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The Deepwater Oil Spill Exposes a Persistent Failure to Plan and Failure to Lead May 16, 2010

Posted by Michael Hoexter in Climate Policy, Efficiency/Conservation, Energy Policy, Green Transport, Renewable Energy.
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The 1969 Santa Barbara Oil Spill catalyzed the environmental movement in the US and inspired some important legislation but did not lead policymakers to take the next step and start the long process of weaning the US from its oil dependency (Photo: Unknown)

President Obama is facing with the explosion of the Deepwater Horizon,  a “local” disaster that exposes a deeper, endemic crisis in US energy policy and the US economy as a whole.  As he has been in office for still just 16 months, Obama does not bear primary responsibility for this ongoing crisis but he has only recently, a couple weeks after the accident, publicly hinted at the “elephant in the room”:  the obvious connection between the undersea oil volcano and our equally obvious need to transition from using oil as our primary transport fuel.  Simple reference to the Kerry-Lieberman climate bill that encourages more offshore drilling does not constitute an answer to our oil dependence.

Unfortunately public rhetoric and policy discussions that hinge on the notion of a dependence on “foreign” oil play the role of a “shortstop” in keeping the discussion from going to the heart of the problem.  The idea that oil produced on American shores will somehow differentially serve American consumers overlooks the international nature of the oil business with total offshore oil reserves destined never to make much of a difference in the overall price and availability of oil.  Estimates put the total reserves of offshore oil in US waters at 18 billion barrels conventionally recoverable and an additional 58 billion barrels “technically recoverable”.   While this oil, if extracted, would just be sold on the world market, it equals the equivalent of 11 years of consumption for the US at our current oil consumption rate of 8 billion barrels/year.   Subtracting the huge costs of oil spill cleanups and damage, most of the economic benefit of offshore drilling would accrue to oil companies and secondarily to state and federal governments in harvesting royalties, however the latter are going to be left “holding the bag” for the really, really big costs.

To ground this discussion in reality for just a moment, the 2009 US DOE Transportation Energy Data Book attributes to the US 2% of the world’s oil reserves, 8% of production, and 24% of consumption while the rest of the non-OPEC world comes out just a little better at 29%, 48% and 67% respectively.  Conventional natural gas is not a much more promising energy source for the future with the US having 3% of the reserves, 18% of the production, and 21 % of the consumption.  In the US, transportation accounts for 70% of all petroleum use and 24% for industrial uses.  Consumption of petroleum for transportation in the US is 84% for road transportation with around 65% for cars and light trucks and 18% for medium and heavy trucks.  Airplanes use 9%, shipping 4.2%, and rail 2.0%.  Even if we consumed petroleum and natural gas in proportion to worldwide production, there are credible predictions that we are somewhere in the neighborhood of the worldwide peak in production whether today or in a decade’s time.  Even if there were two more decades until the peak and we looked away from oil’s climate and local pollution impacts, would it be justified for our generation to run through this exhaustible resource?

The ballooning US trade deficits are attributable in the last decade approximately 55-60% to outgoing payments for petroleum imports but with the 2008 price spike, oil’s proportion climbed to 65%.  With oil prices once again ascending the petroleum related component of the US trade deficit will continue to climb.  With the last US trade surplus in 1973, the total US trade deficit has since 2003 stayed in the range $500B to 800B per year.

Turning back to politics, the President, whether by his own inclination or badly counseled by his advisors, has since taking office had a tendency to let the issues be defined for him rather than shaping policy with original view of his own.  He has approached health care, financial reform, and climate and energy as though there was some pre-formed wisdom which he simply needs to allude to or tap into in order for the American people and Congress to understand.  Erring on the side of being too laid back, perhaps partaking of the Spirit of Aloha, has not always served him well:  to get health care across the line he had to shed the “cool customer” image to actually win the votes in Congress.

The apparent rationale for his laid-back approach to issues, so commentators say, comes from overlearning what is considered to be a mistake of the early Clinton White House.  Clinton’s hands-on approach to policy is supposed to have alienated Congress and doomed Clinton’s health care efforts.  Obama has taken the opposite tack and can claim at least passage of a health care bill, though it is not clear yet how positive an achievement this will be considered when it actually takes effect.

What is missing so far in the Obama Presidency is the President taking the role of educating and perhaps changing the public’s views on important issues, which have been heavily colored by a very strong and organized counter-reform messaging machine.  The President has shied away from using the “bully pulpit” and allows Congress, which is considered by the public at the moment to be corrupt and untrustworthy, to shape the terms of the debate.

With the approach to a climate and energy bill this year, post-health care, the President opened up with a tactic rather than with a strategic plan for energy.  His announcement in March that he would lift the ban on offshore drilling in parts of the Gulf and the East Coast was a means of gaining support from Republicans for the ever more amorphous climate and energy package which is currently in the Senate.  Meanwhile, with so many issues and concerns, it is safe to say that energy is not top-most on most people’s minds in the Great Recession.

But the President has so far treated this as a case of another industrial accident for which liability can be assigned to the owner or commissioner of the oil rig, BP.   President Obama has not even advanced to the rhetorical level of George Bush’s 2006 State of Union where Bush declared America “Addicted to Oil”, despite Bush, in action, being responsible for gutting the regulatory agencies that may have prevented the spill.  While nominally a more “liberal” President and not from the oil patch, Obama has not presented a tangible vision of a post-oil society and, in combination with his preferred policies and speeches, the public is left mired in the oil-dependent present.

Discussions about who is to blame, who will pay, and what can be done in the Gulf to recover from the spill are important but are ultimately distractions from the most important question:

What will the US do to wean itself from its oil dependency?

In media accounts, the effort to make this a conventional tale of corporate or regulatory malfeasance is becoming the favorite of supposedly hard-hitting television journalists.  Yet these interviewers avoid looking into the frightening “maw” of our economy’s fatal dependence on oil.  The President is also looking away, focused as he is on technical and regulatory “fixes” for the offshore drilling disaster.

The upcoming climate bill in the Senate is being sold as an effort to reduce our dependency on oil and other dirty fuels but it contains few aggressive provisions to get us there.  The just released details of the bill, indicate that it’s mild cap and dividend provisions may slightly raise oil prices (starting in the area of $.10-$.20/gallon and increasing by 3-5% over inflation per year).  And offshore drilling provisions are in the current draft, offered now as an opt-out for states that wish to keep the ban in place.   As a whole, the bill postpones until the 2020’s any serious moves to cut emissions and focuses on the implementation of coal carbon capture and storage rather than more promising renewable technologies and grid enhancements.  Ironically, Senator Kerry has mentioned on TV, as if this were a sign of his seriousness, that he had been working with the oil industry on this bill.

If we assume the best intentions of the President and the Congressional leadership, one single legislative session or bill cannot undo 30 years of negligence and foolish disregard in the area of energy.  Whatever his ultimate goals and political commitments as President, Obama, if he endeavored to “do the right thing”, would have a number of hurdles (described below) to overcome.  However right now, he, his Administration and his Congressional allies are managing just a few cosmetic moves in the direction of change. On the issue of oil use and oil dependence, the bill and the Administration’s efforts are weak.

I am proposing here a stronger response that deals directly with America’s oil dependency.

A Strategic Energy Plan for Oil-Independence and Carbon Mitigation

A serious effort to get off oil will involve an equal emphasis on battery electric and grid-tied or grid-optional large vehicles like this trolleybus. The de-electrification of public transportation, while greeted by some as progress, now appears to have been a big mistake. (Photo: Adrian Corcoran)

The only solution to our oil dependency and the inevitable disasters that come from a mad rush to extract as much oil as possible from the earth is to create a strategic national energy plan that addresses both our oil dependence and our climate concerns.  A plan is required because changes in the transportation and energy system involve the coordination and arrangement in a sequence of certain key activities and infrastructure changes, for which market mechanisms, the current “default” preference for policymakers of both Left and Right, are ill-equipped.  Such a plan would also be the occasion for leaders of government to show and exercise leadership rather than look around for a lucky break or well-meaning private actors and companies to step into the breach.  Turning to planning is unfortunately now in America a politically fraught move but there is simply no alternative, if we want to have a sustainable economy, whether in the narrow economic sense or the broader ecological sense.

A growing chorus of corporate leaders and former government officials is calling for an electrified, oil-independent transportation system for national defense reasons as well as environmental ones.  Recently Bill Ford, chairman of Ford Motor Company made the connection between national security and oil, indicating that Ford’s product roadmap will focus on electric drive vehicles in the future.  James Woolsey, former CIA chief under Clinton, has been a long-time advocate of electrification for reasons of national defense.

Other nations are rapidly moving away from oil through plan-based efforts by governments in coordination with the private sector, even as almost every other country is starting from a position of less oil-dependence than the US.  The Chinese leadership, as is well-known, is very concerned about the effects of oil shortages and prices on China’s economic development.  China is in the process of building an extensive high-speed rail network (to Europe too)and is as well working on developing a lead in the area of battery powered vehicles.  President Obama mentioned in a recent speech China’s ambitious rail program as an analogue to his efforts in the US but I believe he knows that there is no comparison between the scale of their efforts and our much modest ones.  Japan and Switzerland have almost entirely electrified rail networks and France has the goal of electrifying its entire rail network by 2025.  Russia, despite its plentiful oil reserves, has electrified the Trans-Siberian and Murmansk lines of its railways in the last 10 years.  Denmark, Japan, France, and Israel all are executing plans to build widespread electric vehicle charge and battery-swap infrastructure.  By contrast, US freight and passenger transportation in all modes is almost totally dependent upon oil, leaving the US vulnerable to political and geological disruptions of supply and price spikes (see Alan Drake’s proposal for a comprehensive electrified train system for the US).

Two Pronged Strategy:  Efficient Use and Oil-Independent Infrastructure

There are two prongs to getting off oil which also share a common path.  One prong is increasing the efficiency of oil use in the US via increasing the person or freight miles traveled per unit petroleum consumed.  The other prong is building an oil-independent transport infrastructure and oil-independent vehicles.  Investment in routes on the path common to both should be favored over those that commit us interminably to oil.

The dream of a quick-fix, a “drop-in” technological solution that will simply replace oil has proved to be elusive and has so far found little basis in the science of energy.  So the proposed solution has a number of parts and involves tradeoffs and some large initial costs.  However, the invitation is there to any readers to find a better, presently available solution and publicize it.

Efficient Use:

  1. Levying a gas tax or price stabilization tax that insures that drivers can plan on a minimum gas price going forward on an ascending schedule.  Instead or in addition, a carbon tax or fee would disincentivize coal use as well, though might be supplemented by a gas tax to reduce gas use. (the Kerry Lieberman bill’s cap and dividend provisions will raise gasoline prices imperceptibly in the first few years).
  2. Enable full use of existing passenger rail and bus transportation infrastructure via adequate funding to increase schedules, keep current fare levels.  Determine via market surveys and statistics optimal service levels for each route.
  3. Encourage shared ride and shared vehicle programs and services using Internet and mobile phone resources to coordinate and develop ride-sharing social networks
  4. Mandating idle-stop systems (a.k.a. “mild hybrid”) on all new trucks and cars as of 2013.  Comprehensive idling reduction program at all truck stops, including incentivizing “shore power” electric hookups and retrofit kits. Mandate Cold ironing facilities at all shipping berths by 2015.
  5. Incentivize Transit Oriented Development via federal incentives for zoning changes at the local government level and developer and homeowner tax incentives.

While focusing on efficient use alone seems “pragmatic”, it actually does not have nearly the appeal and long-term economic stimulative effect of building an infrastructure that moves passenger/driver miles and freight ton-miles off of oil permanently.  To focus on efficient use without building for the long-term is an incomplete strategy.

Oil-Independent, Carbon-Independent Infrastructure:

See Drake et. al. for a slightly different more detailed proposal

  1. Double or multi-tracking the US rail system on all but low traffic lines enabling consistent speeds of 110 mph on non-high speed lines for freight and passenger trains.
  2. Stepwise electrification of rail infrastructure to 100% electric traction.
  3. Building on an accelerated basis dedicated high speed rail lines per the US HSR Association’s recommendation: http://www.ushsr.com/hsrnetwork.html
  4. Electrification of 80% of government vehicle fleets using a variety of battery charging technologies including trickle charge, rapid-charge and battery exchange technologies.
  5. Extended tax incentives for corporate vehicle  fleet conversion to battery power or for plug-in hybrids.
  6. Rapid build-out of a super-grid supportive of renewable energy development throughout the US.
  7. A robust regime of incentives for renewable energy development (advanced feed in tariffs based on cost recovery plus reasonable profit with descending incentives for projects in later years).
  8. Electrification of high traffic bus routes via either trolleybuses or streetcars.
  9. Build out of light rail and regional rail networks to interconnect high and medium density cities and suburbs.
  10. Corporate tax credits for build-out of tele-presence (e.g. Cisco’s product here) technologies and to encourage tele-commuting and tele-meeting

While technologies could evolve in the future that might alter the relative proportions in the above plan, these policy proposals and programs rely on technologies that are available today, some of them with a track-record of over a century.  However, the goal of getting off oil, let alone fossil fuels has not been a priority of US industrial development and government policy, so our rail and transport networks have remained dependent on the happenstance of oil extraction and the oil markets.

Substantial and Insubstantial Hurdles that Delay Us

If our country does not first slide into a state of permanent second or third-class status, it is inevitable that we in the US will move to a post-oil, post-carbon transport system incorporating most of the largely electric-drive technologies listed above.  However this should not lull our current leadership into complacency or half-measures, because sliding into a state of decay and dependency is a distinct possibility.  Will Obama be the President to lead us there, as Eisenhower was the President who built the Interstates?  Or will he be the President who excited hope, talked a good game but gave too much discretion to fossil fuel interests? We can be the last nation in the world to wean ourselves off oil, massively in debt, and always be in the position of borrowing know-how from others or we can start to move “on our own power” towards a position of leadership in this area.

The current Senate climate bill sees most of what is proposed above as distant pipe dreams rather than near future realities.  Most of the electric vehicle provisions in it are termed “pilot programs” with greater favor shown to natural gas vehicles and mild oversight for unconventional natural gas extraction.  Public transportation and rails are given little or no mention.

Leadership will be required to push ahead to the solutions based on what is already known about the physics and technology of transport and energy, instead of stopping at the half-way measures or the dead-end technologies that depend on fossil fuels.  True leadership involves anticipating and overcoming hurdles.  I have listed below the main hurdles which present themselves to whomever, I hope President Obama, decides to place the American economy on a sustainable energy basis.

Hurdle #1:  Market Idealization (Market Fundamentalism) Vs. Planning

One of the greatest hurdles is the ongoing influence of market idealization (or “market fundamentalism“) in Washington in general, on both sides of the aisle in Congress and in the White House.  In the era of market idealization over the last 30 years, planning, especially government planning, got a bad name as markets were supposed to constitute all of economic life as well as being perfect and complete economic institutions.  Through his sojourn at the University of Chicago, one of the centers of market idealization, President Obama was exposed to an environment that celebrated a view of markets as self-sufficient, self-regulating institutions which perhaps continues to color his view of planning and government’s role.

The use of “cap” legislation, carbon pricing, or emissions targets does not substitute for planning because such unspecified “plans” to achieve quantities of emissions reductions cannot substitute for the sequence of timed and specified actions that constitute a plan.  Emissions caps or targets suggest that the market will find its way without planning.  In some areas this works better than planning but in transportation and energy infrastructure, not so much.

Some major problems with markets are that they don’t price in future risks or distant future rewards very well in many sectors, including energy and transport, and, when unregulated, tend to focus market participants on their most immediate concerns.  Markets also do not produce all the conditions for their own survival and continued profitability.  Governments have historically stepped in to provide people and markets with structure for transactions that threaten to undermine trust between market actors.  Additionally, governments of most nations with complex economies provide public goods like infrastructure that enable longer term social and economic goals of both private and public actors to be achieved.  While market-like institutions can be imposed upon the “natural” monopolies of the electricity and the rail businesses, these market reforms do not generally orient these businesses to rapidly change their infrastructure but rather focus them on squeezing value out of existing assets.

Planning can originate from private and non-profit actors as well as from government though this does not release governments from the duty to initiate or help structure plans that effect diverse sets of stakeholders.  The Desertec Initiative is an example of a large-scale international energy plan that has originated in the private and non-profit sectors.  The Desertec Foundation and the Desertec Industrial Initiative (DII) are working on building a renewable energy supergrid that spans Europe, North Africa and the Middle East in order to provide renewable electrical power to the area, balancing wind and solar resources across the region.  Munich Re, a large re-insurance company based in Germany, concerned about environmental and climate risk in the future and along with a consortium of electrical utilities and technology companies, including Siemens, ABB, Abengoa, MAN Solar Millennium has created the DII.  Whether the impulse to plan has come from the private sector or from government, government needs to be involved in making sure that large scale energy and transportation plans serve national interests and are executed and financed in a transparent and fair manner.

As market idealization has been also a particularly fervent form of anti-Communism, government involvement in planning has been associated in the minds of US politicians and sections of the public over the past 30 years with centrally-planned Communist economies.  Due to these still largely unchallenged views of market idealists, politicians making the argument for planning will need to run the political gauntlet of being accused of being a Communist (or, as is common in the precincts of the Tea Party and Fox News, a fascist).  Unfortunately, academic economists too have also been lax in making the case for government planning beyond Left-Right ideology.  Republicans and Democratic Presidents and other government officials between 1940 and 1980 did not generally have to justify their use of planning but since 1980, planners and planning advocates have needed to keep a low profile.

So presenting a full-on Oil-Independence Plan from the side of government would present the President with either having to make a two-stage argument (first for a role for planning and then for the plan) or to compress the two together in one artful package.  The latter is not inconceivable but, our President, so far, has shown more interest in pointing out how much he has in common with the Republican Party that has been almost completely captured by market idealists.

On the other hand, almost everybody in contemporary American politics is for energy independence and national defense.  It is not a stretch to imagine our centrist to right-leaning Democratic President reaching across the aisle to push for a “Oil Independence Transportation Plan”.  This would require preparation, research and political leadership by the President, the Administration and Congress but is eminently do-able.  Thus a brilliant and principled politician, maybe even our current President, could present this plan as a combined act of patriotism and long-term economic good sense.

