The New Carbon Cycle

McKinsey Article Concludes Good News for Emissions: US and EU Emissions Down, Economies UP

McKinsey and Company director Scott Nyquist authored on article entitled Great News on Emissions. Really.  He concludes that the US and EU have cut emissions while growing their economies. 

His article provides an upbeat view.

So it’s very important that in both 2014 and 2015 the global economy grew—and energy-related emissions didn’t.  In the 40 years that the International Energy Agency has been tracking emissions, this is the first two times that year-on-year energy-related emissions have been flat or less, without an economic downturn.  And in 2013, emissions grew less than the global economy.  For perspective, energy accounts for more than two-thirds (68 percent) of global GHG emissions, and energy use increased more than 150 percent from 1971 to 2013.

So all that sounds pretty wonky.  Why does it matter?  Because it means that it is not only possible, but a reality that the link between emissions and growth can, in fact, be cut.  Indeed, in a number of developed countries, that is already happening.  In 2014, for example, the EU grew modestly—and cut emissions by more than 5 percent.  The United States saw power-related carbon emissions decline 10 percent from 2005 to 2014, due to greater efficiency—in effect, like Europe, it is creating more wealth using less energy—and  the displacement of coal with cleaner natural gas.

China and India have room to approve as most of us know.

But here, too, there are encouraging trends.  The rate of growth of emissions in China is slowing, as its economy becomes less energy intensive—services now account for more than half of GDP, the highest ever.  China has also begun to get serious about growing less filthily. In part because of pressure from a public literally sick of living in smog-choked cities, the country is investing in more efficient and cleaner energy use.  In 2014, Chinese emissions increased less than 1 percent compared to the previous year, even as it grew 7.3 percent.  In the previous decade, China’s emissions had grown an average of 6.7 percent a year.  So that’s a big change.  The big reason: China is depending less on coal, which accounts for more than 80 percent of its energy-related emissions.

 

The author concludes, and I agree, that technological innovation is the key to solving greenhouse gas emissions issues. While the emissions issues are far from solved, great steps have been made.  The investment in new technology, renewables, innovations in business models and financing approaches present one of the great business opportunities the world has ever seen.  Trillions of dollars will be invested over the next 10 years and beyond to address these issues as more energy is demanded, but more efficient use and alternative ways of generation energy and controlling emissions from traditional sources opens up an economic boom.

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California, the clean energy leader

Tax Credits Expire for Waste to Energy and Several Other Project Types Unless Construction Begins

Last year on December 18, 2015 Congressional approval of H.R. 2029, The Consolidated Appropriations Act, 2016, which President Obama promptly signed into law (P.L. No. 114-113, 114th Cong. 1st Session). This legislation extended tax incentives in the form of a production tax credit or the option to receive an investment tax credit (30 percent) for various renewable energy projects.  For those other than wind and solar, the incentives were only extended through December 31, 2016.  The only way to gain more time is to start construction as outlined in IRS memoranda and continue that construction, again as outlined in the IRS documents.  Waste to energy was one of the renewable energy types that was allowed under the new legislation.  Thus, WTE projects, and other non-wind and non-solar projects, must pay close attention to the deadline and how to extend it under IRS guidance.

How Disruptive Technology Can Provide Money-Making Emissions Reductions

I recently published an article entitled How Disruptive Technology Can Provide Money-Making Emissions Reductions.  This article explores the disruptive technologies that are changing the way companies purchase power, or reduce their power consumption or both.  With renewable energy, LED lighting, Cloud-based, Internet of Things energy management, and now batteries, the technologies are getting cheaper and the money that can be saved is signifiant. 

These new technologies also reduce emissions as they reduce the amount of fossil fuel that needs to be burned to produce electricity.   With new business and financing models, the customer may not have to put up any capital, but through a shared savings model, start making money the first or second month.

Thus, emissions go down, and the customer makes money from lower electricity prices or reduced electricity use.  The company providing the power, LED lights, and energy management make money. 

It is a win all the way around.  The new technologies and financial models are bringing clean, cheap energy to corporate America.

Client Receives Greenhouse Gas Permit for $1.2 Billion Natural Gas Power Plant in West Texas

EPA Region 6 just issued the following press release for a permit granted to our client governing green house gas emissions.

