Saturday, November 22, 2008

Is Obama's Energy Plan Enough?

I fear it may be too much--of the last thing we need more of.

From Time:

With the possible exception of Barack Obama's puppy-anticipating daughters, no one is more eagerly awaiting the incoming Administration than the leaders of the renewable-energy industries. President-elect Obama campaigned on the promise to spend $150 billion over the next 10 years to support alternative energy, like wind and solar, as well as the green jobs that the sector has the potential to create. At California Gov. Arnold Schwarzenegger's climate summit on Nov. 18, Obama, in taped remarks, reaffirmed that he would hold fast to those campaign promises, starting with mandatory caps on greenhouse gas emissions. "This is a crucial step forward," says Linda Church Ciocci, the executive director of the National Hydropower Association.

The problem is, it won't be enough. As ambitious as Obama's campaign promises were — at least compared to his predecessor's — the future state of global energy will demand government policies with a much longer reach, according to alternative-energy leaders.
And what precisely is it that these "leaders" want? Turns out, it's our tax dollars.

In a press conference last week the leaders of the solar, wind, geothermal and hydropower industries called on Obama and the incoming Congress to look ahead. First, energy leaders asked Obama to immediately adjust the alternative-energy production credit to provide green investors with a cash rebate, rather than a tax reduction. With the economy tanking, simple tax credits — which Congress renewed in October and without which the renewable-energy industry would not survive — aren't the lure they once were for companies looking to invest in new energy projects.

Other items on the renewables industry's wish list: a national renewable-energy portfolio standard, which would require a certain percentage of U.S. electricity to come from alternative sources. (More than 20 states already have similar standards, but a national one would be tricky, given that utility regulation in the U.S. is localized.) Green energy leaders would also like to see an executive order that would greatly expand the federal government's procurement of renewable energy — a smart idea, easily doable — plus a major initiative to update and smarten the nation's aging, overworked electrical grid.
Huh, I'm kind of curious as to why an industry that is supposedly so much more economic than nuclear power needs the PTC "just to survive." This is rent seeking, plain and simple, as are all the other desires of the renewable energy industry. The last thing America needs is another corporatist energy boondoggle--remember this one? How about this one?

In all fairness, it's not like this list is Obama's actual energy platform, which remains obscure. Recent indications, however, suggest that many of the desires of the renewable energy industry will be realized. Most worrisome is the prospect of a national renewable portfolio standard, which is just bad policy any way you look at it. Most forms of renewable energy are already a costly means of reducing CO2 output, but a national RPS would encourage building renewable generation facilities in marginal areas--making them increasingly uneconomic. Furthermore, certain parts of the country are far better endowed with renewable energy potential than others. For instance, my home state of Tennessee is deficient in solar, wind, and geothermal resources, and TVA has already tapped out most of the hydro potential. While an RPS would presumably allow trading so that utilities in such underendowed locales could buy offsets, this doesn't end up going anywhere near far enough. This is because it would require that the areas with better renewable potential (such as, say, California) develop an overdependence on renewable energy, creating all kinds of attendant problems and costs.

Furthermore, such a scheme actually encourages making compliance maximally expensive. Let's think through the incentives facing the "haves" in a system with an RPS that requires that every utility either produce a particular percentage of electricity from renewables or buy credits from another utility with excess renewable capacity. Say it's 2030, and you're a utility in Southern California. There's a 25% RPS, but thanks to some very expensive solar thermal plants built during the Obama administration, you actually generate 30% of your output using renewables. This gives you tradeable credits worth 5% of your output that you can now auction off to the highest bidder. These are worth a lot, since no utility east of the Mississippi has actually managed to meet the RPS by generating its own power. This, of course, means that whatever ratepayers ultimately pick up the tab for these credits end up paying the most any utility would bid on them. This is one disincentive to building more renewable capacity--the tighter the market for RPS credits, the more the utilities that sell these credits can get for them. If the utilities are rational maximizers, they will only build out their capacity to a point that is far less than adequate for supplying cheap credits to the rest of the country. The second disincentive is that the utilities' need to deal with the intermittency of the renewable resources on their grid. Even with the construction of "smart grids" and "green energy superhighways" (whatever the hell those are), this will be first and foremost a local problem, since renewable generation facilities have to be integrated into the utilities' own grid resources. Research from Europe indicates that once you start trying to integrate much more than 30% intermittent generators, things start getting really unmanageable (and it's pretty hard even below that). These two disincentives would work together to encourage the utilities with renewable resources to maximize the cost of compliance for the have-nots, rendering the RPS an extremely inefficient and expensive way of reducing CO2 emissions.

