Comments Sean Casten has made

Agree.  My point about solar is simply that we not seek to provide stable above average returns absent larger policy considerations.  Exclusive of all subsidies, solar PV reduces CO2 emissions at a cost of $300+ per tonne of CO2 reduced.  We don't think of it that way because of all the various tax incentives, capital cost buydowns, etc., but it does represent a social policy decision to commit to that $300+ number.  Make that number available to lots of other techs - efficiency, biogas, etc. - and you get the answer to your question of how you make these things happen.  Make that number available only to solar and the only thing that happens is solar (plus inevitable pushback from every non-solar interest group.)

So I'm back to my usual schpiel: define the goal (waste reduction, CO2 reduction, etc.) provide an incentive for it and then let people allocate resources accordingly.  But the goal is not to incentivize investment in specific technologies, or make certain technologies into good investments (no matter how many feed-in tariff advocates argue to the contrary!)

Also, re: biogas.  In theory, it would seem that this ought to be limited to the ~1.7 quads of solid waste listed above.  It seems to me that it may be bigger though, because the 100 quads listed by DOE does not appear to include energy inputs to agriculture.  Some of that is of course indirectly captured in the sewage solids (your corn consumption being translatable into a roughly equivalent volume of feces production...), but presumably their are greater volumes of digestible materials produced by the agricultural sector independently that's not in that box. 

My gut feeling is that there's probably another couple quads there, but I'd be surprised if it was much higher.  (Fun bit of math: if simply assume that 100% of people's 3500 calorie/day energy consumption ends up in sewage, that works out to something like 0.001 quads.  Add in animals, byproduct waste and the odd person who consumes more than 3500 calories per day and you no doubt get a higher number - but I doubt it's five orders of magnitude bigger.)

Thanks.  Couple responses:

1. The 32% is only for the thermal plants.  Also worth noting that it's probably worse; DOE/EIA has very good data on generation efficiency, but the data on transmission and distribution efficiency is more by inference (e.g., retail sales net of generation).  Those are generally estimated in the 8 - 10% range, but are not as robust... and the oft-quoted 33% value is hard to parse when you dig into the raw data as to whether that is delivered or at the generator buss.  Either way, it's huge.

2. Thanks for the 25% heads up.  Glad to see that my conservative guess was indeed conservative!

3. Carnot schmarnot.  The engineer boobs you reference always seem to forget that Carnot was talking about work cycles that doesn't apply to heat recovery.  But I agree... posts like this always attract the boobs!  More on that here if you're interested.

Sean

Adam,

I'm skeptical of the WSJ's energy coverage as well, but I think they got this one broadly right, on two levels:

1. Energy technologies that depend upon fickle goverment subsidies are always going to be prone to boom/bust cycles.  Spain's experience with solar in the 2000s is no different that the US' experience with wind in the 1980s. (The Atlantic did a very good story on the latter here.)

2. Solar PV technology on just about any metric is the most expensive way to lower CO2 emissions.  Maybe that will change in the future, and maybe it's worth investing today to make that future come sooner.  But so long as policies are focused on deployment (as contrasted with R&D), the policies will inevitably be fickle as the public pressure comes to reallocate resources towards a particular bucket of social goals.

The central idea behind a feed-in tariff fails on both fronts, because it (a) is inherently extra-market, and therefore prone to being removed as political winds shift direction and (b) is inherently based on cost-recovery rather than value creation.  (e.g., it does not set a single price for all equivalently-clean energy, but instead provides a rate specific for technologies necessary to bring them forward, inclusive of cost recovery).

Like I said, I take a lot fo issue with the WSJ's energy coverage, most notably when they confuse profit-seeking behavior with the presence of perfect markets.  But on this one, I think they got it right.

I think you're missing the point Brad.  After all, isn't there a more fundamental question here?

Namely, why must we limit our quest for court-adjucidated truth in science only be limited to a few sexy theories?  Is not the greater harm done by those billions of other theories that people act on every day without judicial review? 

Should we allow oil companies drill holes in places where their theories tell them they might find oil without first putting that theory on the stand?  And what about the Chamber of Commerce?  Has anyone ever tested their economic theories?  It gets worse: I'm told by people in the know that there is - brace yourself - an entire discipline of "Theoretical Physics" that has tens of thousands of theories, not one of which has ever seen the light of a court room (no doubt due to all their fat cat lobbyists).  How long can we let this madness continue?  We shall... no, strike that.  We must overcome!

Would be helpful for the Sierra Club to explain how they did their ranking.  As a Middlebury grad, I'm both delighted to see them at #3 and wondering how much they've changed since I was there (with memories of overheated dorm rooms in the winter that required me to leave my window open, and random tracks of melted snow from uninsulated steam pipe.)  Maybe those things are all fixed, maybe they don't matter - but I can't tell from the description how their results were quantified.  Does anyone know?  Have the divulged and I haven't seen?

Biod,

Note that natural gas compression is (usually) done with natural gas-fired compressors.  Yes, there are some electrics out there, but for the most part - and certainly throughout the high-pressure transmission network - compression is done with natural gas turbines driving gas compressors, using up a bit of the gas flowing through the pipe to compress the rest.

What's not often appreciated is that these compressors tend to be quite inefficient, for the usual utility reasons: the costs of compression are a pass through on the tariff, so there is no incentive for conservation.  Ormat has done some nice projects (and a lot of nice regulatory legwork) to try and fix this by putting waste heat recovery power plants on the back of those compressor stations, and working to craft contracts and regulatory changes that allow the gas transmission companies to benefit from the resulting savings.  But it is far from settled.

Bottom line is that you're right that the non-CO2 emissions are lower, but do keep in mind that the compressors themselves are rarely very efficient, so the CO2 impacts are bigger than one would otherwise expect.

One final note: when you're talking about CNG vehicles, there is a need for really high-pressure compressors, by simple function of the fact that the pressure in the storage tank at the gas station has to be higher than the pressure in the tank on the vehicle in order for the gas to flow from one into the other.  Since the tanks on the vehicle are themselves very high pressure (1500 - 3000 psi, if memory serves), that imposes a huge parasitic load just at the station itself, above and beyond the gas distribution network.  As I recall, this load requires an energy input on the order of ~5% of the total energy in the fuel.

Well said, Tom.

If you've not already read it, I'd highly recommend Dan O'Brien's book Buffalo for a Broken Heart, especially as it relates to all large scale agriculture depending on some form of subsidy.  The book is about much more than farming, but of particular relevance to your post are O'Brien's observations about the American Dream being built on a contradiction - on the one hand, the independent-minded Go-West-Young-Man who wants nothing but to be left to his own devices to succeed and fail on his merits.  And on the other, the reality that the west was not livable absent massive federal investments in railroads, roads, damns, irrigation, electrification and ag subsidies (not to mention the Homestead Act).

His riff isn't a polemical one, but just the observation that - per your theme - any honest discussion of agricultural policy has to start by acknowledging that conflict, even as most insist that it can be simplified to the libertarians vs. the socialists.

Singlelens,

I had similar thoughts.  Here's a grant study for you to perhaps answer Tom's question.  Some nutrients are produced by the plant, and some are extracted from the soil and cannot be synthesized by the plant.  For certain plants and certain metabolic products, those metabolic pathways are pretty well understood, to the extent that we ought to be able to make some reasonably reliable predictions about how much nutrient X a given plant would produce if we starve/flood the soil for micronutrient Y.  (Yes, this smacks of nutritionism, but stay with me.)

If we're talking about nutrients that the plant draws out of the soil and cannot synthesize for itself, then it would seem a pretty straightforward matter to make a case that absent X in the soil (organic or otherwise), it ain't gonna be in the plant.  So unless it's being added to the inorganic soil, it's presence in an organic crop is de facto proof of Tom's point.

If, on the other hand, we're talking about nutrients that the plant can synthesize from available nutrients in the soil and we understand those pathways, is it not then simply a matter of measuring the relevant micronutrients added to inorganic soil / present in organic soil, comparing that to the predicted concentration in the plant and then seeing how that prediction squares with reality?  It's an admittedly narrow assessment, but done across a sufficient number of plants/nutrients/metabolic pathways, it would seem that if there is a decided benefit from organic soil, we'd see some consistent level of increase in the organic plants, no? 

(I realize I'm oversimplifying other factors and competing pathways, but you get the gist of the idea.)

Well said, David!

- From a self-interested 3rd party.

Gar,

I don't set out to change the discussion, but to keep it grounded in realism.  Thus my leprechaun analogy.  Wind is not a panacea any more than nuclear is a panacea, biomass is a panacea or recycled energy is a panacea.  All have a role to play, and it is possible to overdose on any of them.  The fact that you can "solve" wind's problems with massive investments and T&D and storage is essentially a damn-the-torpedos, costs-don't-matter argument.  If there's no cheaper way to deliver an equivalent reduction in CO2, I accept the argument.  But that's pretty shaky ground to argue from. 

By all means, let's use deploy wind up to the point that it isn't causing voltage stability / capacity provision problems on the grid that require us (in the short term) to adopt cures that are worse than the disease.  Above that point, let's look to other technologies to play their own niche roles, and by all means, let's continue R&D efforts to see if we can increase the theoretical limits on any and all of those technologies.  But let's not suggest that the only constraint on our ability to realize the environmental benefits of wind is building the turbines. 

Gar:

Here's a good graphic showing the coincident peak challenges from wind @ BPA (in real time).

Gar,

I think we're mixing terms - allow me to be more precise.  I agree with you on the 35 - 40% of nameplate capacity for the turbine itself.  I am referring to capacity on the grid as a whole.  Utilities (or system operators in restructured states) have an obligation to ensure that they have generation contracted to provide peak demand on the system.  This system capacity obligation must be met through utility-owned assets and/or contracted power supplies from third parties.  This is the 6 - 7% figure I was referring to.  Suppose you are a utility manager responsible for 10,000 MW of peak load and someone comes along with a 100 MW wind turbine installation.  How many additional MW do you have to procure to ensure that you can meet your 10,000 MW obligations?  It's not the capacity factor of the turbine specifically that drives that calculation, but rather the probablisitc likelihood that those 100 MW will be available during the moment when you have to serve 10,000 MW of demand (in utility-jargon, this is referred to as the "coincident peak".)  What utility managers have found is that this coincident peak is 6 - 7% of wind turbine nameplate, so that the answer to the question posed above is something like 9,993 MW.  (10,000 - 7% of 100 MW).  To be sure, they now have 93 MW that doesn't have to run whenever the wind turbines are running.  But they do have to be available to run, which means - to the extent that it is fossil-fired generator, as it is in much of the country - they are kept on hot standby, burning fuel to keep hot so that they can come on line instantaneously, and emitting CO2 while they're at it.  An honest assessment of the environmental impacts of wind has to take this CO2 into account, at least in those parts of the country where the marginal unit of wind is requiring the utility to procure a marginal unit of hot standby.

Re: hydro, I'm not sure I agree that it is there for peaking, but do agree with your national and regional point about it's relative importance as well as it's implicit storage ability.  I raised it only because this is the best possible scenario for the provision of wind capacity backup, since at least we're not burning additional fuel.  It's also quite real - friends at BPA have told me that they keep as much as 700 MW of hydro held back today that they didn't keep held back 10 years ago solely to accomodate the swings they've observed on the system due to wind.  In places like the NW where the hydro resource is sufficiently large to accomodate, that's great.  But in the windy parts of the NW, that spinning reserve is being supplied by burning coal for hot standby.  That's bad.

And again, it doesn't mean that wind is bad - only that (like any other resource) it needs to be right-sized on the system.  An important part of the whole, but not a universal solution.

I think you're right rhetorically, but I wouldn't categorically say that all conservatives don't believe in AGW.  My sense is that their rhetoric (which you quite ably and accurately expose) is based on the politics of opposition - make the other guy look bad.  The fact that they can't put anything better than Will, Palin and Gingrich forward says more to me about the intellectual malaise of the party, not a fundamental conviction about AGW.  Hell, everything any politician on either side ever says is to some degree logically incompatible ("I will lower taxes and grow the economy", "I will increase entitlements and grow the economy", etc.)  The problem the Rs have is that there own incompatibilities don't even seem to be trying to appeal to some fundamental logical framework.  Recall that Reagan had Laffer to justify his logic.  The current Rs have no intellectual framework that is accepted outside of their own camp.  It is a party on self-destruct - but that's not the same as a party that denies AGW, however mutually compatible the ends may be.

Apropos of this thread, see this jobs-calculator from ACEEE to estimate the impacts of efficiency investments on net job creation.

I've not looked at yet, but ACEEE generally does a pretty robust job on these sorts of things.

I agree with your larger point, but also understand from whence the criticism comes.  The problem to me is the implicit conflation in the term "green jobs", which necessarily raises criticism. 

You are seeking to reframe the question as "would green investment stimulate the economy?", if I read correctly, which is a completely fair question.  But too often, the Green Jobs movement not only doesn't ask that question, but it doesn't ask any questions at all; it simply makes the categoric assertion that (a) there is a unique, defineable thing called a Green Job; (b) Green Jobs are better than Other Jobs, and (c) green investments will create Green Jobs.  Van Jones - much as I love his charisma and inspiration - is probably more guilty of this than anyone, saying what he wants to be true rather than what he can prove to be true.  (That's not to say that he's wrong; just that I think you avoid much of the necessity for mythbusting is a want isn't promulgated as a truth.)

Clearly, the economy would benefit from more growth in low-mid skill level jobs, to replace the hollowing-out of employment opportunities that have gone part & parcel with deindustrialization.  Any policy measure that causes growth in some section of the manufacturing sector would facilitate such growth, no less true for a new steel mill than for a wind turbine factory.  (Equally clearly, there are new high-skilled jobs created any time you have growth in a sector that is as capital- and legal-intensive as the energy space - but again, that is no less true of brown energy sources.)

When all is said and done, it seems that the Green Jobs movement has created a strawman that is too easily attacked, and that attack distracts us from the more important issues at hand.  We need cleaner, cheaper, greener energy as a precondition not just  for our short-term economic growth, but also for the long-term health of the planet.  Whether or not that energy provision is a net job generator is of secondary concern, and in some cases probably to the best if it destroys jobs.  (If we could double the efficiency of our coal fleet and cut US coal mining jobs by 50%, should we care?)  Let's just admit that not all green investments lead to green, brown, black or net jobs.  But the good that comes from a greener energy system is of vastly more importance than a percent or two swing in employment statistics.

Ken,

Perhaps we just suffer from different political philosophies.  To my way of thinking, if the government chooses to place a price on an environmental externality that was previously given away for free, they have ample regulatory apparatus to set  the rules of supply and demand for that commodity, and in so doing, can take advantage of a vibrant set of market actors who can independently find paths to meet both at a market-set price.  But as soon as government tries to create path- or price-certainty, no shortage of bad things happen.  (Indeed, setting too high a price can also lead to too little pollutant reduction, since no one has infininte resources.) Put another way: environmental regulation can get one of the three: path, price, or volume certainty.  I've yet to see a policy that successfully get more than one of those, although most do try.

You may simply have more confidence than I that regulators can insert price- and path-certainty without unintended consequences.  I've yet to see it.  Price floors in CA gave us blackouts.  Price ceilings in MA REC markets (coupled with a highly-constrained set of eligible technologies) gave us less clean energy.  BACT/MACT rules in environmental regs that sought path certainty have greatly penalized energy efficiency and driven up the cost of pollution compliance, creating near-permanent hostility between environment and business communities, both of whom are convinced that the other is not to be trusted.  None of those outcomes was preordained, and all were avoidable - but all resulted directly from a regulatory model that sought price- and/or path-certainty. 

We are both in violent agreement about the urgent need to act on climate, and about the inadequacy of our current political discussion to face up to the magnitude of the challenge.  From that point, I suppose it is simply a case of pick-your-poison.  Do we think we are better off pushing to move the politics in line with the policy or do we think we are better off imposing top-down controls on a market and hoping the market will respond in a predictable way without unintended consequences.  Neither is easy, and neither is without risk.  But all my experience tells me that the first path has a much higher probability of success.

I sure hope CO is getting better, but they've historically been one of the more utility-leaning commissions in the country.  They have long had one of the single worst rates for PURPA qualifying facilities in the country.  (Recall that PURPA was the 1978 law that said that utilities had to enter into long-term contracts with "qualifying facilities" - cogen, biomass, small hydro, etc. - that were set based on the utility's avoided cost of power.)  Different states set different rules for how that "avoided cost" calculus should be done, but CO uniquely came to the conclusion that PSCO's avoided rate was the fuel cost of the coal at their most efficient coal plant.  So if you wanted to invest capital in a cleaner, more efficient, more economic plant in the state, the best you could ever hope for was to get paid a rate in the 1 - 2 cent/kWh range - even as PSCO was getting all sorts of other capital approved with full, rate-payer backed capital recovery.

To the best of my knowledge, all those tariffs are still on the books. 

Ken & David:

I don't follow your objection. If you think the cap wasn't tight enough, then lets talk about tightening the cap.  What I don't follow is the logic that says that the price wasn't high enough.  The cap sets supply, the market sets the price.  I'd draw the analogy to RECs; when utilities are mandated to procure 5% of their power from renewable sources and the price of renewables subsequently assumes a $30/MWh premium to meet that regulation-enforced supply, what ought we do to bring more RECs forward?  Raise the price or raise the utility requirement?  Since the price is set by a market, the obvious answer is to raise the utility requirement.  Your objection to SO2 cap & trade seems to be framed on the same logic, except that you conclude that somehow the problem is the price.  We agree that the regulation could have been done better; my point is simply that failures due to regulation should not be blamed on market pricing mechanisms.

