Investment in Photovoltaic Complexity

As my last two posts illustrate, I'm in a bit of a rut on the potential for photovoltaics to solve all of our problems. It would be overly simplistic to boil this argument down to "Roddenberrys" vs. "Doomers," because those terms (the former of which I just coined, so bear with me) seem to only address irrational behavior by individuals at either extreme end of the techno-optimism spectrum. There is a very genuine debate underway in what I consider the more moderate middle of this spectrum. Two people whom I enjoy reading, and who's writing I respect, are on either side of my personal view of this, but both within the "reasonable" zone: Big Gav from Peak Energy (leaning towards Roddenberry), and Ted Heistman from Freerange Organic Human (leaning towards Doomer).

At the end of the day, the information available suggests to me that the Energy Return on Energy Invested (EROEI) for photovoltaics is less than or about equal to 1:1. If I'm wrong, and it is more like 10:1 and will steadily rise indefinitely with futher research, then a strong case for "Star Trek" optimism (and hence "Roddenberrys") can be made. There is no doubt in my mind that improvements in photovoltaics will be made--the real question is whether the return on these investments in technology (in complexity) will provide linear returns, or whether they will be subject to diminishing marginal returns. Here is a recent project from the Solar 2006 convention in San Jose last month:

SunPower is approaching a 23% efficient PV. This helps it take business from typical 17% efficient PV. Dr. Richard Swanson, CEO, SunPower gave the conference good reason to expect continued high growth. He pointed out that in 1975 solar modules cost $100/watt. By 2002, the cost had fallen to $3 per watt. The industry learning curve of 30 years has been consistent – each time that production doubles, cost drops 81%. Dr. Swanson expects $1.40 per watt by 2013 and 65 cents per watt by 2023.

This Dr. Swanson of SunPower is making the case for a kind of "Moores Law" for improving solar panel efficiency. Is this really a linear decrease in cost? Right now there is about 5300 MegaWatts of installed PV capacity worldwide. The US alone currently generates on average over 1,000,000 MegaWatts of electricity (just electricity...this won't power a hydrogen fuel scheme). So existing PV would need to double eight times in order to just match the current US electrical generation. If, per Dr. Swanson's linear decrease in cost projection is true, after eight doublings in capacity PV cells would cost 0.005 cents per watt. You could build enough PV to power the entire United States for $5,095. Something tells me that the reality is not linear! No, the reality is most likely best expressed by some form of logistics curve, such as the diminishing marginal return curve suggested by Joseph Tainter:

The rapid increase in efficiency of photovoltaics coupled by the decrease in cost per watt from the '70s to the present is represented by the return on investmen tin complexity, which rises rapidly from 0,0 to C1,B1. The salient question is: what point on the curve represents the return on current marginal investment in PV complexity? Probably somewhere between C1,B1 and C2,B2. Projections, like Dr. Swanson's that assume linearity in cost decrease per watt are basing this assumption on the roughly linear increase represented by the curve between 0,0 and C1,B1. But the reality is that the benefit from each marginal investment in photovoltaics at this point will return less and less. This technology cannot save us from the ultimate ramifications of diminishing marginal returns.

There is, in fact, some evidence that PV technology is already at the peak of the diminishing marginal return curve (C2,B2). Sunpower, the same company where Dr. Swanson extolls the historical decreasing cost of photovoltaics, recently made this press release:

...Overall, these changes result in a 43 percent increase in power, said Julie Blunden, vice president of external affairs at SunPower. Each panel can generate 315 watts of electricity and will have roughly the same cost per watt as the existing line, she said.

When you improve "efficiency," but the cost of doing so keeps the cost per watt stagnant, then you have peaked on the diminishing marginal returns curve. Future increases in efficiency are most likely possible, but they will become so costly as to actually increase the cost per watt. Investment in complexity is inelegant, and will always run into exactly this problem...

Elegant Technology

Every now and then I get the sense that some people see me as a “doomer.” That I’m perceived as a bit of a pessimist about the future. I don’t know why. In the face of issues like peak oil, global warming, catabolic collapse, I don’t see any need for our quality of life to decrease. I do see a need for our quantity and mode of consumption to decrease—and I think some people are confusing the two. Many people are labeled “doomer” simply because they reject the general idea that technology will be able to save us from all our problems and guarantee the maintenance (even perpetual increase) of our consumer-driven society. I think that this demonstrates a failure to grasp two critical concepts—that extreme consumption does not equate to quality of life, and that technological complexification is not, in itself, of any value.