Hurdle #2:  Deficit Worries and Hysteria

Given that we are in an economic downturn and tax revenues will not be able to be boosted substantially, a post-oil transport infrastructure built in a timely manner will probably involve deficit spending.  Some parts of this system can be built and financed privately and paid back via user fees while others will have the status of public goods, like roads, that will need to paid for via taxes and or potentially inflationary deficit spending, i.e. printing money.

We have been facing a rise in public debt and budget deficits over the course of the Bush administration and the first part of the Obama Administration.  The current level of the public debt stands at approximately 60% of its maximum in relationship to GDP at the end of WWII (108%).  Misinformed politicians, pundits, and financiers take this as an occasion to stir hysteria that is stoked by a combination of fabrications and partial truths about the potential impact of budget deficits on the American economy.   Economists, such as Paul Krugman, Dean Baker and Joe Stiglitz, who have studied economic history and effects of deficit spending on jumpstarting the economy, have attempted to correct these misguided views of deficit spending in the context of a severe economic downturn.

This graph of the "gross" and not the usually cited public debt (now at 67%) indicates that excluding the first year of the Obama Administration the last four Democratic Presidents reduced the gross federal debt while the last four Republican Presidents increased it relative to GDP. In general, economic depressions and wars tend to increase the federal budget deficit.

Deficit hysteria seems to have a strong political component to it, as these fears remained largely dormant in the Republican Administrations that have run up large debts in the past.  As a preventative, those who are opposed to a strong government role in the domestic economy (though generally not to military adventures) have attempted to intimidate the President and others by warning of runaway budget deficits.  There are now some more severe budget problems in other countries (Greece for instance) and the differences between the US situation and these countries are played down to intimidate those who would want to spend deficits on building US domestic economic growth.

While those who stir deficit hysteria tend to be closed-lipped about their large-scale political and economic agenda, they generally are opponents of all government-provided social services and government-led economic initiatives preferring to reserve these functions for private enterprise.  Deficit hysteria implies the idealization of markets, though is a more sophisticated variety that acknowledges that there is “some” role for government, only to minimize that role in every proposal, due to fear of budget deficits.  Unfortunately President Obama has some vulnerability to deficit hysteria, in that he has not come out vigorously in defense of government’s role in the domestic economy, preferring instead to adopt an attitude of compromise and conciliation with people who talk as if there is no legitimate role for government social programs or in the domestic economy.

While budget deficits need to be monitored closely, the US has luckily somewhat more flexibility than many other countries to engage in deficit spending.  A very strong case can be made that deficit spending to help finance a post-oil transportation infrastructure is a very good use of public funds and also shows nations that hold our debt that we are spending in ways that will improve our overall competitiveness and resilience as a nation.  Deficit spending in this way actually works to reduce our trade deficit which is in most years larger than our budget deficit and largely attributable to oil imports.

Hurdle #3:  Balancing the Interests of Stakeholders, Mix of Private and Public Enterprise

The French SNCF is a public benefit corporation that runs and owns the French trains and stations. In order to open up the rails to competition the rails and rights of way are owned by another government-owned company, the RFF, enabling, theoretically, private train companies to compete with SNCF on the same tracks. (Photo: Wikimedia Commons)

An Oil- and Carbon-Independence Plan will require the participation of a number of stakeholders some of whom will be less than enthusiastic participants in this ambitious effort.  The railways in the US are ambivalent about the ambitious plans of advocates for either high-speed rail or electrification.  Like other large infrastructure-dependent businesses, these usually risk-averse corporations make money by squeezing value out of their existing infrastructure and sticking to decades-long incremental capital investment strategies.  Additionally, and ironically, railways, our cleanest and most efficient means of transporting freight even with diesel traction, haul the dirtiest fuel, coal, to power plants of the large coal-burning utilities; the largest source of revenue for railways is coal transport accounting for 21% of 2007 revenue with intermodal (container) being the fastest growing segment.

Left to themselves, the US freight railways would not be able to undertake nor necessarily see it in their short or medium-term interest to electrify their railroads nor embark on a massive program of track build-out.  The railways are in favor of tax incentives to help them continue capital improvements but these alone will probably be not enough to double and triple track mileage. The railways own their own rights of way and are currently entirely self-funding and compete largely on price and capacity with other freight modalities.  In order for massive public investment to be possible, the railways would have to develop an entirely different relationship with the federal government.

If they were intent on executing a Post-Oil transport plan, policymakers would need to lead the railways into a new relationship or perhaps buy some of them out, in part or in full. The massive level of public investment required to enable the railways to carry triple the freight plus 20 to 30 times the passenger volume would transform their capital base with largely public funds or public guarantees to be able to undertake the risk.  Such action would require a combination of vision, leadership and negotiation skills from the side of government.

As diesel locomotion (actually diesel-electric) is still a very efficient method of hauling freight and passengers relative to other modes of transportation, the transition to an Oil-Independent infrastructure could be achieved in two stages:  first railway track build-outs that are electricity-ready and then the electrification of those railroads as a separate project.

An alternate route towards oil-independent transport is possible that “deals in” the trucking industry but requires the adaptation of several existing technologies and an alteration to the interstate system: Using hybrid dual-mode trolley long-distance trucks on dedicated lanes of the interstate that also have a backup generator or battery pack that enable easy on and off and grid-detached travel.  There are no technological breakthroughs required to do this but it needs the backing of a government or government-funded research program that seriously studies electrification of lanes of interstates and the high speed attachment and detachment of trolley poles or pantographs to overhead lines.

Designing and executing an Oil- and Carbon-Independence Transport and Energy Plan would also not necessarily inspire the other large conservative infrastructure-based companies, the power utilities, to join in the spirit of the enterprise.  Similarly to the freight railways, utilities wring value from a decades-old infrastructure and generally adopt change very slowly.  Particularly challenging for many US utilities is a transition away from coal which accounts for approximately 50% of electricity generated in the US.  Selling electricity to railways may be an additional source of revenue but also would involve new infrastructure and might require new generation, which would need to be low- or zero-carbon.  A portion of the electricity demand from railways may be supplied by federal power generation facilities, perhaps by a newly founded Railways Power Administration, modeled on the Western Area Power Administration or similar.  Passenger railway power demand would require daytime generation which would coincide with solar but freight would add to baseload demand as it would operate around the clock.

A clear expression of purpose and demonstration of intent by government leaders to reduce oil demand in the US is a prerequisite for successful negotiation with stakeholders in shaping the post-oil future.  So far the President and Congressional leaders haven’t shown the guts and independence of mind to work this out with industry stakeholders.

Hurdle #4:  Many Americans’ Love of Expansive Resource Use (and Disregarding the Consequences)

Different cultures tend to have differing attitudes towards the material world and what is considered attractive or desirable in the use of resources.  In Japan, with one of the world’s highest population densities, cultural preferences include a focus on small, sometimes intricate objects.  Traditional agriculture in China is highly space- and resource-efficient.  In Europe, culture has emerged from similar resource constraints, for which it is much admired throughout the world.  In the US, we have through a large portion of our early history, not had to deal with as many resource constraints, including a belief that more abundance is always around the next bend.  Europeans came here in search of “El Dorado” and we have had the tendency to believe in “Virgin Land”, either physically or virtually, into which we could move if we “messed up” or wanted to leave our original physical context.

President Jimmy Carter wore a cardigan in some TV addresses to show that he was practicing energy conservation during the winter at the White House. Even though he was presenting Americans with a prudent message, in hindsight with the triumph of Reaganism and reactive resource- and energy-profligacy, our image-obsessed culture has held onto Carter's slight awkwardness, school-teacherly manner and absence of swaggering machismo rather than the content of his message.

The electoral defeat of Jimmy Carter in 1980 by Ronald Reagan and the subsequent growth of a culture of reactive anti-environmentalism has impressed politicians with the dangers of appearing to “wear the cardigan” rather than use resources “like you just don’t care”, yielding a culture of reactive or revived profligacy.  Contrarian anti-environmentalism both on the Right and in the apolitical Center has meant a return for many to the energy and material use patterns with which Americans grew up until the 1973 OPEC Oil embargo.  Because of the political defeat of Carter (for a number of reasons), the 1985-2001 return of cheap oil, and the 2001-2009 Bush Presidency, few politicians have attempted to experiment with what is possible in the way of communicating a stance that counsels wise use of resources while retaining a sense of American identity.

Obviously, we will need leaders to set an example and attempt once again to join the American spirit with an awareness of the earth’s limits and wise use of resources.  Expansive plans to create a post-oil infrastructure can be combined with measures that suggest that the America of the future will not lay waste to the earth.  The ability to break up the cultural “forced choice” between abstemiousness versus expansiveness will involve creativity on the part of political and cultural leaders. Whether the Obama Administration is up to the task and has the will to engage in this vital transition to a new kind of American identity remains to be seen.

Hurdle #5:  The Biofuels Distraction

A few years ago, using biofuels as an oil substitute were treated seriously by some environmentalists and became a big favorite of politically powerful agricultural lobbies.  Since then, it has dawned on most of the environmental movement plus more and more policymakers that biofuels are a poor source of fuel and environmentally may be under many conditions worse than using oil.  The net energy yield, plus land use, plus water use put into making ethanol or biodiesel from dedicated crops rather than waste products turns out to be a net negative for the environment and economically disruptive for food production.  To produce mechanical energy from sunlight it is far more advantageous to erect solar panels or use wind turbines in agriculturally marginal areas, which would occupy far less space, have far lower environmental impact, and produce far more energy.

Unfortunately, in the American heartland, it is difficult, in the absence of renewable electricity policy that is attractive to farmers and higher prices for food crops, to turn away from support for biofuels and the overproduction of corn for that purpose.  While perhaps research may turn up a more sustainable biofuel, a strategy based on biomass production for biofuels other than as a subsidy to farmers is unjustified.  There may in the future be niche uses for some future biofuel process but these will not serve the vast energy demand currently served by oil. A gradual shift to a sustainable agriculture policy that addresses the economic concerns of farmers without continuing our unsustainable corn policy would be the long-term solution.

As an immediate strategy, the policymakers would need simply to slowly back away from biofuel subsidies, while a compelling and well-explained alternative for farmers and farm-belt politicians is developed.

Hurdle #6:  Corporate Funding of and Influence in American Politics

A recurrent theme throughout the last year and half of reform attempts has been the notable influence of incumbent industries and their lobbyists in influencing politicians in Washington of both parties.  While there are many corporations that stand to benefit from an Oil- and Carbon-Independence Plan, these have not yet made common cause and many see their short-term interest in the energy and transport status quo.

The likelihood of formulation and implementation of a plan with the longer term interests of the US in mind, would be greater with corporate money taken out of politics to a very large degree, as then lobbyists would more likely to be seen as advisors and industry representatives rather than represent the co-“employers” of legislators.  This is not to say that there aren’t politicians who bravely stand up now for the long-term view of what is best for the overall American economy.  It can only be hoped that more politicians show this type of courage on a number of policy fronts and, as well, in the service of campaign finance reform.

Are There Any Other Options?

Those who read these recommendations with a jaundiced eye may say:  “You expect too much from government” or “this will never happen”.

My response:  Short of the United States slumping into further energy dependency, accelerated trade deficits, inflation due to spiraling oil prices and accelerated climate change worldwide, what are the other options?

If you have another workable option please share it with me or, better yet, the Administration and the world.

Standing on the side of the fishermen and the wildlife of the Gulf is not an act of excessive and unrealistic belief in human goodness, an underestimation of our energy demand, or an exaggeration of the sensitivity of natural systems.  It is simply the recognition of the unwinding of a model of economic and energy development that has run its course.

Denmark Builds the Renewable Electron Economy: NOW on PBS.org Documentary November 15, 2009

Posted by Michael Hoexter in Energy Policy, Green Transport, Renewable Energy.
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A quick “hats off” to David Brancaccio and NOW on PBS for their well-researched and informative documentary on what Denmark is doing to attain energy independence and get off oil by building a version of the Renewable Electron Economy that is suitable for their resource base.

You can view the 23 minute show here:

http://www.pbs.org/now/shows/544/index.html

This installment of NOW does a great job of connecting Denmark’s historical dependence on other countries for energy and their current drive to build renewable energy and electric vehicle infrastructure.  Denmark is one of the first countries/regions to work together with Better Place’s electric vehicle infrastructure.

While the show does a great job in tracing the policy environment which is unusual for a technology focused story, it does miss that Denmark used a feed-in tariff for wind in the 1990’s to jump-start the Danish industry.

Furthermore, I believe this show should be required viewing for all policymakers who will be attending COP15 or who are currently deliberating about climate legislation in the US Congress, because it is an example of how “things actually get done” in the area of emissions cuts.  There is NO MENTION of cap and trade or emissions trading.  The sole request of the CEO of DONG Energy is that out of COP15 that a (preferably high) price on carbon emerges.

Furthermore, the piece shows the people of Denmark moving quite rapidly (relative to the US at least) towards a much more energy efficient and cleaner energy economy over the past 20 years and into the near future by the application of what might called “Energy (and now Climate) Keynesianism”.  It is no mystery that the Western Europeans have taxed petroleum-derived fuels heavily to, among other uses, build and maintain public transportation.  What the NOW piece shows is that Danish tax policy is designed to relieve congestion, reduce oil dependence, and now to support the growth of renewable energy by bringing in more electric vehicles and therefore more energy storage.

While those readers who are convinced that a “carbon price = cap and trade”  or “carbon policy = cap and trade” will not be persuaded or will miss the signs, what the NOW episode shows that a truly conservative in the best senses of the word climate policy is a “Climate (and Energy) Keynesianism” with an international carbon price that is a dollar/euro/yen/renminbi amount.  We know that we can shape energy use and generation activities by tax policy and by incentives for private development of clean energy generators (feed-in tariffs).  As I have been documenting here in my series on Cap and Trade, we have many very good reasons to doubt with its 12 year history of middling results and expansive bureaucracy that the twisted emissions trading policy will be as effective.  Furthermore it is simply a political end run around the obvious “Climate Keynesian” solution, where government’s and business’s roles are differentiated and validated.   Cap and trade will interfere with or obscure the benefits of Climate Keynesianism.

Cap and Trade: A Tangled Web… A Project-Based Alternative – Part 4 November 5, 2009

Posted by Michael Hoexter in Efficiency/Conservation, Energy Policy, Green Transport, Renewable Energy.
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In the first two parts (part 1 and part 2) of this post, I discussed cap and trade as well-intentioned but a fundamental misapplication of the permit trading policy framework.  I also went on to identify 11 basic elements of any climate policy regardless of instrument.  In the third part, I describe a package of mostly familiar policies that integrated together will have a far more profound effect on emissions that the cap and trade system.  In this, the last part, I offer a second alternative to cap and trade which I believe is the most aggressive and secure approach to cutting emissions, though does not exclude elements of the package in part 3.

Project-Based Carbon Mitigation Policy (PCMP):  A Heterodox Climate Policy Framework

I’ve redesigned an approach that is not entirely new but has been sidelined in current high-level climate and energy policy discussions.  I’m calling it Project-Based Carbon Mitigation Policy– PCMP.  Instead of or in addition to starting with an abstraction like a carbon price, PCMP starts with specific large-scale regional, national or global projects that with greater than 95% probability will cut emissions substantially within the next few years; these projects implement technologies and processes that are known to directly replace fossil fuel use, directly reduce demand for fossil fuel or, with some agreed-upon degree of certainty, sequester carbon emissions. A goal and timeline are set for the reductions based on the implementation of that technology or process then PCMP reverse-engineers the economic and social policies that will enable the project to take place in a timely manner.  PCMP does not exclude nor discourage the use of abstractions like price mechanisms and society-wide or global targets but it starts with the security and relative certainty of projects that are technology- and process-based, supervised by some responsible party or regulator, and funded.   PCMP may end up being a route to a set of policies very much like the Comprehensive policy discussed in Part 3.  A PCMP policy approach also openly acknowledges the role of government leadership in achieving carbon emissions reduction goals, an attitude which has been shunned in recent history in the US and elsewhere.

Viewing projects as the fundamental element of policy also allows necessary supporting infrastructure that facilitate many types of emissions reduction to become the object and focus of high-level climate policy.  Build out of the electric grid and electrification of transport are key to a zero emissions industrial/post-industrial society though, due to the variable carbon intensity of electricity production their exact contribution as separate individual projects cannot be quantified.  A combined approach linking low- or zero-carbon electrical generation with electrification of transport would qualify as PCMP projects.

Carbon mitigation projects based on tested technologies and processes are the only assured means of cutting emissions, along with their supporting infrastructure.  Carbon pricing may influence projects to be initiated but the projects themselves are the primary building blocks of policy.  The focus on what might be called “secondary” or tertiary levels of climate policy has, in my observation, interfered with or at least obscured the importance of these primary on-the-ground projects.

The most directive end of the PCMP project spectrum would be a government program, funded by tax revenue, that uses “command-and-control”  to push through a project that is vital to our ultimate survival as a society implemented either by government contractors or via government employees.  On the other end of the spectrum in terms of directiveness are rulings, changes in tax law, and the institution of technology and process standards that will tweak existing market behavior.  A PCMP project will have a target emissions reduction by a certain date; optimistic goals should be shunned in favor of “worst case” scenarios to ensure that goals are met or exceeded.  Incentives should be aligned for the project leaders, whether they be public or private employees, if they achieve or, better, exceed emissions targets.

Many existing government programs in the area of environmental protection already are project-based policies in that an existing technology, set of technologies or process is chosen for implementation but, to date, not taking the next step to target specific carbon emissions reductions.   In the US, we have a number of house weatherization programs including a grant program for low-income homeowners and rebate programs for other homeowners.   To convert these into PCMP programs, one would need to make specific greenhouse gas mitigation goals and a timeline, tuning the policy instruments to achieve these reductions along the stated time line.  However, the notion behind the PCMP concept is that policies that support one or another project may be generalized to a sector-wide or economy-wide policy or have knock-on effects.  National policies or international agreements would be “reverse-engineered” to support key projects as priorities.

Project-based Policy, Infrastructure and Synergies between Technologies

The building of new infrastructure or its supervision, key to carbon mitigation, almost always falls to government, which undertakes the building of infrastructure on a project by project basis.  The emphasis on market solutions to climate change, which focuses on influencing the decision-making of individual market actors ignores the fact that most infrastructure is built by government planning and programs that anticipate rather than respond to economic demand.  One way to understand the sequence of events in  building infrastructure is perhaps best summarized by the line: “build it and they will come”.   Within this Hollywood formulation, what is captured is the ability of physical infrastructure to create or support markets as well as influence behavior beyond the influence of prices and goods for sale.