As I noted above, there are certainly big problems with the SO2 cap, and the most notable one was the grandfathering of pollution permits.  The biggest sources (those pernicious coal plants) got to emit for free while new, much lower sulfur sources had to come into full compliance under the cap.  That clearly led to higher SO2 emissions than we otherwise would have had, and lowered the price of SO2 by reducing the number of credits that had to be bought.  But again, that's not a failure of the market, but one of the regulatory construct around the market.

Put it another way: if we raised the price of sulfur through some mechanism, but kept the cap unchanged and kept the grandfathering in place, do any of your objections go away?  Unless I'm missing something in your logic, it doesn't appear that they would.  Which suggests that the failure is not the market pricing mechanism, but the failure of the regulations that defined the rules of engagement within that market.  Which brings me back full circle to the start of this thread: when markets fail, it doesn't necessarily imply that dastardly speculators foiled an infallible regulator. 

Completely agree, Ken.  But that's kind of my point.  If you are a rapacious speculator, your wet dream is to have a regulator in a deregulated market who believes that their primary purpose is cost control (since by definition, that means that they DO NOT see their primary purpose as anti-trust enforcement).  Like I said in the post, I don't set out to absolve Enron in any way, but rather to hope that among the lessons we learn from that debacle is that the regulator was also asleep at the switch.  Smart businesses will always figure out how to convince regulators that they are doing the right thing by regulating this bit, but not that bit.  A smart regulator ought to know when they're getting their chain pulled.

Deregulation is not a bad thing, even though Enron-style deregulation with a sleepy regulator was bad.  Similarly, the fact that Enron was pushing for cap & trade doesn't mean that all flavors of cap & trade ought to be painted with a negative brush.  A C&T market with proper oversight to ensure that there is no market dominance by single entities (to the degree that no single entity can independently affect price) is a good thing, and decidedly not what Enron-as-metaphor would have wanted.  But in the blowback against speculators and the populist push towards cost control, let's be careful that we don't end up right back where Enron-as-metaphor wants us.

Theak,

You're absolutely right on nuclear.  Public Service of NH was - if memory serves - the biggest corporate bankruptcy in US history (or very close to it) when they went bankrupt due to Seabrook nuclear overruns.  But that still doesn't change the misaligned risk/reward innate to regulated utilties - it simply shows that at some point, the public loses their tolerance to keep throwing money at construction projects that aren't generating power... something nuclear has uniquely been able to do.  But for other generating assets, as long as they're built, utilites get rates that guarantee recovery.  If you build a solar panel on your house and the revenue doesn't recover the capital, it's your loss.  But if a utility builds the same project, they get to raise their rates to guarantee recovery of capital.  It's a sweet deal if you can get it.  And while I share your scorn at big utility CEO salaries, it bears noting that even though a utility CEO is no good at running a "real" business subject to competition, they are damn good at running their regulators.  Which is the way they make money...

Jestbill,

Responding to each of your points separately:

1. My framing of three solutions is meant to be maximally broad, stepping incrementally throught the fuel chain, from resource extraction to resource conversion to (converted) resource utilization.   Make CO2-beneficial changes to the first bucket and you're fuel switching.  Make CO2 beneficial changes to the second bucket and you're investing in efficiency.  Make CO2-beneficial changes to the third bucket and you're conserving.  But there are no solutions that lie outside of those three buckets (unless you're into CCS and geoengineering, that is...)

2. Re the use of the word "intensivity", blame my editor.  It's a charged word, and not in anyway intended in the Bush-speak way of suggesting that we can double GDP, cut CO2/GDP by 10% and claim victory for an increase.  However, as used here - CO2/MWh - it is an implicit efficiency measure, per the framing in point 1 above.  Economic growth scales roughly with MWh use, not CO2 release.  Just as the comfort of your home is a function of air temperature, not fuel purchased to maintain that air temperature, the "comfort" of the economy is based to some degree on access to electricity (among other things), not the fossil fuel burned to generate that electricity.  So just as a home-owner is well served to keep the refrigerator door closed and caulk their windows, our economy is well served by burning less fuel per MWh.  What's striking is the degree to which the coal fleet has failed to do so.

There's not much on the coal side, as all that mandated pollution control drives efficiency down.  So the only way to get it back up is to (a) allow coal plants to go back to 1960's level (non-CO2) pollution levels or (b) overhaul the Clean Air Act.  The first option is environmentally distasteful and the second is - while highly desirable - a political non-starter, at least in the near term.  (As I've noted before, CAA reform is absolutely necessary for legally-coherent GHG policy, and I think it will eventually get done - but I don't see anyone in EPA or elsewhere pushing to do so right away.)

On the gas fleet, the story is a bit more nuanced.  We've brought a lot of combined cycle gas turbines on line that have greatly increased fleet efficiency, and in theory, we ought to be able to continue to do so.  However, there are operational challenges due to the fact that combined cycle gas turbines don't like to turn on and off as quickly as simple cycle gas turbines (e.g., the ones without a steam turbine on the back end capturing the waste heat from the gas turbine on the front end).  In some parts of the country, those high efficiency units can get enough run hours to run anyway, but in many instances, fleet operators are operationally forced to keep their efficient stuff off so that they can run the quick-to-dispatch stuff on the margin.  Note that as load grows (e.g., once the recession ends), we'll be able to run those combined cycle turbines a little more often.  But my guess from looking at the data is that for the foreseeable future, we're unlikely to see much continuing enhancement in the gas fleet. 

Note also that the biggest opportunities for generation efficiency are building the generation closer to the load, where the heat can be re-used.  That means stranding a lot of the assets that have driven the trends in the data above, which is a good thing in the long term, and could be done very quickly - but will require a regulatory reform comparable to what we saw after the 1992 EPACT to drive a similar step-function increase in fleet efficiency.

Krist,

I don't fully agree with your statement that "Wind energy works better in restructured, competitive electricity markets".  Wind is unique amongst renewables in that it is the only renewable source that is innately central.  This makes it dependent on many of the features of the central system that are often at odds with restructured markets.  For example, the wind industry is generally, and understandably not favorable to location-specific transmission charges, since remote wind so often depends on minimal transmission costs to take their power to market. 

On the other hand, because the scale and remote nature of wind makes it so commercially similar to traditional utility models, we have seen that the deployment of wind has been dominated by the unregualted arms of regulated utilities, working in restructured regions.  So yes, it has been done more often in restructured areas, but that is perhaps more effect than cause.

True.  No one likes competition (except for their suppliers, of course).  But the larger point is that big, transformative change has occurred everytime we've allowed small, modest change into the tent.  My money's that we're about to see it again.  After all, you don't have to explicitly deregualte the sector to allow new players to enter the market.  ISO-NE didn't; they just changed a little piece at the corners that all of a sudden avoided the need for massive generation investments.  If we do CO2 right, we'll see the same thing.

I think there might be another issue at play.  Renewables and efficiency lower the cost of energy and energy intensive goods. (At least on a variable basis; renewables may or may not be economic once you consider capital recovery, but once built and operating, it is the variable cost that matters.  In that vein, renewables are like nuclear: hard to get built, but once built, they tend to run all the time.) 

Anything that lowers the costs of energy and energy-intensive goods is good for manufacturers and consumers, but necessarily bad for fossil energy extractors.  Ergo, we shoudl expect that regions of the country who's economies are heaviliy dependent on resource extraction (as opposed to conversion) would be opposed to those things that slow the rate of resource extraction.  Just as what's good for Saudi Arabia and Russia is not necessarily good for the US and the EU, what's good for West Virginia and Montana is not necessarily what's good for Michigan and California.

Thus, one doesn't have to convince those states to invest in clean tech mfg to get them to support these efforts - they simply need to shift the overall ratio of manufacturing:extraction in their state economies.  When coal was cheap & dirty, they were on that trajectory, as many energy-intensive businesses chose to locate there.  (Not for nothing is the Kanawha river in WV known as "chemical alley".)  But as energy costs have increased, many of those industries have left, making the region ever more dependent on resource extraction and all the usual "resource curse" that goes with it. 

Again, to my earlier point, it's great that utilities are entering to long-term contracts with PV.  That is, in and of itself, a good thing.  But it does not follow that the price they pay reflects underlying comparative economics with gas to your "RE < G" header.  Either it's less than fossil with both on an equally non-subsidized basis or it's less than fossil on an equally-subsidized basis.  But nothing about these two contracts is an apples:apples comparison. 

There is a reasonable economic assessment that could be done to tally up subsidies on both sides and see if the underlying RE<G assertion holds.  But absent that analysis, one cannot conclude anything other than that RE+RE subsidies appear to be sufficient to drive a few utilities to enter into a few contracts.  (Let's not forget that as big a deal as 92+230 MW is in the PV world, it's a trifle on the grid; two contracts do not a axiom make.)

Well... it is possible to say something.  A 30% ITC to a $6000/kW PV array is worth $2000/kW.  Assume a 20% load factor and a 10 year system life and that's 8760 x 20% x 10 years = 17,520 kWh/installed kW, so the $2000/kW is worth 2000/17520, or 11.5 cents/kWh.  That's a massive subsidy, certainly higher than that obtained by any other clean technology.  And the biggest estimates I've seen of the total subsidies to coal (the highest subsidized of the fossil techs, by my count) is in the ~6 c/kWh range.

For comparison, US average retail rates are 9 cents/kWh.  So they're all big - but PV is the biggest recipient. 

Again, my purpose here isn't to knock PV, but simply to note that lots of technologies are competitive with fossil if you give them an 11.5 cent/kWh subsidy.  Which proves only that 11.5 cent/kWh subsidies are sufficient to make them competitive.  It doesn't provide any underlying insights with respect to PV cost trends.

EP,

Good point.  We certainly have plenty of carrots for clean energy.  The problem is that the carrots are not tied to CO2 explicitly, and therefore send wildly inappropriate signals.  Take your solar panel example.  We give them a 30% ITC, plus RECs.  Let's say a 15 year life for the solar panel at $6000/kW installed cost.  So the ITC is worth $2000/kW, or 2000/15 = $133/kW/year.  The panel will have a capacity factor of something like 20%, so each installed kW will generate 20% x 8760 = 1752 kWh/year, and the $133/kW/year is therefore worth 8 cents/kWh.  Tack on another 2 cents or so for the REC and the panel is getting 10 cents/kWh.

Depending on where you are in the country, your actual displacement of CO2 from displaced central generation will vary (see EPA estimates here), but average about 0.65 tons of CO2/MWh.  Thus, the $0.10/kWh paid to the solar panel (=$100/MWh) is a carbon "carrot" of $100/0.65 = $153.68/ton.  By any measure, that is a massive carrot.  And to be sure, if we paid everyone who reduced CO2 $153/ton of CO2 reduction, we'd see a huge shift in behavior.  But we don't.  We pay it to solar PV panels, based on non-CO2 metrics such that we skew capital investments towards that particular solution, but really don't go after meaningful reductions in lower cost CO2 reduction paths.  That's the point.  Not that we don't have carrots per se, but that we don't have carrots associated with CO2 reduction.  Maybe we'll pass regulation that has sticks, but we won't change behavior until we also get the carrots in place.

Re: your sales point.  I agree partially.  Read Strategic Selling if you haven't already - does a great job of explaining many things, but has a particularly insightful section to your point about the different ways people buy.  Some are indeed motivated by fear, but others are motivated by gain.  (For example: though they no doubt regret it now, when Cerebrus bought Chrysler, it wasn't out of fear.  Nor when I bought my iPod.)  This isn't to disagree with your observation - just that in my experience, it's not a universal truth.  Sticks are motivators for some, Carrots are motivators for others... but neither are sufficient without the other.

EP,

I'm not suggesting that it is impossible for fees to one's competition to provide you with economic advantage - simply that it is not guaranteed.  In the case of sugar, we have massive tariffs in place which are too large to be borne solely by producer's shareholders.  Moreover, those tariffs were developed primarily to enhance the economics of domestic producers (Florida sugar lobby, etc.) 

So yeah - if the tariff is big enough, and if it is designed with the primary objective to enhance the competitive position of a specific sector, it can work as in the sugar example.  And lead to massive unintended consequences (see: High fructose corn syrup).  But that doesn't mean that CO2 will work the same way, nor even that it's being set out with the intent of working the same way.

(Indeed, there is an ongoing policy debate going on as to whether coal companies in regulated states should be allowed to pass CO2 costs along in rates or have shareholders bear those costs, for the purposes of state rate making processes.  That's a reasonable policy argument, but note that it implicitly means that the competition will not have any economic advantage with respect to pricing if coal-company customers see no increase in power costs.) 

Bottom line is that there is still a simple, two-part logical test to determine whether (and to what degree) CO2-release sticks will translate into CO2-reduction carrots:

1. Are the costs of compliance borne by CO2-releasers customers or shareholders?

2. If the answer to (1) is anything less than 100% on customers, will the resulting reduction in profit margins make the enterprise more or less attractive to investors than competiting zero/low carbon alternatives?

Anything short of 100% customers in response to 1 means that the carrot is smaller than the stick.  And if the answer to 2 is no, then it's done nothing to change the investment thesis for the clean stuff.

Is that guaranteed?  No.  But the key point is this: if you want to give a carrot to CO2 reduction, make the carrot implicit.  But don't presume that sticks are carrots.

A separate, but related question.  Why is Obama deferring hard decisions to Congress?  He could have led GHG policy through the executive branch with the EPA, but has chosen to let Congress lead.  He could have led health care reform from the executive branch, but seems to be deferential to congress on that score as well.

I'm not smart enough to know whether that's politically astute or not.  But it bears noting that it does take two to tango.  I share your frustration with Congressional death-by-committee (or barring that, death-by-amendment, death-by-filibuster, death-by-anonymous-hold, etc.) processes that are so innately biased towards political compromise rather than good policy.  At the same time, it is something of a relief to see a bit less Executive Privilege coming from the White House since January.

But on balance, is Obama's deference to Congress net positive or net negative?  I don't know - but I do think it plays a role in the current status stasis.

I think you oversimplify, David.  If we know a priori that a ton of carbon is worth $5 then your allowance vs. $5 voucher logic holds.  But we don't know that - worse, the actual price of a ton of emissions is set by a market mechanism that will necessarily factor in supply and demand.  The problem that arises from allowances to CO2 sources is that you now have what ought to be a component of the demand side of the equation that suddenly finds themselves on the supply side.  So the coal plant - as an example - not only doesn't have to buy a CO2 credit (therefore reducing the demand-pressure, and hence price of CO2 emissions rights), but can find themselves in a situation where they may well have a resource to sell.  In theory, they can only exercise that right if they curtail their CO2 production.  But in practice, it's way more muddy than that, since CO2 allowances are not necessarily given out pro rata to CO2 signature.  (Indeed, this is clear in your example - why do consumers get CO2 allowances, if they are not a CO2 source?  If they are tied to one's CO2 emissions, how do we quantify?)  This disconnect showed up in RGGI, where allowances were set as much by political pressures as by actual CO2 emissions, so that different New England states had very different economic impacts of CO2 allowance distribution, per ton. 

Broadly characterized, giving allowances away essentially shifts the risk of regulatory inefficiency onto the public and away from the source.  If the rights are auctioned and the methodology is flawed, the owner of those auctioned rights may have over/under paid.  But if the rights are given away and the methodology is flawed, society has over/under granted allowance rights.  (This is seen in Europe where the failure to connect feed-in tariffs with Kyoto meant that increased renewable pentration = more rights to emit CO2 from coal plants, so no net change in CO2 from all those renewables.)

Clearly, the universe of optionality is not limited to auction v. allocation, and I agree with you that there is a richness to the conversation that we ought to be considering rather than categorically taking one side or the other.  That said, it's not accurate to presume that an allowance or auction will have the same effect on CO2 pricing - and hence economic incentive to reduce CO2 emissions for anyone who wasn't fortunate enough to get an allowance early on.

100 miles per hour?

I am very skeptical, and will cite a favorite aphorism from a friend who founded a (rather successful) on-site power company in VT years ago: "the one thing you know about someone who says plug-and-play is that they've never installed a generator before".

Power generators require customization.  What voltage you have, how the system is operated to maximize your revenue per installed kW (given rate structure variance, local incentives, etc.) and of course whether or not you are going to tie into local heat loads are all site-specific issues that cannot be stipulated in the factory.  As such, product standardization is incompatible with value-maximization.  The proof is in the pudding - every company I am aware of in the power space that has insisted on standard product lines has ended up giving up most of the total profit margin to engineering and installation firms who do all the customization necessarily to fit it into the opportunity.

The upshot is two fold: (1) plug and play doesn't exist - although VCs love the soundbite, and (2) the only thing it gets you is standardized product that gives your margin away to everyone else in your value chain.  In other words, even if it's successful, the end-state is a high-volume, low-margin manufacturing business.  Which tends to be a pretty lousy investment thesis.

Note that none of this is a criticism of the technologies - it's simply an observation that the VC community and the "buzz" surrounding plug-and-play technologies is at odds with the realities of the business model. 

Come on, Baby Boomer!  I'd like to hear it.  Even d*****bag sounds vaguely pleasant in a nice enough (female) southern accent.  I say go for it.  Certainly well warranted.