Technology is only of value to the degree that it provides for quality of life without creating negative power-relationships that outweigh that benefit. And such technology does not have to be complex or “advanced” at all. Technology is nothing more than “knowledge of technics” or knowledge of a technique—knowledge is power. A thin photovoltaic array or a genetically engineered bacterium that converts woody biomass to ethanol both represent technology. The question that we must ask is “does the quality of life provided by this technology outweigh the decrease of our quality of life from the power-relationships that we must enter in to in order to employ this technology?” As a general rule, when the answer is yes, the result is something that may be accurately described as “elegant simplicity.” When the answer is no, as I think it is with both the example of photovoltaics and biotech-ethanol, then the result is not “elegant simplicity.” In fact, because I am using “elegant” not in the vernacular, but as a term of art, the phrase “elegant simplicity” is actually redundant: “elegant” alone will suffice, because I use that term to imply a measure of simplicity—that the benefit from an “elegant” technology outweighs burden of the incurred hierarchy, when measured from the perspective of the median (not mean) individual.

Most people who categorize me as a “doomer” do so, in my opinion, because they fail to understand this concept. I think that the “solutions” presented by most people fail the criteria for elegant simplicity. These solutions—cellulosic ethanol, thin-film photovoltaics, genetically engineered pest-resistant crops, nuclear fusion—will not solve our problems because, at their core, they ARE our problems. The root problem facing human society at present is the composite of the power-relationships that we have submitted to in order to “benefit” from such “non-elegant” technology—what I have elsewhere labeled as “hierarchy.”

While the test laid out above for “elegance” is subjective, there are hallmarks of technologies that fall into the “elegant” and “non-elegant” categories. Elegant technology is probably vernacular, general, and contained. These may not be the best three characteristics to capture the entirety of “elegant,” but they are the three that I will use for now.

Vernacular, for our purposes, means used by and accessible to commoners (the “median individual” from above). It doesn’t require a specialist to understand or implement, but rather is generally accessible.

General, for our purposes, means broadly applicable. An elegant technology is one that can be applied to a broad set of circumstances, not something that is only applicable to a single and unique set of circumstances.

Contained means giving rise, on balance, to negative feedback loops. A contained technology solves one problem without creating two different and greater problems.

These three characteristics of elegant technologies—vernacular, general, and contained—are broad and subjective, but provide a framework for evaluating technologies. To put it as plainly as possible, such evaluation is critical because technologies that are elegant are part of the solution to the problems facing human society. Technologies that are not elegant are part of the problem. Let’s take a look at a specific area of technology: Solar Energy.

Non-Elegant Solar: We’ll start with a negative example—a non-elegant technology for the use of solar energy: photovoltaics. Photovoltaics are not vernacular. Do you know how to make one? Probably not, but even if you do, I’m quite sure that you don’t know how to make all of the machines and tools necessary to create photovoltaics. This is important because when a technology is outside the realm of the vernacular, use (specifically ‘reliance on’) that technology creates a dependency relationship between the user and the provider. Are photovoltaics a general technology? Probably—while they only serve to produce electricity, that is a pretty generally useful thing in our modern world. Are photovoltaics contained? No, for exactly the reasons cited above: such specialized and complex technology relies on a specialized and industrial society. Even if we deem specialization and industrialization to be positive benefits, the mere scope of these non-contained impacts makes this technology non-elegant. Ultimately, photovoltaics require a hierarchal society for implementation, and the problems incumbent in such hierarchy make the technology itself non-elegant.

Elegant Solar: So if photovoltaics are not elegant, does that make any use of solar energy non-elegant? No. Let’s take a particularly clear case. Solar orientation: the understanding that the sun transits a broadly east-west path, and that, north of the tropics, the sun shines primarily on the south side of anything. Is this even a technology? It may not fit the way we commonly think of that term, but it is clearly knowledge of a technique—that specific orientation has a specific effect in terms of solar gain. Is it vernacular? Yes, both potentially (everyone can understand it), and in reality as it is widely used in vernacular architecture. Is it general? Yes—it is quite broadly applicable in terms of architecture, agriculture, energy production, etc. Is it contained? Yes—this technology can be used without creating any outside impact. I can be as simple as planting a frost-sensitive tree on the south side of a rock wall instead of the north side, but it certainly doesn’t require specialization or industrialization. So, solar orientation is an excellent example of an elegant technology.

