Wednesday, November 26, 2008

Offshore Drilling for Little Oil

The subject of offshore oil drilling has largely faded following the election, and we have heard mercifully little of the "drill, baby, drill" inanity. Nonetheless, the drilling moratoria of both the executive and legislative branches have been lifted, and interest in drilling is growing in Alaska, Virginia, Florida, North Carolina, ...

As offshore oil was being given the green light back in July, Joe Romm at Gristmill wrote:

The oil companies already have access to some 34 billion barrels of offshore oil they haven't even developed yet, but ending the federal moratorium on offshore drilling would probably add only another 8 billion barrels (assuming California still blocks drilling off its coast). Who thinks adding under 100,000 barrels a day in supply sometime after 2020 -- some one-thousandth of total supply -- would be more than the proverbial drop in the ocean?
Some Alaskans oppose this drilling too, and some no doubt remember the soothing blandishments proffered by industry apologists that nary a drop would be spilled from the planned oil terminal in Prince William Sound. Apparently, Captain Hazelwood hadn't paid any attention to that any of that before skippering the Exxon Valdez onto a reef and drenching 11,000 square miles of ocean and coastline with 11 million gallons of oil.

(Lagniappe: Exxon, to its enduring discredit, fought the damage award with every barrel of its corporate being, even as it continues to set records for its quarterly earnings, engages in shameless greenwashing and sets the standard for underfunded pension plans. After 19 years, the fisherman may at last get some tiny fraction of the original $5B jury award.)

This week, drilling in the Beaufort Sea was stopped by the 9th Circuit Court, which found that the Minerals Management Service had not done an adequate job assessing impacts to wildlife and to the Inupiat Eskimos that depend on them. Shell Oil, whose plans have been (temporarily) thwarted will doubtless appeal, and may ultimately prevail. President-elect Obama has been less than consistent about his position on offshore drilling, and there are so many battles to fight I doubt that offshore drilling will be much slowed. Certainly there will not be another moratorium, and more environmental damage is nearly inevitable.

All of the wrangling misses the larger problem of climate change, and the folly of pursuing more oil in a manner so environmentally troublesome and which won't solve our energy needs anyway. This chart pretty much sums it up:



Takes years, costs lots, damages the environment, exacerbates climate change and produces very little oil. Hmm, why are we going forward on this turkey?

Thursday, November 20, 2008

World Changing

Support for renewable energy and hesitancy on nuclear and coal generation of electricity is part of the mandate President-elect Obama received at the polls. Common Dreams reports that this support is global in scope, based on a survey of more than 2,000 residents in 21 disparate countries:

An average of 77 percent of respondents thought policy-makers should require utilities to invest more in alternative energy, with country results ranging from 50 percent support in Russia to 89 percent in South Korea.

With an average agreement of 74 percent, almost the same enthusiasm was shown for greater efforts to make buildings more energy efficient. The lowest support, 54 percent, was found in the Palestinian Territories, while an overwhelming 89 percent of French and British want to see stronger commitments by their governments.

In contrast, fewer than half of the nations polled favour more emphasis on nuclear energy, coal or oil to meet energy demands in the future. Only in Kenya, Argentina, Jordan and Nigeria did researchers find more than 50-percent support for building new coal- and oil-fired power plants.
69% of respondents would bear higher short-term costs if necessary to support alternative energy and energy efficiency.

Charging Ahead on Electric Vehicles in California

The three largest Bay Area cities in California have agreed to foster the infrastructure for electric vehicles.

Better Place (formerly Project Better Place) has scored a coup in the California Bay Area. The electric vehicle startup has struck a deal with the region, including the cities of San Francisco, San Jose and Oakland, to set up a $1 billion charging network for electric cars, with car availability beginning in 2012.
The cities will proide a lot of incentives and will "streamline," "expedite" and "harmonize" regulations, permitting, etc. The actual source of $1B is less clear; it sounds like mostly in-kind support and encouragement rather than cash, but that kind of support is still fantastic.

Wednesday, November 19, 2008

Shale Game

Monday the U.S. Interior Department's Bureau of Land Management (BLM) finalized regulations to encourage oil shale development on federal lands. The rules specify royalty rates and lease sizes and are intended to create a regulatory framework to encourage commercial development, primarily in the so-called Green River Formation, a two million acre tract of federal land straddling Colorado, Utah and Wyoming that optimists in the Fossil Industry think may contain perhaps 800 billion barrels of "recoverable" oil.
"Depend upon it, sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully."
--Attributed to Samuel Johnson by James Boswell
While many are focused forward on real energy solutions, and most are too enervated to hang even an effigy, almost all are paying close attention to the clock. In these remaining lame duck months the Bush Administration has concentrated its mind around unilateral enactment of regulations, many appearing as favors to its long-coddled industry bedfellows, and few appearing very well thought through. After eight years at an open bar, do the besotted party-goers really need "one more for the road"? Ever the convivial host, this past week Bush announced that oil drilling would be green-lighted within sight of Utah's famous Delicate Arch. Other recent and hasty measures include allowing power plants next to national parks, relaxing rules that protect rivers from mountain-top mining, and removing wolves from the list of endangered species.

This last proposal drew more than 300,000 public comments, which the Department of the Interior, under the rapacious "leadership" of Dirk Kempthorne ("Gale Norton in pants") has said they would review in one week prior to finalizing the rule. One week? If one reviewer worked continuously, 24/7, for a week, that would be a reviewing rate of one comment every 2 seconds. 30 people working continuously side-by-side for that week could lavish an entire minute on each comment, reading, understanding, and incorporating worthy feedback into crafting a better rule. Although monkeys with typewriters would perhaps have only an even chance at producing a more coherent result, at least with monkeys none could attempt to argue that such a slapdash method could produce a considered result.

The proposed oil shale regulations prominently feature royalty rates that appear designed to encourage development by having the taxpayer subsidize the costs. Normal royalty rates are typically 12.5% for oil and gas leases on public land, but BLM offers rates on oil shale starting at just 5% for the first 5 years of production, rising 1% per year until reaching parity with the main rates. Stephen Allred, the assistant secretary for land and minerals management at the Interior Department justified the give-away by saying that developing companies will spend "hundreds of millions of dollars" so the rate is "a compromise" that will "provide a fair return to the American public." U.S. Senator Ken Salazar (D-CO) called it "a pittance." He further criticized the hastiness of the decision in light of the failure by BLM to analyze the potential environmental impacts, and the additional and enormous resource contention that would ensue over dwindling water supplies:
These regulations are premature and flawed. The Bush Administration has fallen into the trap of allowing political timelines to trump sound policy. Over and over again the Administration has admitted that it has no idea how much of Colorado’s water supply would be required to develop oil shale on a commercial scale, no idea where the power would come from, and no idea whether the technology is even viable on a commercial scale.
Previously, the Energy Policy Act of 2005 (EPACT) required the BLM to create a process for granting "research development and demonstration leases" under which companies could apply for 10-year leases on token 160-acre parcels to investigate oil shale extraction and feasibility. The new regulations are clearly consistent with an expansion of activities and commercialization well beyond that envisioned by EPACT. Is oil shale ready?