David,

Don't take this the wrong way, but... since when are you a GQ reader?  Can Roberts blogs on chinos after Labor Day and new male fragrances be far behind?

GH,

Thanks - but be very careful with your first point, which is a thoroughly lousy policy idea (even if ubiquitous).  No business gets to raise their prices or invest in new technologies just because their competitors got a fine.  But if all we do is put a price on carbon, that's exactly the situation that low/no carbon producers will find themselves in.  The scale of reform necessary in the energy & industrial sectors to decarbonize is massive - not impossible, but massive, and will require enormous capital investment in new technologies.  As such, the central test we ought to apply to any carbon regulation is whether it encourages that investment.  Fining the competition fails that test.

Ergo, using revenues from carbon fines to defray income taxes or serve other progressive goals might be good for a whole lot of reasons, but is lousy from a carbon policy perspective.  The $ needs to go back to people who are lowering CO2 emissions, providing a carrot to balance the stick and ensure that we quickly and cheaply get CO2 emissions down. 

Biod,

The solar v. gas comparison doesn't wash.  Would need to see the data, but it looks very much like an apples:oranges comparison to me.  First, as noted, our gas fleet is overbuilt, so the cost of a bringing on a new natural gas peaker (in much of the country) is simply the cost of running the gas, while the solar plant requies new capital construction.  Second, solar is heavily subsidized while gas is not (at least not directly).  As such, when the economic match from an owners perspective, it means only that we've shifted costs elsewhere in society.  That's not to suggest that we shouldn't encourage solar - just that if we don't look at full social costs of any option, we're misleading ourselves.  (And yes, we should be doing that for gas as well!)  Finally, a MW of solar isn't = a MW of gas peaking, because of renewable intermittency issues.  A colleague of mine who used to work in a wind-intensive utility tells me that for wind, they assumed that they could rely on less than 20% of the total wind capacity to be there from a capacity planning perspective (e.g., if they knew their peak load was 20,000 MW and they had 5,000 MW of wind installed on their system, reliability considerations drove them to find 20,000 - 5,000 x .2 = 19,000 MW of other generation to serve load).  Solar suffers from similar problems - although I don't know what the precise factor would be.  As such, using solar to serve peak loads either requires an overbuild of solar or - more likely - an additional purchase of conventional peakers to "top up" peak demands.

Bottom line in all cases is that I don't see any societal logic yet for solar being cheaper than peaking gas. 

Re: garbage trucks - now you're sounding like T Boone! 

The only comment I'd add to that is an observation from my (way back when) days as a consultant.  We did some work for the European natural gas vehicle ass'n and came to the conclusion that if you believed that we could shift society to one that depended on hydrogen as a transportation fuel, we ought to be able to get to compressed natural gas more quickly, which retained many of the benefits but with less cost and risk.  However, that's sort of like saying that if you can plan for a manned mission to Mars, it's comparatively easy to plan for a manned mission to the moon...

Natural gas - like hydrogen - is amenable to fleet-scale roll outs, where you need build only one fueling station / infrastructure and can standardize much of your system.  But it's a huge leap from there to a national transportation fuel.

Enviroperk,

It's more efficient to convert any fuel to heat than to power - such is the nature of the 2nd law of thermodynamics.  That's not a gas-specific story, or even really a heat vs. power story.  (Try running your computer on heat!)  We need heat and we need power.  An ideal world would cogenerate them both from a single fuel source - whether nuclear, fossil, renewable or some player-to-be-named-later. 

But be careful assuming that any fuel would be "better" used for heat; it's analagous to saying that we'd be better off using our nation's beef processors only to make chuck.  Yes, you get higher efficiency, but you end up losing a lot of T-bones, filets and higher-value cuts.  Ditto with a preference for heat.  Like it or not, we need electricity - our challenge is simply to make it with as low a fossil-fuel signature as possible.

Rufwork,

I'm sure there would be an impact - but predicting energy prices (beyond the obvious: more demand = higher prices) is more art than science.  Line up all the economists who predicted gas would go to $14 in 2006 and $4 today, and I'll put a lot more faith in economic forecasting...

Last thing.  You write that "But most of the net revenue flow would go to legacy hydro and nuclear."

That's economically intentional.  If we're concerned about carbon prices raising power costs, then we should be excited about carbon revenues lowering power costs.  Note that's not the same as incenting new generation, but it is my larger point about not confusing wealth transfers with economic pain.  A regulatory model that makes coal plants a billion $ poorer and hydro/nuke/gas a billion $ richer is - broadly speaking - a regulatory model that places a big disincentive on CO2-intensive generation but keeps consumers from being economically disadvantaged.  In other words, we get our environmental signal without the macroeconomic pain.

Re: your last point, renewables don't dispatch against price as much as fuel availability.  They're all pretty much running as hard as they can right now, so the differential $ won't affect their operation.  It makes a big difference on gas though.  Post to follow...

I question the assertion that there is no difference between free allowances and auctions.   If this is true, why do polluters push so hard for free allowances?  Are we to believe that they are stupid?  That they are economically rational when asking for free allowances but then economically irrational when they decide how to run their operations in response to those allowances? 

Both seem implausible to me.  Duke Energy knows exactly how much it has to lose in a world with auctioned pollution permits, and we can be assured that they have done a very rigorous analysis to come to their conclusion that it is in their economic interest to advocate for free allowances.  Economic theory notwithstanding, business practice trumps. 

WM may well be the best that we can accomplish in this political climate.  But there is danger in suggesting that it is the best policy option available.

Enviroperk,

Re: fuel cost adjustments, you're right.  The question though is political: will rate commissions force utility shareholders to bear the brunt of carbon compliance or utility customers (or some mix of the two).  It's a damned-if-you-do-damned-if-you-don't choice, since in one case the customer has no incentive to conserve and in the other the shareholders pay no price for their actions.  (As The Economist described the latter this week, it's like "handing the proceeds of a tobacco tax to the shareholders of Philip Morris".)

In short, the politics are far from certain.  If they weren't, the coal lobby wouldn't be pushing so hard for free pollution permits...

Nigel,

That's exactly the problem.  The only reason to give away the allowances for free is because the polluters have political clout - not because it makes any environmental or economic sense.  And if we do give them away for free, we're then stuck in a conundrum: Do we pass prices onto consumers for a cost that the polluters didn't have to bear, thus representing a windfall gain to polluters, exactly as has happened in Europe, creating the bizarro-outcome where the economic beneficiary of CO2 policy is CO2 polluters - and creating a situation where the basis for giving away the allowances - that is, consumer protection - is replaced with a consumer-borne cost for a fee that doesn't exist?  If not, do we give neither polluter nor consumer a price signal to change their CO2 behavior?

Both options are lousy, in the sense that the defeat the whole purpose of a cap & trade system.  And they are innate to the allowance model.

So I come back to my question - do we ignore the math and go with the allowances because it's politically easy, or do we do the math and actually use a cap & trade system to..., well, cap & trade?

A few observations:

1. Eyeballing the charts, it looks like the per capita designation probably confuses some of the conclusions.  Maine is a lightly populated states, but is a net exporter of electricity.  Ergo, it shows up as a big source in the region, although whether that's because of population or CO2 is hard to tell.

2. The electric and industrial sector charts seem to (roughly, and unsurprisingly) follow US manufacturing.  Which, of course, also follows coal, to some degree, given the overlap between the rust belt and the coal belt.  But the whole country benefits from manufacturing.  Thus - like the Maine example - the dependence of neighboring states on the CO2 emissions elsewhere - or at least the goods & services associated therewith - almost certainly complicates any resulting political calculus to a degree that the coal state v. congressional voting relationship is likely to be subtle.  Indeed, the conclusion that Energy Committee members are overwhelmingly from CO2-producing regions could likely be equally reframed as Energy Committee members are overwhelmingly from regions that consume a lot of energy.  Framed one way, they're in cahoots - framed the other, they're the ones most directly affected by changes in US Energy Policy.

Bottom line is that I don't see the compelling linkage in the data, but maybe there's something I'm missing.  It does seem that there is a critical question, too often overlooked as to how to reduce CO2 emissions while still maintaining our nation's manufacturers.  As a friend once said in criticism of MA (state) economic policy, "at some point, you come to the conclusion that you cannot build an economy on hedge funds and organic grocery stores alone". 

In other words, one can simultaneously be anti-CO2 and pro-manufacturing - but our CO2 policy debate has been largely framed in a way that doesn't give such a coalition a voting platform.

Marc says: "Much of what the media reports is simply a regurgitation of the rhetoric from partisan and ideologically driven environmental groups, foundations and the United Nations, which are spinning data to promote a cause"

I say: takes one to know one!

Barton isn't stupid.  But he isn't trying to advocate a better carbon bill, or indeed even to dirty his own hands with killing what's on offer.  He's simply trying to make the Dems look bad, stirring up noise so that the Rs can say that the Ds failed to enact their key legislative priorities two years from now.  Ditto for many of the others in the R party who are talkin' crazy every time they get a microphone in front of them:  They talk crazy, media reports on the crazy, gullible media asks Dems what they think of the crazy, Dems formulate responses to the crazy and the net result is really busy inaction, playing a game where the crazies write the rules.

It really isn't that hard to play another game.  You simply walk past Barton when he talks, stick your hands in your hears, say "LALALALA I'M NOT LISTENING TO CRAZY JOE LALALALA", keep walking and then get back to being productive.  Anything that engages beyond that is playing into his intent.  The man deserves to be marginalized.  Let's give him what he deserves, until he's willing to engage more constructively.

TSJBM99:

Joe's got it right.  You write that we will need to store and move energy short term without a smart grid - OK, but how does hydrogen help that?  Hydrogen storage is arguably less technologically robust than electricity storage, and both are a long way from prime time.

Decentralized generation doesn't create a need to store power, but certain renewables do have intermittency challenges.  A H2 infrastructure doesn't fix that problem any more than a plug in hybrid fixes that problem; they both simply shift load profiles. 

And this gets to the real problem with an H2 infrastructure.  If you can't store the hydrogen, what's the point of the infrastructure?  Converting renewable energy into electricity, then using that electricity to electrolyze water to make hydrogen and then using the hydrogen to run a vehicle is only a good idea if the efficiency losses in the electrolysis step are offset by efficiency gains in a hydrogen vehicle relative to an electric.  They aren't.  In fact, they're worse.  Ergo, the only reason why a hydrogen infrastructure makes sense is if it allows you to generate the electricity during one period and use the hydrogen at another.  Which requires large-scale, cost effective storage.  Which we not only don't have - we don't even know if it's technically possible.  10+ years into the research, the only thing anyone's demonstrably proven on the hydrogen storage front is that you can store hydrogen if you're willing to absorb massive, efficiency killing parasitic loads (compressed / liquefied hydrogen), put it in structures that have mass and/or volume densities that make them impractical for transportation applications or anything of any scale (hydrides), or speculate about yet-unknown physical laws that might usher in wholly new materials (carbon nano-structures).  In other words, we've still got a better choice of options for storing electricity than storing hydrogen.  And storing electricity is really freaking hard.

Does that suggest that we shouldn't spend some R&D $ on storage?  No - by all means, let's always focus on hard problems.  But it does mean that big roll outs of H2 vehicles, hydrogen highways & fueling stations, etc. that are all contigent on solving a really hard scientific problem are massively premature, and a hugely irresponsible use of funds.

Raphsperry:

A minor point, but returns are not the inverse of payback, because returns compound.  If you earn a 10% return on a $100 investment, you get $10 back in year one, but then $11 back in year two (10% of $100 + $10).  That compounding continues, such that you get all of your $100 back in just over 8 years.

A 10 year simple payback, by contrast is actually just an 8% return (if you assume a 20 year asset life). 

It's a bit of a wonky point, but worth bearing in mind if you're talking about rational investors making comparative return investments.  The S&P 500 has historically returned about 10% (albeit not lately).  So in the silly example above, you'd be better off putting your $ in a mutual fund than in a 10 year payback.

None of that is to take away from your larger point - just worth noting the mathematical difference.

Tasermons,

That's true, but I think David's point is not that an RPS might preclude C&T, but rather that a C&T could preclude an RPS.  And if we ever designed a C&T properly, it would.  So far, that doesn't seem to be in the cards.

To your point though, since an RPS only covers part of the emissions sources, and since a C&T provides no explicit incentive for investments in CO2 reduction in those sectors that it does apply to, if an RPS is to be the patch to fix a C&T bill, it does need to be bigger than just electric. 

My only disagreement with your post is the implicit assertion that an RPS leads to the lowest cost CO2 reduction.  Properly crafted, it might - but so long as it's biased in favor of solar + wind, that's not precisely the case.  Not to say that those don't have value in their own rights of course, just that they're far from the lowest-cost approach to CO2 reduction.

The more compelling argument for "all of the above", in my opinion is that the CO2 price is a stick and the RPS is a carrot.  As long as we remain unable to contemplate a CO2 regulatory system that provides explicit incentives to CO2 reduction, you need a balancing carrot.  It should, in order to be economically workable apply uniformly to all CO2 reduction measures, pro rata with their impact to work... which is far from how a current RPS is framed.  But as long as we don't have that, we remain struck with a CO2 regulatory structure that insists upon increases in energy costs and reductions in CO2 emissions which really only guarantees the former, unless you have perfect global participation.  (Since driving up US energy prices in the name of CO2 reduction will simply shift CO2-intensive industries overseas as long as there are overseas countries not subject to those regulations.)

That is in no way meant to suggest that such a result is an inevitability of CO2 regulation - simply that it is an inevitable result of shitty CO2 regulation.  And so far as that's the only option on the table (sadly, that is the case today), we need something RPSish to bring lower-cost CO2 reductions on line and balance the economically disastrous consequences of shitty CO2 regs.

GMH,

No objection from me that the IOU model needs reform; I suspect you'll agree with much of my earlier response to AAADDD.  I also agree with you that we know how to encourage businesses to use cost control (fuel being the single biggest variable cost in an integrated electric utility, and second biggest overall cost after capital recovery): fully competitive markets.

That said, that kind of reform is probably more dependent on good political ideas than good policy ideas (sadly enough).  Therein lies the challenge to good solutions.

Don't knock Rowe - but do understand where he's coming from.  Unlike most utilities, they're generally on the right side of the carbon issue.  That said, they have built their company largely by buying distressed nuclear assets and running them better to dispatch into deregualted markets.  In other words, they are a big beneficiary of a carbon policy that charges everyone equally without grandfathering.

One can be cynical about that, I suppose - but there isn't much to be gained by knocking them.  Good carbon policy will require a coalition of strange bedfellows, and having Exelon in that coalition doesn't hurt.

No, a bit more subtle than that.  (Why do all my comments start that way?)

The "wet" and "dry" monikers on corn milling processes are confusing, in the sense that both are pretty wet.  The real distinction between the two is the difference between a petroleum refinery and a lubrication oil factory.  A wet mill - like a petroleum refinery - takes an input material and converts it into a huge panopoly of products, with the ability to instananeously shift production from one feedtrain to another in response to variable market pricing.  It's an extremely efficient process, using everything from the tail to the snout, as it were.  It's also massively capital intensive (if you've ever been to Decatur IL, that's what a wet mill looks like).  A dry mill - like a lubrication oil plant - takes the same raw material as the wet mill, but only converts it into one product: ethanol.  It's much less efficient from a resource use perspective, and much more exposed to the economic vagaries associated with volatility in corn and ethanol pricing.  But it's great advantage is that it's much cheaper and quicker to build.  Ergo, in the big ethanol bubble that's now popping, we built lots of dry mills.  But we also made ethanol in existing wet mills, opportunistically as markets warranted.  (Interestingly, the historical "big boys" of corn milling - ADM and Cargill - were largely absent from the dry mill construction boom, suggesting that the smart money figured it was just as well not to build low-cost, low-efficiency, economically-volatile plants.)

The only reason I brought that all up in response to your post is that those wet mills produce lots of the chemicals you mention from corn and from a processing perspective, it seems to me that if we're comfortable getting our lycopene from corn in a wet mill, the only reason we wouldn't be comfortable getting it from a dry mill is because of some technological constraint that forces various impurities / poisons / bad flavors / etc. into the fraction in a dry mill from which that lycopene might be recovered.

Re: the specific wet / dry distillers grains issue, you're right about the rotting issue, but that doesn't necessarily affect food grade stuff.  Distillers grains are simply the goopy stuff at the bottom of a fermenter after the yeast have done their work.  (If you've ever made beer, think of the sludge left in the bottom of your fermenter after you've poured off the liquid to bottle.)  Since corn (carbohydrate + oils + proteins) went into the fermenter and the yeast can only ferment the carbohydrates (and only the 6-carbon ones, at that), the goop that you're left with is actually a pretty protein & fat rich food, with good nutritional value - assuming no contamination, of course.  The problem is that - as my compost pit knows well after I've made a nice batch of homebrew - pigs and cattle are far from the only thing that likes to eat it.  In other words, it rots quick.  The only way to prevent that is to dry it down in an evaporator - or to send it directly to feedlots from the fermenter bottom.  Since most of our ethanol mills aren't near feedlots, drying has become the preferred approach.  Ergo, "dried distillers grains".

