The New Carbon Cycle

Atlantic Article Delves into Complexities and Interrelationships of Energy and Climate

A very good article from The Atlantic was shared with me by Mike Titens, one of Thompson & Knight's corporate partners and a member of our Climate Change and Renewable Energy Practice Group.  The article is entitled The Elusive Green Economy and delves into the complexities of and interrelationships between climate change, renewable energy, energy independence and security, as well as how entrepreneurship and government can have a positive impact or a negative one depending on the policies adopted. 

 

It's rare that any insight is shown on these issues by the press (or politicians for that matter).  While I may not agree with every conclusion, I was pleased to see a more in-depth discussion of these complex issues and recommend it for your reading.

US Energy Information Administration Estimates Climate Bill Impact on Consumers

The US Energy Information Administration issued a report on August 4, 2009 evaluating the economic impact on the individual US citizen of the passage of the Waxman-Markey climate change bill.  This bill is known as the American Clean Energy and Security Act, H.R. 2454.  Under the climate legislation passed by the House of Representatives in June, electricity, heating oil and other bills for average families will increase $114 in 2020 and increase $288 in 2030.  The impacts, if accurate, certainly would not create a significant burden on the average citizen.  Of course the devil is always in the details in all of these economic predictions.  The report can be reviewed on the EIA website.

Energy Efficiency and the Competitive Advantage of Our Nation

Management guru and professor Michael Porter's concludes in The Competitive Advantage of Nations that one of government's roles involves "acting as a catalyst and challenger, . . to encourage--or even push--companies to raise their aspirations and move to higher levels of competitive performance. . .."  In the Senate debate over the American Clean Energy and Security Act, H.R. 2454, the "Waxman-Markey Bill", the Senators should consider the extent to which energy efficiency contributes to both domestic firm competitive performance and to the competitive advantage of the nation as a whole.

No doubt companies that can substantially reduce their energy consumption can reduce costs and,therefore, increase profits.  As an example, Walmart is working with numerous potential vendors to reduce its energy consumption as its energy costs are significant.  Walmart's Sustainable Building Plans among other efficiency plans would reduce energy usage dramatically.  Other companies such as Dow cite substantial reductions in electrical use and concomitant reductions in greenhouse gas emissions.  Dow's energy savings program  has resulted in energy savings of $8.6 billion and has prevented 86 million metric tons of CO2 from entering the atmosphere. With the ability to monetize these greenhouse gas reductions in the form of carbon credits, these firms will have an additional incentive to reduce electrical and transportation fuel consumption.

In addition, these firms will be incentivized to switch transportation fuels for their fleets of trucks.  Natural gas is now abundant in the United States with the discovery of the means to extract natural gas from the various shales from across the United States that contain huge stores of natural gas.  Not only does the use of natural gas allow the potential savings in fuel costs over the long term, but the monetization of the greenhouse gas reductions by switching from diesel to natural gas permits yet another revenue stream to assist in financing a more sustainable and more efficient company.

As a nation, these changes make the firms in the country more competitive as costs of production decrease and allow the use of domestic fuels.  To the extent, new regulations promote not only energy efficiency and fuel switching, but the invention and domestic manufacture of new technologies and products for export, then the nation become even more competitive.

Nations that reduce their dependence on foreign oil will undoubtedly increase their domestic and international competitiveness.  Those that can design new, more distributed energy sources for their troops to produce water, drive electronic-based weapons and communications, and alternative ways of fueling mechanized aspects of their sea, ground, and air-based forces will have a stronger military.  The United States armed forces are spending significant money to develop these technologies.

McKinsey & Company recently issued a report entitled Unlocking Energy Efficiency in the U.S. Economy.  In this report, the leading business consulting firm states its central conclusion as follows:

Energy efficiency offers a vast, low-cost energy resource for the U.S. economy--but only if the nation can craft a comprehensive and innovative approach to unlock it.  Significant and persistent barriers will need to be addressed at multiple levels to stimulate demand for energy efficiency and manage its delivery across more than 100 million buildings and literally billions of devices.  If executed at scale, a holistic approach would yield gross energy savings worth more than $1.2 trillion, well above the $520 billion needed through 2020 for upfront investment in efficiency measures (not including program costs).  Such a program is estimated to reduce end-use energy consumption in 2020 by 9.1 quadrillion BTUs, roughly 23 percent of projected demand, potentially abating up to 1.1 gigatons fo greenhouse gases annually.

The McKinsey Report demonstrates that a more energy efficient country is a more competitive country.