The carbon price signal, either the clear carbon tax version or the muddied cap and trade variety, will not by itself initiate the building of new infrastructure in a timely manner, especially if we consider the politically likely (low) level of the carbon price in the next few years.  Even if we look to the history of infrastructure for market behavior shaping infrastructure (“Go West, young man” and the US railroads), in the face of catastrophic climate change we are looking at an accelerated implementation of new infrastructure as replacements for serviceable but polluting infrastructure, requiring a pro-active government role that anticipates rather than responds to trends and price signals.

In addition, basing policy on or limiting policy discussion to carbon pricing alone has been a way to say:  “we don’t know what the solutions will be”.  However, besides ignoring the key role of infrastructure, this is, at this point in history, disingenuous and more importantly time-wasting.  As I have pointed out in two posts I wrote over a year ago, we now have about 24 technologies or processes that together could cut carbon emissions by at least 90%.  These technologies and processes ranged from CSP with storageinternetworked wind powerwith hydroelectric storagetransport electrificationafforestation, to even voluntary (partial) veganism.  Eventually much celebrated technologies like building-integrated photovoltaics will also play a major role.  Other, more “traditional” climate policies that may be established more generally like a carbon price may aid the implementation of a PCMP policy but the combination of a carbon price and PCMP projects will achieve emissions reductions most rapidly.  The project-based approach starts with a core of concrete intended outcomes in the way of realized projects but then welcomes and expects follow-on effects both from the realization of these projects and from the facilitating generalized policies like a carbon tax or fee.

Many of the gains associated with the most powerful of the 24 technologies, with a couple exceptions, are based on synergies between different technologies, not the solo implementation of those technologies.  The impact of electric vehicles on total emissions varies a great deal depending on the type of generation that is used in a particular area of the globe.    A carbon price will help urge this process on but will not of itself incentivize the creation of these synergies.

In renewable electricity generation there are some synergies between technologies, for instance between hydroelectric storage and wind power, which would need to be integrated in a planned manner across numbers of jurisdictions.  These synergies between technologies can only be realized rapidly via integrated resource planning with adequate financing.  Grid operators have already engaged in integrated resource planning anyway throughout the over 100 year history of the electric grid.  Linking this planning with carbon mitigation is a step towards the PCMP policy framework.

Prospective PCMP Projects (US)

PCMP Example #1: CSP with Storage

One of the few standalone, scalable renewable energy technologies that can directly replace fossil electricity generation one-for-one is Concentrating Solar Thermal Electric Power (CSP) with thermal energy storage (TES).  With sufficient transmission and judicious siting, CSP with storage could supply almost all the world’s energy using a small percentage of the area of the world’s deserts.   DESERTEC which is a large CSP investment and policy project for Africa, the Middle East, and Europe, could be configured as a PCMP with specific targets for replacing fossil generation.

The example PCMP project below applying CSP with thermal storage provides close to certainty in emissions reductions and can be accelerated with increased funding.  This contrasts dramatically with the lack of control over emissions under carbon pricing alone inclusive of cap and trade with its false “certainty”.  Effective carbon pricing would catalyze this type of development but would not “cause” it as would a targeted program focused on implementation of the technology.

CSP with TES – American Southwest/West of Mississippi

Region: 6 US States (California, Arizona, Nevada, Utah, New Mexico, Texas) – Replace Energy Production in 19 Western US States.

Emissions Reductions Source: Replace fossil electricity production by specified gas and coal power plants by 241 million MWh/annum by 2020 in the WECC, SPP, MRO and ERCOT grids (50% natural gas/50% coal) without addition of new fossil generation. By 2030 replace 1200 million MWh/annum fossil generation in NERC.

Technology: Concentrating Solar Thermal Electric Power with Storage (Capacity factors from 35% to 70%)  – 50GW installed by 2020, 250 GW installed by 2030 – mean capacity factor >50%.  Formation of CSP industrial base to replace fossil generation.

Target CO2 Emissions reductions from 2007 baseline: 181 million metric tonnes C02/annum by 2020, 905 million metric tonnes CO2/annum by 2030.

Finance mechanisms: guaranteed $.10/kWh rates (inflation adjusted) for 20 years for electricity sales plus $(2 + capacity factor/.25)/W (2010-2013), $(0.5 + capacity factor/.25)/W (2014-2017), $(capacity factor/.50)/W (2018-2020) innovation grant funded through carbon tax/fee (adjusted for the effect of the 30% Investment Tax Credit).  Favorable tax treatment for mothballing and early retirement of fossil generation.

Project Team: US DOE responsible leading industry stakeholder committee (US EPA, Fish and Wildlife, plant developers, utilities, grid operators, state and local political leaders, environmental advocates).

Supporting national and international policies:

  1. Carbon tax/fee facilitates implementation.
  2. Infrastructure: Renewable energy “smart”/supergrid
  3. Guaranteed Rates for Renewable Energy
  4. Contracting with Stakeholders for Greenhouse Gas Reduction Targets
  5. Special Master to Determine Compensation for Retired or Semi-retired Fossil Power Plants
PCMP Example #2:  Combined Renewable Energy Power Plants

A combined renewable power plant connects a diverse set of renewable generators that together produce electricity according to the demands of grid operators and ultimately grid users.  More complex than CSP with storage, this technology is still emerging though simply a matter of organizing existing technologies via smart, renewable-energy oriented transmission network.

Combined Renewable Power Plants – US

Region: All US States (can be generalized to almost any region of the world)

Emissions Reductions Source: Replace fossil electricity production by specified gas and coal power plants by 241 million MWh/annum by 2025 in NERC grids (50% natural gas/50% coal) without addition of new fossil generation. By 2035 replacing 1200 million MWh/annum in NERC.

Technologies: Wind, Solar (CSP, PV), HydroelectricGeothermal, Marine/Wave Energy, Biomass, internetworked generators to load centers, “smart” grid management technologies.

Target CO2 Emissions reductions from 2007 baseline: 181 million metric tonnes C02 by 2025, 905 million metric tonnes CO2 by 2035.

Finance Mechanisms: Bundled wholesale feed-in-tariffs with performance bonuses based on load-responsiveness of combined renewable power plants.  Amount of tariffs as yet undetermined and would vary with renewable resource intensity.

Project Team: US DOE responsible leading industry stakeholder committee (US EPA, Fish and Wildlife, plant developers, utilities, grid operators, state and local political leaders, environmental advocates).

Supporting National and International Policies:

  1. Carbon tax/fee facilitates implementation.
  2. Infrastructure: Renewable energy “smart”/supergrid
  3. Guaranteed rates for renewable energy/feed-in tariffs
  4. Contracting with stakeholders for GHG reduction targets
  5. Special master to determine compensation for retired or semi-retired fossil power plants
PCMP Example #3:  Home Weatherization

The US Department of Energy has a goal of weatherizing over 1 million homes as part of the 2009 American Recovery and Reinvestment Act, a.k.a. the 2009 stimulus package.   This investment of $8 billion dollars is divided between $5 billion for grants via the states to weatherize homes of low-income homeowners and $3 billion dollars for rebates to other homeowners for weatherization upgrades to homes.  The low-income grant program will limit grants to $6500 worth of work per home.

A review of the standard weatherization packages in 2002, indicates that the full package that would cost in the area of $5000-$6500 could cut from up to 7.5 metric tonnes of carbon emissions per year per house in high emissions/high heating demand areas like the Midwest, in particularly inefficient houses.  In areas with lesser heating and cooling demands,  like the Western US, the savings would be maximally 2 tonnes for an inefficient older, small single-family dwelling but the price tag would only be in the order of $2500/home.

However looking at the components of these packages there are certain measures that have much higher carbon reduction return on investment than others, most notably air sealing, programmable thermostat installation, water heater resets, low flow shower heads, and compact fluorescent lighting.  An additional reduced package of these high impact measures would cost from $1000 to $1500 per home leading to emissions reductions of about 2 metric tonnes on average, to as many as 3.4 metric tonnes.  It is possible to design then a “rapid” first-pass program of reducing emissions that would triple or quadruple the number of homes visited per unit expenditure.  Later, a second program could revisit these homes to address the remaining issues like inefficient refrigerators, furnaces, insulation and water heaters that have substantial returns in reducing carbon but are more expensive.

In a few years time, we may have better measures based on among other things passive house technology, which may enable “deep energy retrofits” of existing houses that enable greater energy and emissions cuts with similar or lesser investment.  In these cases, PCMP projects such as this one can revise their targets upwards.

Accelerated Home Weatherization Program with Carbon Targets

Region: All US States (start with high heating/high cooling areas)

Emissions Reductions Source: Reduce domestic combustion of fuel oil, natural gas, reduce domestic demand for electricity, especially at baseload.

Technologies: Building envelope air sealing technologies, insulation, high efficiency fluorescent lamps, refrigerators, water heaters, furnaces, programmable thermostats.

Target CO2 Emissions reductions from 2007 baseline: 60 million metric tonnes by 2020 from 30 million homes, 120 million metric tonnes by 2030 from 60 million homes.

Finance Mechanisms: Tax revenues fund low-income homeowner/renter grants (up to $6500 per home) and consumer rebates for energy efficiency upgrades.

Project Team: US DOE and state weatherization programs, utility officials.

Supporting National and International Policies:

  1. Carbon tax/fee funds and facilitates implementation.
  2. Contracting with stakeholders for greenhouse gas reduction targets
  3. Decoupling investor-owned utility income from energy sales
  4. National and state mandates for energy efficiency
  5. Green building and energy efficiency certifications/standards

A PCMP project once it is approved, organized and financed can move immediately to the generation of detailed design, operational plans and the begin of construction or implementation. The reverse engineering portion comes in figuring out how to get to the point where the technologies or processes can be implemented.  The key difference between a PCMP (aided perhaps by other policies) and a policy that essentially remains entirely agnostic about solutions is that a PCMP adds a stated intention and tasks a skilled project team to achieve a concrete material change in the processes that generate greenhouse gases.  Then policy is built partially around that intention and the project team that is tasked with realizing that intention.

The PCMP approach is I believe the most aggressive and gives those who will be ultimately held responsible for protecting the climate, the world’s governments, maximal ability to accelerate efforts if needed.  To achieve the very ambitious 350 ppm goal and follow  the “Emergency Pathway”, the PCMP approach would have the best chance.

Good Intentions Alone No Longer Suffice

Cap and trade has been a convenient mechanism for politicians to avoid fundamental but necessary conflicts while giving themselves and others the impression that they are “doing something” about climate change.  As the first international climate policy, it has attracted a community of people that have seen it as the sole alternative to inaction, therefore undeservedly has become a magnet for the good intentions of both the uninformed and the somewhat-better informed.  The “cap” is a reassuring physical metaphor that suggests a level of control over emissions which, as I have demonstrated, the policy itself undermines.  As cap and trade appears to address 5 of the 11 domains of climate policy, it is seductive for politicians to try to set up a “one stop shop” as a means to address the climate and energy problem.

However, there are much better policy frameworks out there of which I have shown two examples.  Cap and trade’s fatal ability to insulate the ultimate decision-makers from the process of pushing for emissions cuts on the ground can be avoided in a number of ways.  Above, I demonstrated a project-based policy framework that I called PCMP, which builds policy from the ground up and puts at the center the key role of developing zero-carbon infrastructure in addition to price-based instruments that influence investment and behavior.  Or, in part 3, I showed how  it is possible to implement a nine-part composite of simpler but synergistic policies that is more flexible, will be more effective, and ultimately more comprehensible to the public at large than cap and trade.  Crucially this set of policies does not give away or obfuscate governments’ responsibility to protect society and the environment.

The cap and trade policy is a twisted remnant of a political era in which government was supposed to pretend that it wasn’t really government.  It has fooled no one except some of its supporters.  Government must be decisively and centrally involved in the implementation of carbon policy and there must be a rapid re-discovery of the value of good government in leading society through difficult times.  Furthermore cap and trade as an instrument contains within it an open invitation for corruption and “capture” by powerful financial interests with few incentives to make concrete investments in the energy or land-use future.  Any effective climate policy must establish clear guidelines and openly acknowledge government’s supervisory role in the transition to a new energy economy.  I wish there were more shades of grey in this regard, but there aren’t.

No set of policies is, however, a magic bullet if there is not strong popular support for decisive action on climate and popular acknowledgement of the necessity for government’s leadership role.  As it currently stands in the United States, the public still is woefully misinformed about climate, with for instance, a prominent pair of columnists for the New York Times perpetuating “global cooling” myths in their latest book.  Against this background, climate policy appears to be a partisan affair rather than actions of the human community as broadly defined as possible that are based on our best science.  If cap and trade is presented as the only alternative, this further undermines the cause of climate action and government responsibility because of the fundamental flaws in the policy.  The equation of cap and trade with good intentions on climate action must be irrevocably broken.

Ultimately, political leaders must campaign with passion for the future of our planet and our societies, with empathy for the economically downtrodden and dispirited, informing the public about the alternatives available to minimize the impact of our two century fossil fuel bacchanal.  Within the context of a better informed citizenry, only then can an effective climate and energy policy truly take effect, though the time to start on both campaigns is now.

Cap and Trade: The Tangled Web… A More Effective Alternative – Part 3 November 5, 2009

Posted by Michael Hoexter in Efficiency/Conservation, Energy Policy, Green Building, Green Transport, Sustainable Thinking.
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In Part 1, I offered a critique of cap and trade in its existing implementations  and located key flaws which make it highly unlikely that it will achieve its emissions reduction goals, even if somehow it is strengthened.   In part 2, I highlighted two problematic aspects of cap and trade and then went on to examine what are the fundamental challenges of climate policy.  Then I offered a list of the general features of any effective climate policy.

Turning to positive solutions rather than criticsms, I will offer here two main options, the first one mainstream and the second heterodox and project-based;   both of which are easily configured for quicker and more certain emissions reductions than via cap and trade.

Comprehensive Climate and Energy Policy Package with Carbon Tax/Fee

Climate policy has emerged with a focus on markets and changing market behavior (ignoring infrastructure development to a large degree), so the “mainstream” approach below would also transparently give responsible parties control over the process.  While the “one-stop shop” aspect of cap and trade overextends this already misapplied policy, a package of interacting measures that are, with fairly straightforward calibrations, guaranteed to cut emissions quickly can easily be put together.  The below policy package avoids handing off climate and energy policy to an unaccountable carbon market and invite undue influence by financial traders. It also has the potential to be much more effective than a cap and trade centered policies.  On the other hand it is “market-based” in that it relies on the more accurate carbon tax/fee price signal to shape market behavior rather than cap and trade’s muddy signal.

1)      Emissions-Reduction Path with Targets:  Set an emissions-reduction path with target goal posts (2015, 2020, 2025, etc.):  Not the reassuring “cap” metaphor but an analog to the cap without the false reassurances that it contains.  The target or path could be expressed in terms of an average carbon-intensity for economic activity that yields the same path.  Using a carbon-intensity target allows adjustments to be made so efforts to cut emissions do not shut down industries before they are able to transition to lower carbon alternatives.  I would recommend the “emergency pathway” as defined by Greenhouse Development Rights that uses the 350 parts per million carbon dioxide target, though others may object to its ambitious goals.

2)      Carbon Fee or Tax:  Set a carbon price in the form of a carbon fee or tax fixed but rising year by year that will, according to at first estimates and then experience, reduce emissions along the path.  If the tax does not yield the necessary cuts, increases in the tax/fee levels will be accelerated.  A tax or fee enables companies to calculate the value of carbon emissions and make the actual investments that will cut emissions rather than deal with a broad range of expected carbon permit values, as would result from cap and trade.

  1. Calibration –  A carbon tax would be calibrated to achieve the emissions targets along the path in bullet “1” though overachieving will be encouraged.  If tax levels inflict damage on economic well-being or capacity, tax levels may be reduced, though it is to be expected that there will be periods in which some economic pain will be inflicted by the tax to encourage better economic decision-making and innovation.  Expectations need to be set from the outset that some pain is involved in transitioning to a more sustainable economy, though excessive pain is to be avoided.
  2. Revenue stream – There are arguments among tax/fee advocates (as well as cap and trade advocates for the revenues from permit auctions) about where the revenues should go.  Here are my recommendations:
    1. One third of the carbon tax revenues should be used to dampen the effects of the costs of rising energy prices on the poorest, preferably via energy efficiency upgrades to housing (modeled on weatherization programs).
    2. One third should be used to help fund infrastructure that enables a zero carbon future (electric trains, electric transmission)
    3. One third will go into a international carbon trust which will fund development products, changed agricultural practices, forest maintenance and growth efforts with strict performance standards and baseline assumptions.
  3. Exemptions and Credits – Some argue against any exemptions and credits, seeing a flat tax as simpler.  However, I, as an example, believe taxing certain activities that cut carbon is counterproductive.  Additionally I want to show that it is possible to develop and regulate cross-border certified emissions reduction credits in a tax system if such a credit sub-system ends up being desirable.  I believe however that these necessary accommodations to the complexity of the situation are much more transparent and can lead to more productive dispute resolution than via the arcana of the trading system.
    1. It makes no sense to levy the full carbon tax level on the very infrastructure projects that lead to carbon neutrality.  If a construction project embeds fossil emissions in a zero-emission technology (electrification of a train system, renewable energy infrastructure), then the emissions from construction equipment or concrete making for that project should be at least partially exempt.  Alternatively there could be a percentage exemption depending on the level of carbon reduction achieved (coal to natural gas conversions).
    2. Just as with the current offset market it might be made possible to sell certified emissions-reduction credits that represent emissions reductions in other areas or other countries.  These credits would need to be rigorously certified and limited to only a certain fraction of carbon tax liability.