In 2005, a Rand Corporation study concluded that oil shale development would not be economically feasible using current surface "retort" technology unless crude oil prices were "at least $70 to $95 per barrel (2005 dollars). Stephen Allred, the assistant secretary for land and minerals management at the Interior Department, admitted in a conference call following the BLM announcement that oil shale development "may be profitable in the neighborhood" of oil prices of $60-$80 a barrel "more than the current price" should techniques "under development" work out. The Rand report noted in its summary:
Currently, no organization with the management, technical, and financial wherewithal to develop oil shale resources has announced its intent to build commercial-scale production facilities. A firm decision to commit funds to such a venture is at least six years away because that is the minimum length of time for scale-up and process confirmation work needed to obtain the technical and environmental data required for the design and permitting of a first-of-a-kind commercial operation. At least an additional six to eight years will be required to permit, design, construct, shake down, and confirm performance of that initial commercial operation. Consequently, at least 12 and possibly more years will elapse before oil shale development will reach the production growth phase. Under high growth assumptions, an oil shale production level of 1 million barrels per day is probably more than 20 years in the future, and 3 million barrels per day is probably more than 30 years into the future.
Allred admitted that the technology necessary to commercialize oil shale development does not currently exist, might not for a decade or more and acknowledged that the BLM lacks the information to project demand for leases or the economics of producing shale oil. "Rather than completing the necessary research and development, the Bush administration is rushing ahead with rules for a development process they know little about," said Senator Salazar.

Several oil companies attempted to commercialize oil shale in the early 1980's and Shell has more recently invested at least $200 million developing an "In-Situ Conversion Process" (ICP) that heats the shale in the ground to extract the liquefied kerogen which would then be refined into various petrochemicals:
In a nutshell, ICP works like this: Shell drills 1,800-foot wells and into them inserts heating rods that raise the temperature of the oil shale to 650 degrees Fahrenheit. To keep the oil from escaping into the ground water, the heater wells are ringed by freeze walls created by coolant piped deep into the ground; this freezes the rock and water on the perimeter of the drill site. Eventually the heat begins to transform the kerogen (the fossil fuel embedded in the shale) into oil and natural gas. After the natural gas is separated, the oil is piped to a refinery to be converted into gasoline and other products.
The long term viability of this process is not yet known. Existing methods require vast amounts of water (2.3-5.7 barrels of water for each barrel of oil produced)and energy (more than 40% or more of the energy produced.) Shell reports that its in-situ process will have an EROEI of 3-4, although this might change given the enormous energy costs involved in building and maintaining the frozen water "walls" below ground that would contain the heated shale. Wind power has an EROEI of approximately 20.

Then there are the environmental impacts. Shell's ICP relies on containing the super-heated liquid products under ground, but the efficacy of the freeze-wall technique in actually preventing groundwater contamination is unknown and may have cumulative impacts that cannot be understood prior to actual commercial production (by which time the damage would already be done.) Both strip mining and room-and-pillar mining have well-recognized problems in land use and broad habitat destruction. Air quality, water quality, and greenhouse gas emissions all have uncertain (but large) impacts and costs. The RAND study highlights the serious impact on water usage:
About three barrels of water are needed per barrel of shale oil produced. Water availability analyses for oil shale development were conducted in the early 1980s. These analyses indicated that the earliest constraining factors would be limitations in local water supply systems, such as reservoirs, pipelines, and groundwater development. A bigger issue is the impact of a strategic-scale oil shale industry on the greater Colorado River Basin. Demands for water are expected to continue to grow for the foreseeable future, making the earlier analyses regarding oil shale development outdated.
The BLM, in its own rules [PDF], updates the concern:
While it is not presently known how much surface water will be needed to support future development of an oil shale industry, or the role that groundwater would play in future development, it is likely that additional agricultural water rights could be acquired.
I'm sure the farmers and ranchers will be all over that one. As an old western saying has it, people talk over whiskey and fight over water.

The RAND report concludes that additional research and study is needed, and that development should be at "a measured pace". The final recommendation was for public participation because any development would "profoundly" affect stakeholders; "the federal government should consider fostering the creation of a regionally based organization dedicated to planning, oversight and advice, and public participation."

Canada's experience with extracting oil from Alberta tar sands is instructive, as the techniques of mining and surface retorting are substantially similar. The Natural Resources Defense Council calls oil shale the "dirtiest fuel on the planet". Says Amy Mall, a Boulder-based senior policy analyst for NRDC, "cooking rocks and scorching the Earth is not a solution to our energy crisis," and estimates four-fold larger emissions than from gasoline production. It's "an enormous threat to our environment and a huge backward step."

Nonetheless, despite lack of a viable commercial technology to develop oil shale, despite the environmental damage the similar tar sands efforts are having in Alberta, despite the horrific costs in energy and water required for development, despite the lack of any companies to develop projects in the next 10 years or longer, and despite, by their own admission, BLM's lacking information to project basic demand or economic figures for development, they have offered up rules that amount to a starting gun with bargain basement royalty rates.

Perhaps the public will get lucky and these ill-considered regulations will be voted down on a simple majority vote (without possibility of filibuster) in the 111th Congress. On oil shale this would be a very welcome development. The rush to develop oil shale should be placed in the context of our overall energy needs. In Alberta, it took 30 years to reach an output of a million barrels per day from the oil sands, a level of production that Shell hopes to reach someday in the Green River Basin. The United States consumes approximately 20 million barrels of oil a day, importing about half that, so, while it would help, oil shale doesn't really change much on energy independence or supply either soon or eventually, while it will quickly change the environment for the worse.

While the role of additional oil exploration and new forms of its production in an overall energy policy are subjects for legitimate debate, the public must demand, and lawmakers must consider carefully the full menu of energy alternatives in light of their widely differing environmental and economic costs. In the case of oil shale, little production will occur for many years; there is time to assess it properly. We should take time to assess it properly.

Sunday, November 16, 2008

Solving the Variability of Renewable Power

An oft-repeated problem with renewable sources such as wind, solar, wave, and tidal is that they are variable. When the wind is not blowing or the sun is not shining then they don't produce power; conversely, there are times where more power could be produced than could be used. This variability, often exacerbated by its unpredictability, has significant implications, especially for utility-scale generation that is connected to the electrical grid.