To put this in competitive context, Europe and China are pushing for more energy efficiency and the building of domestic sources of energy and fuel and the development of renewable energy technology firms, energy efficiency technology firms, and the domestic manufacturing of new 21st-century products.  Technologies like LED lighting that will reduce the consumption of electricity dramatically are the race to the future by companies around the world.  The countries that achieve development of firms with lower energy consumption and energy efficient technologies and alternative fuels will likely be the more dominant economic powers in this century.

Thus, a look back at Michael Porter's book and the application of its model to the current debate about the Senate version of the American Clean Energy and Security Act is warranted.  Putting politics and ideology aside, the empirically demonstrated need to move toward a 21st-century energy policy is critical to the future competitiveness of the nation.  This should be at least one of the critical strategies underlying the debate in the Senate over the next few months.

Bi-Partisan Western Governors Call for Energy and Climate Legislation

The Western Governors Association (WGA) sent a letter to President-elect Barack Obama, urging swift action in adopting and implementing a national energy plan that would transform the country's energy infrastructure and economy while reducing greenhouse gas emissions. The group of 19 Western governors from both political parties call for near-zero greenhouse gas emissions from new coal-fired electricity generation in 10 years and from existing generation no later than 2030. The bi-partisan group of governors called on President-Elect Obama to act within the first 100 days of his administration.

The organization is led by Utah Governor Jon M. Huntsman, Jr., Chairman, a Republican, and Montana Governor Brian Schweitzer, Vice Chairman, a Democrat. On Nov. 21, Huntsman and Schweitzer met with John Podesta, co-chairman of Obama's transition team, to promote the WGA proposal.

"The transformation we are talking about is broad based and will require new policies, incentives, market mechanisms and private-public partnerships to be in place by the end of next year," Huntsman said. "We plan to work with the new administration and Congress in addressing the multitude of energy challenges ahead."

"Western states are the country's energy breadbasket, but energy efficiency has also got to play a much bigger role," said Schweitzer. "That includes everything from manufacturing more fuel-efficient vehicles to changing regulatory structures so they reward utilities for achieving reduced energy usage among their customers."

The governors stated that a national energy policy must promote energy efficiency and reduce greenhouse gas emissions on a scale necessary to contribute to climate stabilization. They state the position that the Obama administration's energy/climate policy must maximize the economic development opportunities offered by clean energy; ensure energy costs are affordable and support a sustainable, growing economy. They urge the incoming administration to increase the proportion of energy supplies that come from domestic resources and friendly trading partners; and minimize adverse environmental impacts.

Within the first 100 days, the governors are calling on the Obama administration to:

--Establish an aggressive and achievable national greenhouse gas emissions reduction goal that will put the United States on a path to contribute to global climate stabilization.

--Propose a mandatory national system for reducing greenhouse gas emissions that makes maximum use of market-based mechanisms. Revenue raised should not be used as a means of sustaining or expanding general governmental operations.

--Pursue a national energy efficiency program to reduce existing and future energy demand and thereby reduce greenhouse gas emissions.

--Establish an oil import reduction goal that strengthens energy security and independence. Since nearly 90 percent of oil is used for transportation, an energy plan must bring more fuel-efficient and near-zero emission vehicles into the market; increase the supply of domestically produced, low-carbon fuels; minimize the economic and technological uncertainties inherent in deploying high efficiency vehicles and developing and using non-petroleum transportation fuels; and reduce vehicle miles traveled and increase mass movement of people and goods.

--Create a substantial, long-term national public investment on the scale of tens of billions of dollars annually, along with a similar investment from the private sector, to support the kind of basic and applied research and deployment of clean energy technology and infrastructure that will result in:

--Near-zero greenhouse gas emissions from new coal-fired electricity generation in 10 years and from existing generation no later than 2030.

--Dramatically increased energy from wind, solar, geothermal, hydro and biomass resources.

--Expansion and upgrade of the electricity transmission grid and storage capabilities.

--Advanced vehicle and battery technologies and alternative transportation fuels.

--Next generation energy efficiency technologies and practices.

The governors also urge affordability for lower income energy consumers through energy efficiency and cost assistance programs. They support workforce development and clean energy jobs, adaptation to climate change impacts, reduced consumer impacts - particularly for low-income consumers - and transition assistance to industries.

"While the first 100 days are critical, these actions only represent the first steps," the governors say in their letter. "Within the next year, a comprehensive energy plan must be enacted that will set the direction of this nation for the next 50 years. This plan, though adjustable over time, must establish measurable goals, strategies, milestones and funding to ensure that we are moving towards affordable and environmentally responsible energy security and independence."