And - if only to tie this back to the energy nature of this website - ethanol plants use enormous amounts of natural gas drying those grains, such that it's only marginally economic for the mills themselves to sell the stuff.  Many that I've talked to wouldn't sell it at all, but for the fact that the BOD is too high to allow them to get a water discharge permit, so they instead by natural gas, dry it down and sell it at a marginal break-even or even loss.  Upshot of that is that many folks are looking at ways to get the value out of that material without using the natural gas - thus the many efforts to fractionate and sell bits and pieces into other markets before having to burn all that fuel.

Make sense, or have I gotten off on too far a tangent?

While this doesn't really refute your arguments, it's worth noting that many of the chemicals you cite currently come out of corn wet milling operations.  A corn dry mill (which is what most of the recent ethanol boom has been built around) differ from wet mills in many ways, but the most substantive is of sequence; where a corn wet mill grinds and fractionates corn, pulling out various food grade things on the front end (corn oil, protein, etc.) and then uses a sliver of the starch stream to ferment into ethanol, a corn dry mill runs the whole grain into a fermenter where the yeasts selectively ferment the starch in the kernel and then take the residual (the distillers grains, within which are all the proteins, oils and unfermentable sugars that the yeasts couldn't process) to go to other purposes.  So while we may not like the source of those chemicals in a before or after scenario, the after does have a lot of similarities with the before.

As an interesting aside, I believe there were some folks several years ago looking to put a corn oil fractionation process on the front of ethanol dry mills, based largely around the fact that the FDA wouldn't allow you to sell oil fractionated on the back of that process as a food grade additive. (Some ethanol plants have recovered the corn oil on the back end as biodiesel, but that retails for just a fraction of food grade corn oil on a per gallon basis.)  I presume that these prohibitions would also apply to the removal of other food additives from the distillers grains - at least absent some regulatory change and/or new technology

That's absolutely right, Sam.  Note that you also have to tie to thermal recovery (e.g., lbs/Btu of useful heat) to capture CHP systems - and perhaps more importantly, to ensure that the output-based metrics cover a broad enough swathe of our CO2 sources.  But that's simply a matter of math.  See here for my musings on that.

http://www.grist.org/article/carbon-policy-details-part-5

It is awfully frustrating to me that it is so easy to get this right - and getting it right is so far away from our current CO2 regulatory conversation.

Sam (Clifford)?

It's not simply waste heat, although that's the lens through which I see it.  Take two otherwise identical, fossil-fuel fired power plants, one operating at 45% efficiency and the other at 30% efficiency.  NSR / CAA makes no distinction between those two from a criteria pollutant perspective, forcing both to come to the same ppm levels without recognizing that the more efficient plant - by virtue of less total exhaust - is releasing less overall pollution to begin with.  In that sense, efficiency is most definitely a pollution control device, but not one that is recognized under the law, forcing us instead to use devices like the ones you note that actually penalize system efficiency.

Now suppose that our 30% plant already has an operating permit but wants to make an upgrade to go to 45% efficient.  Maybe they're looking at economizers, a cogen sale, better combustion controls - who knows.  At the end of that investment, the plant will release less CO2, and (probably - depending on how they get there) less criteria pollution.  But that plant now finds themselves potentially triggering NSR, to the extent that they are up-rating the power plant, and also may well run afoul of ppm limits if the result of the change is that less pollution is released, but in a more concentrated form since their is less total combustion air. 

It's often said amongst environmental regulators that "dilution is not the solution to pollution" - a tacit recognition that ppm standards mathematically encourage dilution, which regulators are on the watch for.  I think regulators generally do watch out for that gaming; but they tend to turn a blind eye to it's converse, as in the case above, keeping anyone from getting a permit who is concentrating their pollutants, even when that leads to a net reduction in total pollution. 

GreenMom,

Great question, and one that I wasn't necessarily thinking about when I wrote the post.  (My point was more that we shouldn't be overly pessimistic about our prospects - but as much hubris as I have, I'd be lying if I said that I thought  that FERC 888 or ISO's FCM program would have led to the massive changes that they did before the fact.)

Nonetheless, I think one can generalize that the two biggest barriers to the deployment of energy efficiency are state utility franchises and the Clean Air Act.  The former because it not only gives utilities no incentive to reduce their electricity cost, but also because they keep competition out of the space that would otherwise be encouraged to pursue lower cost solutions.  The latter because it's input-based (e.g., parts-per-million) standards, BACT/MACT framing and certain provisions of NSR compel industrials to comply only by reducing the fuel-efficiency of their operations - and risk losing their operating permits if they do otherwise.

Neither are easy to fix, but the CAA is probably easier, since it only requires a change to one piece of regulation (albeit a complicated one).  Shift the act to an output-basis, such that compliance is measured not in terms of the parts-per-million of pollution in the exhaust, but in terms of the lbs of pollutant per MWh (or MMBtu, as appropriate) of useful energy produced.  Anything an industrial does to reduce their fuel use tends to concentrate their pollution on a ppm basis, even if there is an absolute reduction in lbs of pollutant.  On the other hand, if an industrial can make more useful energy with less fuel, they immediately increase the denominator of a lb/MWh standard, making compliance easier.  It's a simple matter of algebra to ensure that such standards still provide as much or more total pollution (lbs/year) reduction, but this simple switch would suddenly convert efficiency from a permit-risking investment to a pollution control device.  (If one wants to play with the tax code, we could also define efficiency as a capital P-C-D Pollution Control Device.  It is, after all.  But if you get labelled as such in the tax code, you get much shorter depreciation schedules.  As it is, you only get access to those schedules if you use economically - and climatologically - irresponsible pollution control devices that compromise overall facility efficiency.)  Really fixing the CAA would also require an overhaul of NSR (new source review) as well, both to eliminate the grandfathering which causes us to stick with the dirtiest, least fuel efficient technologies (like 1960s vintage coal plants) in lieu of cleaner alternatives and to keep industrials from fearing for operating permit revocation (in the name of NSR) if they invest in efficiency.  I've written about this elsewhere, if you're interested.

On the state utility side, introducing full competition and removing utility monopoly franchises is unlikely.  But you can split the baby, by introducing the ability for clean generators to gain access to the same long-term, high-value contracts that utilities get with rate commissions.  California has a good template in their standard offer contracts, which have helped to facilitate a huge amount of clean generation that doesn't have a path to market in other states.  That could be rolled out much more broadly, and we've had some success lately with individual utilities on an approach modelled on this.  Perhaps not a panacea, but it has the immediate effect of adding 5 - 8 cents/kWh to the long-term revenue that can be realized by a clean generator, without imposing any social subsidy - it simply gives non-utility assets an ability to be paid for the full value they create, within the context of the existing regulatory framework.

Others may have better ideas in the specific, but I think the general point - it's the Clean Air Act and state-utility regulation, stupid - is right. 

Not so surprised by Howe.  Of all the energy think-tanks, I find that CERA has about the highest credibility/factually correct ratio of any of them.  They are very strong on resource supply issues (how much oil do we have, where is it, what's it cost, etc.) but consistently uninformed on resource conversion.  Their predictions for electric markets (which depend on assumptions not just about fuels, but about the generation mix and demand as well) and transportation (similar) are almost uniformly wide of the mark, tending to trot out conventional wisdom much more than real insight. 

You can see that bias in his remarks.  Electricity has hte potential for very modest gains, but switching to natural gas is huge. I read that as "I can't really think about a world with a different electric system, but I can think about a world with a different fuel system.  Ergo, the latter is where it's at."  It's like tuning into ESPN for cricket and polo coverage.  They'll get PR because they're ESPN; but they'll spend most of their time talking about the NFL.

My fear is broader than climate and energy.  The Republican party is clearly self-destructing, and the sooner it self-destructs and returns to it's moderate roots, the better.  But in the meantime, it is increasingly beholden to it's (ever more dominant) idiot fringe as the moderates either abandon the party (Specter, Jeffords, etc.), are abandoned by the party's idiot fringe or else lose an election to an increasingly centrist populace that doesn't trust the Republican's idiot fringe (Chaffee, Sununu, etc.)  So long as it is still there, it polarizes the debate in an unhealthy way - and a way that can't be fixed by a few centrist Dems, who after all have their own idiot fringe to appease as well.

At core, we have a healthy political process when we have two viable parties, both of whom must appeal to their middle to govern.  Increasingly, we've got polarized fringes, and the center cannot hold indefinitely.

Bottom line - I'm torn.  I like the fact that Specter's demise might hasten the Republican party's re-evaluation of their core principles.  But I'm depressed by the fact that so far (Vote Rush!) they don't seem to be inclined to.

I think the "user vs. investor" dilemma is what folks over here typically refer to as the "split incentives" problem of EE - most commonly found in commercial buildings, where the construction choices are made by the building owner / deveoper, but the energy costs are paid by tenants.  The builder seeks to minimize first-costs and has no benefit that accrues to them (at least directly) from saving long-term energy costs.

Also, you could pay people to shoot rainbows out of their eyes.

This seems to miss the point.  You only need to create federal job training funds if there isn't a natural market pull for those jobs in the first place.  (No one had to create financial analyst job training programs, after all - students volunteered to learn that stuff on their own nickel.)

That's not to say that there isn't a role for training.  But I'd much rather see the gov't focus on removing the regulatory barriers to deploying clean energy (creating a market pull) than trying to flood the market with lightly trained interns but not increasing the demand for their services.

Speaking as someone who's hired a lot of people to work in clean energy jobs, the barrier removal is vastly more important.  And while there are shortages of certain talents, they are not in the kind of areas where an $11,000 internship is suddenly going to cure.  For example, I'd like more potential employees with really robust understandings of thermodynamics and high-voltage electric power.  Those are 4 year degree programs plus a fair amount of experience.  An internship may well put someone on a track to fill in those needs, but I don't personally see any problem finding young people who'd like to work in the field but are short on experience.  The problem is that the industry fights against so many regulatory barriers that while young people get excited to get started in the field, very few have opportunities to stay in it and really develop a useful set of expertise.  So let's remove the barriers.  Absent that focus, this isn't anything more than a good soundbite.

(So too with much of the green jobs movement, I fear.)

I was there from 1997 - 2000.  So it was the original ADL.  And I swear, I had nothing to do with their bankruptcy.

Max,

Re: (1), you seem to be connecting dots based on a theory that electricity markets are perfectly competitive, precisely following Intro to Macroeconomics theories of the way in which price reacts instantly to balance supply and demand.  What possible reason would there be to presume that is true in electric markets?  Look at the basic conditions that have to exist for a competitve market to exist - which is, after all, the precondition for all that Adam Smith goodness to happen - and then see how much of it applies to the electric sector.  (Barriers to entry & exit, no ability of one actor to independently affect price, etc.)  Bear in mind as you do that that even if the ISO markets do pass that test of perfection, they still can't control the entire system given the dynamics at play - when western MA blacked out in August 2003 after a voltage stability problem in OH, it wasn't because ISO-NE markets had perfectly priced in all the relevant system controls.

But frankly, this doesn't need to be settled in the halls of academia.  Capacity reserves on the grid have fallen steadily over the last 10 years, line losses and system stability is increasing accordingly and yet no one is acting to build new generation & transmission to keep up.  (In fact, that trend has been underway since the mid-1970s.)  The reasons for that failure are complex - Clean Air Act, NIMBY and others all play a role - but even those technologies which avoid those challenges cannot be built based on current markets.  This is no less true for regulated utilities (in deregulated regions) than us unregulated, market-loving guys.  To wave away that 30 year trend as simply the rational allocation of capital now that we have perfect electricity markets is grossly naive.  My point about $10/MWh not being sufficient isn't a single data point - it's based on a lot of personal experience, a lot of conversations with grid managers and frankly a lot of conversations with utility managers - all of whom will broadly agree that these markets have done a wonderful job of rationalizing dispatch, but not at incentivizing new construction.  Such is the nature of markets that bid down to the marginal cost, especially when they are coupled with all sorts of prohibitions on the kinds of creative destruction that keep other, less regulated markets in a constant state of flux. 

To wit: if the neighboring coal plant is grandfathered out of clean air act compliance and can bid it's (fully amortized) generation into marginal energy & capacity markets, but I must compete against this with a new plant, I'll never get a high enough rate to justify a new investment.  But that is a pure artifact of regulation, and the way in which that coal plant is intentionally protected from the market demands that I must meet as a new source.  That doesn't happen in fully-functioning competitive markets.  When the iPod gets a phone addition, the old music-only ones seem obsolete and can't command a premium in the market.  But when my new power plant gets a no-acid-rain addition, the old dirty one gets a cost advantage, keeping me from knocking them out of the market.  Like I said, assuming this is a perfectly rational market is awfully naive.

I-banks are certainly in power markets.  Note though that they are, in many cases, not sufficient.  For example, in tax-equity markets (while they still existed), it wasn't unusual to see the big banks provide some 10 - 20% of the capital for a project in exchange for a right to the future tax credits.  Similar financial instruments can be had for power strips, interest rate swaps and any sort of other metrics.  But - broadly characterized - those are only for a portion of the total equity need for the plant, and generally only available once the project development is largely complete and the investment has been "de-risked".  This leaves a need for a - often significant - rump of $ to build the project, dominated heavily at the early, high-risk stage.  So yes, the I-banks have historically served a necessary function in hedging some of those risks, but it is not sufficient.  Again, the proof is in the pudding: we're not building new generation to keep up with demand.  (And, given our host site, it's worth noting here that the point is not to suggest that the solution to environmental woes is new generation: it's simply to point out that a economic model for CO2 based on regulated power markets isn't sufficient either.)

Last point: completely agree with you on feed-in tariffs.  They are utterly lousy policy.  My point in bringing them up is that, for all their flaws, they have encouraged new generation to come on line.  Such is the benefit of a carrot.  I raise it only by contrast to the Kyoto stick.  (Take an example closer to home, if you prefer: has the stick of the Clean Air Act made natural gas suddenly cost-effective relative to coal?)

Max:

Several responses:

1) In theory, capacity markets are supposed to fix the long term capital problem - we're in no disagreement about the theory.  Unfortunately, if you look at the clearing prices in capacity auctions right now even in the most robust auctions (PJM and ISO-NE's FCM) they are still too small to make a difference, working out to at best another ~ $10/MWh.  Note that this isn't in anyway intended to suggest that I don't believe markets can work; it's simply an acknowledgement that the robust set of financial products we've come to expect from mature markets arise in mature markets.  They don't arise overnight the moment a spot price is created.  That's a hard policy nut to square, but one that is critically important for us to at least acknowledge, given the urgent need to build new capacity.

2) I-banks don't build power plants.  Never have.  They may lend money to others to build plants, but they still need someone to build them.  Your example may be apt though, in the sense that the I-banks have historically been somewhat uniquely willing to build plants with a heavy dose of merchant risk, with the believe that their trading & hedging practices could mitigate.  Clearly, their ability to manage risk has been called into question of late, and that has dried up that source of capital.  But the larger point is that if you cannot get price certainty going forward, the only way to build assets is with high risk (high cost) capital, of the types that I-banks are very good at providing.  There are some projects that can deliver the 20%+ overall returns necessary to attract that money.  Unfortunately, many of the projects that you and I would like to see built don't pass that test.  They might if you could lock in a robust carbon price, but we don't have that either. 

3) Re: your coal plant Q, there are two difficulties with the analysis.  First, the mathematical: the ability of a utility to weather that increase in costs, as you put it, depends substantially on the rest of their fleet and what else happens in markets.  For example, if I have a big volume of depreciated assets but I can sell the output of those assets into merchant power markets, a huge increase in CO2 costs can be absorbed, simply by virtue of selling amortized power into markets that are (at least partially) factoring in the capital recovery costs of other market participants.  Plus carbon, etc.  Given the above comments, this isn't suggesting in anyway that those markets are perfect - simply to acknowledge that there is a huge difference between a utility that is totally regualted and earning only a bare-bones, regulator-mandated 11% return on capital and one that is earning returns in regulated and non-regulated ways with assets that are new and fully amortized and with a generation mix that has varying price signatures and carbon-contents.  In other words, you could do the math, but it doesn't tell you much.  But the larger difficulty is the one I keep coming back to.  You clearly believe that those coal plants will pass costs along, and you're entitled to do so.  My doubt is not with the accuracy of your belief, but rather whether markets collectively will believe that to a degree necessary to deploy capital today.  Not 10 years from now, when carbon-intensive businesses go bankrupt but today, when we desperately need capital assets built with lower CO2 signatures.  GM/Toyota has relevance in this way too: how long does it take a big, highly politically connected company to go bankrupt?  A lot longer than market theory allows - and during that whole time, markets are deeply distorted.

4) This goes to your (next to) last point.  Carbon prices may eventually cause prices to spike.  But that's like saying in 1995 that dot-coms were overvalued, or that in 2000 home prices were unsustainably high.  The fact that you were right in both cases doesn't change the fact that had you made a significant financial bet in either instance, you would have lost your shirt, and been dead broke by the time your prediction came true.  This is precisely the problem we need to address if we're going to get serious about carbon.  The fact that we can pass carbon legislation that will eventually cause massive increases in the price of energy is nothing to be proud of nor to root for.  As I've said many times, the operative test of CO2 policy is not whether it raises the cost of energy (in the near, mid or long-term), but whether or not it encourages investments in CO2 reduction.  Somehow, we have linked those two things, but they don't couple nearly as precisely as we want to believe.