 

Permit allows construction of $1.2 billion natural-gas fired plant; will add hundreds of construction jobs and over 30 permanent jobs                                     

DALLAS – (April 29, 2014) This week, the U.S. Environmental Protection Agency (EPA) issued a final greenhouse gas (GHG) Prevention of Significant Deterioration (PSD) construction permit to FGE Power for the FGE Texas project near Westbrook, Texas. The permit allows the company to build a new natural-gas fired combined-cycle electric generation plant.   

“This facility will bring clean-burning electricity to the people of Texas,” said EPA Regional Administrator Ron Curry. “The FGE plant is an example of how electricity providers can meet customer demand while reducing harmful greenhouse gas emissions.”

“We look forward to putting people to work and helping to power Texas’ economic future,” said FGE Power’s CEO, Emerson G. Farrell. “EPA’s thorough review and thoughtful findings demonstrate that new technology, combined with a fresh approach to developing clean energy and sustainable infrastructure, can make a positive difference on our economy and the environment.”

The facility, in West Texas between Midland and Abilene, will generate 1,620 megawatts of gross electric power. The facility will operate almost entirely on clean-burning natural gas, with some emergency equipment using diesel fuel.

In June 2010, EPA finalized national GHG regulations, which specify that beginning on January 2, 2011, projects that increase GHG emissions substantially will require an air permit.

EPA believes states are best equipped to run GHG air permitting programs. Texas is working to replace a federal implementation plan with its own state program, which will eliminate the need for businesses to seek air permits from EPA. This action will increase efficiency and allow for industry to continue to grow in Texas.

This permit is the 36^th GHG permit EPA has issued in Texas. The agency has proposed an additional five permits and has 19 more in development.

What Do “Primordial Soup” and Climate Change Solutions Have in Common?

In my last blog, I mentioned the class I am teaching at in Climate Change Law at the University of Texas Law School.   One of my classes I mentioned consisted of inviting several companies and the leader of the UT Clean Energy Incubator to speak to my class and to people in the university community and local community.  The title of the program was Environmental Entrepreneurs: Local Companies Leading the Way to a Low-Carbon Economy. (Video) This program may seem odd, and some in the audience thought it was odd to have such speakers at a law school.  However, the crux of my class was that the concerns raised by the national academies of science and climate scientists and merely reported on by the International Panel on Climate Chance (IPCC) requires the invention of new technologies.  Current technology is not sufficient.  Thus, as we study law and policy, we have to think about how law and policy cannot only get out of the way of such invention, but actually promote the innovation and investment necessary to address climate concerns.

But why “Primordial Soup”?  First, let’s define the concept.  “Primordial Soup” is a concept that began with a Russian biologist Alexander Oparin, who, in 1924, proposed that life begin in a combination of organic chemicals in ocean water that somehow combined to form the earliest life forms.  The mixture of water and organic chemicals was thus this “primordial soup” that spawned life.  Later theories have been proposed, which come up with different explanations, but for purposes of our discussion, let’s focus on the primordial soup.

In studying ecology and evolution in my early days of education, I, as any student in this sphere became enthralled as to how nature through innovation and adaptation leads to new or modified species in response to changes in the environment.  The concept of primordial soup from which life emerges is a fascinating thought.  

In my own practice and study of energy and environmental law, I’ve read about and have known and worked with start up companies with many new and potentially transformational technologies.  Many of which can reduce energy use, significantly increase energy efficiency, or produce energy in new or more efficient ways.

Thus, the adaptation and evolution I studied in biology and ecology classes many years ago, is occurring now in an economic setting as opposed to an ecological setting as there is significant focus on clean energy, clean tech, and ways of doing other types of energy and industrial activities in ways that have much less impact on the environment.

Getting back to my class, we had several companies speak at our class that are engaged in new technologies, most seeking early stage capital to try to develop the technology and hopefully reach commercialization.  

The reason for this harks back to another class in which we reviewed the California or AB 32, by its original bill name in the California legislature.  California is seeking to reduce its greenhouse gas emissions by 85% by 2050.  A Berkley National Laboratories analysis concluded that without new technologies, the state could not achieve such reductions.  Thus, I wanted to introduce my students to some of the local companies that are working on technologies that may lead to reduced greenhouse gas emissions.  

The speakers and their companies were as follows:

Mitch Jacobson, UT Clean Energy Incubator

Barry McConachie, CEO, Incenergy

Lu Yan, CEO, Yan Engines, Inc.