What is the broader relevance of this definition of “elegance”? Elegance is a solution to the problems of hierarchy. Because elegance is, by this definition, contained, it will foster localized, self-sufficient, and independent societies. Elegance is the feedstock of rhizome. And elegance is a concept that, if we set it as our goal, can steer the vast potential of human innovation to a positive, sustainable end that is compatible with human ontogeny. So I don’t think of myself as a “doomer.” I just think that dreams of a “Star Trek” future where “high” (read non-elegant) technology solves all of our problems is pure fantasy. And I don’t think that this is a bad thing.

Energy Payback from Photovoltaics: Problems in Calculation

Does solar energy—specifically photovoltaic (PV) panels—ever produce as much energy as the energy that was initially invested in their manufacture? Industry, academia, and government all seem to be in agreement that the answer is “yes.” (1)(2)(3) The consensus seems to be that PV produces as much energy as was used in its creation in a time period of 1-5 years, allowing PV to produce between 6 and 30 times more energy over its life than was used in its creation. These two answers—that PV produces more energy than is used in manufacture, and that PV provides an Energy Return on Energy Invested (EROEI) of between 6:1 (2) and 30:1 (2)—suggest that photovoltaics can be and should be a cornerstone of our efforts to replace our reliance on non-renewable fossil fuels.

There are serious problems, however, with the methodology used at present to calculate the EROEI of solar panels. Some authors claim that life-span EROEI for photovoltaics is as high as 50, but provide no information for how that figure is calculated. (4) Others, such as Clarion University’s calculations, take a very limited view of energy invested in PV production, accounting only for energy use of the manufacturing plant itself. Under these assumptions, they understandably arrive at a very optimistic EROEI of 6:1 to 31:1. (1) So what energy inputs are not being accounted for in such a calculation? Let’s work backwards:

* Installation: PV does not good sitting in the factory. It must be installed, and this takes labor. There are various ways of accounting for the energy represented by such labor, but it certainly takes energy.

* Transportation: PV has to get to the installation site. Efficient manufacture is only possible if it is centralized, but this means that it must be shipped—usually by truck, which requires both the fuel directly consumed by shipping, plus the energy consumed in the entire chain of operation necessary to construct the truck, as well as the labor cost of the driver, which also represents an energy input.

* Manufacturing plant: EROEI calculations usually account for the energy consumption of the manufacturing plant, but not for the construction of the manufacturing plant itself, as well as the construction of all the machines used on the PV assembly line (PV advocates often point out that silicon is the most abundant element on earth and therefore requires very little energy to acquire—but this is NOT true for the highly advanced manufacturing machinery necessary to create PV cells, usually made from metals that require great energy input for extraction). If we take the total energy required to create one PV manufacturing plant as well as its expected lifetime production, we can then calculate how much of that energy should be attributed to a given quantity of PV panel.

* Labor: One of the key components in the production of PV panels is human input, and yet this energy cost is not accounted for in standard EROEI calculations. I’m not referring to the actual calories expended operating an assembly line, or answer the phones in the front office, but rather the energy consumed in the course of these people’s daily lives—energy that must be accounted for because it is part of the support structure necessary to create a PV panel. No employees, no PV.

These embodied energy costs in the creation of a PV panel (called “emergy”) are difficult to calculate. We can regress infinitely, eventually going so far as to account for the portion of energy consumed by a rice farmer in China in order to fill the belly of a Merchant Marine captain shipping machine parts across the Pacific, ad infinitum. How do we actually get a composite sense of the total embodied energy in PV production? One way—and certainly not a perfect way—is to use the market’s ability to set prices as an equivalent for embodied energy. This is what I am calling “Price-Estimated EROEI Theory.” It basically suggests that the most accurate representation of the total energy embodied in ANY product is the price of that product. In our example above, the energy required to install PV can be accounted for by the cost of that service. The energy required to transport, to build a manufacturing plant, to employ workers, etc.—all component energy contributions in the production of PV increase the market price of the resulting product.

So what is the Price-estimated EROEI of PV? If we accept that the price of an installed PV system is representative of the energy used, then we can compare that price with the quantity of energy produced over the lifetime of that system (which also has a market price) and reach an EROEI ratio. There are variables involved here, but when we use market-price to account for the full spectrum of energy “invested” in PV, we reach an EROEI of approximately 1:1 (*see full calculations below). This is dramatically different than the 6:1, 30:1, or 40:1 suggested by most sources. Which figure should we rely upon? While I recognize that price-estimated EROEI is not a perfect calculation, at least it attempts to account for the full spectrum of energy inputs, and the precautionary principle suggests that we should err on the side of this number (1:1) as opposed to the quite optimistic figures coming from the PV industry or the government.