"We must not repeat the mistakes of the past," the governors declared in their letter. "We must have the collective political will and resolve to create and implement a long-term comprehensive energy policy despite short-term political and market fluctuations. The future of our nation depends upon it."

The environment really isn't a red or a blue issue. It's an American issue. I'm trying my very best as just one Republican, and I know there are others, to remind people of that fact — and that it will take a bipartisan effort," the Utah governor said.

The governors are calling in a bi-partisan way for action on energy policy. The biggest question is whether US senators can find a bi-partisan solution that reflects the governors’ proposal. Huntsman has been criticized by some Republicans for supporting climate change legislation and cap and trade.

"The Republican values I'm speaking to are right out of ... Teddy Roosevelt's playbook. He taught us all to revere our land, to leave a legacy ... to the next generation," Huntsman responded to criticism from some Republicans. "I'm also doing a very Republican thing to incentivize and develop technologies that are going to fuel our economy."

As 2009 approaches and the new administration prepares to work on climate legislation in the new Congress, this call by governors of both parties for climate and energy legislation suggests growing pressure on Congress to pass a climate bill. It appears only a possible filibuster in the Senate stands in the way of climate legislation. How the votes will come out on a climate filibuster remains to be seen.

Could Thin Film Solar Make Solar Electricity Cheaper Than Coal Produced Power?

New technology breakthroughs have been the hope of governments and the public for everything from climate change and global warming, energy security, domestic versus foreign production and jobs, to distributed power production that need not be purchased from large utilities.  Solar energy one of the hoped for solutions has been hampered by manufacturing costs.  The solar panels we have all seen are large and costly to produce because they rely on silicon that is also used for computer chips.

With the development of thin film solar, the ability to reduce the cost may be solved.  A story from Celsias describes how a company called Nanosolar is producing a solar film that is printed much like documents on your inkjet printer at home.  The new technology may reduce solar electricity costs from $3 a wat to 33  cents a watt--competitive with electricity from coal-fired power plants. The Nanosolar plant in San Jose, once in full production in 2008, will be capable of producing 430 megawatts per year. This is more than the combined total of every other solar manufacturer in the U.S.

This breakthrough technology has the ability to revolutionize power production. Keep an eye on Nanosolar and other companies in the thin film space.

An Economist with CIBC in Canada Predicts Carbon Tariffs Will Bring Jobs Back to North America from China and Other Developing Countries

An economist with CIBC World Markets Jeff Rubin has issued a report predicting that Canada will impose carbon taxes or carbon tariffs on imported goods from China and other developing countries that do not have restrictions on greenhouse gas emissions. He also predicts that this will cause jobs and manufacturing to come back to North America, because emissions and energy efficiency will be more important than labor costs. He states that non-metallic mineral products - cement, glass and lime - with energy intensity 130 per cent higher than the Chinese industrial average, are likely to return to North America, as well as the printing, primary metal manufacturing, and machinery industries.

Rubin believes the tariff, based on $45 per tonne of carbon dioxide or equivalent, would raise roughly $55 billion a year from Chinese exports to the United States, and raise U.S. consumer price inflation by more than 0.6 percentage points.

“What I'm suggesting is that the minute that we start putting a price on our own domestic emissions, then our tolerance of those who do not is going to fade very quickly," Rubin said. "What we're going to say is that if you don't play by the same carbon rules, that's an unfair trade subsidy that we're gong to countervail against."

This is an interesting prediction that may ignore the post-Kyoto treaty negotiations and the potential challenges that such carbon taxes or carbon tariffs may face in the World Trade Organization.  It is a continuing issue that I have posted on several times on this blog, and not one that will go away if China, India, and other developing countries with significant greenhouse gas emissions do not agree to some form of cap and then reductions in their emissions.

Europe and US Threatening Carbon Tariffs

The European Union (EU) is proposing carbon tariffs on United States (US) goods if the US does not impose greenhouse gas restrictions on its industries.  The goal is to offset the costs EU industries face under current and more strict GHG emission restrictions.  The Lieberman-Warner bill that was passed out of the US Senate Environment and Public works Committee would similarly impose such tariffs on countries that do not limit their GHG emissions.

The carbon tariff may present a threat by the EU against the US to attempt to bring the US into a post-Kyoto treaty.  The US Congress may see carbon tariffs as a means to address complaints that if China and India do not commit to limits on GHG emissions, then an unfair economic advantage would accrue to these countries. 

Questions arise as to how the Word Trade Organization (WTO) would address claims under international trade agreements.  Legal issue and disputes may arise under a carbon tariff regime between WTO members.  As climate change regulation is debated in the US, as the EU considers tightening their own regulations, the domestic constituencies of the various developed nations will demand action to offset a economic advantage that unregulated countries would have, particularly those with large GHG emissions. 