5) This goes to your last question.  Yes, we do make recommendations to our investors.  And I'm not recommending investments in RGGI or AB32 markets either.  Even Kyoto doesn't really work; there's lots of investment following feed-in tariffs (carrots), but it's not clear to me that Kyoto alone has driven a huge amount of more positive investment solely from the stick.  (Although I will confess that I am both less familar with Kyoto markets and less comfortable drawing parallels given the different gov't structures.  Denmark, for instance, has fantastically modernized their electricity grid in recent years - as have CDM countries, like India - but those changes have been caused in large part by top-down regulatory fiats that wouldn't work politically over here.)

A point that needs to be kept in mind but is too often overlooked is that the water use in power plants is a direct function of their (in)efficiency.  Heat that is put into a steam power plant (roughly 70% of the US fleet) as fuel, but not recovered as electricity gets sent to a cooling tower as soggy steam where it is condensed with prodigous water use.  This is where the overwhemling majority of the water gets used / wasted in a modern power plant as those cooling towers evaporate water into the sky.  (Think about the plume atop a nuclear cooling tower.)

Without in anyway disparaging the value of electricity conservation, it bears keeping in mind that the larger opportunity for water conservation is in the power plant itself.  If you build those power plants as combined heat and power plants instead, replacing that cooling tower with a heating loop going onto industrials, district thermal loops and any other purpose you eliminate the need for substantially all of that cooling tower water - and save a fair amount of fossil fuel as well.

At the other end of the wire, there are many opportunities within industrial facilites to replace process coolers at their end (which also are big water hogs) with heat recovery, either to provide space heating or else - at the somewhat more technologically-adventurous fringe - stick organic rankine cycles that can make power with working fluids that boil at low temperatures.  This brings more efficient generation on line (displacing some of the load on those upstream generators, just like end-use conservation does) and also gets rid of water use at the industrial itself.  The opportunity for that approach is pretty massive - we've been looking at projects using ORCs in chemical plants, atop their distillation & stripping columns.  (Fun fact: for every ~5 MW of electricity consumed by a modern ethanol plant, you could pull 1 MW out via this approach.)

This isn't meant to be exhaustive, nor overly specific as to the solution - just to make sure we don't make the mistake of assuming that the miserably-low generation efficiency of our electric sector is immutable - but do appreciate the water conservation benefits of bringing that sector into the 20th century. 

I mostly agree, but it bears noting that some of our really complex parties started simple and then got steadily more complicated (think: the tax code) while others started complicated and got moreso (think: the Clean Air Act). 

My general observation in all policy matters - from mundane corporate HR policies to highfalutin federal energy policies - is that we're much more likely to get favorable outcomes when the complexity emerges in response to failures of the simple initial efforts than when it is baked in at the start - for the simple reason that human nature is far too complex (and human beings are far too clever) to ever presume that a complex policy created out of whole cloth will lead to the exact anticipated behavior. 

The classic example of this failure is close to home: how does your employer calculate your incentive compensation every year?  For every company with complicated targets (corporate, divisional, individual performance tied to earnings and personal targets along a 3-dimensional matrix....), there are as many employees behaving in ways that are quite counter to the organizations goals.  This is why banks end up paying bonuses in the wake of a bailout - those employees really were meeting their goals, in many instances... but the goals were so complicated that they forced the company to pay out bonuses even if the company didn't have cash in the bank to pay them.  Which seems like a reasonable limiting test on a bonus plan, but is very rarely included in anyone's calculation.

So extrapolate this to cap & trade and there is a core problem with starting complicated, in that it will, without any doubt, create massive unintended consequences.  And anyone who tells you that they are smart enough to know how society will respond to massively complicated legislation is either naive or lying. 

That's not to dispute your central point - simply to point out that there is a merit in pushing for regulatory simplicity.

Max,

You're being far too flippant and far too academic about far too important an issue.  This isn't about bets or theories, or even about whether prices rise.  It is about whether the CO2 regs create an incentive for capital investment.  I make bets every time day when my company decides to allocate capital based on returns, and I can tell you without any exception that I have yet to find a place where CO2 regs have caused me to make an investment in CO2 reduction.  Moreover, I see nothing in the current draft of regs that will get me to do so.  Societally, that is the only bet that matters: will investors put capital to work in the name of CO2 reduction.  I have every incentive in the world to do so, and it is a tragic failure of our existing and considered CO2 regs that I'm not doing so.  If you want to make a meaningful bet, go put your $ to work in response to CO2 regs and try to make money at it.  Prove me wrong, and leave me with all the egg on my face as you make money and lower CO2.  Society wins in that case.  But given the stakes at play here, that is the only bet that matters.

(You also presume that the price for CO2 compliance will be placed on fuel providers as opposed to CO2 emitters, which is not at all clear to me, and certainly not economicly optimal, but that is a separate matter.)

The difference though between energy costs and energy investments is instructive.  As an industrial, I may have a very high degree of confidence that my energy costs are going to rise on average, and yet still not invest in energy conservation for very practical reasons.  Suppose, for example, that natural gas costs are likely to increase on average, but also become much more volatile (a decent bet on both counts).  I may well decide not to invest in NG conservation because the volatility keeps me from being certain that the investment won't lose money in the near term, even if it makes money in the long term.  But more applicable to CO2, I have to try and guess whether the fundamentals that drive up the cost of energy will be reflected in the cost I pay once all the other actors in the system (regulators included) are factored in.

The upshot of all of those trends is that a CO2 reg based only on penalties discourages CO2 release, but does not necessarily encorage CO2 reduction.  The obvious opposite is an RPS, which encourages renewable deployment without directly penalizing fossil fuel use.  And indeed, if we push your logic to it's conclusion, we ought to throw out every RPS regulation because they are unnecessary on the day CO2 regs are passed, since all the incentive will be created exactly by the magic of the stick.

It's economic nonsense, which as I said earlier never passes muster in a board room even as it stands up to scrutiny in academia (and policy informed therefrom.)

Erik:

I'm reluctant to oversimplify a complex supply story - but the generalizeable pointis that oil and gas tend to be co-located, but unless the oil well is also near an NG processing / distribution facility, the NG is flared.  I've not looked at the numbers in a while, but the fraction of all the NG we pull off the ground that simply gets flared in place as a byproduct of oil production is significant.

The issue - and I think this is Wellinghoff's point - is that supply moves indepedently of demand.  So if NG demand rises but we curtail LNG supply, we are simply going to find ways to meet that demand with other sources.  The particular problem that raises with LNG is the double-burning for those fractions that now have a route to liquefaction but no route to market.

A final point: LNG is a very international commodity.  LNG tankers headed to the US have been known to re-route to Europe in response to differential prices in Europe and the US.  So this is not exclusively a US issue - just one that demands more nuance than NIMBY allows.

The NIMBY fight against LNG is misplaced, and it may well be a dangerous economic fight as well.  Globally, a tremendous amount of natural gas is flared without serving any purpose to relieve pressure from oil wells.  Environmentally, this is like pissing in your water glass just because you don't have a toilet nearby - all the environmental pain of CO2 release with none of the economic gain that comes from capturing the energy trapped in fossil fuels.

The flaring isn't because oil & gas companies are bad people, but because there is no profitable way to bring much remote gas to market - as a very low-density fuel, it just isn't cost-effective to throw it on ships to send to gas markets (or build transoceanic pipelines to do the same), so it gets flared in place in the course of extracting higher-density, easier to transport fossil liquids.  LNG has, to some degree, helped to fix this by creating a vehicle where that remote gas can be liquefied and brought to consumers. 

I'm not suggesting that this is an ideal end-game, nor that LNG terminals don't deserve regulatory scrutiny.  But we should be careful bashing LNG terminals categorically, to the extent that - in some cases - a failure to build those terminals causes the gas to be flared elsewhere, increasing the total rate of fossil energy use as we "double up", burning domestic supplies more rapidly to replace the foreign gas we're also burning in place.  In other words, the basic problem with NIMBY logic.  Piss in Algerian waters so that I don't have to see you piss in mine.

Scatter:

There is only an incentive to decarbonizing your process if you cannot pass the price along - if Exxon cannot absorb the $1/gallon as you suggest, it essentially means that their owners have no incentive to avoid that cost - customers pick up the tab.  The degree to which they will have to pick up the tab - and therefore, the incentive to decarbonize - is a function of whether or not there are competing, lower-carbon fuel sources available that also have a lower price.  (Note that lower carbon alone is not sufficient, if they start from a substantially higher fundamental cost.)  And as the run up in gas prices in 2006 - 2008 showed, there doesn't appear to be any strong candidate to replace gasoline up to near $5/gallon, at least in the near term (and with the exception of other heavily subsidized fuels, like ethanol at the margin).

This is not to suggest that there will never be a cost-effective replacement to petroleum, nor that pricing the externality is a bad idea - it's simply to point out that a price on CO2 emissions alone is not sufficient to guarantee a change in the usage of carbon-intensive materials.

(As an aside: why is it that you can only reply to posts twice, and then have to start a new thread?  David?)

It's actually quite useful, and not because of hydro.  Thomas Edison's first power plant was 6% efficient at converting fuel to electricity, but used an adjacent industrial as a "thermal dump" for his waste heat, giving him 50% overall efficiency.  Over the ensuing 30 years - essentially until we regulated the electric sector under a cost-plus model that removed the incentives for cost-conservation as a route to profits - the industry got steadily better at converting fuel to electricity, and at recovering waste heat, such that by 1910, the whole industry was about 65% efficient.  (The numbers are approximate, as the data on heat recovery isn't nearly as accurate as the data on electric sales.) 

Once we regualted though, by only setting electricity as the regulated commodity and regulating throughout such that (a) utilities got guaranteed returns on capital associated with electricity generation and (b) all operating costs were passed through without markup to the customer, we gave utilities two very clear economic incentives: Build expensive power plants, and build them inefficiently.  That doesn't make them bad people - it simply makes them as profit seeking as any other business - but the regulation was crafted such that their profits were earned at their customer's (and society's) expense.  Predictably, plants got bigger and more remote, and efficiency fell, such that the stereotypical image of a modern power plant is the cooling tower - a gigantic thing that exists solely to waste energy.  Meanwhile, all that energy that gets wasted is replaced with fuel burned in homes and businesses to replace energy that the power plant threw away.  That is (sadly) purely a fossil story.  More details here (fig 3 in specific.)

I've got much personal experience with this, having run a company for 7 years that build plants based on 1920s technology, all of which were 2.5x or more fuel efficient than the grid.  I personally built some 70 plants, which sounds more impressive than it is, since I found way more opportunities (by a factor of about 30:1) then I was ever able to fully build out - but it does go to show that the opportunity space to massively increase US fuel efficiency is not technically limited - simply a matter of deploying proven technologies, but within a regulatory framework that stops rewarding power companies for doing the wrong thing.  (Of those 70, every single one not only generated power at a deep discount to retail rates, but typically had simple paybacks of 3 years or less.  And in spite of that, only one was sold to a utility.  Which tells you pretty much everything you need to know about how misaligned our regulatory structures are.)

AuntieGrav,

There's something to be said for shifting from income to sales taxes, but it's no panacea (not to mention that the regressivity of that makes it a virtual non-starter politically).  Price only affects behavior at some level; increasing gasoline prices by 10 cents/gallon don't materially change our choice of vehicles.  So the tax only becomes meaningful to reallocate capital to the extent it is sufficient to do so - which will vary by sector, and doesn't have any direct reason to be tied to income taxes, which are set not be the level required to change behavior as much as they are set to match (however inaccurately) government budgetary needs. 

Finally, bear in mind that - per GreenGranny's comment - there are lots of barriers to efficiency that aren't simply matters of price, with the split incentives innate to real estate being only the most visible example.  All the tax-shifting in the world won't matter if the person who pays that tax is not the person who builds the building.

Maxi - You write as if we have a choice.  A market simply is the thing that summarizes how masses of people act.  You can have capitalist markets, socialist markets or any other kind you like.  But the key point is that materially changing the rate of CO2 release will require massive deployments of capital that far exceed the resources of the government.  There is no enlightened despot who, with a wave of her treasury wand can make everything all better.  So the choice in front of us is how to encourage all that behavior for which there is no direct government control.  Mandates?  Prices?  Penalties?  All induce market mechanisms, they just take a different flavor.

This isn't some zeitgeist issue of economics and religion, but rather a question of what tools government ought to use to maximally encourage the behaviors they seek.  In all cases though, that behavior will happen through a market.  It may not be a free market (and indeed, never has in the energy sector), but a market nonetheless.

What we need to do is to use as many tools as possible.  Penalties, incentives, etc.  What we should NOT do is pass rules that assume that we have some enlightened despot with all the answers to start directing capital towards preferred technologies, companies and approaches.  No despot is that enlightened.

Fine.  But I'll be damned if you're going to make me twitter.

Bill,

Completely agree that we need to price the externality and send a signal for markets to respond to.  My reaction was to the dangerous meme in much of the environmental community that suggests that CO2 is a toxic waste produced by others, and that others must bear the brunt of their sins.  We are all collectively to blame for CO2.  Every time we drive, breath, travel, use metal or plastic products or write blogs, we are contributing to the problem.  That means we need to contemplate a regulatory framework that is quite different from the ones we have used for toxics.  No one is better off because the local factory dumped their PCBs in their pond other than the factory's owners.  In that case, the point of compliance is clear.  But all of us have realized varying degrees of economic value from just about every activity that has led to CO2 emissions.  Might we have realized that value (or even a greater value) if upstream sources were less CO2 intensive?  Sure - but we still realized massive value.

At core, I don't think we disagree - I'm just hypersensitive to any framing within a toxics regulatory paradigm, because it leads to a slippery slope, at the bottom of which are deeply sub-optimal regulatory frameworks.  That, at core, is the problem with the whole cap & rebate model - it presumes that the bad guys are the emitters and the good guys are all us taxpayers who suffered from those power plants emissions.  Bullsh*t.  As Jack Nicholson said, we wanted that power.  We needed that power.  We may not be able to handle the truth of our complicity, but we are quite complicit.  Put a price on CO2 release - but use the proceeds to shift $ to those who are taking steps to reduce, not to those who were deemed worthy of government largesse.  That's how you handle toxics - it's not the right way to handle CO2.

I'd frame slightly differently: we discuss climate change solutions in terms of fuels and hardly ever in terms of the well-to-switch/wheels/etc. conversion efficiency of each fuel.  You can design a sh*tty, inefficient grid around solar just as readily as you can design one around coal - the only difference being that we've already demonstrated how to do the latter. 

The reason for the differential framing is that if we limit to demand, we tend to hive efficiency into end-use appliances (hybrid vehilces, CFLs and the like).  Which is all good, to be sure, but still ignores the entire upstream end of the fuel chain.  We ought to demand increases not only in the efficiency of our lightbulbs, but also of our power plants.  On the other side of that, we should be no less wary of shifts to inefficient upstream resources (see: tar sands) than we are of Hummer fleets.  Ultimately, the only metric that matters is fossil intensivity per unit of economic activity, and getting that down requires focuses on fuel switching, end-use efficiency, conversion efficiency and everywhere in between.

A fun thing to think about: Suppose you wanted to destroy Grist and the only tool at your disposal was the org chart.  Here's an easy way to do it:

1. Make sure that there is no single person atop the org chart.

2. Make all decisions contingent on the approval of three separate committees, each of which has the authority to reject, but none of which has the ability to unilaterally approve.

3. For one of those committees, break it into 51 separate sub-committees, any one of which can act unilaterally outside the larger body.

How long would you give Grist given that organzation structure?  Now note that this is exactly how we regulate electricity.  Building, siting and operating power assets are a function of environmental regulations, electric rate setting regulations and a slate of other public interest regulations (siting, tax policy, etc.)  The rate setting is done by 50 states plus the feds.  It is frankly a wonder that we have any power at all given that structure (and that's even before we get into FERC vs. Congressional jurisdiction).  But - as you note - it is many miles away from an efficient market.  With the possible exception of agriculture, I'd be hard pressed to name any market that is less regulated than electricity (and thus, less divergent from the theory of free markets.)

All that said, I'd take a bit of exception on oil markets.  On the E&P side, you're right, but refining is damned near a perfect market.  (Which is why the profitability of oil majors is primarily a function of the "upstream" exploration divisions.)  That's not to dispute your point - simply that painting the industry as a whole with a broad anti-competitive brush has the potential to perpetuate the nonsense about refinery price gauging that always creeps up whenever gasoline prices rise.

Indeed.  But bear in mind that GHG policy is primarily about wealth-transfer.  Not GDP collapse, but wealth transfer.  When you pay me $100 for something that cost me $80 to make, GDP grows by $20... but you're $100 poorer.  (Although I will grant you that the sh*t I sell for $100 is worth way more.  You got a deal.)  Broadly speaking, the debate over GHG policy is between the dudes who stand to make $20 and the schmos who are out $100.

So you're right that the political sides on GHG policy aren't D vs. R.  Their wealth transfer recipients vs. wealth transfer losers.  As currently framed, that basically means coal and manufacturing regions vs. everyone else.  But it doesn't have to be that way, especially if we contemplate policies that incentivize carbon reduction without presuming that our society will work without energy-intensive manufactured goods.  After all, CO2 is a global pollutant - shipping energy intensive manufacturing elsewhere ain't the solution, unless the "elsewhere" we ship it to is a place that has less CO2-intensive energy sources.

Sam

I take your point about shipping.  But note the larger point that CO2 prices only cause total energy costs to rise if the total supply of CO2 sinks is < the total supply of CO2 sources.