Ultimately there is only one way to definitively answer this questions: The bootstrap challenge. I have previously stated that when I see an ethanol plant that distills their ethanol USING ethanol (not natural gas or coal), then I will seriously reconsider the merits of that alternative energy source. Likewise, when I see a PV production plant that is powered entirely by PV, containing machines manufactured at plants powered entirely by PV, machines composed of materials mined, refined, and shipped entirely under PV power, etc., then I will believe that PV has an EROEI greater than 1:1. With an EROEI like 30:1, this should be no problem . . . so the fact that this is not the case is yet another argument, at least in my mind, that reality stands closer to the 1:1 figure.

EROEI is not just a nifty academic exercise. The outcome of the debate on EROEI—whether for PV panels, ethanol production, nuclear fission—is critically important for the future of our economy and society. Regardless of the exact timeline, it is not seriously disputed that non-renewable energy sources such as oil, gas, and coal—all with high EROEI—are running out. There is a commonplace assumption that we will create alternatives to replace them, but at present these alternatives—from PV to ethanol—are all being produced with the very fossil fuels that are disappearing. When they are effectively gone, only energy sources with an EROEI of greater than 1:1 will be viable—and even then, our economy, with its demand for constant growth, cannot survive on energy with an EROEI of 2:1 or 5:1. For that reason, it is critical that we more carefully address this EROEI debate today. If alternative, truly renewable sources of energy cannot match—and eventually improve upon—the EROEI of today’s energy sources, then we must conduct a serious reappraisal of the fundamental structure of our society. My analysis suggests that we must do exactly that.

* CALCULATION: 2 KW complete PV system installed in Phoenix quoted at $16,000 (before any tax rebates or incentives, grid-intertie only,NOT including battery storage)(5). In Phoenix (optimal location), this generates 4,000 KW-hours of electricity per year (5). At prevailing Phoenix rate of electricity ($.10/KW-hour) this is $400/electricity per year. This produces a pay-back time of 40 years if we do not account for the time-value of money. For the purposes of this calculation I will be very conservative and find that actual inflation will equal TVM over this 40-year period. The quoted PV panels have a life-expectancy of 40-years (again, this is conservative as this “complete” system ignores battery storage, which would dramatically decrease the aggregate life expectancy). The resulting price-estimated EROEI of PV solar is 1:1.

REFERENCES:

(1) http://jupiter.clarion.edu/~jpearce/Papers/netenergy.pdf

(2) http://www.nrel.gov/ncpv/energy_payback.html

(3) http://www.csudh.edu/oliver/smt310-handouts/solarpan/pvpayback.htm

(4) http://www.solar2006.org/presentations/forums/f36-swenson.pdf

(5) http://www.solargenerations.com/faqs.html

Solving the Problem of Mutually-Exclusive Overlap in Iraq

Lots of news about Iraq lately. Too bad we haven't heard much about the recent approval of the Kurdish constitution.

Over a year ago, I discussed the problem of mutually exclusive minimum demands between the various parties within Iraq (1 2 3). I've also articulated this mutually-exclusive overlap as a catalyst of conflict in general. Specifically, the problem here is that the Kurds demand control over northern Iraqi oil resources, but the Sunni Arab population will never accept a federal structure where the Kurds get the northern oil, the Shi'a get the southern oil, and they get none.

It's easy to read about how the central government in Iraq plans to gather oil revenues centrally and then distribute it evenly through the country. What we're not hearing is that the recently approved constitution for the Kurdish Regional Government (KRG) isn't playing that game. The KRG constitution explicitly states that Kurdish law trumps Federal (Iraqi) law. It also says that the KRG will retain its Peshmerga militia. Oh, and that if things don't work out, they retain the right to "go their own course." As in become independent. Turkey is, literally, up in arms about this. The US isn't quite so sure how to respond--a strong and independent Kurdistan doesn't exactly help the (potentially unattainable) goal of a stable, multi-ethnic Iraq. But it also accentuates the ethnic divisions within Iran--specifically their large and sometimes restive Kurdish minority.