Current grid management is, in its simplest form, the matching of electrical generation and electrical use, the matching of supply and load. Electrical grid managers are able largely to rely on the load profile, the historical variation of the load over time. There are two basic techniques today to match generation and load: generate additional electricity from various sources when needed (the usual approach) or reduce demand (demand response, much less common.) A detailed explanation can be found here:

The power utilities are able to predict to a reasonable accuracy (generally to within one or two percent) the demand pattern throughout any particular day. This means that the free market in electricity is able to schedule just enough base load in advance. Any remaining imbalance would then be due either to inaccuracies in the prediction, or unscheduled changes in supply (such as a power station fault) and/or demand. Such imbalances are removed by requesting generators to operate in so called frequency response mode (also called frequency control mode), altering their output continuously to keep the frequency near the required value.

The grid frequency is a system-wide indicator of overall power imbalance. For example, it will drop if there is too much demand because generators will start to slow down slightly. A generator in frequency-response mode will, under nominal conditions, run at reduced output in order to maintain a buffer of spare capacity. It will then continually alter its output on a second-to-second basis according to the needs of the grid.

This spinning reserve is a significant expense to the power utilities as often fuel must be burned or potential power sales lost to maintain it. The kind of generation used for fast response is usually fossil fuel powered which produces emissions of between 0.48 and 1.3 tonnes of CO2 equivalent for every megawatt hour (MWh) generated. Thus a significant environmental burden, in the form of increased greenhouse gas emissions, is associated with this imbalance.
Most forms of generation are unsuitable as peaking power plants (peaker plants, spinning reserves) because they cannot be efficiently started/stopped or operated on an intermittent or sudden demand basis. As a practical matter, only natural gas turbine generation can serve as peaker plants. This is the core reason why T. Boone Pickens, Chesapeake Energy and others are so interested in wind power--it will increase demand for natural gas.

Thus the paradox: the desire to add renewable sources of electrical generation is motivated in part by the need to mitigate climate change; however, the addition of variable renewable sources increases the need for spinning reserves, which currently adds to the carbon problem.

What to do? What other than natural gas, with its carbon footprint problems, could serve as a spinning reserve or, more broadly, as a peaking power plant or some kind of load following capability from storage that would enable near-instantaneous supply increases to respond to changes in the electrical demand?

An alternative is grid energy storage. With the growing interest in and development of electric vehicles, especially plug-in hybrid electric vehicles (PHEVs) some have suggested that a growing array of distributed batteries in PHEVs could serve as a source of additional electricity in periods of high demand.

The concept, called vehicle to grid (V2G), is based on the fact that your car is typically not being used 90 percent of the time. "What if it could work for you while it sits there?" said Jeff Stein from the University of Michigan.

The National Science Foundation has granted a research team lead by Stein $2M to explore the possibility of V2G technology using PHEVs. There are many problems to be solved, however. The cars would need to be plugged into a socket not just when being charged, but also so electricity could be drawn back out. How would this be controlled? No PHEV owner will be happy to wake up in the morning and find the battery (half-)drained after being plugged in all night, presumably charging. There are (potentially significant) efficiency losses in charging/discharging batteries, and the life of the batteries would likely be shortened by an arbitrary cycle where complete charge or discharge may not occur. Lastly, there would need to be substantial elements of a future smart grid deployed to even allow this distributed storage to be harnessed in a centralized way. Interestingly, there is already a test of this concept underway at the University of Colorado (Boulder) by Xcel Energy. Other tests are also underway by Southern California Edison, Austin Energy, Duke Energy, Wisconsin Power, Excel Energy, and Pacific Gas & Electric, amongst others.

Hydro is another mostly green approach. Here in Washington state we get about 70% of our electricity from conventional (big dam) hydroelectric power, which has the ability to serve as a peaker plant by letting more or less water flow out of the reservoirs and through the turbines. There is competition for the water, however, especially from irrigation, but also from navigation and fisheries concerns, so the degree to which these dams can serve as peaker plants is somewhat limited.

Pumped storage hydroelectricity is another storage mechanism that might be explored, and may be very well-suited in coastal settings with large amounts of ocean energy generation (offshore wind, wave, etc.) Some of the drawbacks of this form of energy storage would be mitigated by a reservoir built for the purpose, rather than the use of a pre-existing (freshwater) lake.

Storage could also be achieved via flywheel arrays, hydrogen generation, compressed air, or other techniques.

Longer term, an updated, expanded, and smarter electrical grid is necessary. Wind generation is more variable the more local the scale and geographic reach of the turbine array. As more wind generation comes on line in greater density and over a more diverse, interconnected geographic area, local variations even out and become less significant. Offshore wind, despite its higher cost has several significant advantages over onshore wind; a large one is greater wind (power) on a steadier basis. Large coastal arrays (example) would take out some of the variability.

Exxon Mobil Spins, NYT Gets Dizzy

Another nail in the coffin of the liberal media meme.

Finavera Seeks Investor Funding

It's a tough time to be raising investor money, and no company is doing that unless they really need it.

Finavera Renewables Inc. has announced that it plans to raise US $1,002,000 through a non-brokered private placement of 20,040,000 units at a price of $0.05 per unit. Each unit consists of one common share and one-half of a share purchase warrant, with each full warrant exercisable at $0.10 for 12 months from the date of closing of the private placement.
The money will be used primarily for the company's wind rather than wave projects, particularly in the Peace River area of British Columbia where the company has 12 projects with a total potential of 1.5GW. Finavera has tested wave devices in Oregon and Washington, and recently suffered a setback by the California Public Utilities Commission on its PPA with PG&E.
The company also announced that is has applied to extend the term of all 21,000,000 share purchase warrants issued pursuant to a December 2007 private placement. The warrants, exercisable at US $0.15 per share and initially issued for a term of twelve months, have been extended an additional year.
Sounds like the investors are restless.

How We Measure the Cost of Oil

The Oil Drum has found fault with the classical economic assessment of oil production, and in particular such notions as "proven" reserves, and the foundation those numbers and that thinking play in energy policy formation. They propose a more useful analytical approach in an era of increasing resource contention:

The analyses presented by the IEA assume that only dollars will need to be invested (and $24 trillion at that). But oil, like anything else, requires real resources to procure, and it will be obtained only in proportion to how much real resource (energy, steel etc) is spent in getting it. The main problem is that geology, not the market, holds the key, and the geology of earth is getting more and more parsimonious in two ways: quantity and quality. Both of these concepts impact the energy return on investment (EROI) of national and global oil and gas supplies.

...

Just to give you a rough idea as to where we are at present with respect to EROI, “according to legendary oilman Charles Maxwell” on The Money Show, most countries report that it costs from $55 (Saudi Arabia) to $70-90 (Russia and most of OPEC) to $90 (Iran and Venezuela) to produce a barrel of oil.

...

Many economists will say that EROI undervalues the role that technology will play in accessing deeper and poorer quality reserves. But as we have stated, EROI in the US obtained at least 100 barrels of oil from each barrel invested in going after it in the 1930’s but only about 10 for one in about 2000, despite the tremendous increases in technology (Cleveland et al., 1984, Cleveland 2005). Therefore, in the US, and subsequently the world, geologic limits have trumped technological advances, and so we reiterate: the arguments about how much oil is left in the ground misses the point - what is important is not the total oil remaining but how much we can get out at a significant energy profit.