3) International Agreements – Utilizing existing international institutions, nations around the world can come to agreements on both monetary fees for carbon emissions and overall emissions reduction targets.  The addition of a monetary amount will force action by governments and businesses more rapidly than the abstractions of the carbon market. Agreements will focus on:

  1. Worldwide Emissions Targets and Path
  2. International Carbon Price(s) – Calibrated to achieving emissions targets, the international carbon price will be closer to actual microeconomic decision-making than permit pricing system of cap and trade. Choices are either a unitary price or a development-adjusted price depending on level of development.  Some countries may be more “entitled” to pollute given their lesser historical contribution to total atmospheric concentrations of carbon.  On the other hand, despite an “entitlement” to pollute more, some developing countries may want to go “cold turkey” and use the higher carbon tariff of the developed countries to spur sustainable development at home.
  3. Carbon tariff regime – with differential taxation in different countries, countries would levy tariffs upon importation either up to the amount of the unitary international carbon price or up to the amount of the development-adjusted carbon price.  While this contradicts “free trade” orthodoxy, under an international agreement there should be no problem in levying this type of tariff.  The WTO can be outfitted to handle disputes and generating agreements carbon tariffs and integrating climate policy with trade.
  4. International Standards and Best Practices –  Agreement on standards, certifications, and grading systems for energy efficiency and low emissions technologies (see below)

4)     Zero-Carbon Infrastructure Development– While the Obama Administration has embarked on pieces of this, a full-scale climate policy would front-load spending, including deficit spending, on building zero-carbon infrastructure and energy generation.  The main source of funding would come from tax revenues and use fees.  This area is largely neglected by the cap and trade instrument.

  1. Renewable Energy Supergrids and regional grids –  Link high renewable energy areas with demand centers via development of a HVDC and where appropriate high voltage AC transmission.
  2. Renewable Energy Zones –  Expedite environmental impact studies for high value renewable energy zones with strong sun, wind, geothermal resouces.
  3. Feed-in-Tariffs – Funding of private, community and household investment in renewable energy generators via clean energy surcharges to electric bills.
  4. Electric Freight Transport System
    1. Grade-separate and improve existing freight railbeds
    2. Add additional tracks to high traffic railbeds to allow more rail freight
    3. Electrify all high and moderate traffic rail routes
  5. Electric Passenger Transport System
    1. Build high speed rail backbone
    2. Enable improved track-sharing between freight and passenger traffic for lower-traffic routes.
    3. Build electrified bus and tram routes in high density/high-traffic city environments.
  6. Electric Vehicle Recharge Infrastructure
    1. Trickle charge (220V and lower) public charge network
    2. Battery-swap infrastructure
    3. Fast-charge (480V and higher) public charge network

5)      Best Practices, Certifications, Standards and Rulemaking–  Develop for most economic sectors, a set of best practices and standards that are based on cutting emissions as well as other elements of sustainable development (conservation of the earth’s natural wealth).  Standards would be either voluntary or mandatory depending on the level of imposed costs of meeting these standards by market participants and the existence of alternatives to meet the overall goals of the standards.  Rigorous standards like the passive house standard should be encouraged as well as graded standards that represent a “path” to carbon neutral solutions.  In certain vital areas, standards may be come laws to rule out certain practices that are simply unacceptable.  An example of the latter could be a moratorium on new coal power plants.

6)      International Afforestation Program –  Using revenue streams from carbon fees and tariffs, generate local solutions to maintaining living biomass.  Carbon taxes or other disincentives may be levied on activities that release excess carbon into the atmosphere.

7)      International Agricultural Carbon Sequestration Program –  Using revenue streams from carbon fees, incentivize low-emission, high sequestration variants of agriculture and food practices.  In the future, once a baseline for carbon sequestration may be achieved, carbon taxes may be levied on high emission forms of agriculture.

8)      Black Carbon Reduction Program – One of the more tractable climate problems though still a challenge is to introduce existing emissions control technology or develop alternatives to combustion of hydrocarbons and biomass that produce soot or black carbon.  We already have  most of the technology to limit soot emissions from internal combustion engines and factories.  More challenging is coming up with culturally-acceptable solutions for cooking with wood in less developed countries.

9)      International Technical and Scientific Cooperation – Create the equivalent of an international energy and climate research fund that supplements the work being done on national levels towards specific technical solutions to emissions.  Could develop in conjunction with IPCC WG III.  One area of research should be emergency measures like geo-engineering.

If adopted as a package, the above measures address all 11 generic elements of carbon policy and have none of the 10 drawbacks of cap and trade.  This approach transparently identifies governments as the responsible parties for reducing carbon emissions.   This comprehensive climate and energy policy does not interfere with their ability to respond to changing climate circumstances and removes unaccountable financial markets from the core of climate policy.

Carbon Pricing is Just One Piece of the Puzzle: Towards a Comprehensive Climate and Energy Policy – Part 5 (of 5) February 26, 2009

Posted by Michael Hoexter in Efficiency/Conservation, Energy Policy, Green Activism, Green Building, Renewable Energy, Sustainable Thinking.
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In the first three parts of this long piece (one, two, three), I outlined how our economic common sense has changed since the economic crisis of late 2008; monetarism/supply-side economics has given way to some newer version of Keynesianism.  I went on to claim that a primary focus on carbon pricing shows traces of the idealized vision of the market that one finds in the “free market” schools of economics; climate activists have pinned most of their hopes on carbon pricing to remedy the singular catastrophic market failure of unaccounted-for carbon emissions.  In part 4, I pointed out that there are two other important market failures which block effective action on climate in the US and elsewhere.  We then have the following list of market failures that are relevant to climate and energy policy:

  1. Externalization of costs of climate change attributable to carbon emissions
  2. Externalization of costs of infrastructure building and maintenance and high fixed capital costs of long-term private capital investment
    1. Deployment of capital intensive clean energy technologies
    2. Coordination of management and finance of upgrades to electric grid.
    3. Re-design and electrification of transport infrastructure
  3. Externalization of costs of scientific research and development

Outline of a Comprehensive Climate and Energy Policy

A comprehensive climate and energy policy is motivated by the emerging crisis in our climate, as we are rapidly approaching tipping points in the self-regulatory processes of our climate system.  Significant melting of Arctic and Antarctic ice sheets will increase the absorption of the sun's radiation and spur further warming.

A comprehensive climate and energy policy is motivated by the emerging crisis in our climate, as fossil carbon in the atmosphere is unbalancing the self-regulatory processes of the climate system. Significant melting of Arctic and Antarctic ice sheets will increase the absorption of the sun's radiation and spur further warming.

A comprehensive climate and energy policy can allow for differentiated roles for national states, regional and local governments, and for private businesses and individuals with differing potential contributions to reducing carbon emissions and building a 21st century sustainable economy.  Thus a view of economies as not just a uniform collection of individual actors responding to a pricing regime makes the picture more complex but also potentially more effective.

Assumptions

  1. A reversal in emissions trends is necessary within the next 5 years
  2. Sharp reductions in emissions are necessary within the next 10 years
  3. A “glide path” to zero net emissions needs to be entered into within the next 3 years, there is no time for commitment to new long-lasting infrastructure with incremental reductions.
  4. The US and the world population are generally not yet ready to pay anything more than a fraction of the externalized cost of current carbon emissions.
  5. Uncertainties and changes in economic theory and assumptions require an examination of the degree to which climate policy contains disputed assumptions about economic behavior change and investment behavior.
  6. Government policy and leaders have a key role in addressing failures of the market to respond to challenges both internal to and external to the market.
  7. Costs and benefits of government policies and expenditures must be adequately explained and accounted for by policymakers and political leaders.
  8. The economically stimulative effects and benefits of a comprehensive policy will either match or exceed its net costs for the United States, involving outlays and revenues in the area of several trillion dollars over the period of a decade.


“Traditional” Regulation (partially addresses “Market Failure 1”)

The power sector is particularly used to and suited to traditional regulation as the building and maintenance of power plants is highly regulated in almost every country in the world.  The private companies that operate power plants and utilities see regulation and regulators as just one cost and part of their business.

The power sector is particularly used to and suited to traditional regulation as the building and maintenance of power plants is highly regulated in almost every country in the world. New regulations are sometimes feared and resisted but enough pressure and negotiation can make most rules effective in ways that are more difficult in other economic sectors.

If governments can and at times must take a leadership role in managing the economy, they can do so in part by imposing laws that are in our long-term benefit.   Especially if ample consideration is made of the resulting costs and administrative overhead required to implement laws and new rules, these new rules can remove long-standing barriers to making progress in the area of energy, energy efficiency and climate protections.

We have seen that carbon pricing was proposed as a means of avoiding some of the supposed bureaucratic drawbacks of traditional regulation.  As it turns out in the case of sulphur dioxide that traditional regulation that dictated the installation of emissions scrubbers was, in some countries, more effective than the US cap and trade system in reducing acid rain pollution.  In addition to a fascination with a particular partial economic model, relying on carbon pricing alone might be simply an abdication of the authority of government in the face of resistance by industry.  Sometimes leaders need to “put their foot down”, if there is an overwhelming case to be made for new rules made and administered wisely.

  1. Coal Plant Moratorium – The primary regulation that must be a part of a comprehensive climate and energy policy is a moratorium on new coal-fired power plants without carbon capture and sequestration.  If power utilities find this onerous, they must lobby for regulations and subsidies that make this possible for them on all levels of their businesses.  There is no time to wait for the erection of a carbon pricing system to “suggest” that this should happen through an array of artfully calibrated disincentives.
  2. Utility Revenue Decoupling – An additional key regulation that is often overlooked is decoupling the revenues of investor-owned power utilities from the amount of energy sales, which is the regulatory regime in California.  This allows power utilities to participate in energy efficiency projects as it carries with it a fairly significant financial incentive for them to cut energy use by end users as they receive higher power rates the subsequent year from the public utilities commission if they have achieved their goals.
  3. National Building Codes that Meet or Exceed California Title 24 – California has led the nation in energy efficiency requirements for new buildings and renovations with its Title 24 standard.  A much more ambitious standard that would require a revolution in the home construction and renovation industry in the US would be to adopt the passive house standard in which space conditioning costs are slashed by 80 to 90%.  Additionally “smart codes” may help urban planners and developers site and build buildings and communities with lower total energy requirements by developing “in-fill”.
  4. National Renewable Electricity Standard (as Target) –  The adoption of a percentage minimum renewable energy for the national electric grid– is productive as long as it is
    1. ambitious (25% or greater by 2020),
    2. paired with substantial finance support for renewable energy,
    3. a rising percentage of renewable energy projects are built as replacements for fossil resources (dispatchable or synchronous with power demand)
    4. is pro-rated based on renewable resource base per region thereby balancing risk between regions dependent on their resource wealth.
  5. This "passive house" in not so sunny Germany uses high performance windows, very tight construction, super-insulation, and a ventilation system that keeps interior air fresh without losing much heat or cool.  Sunlight, heat from appliances, and people keep these houses warm on all but the coldest days and cool in the summer.  Using passive houses in the US would slash heating and cooling costs by 80% or more.

    This "passive house" in Germany uses high performance windows, very tight construction, super-insulation, and a high-throughput ventilation system that keeps indoor air fresh without the need for much re-heating or re-cooling. Sunlight, heat from appliances, and people keep these houses warm on all but the coldest days and shading, insulation and the ventilation system keeps out hot air in the summer. Building or renovating homes and commercial buildings to passive house standards in the US would slash heating and cooling costs by 80% or more.

    National Energy Efficiency Standards – Utilities and government can be mandated to cut energy use by an aggressive percentage per 4 year period (10-15%).  As in California, a portion of electric rates collected can be used to pay for a portion of the efficiency upgrades in the form of rebates.   Additionally the Energy Star program and minimum efficiency standards for hard goods should be expanded and made more aggressive. A carbon price can hasten the implementation of an efficiency standard by raising the price of energy.

  6. Aggressive Auto Efficiency Standard (CAFE) – Without high fuel prices, auto efficiency standards are difficult to impose as buyers tend to demand larger, less efficient vehicles.  Still, an efficiency standard can create targets based on engineering best practices that may help automakers plan their auto line as well as function as a public expression of intent.

From a position of government authority but responsiveness about the imposed costs and implementation path, governments can generate new direct regulations that may be as effective or more effective than existing instruments.  If we believe that government has a regulatory role in financial markets, it makes sense to consider how effective rule-making by the government has in the past and can continue to spur economic progress in the area of energy.

Effective Carbon Pricing (partially addresses “Market Failure 1”)

If we take away the expectation that carbon pricing will across the board address all key issues related to a future looking carbon policy, we can more easily define the parameters that would make a carbon pricing system effective.  A carbon pricing model assumes a market of independent actors who have choices to make as to how to structure their business and private lives, which the price will influence to emit less carbon.  Secondarily, depending on a still unfinished political process, the collected revenues may either function to displace other taxes, return a dividend or finance clean energy projects.  The following then should be criteria by which the effectiveness of a carbon pricing policy should be judged (all carbon pricing systems will not qualify for every criterion):

  1. Noticeably effects the price of fossil energy, carbon intensive products, carbon emitting activities and land-use practices whether in or outside the current market.  Must inflict some economic “pain” in its first edition in order to be effective and this pain has to have information value for market participants.
  2. Through this pricing. increases the desirability of lower or non-carbon emitting activities and products
  3. Enables effective choice of a broadening category of lower carbon alternatives on economic grounds alone
  4. Signals a will to curb carbon emissions among the leadership, and additionally inspiring voluntary “above and beyond” cuts in carbon emissions.
  5. Creates a competition between carbon emitters to emit less than their peers.
  6. Generates a revenue stream and incentive structure for allowing movement towards or maintenance of carbon sequestering land use practices
  7. Enables an international trade in or regulation of trade of carbon equivalents
  8. Would dampen or eliminate price volatility in the carbon price to enable effective investment planning on the basis of the carbon price and/or the revenues generated therefrom.
  9. Progressively raises carbon price in a planned sequence to exert pressure for further emissions cuts.
  10. Creates or energizes the market for carbon-emissions reducing innovations, spurring research and development.
  11. Is directly adjustable by regulators/legislators to enable the system to learn from experience.
  12. Is not so onerous to the taxpayers/consumers that it becomes politically vulnerable (this is partly a function of public outreach about the link between climate change, carbon pricing, and economic development as well as design of the system)

Carbon Pricing Instruments

At a House Ways and Means committee hearing earlier today, the options associated with carbon pricing instruments were not fully laid out for lawmakers to review the interlocking parts and options available.  The packages that were presented were “cap and investment” and “tax and dividend”…these are not the only options, policymakers can mix and match depending on how they weight the above criteria.

Pricing Determination and Administration

  1. Carbon Tax

    Grover Norquist, inspired by Ronald Reagan, is one of the main anti-tax activists in the United States.  Attitudes about the value and meaning of taxation have a had profound impact on the formulation of climate policies, including the selection of an instrument to administer the carbon price.

    Grover Norquist, inspired by Ronald Reagan, is one of the most influential anti-tax activists in the United States. Attitudes about the value and meaning of taxation have a had profound impact on the formulation of climate policies, including the selection of an instrument to administer the carbon price. The success of libertarians like Norquist in branding taxation as an almost total loss to individuals and their wealth has until recently been almost total.

  2. Cap and Trade – There are many variations to cap and trade — it is an exceedingly complex instrument and outlining all permutations goes beyond the scope of this analysis.
    1. Full Auction of Permits
    2. Partial Auction/Partial give-away
    3. Full give-away of permits (no price)
  3. “Hybrid” Cap and Trade (Price Ceiling and Floor for Permits) – a hybrid of a cap and trade and a carbon tax stabilizing the carbon price in a range.

The selection of the carbon price administration mechanism will emerge from political negotiations between the different interest groups involved.

Revenue Distribution

Any of the above instruments can be mated with any combination of the below mechanisms to distribute the revenue from either permit auctions or tax collection.  There is no inherent relationship of the carbon tax or the cap and trade systems with any particular means to use the resulting funds collected.

  1. Carbon-Emissions Mitigating Investment – devotes the proceeds of the program to emissions reduction
  2. Partial or Complete Dividend – attempts to soften the effect of rising energy and goods prices by returning revenue on a per capita basis
  3. Displacement of other Taxes/Revenue Streams – phasing out a payroll or other taxes by using carbon revenues.
  4. Need-based Dividend or Investment – focal efforts to soften the impact of carbon pricing by either a dividend mechanism or targeted investment in energy efficiency for the neediest.

The selection of the distribution mechanism has everything to do with the political design of the ultimate carbon pricing program and how it is introduced to voters and consumers.  The potential complexity of both the resulting instrument and the process by which we will arrive there makes reliance only on carbon pricing a politically risky maneuver for people who are concerned about protecting the climate.

Design, Fund, Incentivize Zero- and Lower Carbon Infrastructure and Fixed Capital Investment (Addresses Market Failure “2”)

While it would have been preferable for governments to have engaged in a full scale “countercyclical” policy of collecting tax revenue during the boom years of the last few decades to reduce debt, we are now facing a period in which it is “do or die” for economies to stimulate demand, restructure their financial systems, and halt the slide into a Global Great Depression II.  Engaging in deficit spending to build or expand existing infrastructure to halt rising carbon emissions is a worthwhile cause to risk future inflation for current and mid-term economic and environmental benefits.  Some private capital may be organized to build some of this infrastructure but with significant

The Obama Administration's stimulus package has already found a "shovel-ready" renewable energy infrastructure project in building out the transmission system of the federally owned Bonneville Power Administration to serve new wind farms in the Northwest.  Bonneville is one of a number of federal agencies that already own transmission leading from the system of federally owned dams in the West.  The National Unified Smart Grid will in all probability be partly federally owned and part privately owned.

The Obama Administration's stimulus package has already found a "shovel-ready" renewable energy infrastructure project in building out the transmission system of the federally owned Bonneville Power Administration to serve new wind farms in the Northwest. Bonneville is one of a number of federal agencies that already own transmission leading from the system of federally owned dams in the West. Bonneville's transmission system will most probably form part of the basis of the National Unified Smart Grid, which in all probability will be part government owned and partly owned by private investors.

Different countries and regions have different infrastructure needs but for the US the following projects would add value to communities as well as represent a significant economic stimulus.   China is currently pushing ahead with a much more aggressive infrastructure program than the US, including rail building.  The selection of projects should be based on transparent criteria that include both needs assessment and short, medium and long-term cost/benefit analysis:

  1. Build an electrified passenger and freight rail network for the US
    1. Create a national rail plan that allows efficient co-mingling of freight and passenger rail along existing and new, non-HSR rail lines
    2. Grade separate existing rail lines (with multiple positive externalities associated) in high traffic areas.
    3. Build a high speed rail (HSR) network along high traffic corridors
  2. Incentivize and create the regulatory structures to build a National Unified Smart Grid to link renewable energy zones to demand centers; most likely there will be a mixture of public and private ownership of transmission.
  3. Incentivize the building of renewable electric generators through secure, premium wholesale electricity rates (Renewable Energy Payments).
  4. Rebate and tax credit incentives for energy efficiency upgrades to existing buildings.
  5. Incentivize the building of clean energy storage through incentivizing non-fossil grid ancillary services.
  6. While preserving or extending existing levels of mass transit service, electrify high traffic bus routes.
  7. Incentivize building of electric vehicle fast charge and trickle charge networks in cooperation with municipalities and utilities.

