military spending we determine is needed to protect those supply lines. We don’t use our tax system very well to correct inaccuracies in price information right now, but perhaps in a more enlightened future (the kind where we all have aircars and silver jumpsuits) it will be common practice. Notice that I am only suggesting here that taxes be used to improve the accuracy of information contained in prices so that the market can better predict what solutions will be the most efficient use of resources, I am not suggesting that the information in market forces be abandon or deliberately distorted by subsidizing specific solutions directly. Fortunately, even with our present tax environment I think cost is still a very good indicator of the amount of resources a product consumes***. The problem is that some people, the kind that love to plan everyone else’s lives for them, discover that no matter how accurate the price information their favorite special solution isn’t the one that the market identifies as being the best. Then, like unethical engineers who rig trade studies to always prove themselves right, they want to use taxes to force their favorite solution to be adopted rather than have to admit that their personal prejudices might really be less informed than the billions of expert man-hours that are distilled into market price information. If you find yourself looking over some gimmicky alternative fuel or alternative vehicle solution that advocates subsidies and or tax policies be used to over-ride market forces in a way that directly drives people to their solution then I think you can save yourself the time and safely assume that the rest of the proposal is merely the ill-conceived work of an arrogant and unscientific busybody.

Now to get back to the main topic of cat diesel. Taxes are about 21% of wholesale diesel prices so if the $1.14/gal price of cat diesel doesn’t include taxes then it would have to compete with $1.46/gal diesel prices. That means cats would have to cost less than $0.21 each for the cat diesel to be more economical than traditional petroleum based diesel. But the more pressing question is:

What would make someone invent a cat diesel refining process in the first place?

Do they hate cats? Or, considering that an economically competitive cat diesel fuel would cause the cat population to explode to 1000 time its present size as they became valuable livestock, perhaps the process was invented by someone who loves cats. The answer is neither. Like so much of what passes for news, the article on making diesel from dead cats was not an accurate description of facts. Instead, it was a carefully orchestrated marketing stunt aimed at achieving a specific goal for a client organization. In fact, the invention described doesn’t just use dead cats as feedstock but runs on a wide variety of organic materials from plastics to hospital wastes (and yes, French fries and turkey guts). A press release on a company that is marketing a small synthetic fuel refinery operating on a new catalytic decomposition process might actually be big news but unfortunately few reporters would know enough about technical subjects to realize it. A press release about turning cats into diesel, on the other hand, is weird enough to guarantee that some news media will report it and the predictable outcry of cat lovers will ensure that the story continues to get press coverage for days. Then, the company involved can release a follow-on press release that tells the rest of the story which will both be reported on enough to reach a wide audience and have enough details to arouse the curiosity of potential buyers. I have to admit, it worked well enough for me to research the product.

The “cat refinery” is the KDV-500 by Alphakat Zukunftsenergie GmbH and it looks like a very promising development. Because it can take a wide variety of dry organic matter**** it doesn’t have the feedstock limitations described earlier. One of the obvious applications for it is to dispose of waste. The KDV-500 has the potential to both drastically reduce the amount of garbage that must be land-filled while also producing valuable fuel (a very TRIZesque solution). I can easily see garbage disposal companies buying these turnkey refineries to both increase the useful life of their landfills by diverting much of the waste into fuel production and also to have a source of cheap diesel fuel for their fleets of garbage trucks and other vehicles. Depending on what material is being used as the feedstock for this invention, its waste disposal ability may be just as big of a revenue stream as fuel production. Also, I would expect that it would be easier to get political and regulatory approval to build a KDV-500 (or similar competing products) than a traditional refinery since the waste recycling and alternative fuel aspects of the design should get it support from Green organizations (though since I wouldn’t count on them being logical, some carefully targeted charitable donations may also be needed to make sure).