F. Todd Davidson, CEO, nCarbon

Panos Adamopoulos, Founder, Seismos

Yetkin Yildirim, Co-Founder, Terra Pave International, Inc.

Video of Presentations.

These companies in many ways are working on low carbon technologies, and are a very small subset of companies across the United States, and the world for that matter, developing potentially commercial technologies that can in numerous ways lead to a lower carbon economy.

Just in Texas, in the Austin area, another company, Skyonic, is working on a technology to capture CO2 from smokestacks and use it to produce carbonates and other products, so pollution control becomes a for profit business. The first deployment is at a cement plant near San Antonio.

Several companies use captured CO2 for enhanced oil recovery, such as Denbury Resources in Plano, Texas and Chaparral Energy in Oklahoma City.

With the large installed base of fossil fuel power plants, our global fleet of fossil-fueled vehicles, pipelines, refineries, etc. we have to find technologies to use fossil fuels in way that reduce emissions. Too much infrastructure and investment in that infrastructure to expect it to go away any time soon. I don’t expect that to occur in my lifetime.

After the class and meeting, I had dinner with one of the company CEOs and several attendees.  We talked about many things and one of which was carbon trading law, as one of the people mentioned I had written a book on the subject.  In our discussion, I made the point that the exact nature of carbon trading programs was not to regulate the greenhouse gases out of existence or have a perfect system, but to have enough of a carbon price that substantial investment was made in hundreds if not thousands of technologies and services such that out of the “primordial soup” would emerge technologies that would transform our energy use.

So as I had thought about “cap and trade” it was not to solve the problem through the regulatory system as such, but to create the economy or market place that drives sufficient research and development and investment to come up with low cost innovative technologies.  I said this doe not comport with environmentalists, who simply want to phase out fossil fuels, with an idealistic view that this can be done without great economic loss and job loss, and frankly that it is even possible le with today’s technology.

The renewable energy they promote depends on natural gas plants to balance the grid so our lights will stay on—yes, renewable energy is dependant on fossil-fuel produced energy.

To ignore the issues is unrealistic as well as the overwhelming science on climate change and its causes will put pressure on governments and policy makers and publicly traded companies, particularly those that produce, use, or are otherwise dependent on fossil fuels, which are most of the publicly traded companies.

Thus, we need a policy and regulatory system that promotes the type of technological research and innovation and creates enough profit for angel and venture capitalists to invest in companies developing these technologies.  My point at the dinner was that a perfect system is not needed, or possible, but enough of a system that provides sufficient incentives to create the primordial soup.

Thus, perhaps a long winded way of answering the question posed.  To find the solutions you need the primordial soup of inventors, investors, and entrepreneurs to form the marketplace that will lead to climate change solutions.

 

The program was made possible through the University of Texas Law School

Video--Environmental Entrepreneurs: Local Companies Leading the Way to a Low-Carbon Economy

A program called Environmental Entrepreneurs: Local Companies Leading the Way to a Low-Carbon Economy was a  program presented at the University of Texas Law School was presented as part of my Climate Change Law Class I'm teaching at the UT Law School, and in conjunction with UT's Center for Global Energy, International Arbitration and Environmental Law.  A video can be viewed if you are interested.

 

 

 

The speakers were as follows:

Mitch Jacobson Co-Director, ATI Clean Energy Incubator, The University of Texas at Austin; Board Chair, CleanTX Foundation

Barry McConachie, CEO, Incenergy

Lu Yan, CEO, Yan Engines, Inc.

F. Todd Davidson, CEO, nCarbon

Yetkin Yildirim, Co-Founder, Terra Pave International, Inc.

Panos Adamopoulos, Founder, Seismos

Video

 

 

 

Arrogant or Accurate?: ExxonMobil’s Reports on Climate Change and Oil and Gas Reserves

Recently, ExxonMobil issued two reports Energy and Carbon--Managing the Risks and Energy and Climate  in response to a request by certain shareholders to disclose information related to climate change and potential constraints on the ability to produce its oil reserves.  In an editorial in The Guardian ExxonMobil’s response was called “consummate arrogance.”  But if we consider the predictions of fossil fuel use by the U.S. Energy Information Agency (EIA), the use of fossil fuel will continue apace through 2040.  So the question is, based on the EIA predictions, is ExxonMobil’s reporting arrogant, or is it accurate based on current information and regulatory regimes?