Increase funding for Clean Energy Research and Development (addresses Market Failure 3)

While the federal government has continued to fund clean energy research even through the Bush Administration, an increase in funding for research into renewable energy technologies, clean energy storage, sustainable biofuel alternatives, and cleaner, more efficient nuclear technologies are important to see if we can “leapfrog” existing technologies or reduce costs in the building of clean energy infrastructure.   Some have suggested budgets ranging from $3 billion to as much as $40 billion per year as a means of expanding scientific exploration, creativity and innovation in the area of clean energy.   If there is a reasonable chance that an innovation can open a new source of clean energy or increase the efficiency or cost-effectiveness of existing options, we should not hesitate to pursue it.  On the other hand, oversight over these budgets should keep the focus on what can pay off within the next ten to fifteen years.

The Principle of Non-Perfectability

While very simple systems may reach something called “perfection”, complex systems, including living things, social and economic systems, and the earth’s climate will never be “perfected”.  The advocates of self-regulating markets tended to treat markets as a “pure” or perfect social institution.   In chronicling so many market failures and needed programs to remedy them, I am not suggesting that policy will “perfect” the market or be able to completely address these market failures.

Purpose of a Comprehensive Policy

The purpose of this piece is to outline what a revised, reality-based economic and political framework for understanding both the course of previous energy and climate policy and the trajectory for effective future policy will look like.  The lore of a self-sufficient, self-regulating market put policymakers and clean energy advocates on the defensive and narrowed the focus largely to transforming the actions of individual market actors.  In response, efforts were made to “perfect” the market through a carbon price.  If we are to create a reality-based set of policy instruments we have to face facts both about the nature of economic models and the physical realities on which they are supposed to act.  I am supportive of the Repower America program, but feel it does not fill out enough the actual mechanisms by which it would achieve its ambitious goals, therefore the proposed framework.  A comprehensive climate and energy policy addresses both flaws in systemic functioning and problems of incentives and disincentives that cause individual market actors to continue to ignore the very serious consequences of anthropogenic warming.

“Picking Winners”: Policy Blunder or Necessity? December 12, 2008

Posted by Michael Hoexter in Energy Policy, Green Transport, Renewable Energy, Sustainable Thinking.
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Governor Schwarzenegger and the California Air Resources Board once publicly supported hydrogen, "picking a winner".  The current California Low Carbon Fuel Standard would avoid the appearance of doing such but would not speed the focused building of either a public electric quick-charge nor another post-petroleum fueling network.

Governor Schwarzenegger and the California Air Resources Board once publicly supported building a Hydrogen Highway, "picking a winner". The current California Low Carbon Fuel Standard (LCFS) would avoid the appearance of favoritism, despite a history of direct support for hydrogen. Advocates of plug-in electric vehicles believe that the merits of EVs warrant government support for a public quick-charge infrastructure, that would not necessarily be the outcome of the LCFS.

Listening to Science Friday on PBS recently, there was an interesting exchange between Dan Sperling, an influential member of the the California Air Resources Board (CARB) and Professor at the University of California at Davis, and Sherry Boschert, Vice President of the EV advocacy group, Plug In America.  Sperling has been known to advocate hydrogen fuel cell programs at the California state level, a stance that has historically had the backing of Detroit automakers until very recently.  Boschert and Plug-In America have been highly critical of the degree to which CARB has supported hydrogen to the detriment of battery-electric cars (BEVs) or other plug-ins (which includes EREV or PHEVs as well).   This is a version of the conflict that became part of the influential documentary “Who Killed the Electric Car”.

While Sperling in this exchange was presenting himself as an advocate of “electric drive transportation”, he mentioned a number of times hydrogen fuel cell vehicles (HFCV), which use an on-board hydrogen fuel cell to generate electricity for an electric motor to drive the wheels (a.k.a. electric drive).  Boschert pointed out that HFCV option has been used to delay and stymie efforts to deploy the much “readier” technology of plug-in battery electric vehicles for the last ten years in California and therefore around the nation.  The essence of this accusation, also popularized by the “Who Killed..” film, is that policy support and advocacy of HFCV’s blocks the implementation of any clean fuel vehicles short and medium term as HFCV technology is always ten years away from commercialization.  Boschert advocates a positive support policy for battery electric vehicles, like an embrace of public charging infrastructure for EVs by municipalities and state governments.

Sperling, though he claimed not to be opposed to supporting government EV programs, said that you didn’t want to “pick winners” in the technology derby to replace petroleum, citing the apparent disaster of corn ethanol.  Boschert countered that winners were always being picked, pointing out that HFCVs were funded by government and industry to far higher levels than battery research and battery electric vehicles.  She suggested that short of a government sponsored BEV roll-out program that there should be equal research funding for HFCVs and BEVs, though the first option was the preference of Plug-In America.

Efforts NOT to Pick Winners

The UN's climate change efforts, continued at the Bali Conference in 2007 and now at Poznan, has centered around a the market-like cap and trade system.  This is an effort, following the economic vogue of the 1990's for government to act as referee but not to pick winning technological solutions to climate change.

The UN's climate change effort, continued at the Bali Conference in 2007 and now at Poznan, has centered around a the market-like cap and trade system. This is an effort, following the economic vogue of the 1990's for government to act as referee but not to pick winning technological solutions to climate change.

In California’s debates around a number of pioneering pieces of clean energy and climate legislation and regulation, the notion of “picking winners” comes up on a regular basis as an unquestioned taboo for any measure or program.  When in a discussion, someone suggests that policy be used to promote one technology or initiative and someone else in the room opposes that technology or the type of support, the accusation that one would be “picking winners” is thrown at the advocates of a prescriptive policy.  While California has many technology specific support programs, there are also important central pieces of climate and energy regulation that are designed not to “pick winners”.  The Assembly Bill 32, (AB 32) process which is California’s Global Warming Act of 2006, has almost inevitably gravitated towards a cap and trade system, which as is the Kyoto process, an effort not to pre-determine the price of carbon, nor commit California to a particular set of technological solutions to global warming.  Accompanying this process, the CARB is also working on a “Low-Carbon Fuel Standard” (LCFS) which tries to group all reduced-carbon fuels for transport together, including electricity, mandating certain reductions in carbon content occur regardless of which fuel is discussed.  Again, no “winning” fuel is picked in the LCFS.

Designers of these policies feel they are reducing government involvement to its intent while removing arbitrary rules and decisions from the process.  In theory, the idea of “not picking winners” sounds great but, as in all things, between the conception and the realization reality intrudes.

The Theory: Government as Referee

The most influential economist of the past four decades has been Milton Friedman, who did not even believe that government would referee the marketplace.  Friedman, in the tradition of von Hayek, believed that the only legitimate role that government had was to defend the nation, protect private property and regulate the money supply.

The most influential economist of the past three decades has been the late Milton Friedman, who moved the economic profession away from advocacy of government regulation or involvement in the economy. Friedman, in the tradition of von Hayek, believed that the only legitimate role that government had was to defend the nation, protect private property and regulate the money supply, therefore his "monetarist" label.

The economic profession and economic modeling in business settings are right now at a watershed moment, where those individuals and theories which foreshadowed the precipitous downturn of the last few months are given a great deal more credence than the orthodoxy of only a few months ago.  In this period of flux, it is reasonable to think that some old assumptions may no longer hold water, at least during the period of crisis if not thereafter.

In the last three decades, economic policy and influential parts of the economics profession have tended to hold up the ideal of an almost entirely unsupervised market, where individual and corporate economic choices in aggregate would dictate the direction of economic life.  Expressing a belief in the individual or corporation as consumer and entrepreneur, these supply side or libertarian economic theorists believed that only unregulated market forces arrive at the optimal outcome.  By contrast, government is considered by advocates of this approach to be necessarily a hindrance to economic success and growth.  This view has remained largely unchallenged in both the Democratic and Republican parties until the recent financial system near-collapse and sharp economic downturn.

While the ideal of self-regulating markets has inhibited efforts at regulation in many areas of the economy, not everybody gave up on regulation even in the heyday of this ideal.  In those environments where regulation has been accepted as a necessary evil or even a desirable economic tool, there have been attempts to incorporate the ideal of the market into economic policies.  In California, which has a history of state-level energy regulation that has continued through the last few decades, policies that interfere less in the market are considered more desirable than those that dictate to private businesses what should happen.  The latter is termed “command and control”, which sounds less desirable than a “market-based” regulation scheme.

In the ideal market-based regulation, legislators, regulators, and the government executive branch develop rules that express a desired social outcome in its broadest, most abstract form and then allow private actors to try to fulfill those desired social aims in any (legal) way they can.  In the case of a cap and trade system, the notion is that the intended goal is a set amount of global warming gas emissions that will be reduced in subsequent years.  The auction system for pollution permits is the means by which businesses acquire permits to emit a certain amount of greenhouse gases.  When there are no more permits, the business can no longer pollute or face harsh fines.  As another example, California’s Low Carbon Fuel Standard, the amount of carbon in the fuel is regulated but there is no selection of which fuel is necessarily or potentially that with the lowest carbon content.

So in a market-based regulatory system, once the rules have been set in place, the government acts as a referee, enforcing the rules but otherwise allowing market actors to make their decisions within the constraints of the system.  In the case of cap and trade, there are two levels of market mechanisms built in:  one is through the bidding on pollution permits and the other is allowing businesses and individuals to figure out by themselves how they are going to reduce their carbon emissions.  The competing carbon tax concept is not an “un-market-based” solution though it removes the first level of market mechanisms as compared to cap and trade, instead allowing businesses and individuals to figure out on their own how they are going to avoid emitting carbon and therefore paying more carbon taxes.  So cap-and-trade is doubly market-based, while a carbon tax would be a more conventional regulation where government determines a social goal and shapes the market through a disincentive.

The Other Theory: Prescriptive Policies, a.k.a. “Picking Winners”

The history of nuclear power is very closely entwined with the intentions of government leaders and officials to demonstrate the peaceful uses of atomic power.  The further development of nuclear energy and the management of its legacy will continue to require strict government oversight and direct government funding.

The history of nuclear power is very closely entwined with the intentions of government leaders and officials to demonstrate the peaceful uses of atomic power. The further development of nuclear energy and the management of its legacy will continue to require strict government oversight and direct government funding.

While there is no hard and fast line between the market-based and a prescriptive policy, there are many policies in the area of energy where government expressedly prohibits or promotes one activity/technology or another.  The longstanding US tradition of research funding for particular energy technologies is, in a way “picking winners” though the federal government has tried to spread this funding around to some extent.  In the area of lighting, for instance, certain inefficient fixtures (probe-start metal halides) will be prohibited by the US DOE for sale as new fixtures as the first of January.  The criticism by Sherry Boschert of hydrogen policy holds true:  hydrogen fuel cells have received inordinate funding in comparison to battery technology, an imbalance that historically has had the support of Detroit automakers.   Biofuel mandates in combination with the enormous subsidies for corn production and corn ethanol are prescriptive policies.

While to a self-regulating market theorist prescriptive government policies are always inefficient and, adding some rhetorical inflation, “disasters waiting to happen”, defenders of a prescriptive policy would counter that scientists and political leaders reflecting scientific and common wisdom have found that one solution is, along one or more desirable dimensions, better or substantially worse than others.  Cigarette smoking was found to cause cancer.  You didn’t wait until individual effected people discovered that they were getting sick and dying sooner if they had smoked:  government put in laws that make the sale of tobacco more difficult and mandate public warnings of smoking’s hazards.  There was a statistical relationship between smoking and cancer which market actors alone could not perceive, especially given the socially reinforcing and addictive nature of smoking.  In lighting, probe-start metal halides use more energy than pulse-start metal halides or linear fluorescents for the same light output:  this black and white finding by engineers led to an eventual step-wise ban on the sale of probe-start fixtures.

A prescriptive policy then depends on scientific knowledge to determine, before the market can discover the difference, that one course of action is more helpful than another course of action.  The trust in scientific knowledge is key for most prescriptive policies, though prescriptive policies could also rest on the consensus of political leadership or polls and perceptions of popular sentiment.  It is no wonder that declines in the authority that people attribute to scientists in the US has led to a drift away from prescriptive policies, at least in the public presentation of policy actions.  Despite the diminished prestige of science in the US pantheon of values over the past few decades, the US government is the largest funder of scientific research in the world and also, still continues to operationalize that knowledge when it comes to implementing policy.

Beyond Prescription:  Government Sponsorship

The Tennessee Valley Authority was an New Deal economic stimulus plan for the Southeast which involved the building of, among other things, hydroelectric dams on a number of rivers in the region.  Still operated by the federal government, the TVA through fossil, nuclear and hydroelectric plants sells power to local private utilities and industrial power customers.

The Tennessee Valley Authority was an New Deal economic stimulus plan for the Southeast which involved the building of, among other things, hydroelectric dams on a number of rivers in the region. Still operated by the federal government, the TVA through fossil, nuclear and hydroelectric plants sells power to local private utilities and industrial power customers.

A “stronger” version of a prescriptive policy is one in which the government not only prescribes a particular solution but pays in part or in full for the realization of that prescription via taxpayer dollars.  The proposed economic stimulus packages including the much-discussed Green New Deal ideas, would be government sponsored programs by definition.  Bailouts of or support packages for individual firms or industries are government sponsored prescriptions for how the economy should remain or change in the future.  Public education is a prescriptive policy that is also government sponsored:  not only should children be educated but taxes will provide the means by which they can be educated.   Most highly industrialized countries outside of the United States have more government sponsored programs than the US, particularly in the area of social welfare.  By contrast, the US government has sponsored a very large, expensive, and technologically sophisticated military relative to other countries.

In the area of energy and transport, a government sponsored program could range from a rebate program for electric vehicle purchase to as large as the building of new power plants like the Hoover Dam or TVA projects or a system of long-distance power transmission lines for renewable energy.   These facilities could either be managed by the government as part of a public power authority or be sold off to private investors to manage.  Tax credits for oil and gas exploration or renewable energy projects are also a form of government sponsorship as to pay for these credits, taxes need to be levied or programs cut in other areas.  In any case, government sponsorship contradicts even more the ideals of advocates of the self-regulating market in the tradition of Friedrich von Hayek and Milton Friedman, as government would have a hand in setting prices or enlarge its role as a provider of services.

Real Dangers of Picking Winners

Corn ethanol is now almost universally recognized as a "false" winner, that had many powerful political friends but little scientific basis for support.  Leaving aside the ethical issues of having fuel compete with food production, most scientific studies have shown that the production of ethanol from corn only nets at most 30% more energy than is input in the process.  Furthermore intense water and soil usage contribute to its overall negative picture as a fuel for mechanical devices.

Corn ethanol is now almost universally recognized as a "false" winner, that had many powerful political friends but little scientific basis for support. Leaving aside the ethical issues of having fuel compete with food production, most scientific studies have shown that the production of ethanol from corn only nets at most 30% more energy than is input in the process. Furthermore water usage and soil nutrient depletion involved in growing the corn contribute to its overall negative picture as a fuel for mechanical devices.

While in tone this piece would seem to be critical of the categorical rejection of “picking winners’,  there are some real dangers in picking winners, especially when the process is itself wrapped in an ideology of doing the opposite, i.e. NOT picking winners.  The list below are potential real dangers of picking winners keeping in mind that these are not nearly the exclusive property of this decision making system; other forms of decision making including more market-based ones share some of these drawbacks.

1)    Corruption – Picking winners if done non-transparently and without full attention to democratic principles can lead to and/or be the product of corruption.  Picking winners involves collaboration between government and industries or professions that can shade into collusion if not pursued in a deliberate fashion with full public justification.  Bribes in various direct and indirect forms can influence the selection process.

2)    “False” Winners –  Picking winners can lead to a self-justifying selection of a technology or system that ends up being of lower quality and service than another option.  Corn ethanol, with only hope and little scientific justification, became a false winner.

3)    Economic Inefficiency – As per “2”, the government or other authority that is vested with the power to pick the winner could pick a technology or system without regard for the ultimate costs of implementing that technology.  Government officials may have no mechanisms that hold them responsible for cost overruns or other inefficiencies.  The potential for inefficiency may need to be balanced against the desirability of the goal.

4)    Lack of Accountability – related to “1” and “3”, the selection of winners may occur in ways in which those who make the decisions do not experience the effects of those decisions.   Government officials, representing the people of the US, may not be able to be held individually responsible in some circumstances.

5)    Foreclosure of future technological developments – picking a winner can narrow the market opening or close it entirely for an emerging or future technology that may turn out to be superior.  Monopolistic or oligopolistic control of markets can have the same effect.

6)    Decision-making without scientific backing – A winning technology or system may be selected without access to or utilization of the best scientific knowledge available; as we shall see below the success of “picking winners” is heavily dependent on high quality science.

7)    Decision-making without Socratic wisdom – Decision makers may feel empowered without knowing what they don’t know.  Without knowing where and to what degree they are ignorant allows decisions to be made that may ultimately be short-sighted.

8)    Arrogant self-justification – in a further development of “7” decision makers may attribute to themselves the cloak of infallibility or may downgrade the wisdom and perspective of those who are outside their coterie.  These attitudes may spring from the privilege of being able to make crucial decisions in combination with a wealth of information and resources at their disposal.

9) Economic and Political Despotism – the worst case scenario upon which much criticism of state-led policies are based, is that “picking winners” is the leading edge of authoritarianism.   Despite the tendency recently in our politics to dwell on this worst outcome, government initiative in the economy does not NECESSARILY lead to despotism as we have seen with the New Deal, WWII mobilization, the Marshall Plan, the Interstate Highway System, etc.

As we shall see below, these dangers are not necessarily an ultimate condemnation of all efforts to pick winners.

Infrastructure as Prescription

Republican President Dwight Eisenhower, building on the precedent of the New Deal and the WWII mobilization, initiated the biggest public infrastructure program in American history, the Federal Aid Highway Act of 1956.  The resulting Interstate highway system has underlain much of the economic growth of the last 4 decades though has also contributed to suburban sprawl and dependence upon the automobile.