Another reason to think Peak Oil may be much closer than it has recently appeared.

Saturday, November 15, 2008

AWEA--Not in Kansas Any More

Denise Bode was named by the American Wind Energy Association (AWEA) Friday as its next CEO, and will take over from Randall S. Swisher on January 2, 2009. Swisher headed the AWEA for the past 19 years.

Not surprisingly, the AWEA press release was effusive:

Bode, who is currently CEO of the American Clean Skies Foundation, is a nationally recognized energy policy expert and served for nine years on the Oklahoma Corporation Commission. Her experience in the energy field is extensive and includes seven years as President of the Independent Petroleum Association of America (IPAA) and nine years on the staff of then–U.S. Senator David Boren (D-OK) as his legal counsel, focusing on the areas of energy and taxation.

“Denise Bode is an extremely dynamic and well-respected leader on energy issues in Washington, D.C.,” said Swisher, “and brings a wealth of knowledge and experience to AWEA. We are very fortunate to have such a talented and able individual available to lead the Association at a time when renewable energy stands on the threshold of dramatically expanding its contribution to America’s energy supply.”
No doubt space considerations were the reason to leave out a few other parts of Bode's energy credentials, particularly her service on George W. Bush's Energy Transition Advisory Team. In that role perhaps she also participated in Dick Cheney's still-secret energy task force which is thought to have largely shaped administration energy policy for the past 8 years. (That policy, so favorable to the Fossil Industry, represents an enormous lost opportunity that will now be much harder to accomplish.) Bode has also been a lecturer at the Heritage Foundation and the Federalist Society.

Bode is currently the CEO of the American Clean Skies Foundation (ACSF), a position she has held from its founding last year. What is the ACSF? It may not have an agenda, but its backers in the natural gas industry sure do. The appointment of Bode suggests opportunism by a still-committed Fossil Industry to co-opt a new political mandate and shape it for their own benefit. The AWEA press release includes an endorsement from her current employer:
“We were very lucky to have Denise’s leadership to get ACSF established as a real player in the debate on energy and the environment,” said Aubrey K. McClendon, Chairman and Founder of the American Clean Skies Foundation.
ACSF has certainly been running ads extolling natural gas, but the extent to which it has been a "player in the debate" is subjective at best. Bode's position at the helm, however, had little to do with luck. ACSF was founded by Aubrey McClendon, billionaire owner of Chesapeake Energy, one of the country's largest producers and sellers of natural gas. Source Watch lists Bode and McClendon as the "personnel" of the foundation, and their relationship extends back many years. Together McClendon and Bode have sought to advance the purpose of ACSF: to advocate for "clean-burning" natural gas and to attempt to position natural gas as a "natural partner" for truly clean renewable energy, like wind.

McClendon was one of the members of the Professional Basketball LLC, a group lead by fellow Oklahoman Clayton Bennett who prevailed on a gullible Starbucks CEO Howard Schultz to sell them the Seattle SuperSonics, Seattle's NBA team owned by Schultz. The group publicly insisted that "It is our desire to have the Sonics and Storm stay in Seattle," but McClendon, in an unguarded moment, let slip the truth: "We didn't buy the team to keep it in Seattle." Not for speaking the truth, but for revealing the lie, smarmy carpetbagger David Stern, the NBA commissioner, fined McClendon $250,000. After a year of making unreasonable demands for large taxpayer subsidies and fending off lawsuits, they took their new plaything back to Oklahoma.

McClendon was also one of the chief financiers, along with his good friend T. Boone Pickens, of the Swift Boat Veterans for Truth, the "independent" group that played such an instrumental role in besmirching John Kerry in the 2004 presidential election. The smear group's claims proved to be exaggerations and outright lies, but achieved their intended effect.

McClendon has also helped fund and direct political campaigns of people who can help him pursue his business interests. His support ranges from his pal Picken's eponymous Plan, to their joint (but failed) effort to foist Proposition 10 on California voters two weeks ago. McClendon also contributed to Bode's unsuccessful run for Oklahoma's 5th congressional seat in 2006. (She lost in the Republican primary to the then Lieutenant-Governor.)

So why am I writing so much about Aubrey McClendon when he's not actually becoming the head of AWEA? Because he doesn't need to personally run AWEA to get what he wants. McClendon's history shows that he backs and funds liars who shill for him and his political and business interests. With the plunge in natural gas prices, the broader economy and general confidence, McClendon's fortunes have declined both economically and politically. There may be a cautionary morality tale in all this; however, the tale is not over and McClendon, as Fortune noted, is too combative to simply give up.

For her part, Bode was enthusiastic on taking control of one of the country's leading voices for renewable energy:

I am thrilled by my new opportunity of working with the AWEA team to grow wind power in the U.S. I am particularly proud of the role I played as Oklahoma Corporation Commissioner to bring commercial wind power to Oklahoma.
We can perhaps give Bode some of the benefit of the doubt; her advocacy of wind energy does go back several years, even if her motivations are less apparent. As recently as this past April she showed her first priority:
Bode, former Oklahoma Corporation commissioner who is now CEO of the American Clean Skies Foundation, told about 1,100 oil and gas producers at a Texas Alliance of Energy Producers’ luncheon Wednesday that the natural gas industry needs to “elbow our way into the debate on energy.”
The sharp end of the elbow is encapsulated by their preferred term "clean-burning." In reality, natural gas does not and can not burn "cleanly" but only "cleaner," emitting about half the greenhouse gases of dirty coal. Suggesting our clean and environmentally sustainable future should use gas rather than coal is literally a half-measure. Traveling at full speed or at half-speed on the wrong road still takes one to the wrong destination.

Of greater concern than the elevation of an unabashedly pro-fossil workhorse like Bode to head a renewable energy advocacy organization is the man behind the curtain, to whom, based on the wizardry of his earlier successes, we should be paying very close attention.

Friday, November 14, 2008

Coda to the Reign of Error

Every lame duck administration rushes out batches of regulations in their waning days, often of an ideological kind they would not promulgate otherwise due to the political costs. These not-so-lovely parting gifts can be hard to undo because of the vagaries of federal rule-making and ADD-like Congressional focus.

This time could be different, however, according to Rachel Maddow last night on CNBC because Congress actually passed a law that changed the rules for changing the rules. Bush may have missed the deadline by months for making these kind of last minute regulatory changes:

Back in May, White House Chief-of-Staff Josh Bolton told federal agencies, "Hurry up. Finalize your new regulations by November 1st." Now, why November 1st? Because they thought if any new regulation passed more than 60 days before the start of the new administration, would kind of be written in stone and difficult to reverse.

The hilarious incompetence here is that the White House either forgot or they just didn't know about something called the Congressional Review Act of 1996, which according to "Politico.com," means their math is wrong.