It is not surprising that the trade ministers of various nations attended the Bali conference where the United Nations countries debated the parameters of a post-Kyoto treaty.  As the international debate and negotiations continue over the next two years, tariffs on goods made in countries without greenhouse gas restrictions may become a growing threat or bargaining chip in attempting to bring China, India, Brazil, and perhaps other developing nations under a greenhouse gas cap.

Oregon Sets Goal of 25 Percent Renewable Energy by 2025

From Green Wire.

An essential part of Oregon Gov. Ted Kulongoski's (D) green future for the state, a bill mandating that renewable energy account for a quarter of Oregon's electric utilities' retail sales by 2025, passed the state Senate yesterday.

Calling the bill a "landmark effort," state senators passed SB 838, which would mandate that renewable power sources like wind, solar and geothermal account for 5 percent of the state's power sales in 2011, climbing gradually to 25 percent by 2025.

"This bill is one of the strongest actions this body can take to do our share to curb global warming and protect ... our increasingly fragile planet," said state Sen. Ben Westlund (D). "It helps brand us as the environmentally clean state that we are ... this has huge implications not only for today but for our future."

The bill is the centerpiece of Kulongoski's efforts for a more environmentally friendly Oregon. Other efforts include an increase in alternative energy tax credits and incentives for growing biodiesel and ethanol crops (Greenwire, Feb. 13).

The bill easily passed the state Senate thanks to the Democratic majority, but Democrats in the state House hold a slimmer majority. Republican opponents to the bill said forcing utilities to spend more on energy would mean higher costs for consumers.

The bill would allow utilities to recover the cost of their renewable energy investments through higher rates, but it includes a provision that could release them from the mandate if their costs increase by more than 4 percent of their revenue in one year (Aaron Clark, AP/Salem [Ore.] Statesman Journal).

Pacific Power and Portland General Electric, which together account for 70 percent of the electricity sold in the state, said that while the target would be difficult to reach they still support the bill.

"We think we can get to 15 percent by 2015 and have it be cost-effective," said Scott Bolton, a Pacific Power lobbyist. "Twenty-five percent? That seems hard" (Gail Kinsey Hill, Portland Oregonian, April 11). -- EB

Canadian Government Funds Task Force to Study Carbon Capture and Sequestration

An article from Reuters reported that the Canadian government and the Alberta government are funding a task force to review carbon capture and sequestration as a means of addressing the greenhouse gas emissions from power plants, the oil sands that are such a promising source of oil for Canada and by extension the United States, and other sources of carbon dioxide in Canada.  Carbon capture and sequestration offers a significant potential as a tool to address climate change concerns and the mounting political pressure on governments to institute limits on carbon dioxide and other greenhouse gas emissions and to institute a trading system for carbon emission reduction credits.  As the carbon sands can address many of the energy security issues of the United States, the Department of Energy should be involved in research to address the carbon emissions from the oil sands.  Hopefully, we will see a joint effort by the Canadian and US governments to fund research into carbon capture and sequestration for the oil sands in Alberta.

CALGARY, Alberta (Reuters) - A new task force funded by the Canadian government and the province of Alberta will study ways to capture and store greenhouse gases emitted by the province's massive oil sands projects, Prime Minister Stephen Harper said on Thursday.

The task force will look at methods of capturing carbon dioxide emitted by the oil sands and other big industries, then pumping it underground into aging oil fields, where it can help increase output.

"We may be able to collect (carbon dioxide) from our oil sands, our coal-fired electrical plants and other industrial emitters and pump it deep underground, where it will remain for eternity," Harper said at a news conference in the provincial capital, Edmonton.

Some media reports had said the two governments were considering funding for a multimillion-dollar pipeline to carry the carbon dioxide to oil fields in the south. However Harper said that is just one of the plans the group will look at.

The task force will be headed by Steven Snyder, chief executive of TransAlta Corp., a Calgary-based power company that operates coal-fired plants in Alberta and elsewhere.

Harper said the group will look at the "economic, technical and regulatory hurdles that lie in the road of large-scale implementation of carbon capture and storage."

Alberta's oil sands projects are considered one of the country's largest sources of carbon dioxide emissions, and production from the region is expected to triple over the next decade.

The Alberta government introduced a bill on Thursday that would force large scale carbon dioxide emitters to cut their emissions intensity -- the amount of the gas created per barrel of output -- by 12 percent beginning this year.

The task force is being asked to issue a report by November.