Republican President Dwight Eisenhower, building on the precedent of the New Deal and the WWII mobilization, initiated the biggest public infrastructure program in American history, the Federal Aid Highway Act of 1956. At the time, the use of tax dollars to support a government infrastructure plan was relatively uncontroversial. The resulting Interstate highway system has supported much of the economic growth of the last 5 decades though has also contributed to suburban sprawl and dependence upon the automobile.

While the ideal of the self-regulating market can be helpful in describing how consumer choice shapes truly competitive markets, a strict adherence to this ideal leaves a gap in our understanding of how energy and transportation infrastructure gets built.  Infrastructure is a good or service that underlies basic social functioning as well as the use of other goods and services.  “Infra” means “under” and infrastructure does in general support a variety of other structures or institutions that are more visible to us.  Elements of infrastructure are usually a means to other ends. In most cases, to build competing pieces of infrastructure is economically inefficient, as the label is usually applied to physically large objects linked together into a large system.  There are also only a few actors that have the resources to build infrastructure, most notably governments and some very large corporations that often operate in markets that tend towards monopoly or oligopoly. Infrastructure then tends to be a natural monopoly, either being managed entirely by the government or highly regulated by the government to prevent private companies from exercising monopoly power over consumers.  People in advanced industrialized societies have come to view a functioning infrastructure as a (free per use) entitlement or at least a relatively affordable service that operates in the background.

A mixture of social and natural scientific analysis plus educated guesswork by a few leaders in the public and private sectors is involved in planning, proposing and building infrastructure.  Likely demand for a new or existing technology is estimated and then plans are made for the necessary infrastructure to be built.  Sometimes at some point in this process, a bond measure or other financing instrument is submitted either to a legislative body, a corporate board or stockholders meeting, or to the electorate for approval, thereby engaging in a democratic or deliberative process.  As deliberative or democratic as one or another stage of the process may be,  many potential competing infrastructure concepts are not placed into a market-like competition, a process for which we have no precedent and would seem to be prohibitively time-consuming and expensive.

Financing can be arranged either through the issuance of bonds or for infrastructure built by the private sector, stock offerings may be employed.  In the end, a “prescription” for what the society needs is devised that it is difficult to shape through the iterations of consumer buying behavior that is the ideal case for a competitive market.   Once infrastructure is being built, market actors then often devise their own plans to take advantage of the new or improved infrastructure (new housing developments, businesses etc.).  The market then accommodates itself to and/or exploits the infrastructure which has been justified based on sound engineering, transport and urban planning principles.

The route of the now California voter approved high speed rail line from San Diego to Sacramento/San Francisco has been largely determined by geography and settlement patterns.  The ultimate choice of how to link the three population centers of the Bay Area to the trunk line in the Central Valley has not yet been determined.

The route of the now California voter-approved high speed rail line from San Diego to Sacramento/San Francisco has been largely determined through an analysis of geography and settlement patterns. The ultimate choice of how to link the three major cities of the Bay Area to the main line in the Central Valley has not yet been determined.

Recently there were two large public transit infrastructure project proposals that won electoral approval in California:  a San Diego to Sacramento high speed rail project and an extension of the popular BART system south from San Francisco and Oakland to San Jose.  In a society committed to life after petroleum, reducing GHG emissions, and de-congesting the roadways, it made sense to the planners and then to a majority of the voters to provide more electric passenger rail lines for both long distance and local use.  In the extension of the BART, one can project that transit-oriented residential and commercial development will be built around the new stops of this16 mile commuter rail extension.

In terms of the current discussion, in each of the California measures, a “winner” proposal was picked by a coalition of political leaders, campaign funders and transit planners and then submitted for approval to the electorate.  While there was no market competition between different alternative infrastructures, there were opponents of each of the plans that sometimes backed up their opposition with alternative ideas in various stages of elaboration and detail.  Ultimately, it is assumed that if leaders and experts put together a compelling proposal that appears to serve voter/human needs that the infrastructure project will be “good enough”.  The process of putting together a marketplace of these ideas and proposals would for both the producers of the proposals and the consumers of these proposals represent many multiples more of effort and money in just the initial stages of the projects.  To build infrastructure often requires that an operational concept of “need” be available rather than simply see infrastructure concepts as a competition of “wants” or desires, as is typical in market competition.

It would then seem that in the world of infrastructure projects, a prescriptive approach has advantages over experiments in building a market ideal or competition between proposals.  Perhaps through improved cybergovernment initiatives a more interactive proposal generation process could be designed, yet this more democratic approach is not identical to the real-world interactive nature of markets where real products and services are offered and chosen among by consumers.  Then, there may very well be something in the nature of infrastructure projects, their uniqueness, site-specificity, high expense and long duration that lends itself to leader-driven and prescriptive decision making, even as certain aspects of that process can take into account the preferences of the end users.  The changing whims and trends of markets operate on a different timeframe than persisting on over a period of  a decade or more building immense physical objects and systems.

Advantages of Prescription/Picking Winners

Here then are some of the advantages of prescriptive or government sponsored programs:

1)    Potential for rapid implementation – There are fewer stops between design and construction start if a winner has been picked.  If there is a clearcut winner why take additional steps?

2)    Potential to be oriented towards long-term viability – local, more immediate economic concerns can be balanced against any number of different factors that may represent a longer view of social value than voters or consumers can typically calculate at the voting booth or turnstile.

3)    Expense of generating multiple proposals short-circuited – In addition to time costs, there are monetary costs to generating multiple ideas for submittal to the public or to regulatory boards.

4)    Potential to be based more directly on scientific findings – As considerations of a market-based competition can be, at least in the design, avoided, more elements of scientific understanding that have no bearing on current market concerns can be considered.  Scientific findings may at times stand counter to wishes of a consumer market, as with smoking cessation or beyond the current perception of market actors, like global warming.

5)    Government can insure higher risks – with some massive earthworks and higher risk technologies government endorsement and insurance is an absolute necessity.

6)    Government can use directive policies – Some infrastructure projects require the use of public lands or eminent domain.  While there have been questions lately that notions of the public good can play a role in economic life, government and its representation of the popular will or sentiment can more legitimately represent these wishes than private corporations.

7)    Integration of varying technologies – a prescription can contain as few or as many elements as needed to fulfill the mission.  The interdependence of different technologies and roles can be contained within the infrastructure plan.

8)    Multi-factor Systemic approach – diverse factors or organizations can be added or subtracted from a prescription, externalities can be internalized and vice versa.

9)  Concrete expressions of intent – The hand of the market or the setting of abstract rules, such as those that limit emissions, do not concretize popular sentiment or support as much as the building of physical objects.

For those who are committed to an economic model that sees good coming only from the interaction of independent economic actors, the above advantages will pale in comparison to the previously listed dangers of picking winners.  However, in building infrastructure, there seems to be no way to avoid risking those dangers if we want to arrive at the physical outcomes that increasing numbers of analysts are saying are necessities.
Integrated Energy and Stimulus Plans:  Unthinkable without “Picking Winners”

Project Better Place, a Palo Alto based electric vehicle infrastructure start-up, hopes to increase the use of electric vehicles by creating a public quick-charge and battery exchange infrastructure.  Concomitant with its ambitions, this small firm must court large automakers like Renault and Nissan and governments like Hawaii or Israel to help build the appropriate vehicles and stationary infrastructure.

Project Better Place, a Palo Alto based electric vehicle infrastructure start-up, hopes to increase the use of electric vehicles by creating an integrated public quick-charge and battery exchange infrastructure. To realize its ambitions, this small firm's designs need to be selected by major industrial corporations and governments. So far, PBP has developed agreements with Renault and Nissan and Israel, Denmark and Hawaii.

The Repower America plan might be called an “integrated energy and economic stimulus plan”.  The similar proposal I have been putting forth over the past year or so, the Renewable Electron Economy, based on the engineering analysis of Ulf Bossel, that we should shift most of our energy demand to electrical devices and use renewable energy as much as possible to generate electricity is another example.  In an integrated energy plan, the general types of energy conversion devices are prescribed as are the types of energy extracting or generating devices, so there is an integrated match:  if you are proposing an “electron economy”, you want to make sure that there will be a coordinated hand-off between the demand for electricity and its supply.  Electricity, as it is difficult to store, requires a more tightly integrated system than the trade in and consumption of the stable molecules that compose fossil fuels.

The call for planning has come from a number of political quarters.  T. Boone Pickens, not previously known as advocate of economic planning, has recently promoted that the US develop a plan to get off foreign oil, bemoaning, in passing, the lack of such planning over the past 3 decades.  Pickens’ plan serves his economic bets on particular technologies but he has been public-spirited enough to suggest that planning itself was necessary and lacking in our political discourse. Plans can also emerge independent of government involvement: manufacturers of electric cars are now considering creating a standard high voltage quick-charge interface for their cars, so that all quick-charge capable vehicles will be able to use a future standard high-voltage charger.  This is analogous to standardizing the size of the aperture of fuel nozzles and gas tank mouths. In getting together on a standard, the manufacturers are picking a winner.

The Repower America plan is largely, in the terminology I use, a renewable electron economy plan.  Its ambitious goal of converting the US electrical energy supply entirely over to clean sources within a period of 10 years leaves little room for experimenting with different high-level physical or policy instrument designs.  For one, deciding that electricity should be the clean energy carrier of choice is “picking a winner”, though it is based on a growing consensus of engineers, advocates and experts on energy. Furthermore, reflecting a growing consensus, the plan suggests that there are some clear winners in the area of clean generation technology that should immediately receive government and industry support:  wind, solar thermal with storage, and geothermal energy, along with sufficient transmission infrastructure to integrate these into the existing grid.  Additionally, and in this technology choice is left more open, 28% of energy demand will be reduced through the adoption by end users of energy efficient technologies.  Along with the Repower America plan, Al Gore has supported a carbon tax yet, I believe, he has no illusions that this tax alone can drive the building of the infrastructure required to achieve the Repower America goal.

Renewable Energy Payments:  Prescribed Markets

One accusation leveled at the now ever more widely implemented feed-in-tariffs a.k.a. Renewable Energy Payments that support renewable energy is that they “pick winners”.  This is partially true in the sense of picking a broad category of clean energy technology but not true in the sense of picking individual private firms as winners.  A renewable energy payment system, like that proposed by Rep. Jay Inslee or like those now in use in many European countries, sets wholesale prices for renewable generators of a wide variety of types and sizes.  The idea is to provide investment security for builders of renewable generators that we know will generate a certain amount of clean electricity: the guaranteed wholesale, generally above current electricity market, price per kWh allows the builders to recover their investment plus a reasonable profit.  The system of cost plus reasonable profit is used frequently in the construction industry when large scale one-of-a kind projects are commissioned for a particular buyer.

The designers of renewable energy payment systems counter claims that they are not competitive or market based by pointing out that they displace competition from the deployment of generators to the manufacture of generation technologies.  In a feed in tariff system, project developers want to purchase generators that will maximize their profit, so the intended effect will be to drive the cost of renewable generators down.  A renewable energy payment system then picks certain technologies as winners but not the actual implementation of those technologies by different manufacturers. Feed in tariffs can be justified in economic terms as a prescription of payments by the consuming public for a positive externality; carbon pricing is a payment by emitters to the public for a negative externality.

A renewable energy payment system could be designed that drives the implementation of a plan like Repower America.  In this case payments would reward the building of some of the wind, solar thermal and geothermal generators required by offering higher tariffs for the desired generators.  Thus a prescriptive plan can contain within it markets for the technologies prescribed.  The infrastructure of the Unified National Smart Grid can provide a framework for multiple smaller markets for building generators and generating electricity.

Exercising Leadership with or without Carbon Pricing

If we know what is “right” in a scientific sense, given a certain goal and the constraints of reality, why not proceed to do it with necessary but deliberate haste in consultation with popular representatives?  If we are facing a potentially very deep economic crisis and are largely convinced that infrastructure projects can function as fiscal stimuli, why not charge ahead?  The aversion to “picking winners” that we have developed over the preceding three decades would seem to say:  “no, find a regulatory framework within which profit-driven economic actors will discover that there is a market for something like this and build something like it”.  The focus on carbon pricing schemes as the main motive force in transforming our economy is one more example of our aversion over the last few decades to government and to a lesser extent corporations taking a leadership role.  We, luckily or unluckily, may be at a watershed moment where leadership is now desired or even highly prized.

Carbon pricing schemes, whether cap and trade or a carbon tax, attempt to circumvent the process by which government actors and leaders in the economy would take responsibility for building large projects.  Instead they could say:  “the cap and trade system or carbon tax made me do it”.   While having an ingenious policy framework which compels actors to act both in their long-term and short-term good is desirable, it is highly unlikely that such a system will by itself initiate and finance the building of all the Repower America/Renewable Electron Economy infrastructure we will need.

To embark on a path, such as building a Repower America-like clean energy infrastructure, will require leadership, a quality that is much praised but in its actual manifestations is often controversial.  To build a Unified National Smart Grid, for instance, will require leaders or a leader, perhaps President-elect Obama, to explain to congress and the American people why we should build this piece of infrastructure now.  This also means taking responsibility for both the “upside” of this large project (jobs created, energy independence, climate protection, new technologies) and the “downside” (costs, use in certain areas of eminent domain, appearance of electrical transmission towers).  Too often, advocates of complex policy instruments seem to want their policy instrument to remove all of the ambiguities and ambivalences associated with the leadership role.

Likewise, a renewable energy payment (REP) system will require political leaders and electrical grid regulators to commit themselves to support renewable energy generators like wind turbines, solar thermal electric power plants in the desert, and photovoltaic installations on the ground and on rooftops.  Not only would the institution of such a system attempt to benefit from the virtuous appearance of clean renewable energy generators but also offer direct financial support to those generators via guaranteed and premium wholesale electrical rates.  While many support schemes sidestep the price of renewable energy by using indirect means like tax credits or carbon pricing, the REP systems name the prices and therefore require leadership to be exercised by declaring in public both the benefits and the costs of clean energy.

As recent announcements by President-elect Obama suggest, we have reason to hope that our next President will grasp the opportunity to lead the building of the necessary infrastructure we need to emerge from this economic crisis and to meet the challenges of the 21st century.

A Green New Deal for Detroit (and Beyond) November 9, 2008

Posted by Michael Hoexter in Energy Policy, Green Transport.
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4 comments
The Renaissance Center, GMs headquarters, has come to symbolize the modern Detroit skyline.  In parallel with the decline of the American auto industry, the surrounding city has suffered blight and only modest redevelopment in very limited areas.

The Renaissance Center, GM's headquarters, has come to symbolize the modern Detroit skyline. Detroit and much of the industrial Midwest has been in decline for four decades (the "Rust Belt") but would experience a dramatic blow with the sudden collapse of one of Detroit's Big Three automakers.

Now as the Big Three American automakers are teetering on the brink, is the time for the government to provide direction to an industry that has lacked a decisive winning strategy and forward-looking product plans over the past decade, if not decades.  Currently, the Big Three and the UAW are looking for stopgap measures to keep substantial pension and healthcare obligations from upending their business as well as shore up their overall financial picture.  If one of these companies were to close its doors, millions of jobs would be lost and the retiree benefits system for tens of thousands would be endangered.   We will leave to one side here, the problems of a health care system that links benefits with employment status.

Yet the troubles of the car industry are largely of its own making.  For years, engineering and design prowess, whether in creating exciting cars that lead the industry in aesthetic appeal and useful features or leading in alternative fuels and energy efficiency, has taken a backseat in Detroit to playing to a limited set of consumer interests that positioned the Big Three in few narrow market segments.  Most troublingly, Detroit has, despite 35 years of experience with them, no workable plan to deal with oil shocks, let alone climate change and sustainability;  the commitment to highly profitable SUVs was a brief party built on the unusually low oil prices of the 1990’s.   Wall Street’s expectations for ever growing profits and increased quarterly earnings also combined lethally with Detroit’s scorn for fuel efficiency and less optimistic views of oil supplies.

President Franklin Delano Roosevelt helped pull the US out of the deepest and longest recession in its history through the New Deal.  More and more commentators are calling for a Green New Deal to help pull nations effected by the current crisis out of the economic slump.

President Franklin Delano Roosevelt helped pull the US out of the deepest and longest recession in its history through the New Deal. More and more commentators are calling for a "Green New Deal" to help pull nations affected by the current crisis out of the economic slump via a massive clean energy infrastructure project.

Now, again, Detroit is seeking respite from the federal government from its lack of foresight and leadership in the automotive industry since the 1973 oil shock.  As part of this deal, despite the lamentable example of the bank and Wall Street bailout, Detroit cannot simply be a recipient of aid without a change in strategic direction.  Too late for the current immediate crisis, GM’s Volt project and the E-flex platform are future-looking projects with bottom line impacts at the earliest in 2010.  So this is a teachable moment for these industrial behemoths, one where deep insight into the future of energy and our civilization can inform the creation of new technologies.

A Bridge between the Present and the Future

While producing advanced clean-fuel (electric and hybrid) private and commercial vehicles that can compete on the private market is the end goal for every established and emerging vehicle maker, the Detroit Big Three are going to need time to hone their abilities in a changed market.  Congress can help give direction to Detroit by tasking the automakers to help build the vehicles and infrastructure for a clean, largely electric transport infrastructure.   The below measures will not alone rescue these giants but can provide a revenue stream and keep product development on course as more immediate solutions are found with conventional vehicles

1) Electric Postal Vehicles

  • A fleet order to switch all local delivery vehicles (less than 100 mile daily duty cycle) to battery electric vehicles can be extended competitively to each of the big Three with a guaranteed minimum order and minimum price floor but competition for 40% of the remaining order.   Included in orders for these vehicles would be a 480 volt charge infrastructure.

2)  Electric Government Service Vehicle Order and Subsidies for Local Goverments

  • Federal government should order battery electric government service vehicles for local use and subsidize the purchase of service vehicles for state and municipal government use

3)  Trolleybus and Dual-mode electric bus subsidies for public transit authorities

  • The most efficient way for public transit agencies and municipalities to transition from imported fossil fuels is on most high traffic routes to electrify those routes and use either dedicated trolleybuses or hybrid dual mode trolley and fossil fuel powered buses on routes where it is not yet economical to build out catenary overhead wires.

4)  Solid-Oxide Fuel Cell Electric Vehicle Program

  • In coordination with the Department of Energy, Detroit manufacturers can develop flex-fuel vehicles with double the efficiency of ordinary internal combustion engines.  Current flex fuel technology is cheap and requires little federal support; with the next generation, efficiencies of 55% (as opposed to 25-30%) or greater are possible using fossil, bio-, or synthetic fuels.  Solid-Oxide fuel cell technology allows liquid fuels to be converted to electricity within a vehicle without the inefficiencies and infrastructure requirements of the much hyped hydrogen PEM fuel cell option.