Your point (I think) is that within the shipping sector, this constraint probably holds, but within the power sector it doesn't.  I think I agree.

But as to whether that leads to economic pain at a macro level, you have to look across all sectors (and have a full understanding of all the sources and sinks in each which requires a level of omniscience that I'm quite certain no one has, even though I'm confident that we all universally underestimate the way that markets respond to a price signal - and therefore are prone to understating sinks to a much greater degree than sources, since our passed experience is so heavily biased towards the latter).

So even if shipping does get higher costs - a very real possibility, to be sure - I don't think you can a priori conclude that the delivered costs of goods to customers without understanding the full economic value chain.On Carbon pricing does not necessarily cause high energy prices posted 8 months, 3 weeks ago 6 Responses

It's really rather frightening

There were rumors kicking around a few weeks ago that the banks would put GG on 1 day term loans, renewed every day - the logic being that since this is a lousy time to have a fire sale, the banks would just give themselves the option to have the fire sale at a time of their convenience.  Needless to say, many got really nervous about that.

But it's pending disaster for a whole lot of companies that - by most measures - were not being particularly irresponsible with their debt.  On Mall-operating behemoth General Growth Properties plunges in value posted 8 months, 3 weeks ago 5 Responses

Perhaps more about debt than malls

This is a story that the financial industry is watching closely for reasons that have little to do with malls.  5 years ago, corporations could get so-called 'bullet' loans, where you pay interest-only for the first several years (typically, 5 to 7) and then pay off all the loan at the end of the term.  

This is not as intrinsically risky as it is in a mortgage market, for the simple reason that corporations have income.  (e.g., a mortgage is ultimately tied to the value of the home, whereas a corporate loan is typically tied to the income of the company.)  As long as the loan is not a huge multiple of the income, that's not a particular irresponsible loan - but it does depend on the ability of the company to refinance that loan before the 'bullet' hits.  GG - and many other companies - have found themselves in a situation where their time-window to refinance those loans came at a rather inopportune time when no banks want to lend money to anyone.  It is thus a harbinger of a massive potential wave of corporate defaults driven by the huge volume of 'bullets' that are coming due on corporate loans over the next 18 months.  (I've heard in excess of $1 trillion worth of those loans.)  If the banks choose to force those companies into bankruptcy rather than restructure their loans, there is a massive 'second shoe' to drop in the financial sector.  

On the other hand, the downside of bankruptcy from the lending banks perspective is that they then end up owning an asset that they can't readily turn into cash, for the many of the same reasons (after all, few can get a loan to buy a business right now either.)  

Thus my earlier comment about the attention this story has gotten in the financial industry.  Every side of this transaction from a financial perspective stands to lose, and it's not clear who's going to move first.  

In any event, I hate malls too, but I think ultimately the ramifications are much larger.On Mall-operating behemoth General Growth Properties plunges in value posted 8 months, 3 weeks ago 5 Responses

If you want to waste your day...

Check out Improv Everwhere who's been doing this stuff for a while.  (Dare I say, before it went commercial?)
On What the world needs now posted 8 months, 3 weeks ago 1 Response

In news from the subcontintent...

India (or at least the Congress party) now seems to be embracing not just Slum Dog Millionaire, but also this song.  Amazing what an Oscar will do!

"If one party deserves the song to be played during campaigns it is the Congress party because of its image," Manish Tiwari, party spokesperson, said.

I don't even know what that means, but it's hard not to think of Reagan making Born in the USA his theme song...On A song from the likely Best Picture and an open thread for the Oscars posted 8 months, 3 weeks ago 7 Responses

I agree with the problem, but not the solution

You're right that volatility is a problem.  Indeed, it's why many of the purported benefits of deregulation haven't materialized in the electric sector - you simply can't make long-term investment decisions on short term spot prices.

But to leap from that point to claim that a carbon tax is the fix (or some other regulatory patch - minimum prices, minimum returns, etc.) is a political theory, not an economic one.  One may favor top-down, regulator-defined markets for political reasons, but there is no compelling economic reason why that is the right option.  Indeed, thousands of markets from orange juice to T-bills have figured out ways to lock in price certainty without a government patch.  Historically, the way that this has tended to arise is from a certain critical mass of investor liquidity: the first time a farmer sold a bushel of corn to a wet mill, it was on a spot price.  But you get a volume of farmers and a volume of mills and pretty soon you've got the Chicago Board of trade with long-term corn futures, strips, hedges, etc. and all the things that evolve to solve exactly the problem you mention - how to lock-in price certainty in a volatile market.

There is a fertile, largely unexplored area of inquiry as to how you accelerate that liquidity creation.  Power markets again, are a good example: a decade into dereg, you still can't lock in long-term prices beyond 10 years (and since the credit crunch, you're lucky to get 5).  Some would argue that this is a sign that we don't yet have enough liquidity in that market (and conclude pessimistically that it will take an equivalent time-constant for carbon markets to mature.)  

There may be some merit to that argument, but it bears noting that when those markets were set up - and when carbon markets were set up - they were established based on economic theory largely disconnected from economic fact.  The theory says spot prices are all you need.  The fact says you need some degree of price certainty to spur long-term capital investment.  The markets we have basically set the spot price and then presumed that through the magic of economic efficiency, all those sophisticated financial products would appear if demanded.  Which is a bullshit argument that doesn't hold water anywhere outside of academia, but it prevailed nonetheless.

Rolling back the clock, one can imagine lots of market-driven ways that longer-term trades could have been facilitated from the get-go, and that's a conversation worth having.  But I don't buy the argument that the solution is government interference in market price-setting mechanisms.On Low permit prices undermine infrastructure transformation posted 8 months, 3 weeks ago 7 Responses

One more thing

I'm willing to bet $10 that this is not David's "last foray into the economics discussion", no matter what the headline says.

Any takers?On One last foray into the economics discussion posted 8 months, 4 weeks ago 17 Responses

ids - what alternative do you propose?

Let's parse that.  Paying Duke 90% of what they would earn if they built new generation to serve the load is simply another way of saying that rate payers broadly should get 10% of the system-wide savings caused by EE.  If your argument is that Duke should get <90%, that's fine - and I'd love to see the enviros of the world engage with the Dukes of the world on those details.  But let's not presume that keeping the current status quo where Duke gets 0% of the upside is doing any of us any favors - and let's also acknowledge that doing nothing is an embrace of the status quo.On South Carolina misses an opportunity for energy efficiency with Duke's Save-A-Watt program posted 8 months, 4 weeks ago 18 Responses

Very well said, Ken!

Lonely as it is to be the guy arguing for economic efficiency in environmental policy discussions, it's absolutely critical to success on both fronts - good post.On Some perspective on tax-and-dividend and a better alternative posted 8 months, 4 weeks ago 26 Responses

Progressive pablum

While I agree that this is better than some ideas for CO2 control, it remains deeply flawed.  (Follow David's helpful hypertext to save me from explaining why here).  

But it seems that love is misguided.  Environmental action and help for the poor?  It's a liberal wet dream - and one that the Van Joneses of the world have captured eloquently.  But is there a natural link?  And can you build a constituency for vote passage on that ground?  I'm not convinced - and would ask anyone who thinks otherwise to point to an instance when that has proven to be a politically-successful coalition.  

To be more specific: does Inhofe's voting record suggests that his primary constituency is Oklahoma's poor?  Is there any legislator who consistently wins re-election with an environmentalists + the poor constituency?

Please don't take these comments to suggest a dismissal of the the issues of the environment or the poor - I'm simply not convinced that this is such a deft piece of political jujitsu that suddenly causes Rs to break ranks.On Carbon policy = tax cut posted 8 months, 4 weeks ago 7 Responses

I agree, David

This is really getting screwed up.  The idea that the goal of a CO2 policy is to reduce CO2 is being totally supplanted by the idea that a CO2 policy should provide additional stimulus revenue.  We are on a path to get all of what we ask for (more money!  Wheee!) and none of what we don't (quick, cost-effective CO2 reduction.)  On What percentage of auction revenue is rebated? posted 9 months ago 10 Responses

Like it

Although worth noting that this is in effect what CAFE already does (did?), if indirectly.  The auto companies, in order to meet their CAFE thresholds regularly sell their most fuel efficient models at heavy discounts, the better to drive up demand and help meet their overall fuel fleet economy targets.  Which is in part why the auto companies didn't like CAFE, and there is a certain political logic to shifting it to a tax paid by the consumer that leaves the auto industry a bit more vehicle-agnostic. (In practice of course, the auto companies would still have differential profit margins by different vehicle type, just as they do today, but this would at least eliminate the direct correlation between profit margin and fuel economy that has made it so economically painful for the auto industry to rally behind CAFE.)On A price signal in the vehicle market is best applied to the vehicle posted 9 months, 1 week ago 14 Responses

Disagree, Ted

You're right for a static system, but the grid isn't static.  Load grows on one end, generation grows (or doesn't) on the other, and the location of each shifts in time.  As that happens, the grid infrastructure either keeps up or it doesn't.  Yes, in the instantaneous sense, a transmission/distribution-induced outage is unavoidable, since you cannot have reorganized generation, transmission and load instantaneously.  But a system that over-relies on remote generation and fails to make investments to keep up on the transmission side is inherently more prone to outages than one that doesn't.  

To wit: transmission losses today are nearly double what they were in 1975 (9.5% vs. 5%).  That's not because the grid is "softer" today, but because the load grew faster than the wires.  Taken another case, when First Energy voltage stabilization problems took out the whole eastern US in 2003, a big conclusion of the US-Canadian task force was that the problem was due in large part to a lack of tree-trimming.  Which is logically inane, but essentially meant that the grid was sufficiently congested that we couldn't route around the source of system disturbance without going through an section with higher trees.  Lines overload, sag (see: those transmission losses again!) and short out on the trees.  If we had a system with more generation at the load and/or invested more in transmission, we wouldn't have had that outage (and indeed, the vast majority of the system-wide outages we have today).  To chalk that up to "anomolies" or system-hardening is nonsense.On Grid reliability statistics look good, if you don't consider the flaws posted 9 months, 1 week ago 9 Responses

Jestbill

I think your confusion lies in thinking of CO2 as analagous to other pollutants, which we have addressed largely by removal: either we take them out of the exhaust (e.g., install a baghouse to remove the soot from the exhaust) or take them out of the fuel itself (e.g., take the lead out of the gasoline).  CO2 is fundamentally different in that it is a direct result of combustion.  Take the carbon out of coal and you don't have any fuel left.  Try to take the CO2 out of the exhaust and you have a massive technical and economic challenge (which is why CO2 sequestration remains so far from a certain solution).

The reason why compliance with current, non-CO2 regulation leads to increases in CO2 emissions is because those regulations compel you to install devices that themselves require energy to operate - energy which causes you to burn more fuel and release more CO2 solely to remove those pollutants.  

Thus, a coal plant that doesn't have to comply with the Clean Air Act is substantially more fuel efficient than one that does - by about 5%.  That means that the CAA-compliant plant (while a wonderful improvement from an acid rain / smog / soot perspective) is actually accelerating our global warming problem by burning more fuel per MWh of electricity delivered to the grid.  Such is the nature of end-of-pipe controls: it takes energy to separate, collect and dispose of pollutants that are a dilute fraction of a larger air stream.  (CO2 sequestration merely takes this logic to an extreme - fully retrofitting a coal plant with carbon sequestration would increase fuel combustion by about 20%, meaning that even if it does get the CO2 removed, it accelerates all the upstream environmental problems, since we just lop of mountaintops that much faster.  It also means that a world dominated by coal CCS plants has to build 20% more power plants to meet the same demand - foreshadowing NIMBY battles to come...)

So it's not a question of certain fuels being innately more efficient to burn, but rather that input-based pollution standards have forced people to favor the use of fuel-inefficient technologies, both by mandate (e.g., "best available control technology" regs) and by algebra (e.g., the way in which efficiency is discouraged because of its tendency to reduce the denominator of a parts/million fraction.)  In both cases, that means that a plant that is permitted in the current regime has a compelling argument to make the day after CO2 regulation is passed that they are being legally forced to increase their CO2 emissions and therefore cannot be penalized for doing so.On CO2 and the Clean Air Act posted 9 months, 2 weeks ago 15 Responses

Jestbill

1. I'm not saying that in order to lower CO2 emissions they will have to increase CO2 emissions.  I'm saying that in order to lower current regulated emissions (e.g., pollutants other than CO2), the compliance metrics cause you to increase more CO2.  In a very narrow technical sense you are correct that mandating CO2 sequestration in addition to current criteria pollutant clean up would lower both.  But that is a massively bad idea, on just about every level.  (It only works to the degree that CO2 sequestration works, forces one single approach to CO2 red'n at the expense of all others, is massively expensive even if it does work, and exacerbates every other upstream environmental problem since it would serve to accelerate the rate of fossil resource extraction - a plant with CO2 sequestration on the back is, after all, a much less fuel efficient plant.)

2.  As with the prior, the logic doesn't quite flow.  The fact that you can mandate good behavior on a public utility doesn't necessarily imply that the best way to get things done is with a public utility.  (And indeed, the folks at APPA and NRECA - the lobbying arms for our nation's public and rural non-profit utilities would make a compelling case that you cannot simply mandate them to do things without their buy-in.)  Speaking of lobbying, I wouldn't make too much of the number of power plant operators in the country - it is the size of their lobbying budget that matters.  There's only some ~80,000 people in this country employed by the coal industry, but they have a lobbying clout well in excess of that total.  That's not to say that one couldn't find good reasons to make more of the public utility model - simply that we do not need to have an environmental regulatory framework that forces all environmental compliance to be economically painful.  It just so happens to be the way we do it right now, but there is nothing innate to environmentalism that makes it thus.  So long as we remain stuck in the current paradigm we are compelled to talk mandates and pain and fight lobbyists.  But if we go to a system that severs that link - like output-based standards, although that's certainly not the only approach - we get everyone's economic interests aligned with the environments, so that even the private utilities have an economic interest in CO2 reduction.

Gar

Not sure what you're looking at, but biomass is just about equal with IGCC coal when it is in electric-only mode ($127 vs. $126/MWh in the chart): comparable fuel costs, and the slightly lower capex for biomass (less pollution control) offset by slightly lower efficiencies in power only mode (because the fuel doesn't burn as hot).  

Biomass has a decided advantage over coal with CO2 sequestration for obvious capital reasons.  The biomass bar that does show an advantage is the one that includes CHP, which is function of the thermal credit - obviously not available to large-scale, remote, central-station coal.

So wood doesn't end up cheaper than coal on a delivered, $/MWh basis if both are used in electric-only plants without CO2 control.  Add waste heat recovery and/or CO2 sequestration on the coal plant and you start to get an advantage.On Proposed renewable-energy bill is better than nothing posted 9 months, 2 weeks ago 26 Responses

All

With apologies for the partial answer while Tom travels:

1. We've got a spreadsheet and will post as soon as Tom's computer is back near an internet link.  The request is a good one, as it necessarily forces the conversation to the assumptions rather than assumptions about the assumptions.  Apologies for not posting sooner.

2. Re: recycled energy vs. recycled energy w/CHP, here's a primer to our internal jargon:  You have places where there is waste energy available from industrial waste heat to digester gases from water treatment plants.  The broad commonality of those applications is that they involve the recovery of energy that would otherwise be wasted, leading to zero incremental emissions but generating power that can displace something dirtier off the grid.  This, per the parlance in the chart is "recycled energy", and it is available anywhere there is waste energy.  "Recycled energy w/CHP" is a subset of that space where the source of waste energy also has a thermal load, such that the energy recycling facility can generate both electricity and heat.  It is more cleaner and often cheaper than CHP, but only available where there is a local thermal source.

We are currently doing a project in West Virginia at a silicon plant, recovering waste heat from their submerged arc furnaces to generate ~45 MW of fuel-free power.  The only significant use for thermal energy at the plant is in their arc furnaces, where the temperature requirements are so high (>4000F in the pile) that they can only be met with electricity.  As such, our power plant will turn hot gas into steam and steam into power + soggy steam, but we must then install a condenser to turn that soggy steam back into water.  That is pure "recycled energy", in our parlance - but note that the condenser is still wasting energy, heating up ambient air to cool the steam down and return the water back to our plant.  It's a vast improvement over the current state of affairs (to the tune of 45 MW), but obviously not perfect, in the sense that it does not eliminate all thermal waste.

By contrast, a predecessor company did a project at a steel mill in northern Indiana recovering heat from the coke oven gases that were previously flared.  Same basic configuration with hot industrial waste --> steam --> power.  However, in that case, the plant uses a large amount of steam for process needs as well, so in addition to making power, the plant recovers the low pressure steam to meet process needs, effectively shutting down a coal boiler in addition to making 95 MW of fuel-free power.  This, in our parlance, is "recycled energy w/CHP".  

The latter is clearly more efficient, as it squeezes more useful Btus out of every wasted Btu.  It also is often cheaper, since you don't have to install a condenser.  In aggregate, these two factors explain why it has a lower calculated cost per MWh in the chart.  However, since you cannot transmit thermal energy over great distances, it's opportunity space is somewhat more limited to those locations where wasted energy exists and there are significant on-site thermal loads.  

(By contrast in the chart, "CHP" refers to fossil-fired combined heat and power plants that are substantially more fuel efficient than the grid, but not 100% fuel free.)