A better plan would be some kind of cap-and-trade scheme for CO2 emissions themselves. Indeed, I like the sort of "cap-and-auction" idea that Obama is pushing, but I'm extremely wary of the apparent plan to use the proceeds to subsidize certain energy technologies. Personally, I think that the ideal policy would be as follows:
1. Set stringent CO2 output limits that go down each year.
2. Auction off emissions permits for the legal CO2 emissions--no grandfather clauses for industry or other measures that would render the scheme impotent.
3. Enforce compliance, but let individuals and corporations find their own preferred measures for doing so.
4. Divide the auction proceeds among all American taxpayers as a dividend. This will both act as a way of helping American families deal with the costs of compliance, but also serve as an economic stimulus. And as the costs of permits go up, so does the dividend.
I believe that this scheme probably has the best achievable mix of economic efficiency and fairness. In practice, I believe that it would encourage investments in efficiency in the short run, and modular, mass-produced nuclear reactors in the long run. But even if I'm wrong about that, these measures should find the most cost-effective means of reducing CO2 emissions. Compared to the RPS, which even on paper appears to be a highly inefficient way of fighting climate change, this is a vastly superior policy prescription. But somehow I imagine we'll end up with an RPS anyway. Let's just hope the government realizes the folly of this before they've done any more damage to our already faltering economy than necessary.


BeyondGreen said...

WE must make more of an effort in this nation to become energy independent. Not enough credit is being given to the high gas prices this past year and it's serious damage on our economy and society. That one factor alone has caused serious stress in both individuals and businesses. A record number of homes and jobs have been lost as a direct result. And, while we are doing the happy dance around the lower prices at the pumps OPEC is announcing cuts to manipulate the prices upward again. We must get on with becoming energy independent.We can't take another year like this past. There is a wonderful new book out about the energy crisis and what it would take for America to become energy independent. It covers every aspect of oil, what it's uses are besides gasoline, our reserves, our depletion of it. Every type of alternative energy is covered and it's potential to replace oil. He even has proposed legislative agenda's that would be necessary to implement these changes along with time frames. This book is profoundly informative and our country needs to become more informed and move forward with becoming energy independent. Electric cars cost the equivalent of 60 cents per gallon to drive and can conceivably be charged using electricity generated from solar or wind. Green technology would not only provide clean cheap energy it would create millions of badly needed new jobs. The Book is called The Manhattan Project of 2009 Energy Independence NOW by Jeff Wilson. Our politicians all need to read this book.

Finrod said...

"Electric cars cost the equivalent of 60 cents per gallon to drive and can conceivably be charged using electricity generated from solar or wind. Green technology would not only provide clean cheap energy it would create millions of badly needed new jobs."

I disagree in the strongest possible terms

Wind and solar power are not cheap, and probably aren't even self-sustainable. It is highly unlikely that those sources would be able to power their own munufacturing requirements, let alone produce enough net output to run a modern economy's current electrical infrastructure, and expecting them to be able to run the transport sector as well is just insane.

We need reliable power which is genuinely cheap, plentiful and clean. Nuclear power is the only source which fits the bill.

Brian Mays said...

Yep. That's the problem. Not only is Obama's energy "plan" obscure, but it's heavily nuanced as well (as all of his rhetoric is).