The actual deadline for passing new regulations is long past. It was May 15th, not November 1st, meaning anything passed after May 15th can be reviewed by the new Congress and effectively quashed. Oops.

The story at politico.com she refers to is here, which explains the thinking, the error, and the math.

Apparently Bush misread the deadlines as they pertain to the Congressional session dates in the Small Business Regulatory Enforcement Fairness Act of 1996, Public Law PL 104-121, which, amusingly, was part of Newt Gingrich's Contract on America and passed by the then Republican congress to reign in then President Bill Clinton from doing exactly the same kind of thing Bush is now trying to do.

The mind-numbingly byzantine text of the law itself is part of 5 USC 801 et seq.

Change--Not Just a Slogan but a Darwinian Imperative

According to University of California Berkeley adjunct professor David Roland-Holst, California will face billions in costs to mitigate the effects of climate change on the state.
Roughly $2.5 trillion in real estate assets is at risk. The report calculated an annual cost to the state between $300 million and $3.9 billion in damages from the physical impacts of climate change. The ultimate cost depends on how warm the earth gets and how quickly we adapt. The report ominously quotes Charles Darwin: "It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change."
As with the US auto industry, a refusal to accept looming reality, a hubristic insistence on clinging to the status quo, or a simplistic belief in a false dichotomy between the economy and the environment will lead only to a disaster of much greater cost. Write the authors:

Markets can deliver profits, but they may not deliver sustainability. For this reason, the public interest must be secured at all times by policy foresight and responsible leadership.
The authors note that the "political challenges may be greater than the economic ones" in addressing the problem, which suggests to me a need for education. Political movement is easier to achieve if it can be shown clearly and objectively that economic costs to individuals and society as a whole are less when applying an ounce of prevention rather than a pound of cure.

Climate response — mitigation to prevent the worst impacts and adaptation to climate change that is unavoidable — on the other hand, can be executed for a fraction of these net costs by strategic deployment of existing resources for infrastructure renewal/replacement and significant private investments that would enhance both employment and productivity.
There are several conclusions. On energy, government is urged to facilitate adaptation policies to overcome "market failures" by

More extensive and, where appropriate, intensive promotion of renewable energy technology, including innovation, diffusion, and adoption.
The Berkeley web site has the full report PDF and executive summary PDF. The report was also supported by California nonprofit Next 10. Professor David Roland-Holst also authored the report on green jobs in California about which I posted here.

Thursday, November 13, 2008

GM Fights The Country--Both Lose

In an earlier post I argued that companies end up harming themselves, sometimes fatally, by resisting changes they eventually must make anyway.

The recent troubles of American car makers show this clearly. Gristmill:
...for years they refused to listen to those who begged them to build fuel-efficient cars -- heck they ran away from the hybrid vehicle partnership they started with the Clinton administration in the mid-1990s once W. took office, ultimately giving Toyota and Honda a 10-year lead in the core drivetrain technology of the century.

Competition has hurt GM. Their workers' legacy health care and benefits package is unsustainably more expensive than that of the foreign auto makers. Their cars are not as energy efficient. The damage is largely self-inflicted by their refusal to adapt their business and innovate to create a more competitive product that customers increasingly demand in the market. The Energy Crisis of the 1970's should have been a wake-up call. We muddled through and went back to the old ways. The growth of foreign brand market share should have been a wake-up call. Instead, there was lobbying to protect an uncompetitive product line and a failing business model. The folly here would seem to be a belief that change can be successfully resisted, that the tide can be commanded to stop, that you can step into the same river forever. Did Detroit's executives naively believe that our oil economy was limitless and that the Republicans would protect their flank forever? That party's over.

General Motors (GM) now publicly worries that they will run out of cash as soon as the first quarter of 2009. Some analysts think it will be as soon as next month, and the stock will become worthless. This is a probable outcome if GM is forced into a death embrace with Treasury Secretary Hank Paulson, who will smother the remaining pittance of shareholder value with his TARP. Today, Toyota's market capitalization is 70 times that of GM. Purchasing GM at the current stock price would cost less than $2B.

It didn't have to be like this.
...Detroit has not only been suicidally lobbying against its own inescapable future of highly fuel-efficient cars; it has been lobbying against the future of all Americans who want to end our oil addiction, and against the future of all humans who want to preserve the health and well-being of our planet for future generations.

Fred Wilson writes that GM's brands would be better off as independent businesses, and that the country would be better off without companies that are "too big to fail". Furthermore:

...we need to completely neuter the auto industry's ability to lobby our govt to stop important initiatives like clean/alt+energy and mass transit. Its borderline criminal what the auto industry's political efforts have done to our global competitive position right now.

The same is true of the financial services business, the airline business, electric utilities, and a host of other industries.


More than 50 years ago GM's president, Charles Wilson, said "what was good for the country was good for General Motors and vice versa." When did both GM and the country lose faith in this idea?

Tuesday, November 11, 2008

A Trillion Here, A Trillion There...

This is real money. The Edison Institute commissioned a study from The Brattle Group which puts a price tag of $1.5 to $2 trillion on the total investment necessary to maintain the current level of reliable electric service in the United States through 2030:

For this investment, our customers will get more efficiency and more control over their electricity use, lower carbon-emitting generation sources, and a higher-technology, more resilient and reliable electric grid capable of meeting their growing electricity needs.

Energy efficiency and demand response programs can significantly reduce, but not eliminate, the need for new generation capacity. However, increasing energy efficiency and demand response programs will require significant investment that, in part, will offset the avoided generation investment.

Implementation of a new federal carbon policy will significantly increase the cost and the mix of new generation capacity.

Required transmission and distribution investment could be as large as, or larger than, generation investment.

Ouch. Makes the Iraq War and the Splurge look cheap in comparison.
Executive Summary [PDF]
Full report [PDF]

What Me Worry as an Energy Policy

Some ostriches apparently pull their heads out of the sand only to put on their tinfoil hats. Don't they know that they look ridiculous?

The lack of awareness by many Republicans on energy policy is breath-taking in its obtuse and obstinate ignorance. From where does such willful ignorance come? As Boss Jim Gettys put it to Charles Foster Kane in the Orson Welles classic Citizen Kane, when Kane refused to face reality:
You're the greatest fool I've ever known, Kane. If it was anybody else, I'd say what's going to happen to you would be a lesson to you. Only you're going to need more than one lesson. And you're going to get more than one lesson.
Apparently the elections of 2006 and 2008 and recent polling are not enough lessons. Independent thinking would help, but only if there is first an end to the celebratory anti-intellectualism masquerading as common-sense populism. Some of us would like our leaders to be smarter than a fifth grader. Seriously smart in fact. Not Know-Nothings and proud of it. Our very future depends on it.