Hopefully that helps clear up some of the confusion?On Proposed renewable-energy bill is better than nothing posted 9 months, 2 weeks ago 26 Responses

The more honest story

Would have noted that the coal-power lobby is so damned powerful in Washington that no decent politician is so dumb as to scorn them universally.  Ergo Chu's softening tone during his confirmation hearings.  Politicians who truly understand the problem are therefore going to be a ready source of conflicting sound bites, as they are honest about the problems one day and politically saavy the next.  So yeah, there's a debate within lefty political ranks.  But it's within the corpus of each individual successful (but environmentally minded) politician, not between them.

The folks we really need to fear are the ones who are consistent (and politically viable).  I suppose the media doesn't naturally gravitate towards stories where there is no obvious conflict.  But that's tantamount to giving the Klan a free pass on social issues, just because their members all agree.On 'Clean coal' non-debate produces fake rift among lefties! posted 9 months, 3 weeks ago 14 Responses

I gotcha

And I don't disagree with your end-game.  My point is simply that the pro-fossil crowd makes valid points about energy storage problems that - at least from my vantage point - the green community has not credibly countered, but with techno-head thinking of their own.  (Lithium batteries!  Smart grids!  Flywheels!  Pixie Dust!)

So while I buy your argument, it seems to me that both sides of the argument overly rely on techno-babble to make the case for how you can get there from here.  And if we universally dismiss techno-babble, then we're stuck with the status quo, putting the onus on us good guys to articulate a credible path out of the woods.  Until we do, it is too easy for us all to be dismissed as technologically naive by those who have the decided advantage of already deploying massive, technically complex things (however problematic they may be).  Thus can renewables be written off as technologically immature by the same people who lobby for CCS.

I realize this starts to get off topic, but the crux is that there are real energy storage problems that we need to confront.  Not throw our hands up, to be sure.  But don't ignore either (or dismiss them as being resolvable by a Technology To Be Named Later).On Energy density is not an immutable requirement posted 9 months, 3 weeks ago 44 Responses

Interesting, JMG

For what it's worth, all those mandated pollution controls probably increase plant CO2 emissions by 3 - 5%.  The problem with the CAA is, as I've noted, that it forces you to pick your favorite poison, but it doesn't have to be that way.On CO2 and the Clean Air Act posted 9 months, 3 weeks ago 15 Responses

Jon

Do not assume that the ratio of fossil fuel:electricity is fixed, or perfect.  It is in fact far higher than it needs to be right now and would fall dramatically in a world where we acted like we gave a sh*t about the cost or environmental impacts of power.  (A point we can make ably to Sherrod Brown & others.)  

So as you start to increase that efficiency, you end up as a net winner under a sensibly defined GHG plan (in the sense that a sensibly defined plan would provide incentives to burn less fossil fuel, however structured.)  The only question then becomes where the biggest impacts are for enhanced efficiency - which leads to a net economic gain (profit, not cost per tonne of CO2 reduction) - as opposed to more expensive fuel switching and/or standard of living curtailment which have costs per tonne.  

Those opportunities are, to a significant degree, concentrated in the rust belt.  They are also concentrated in the power sector, but only at a macro level.  (e.g., there will certainly be losers: namely, those who insist on clinging to expensive, inefficient power).  But so long as the result is to drive down the overall fossil-fuel intensivity of the power sector, the overall sector wins.

This is a really key point - far too often, we confuse wealth transfers with economic pain.  They not only aren't the same thing, but are also the opposite thing.  A GHG bill that allows bilateral trades and cuts gov't out of the process will incentivize massive reductions in fossil fuel combustion - and therefore, massive reductions in our expenses to pay for that fuel.  That's a good thing economically and environmentally, even if it does mean that our coal miners get a little less money along with inefficient coal plants.  But that is, after all, how economies move forward.  Not by guaranteeing that all shall win, but simply by providing an opportunity that allows for more winners than losers.On Government investment in the Midwest will grease the skids for cap-and-trade posted 10 months ago 12 Responses

Jon

I saw that article and share your frustration.  But it's worth noting that it is methodologically possible to get "greens & blues" to overlap, but only if we revisit how the rules are calculated.  An output-based standard primarily benefits those who have opportunities to increase their efficiency.  And a policy framework that incentivizes efficiency necessarily brings the rust belt along in a clean energy future.

There may be other ways as well, but the key point I think has to come from an acknowledgment in the green community that ultimately, we still have to make things.  From steel to aluminum, our economy is dependent on many things that we want in our homes and products, even if we don't want the factories in our backyards.  It strikes me that much of the green v blue polemicism derives from a combination of luddite-esque tendencies amongst some in the green community and a simple lack of understanding of how stuff gets made amongst others.  Both combine to create the false perception that you can maintain any kind of acceptable standards of living without factories.  So long as the debate is framed as renewables v coal, we will never get the manufacturing community on our side.  But if we frame the debate instead as minimizing fuel combustion per dollar of GDP v the status quo, the debate goes away.  Burning less fossil fuel does not have to imply shutting down factories; but we need to articulate why that is the case or else this debate will persist.  

(And note that the way much cap & trade has been framed to date does far more to polarize those sides than align them.)
On Government investment in the Midwest will grease the skids for cap-and-trade posted 10 months ago 12 Responses

Miles

Please don't take my post to suggest that we shouldn't regulate carbon, or even that cap & trade isn't the way to go.  But if Congress insists on seeing cap & trade as an economic stimulus by another name, it will not only fail to meet the environmental goals we need to meet, but will effectively preclude us from doing a better job.  

In other words, don't get caught up in the fact that we've been trying to get cap & trade for years and now seem to be on the cusp of getting it.  What we have been asking for is not what is on offer, except in the headline.  The details of C&T matter, and Congress is on a path to get them woefully wrong.  I want the details right, not the headline.  So should we all.On Can Congress be trusted to get necessary GHG legislation right? posted 10 months ago 8 Responses

Gar

Not sure your point about 3 year permit life, but I'd advise against that.  If you want people to invest in things, you need them to make those investments factoring in the costs and profits over the lifetime of the investment.  This is no less true for energy efficiency investments than for municipal bonds.  And no less true for investment in those capital projects to reduce CO2 emissions - of which we will need a massive volume of in order to right the ship.  Setting rules so that you only have access to three years worth of CO2 credit at the time of investment serves only to reduce the volume of investment in CO2 reduction.  

I suspect your concern on the pollution side of the equation is that you don't want to let CO2 sources pollute indefinitely into the future.  Which I understand, but keep in mind that you've got to keep visibility on the other side as well, since the goal of a good CO2 policy is not only to penalize sources, but also to reward sinks.  Three year windows simply isn't long enough to do so.On There's a reason Republicans stump for a carbon tax, and it ain't to reduce emissions posted 10 months ago 37 Responses

Good data, Eric

And while, as you note, the variance in gas taxes is pretty small, it is further proof that if you want to affect the cars people drive, affect the price of the car, not the price of the gas.  Smart people can quibble about the elasticity of gasoline demand, but there's no question that there is a strong elasticity when it comes to vehicles.   A gas guzzler tax will do far more to drive up fuel economy (or crusher credit, or tightened CAFE, or some other model) than anything we can hope to do on the fuel side.

As an aside, note that you can find similar lacks of correlation in any energy source where the total expenditures are a small % of income (which is, at core, the problem with gasoline: a car is a major purchase for most homeowners.  A years worth of gasoline is not.)  Which raises a whole interesting conversation about how to structure price signals that will affect energy demand, at least as it relates to those sectors of the economy that use a lot of energy in the aggregate, but are not energy-intensive in the specific.On What gas taxes don't do posted 10 months ago 5 Responses

JMG

We may disagree about the merits of markets, but that's ultimately not the point, as a close look at your example makes clear.  Reasonable people may have reasonable arguments about the benefits of markets vs. nationalization.  But the modern utility is neither.  It has the backing of the state when it comes to cost risks (e.g., all costs are guaranteed to be recovered) but the pressure of shareholders to generate steadily rising dividends.  A cursory comparison to the highway department makes the difference apparent, since the latter does not pay dividends.

The modern utility is therefore a "half-pregnant" enterprise, capturing the worst of both models - the lack of fiscal discipline that comes from the public sector and the lack of social purpose innate to a for-profit business.  (And none of the upsides of either model.)  If one concludes that the fully-nationalized utility is the way to go (a point Jon Rynn makes often), then we don't need to decouple, because 100% of the benefits are socialized.  If one concludes on the other hand that a fully-competitive electric sector is the way to go, we also don't need to decouple because cost control will immediately become a route to profit growth.  But as long as we insist on maintaining the kluge that we currently have, decoupling is the solution.  

Ergo, my point isn't to argue the public vs. private point, but simply to acknowledge that that conversation really ought to preclude the presumption that decoupling is a panacea.On Waxman puts utility decoupling in the stimulus posted 10 months ago 8 Responses

Sad, but worth keeping in mind

That science doesn't proceed by a democratic process.  The examples listed are painful, but there are no shortage of scientific facts that would fail public opinion polls even amongst more scientifically literate crowds.  (Quick poll: does evolution proceed by a process of incremental improvement or punctuated equilibrium?  Should we care what the majority answer is to this question, or whether the majority is right?)

This isn't to dismiss the enormous problem of scientific illiteracy, but simply to point out the basic problem with poll-tested decisions.  On a whole host of issues, which are in no means limited to scientific ones, we need to rely on leaders who will make the right decisions without the votes, or even in the input of the majority.  (Civil rights issues being an obvious example.  See also Jefferson's/Madison's early concerns about the "tyranny of the majority")  

So while it's sad that Americans don't understand global warming science, it's much sadder if we have reached a point where no policy actions are possible that don't have majority support.On Americans' climate change doubts aren't hard to understand posted 10 months, 1 week ago 10 Responses

Davedenali

You miss the point.  The purpose of a GHG bill is not to raise revenue.  It's to lower GHG emissions.  Trying to do both at the same time only guarantees that you will do both poorly.  As Lieberman-Warner ably demonstrated.

Moreover, the need to pay for economic pain that GHG legislation causes on low-income folks is directly proportional to the amount of GHG "revenue" proceeds we spend on not reducing GHG emissions.  (Precisely because so many of the things that would be incentivized if they were compensated for their GHG reductions also lower the cost of energy, from efficiency to renewables.)  More renewables on the grid lower the variable cost of energy.  So too with efficiency.  All will be rewarded by a GHG policy that ties the economics of CO2 directly to those actions that increase or reduce CO2.  But if all we do is collect fees and then redistribute, we will end up not encouraging precisely those things that have the most environmental bang for our economic buck.

The larger point though is that legislatures are horribly inefficient vehicles to figure out how to spend trillions of dollars - there are simply too many hands out for those allocations to be made solely (or even mostly) on the basis of the right policy decision.On House speaker now says she wants a climate bill passed by December posted 10 months, 1 week ago 10 Responses

Does that imply that

k-a-t-a-k-a-n-a-d-i-a-n isn't pronounced "kathy"?  I'd just been assuming as much!On FOX News continues quest to endumben viewers posted 10 months, 1 week ago 7 Responses

I'm delighted he's gone

...but in fairness, you can make anyone look bad with selected video clips. On Goodbye to all that posted 10 months, 1 week ago 5 Responses

Gar

But though we can increase efficiency indefinitely we can't increase it infinitely.  We cannot do more and more with less and less until we reach that technological rapture where we get something for nothing. So inputs have to be clean too.

I'm with you up until the end of that statement, as there is no path with universally clean inputs.  Solar insolation alone, absent an industrial base to make silicon, copper, aluminum, glass, various plastics, etc. is just heat.  You need all that other stuff, and making all that other stuff not only consumes finite inputs (copper ore, bauxite, etc.), but also - at least on present technologies - requires fossil inputs to manufacture.  Taken very broadly, ore-refining is a reduction process, taking oxidized metals out of the earth and reducing them in the presence of carbon.  Maybe someday we can do this with a renewable carbon source, but we can't change the fundamental chemistry.  And even then, we are inevitably driven to biomass, where we are again limited by regeneration rates.

Are these uses of depleting resources as significant as the coal that the solar energy replaces as a fuel?  No.  But therein lies my larger point: if we choose to ignore those risks simply because they seem small today in a world where we haven't yet scaled up the infrastructure, we're simply repeating the mistakes of all who came before.  And in all cases, there is no such thing as any global energy infrastructure that requires no inputs of finite materials.  Ergo, the only responsible path is to minimize the use of those inputs.On Even renewable energy should be used and produced efficiently posted 10 months, 2 weeks ago 15 Responses

Bridgekid

Don't in any way take my comment to suggest that CAFE is perfect, and I'm well aware of the loopholes.  But for all it's warts, the average fleet fuel economy has gone up as a result.  It certainly could have gone up faster, but by comparison to our recent massive increase in gas prices, it's clear that the vehicle-level mandates worked (albeit in a narrow, imperfect way) where gas price increases have not.

And the reason goes back to simple economics - this is a point that many in the industry and gov't do understand.  Indeed, one of the conclusions of FutureCar in the mid-90s (the DOE-led effort that was the deathknell of CAFE, and ultimately led to the largely-useless Partnership for New Generation Vehicles - effectively replacing vehicle mandates with R&D) was precisely the point I made above: shifting the type of cars people drive requires vehicle-, as opposed to fuel-level regulation.  Because that's where the majority of the economic calculus for vehicle ownership lies.On Conservative touts gas tax as cure to all ills, alternative to other climate/energy policies posted 10 months, 2 weeks ago 6 Responses

Question

This all makes a lot of sense, but for a logistics question - what is the scale constraint?  

Today, there is a compelling reason to ship high-volume loads over rail, for precisely the reasons you note.  Less fuel per ton = less cost per ton, to an significant degree.  That's why we have coal trains instead of coal trucks.

I have no personal experience shipping coal, or anything else at that kind of volume.  I do, however, have experience shipping the kinds of things that tend to go on trucks (modular power plants, wood fuel, etc.)  In the occasional lucky instance where the source and destination are close to a rail hub, it may make sense to go rail - but even then, you've got logistics hassles associated with getting a single car out of the line, on-loading/off-loading material, etc.  (After all, a part of the reason that rail is more efficient is because all those cars are ganged together - if every car had it's own engine, we'd lose a lot of the gain!)

The upshot is that more often than not - at least in my limited experience - trucking is preferred because it saves all the intermodal complexity.  For all their flaws, trucks are innately good at transporting small batches from any point to any other point, while rails are good at transporting large batches from a finite number of defined points to another.   Clearly, more rail access would increase the number-of-points piece of the equation.  But how does Drake's proposal address the innate bias of rail towards large volumes (and therefore against truck-sized loads)? On Upgrade freight rail: Save 12 percent of oil, 4 percent of emissions, and jumpstart renewable grid posted 10 months, 2 weeks ago 16 Responses

Fascinating, ids!

On Another rate increase in the name of cheap coal posted 10 months, 2 weeks ago 27 Responses

ids - re Citizens & Consumers

I know - that was my point about speaking generically.  But it ostensibly serves the same function as entities that get branded public advocates, consumers advocates, etc. elsewhere.

As a complete aside, I've always thought you can learn a lot about a state from the way they name their state agencies.  The counterpart to MA's "Department of Energy Resources" in Virginia is labelled the "Department of Minerals, Mines and Energy", which tells you everything you need to know about their respective priorities!  You could probably have some fun with other state comparisons by agencies if so inclined...On Another rate increase in the name of cheap coal posted 10 months, 2 weeks ago 27 Responses

ids & David

I am not privy to the recent IL decision, so take these responses as general rather than specific.  In my experience in multiple states the customer advocate (sometimes labeled a public advocate) is well motivated, but only occasionally fully trustworthy when it comes to articulating for the public interest.  Electric regulation is really complicated, and utilities bring masses of lawyers into propose and justify their rates.  The utility commissions themselves are almost always outgunned - they have fewer lawyers on staff, less technical depth and often are working under legislatively-mandated time constraints.  (It is not uncommon to see jurisdictions where a proposed rate has a presumption of validity unless otherwise objected to by the commission within a defined time frame, forcing the commission to evaluate in ~45 days what the utility spent a year preparing.)

Consumer advocates are not a part of the commission, but face the same problems with less budget.  Unsurprisingly, this often causes them to fall victim to what academics have referred to rather quaintly as "regulatory capture", where the regulatory agency responsible for overseeing the regulated entity comes to see their responsibility as protecting the regulated entity.  (See the SEC's handling of Mr. Madoff for an example of where this leads).  This may sound impossible unless you know what to look for.  When a consumer advocate or utility commissioner says "we need this plant to bolster system reliability", or "we need these rates in order to allow the utility to attract the capital necessary to fund their on-going operations", they are essentially repeating what they have been told by their regulatee.  That's not to say there isn't any truth to those statements - simply that the nature of the rate-making process makes it vastly easier to accept utility-requested rates and investments than oppose, and tips the deck heavily away from the consumer interest, no matter what the public mandate of a given agency may say.

In other words, just as you are both clever enough not to presume that the Clean Coal Lobby is solely about cleaning the air, do not presume that a Consumer Utility Board's actions are made solely in the best interest of the consumer.

