We have spent a lot of time lionizing T. Boone Pickens over the past week for his proposed Pickens Plan. Now we want to dig a little deeper into this plan to see what types of problems it might contain. The most common critique we’ve seen is related to the part of the proposal that would shift natural gas use from electricity generation to powering automobiles. Although Pickens recognizes that the shift to natural gas in automobiles is not going to be a permanent solution, there do seem to be some other legitimate criticisms. Mainly, these criticisms have to do with the problem of greenhouse gas emissions rather than dependency on foreign oil.
Specifically, while natural gas vehicles have fewer emissions than those that burn petroleum, this savings may be overshadowed by the fact that natural gas is a relatively clean and efficient means of generating electricity. Additionally, natural gas is a very reliable source of energy, while winds can be fleeting. By removing natural gas from the grid, some of these valuable benefits will be lost. As a result, some have argued that instead of using wind power to replace natural gas on the grid, maybe it would make more sense to only implement the part of the Pickens Plan that calls for massive wind power development and disregard the proposed shift to natural gas vehicles. This would allow us to use the new wind energy to replace dirty coal instead of relatively clean natural gas.
Of course, this would leave unsolved the question of what to do about our vehicles. However, as some companies are trying to demonstrate, if cars can instead be shifted to electric power, focusing on how we generate power for the grid may be the right path. Since electric cars are fueled by plugging into the grid, where that electricity comes from and how it was generated is a major component of what determines that car’s emissions efficiency. By focusing on how to make our grid power as clean and efficient as possible (i.e., through a massive wind energy development), we could be indirectly creating the conditions necessary to shift our cars off of petroleum and on to a cleaner source.
Regardless, whether the Pickens Plan should be implemented in full, or just in parts, it is clear that there is enormous value in him merely providing a concrete proposal. By articulating a specific plan, Pickens has given policy makers and the public something concrete to debate and analyze. Just framing the proposed strategy in specific terms now allows us to better discuss the proposed path and consequently, move us much closer to actual action.
With energy costs skyrocketing, old coal producing regions throughout the world have sprung back to life.In Japan, coal production is at its highest point in nearly forty years, after a long period of contraction due to high labor and extraction costs. With the world price of oil and other commodities at all time highs, re-opening old mines and the expansion of existing mines throughout the world has boomed.Illustrating the dramatic increase in prices, the cost of a metric ton of coal shipped from Australia to Japan in 2003 was $23.25.Now it is almost $140.
Of course, along with this increase in coal production and use, comes an increase in greenhouse gas emissions.While high oil prices has encouraged alternative energy investment and development, it is also apparently fueling old energy re-development.Hopefully this won’t prove to be a net-wash.
Given that the United States sits on over a quarter of the world’s coal reserves, we obviously will not be abandoning this source of energy production anytime soon.Nonetheless, it was a little disheartening to see Barack Obama re-emphasize his commitment to coal in a series of campaign ads (including the YouTube clip above), in an apparent attempt to garner votes in the coal rich state of Kentucky.(Which he ultimately lost by a significant margin.)
We have praised Obama in the past for staying out of the McCain-Clinton gas tax pander.Unfortunately, he is still a politician and apparently has been trying to rally support from voters in the coal producing primary states, like Kentucky and West Virginia, as well as general election coal producing states, like Pennsylvania and Ohio.There is something about Obama being in favor of reducing greenhouse gas emissions so long as he doesn’t put the coal industry at risk, or alienate any voters, that doesn’t quite sit right.
On Friday a federal appellate court overturned a Bush administration plan to change the way mercury emissions from power plants are regulated. Basically, the issue was about whether these emissions would be regulated under a cap-and-trade or a hard cap system. Previously, the Clinton administration had found that mercury emissions were a “hazardous air pollutant” under the Clean Air Act which lead to mandatory caps on their release into the environment. However, coal burning utilities (a major source of mercury pollution) lobbied the Bush administration to instead impose a cap-and-trade system, which they felt would allow them to more economically reduce emissions.
While cap-and-trade systems are very effective in reducing the release of greenhouse gases, which impact the environment on a global scale, the problem with mercury is that it effects the environment on a local level. A cap-and-trade system for mercury emissions would allow energy companies to continue to release high levels of mercury at certain locations, as long as that amount was offset by a decrease in emissions at a different plant. However, this would allow for concentrated levels of mercury to be released at local levels, which would present a serious health and environmental issue. With the court’s ruling, the EPA will now be prevented from pursuing this policy.
An article in the Wall Street Journal reports that three major Wall Street banks (Citigroup, JP Morgan, and Morgan Stanley) are now requiring energy companies seeking financing to prove that their projects would still be profitable under a cap-and-trade system that is predicted by the banks to be imposed within the next few years.
This news is important for a number of reasons. First, because Wall Street banks have so much at-stake in the financing of energy projects, they pay extremely close attention to the winds of policy change in Washington. If they believe CO2 regulations are on the way, they are most likely correct. Second, if the cap-and-trade system is put in place, it will, as we have discussed in a series of earlier posts, take into account (in whole, hopefully, but at least in part) of the externality of air pollution that exists in the burning of fossil fuels. By charging utilities a financial penalty for excess CO2 emissions, the cost borne by society for those emissions will be internalized into the cost of that energy’s production. In theory this should make renewable forms of energy more competitive in the market.
A common theme that should be evident in our postings here is the importance of renewable energy becoming a financially viable alternative to fossil fuels. Critics contend that this is only possible by subsidizing the renewable sources so that they are then artificially competitive with fossil fuels. However, we would argue that a better way to frame the situation is to say that by imposing financial penalties on CO2 polluters we are instead reducing the current subsidy that society pays the traditional energy companies with our breathing of unclean air and the acceleration of global climate change which allows them to sell their product at an artificially depressed price.
The New York Times had an interesting analysis of the continued growth of solar energy in California. As with most alternative forms of energy, solar has long been criticized as being too expensive and inefficient to provide a substantial alternative to fossil fuels like coal. While this is still the case today (power derived from the sun is “three to five times” more expensive than that derived from coal) there are two main reasons solar energy continues to grow and receive private funding in the state. First, both state and local governments are providing substantial subsidies which have resulted in an huge influx of private investment. And second, California residents and businesses in general are often willing to pay more for access to solar energy because of their personal pro-environment positions. However, while it is unlikely that either of these two motivating factors will disappear in a state like California, in order for solar energy to cause a material decrease in our burning of fossil fuels, it will have to be more widely adopted across the nation and world. And since everyone doesn’t share California’s willingness to subsidize, in order for this to occur, the price of generating solar power must still come down. Otherwise, the cost of fossil fuels must come up. (We believe the environmental cost may already exceed that of solar. Unfortunately, however, this isn’t priced into its economic cost yet.)