Mutually-exclusive overlap. The Iraq project WILL FAIL if this issue cannot be addressed. So how do you address mutually-exclusive overlap? That isn't so easy. The first step is recognizing that there is a time element to the creation of mutually exclusive overlap: The artificial divisions created under the Sykes-Picot Accord almost 100 years ago brought this process into high gear. And there will be a time component in any solution. If people think it can be fixed in 5 years, they should hit the history books. In some ways, the recent situation in the former Yugoslavia is informative, but in that situation there was not this highly concentrated and incridibly important feature: oil.

There are other problems with trying to translate the very limited success of erasing mutually-exclusive overlap in the former Yugoslavia to Iraq. But perhaps the one most worth mentioning is that much of the former Yugolsavia is locally self-sufficient. The Serbs and Slovenes and Croats generally have their own localized industry. Their own localized agriculture. Their own localized tourist revenue. They, for the most part, don't rely on the dole. They are a geography of small cities, local markets, domestic production, and localized agriculture. Iraq is not. Iraqi population has exploded over the past decades on their oil wealth. They are fundamentally reliant on it. They are not agriculturally self-sufficient. They have virtually no export product beyond oil. So whatever region does not receive the share of oil revenue that they have come to rely on (and the Sunni Arab regions have traditionally received the vast majority), they no longer have the surplus necessary to maintain the standards that they expect. That they demand. This is why, without an even distribution of oil wealth, there cannot be peace in Iraq--it is the classic problem of the "Arab Street." Many young men on the dole who have no legitimate prospects to support themselves or their families. But with the lengthy history of oppression of the Kurds and Shi'a, these newly empowered groups will not accept their traditional, disproportionately small share of oil revenues. This is one source--probably the key source--of mutually-exclusive overlap in Iraq. And the Balkan model does not provide a solution here. This problem is only solved by moving the Iraqi economy away from its dependence on oil.

Can this be done? I think that it can, and I think that it is informative to look at why the former Yugoslavia was more successful in erasing mutually-exclusive overlap: its higher degree of localized self reliance. If Iraq is to ever erase this mutually-exclusive overlap, it will require a focus on creating localized self-reliance, not on some dream of establishing Iraq as a tourist center or manufacturing center--the solution must be possible within the zero-security environment that currently exists. Anything that depends on first solving that security problem is getting the cart before the horse. Localized self-reliance--the ability to create a quality life on your own--is something that CAN be done in the current environment, and that CAN then pave the way to remove the reliance on oil and reduce the criticality of the existing oil-based mutually exclusive overlap. I have only seen one example of this actually taking place: Geoff Lawton's excellent, Middle East permaculture initiatives. With his wife Nadia he has worked to create local self-reliance in Jordan. And he has worked to create a self-dependent, permaculture orriented village in Iraq. This is far too little, but it is creating a model for how this CAN be accomplished--something that, if seized upon by other NGOs or governments, could, one day, actually solve this problem.

Disarmament

Regardless of its relative success or failure, the recent nuclear test by North Korea resulted in calls from all sides for that country to cease its nuclear armament program. The foundation for all of these calls is the Nuclear Non-Proliferation Treaty (NPT). The NPT, which is binding in international law on all nations, not just its signatories (see 1996 ICJ advisory opinion), requires that non-nuclear states not pursue the development of nuclear weapons. So, clearly, North Korea had no right to develop a bomb, let alone test one. It says so clearly in the NPT, which is binding, and must be respected...

Of course, what we aren't hearing are the cries that the NPT also says that the nuclear powers must disarm. That isn't very convenient, especially with the US Department of Energy working on developing a new generation of smaller and "more useable" nuclear weapons. Yes, the second pillar (article VI) of the NPT, right after non-proliferation, is disarmament. And the 1996 Internatinal Court of Justice advisory opinion also made it clear that this obligation to disarm--to conclude and enact agreements resulting in actual disarmament, not just to enter negotiations--is equally binding on all nations under international law.

Quite the sticky wicket. The US is equally in violation of international law by not disarming as North Korea is by creating a bomb and testing it. Funny, then, that we're only talking about enacting sanctions on North Korea. International law is normative, not rule-based. That means that it only has effect by the standards created for nations by the cumulative actions of others. So the UN or the US can say all they want that the North is in violation of international law. This is only true to the extent that such normative law exists, and because all other nuclear powers are flaunting their obligations under the NPT, it's words do not rise to become normative. Therefore there is no norm--and hence no law--for North Korea to violate. All talk to the contrary is just that. Likewise with Iran. I'm sure we will hear people discussing how Iran is violating international law as well. As soon as those same people point out how the US and France and China are similarly violating that law, then we're getting somewhere. Until then, talk talk talk.