Frankly, I felt more comfortable with McCain's "45 new nuclear plants." Although it was sadly insufficient (in my opinion), at least it established a real, concrete goal that was likely to be achieved, since the NRC already expects applications for 34 new units between 2007 and 2010.

Meanwhile, Obama says: "We will tap nuclear power, while making sure it's safe." What the hell does that mean?! It could mean anything!

Obama's only concrete promises are to spend (waste?) money and to set targets for reducing carbon-dioxide emissions by 2020 and 2050 -- two deadlines so far in the future that the first is long after Obama leaves office and the second won't come around until possibly after Obama is dead. (He used to be a heavy smoker until a year ago, after all.)

I predict that this will be a windfall for various "renewable energy" firms, like GE's wind division, which used to be "Enron Wind." These companies will pull in a lot of government money, a few people in the "renewable energy" business will get very rich, but the results in terms of energy produced will be quite meager. If the government changes its mind or does a poor job in distributing these handouts, the smaller of these companies will ultimately declare bankruptcy, just as the Luz Corporation did in 1991, after building the Solar Electric Generating System (SEGS), beginning in 1984, which is still the largest concentrating solar power project in the US. The government will then be forced to step in to revive these disastrous projects, just as California stepped in to revive the SEGS after Luz's failure.

The larger companies will increasingly withdraw from such projects as the government handouts dry up and their failures begin to hurt the corporate bottom line. GE is enthusiastic about wind only as long as the taxpayer is fitting part of the bill.

Obama's "plan" is actually relatively moderate when compared to the experience in Europe. For example, I haven't heard any discussion of feed-in tariffs, which Germany has used to become the world leader in renewables such as solar and wind. Nevertheless, the experience in Germany has demonstrated that even this is not enough, since Germany (along with Italy) is now calling for relaxing European Union rules for reducing greenhouse gas emissions, because they "have too heavy an impact on our businesses." Apparently, large government incentives for renewables are incompatible with heavy industry and a robust economy.

It doesn't stop there, however. This heavy investment in wind and solar has dubious environmental benefits as well. Germany's carbon-dioxide emissions per capita are 60% higher than those of France, which depends on nuclear for almost 80% of its electricity. (Germany's carbon-dioxide emissions are also 60% higher per GDP/PPP.) Meanwhile, Germany (and Italy too) has some of the highest costs for electricity in the western industrial world.

Perhaps it's a good thing that Obama's plan is not as aggressive as Germany's.

Meanwhile, mandates and edicts that have deadlines beyond the term of the current administration mean nothing. Sure, anyone can promise to get 25% of electricity from "renewable" sources by 2025, but later, as the consequences are felt and the fecal matter hits the rotary impeller, it is just as easy (or even easier) for someone else to cancel these promises. After all, didn't California promise almost 20 years ago to have Zero Emission Vehicles by now? Where are these vehicles? They were supposed to comprise at least 10% of the vehicles on California's roads by 2003.

Of course, Obama will probably also push for efficiency, but he does so at his own peril. It is difficult for me to imagine a second Obama term if he pushes efficiency too much. The last two presidents to heavily promote efficiency (also during difficult economic times) were Carter and Hoover, both one-term presidents whose terms in office could be most kindly described as "mediocre" at best.

In summary, Obama's energy platform, as it appears today, will involve government pork spending that will be wasted on "solutions" that have proven themselves time and time again in the US and in Europe to be nearly worthless economically and environmentally.

To quote William Tucker, author of Terrestrial Energy: "Obama's energy policies are a recipe for disaster. If he clamps down on coal without permitting nuclear power to take its place, we'll be stuck trying to run the country on windmills, which will be a national introduction to elementary physics."

Although I think that most of America (particularly the spoiled yuppie innumerate "Green" brats who read and believe silly books and donate to Greenpeace, etc.) could use a few good lessons in elementary physics -- especially the second law of thermodynamics -- I would prefer this lesson to be less painful for all of us.