Now what does this mean in quantitative terms? The design specs of the KDV-500 claim that 1 ton of input generates on average 6.29 barrels of diesel fuel. It would only take 158 million tons of input to meet the United States’s present 1 billion barrel annual diesel consumption. If the Engineer Poet can be believed there are around 700-800 million tons of dry organic waste generated in the United States annually that could be used as input for KDV-500s. If we made total use of that potential input, using the KDV-500 technology we could make 4.4 to 5 billion barrels of diesel annually (which is about 3.4 to 4 billion barrels of diesel more than we currently consume). That extra fuel could be used to replace the almost 3.3 billion barrels of gasoline that the United States consumes annually (assuming that increased tailpipe emissions for the diesels weren’t a problem). Judging from their website, the cost estimates given earlier are fairly complete except for taxes. Even if the manufacturer is being a little optimistic in their sales brochure, the costs are still probably competitive with current diesel prices of $1.46/gal before taxes. While there is some uncertainty as to whether current prices will stay this high, the possibility of getting additional revenue from the KDV-500’s waste disposal abilities and the likelihood of getting Green groups to politically back its construction are attractive features that may offset the risk involved with buying one. I wrote last week that

“Capitalist economists assured the “peak oil” Chick-Littles that the invisible hand would naturally encourage alternative fuels once oil prices became high. Well, oil prices are now high and here come the alternative fuels.”

The KDV-500 “cat refinery” by Alphakat Zukunftsenergie GmbH is another example of this effect. I expect to hear more about it (and its competitors) in the future, especially since they seem to have a very good marketing group working with them.

Welcome carnival-goers. If you liked this post, take a look around the rest of the blog.


*distillate fuel oil in the transportation sector.
** I am very excited about the potential advancements in economics as it is increasingly seen to be an information theory problem instead of the resource management problem. The shift may one day be viewed like the past academic shifts from alchemy to chemistry and astrology to astronomy.
*** Which we can do a sanity check on with this example. If the moonbats are to be believed, the entire purpose of our war and continuing operations in Iraq is to secure our oil supplies (except when it is to help the Jews). So far they estimate the cost of this at almost $200 billion dollars. Since the Iraq war started in March 2003 we have consumed about 20 billion barrels of petroleum products of which about 2.5 billion barrels is diesel. If we divide the cost of our Iraq intervention by volume (perhaps not the best method, but easy and good enough for gov't work) that would raise the cost of a gallon of diesel by $0.23 or a before tax increase of about 16%. I have ignored the "human cost" of the war, but considering both the historically low casualty rates of our troops and the high mortality rate of pre-war Iraq there may not be a net negative human cost at all (despite what Lancet said). Since both cat diesel and traditional diesel would contribute to carbon emissions, I will ignore that cost in this example. These assumptions give an adjusted pre tax breakeven cat price of about $0.36/cat for a comparison of cat diesel and traditional diesel. This calculation would be the worst case of assuming all the costs of the Iraq war and occupation are spent to secure our petroleum supplies. If we assume that the moonbats are not right and there are other valid reasons for the war then the war related costs of petroleum would be even smaller than the 16% calculated here. The national security costs of using natural petroleum from unstable countries to produce our diesel is probably not zero, however, so the actual cost is likely somewhere between a lower bound of 0% and an upper bound of 16% of it's current pre tax price of about $1.46/gal. As I said price is not a perfect figure of merit, but it does seem to be close enough to be very useful and (most importantly for our decision to use it in making resource conservation judgements) better than any other figure of merit I know of.
**** Well, actually it can handle wet waste too by using heat to turn the wet waste into dry waste.

Update: added the 3rd footnote and corrected annual gasoline consumption estimate
Update 2(10/3): added 4th footnote and CWT link. (thanks Alan)
Update 3(10/10): In the comments, Engineer Poet points out some oddities about Alphakat's claims, including an unrealistic product yield, that makes him wonder if they are on the level. Even if they aren't, there are more organizations working on similar products and high oil prices will encourage investors to look seriously at synthetic fuels.
Update 4(10/13): added carnival welcome