What to do? That one is easy in my book. Disarm. Unilaterally. It's not like we can really use those nuclear weapons anyway. Ignoring for the moment the argument that none of our missiles could even get out of their silos without a month's notice, we stand to lose virtually nothing, and we stand to gain so much. Disarm unilaterally, gain the respect of the world, create a true normative environment to bring pressure on what will only then actually be "rogue" states to meet their own obligations. Obligations that in a normative system will only then really exist. Disarm unilaterally and gain the moral high ground. Or, continue with our hypocritical ways and see how far that gets us. For a change, it really is our choice.

Fallout

North Korea tested a nuclear bomb. Click on that link if you want to read the about the test itself--I'm more interested in the fallout.

Even though the test device was detonated in a 700m deep shaft, radiation will still escape into the atmosphere. And the US Air Force WC-135 Constant Phoenix is surely already busy flying off the coast of North Korea performing their dull but essential particulate analysis mission. This will likely confirm that the fissile material was the product of NK's Youngbyon reactor complex.

Now what? The fears are that this will spark an East Asian arms race. Japan has all the necessary technology and plenty of nuclear facilities to leverage--they could build a nuclear capability very quickly if so inclined. With new PM Shinzo Abe at the helm, and the pacifist voices of Hiroshima and Nagasaki survivors growing more quiet by the year, this is a very real concern. With Japanese deployment to Iraq (albeit in a nominally non-combat role) passing without major controversy at home, the groundwork for rearmament is already being laid. Japan's dependence on imported energy sources may prove to be the final straw--will Japan be able to curry favor abroad and continue to win oil concessions through charity, or will they feel the need to back that up with a military stick? While oil is theoretically fungible and traded freely worldwide, there is simply not enough oil within easy reach of hungry East Asian markets--as effective as charity may be, it is not capable of forcing open a choke point such as the Strait of Mollucca.

In addition, one of the long-standing Korea theories holds that the ultimate goal of America is to maintain the status quo--a divided Korea is stabilizing because it prevents either regional unification or conflict. Specifically, a divided Korea keeps a powerful US military force--and just as importantly a viable excuse to maintain that force--in the theater. A divided Korea provides the justification for the US to remain as the military protector of Japan, and thereby prevent their re-armament. So long as a US military force is committed to the region, and opposed to China, Japan does not have a reason to build up its own "Self-Defense Forces" to counter a chinese threat. Or so the theory goes. But with the US bogged down in Iraq, further tied down by the need to deter Iran, the US military presence in East Asia rings hollow. In my opinion, there is no viable military option available to the US. And so far, the Bush version of diplomacy has failed both locally (it didn't prevent this test) and globally (it has shown nations such as Iran that you will be handled more softly if you already have the bomb). Would the Clinton version--direct engagement and talks--be any more successful? I think it would be more effective locally but equally counterproductive globally--it still shows others that you get what you want when you play the nuclear card. Either way, it will be interesting to see what will happen next...

Oil Prices...Again

Almost a month ago I raised the possibility that the sharp drop in oil prices in the run-up to the November elections may be the result of manipulation. This has been an easy argument to brush aside, as there are also fundamentals behind the recent drop: this hurricane season hasn't lived up to the hype, causing some speculators to bail out of their oil plays. Also, geopolitical tensions impacting oil supplies have been simmering on low (though some of this--especially the easing of pressure on Iran, may not be entirely innocent). Never the less, the potential for price manipulation has received coverage from most of the mainstream media (though mostly as a preface to dismissing the concern). While I think that I presented several very plausible manipulation scenarios, over the past week there has been one theory (not one of mine) that has cearly risen above the rest: a change in the composition of the Goldman Sachs commodity index led to a massive sell-off in oil-complex futures. The Goldman Sachs commodity index is publicly available, and it acts as the benchmark for the composition of over $100 Billion in commodity funds. Suddenly, and without explanation, Goldman Sachs changed the Unleaded Gasoline component of the index from 8.72% to 2.3%, which sparked a lingering sell-off of over $6 billion dollars in oil-complex futures as funds scrambled to bring their portfolios in line. This was in no way a reflection of the fundamental supply and demand picture, just a quirk of the financial markets. With this theory now out in the open, there is speculation that Goldman's close ties to the Bush administration may be involved, but that is a more of a diversion: this is important not because it may or may not suggest political maneuvering, but because it strengthens the argument that the recent drop in oil prices is not based on fundamentals.

As deconsumption recently pointed out, even the NY Times has picked up on this story.