Missouri RPS and Proposition C

Clean Edge reports today that Missouri Governor Matt Blunt, "recently" signed legislation to create a statewide RPS:

This legislation furthers my commitment to Missouri's Green Power Initiative by increasing energy production in our state while practicing responsible environmental stewardship by increasing the use of renewable energy.
Oddly, it appears that the Governor signed this bill back in June 2007; it seems that with so much green in the news it's hard to stay current. What is recent, however, is that Missourians passed Proposition C, the Green Power Initiative to demand a state RPS. Colorado and Washington also have a state RPS through citizen initiatives.

The legislation, Senate Bill 54 [PDF] set targets of 4% by 2012, 8% by 2015 and 11% by 2020 towards which "electric companies shall make good-faith efforts." The targets were voluntary and applied only to investor-owned (rather than municpal) utilities.

Proposition C makes the targets mandatory, but still only applicable to investor-owned utilities. The targets are 2% by 2011, 5% by 2014, 10% by 2018 and 15% by 2021, representing a relaxation in the early years comapred to SB54, but a more stringent requirement in later years, suggesting the difficulty of achieving the target in a state with fewer easily harnessed renewable resources.

Columbia, Missouri has had its own RPS. It isn't clear how the local and state standards will mesh, a problem similar to that of how a state RPS would fit with the proposed national one.

Sunday, November 9, 2008

Fish Need a Smart Grid

First birds, then bats, and now...salmon? KUTA Portland reports:
At the end of June, there was an unexpected surge in wind power and too much energy was created for the regional grid to handle. To compensate, the dams cut their power by spilling more water. Spilling more water is dangerous for fish because water plunging from the dams into the river becomes saturated with air. Air is mostly nitrogen and salmon do not like nitrogen saturation.
The problem stems in part from load balancing between multiple generation sources, some of which, like wind are variable and do not produce firm power. Elliot Mainzer with the Bonneville Power Administration observed that they were caught "just a little bit off guard" due to the rapid growth of wind power generation and the larger swings in electrical generation as more wind capacity came on line. Very little new transmission capability has been built in the Northwest in the past 15 years making it hard to send excess green electrons out of the region.
In August, the Bonneville Power Administration asked gas and coal-fired facilities to look at 'generation increases or generation decreases.' In short, they asked if the facilities would be willing to produce less power when wind turbines are producing at high levels. The rub with that is that anyone who owns a coal or gas-fired electricity plant made a huge investment and is essentially being asked to cut their income.
While this approach may work in the short-term, it is not sustainable. Better integration of variable sources such as wind, solar and wave/tidal will be needed as more of these renewable sources become operational on a significant scale. Significant infrastructure investment is needed to upgrade the national grid and incorporate smart grid technology.

PSE Gets Approval to Expand Wind Farm

Kittitas County commissioners approved a requested expansion of Puget Sound Energy's Wild Horse Wind Farm by 22 additional turbines last week. The approval adds about 960 acres owned by PSE and an additional 300 acres leased from Washington State's Department of Natural Resources (DNR) and the Department of Fish and Wildlife to the current 8,600 acre project. Final approval from the state Energy Facility Site Evaluation Council (EFSEC) is still needed prior to construction. The EFSEC previously approved a maximum of 158 turbines for the site. The 22 new turbines would cost approximately $66M and add another 40-50MW to the current maximum output of 229MW.

The 127-turbine project is widely viewed as amongst the most successful of the Eastern Washington wind farms, but the approval Tuesday was not without opposition.
The unanimous OK from commissioners came despite comments from representatives of the Kittitas Audubon Society. Hal Lindstrom of Ellensburg, a local Audubon member called on commissioners to not take action on the agreement until a conservation easement is approved between PSE and the state wildlife
department.

The easement would make all PSE project land off-limits for other types of development other than alternative power production. Also asking for the conservation easement is the nonprofit Friends of Wildlife & Wind Power and the Kittitas County Field and Stream Club, according to Lindstrom who was contacted after the meeting.

David Bowen, PSE’s municipal liaison manager for Kittitas County and Central Washington, contacted later said a draft conservation easement is now under review by the state Fish and Wildlife Commission, and it’s hoped to be approved soon.

Lindstrom also said there was a need for a supplemental Environmental Impact Statement on the project area expansion, and that it should be publicly reviewed and approved first before the county acts.

PSE officials said the draft supplemental EIS is expected to be released for public review next week, with deadlines for public comment.

Distributed Small Hydropower

A modern twist on an older technology.

The Link Between Taxes and Investment

Mark Cuban forcefully debunks a canard:
As any successful CEO will tell you, leadership, vision and motivation has far more impact on results than any tax cut or increase. While I prefer lower taxes, I can tell you that no entrepreneur or CEO worth a damn in this country gives up or works less because of a change in tax policy. In this country you work harder to achieve your dreams and goals.
Refreshing.

A Fresh Wind in the US

The post-election speculation is well underway, with predictable positions on one side arguing for a rapid implementation of the Obama energy plan, and on the other cautioning that not much can or should be done. FWIW, I've stated my opinion several times and, while no one can say with certainty what will happen, bets are already being made, and they suggest the start of a new boom.

BP is coming ashore in the US:

A spokesperson for BP told New Energy Finance: "We have decided to focus our investment on onshore wind assets in the US, where we have been extremely successful and have built up a portfolio that, if fully developed, could amount to as much as 15GW. We will not be pursuing opportunities in wind outside the US, and if we have ongoing ventures in other countries, we will review them." He stressed that the move did not represent a change in BP's level of investment in wind "at all".
Clearly not:
Clipper Windpower and BP are teaming up to build the 5,050-megawatt Titan wind farm, the world’s largest, in eastern South Dakota. Already under development, Titan will generate five times as much electricity as the state’s 780,000 residents currently use. This project includes building a transmission line along an abandoned rail line across Iowa, feeding electricity into Illinois and the country’s industrial heartland.
BP is not the only legacy energy company reallocating their wind energy attention. Shell pulled out of the London Array back in May, disappointing its partner E.ON. Said Paul Golby, UK CEO:
The current economics of the project are marginal at best - with rising steel prices, bottlenecks in turbine supply and competition from the rest of the world all moving against us.
At the time oil was at $120 a barrel and heading up. With oil now almost half that and trending down, all renewable energy projects, including wind, have come under pressure. Illiquid credit markets, a global recession and a lower cost of energy are combining to inhibit new energy project investment generally. Yet wind is clearly experiencing little more than a lull.