5)  Fleet order for PHEVs for 100-400 mile Per Day Federal Vehicles

  • PHEVs are a flexible solution for vehicles with longer range requirements or a smaller form factor than local delivery vans and small trucks.  A fleet order for the Volt and other PHEVs could help manufacturers build out these programs.  Pre-payment for some orders may help

6) Bridge low-interest loans and support for smaller manufacturers of efficient vehicles

  • The US government can indicate to the big Three that while much of the brand equity and marketing presence of US auto manufacturing is currently associated with them, that vital innovation comes from smaller manufacturers like Tesla and Aptera.  Government help should not preserve in stone the privileges of large corporations that may need to make room for upstarts with better ideas and better execution.


Is there enough political support for electric transport?

My prefered climate and energy solution is the Renewable Electron Economy, a sustainable solution that depends largely on existing or emerging technology to replace exhaustible and climate-altering transport and energy systems.  In the renewable electron economy, most on-land transport vehicles use electric motors as traction and store energy in a battery, tap into the grid directly, or use a variety of range-extenders to match our current 400 mile driving range expectations.  While some politicians and technology analysts share my vision or the broad outlines of my analysis,  there are powerful interests which support liquid fuel options, in particular biofuels.  While a sustainable biofuel solution may be on the way, vehicle manufacturers do not need much help in converting vehicles to run on biofuels, which by their nature are similar in many regards to liquid fossil fuels.  Building a flex fuel vehicle adds at most a few hundred dollars to the cost of a vehicle.  Within this proposal, solid oxide fuel cell electric vehicles provide a way that a, future, sustainable biofuel solution can provide more utility to vehicle users by extending the number of miles traveled on biofuels by doubling fuel system/powertrain efficiency.  So, this Green New Deal for Detroit will position American automakers to be competitive in, if not lead in a transportation world where energy storage takes the form of either advanced batteries or liquid bio- or syn-fuels.

Solid-oxide fuel cell vehicles and PHEVs can also run on fossil fuels which will be around for a while, despite even very vigorous efforts to build a electric transport infrastructure.

When can the first of these vehicles be delivered?

Postal delivery vehicles with their bulky form factor and limited range requirements are perfect for introducing battery electric vehicle technology on a mass scale.  In the late 1990s Baker Electromotive cooperated with Ford on this electric postal delivery van.

Postal delivery vehicles with their bulky form factor and limited range requirements are perfect for introducing battery electric vehicle technology on a mass scale. In the late 1990's Baker Electromotive cooperated with Ford on this electric postal delivery van.

Automakers will not make money if they cannot deliver vehicles.  Short and medium-range battery electric vehicles for the post office and other fleets can be built very rapidly as conversions of existing vehicles.  If Detroit were to retool quickly, the first of these vehicles, using lead acid batteries, could be ready for delivery within a year.

How can Industry “outsiders” know better than industry “insiders”?

How can government officials and analysts tell the leaders of private companies what to do?  Well, since 1973, in between the profitable years, the Detroit automakers have returned to Washington again and again for special consideration from “outsiders” as well as to defeat reasonable laws to increase the fuel efficiency of vehicles.  Now they must regret at least some of their actions, especially with the sudden collapse of demand for large, fuel-inefficient vehicles.  “Insiders” can often lose sight of the big picture, especially in an industry in which large commitments of time and money are made with very long product cycles (group think can take over as a form of self-justification).  Aesthetic decisions are melded with technological decisions leading to difficulties in disambiguating problems with one or the other aspect of a product or product line.  Furthermore, the auto industry’s power center in Michigan is at some remove from other centers of power, requiring steady infusions of creativity from outside.  Of course, insiders will have a more granular knowledge of their industry but, it seems with the American car manufacturers, seeing the forest for the trees is a major challenge.

Will Detroit and the automakers listen?

Detroit once led the world in industrial assembly technology and industrial relations.  Fords Model T Assembly Plant was notable not only for the techniques it used to make autos but also for the high wages paid its workers.

Detroit once led the world in industrial assembly technology and industrial relations. Ford's Model T Assembly Plant was notable not only for the techniques it used to make autos but also for the high wages paid its workers.

The US automakers have been largely beaten at their own game by foreign manufacturers with the financial crisis providing the final push.  Given their current position, they now should take seriously input from any well-intentioned and well-informed party.  They have in the last few years taken some small strides towards improving the quality of their products and GM has, with the Volt, come up with a genuinely good idea with an interesting design and promise for the 2nd decade of the 21st century.  More importantly now they are asking the American people and the government for support despite having largely failed as profit-making businesses.  In exchange for that support, they should take the interests of the American people to heart and move beyond their traditional point of view to one that sees the shape of things to come.  Just because the TARP plan has in its initial form been a giveaway program doesn’t mean that a stimulus package for Detroit, nor future stimuli for banking, not come with strings attached.

Furthermore, in this plan, the federal government and state and city governments will be the industry’s paying customers for new technologies and vehicles.  The Big Three would be foolish not to listen to their customers because, as these plans should be structured, the resulting products will need to fulfill functional and quality requirements, even with the guarantee that eventually the government agencies will take delivery of these products.  These orders are not acts of charity but a commitment to America’s and, we hope, the American auto industry’s, future.


Beyond Detroit…(how about San Jose?)

While a bailout of Detroit is a form of special consideration for the three still-giant American automakers, they should be reminded that beyond this crisis that other companies may well take their places in the pantheon of great American companies.  Tesla Motors, for instance, has laid off workers and is delaying the production timeline for its second model (to be built in San Jose) because of the credit crisis.  In a bailout of Detroit, other American vehicle makers impacted by the financial crisis should recieve consideration as they may well represent the future of the American auto industry.  So with aid, the Big Three automakers should also receive a message that this may very well be the last time that they receive special consideration from government, as newer kids on the block may be able to do the job better in the future.

The (Renewable) Electron Economy as the Solution to the Oil Crisis: A Summary for Policymakers – I August 4, 2008

Posted by Michael Hoexter in Efficiency/Conservation, Energy Policy, Green Transport, Sustainable Thinking.
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6 comments
Lines formed at gas stations during the 1973 OPEC oil embargo

Lines formed at gas stations during the 1973 OPEC oil embargo. In the near future, rationing is more likely to take the form of high prices rather than through limits on consumption.

This is the first in a short series on how we can build an energy future based on our best science and no longer critically dependent upon exhaustible and polluting fossil fuels.

Too often, discussions of our future energy system simply reflect the current array of political forces in Washington or the novelty-hungry attention of the media and not the long-term viability of technologies and proposed solutions. As the price of oil is the most pressing issue from a short-term perspective, I am starting this series of policy briefs with how the energy used in transport on land can be transferred from liquid fossil fuels to cleanly generated electricity; in the second part I will address how we can create the conditions for powering the grid in the post-fossil fuel era.

Oil Supply: Speculation and Long-Term Trends

We can all now agree that it has been the ultimate in shortsightedness to continue building a society founded upon burning ever increasing amounts of easily exhaustible resources. Not only is it highly visible petroleum at the pump but, behind the scenes, the vital energy for agriculture and freight transport that now depend upon the output of oil wells, mostly located abroad. In the US in particular, we have had a twenty-five year hiatus in facing this reality through political, cultural and corporate resistance to change, which means that Americans are starting the race far behind the starting line. In addition, as it turns out, the burning of these fossil resources alters the global climate and creates local pollution and health problems. There are other ills and challenges in our world but currently fossil fuel addiction is one of the most pressing but also, fortunately, soluble problems.

Open Outcry Futures Trading

Talk of a speculative bubble in oil is a distraction from the fundamental reality of a widening gap between increasing transport energy demand and static or dwindling supply of liquid hydrocarbons. Those who put their faith in speculation as the driver of punitively high oil prices come from two divergent camps. Some are wedded to the energy status quo by a conservative, jaded view of energy alternatives and function as defenders of the fossil fuel energy industry establishment (the business commentator Larry Kudlow comes to mind). A more surprising group are populists and left-leaning analysts who always use the formula “qui bono” (who benefits) to locate the responsible parties for any social ill. These critics of oil companies and oil sheiks continue to promote the illusion of an endlessly abundant and forgiving Nature, which is despoiled not by our combined global thirst for energy but solely by a thin layer of greedy profiteers, who can be punished or pushed aside thereby making the problem go away. We can safely expect oil to continue to climb in price even if we are now currently in a period where emotions have driven prices higher than actual supplies would warrant as some continue to profit from the price run-up.

Beyond speculation, suggestions that we can drill and refine our way out of the inevitable decline of oil that we have known for a long time to be in finite supply anyway, function as populist pandering or as short-term profit-maximizing calculus by parts of the oil industry. Members of the latter group, in a profits-over-ethics mode, would like us to continue to depend on oil as long as it is profitable for oil producers, which will be the case until a fundamental break with petroleum use in transportation is organized; obviously scarcer but more expensive oil will continue to be a cash cow unless a new post-oil transport system has been built. There is fundamental conflict between backward-looking portions of the petroleum industry and the general health of our economy and environment, a conflict which must be decisively resolved by policymakers and the voting and buying public in favor of new, cleaner energy sources in the next few years.

On the other hand, realistically, oil production and supply will need to remain a concern for a few more decades, yielding a very delicate but extremely important political challenge. On the political side, Republican Presidential candidate John McCain has relied on common wishes that more domestic oil production through offshore drilling will somehow eliminate or significantly soften the inevitable price spiral upward. Such drilling will only have an impact 10 years hence at a point when worldwide demand will have still further outstripped supply and prices will be in a comparative sense stratospheric. Not quite drawing a clear political front on this issue, Barack Obama has lately been attempting to accommodate the popular appeal of offshore drilling by suggesting that new drilling would support energy alternatives.

Oilman T. Boone Pickens has become a fan of natural gas and wind

Oilman T. Boone Pickens has turned his attention to natural gas and wind

Natural gas with its lower carbon dioxide emissions per unit energy is occasionally touted as an “alternative” fuel but it too can easily be exhausted; in fact, production in natural gas wells tapers off very rapidly as compared to its solid and liquid fossil brethren, making price spikes and shortages all the more likely in a turn to natural gas. The stock-picker Jim Cramer praises natural gas as an investment and T. Boone Pickens, in his new heavily marketed energy plan, trumpets it as an automotive fuel, as we are sure to use more of this dwindling lower-carbon resource, but it is not a sustainable alternative to oil. Relying on natural gas as a climate or energy solution is the modern definition of a Faustian bargain: highly profitable for some but costly for most economic sectors, our society as a whole and our atmosphere.

Differentiating Short-Term and Long-Term Solutions

This is one of my fathers favorite jokes

Depending on oil has discouraged planning in the area of energy and transportation.

The impulse to jump on the natural gas or intensified oil exploration bandwagons will distract policymakers by confusing short-term and longer-term solutions. Fluctuations in supply of these hydrocarbons may create a temporary plateau in prices but no enduring relief. In the short-term, within the next two or three years, steps can be taken to ameliorate what may be, in the energy and transport areas, a grim period. It is here that I part company with some of the doom-and-gloom predictions about economic collapse that originate from some Peak Oil enthusiasts. While I agree with some of the more pessimistic predictions about oil and natural gas supply and pricing, there are short-term, rapidly deployable solutions at least for passenger travel and some freight that will soften the blow.

Effective short-term solutions include

  1. Fiscal support for intensified operations by existing public transport – Federal and state governments will need to help local and regional transit agencies to increase their schedules to serve more riders without raising ticket prices substantially.
  2. Development of Internet- and cellphone-based ride sharing businesses and services. Local development of van-pooling services also enabled by Internet and cellphone-networks.
  3. Development of transport centers or nodes for public transit and ride sharing with municipal and regional oversight to increase efficiency and security.
  4. Opening of lanes of local streets to lower speed vehicles including neighborhood electric vehicles, scooters and bicycles.
  5. Designating space or facilities in buses and trains for small freight hand trucks and bicycles.
  6. Development of transport demand study tools using the Internet to fine-tune and coordinate transport policy and new transportation businesses

These solutions will not provide the same level of spur-of- the-moment convenience as we might find in the recently past era of cheap fossil fuels and widespread personal vehicle ownership. The transport of medium and larger quantities of freight will also require more capital intensive, longer-term solutions. Nor will these short-term solutions provide the same utility of future innovations in electric vehicles and an EV public and quick-charging infrastructure. Some, used to traveling in their own personal space, will not avail themselves of these stopgap options until they feel more economic pain through still higher gas prices.

The Five Transport Energy Solutions and One Imperative

There are five fundamental options to move into a post-oil, post-natural gas energy world and one imperative:

  • Imperative A: End-Use Energy Efficiency and Conservation. We will have to invest less in new energy supply if we get more from the energy we use (efficiency) as well as act and plan in a way that recognizes the limited nature of natural resources (conservation). The electron economy scenarios have the greatest potential for end-use energy efficiency. The short-term measures above will also increase efficiency.
  1. The Renewable Electron Economy: electric vehicles, stationary devices, and new electric transport infrastructure powered by electric generators using renewable energy and the associated energy storage challenge.
  2. The Nuclear Electron Economy: electric vehicles, stationary devices, and new electric transport infrastructure powered by electric generators using nuclear energy (with or without fuel reprocessing), with associated security risks, waste and dependence upon fissionable fuel supply.
  3. The Coal CCS Electron Economy: electric vehicles, devices and new electric transport infrastructure powered by electric generators using coal with carbon capture and sequestration, a technological “maybe” dependent upon coal supply.
  4. The Coal to Liquid (CTL) Transport Economy: converting coal to liquids (sometimes via the Fischer-Tropsch process), burned in internal combustion engines leading to climate disaster and resource exhaustion.
  5. The Biofuel Transport Economy: Aggressive expansion of unregulated biofuel production for land transport will almost certainly lead to ecological and social disaster. Biofuels, sustainably produced, especially from wastes, will have a niche in aviation and marine propulsion.

Sub-option for Solutions 1, 2 and 3: The Hydrogen Economy is parasitic on the Electron Economies, reducing net usable energy by two-thirds for the purpose of having a compact liquid/gaseous fuel extracted by energy-consuming electrolysis. A Hydrogen Economy therefore requires a 2 to 3 fold increase in the amount of and therefore the capital investment in the required clean electric infrastructure to support renewably produced hydrogen. (There are currently even more expensive renewable ways to extract hydrogen from water using very high concentrations of sunlight that do not use electricity as an intermediary).

Any of these five transport energy supply solutions will be made much more feasible if aggressive end-use efficiency measures are pursued in parallel; therefore the imperative of energy efficiency.

Narrowing the Field

To simplify matters, we can eliminate options “4” and “5” as the costs of climate, ecological, and social disaster outweigh the benefits of a supply of liquid fuel that is not petroleum-based. Analyses that only consider liquid fuels divert the debate , intentionally or unknowingly, from more promising solutions; it is astounding how some commentators can discuss these options as if a continued supply of liquid fuel for transport was somehow worth enormous ecological and human sacrifice.

Lamborghini easily converted this gas guzzling Gallardo to use biofuels.  Yet the ecology and economic effects of producing the fuel for such a car have been called into question by most studies.

Lamborghini easily converted this gas guzzling Gallardo to use ethanol yet producing biofuel from food crops for such a car has, in most analyses, shown more negative than positive ecological and economic effects .

Building on early optimism about biofuels from environmentalists, the biofuel lobby, unfortunately, has a great deal of influence in the United States. This is a truly tragic state of affairs in American politics, as many farmers and farm-state politicians have tied their political and economic hopes to this option. Biofuel mandates have pushed up the price of crops and created an incentive to plant and overplant corn as well as other potential biofuel crops. As fuel prices push up food prices, these prices are further elevated by the transfer of prime farmland from food production to fuel production. Without cutting biofuel incentives and mandates, there will be no countervailing influence to conserve the soil or return land to food production. Talk of cellulosic ethanol or other future innovations in biofuel production function currently as an entering wedge for the current unsustainable variety.

The only savior for biofuels is a rigorous eco-certification program that excludes the conversion of food crops to fuels, mandates soil and water conservation, and privileges the use of waste streams for fuel. Under such an international eco-certification program, biofuels will have a role as clean marine, aerospace and specialized land transport fuels.

Luckily, the coal-to-liquids option has few advocates and so far little political support. If however, petroleum prices continue to rise and so-called “skeptics” of global warming continue to be well represented in the US Government, there may be various support schemes for coal-to-liquid that are inserted into legislation. Unlike the biofuels solution, coal to liquids would “work” to move a large group of vehicles for a few decades not unlike our current vehicle fleet, but with enormous climate sacrifice as it represents an increase in carbon emissions over even the current sorry state of affairs.

In the next installment of this series, I will explore which of the three electron economy scenarios will predominate. As each scenario varies only in the manner in which electricity is supplied, i.e. generated, and not used, the below recommendations about how to create a secure post-oil transport system using electricity could apply to all three.

Getting Off Oil: A Three-Pronged Approach

Oil is far from an “evil” but an undervalued resource that has been squandered on tasks that could be much more efficiently achieved through the use of electric drive transport. Cheap oil has enabled individual and family mobility and autonomy at a low price but these uses now compete with more critical uses of oil in commerce, industry, and agriculture. As we shall see with greater investment in electric transport and infrastructure an equivalent level of mobility in most arenas can be achieved through electric drive transport. Electricity can be generated via a number of different methods, some of which are sustainable and have low or zero emissions.

  1. Electrified Rail and Roadways – In the last few months, decisions have been made in Washington to spend billions of dollars on bailing out financial institutions that made the wrong bets in the housing and housing securities markets in search of guaranteed or higher than average profits. To get off oil, we will need to make public and private investments in productive assets that
    This European high speed train receives its power through the overhead catenary wires.

    This European high speed train receives its power through the overhead catenary wires.

    enable transport to be powered by electricity, a much more durable and secure investment. Electrification of railways and key roadways, first in urban centers and then interurban roads, will allow trains, freight and large passenger vehicles to function independently of oil supply. As electric or dual mode locomotives on electrified rights of way are more capable than the majority locomotives in the US, the diesel electrics, fairly inexpensive sets of financial incentives may be sufficient to encourage private railways to electrify. Compared to the other electric options, electrification of rail and local roadways is the most highly developed and highest capacity electric transport option, though the least publicized in an age fixated on new technology. This option has slipped under the radar, as, for instance, Andy Grove, the Intel co-founder and now an advocate of the electrification of transportation, omitted to mention this option in his recent Washington Post editorial on the subject.