I am teaching a climate change law course this year at the University of Texas Law School, and one of the reports I discussed with my class is the Energy Outlook published annually by the U.S. Energy Information Administration.  The EIA in the  AEO 2014 Early Release Overview  predicts the use of large amounts of petroleum in the United States through 2040.

"Total U.S. consumption of petroleum and other liquids, which was 35.9 quadrillion Btu (18.5 MMbbl/d) in 2012, increases to 36.9 quadrillion Btu (19.5 MMbbl/d) in 2018, then declines to 35.4 quadrillion Btu (18.7 MMbbl/d) in 2034 and remains at that level through 2040."

The following graph shows primary energy consumption through 2040, based on current facts and circumstances.

Based on the projections of the well-respected EIA, there is no expected curtailment of the ability to produce oil and gas from existing reserves, but a continued use of fossil fuels in the United States at around current levels through 2040.  Prohibition of the use of fossil fuels does not appear likely at this time.

While this may not bode well for greenhouse gas emissions from the United States, not to mention China, India and other countries, it appears to be what is expected based on current information, at least as evaluated by the EIA. 

This of course is what the parties who requested the reports from ExxonMobl would like to avoid.  Ceres and As You Sow, among others, sought disclosures from the company.  However, disclosure does not affect change in current energy sources, infrastructure, and technology, or existing or reasonably likely restrictions on oil and gas use or on production of these resources.

As an attorney who has advised clients on environmental and climate risk disclosures, it would be difficult to expect a public company, based on current circumstances or reasonably foreseeable circumstances, to conclude in reports to shareholders that oil and gas reserves are likely to be restricted, and that the value of those reserves or the company shares are likely to be devalued. 

Much of this has to do with the current need for fossil fuels to power transportation and electricity generation.  Without replacements, fossil fuels will be used.

Key questions are:  What replacement do we have for transportation fuels?  What technology do we have to provide low cost and dispatchable electricity without use of fossil fuel?  What would be the impact if we ceased using fossil fuels today? In five years? Ten?  The reality has to be faced.

In discussing these issues with my class,  I provided the conclusions of the Berkley National Laboratory in California reviewed the capability of the State of California to reduce greenhouse gas emissions by 85% by 2050. 

 

California is on track to meet its state-mandated targets for reducing greenhouse gas emissions for 2020, but it will not be able to meet its 2050 target without bold new technologies and policies. This is the conclusion of the California Greenhouse Gas Inventory Spreadsheet (GHGIS), a new model developed by the U.S. Department of Energy’s Lawrence Berkeley National Laboratory (Berkeley Lab) to look at how far existing policies and technologies can get us in emissions reductions.

 

"Bold new technologies" are necessary, in my view, to use fossil fuels in ways that reduce emissions. 

To provide an insight to new technologies under development, in another class, I invited the leader of the UT Clean Energy Incubator and he brought four of the companies in the incubator to discuss their developing technologies that if adopted would reduce greenhouse gas emissions.  One has developed a new piston for interanal combustion engines that reduces fuel use by as much as 50 percent.  The company is working with the U.S. Department of Defense to test the technology to see if the Army could replace  the pistons in their transportation trucks, and significantly reduce fuel use--a critical issue issue in warfare as seen in Iraq and Afghanistan.  

Another company I invited is able to reduce electricity use in small office buildings by 10 or 20 percent with energy management software in the cloud and smart thermostats.  I have a friend who is selling a fuel additive that can cut diesel use in large trucks from 10 to 30 percent.  Yet another local company is installing technology to capture CO2 from a cement plant near San Antonio and use it to make a product that can be sold in well established markets.  If it works, it could be used on other sources of CO2 emissions like power plants.

These and hundreds if not thousands of other companies, professors, or inventors are developing, testing, or seeking capital to try to commercialize numerous other potentially promising low carbon technologies in the United States and in other countries. 

This is where the real work has to be done.  Accurate disclosure is critical by public companies.  However, mandatory disclosure or voluntary disclosure may not be the best focus to resolving the climate challenges at hand. 

Climate change, greenhouse gas reductions, and fossil fuel use are very complex issues. Simple arguments or attempts to deal with them will not lead to solutions.

Private and governmental investment in research and development and new companies and technologies may be a better approach to reducing greenhouse gas emissions, particularly if the EIA and ExxonMobil are right about future use of fossil fuels.

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.