A BP spokesman, talking about the US said “It’s a big place and it’s got a lot of wind,” and BP found the existing regulatory frameworks in the U.S. "helpful" in boosting development through incentives. Shell does too:
Shell and BP are competing in the US to build the world’s largest wind farms. ‘Many are now recosting their plans and are attracted by other countries who are tempting them with tax breaks and a freedom to build what they want practically anywhere,’ said one analyst.
That seems a bit over the top given the growing opposition to wind farms in the US, but there's little doubt that public opinion is changing in ways that should make development of large scale wind projects easier to do. That the US environment is perceived as more favorable than the UK's is also odd considering that the Production Tax Credit (PTC) for wind received only a one year extension, while UK's Crown Estate has pledged to pay for half the pre-construction cost of offshore wind. One big reason for companies abandoning the UK market is grid connection:
Some companies in Scotland have been told to join a 13-year queue and are being asked for deposits of millions of pounds before the grid will agree to connect them. Currently, 115 Scottish renewable schemes, totalling 9GW of mostly wind power, are waiting to plug into the grid before they can supply electricity. Some already have planning permission but have to wait many years to connect.
Creating a smart grid with more capacity between windy plains and energy-hungry cities appears to be a high priority for the incoming Obama administration. Wind companies will also welcome a longer-term PTC which will make the financial planning more certain.

The prospects for wind now appear increasingly bright despite lingering concerns over the global economy, as turbine manufacturers, wind developers and the public at large perceive ever more clearly which way the wind is blowing:
The market for wind is very strong, with more than £40bn invested worldwide last year, demand for turbines going through the roof as countries rush to meet climate change targets, and the very few manufacturers producing turbines now looking only for large orders. Emerging Energy Research, a leading research and advisory firm analysing clean energy markets, expects the international wind power industry to increase 500 per cent over 12 years.

Vestas, the world’s biggest turbine maker, now has a £6bn order book and its turbine prices have risen 74 per cent in the past three years. China plans 100GW of wind power by 2020, a ten-fold increase from today. Texas alone plans more wind power than is expected to be installed in Britain in the next 20 years. The net result is that prices are escalating and orders for equipment taking longer and longer.

‘Everyone wants wind power. If you ordered today you could possibly get a turbine in 2011. But you would have to be a serious order,’ said an Enercon spokesman. ‘It is a very good time for wind.’
The boom has begun. Will it become a bubble? Do we care? Perhaps it's normal. At least we will be solving some real problems (energy security and climate change) in a sustainable way, even if some of the economic benefits prove eventually to be more transitory. Caveat investor, after all.

Saturday, November 8, 2008

Mandate for Clean Energy

A Zogby poll after the election validates President-elect Obama's choice of energy policy as his top priority:

More than three in four voters - 78% - believe investing in clean energy is important to revitalizing America's economy. Of those, 50% said they strongly agree clean energy investment is vital to the nation's economic future, a new Zogby Interactive post-election poll shows.

Support for clean energy investment is particularly strong among younger voters - 87% of those age 18-24 and 80% of those age 18-29 believe this type of investment is necessary to help improve the U.S. economy. African American voters (94%) and Hispanic voters (84%) also showed overwhelming support for clean energy investment.

While the vast majority of Democrats (96%) and independent voters (77%) view clean energy investment as a key means to boost the U.S. economy, more than half of Republican voters (58%) also said the same.
Looks like a mandate to me.
"While the economy was the top issue in the 2008 election, clean energy clearly emerged as part of voter expectations for getting the economy back on track," said John Zogby, President and CEO of Zogby International. "Support for action on global warming, already strong in the 2006 election, was even stronger in 008, particularly among young voters that are the future electorate."

This post-election survey also found that most voters want their elected officials to focus on global warming - 61% said they agree their elected officials should make combating global warming a high priority, an increase from 58% of voters who said the same in 2006.
It will be interesting to see the three-way clash between Obama's energy plan, voter preferences as indicated by this poll, and the special interests doubtless already lobbying select members of congress. Coal in particular will be, well, the canary in the coal mine.
This post-election survey also shows independent voters are increasingly likely to want their elected officials to make sure combating global warming is a high priority. More than half of voters (57%) said voting for candidates who support reducing global warming pollution was important to them in this election, up from 50% of voters in 2006.

The New York Times rounds up diverse opinions on how Obama will fare.

RPS: Federal, State or Both?

President-elect Obama has stated unequivocally that the top priority in his new administration will be energy policy. A key element of that policy is a national Renewable Portfolio Standard (RPS) of 10% by 2012 and 25% by 2025. A national RPS would require a minimum percentage of electrical generation to come from renewable sources, but raises several questions:
  • What counts as a renewable source? Existing state RPS vary widely. For example, Washington and California do not count conventional hydropower, whereas Arizona and others do.
  • How will resource disparity be handled? Some states have considerably greater renewable resources than others; some states will have a much harder time than others meeting a national percentage standard. States in the southeast of the country in particular will be at a disadvantage lacking both wind and marine resources generally.
  • What will be the timeline? State RPS vary widely, as do the current percentages from renewable sources in each state.
  • What is the relationship between a national RPS and a state RPS? Does a national RPS replace, augment or provide a baseline for a state RPS?
It will be a considerable challenge to implement a national RPS with more than half of all states having a current state RPS. The national RPS can benefit, perhaps, from using state RPS as models and carefully assessing the experience of the various states.

Meanwhile, California continues to exercise leadership. California had one of the earliest RPS--20% by 2010. Thursday the California Public Utilities Commission announced that the goal won't be met by all utilities until 2013. Governor Schwarzenegger has previously set a longer-term state goal of 33% by 2020 and the CPUC added its support for enacting the Governor's goal into law, even though they estimate it could cost about $60B. Debate on the RPS in the California legislature is likely in the coming session.

For utilities, developers and others, the big question is what RPS goals and mandates will be operative in the coming years. More aggressive targets are likely, and in the short term existing projects will certainly go forward. Inasmuch as a RPS affects the supply and demand relationship of electricity generation it affects the future price of electricity, which in turn is one of the largest factors in determining whether and which projects receive financial backing.

How will a national RPS fit with an existing state RPS? There are several possibilities; for example:
  • The national RPS replaces the state RPS and the state RPS is abolished.
    This has the advantage of simplicity, but it ignores the variability of state situations, resources available, and progress already made--for many states this would be a step backwards.
  • The national RPS applies only to states that lack a state RPS.
    This would generate incentives for renewables everywhere, boosting demand. Each state would presumably soon write their own RPS to adapt better to their particular situation.
  • The national RPS provides a baseline for each individual state's RPS.
    States without a RPS would be subject to the national RPS; states could have their own RPS, but the national RPS would set the standard anywhere the state RPS was lower. California already has this relationship for automobile emissions standards, and other states can choose to follow either the national or the Californian standards.

For any of these alternatives the core questions remain of what is a renewable resource and what standards are achievable on what timeline. Crafting one RPS nationally that can simultaneously incentivize renewable electricity generation and not provide unrealistic goals will be very difficult, perhaps impossible.

The purpose of a national RPS should be to encourage the development of renewably generated electricity (for both energy security and the salutary effect on climate change) and to nurture the developing renewable energy industry (and its economic benefits.) Meanwhile, it should not stall, frustrate, or roll back progress already made in individual states.