  2. Plug-in Hybrids/Extended Range Electric Vehicles – The most likely substitutes for small and medium sized vehicles used mostly for local trips but with some longer-distance usage are PHEVs/EREVs such as the upcoming Chevy Volt. In their simplest configuration, these vehicles will be driven by an electric motor that can propel the vehicle for as many as 40 to 60 miles on
    GMs Chevy Volt will be one of the first production Plug-In Hybrids which GM is calling an Extended Range Electric Vehicle or EREV

    GM's Chevy Volt will be one of the first production Plug-In Hybrids which GM is calling an "Extended Range Electric Vehicle" or EREV

    stored grid electricity (therefore the “plug-in” part) in a medium-sized battery and can switch seamlessly to using petroleum or other liquid fuels from its conventional fuel tank to run either a generator or small engine to propel the vehicle on longer trips. PHEVs will benefit from new generations of batteries that are more compact than lead acid; however a future revolution in battery and quick charge technology may narrow the scope of usefulness for PHEVs. Many auto manufacturers are now planning or actually developing PHEV models, including GM and Toyota. PHEVs in wide deployment could reduce petroleum usage by as much as 60 to 70%.

  3. Battery Electric Vehicles/Battery Exchange and Quick Charge Infrastructure – A new generation of battery electric vehicles are now being developed with lithium ion batteries that can have ranges of up to 250 miles or can completely recharge within 10 minutes. The Tesla Roadster, a high end sports car with a 225 mile range is just being delivered to customers; Tesla’s British competitor with a 160 mile range, the Lightning GT, will recharge in 10 minutes from a 480 volt outlet, making its recharge time approach liquid refueling times. Tesla, Renault-Nissan, and Mitsubishi are all planning
    The Introduction of the Tesla Roadster has sparked a revival of electric car projects by many major carmakers as well as by start ups.

    The Introduction of the Tesla Roadster has sparked a revival of interest in electric cars by many major carmakers as well as by start ups.

    mid-market or economy electric vehicles with varying ranges all using higher energy-to-weight ratio batteries than lead-acid batteries. Other makers are making short-range vehicles for lower speed city use with the older lead-acid battery technologies. Some are planning to build quick charge or battery swap infrastructure to allow electric vehicles to travel unrestrictedly with short charging or swap stops. As is, battery electrics with even traditional lead-acid batteries can do many important tasks that are now the province of petroleum-powered vehicles.

One of the strengths of this three-pronged approach is that it does not hang its hat on any one technology, distributing risk between three paths. Also by acknowledging the uses of existing battery technology and on-grid transport options, the plan doesn’t depend crucially on innovation in batteries or chargers and their manufacture yet also would take advantage of the opportunities offered by these technologies and their future path of development.

Towards the Post-Oil Society

The tripartite approach allows our society to cut oil demand and dependence substantially within a decade, much more quickly than a sole reliance on electrification of the autonomous vehicle fleet through sales of battery-electric and plug in hybrid vehicles. Combining these vehicles with the already well-proven and easily scalable technology of vehicles that use trolley poles or a pantograph to draw power from the grid while in motion, allows policy makers to take a leadership role when required to supplement the emerging market for personal or corporately owned electric vehicles. Most world leaders with a future orientation recognize a global energy crisis of enormous proportions where electric transport has a crucial role. In an under-publicized speech, British Prime Minister Gordon Brown already sees in electrification of transportation both a business opportunity for the UK and a more general solution to living in a post-oil world.

Advances in battery and ultracapacitor technology and manufacturing technologies are inevitable but the timing of their widespread adoption will substantially lag demand for them. Insistent demands by concerned consumers that Tesla Motors or another manufacturer create in the next few years a battery electric vehicle that is

The secretive Texas company EEStor is claiming that it will produce a revolutionary electric energy storage device, though it has continued to push out the timeline for actual commercialization.

The secretive Texas company EEStor is claiming that it will produce a revolutionary electric energy storage device, though it has continued to push out the timeline for commercialization.

priced at the level of gasoline powered economy cars are as of today wishful thinking. Batteries, however, will remain far more advanced and widely available than hydrogen and hydrogen fuel cells. Though hydrogen may have a future role, the focus on hydrogen by policymakers and automakers has functioned as a distraction from electric technology, the clear next generation in powering transport. Unfortunately commercial interests that a decade ago wanted to delay the emergence of electric transport, held onto hydrogen as the next thing to, seemingly, prolong the era of profitable petroleum powered vehicles.

The tripartite strategy allows policy makers to respond more immediately to the demand for oil alternatives by implementing programs that build out grid-powered transportation infrastructure for freight and passenger traffic using “off the shelf” technologies. Policymakers can create incentive packages, issue bonds or levy taxes for the necessary work to keep America moving. Incentives for private companies to invest in electric transport infrastructure can be designed. Beyond its easy scalability requiring few to no technical advances, powering vehicles directly from the grid is highly efficient because power is used directly after generation rather than diminished a fraction through charging and discharging a battery. Using that extra fraction of power for the convenience of storage is well worth it in many contexts but is not necessary for all transport tasks.

Building Electrified Rights of Way

There are now a number of plans emerging on a national, continental and local level to electrify transportation in part. Alan Drake, a contributor to a number of energy and transport websites, has devised a plan to electrify 36,000 miles of vital freight

Most of Americas rail freight is pulled by diesel electric locomotives along non electrified rights of way

Most of America's rail freight is moved by diesel locomotives on non-electrified tracks; with an electrified train system the energy of trains braking could be captured for use by other trains.

railways in the US and increase the speed of rail freight; higher speed freight allows an easier commingling of freight and passenger traffic on the rails. A high speed (electric) passenger rail line is now being proposed in California to link San Diego and Los Angeles with San Francisco and Sacramento. Public transit advocates have created visions of how various cities could be transformed with expanded subway or light rail networks, many of which unfortunately require larger per mile investments than simply electrifying existing rails and roadways.

Building of new heavy and lighter rail infrastructure is inevitable but a rapid start to electrification will work with existing rights of way, tracks and roadways. As an exercise, imagine your own local area or, as the America 2050 plan calls it your larger “megaregion” and visualize where are the highest traffic areas where we could rapidly transfer people and freight from petroleum dependent to electric transport.

An Example: Moving the Northern California Megaregion off of Oil

In the America 2050 plan, there are two California Megaregions with the Northern shown in Green

In the America 2050 plan, there are two California Megaregions with the Northern shown here in green, the Southern in ochre.

The Northern California megaregion, in which I live, extends over a huge square of land centered on one side on San Francisco, San Jose and Oakland, approximately 250 180 miles per side extending into northern Nevada. The size of this region and the sprawl within it has been enabled by cheap petroleum transport energy despite its foundations in the pre-oil era. On the other hand, Northern California is better prepared than many areas of the Western and Midwestern US to transition to an electricity-based transport system because of existing investments in concentrated freight and passenger transport and some denser core and corridor areas of residence and business. The transition will be more challenging for the “Arizona Sun Corridor”, the “Piedmont Atlantic” and the “Florida” megaregions with their still greater sprawl and dispersion of economic activity.

An inventory of existing electric transport assets in the Northern California megaregion yields the following:

  1. the highly successful regional BART (Bay Area Rapid Transit) system, a 3rd-rail driven commuter rail system for which there have been several expansion plans, that are now again made more likely.
  2. Three light rail systems in the City of San Francisco, in the City of Sacramento and in the Santa Clara Valley around San Jose.
  3. A trolleybus system in the city of San Francisco
  4. The venerable San Francisco cable car

These electric transport assets are largely focused at the traditional center of the area San Francisco and are currently designed for passengers and their hand-carried freight. There are however multiple existing non-electrified rail assets in the region for passengers and freight running on freight companies rights of way. These include:

  1. the Caltrain commuter train on the Union Pacific right of way from San Francisco to San Jose and Gilroy
  2. the Capitol Corridor regional trains from Oakland to Sacramento
  3. the ACE train from San Jose to Stockton
  4. Amtrak service linking major centers in the megaregion as well as tying the megaregion to the Southern California and Cascadia megaregions to the north and south.
  5. Freight rail service on the many active railways on both major trunk and also spur lines throughout the region serving industrial and commercial customers.

Electrifying many of these existing routes would further insulate Northern California from dependence upon oil markets. In addtion, the region’s Metropolitan Transportation Commission’s rail plan, announced in 2007, recommends track expansion in addition to that needed by the statewide High Speed Rail proposal. In this plan are efforts to separate out where possible freight and passenger rail to allow each to proceed on its own most efficient schedule. Grade separating rail in densely populated areas is an additional expense that with higher traffic becomes an enormous boost in the quality of life and quality of rail service. While as of last year these recommendations may have seemed like pie in the sky to some, events in the oil markets have made such efforts an ever higher priority.

Less expensive per mile and more rapidly deployed are electrified roadway systems,

While the wealthy and tech-friendly Santa Clara Valley around San Jose will probably lead the nation in electric car purchases, building 4 or 5 new electrified rights of way for trolleybus or light rail will insulate more Valley residents and visitors from the vagaries of the oil markets

While the wealthy and tech-friendly Santa Clara Valley around San Jose will probably lead the nation in the adoption of private electric cars, building 5 or 6 new electrified rights of way for trolleybus or light rail will insulate the operations of the Valley's public transit authority from the oil markets.

now used with trolleybuses but capable of accommodating dual mode electric trucks outfitted with trolley poles or pantographs. Focusing on passenger traffic, the Northern California megaregion can supplement the railed systems of travel by building at least one electrified lane for trolleybus traffic on major thoroughfares, connecting with rail transport resources. A listing of these routes for the Northern California megaregion would extend perhaps to 50 major street routes of 10 to 30 miles in length and would supplement existing rail infrastructure. These trolleybus routes can either be operated as Bus Rapid Transit in a segregated lane or can commingle with other traffic, part of the flexible appeal of trolleybuses. In addition trolleybuses can operate in residential neighborhoods in the evening and at night without disturbing residents. Almost any bus route could be electrified, though it makes sense to start with the highest traffic routes.

Once any strategy of electrification is recognized as the primary means of powering ground transport, blue ribbon panels of technical, financial and transport analysts can be convened to determine what mix of rail and roadway electrification systems might best serve to fulfill our current and anticipated future transport needs. One of the priorities of the next Administration ought to be a study of long-distance roadway electrification versus the building out of electrified railway networks inclusive of the expense of improvement of existing railbeds and building new sets of parallel tracks in high traffic areas. Another factor involved in these studies would be the anticipated rate of improvement in mobile energy storage technologies and their manufacture.

PRT advocates believe that people will prefer traveling in private pods routed automatically to their selected destination station on the PRT network

PRT advocates believe that people will prefer traveling in private pods routed automatically to their selected destination station on the PRT network

Another electrified alternative is Personal Rapid Transit or PRT. Still an emerging concept, PRT may use either electrified rights of way or batteries in an automated system of electric “taxis” on guideways. A large PRT system would be unthinkable without advanced information technology and highly reliable automated controls. PRT advocates claim an overall lower environmental impact for their technology over traditional mass transit. PRT critics believe that no PRT system will be able to handle rush hour traffic volumes. The first true PRT system is being built for use at London’s Heathrow airport.

The grouping of shared and rent-able forms of transport around the main transport arteries and stations will further increase the utility and efficiency of the transport system. In France, there are free shared bicycle services clustered around transport hubs (Velib) and there are also proposals to introduce a shared electric car service with similar depots scattered around French cities. Van pool and ride-sharing services can grow based on determining where are the centers of transport demand and need.

Electrification of high traffic rights of way is one of the top priorities for both national security and energy security. Alan Drake, in focusing on the already-profitable freight business and rights of way, proposes that minimal federal incentives can stimulate large private investment in electrifying tracks owned by the large railway companies. Publicly owned rails or roadways would require debt financing or budgeting for construction directly from tax revenues for local, state or federal governments.

Promoting Battery and Plug-In Hybrid Electric Vehicles

Governments can play a key role in promoting electric vehicles by buying electric vehicles en masse and helping develop battery electric and plug-in hybrid electric fleets and fleet systems. With current technology, battery electric trucks could already function as postal delivery trucks. Beyond the gasoline hybrid, government service vehicles should be mandated to be electric or PHEV/EREVs with few exceptions. As is proposed in a recent bill in Congress, government can offer tax incentives or rebates to individuals and corporations for buying individual or fleets of electric vehicles. Government can also provide the test bed for developing quick-charge and battery swap systems, especially with fleet vehicles.

Public trickle charge locations at 110/220 volts, quick-charge stations at 480volts and battery exchange infrastructure are another area where local, state and national policy can make a difference. The standardization of public charge plugs, for instance, will allow electric vehicle manufacturers to make vehicles with a higher value to the end consumer, by allowing any vehicle to charge at any public charging station. Government and industry may also need to standardize the battery pack-to-vehicle interface to allow interoperability between more battery packs and more electric vehicles with battery pack exchange capability. Low-interest loans may also enable electric utilities and property owners to install an electric account-linked or pay-per-charge vehicle charging infrastructure of the near future in multifamily dwellings and paid parking structures.

Aviation, Marine and Special Use Fuels

The energy density (the energy content to weight ratio) and energy storage capacity of liquid hydrocarbons will remain for the foreseeable future vital for ships, aviation, remote environments and applications where the substantial heat byproduct of an internal combustion engine is desirable. In these contexts, petroleum products will continue to be dominant until we have developed ways to produce bio- or synthetic fuels that do not substantially interrupt food supplies, exhaust water supplies, or endanger the fertility of soils. Luckily, our use of petroleum as a transport fuel is driven five to one by on-land use, so we will reduce our petroleum demand and our greenhouse gas emissions by transitioning to the Renewable Electron Economy as rapidly as possible.

Concentrated and Smarter Settlement Patterns

Peak Oilers predict with steep rises in oil prices that suburbia will depopulate and collapse.

"Peak Oilers" predict with steep rises in oil prices that suburbia will depopulate and collapse.

Those who have long predicted a rapid escalation in oil prices with severe social and economic effects, when and if they turn to advocating solutions, suggest that ultimately a post-oil society will have a stronger community focus than the anomie of suburban and widely dispersed rural settlements. James Howard Kunstler, who envisions the collapse of suburbia after a catastrophic rise in oil prices, advocates for what might be called a new urbanism or smart growth, where people live in more tightly concentrated but humanely designed cities and towns.

There is however a contradictory current within the same group which suggests that people will need to become more self-reliant, growing their own food, preparing to become more self-sufficient autonomous units that do not require petroleum-based transportation to live. Such a current would suggest that people would use land in a more distributed manner, allowing for larger garden plots around living spaces perhaps leading to an new survivalist agrarianism.

The two contrasting scenarios proposed are based on two different notions of what is ultimately a more resource and energy efficient way to live: more concentrated settlement is built around more efficient consumption while somewhat more distributed settlement suggests that production and consumption should co-exist in the same space. It is unknown the degree to which one or the other of these visions will predominate in the near and medium-term futures.

The tripartite approach to electrifying transport concentrates some transport tasks along main electrified rights of way while leaving open the degree to which people and the machines they operate can range off of the grid using batteries or liquid fuels. Demand for transport and goods traffic along these main corridors will remain high even in times of crisis or in a theoretically more dispersed population of part-time farmers. Neither more efficient consumption nor a commingling of consumption and production is necessarily favored. I have explored in one installment of my series on the Renewable Electron Economy the possibility for farmers to use electricity to do many farming tasks that are now petroleum dependent.

In any case, it is premature to predict massive internal migrations and collapse of whole economies as oil prices continue to climb, especially if these three paths towards electrifying land transportation are pursued aggressively and effectively by government and industry in the next few years. Additionally short-term measures to increase the efficiency of our transport system as outlined above can be implemented rapidly by a combination of public agencies and private companies that recognize the opportunity to provide people with more effective and more efficient transport choices even in an era of more expensive energy.

Actress Kristin Scott Thomas Drives a(n electric) G-Wiz! June 11, 2008

Posted by Michael Hoexter in Green Marketing, Green Transport, Sustainable Thinking.
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On a Top Gear show aired last night on BBC America, the well-respected actress Kristin Scott Thomas (“The English Patient”, “Four Weddings and a Funeral”,  “Mission: Impossible”) confesses to the bloviating but funny Jeremy Clarkson that she drive the G-Wiz electric mini-car when she is in London.  This is a brave move on a show more tuned to the nuances that distinguish the Ferrari F430 from the Porsche 911 Turbo.  Of course it helps that Scott Thomas is beautiful, witty and able to discuss and comment on some less eco-friendly rides.

Her confession is also somewhat less daring or surprising in England, as the London Congestion Charge has stimulated the market for electric vehicles, especially the small low-speed electric vehicle class that we call “Neighborhood Electric Vehicles” or NEVs (If you are interested in finding out more about life with the NEVs in Britain check out the video blog “Danny’s Contentment”).  The G-Wiz, made by Reva, is not uncontroversial as it lacks many of the safety features of larger vehicles as it is classed as a “quadricycle”.  Despite not being an ideal EVs, the G-Wiz and other NEVs such as the Think! and the Kewet Buddy have gained a devoted following in Britain.  Having a G-Wiz or other, what the leaders and founders of Tesla Motors, call “punishment cars” have been functioning as status symbols of eco-awareness in Britain, not unlike how the Prius has functioned here in the last few years.

While Britons may be more likely to embrace a mini-car like the G-Wiz due to a history of smaller vehicles, higher fuel prices, a national love of quirkiness, and less huge vehicles on the road, a serious turn towards electric vehicles here in the US will see a rise in mini-cars here as well.  For one, the (gas-powered) Smart car has arrived and is gaining a small following despite decidedly mixed reviews.  More importantly, the inexpensive lead-acid batteries which these cars are built around will remain the cheapest option in batteries for a long time to come.

With, other than public transit where available, electrics being the only sound refuge from escalating gas prices, more Americans, I believe, will shed more of the large-car prejudices they have for simply being able to charge up and get around.

So I welcome the image of Hollywood and British film royalty getting in and out of small electric cars, even though there are, with the advent of more capable batteries, more capable and capacious electric cars coming down the pike.  Right now, I don’t think we can afford to celebrate ONLY the more technically advanced options, especially if we are serious about getting off petroleum.