The federal government is in a position somewhat analogous to a school teacher with a room of 50+ students of vastly varying abilities and motivation. Some lead the class with their enthusiasm and accomplishments; others hope not to be called upon, lacking confidence in their skills and unsure of their abilities. Some by accident of birth or benefit of previous nurture have confidence and will quickly grow to meet challenges; others dwell in pessimism and watch the clock, hoping the class will be over soon.

How can a national RPS promote new sources of renewable energy given the disparities of the individual states? As with the classroom, for the national RPS to be effective, it must concentrate on bringing the laggards up to speed while not retarding the leaps of the star performers or squelching their desire to further excel. States such as Alabama, with no state RPS and relatively fewer natural renewable resources may need baby steps to get started and get going. States such as California need to be left to continue pursuing their own, higher standards, and providing leadership in innovation and commitment.

Wednesday, November 5, 2008

Choosing Between the Economy and the Environment

In the abstract everyone is in favor of protecting the environment. The particulars are another story. Opposition stems from the belief that environmental protection can come only at unacceptable economic cost. Must we choose between the environment or the economy?
Opposition to environmental legislation was, and is, clearly misguided. Exposure to lead at an early age is now known to cause neurological problems, even at extremely low doses. Since 1984, airborne lead concentrations have fallen 98 percent because of environmental activism. We have seen declines in airborne sulfur dioxide of 35 percent and carbon monoxide of 32 percent even as our GDP has more than doubled. Yet let us never forget that efforts to clean the air were vehemently opposed when first introduced. Remember the hue and cry of those who foresaw economic calamity when the lead phase-out was legislated. Industry gravely predicted that tens of thousands of gas stations would go out of business. Let us always remember the hysterical cries of economic doom as we tightened pollutions standards with the Clean Air Act in 1970. Every major automobile manufacturer came to Washington with tales of impending bankruptcy should the proposed act become law. None of the predictions of economic failure came to pass.

History has proven, clearly and unambiguously, that environmentalists are on the right side of this debate. We would otherwise be breathing black poisonous air and drinking mercury-laden water laced with raw sewage. Yet, amazingly, we still debate when we should instead be focusing on solutions. We continue to fight the false notion that protecting nature comes at the cost of economic growth.
Companies suffer economic damage if they fail to respond to the needs of their customers. Slowly, there is a realization that some customer needs are more abstract; customers want their own needs met, but increasingly also want outcomes that benefit broader communities or even distant communities to whom they may have no more than an aspirational connection. It is no longer enough simply to fish tuna; people want it to be dolphin-safe. It is no longer enough only to sell consumer electronics for their features; they must also be free of hazardous substances and minimize the waste stream. It is no longer enough to merely wear clothes however made; they must not come from sweatshops.

The economy didn't crater when we passed laws protecting our air or our water. The auto industry didn't collapse with CAFE standards. If anything, companies suffer if they fail to respond to the needs of their customers, whether personal and more abstract. Correctly understanding and predicting the buying motivations of customers is a key trait of businesses that succeed in the marketplace. Companies that wait until laws and regulations force them to adapt their products trail those that anticipate these changes. As in business generally, the race goes to the swift: making a product better matched to your customers needs more quickly than your competitors leads to more customers and more sales.

The importance of climate change is growing amongst customers, at least in more developed countries. Customers and even ordinary consumers demand environmentally-responsible business practices from the companies that sell them goods and services. Businesses that take that need seriously and communicate their meaningful response effectively realize a competitive advantage. The imposition of regulations designed to advance broader societal goals is not what damages businesses; if the laws are well-designed, what damage that results comes instead from the failure by some businesses to anticipate and respond to shifting customer needs before regulations require it.

Regulating greenhouse gas (GHG), passing a carbon tax or creating a cap-and-trade system would have a negative economic effect only on a business that fails to anticipate and respond to customer needs and preferences.

Addressing GHG emissions is not exactly the same as some of the examples above. Unlike lead or other heavy metals, GHG don't poison people directly. GHG spread globally; heavy metal toxicity has primarily local effects that stem from its concentration. Admittedly, some businesses would have trouble responding: a coal-fired electric utility can only do so much; they do burn coal after all.

So what would make good policy? For starters, not buying into the divisive notion that protecting the environment and protecting the economy are mutually exclusive aims. For each business that would suffer under an environmentally-focused law (e.g. a coal-fired electric utility) there are many-fold more that can grow and prosper by keeping an eye toward the market drivers and using forward-thinking planning. Lawmakers must provide a transition period for companies less forward-looking to make an orderly adaptation, and laws should provide cushioning for those few that are structurally unable to adapt.

After yesterday's elections the likelihood of laws being enacted to address climate change has increased. There almost certainly will be some kind of carbon tax or cap-and-trade system established in the next few years. Companies that have not yet prepared should get going. Those that cannot respond need to formulate proposals that provide a reasonable transition that minimizes damage both to the environment and to the economy (particularly their own.) As with previous environmentally-driven laws, the biggest economic harm comes from fighting the inevitable. King Canute could not command the tide to stop; denying the need to address climate change would be equally feckless.

Tuesday, November 4, 2008

Still Time for Mischief

Shame.
Even some free-market organizations have joined conservation groups to urge a moratorium on last-minute rules proposed by the Interior Department and the Environmental Protection Agency, among others.

"The Bush administration has had eight years in office and has issued more regulations than any administration in history," said Eli Lehrer of the Competitive Enterprise Institute. "At this point, in the current economic climate, it would be especially harmful to push through ill-considered regulations in the final days of the administration."

Obama: Apollo Project

Yesterday Obama reiterated that his #1 priority if elected would be energy policy, including the investment of $15B per year over 10 years in an "Apollo Project". From The Independent in the UK:

That's going to be my number one priority when I get into office," Mr Obama
has said of his "green recovery" plans. Making his arguments in a radio address
yesterday, the Democratic favourite promised: "If you give me your vote on
Tuesday, we won't just win this election. Together, we will change this country
and change the world."

The election has come during the worst economic crisis since the Great Depression of the 1930s, but he declared: "We'll invest $15bn a year over the next decade in renewable energy, creating five million new green jobs that pay well, can't be outsourced and help end our dependence on foreign oil." The appeal of the idea that clean energy could help to kick-start the economy is such that Mr Obama's Republican opponent, John McCain, has also promised "millions" of green jobs if he wins.

...it is the American plans that could have the greatest effect in dragging the world economy out of crisis. Mr Obama believes that a new clean-energy economy "can be the engine that drives us into the future in the same way the computer was the engine for economic growth over the last couple of decades".

The head of Mr Obama's transition team, John Podesta, has called for "a new vision for the economic revitalisation of the nation and a restoration of America's leadership in the world", adding: "We must seize this precious opportunity to mobilise the country and the international community towards a brighter and more prosperous future."


Rumors abound that US Representative Jay Inslee (D-WA), author of "Apollo's Fire" about the need for renewable energy investment, might be an Obama cabinet choice for Interior (or perhaps Energy.)