One other note: Tenaska has been fighting a rear guard effort in IL over the past year to get the legislature to guarantee their capital recovery, since they are not a regulated utility.  I don't know how that was resolved, but it's worth noting that that is not the behavior of a company who really trusts their underlying investment thesis.  I certainly wouldn't at those prices.On Another rate increase in the name of cheap coal posted 10 months, 2 weeks ago 27 Responses

A parting malapropism

I could have been popular by accepting Kyoto, which I felt was a flawed treaty, and proposed something different and more constructive

And?On Bush on Kyoto, on his way out the door posted 10 months, 2 weeks ago 5 Responses

ce1907

I think it was Lincoln who said that electricity discussions should be by engineers, for engineers and of engineers, lest anyone understand what the hell we're talking about.  

Criticism well taken!

To your questions:

1. The key point to understand with local generation is that electricity is fungible; if I produce power at my home in excess of my needs, there is no technical reason not to stick the excess onto the grid.  Voltage is precisely analagous to the slope of a hill, but where your actions change the altitude of the valley.  If you're running your air conditioner, you're making your valley deeper, such that electricity flow to you.  Turn off your A/C and the lights and suddenly your neighbor is in the valley and electricity flows to her. A generator can run flat out and the electrons will flow to lowest voltage, subject only to the limits of all the load downstream of the transformer - which is simply the device that connects the high voltage (aka, high altitude) transmission system to the low voltage network in your neighborhood.  There are often legal barriers to running in this configuration, but laws can be changed.  The second point per your question is that there really is no cost-effective way to store significant volumes of electricity.  So once you optimally size to a given fuel supply/electric load, you need to "use it or lose it".  Lots of technologies are in development, but none are proven for any kind of long-duration storage.  Someday, perhaps...

2. Any "homegrown" power reduces peak loads to the extent that it reduces what utility managers refer to as your "coincident peak".  This refers to that moment in time when the load of your home is coincident with the peak on the overall grid (or at least the relevant local section thereof).  This is best understood with an example: let's say that the grid has a peak demand on 3 PM during the summer months.  Your house, by contrast has a peak demand at 7 PM when you're home, kids are still awake watching TV and you've got your electric oven running and keep opening the fridge to cook dinner.  If you have an on-site generator, the degree to which you reduce peak demand is a function not of what you're generating at 7 PM, but rather what you're generating at 3 PM.  Make sense?

3. The best way to size cogen plants is to follow the thermal load, such that the "waste" heat from the power plant is sized to local thermal loads with the electric production simply floating along with whatever is required to meet that thermal demand.  This is a direct corollary to point 1, since while electricity is fungible, heat is not (e.g., I can move electricity from Chicago to Texas, but cannot move heat more than a few blocks).  So in the case of your brewery, I simply follow the heat load they have to boil wort, sterilize bottles, etc.  In most industries, it turns out that the power output of a perfectly-matched cogen plant produces less than the total power demand of the facility, such that they never export to the grid.  There are a few exceptions (paper mills being a good example), and in those cases, one does want to export to the grid.  But this doesn't necessarily mean that they need more wires.  After all, they had wires built to serve their peak demand, and the onsite cogen is now reducing the peak demand, so you can piggyback on those wires and flow to your (lower voltage) neighbor.  In other cases, you need more wires, and then it simply becomes a question of economics: if it's worth you and the utility's while to build those wires, you will.  If it's not, you simply reduce the size of the plant to serve <100% of the thermal load and dial back on power accordingly.  It's suboptimal from an efficiency perspective, but sometimes forced by the economics of any specific project.

4. Pure jargon!  In utility-speak, transmission refers to the high-voltage (many thousands of volts) wires that carry power from central station power plants out to the various towns and municipalities.  The advantage of high-voltage power is that it is relatively cheap to transmit (power = volts x amps, and the size of a wire is a function of the amps it carries.  So by increasing the voltage, you can move power around in much smaller wires).  But remember that power is like altitude, so giving high voltage power to a home is like dropping a piano on a seesaw.  The kids don't like either.  Thus, as you get closer to the point where electricity is used, utilities will "step down" the voltage to a lower level - per our analogy, converting one 1000 lb piano into 100 10 lb bowling balls.  The "distribution" network is the network of lower voltage wires on the downstream (e.g., customer) side of these transformers that provides appropriate voltages to electricity users.

5. Smart grids are one of those ideas that in my opinion gets far more press than it deserves.  As noted above, electricity flows from low to high voltage, and the lowest voltage is at the point where power is being consumed.  The idea that you somehow need all sorts of fancy meters to help electrons figure out how to flow downhill is really nonsense, unless you believe that the only way to run a grid is to have some central utility manager sitting in a room, looking at what every generator is doing in real time and making active decisions about where electricity should be flowing in the system.  Which is, at core, a deeply Marxist philosophy.  (The fact that it is a good approximation of our deeply inefficient modern grid works is no excuse for the approach.) Yes, there is the potential for clever meters to do clever things, but that is a fundamentally separable question from whether or not it is possible within the context of the current grid to generate locally-produced, efficient power.  Which is an unabashed yes.

Gar

I agree with almost all of your points, except for the assertion that the T&D needs are the same whether central or local.  The volume of wire we currently use for T&D is innate to the way we design the system, with high voltage generators many miles away from low voltage loads.  Putting generation close to the load cuts down significantly on the wires need for a rather simple reason: while there is a compelling reason to make sure that power generated at the remote central power plant has a path into the densely populated city, there is no compelling reason to pipe the wire from the densely populated city out to the remote (hopefully, former) central plant location.  (Indeed, it's not even very technically straightforward to do this, as power natural flows from high --> low voltage.)  Which means lots less wire per installed kW.

The good news with local generation though is that it doesn't have to.  Any place where people live is a place that consumes more power than it generates.  Ergo, any power plant sited at those locations will tend to flow next door rather than up onto the high voltage grid.

The upshot is that local generation effectively gets rid of the need for any additional "T", and substantially slows the need for additional "D".  (The distinction being that the site of the local generator still needs backup capacity, which gets closer and closer to full building load as you get closer and closer to the point of use for statistical reasons.)  The most thoughtful analyses I've seen suggest that the total wires need for local generation is something on the order of 10% of the wires need for remote generation to provide an equivalent level of reliability.

Note that a key to this is that local plants are innately smaller.  The logic breaks down if you're going to build the same, supersized power plant centrally as remotely as it is then well in excess of local needs.  But for a whole lot of reasons, no one is going to put a 200 MW wind farm in downtown Minneapolis, any more than they're going to put a 1000 MW nuke in downtown Phoenix.  However, a better regulatory model might well install 100 2 MW power plants throughout the greater Minneapolis / St. Paul region, giving the reliability benefits of more nodes without the accompanying need to export power out to where it is needed.On Small solar needs long-distance transmission as much as big wind posted 10 months, 2 weeks ago 30 Responses

Charles

How so?  The cost of the plant is what Duke quoted: $3730/kW.  How would a lower heat rate reduce that capex?  I grant you that a higher heat rate drops cooling tower sizing, etc., but presumably any benefit is already factored into the costs that Duke put forth to their regulator.

Re: 30/10% vs 20/12%, you can make the case on either end, and the truth is that it ultimately depends upon the way that any particular utility commission interprets their obligations to provide returns that are "commensurate with the risks faced by similar businesses".  I've always found that to be a bit of an Alice in Wonderland exercise, for the simple reason that I can't find any business that has a risk profile that looks anything like a regulated utility!  (And indeed, when I've asked regulators about it, most confess the looking-glass quality and say that they pick rates comparable to what other commissions granted to their regulated utilities.)  But generally speaking, they seem to range from 10 - 13%, over 20 - 30 year time horizons.

I'm picking the higher end now only because if I'm a utility exec going before a rate commission, I'd make the argument that my ability to attract capital demands a higher return in today's markets since liquidity has seized up.  

But that's speculative, and shouldn't detract from the fundamental truth that the cost of new-build coal is dominated by capex, not opex.On Another rate increase in the name of cheap coal posted 10 months, 2 weeks ago 27 Responses

I'm not sure that's true

The arguments about capacity factor and economies of scale are also directionally true for conventional power plants, as local/behind the fence plants often have to curtail production to follow local load have have higher $/kW costs for size reasons.  Notwithstanding those factors, all of the analyses that I have done or seen others do is overwhelmingly in favor of local generation for reasons that also apply to wind:

1. The T&D system, on average costs $1300/kW of delivered power.  That alone makes up for almost any economy of scale benefit for central power.

2. The T&D system in the US loses 9.5% of it's power in line losses on average, and in excess of 20% on peak.  As a result, delivering 1 kW of load from a central station requires 1.2 kW of installed capacity.  (This also has efficiency ramifications, since those kWh lost to line losses are totally lost; the societal impact of that loss is no different than making a conscious choice to invest in inefficient motors & lightbulbs - it's pure waste.)

3. Research done at Carnegie Mellon (I don't have a web link, but you can find if you google Hirsham Zerriffi and chase down his PhD thesis) has shown that for simple nodal analysis reasons, a network with a few large central generators requires more total installed capacity than one with many small local generators.  Our current system builds in about 20 - 25% additional central capacity for this so-called "reserve margin", and if I recall Hirsham's analysis, it suggested that a fully decentralized grid could provide the same overall reliability with just 5% reserve margin.  (The logic here isn't one of size per se, but rather the number of nodes.  All else equal, fewer total generators = a greater probability of a system-wide failure.)  Note that this is in addition to the line loss value, and multiplicative, so 1 kW of delivered power actually requires something on the order of 1.2 x 1.25 = 1.5 kW of installed central capacity.  It may not all be wind, of course, but the multiplier is necessary for any centrally-biased generation plan.

4. As Amory Lovins has pointed out qualitatively, and Oak Ridge National Lab has summarized quantiatively, bigger power plants tend to have longer outages than small ones, furthering point (3).  This is a particular issue for thermal plants, as it simply takes a long time to start up and shut down big, thermally conductive hunks of metal.  However, I would expect some mass-related drivers as well.

That said, there is clear benefit in a grid from a system reliability perspective and ensuring that the capacity factor on any given generator is not curtailed by local load (and vice versa).  But while that argues for a network connecting all generators together, it does not argue for big, remotely sited generators.On Small solar needs long-distance transmission as much as big wind posted 10 months, 2 weeks ago 30 Responses

Still not quite right Peter

I understand your point, but note that petroleum isn't a replacement for coal, at least in US power markets.  (We make 50% of our electricity from coal, and about 5% from petroleum.)  Oil was more significant before the OPEC price shocks, but has essentially been abandoned since, and is now used almost exclusively for transportation outside of New England, where it is also a heating fuel.  But nowhere is it a power fuel of any significance.  Apropos of this conversation, it was abandoned as a power plant fuel after OPEC precisely because of it's price volatility, which is essentially what you're showing with your math.  (Imagine running a power plant with 20 year fixed contracts and seeing your fuel go from $9/barrel to $140/barrel back to $40/barrel within one 10 year span.  Power plant owners quickly abandon fuels with that kind of volatility!)  Coal may be rising, but it is at least relatively predictable.

As a more power-relevant example, you could make a similar argument for natural gas which - unlike coal - does get used in power generation and - like petroleum - is down substantially off its highs from a year ago.  Is that encouraging a shift?  Not really - because the capital of coal plants is built to run on coal and the capital of gas plants is built to run on gas... and even with the fall off, gas is still way more expensive than coal.

Bottom line: power plant operators aren't stupid, and - as long as you're not worried about capital recovery or environmental consequences - coal remains a much more compelling economic option for a power-only central station power plant than any other fossil fuel.On Another rate increase in the name of cheap coal posted 10 months, 2 weeks ago 27 Responses

GRL - huh?

Solar and wind have no variable costs other than opex.  Coal does, since you have to pay for the fuel.  The subsidies are an entirely separate issue, to justify the much higher capital cost and low capacity factor.  But mathematically, it doesn't take a subsidy to make solar energy free.  It just takes one to get someone to build a panel to convert that energy into electricity.  

If you're making a point about all-in costs, that's fine.  My point is simply that the oft-trotted line about coal being cheap is only true if you ignore the fact that the capital is absurdly expensive.  So from a logical point of view, if the variable (e.g., fuel) cost of coal is sufficient justification to provide massive subsidies to coal plants - as we effectively do through guaranteed rate recovery - then there is an even stronger argument to build renewables.  The center (of the logic, that is) cannot hold.On Another rate increase in the name of cheap coal posted 10 months, 2 weeks ago 27 Responses

JMG

coal-mining companies -- big lumps of capital -- can deploy that capital elsewhere

Don't confuse revenue with cash.  Coal mining companies historically - like most mining operations - are fairly low margin affairs, and generally lousy businesses, requiring huge amounts of capital to sell an undifferentiable product.  Which is why they get bought and sold so often (and today find themselves particularly hurt from the financial crisis, as many of them got highly leveraged.)  In other words, capital is precisely the thing that mining operations are usually short on.

Broadly speaking, there are only two ways to get around this in resource extraction businesses: (1) gain access to innately low-cost resources, so that when you sell into commodity markets you've got more headroom.  By definition, the majority of the industry cannot have access to such resources.  However, this is most definitely the game in the oil & gas industry, and explains why oil majors spend so much time in otherwise unpleasant parts of the world.  (2) Buy up the market and abuse your monopoly position.  DeBeers did this in diamonds for a while.  Regulators have generally kept others from doing so.

The proof of both is in the pudding - look at Rio Tinto or the other big mining conglomerates and look at their returns on invested capital.  They're lousy.  In other words, they really don't have scads of capital lying around to deploy into other businesses - it's all tied up in their mines!  So I'd not presume that a tax on them does much more than squeeze their business.

Nobody escapes a carbon tax levied on the carbon at the point of extraction

Oh yes they do.  Every time the shareholders of the company that mined the carbon assume the tax by lowering their profit margins, every single downstream entity escapes the cost.  This is the point of my initial post in this thread: for gasoline, where each downstream point has no choice but to buy the petroleum derived product, there is the potential for the upstream producer to raise prices and pass the costs down the value chain.  But in power and thermal sectors where there is the opportunity for fuel switching at multiple points, the upstream entities face consistent price pressure that will drive their shareholders to disproportionately absorb many of these costs - and therefore to provide little or no economic incentive for downstream players not to burn the fuel.On They affect consumers the same either way, and upstream is simpler and more transparent posted 10 months, 2 weeks ago 27 Responses

JMG

This isn't quite true.

As I noted here, at least one regulated utility (Duke) thinks that GHG regs won't allow them to pass the specific costs of GHG compliance along to their customers.  (Indeed, there is ample precedent for utilities not being allowed to pass certain costs along in their rate base.  Never as many as there should be, but utility regulators are not completely blind to the problem this creates - and plenty of environmentalists are arguing quite reasonably that utilities must not be allowed to pass along these costs.)

But frankly, even if that's not the case, the exceptions still overwhelm your argument.  After all, in much of the country today, restructuring regulation has separated the generation arm from the transmission and distribution, such that only the latter pieces are still subject to cost-plus rate-making.  And of course, you still have the ~1/3rd of our CO2 emissions that are associated with the production of thermal energy (dominated by the industrial sector: steel mills, cement kilns, etc.).  So if you add all that up, you're probably looking at something like 50% of our total CO2 emissions that are outside of the potential regulatory boondoggle you describe, but which Jim Rogers appears to doubt.

And as a final point: call me naively optimistic if you like, but when much of the problem we face is caused by 100 years of lousy utility regulation, I would hope that any GHG bill would seek to address the underlying problem rather than trying to craft a perfectly shaped wrong to offset the first wrong and add up to a cobbled-together right.  On They affect consumers the same either way, and upstream is simpler and more transparent posted 10 months, 2 weeks ago 27 Responses

JMG

I'm a bit confused when we seem to say the same thing and come to different conclusions.  You write that we need to:

put the cost instantly right where it belongs, and makes the actors with the resources (the capital) to make significant system changes face the question of whether to continue down that line or to use their capital to provide energy in a way that avoids the levy

Which is exactly my point.  Except that the party with the capital and the ability to make significant system changes isn't the coal mine; it's the coal burner.  (Note my earlier caveat that when I say "downstream" I'm referring to the point at which the fuel is burned.)  Our power plants and boilers/furnaces are owned by big, profitable companies with massive resources, access to capital and the broadest possible slate of alternatives.  (Indeed, just check the earnings per share of utilities and industrials as compared to mining companies and this becomes quite obvious.)

Now I will grant that this is not the case for transportation - but as I've said many times before, transportation really needs a whole separate model, as any CO2 mechanism that really works for heat/power production isn't going to have a price high enough to affect transportation systems.  But since 2/3rds of the CO2 emissions come from heat and power, that's the place we ought to focus on first.

Perchance we are saying the same thing but misunderstanding intent?On They affect consumers the same either way, and upstream is simpler and more transparent posted 10 months, 2 weeks ago 27 Responses

Focused on the wrong issue

All:

The issue here is not whether or not costs get passed along, or some government pushback conspiracy.  The issue is that the only goal of a carbon pricing scheme is whether or not that price sends a signal to reduce CO2 emissions.  Remember, carbon in coal, oil, gas or anywhere else doesn't hurt the atmosphere until it gets released into the atmosphere as a global warming gas.  

So to the extent that - in hapa's case 2 - the coal combustion facility bears the cost for that CO2 release and doesn't pass it downstream, it means that coal-derived power is the same price, but the business of burning coal just got less expensive.  Ergo, there is less economic incentive to convert coal into CO2, precisely meeting the purpose of the carbon price.  

Now put the same signal upstream and again assume that the coal producer doesn't pass the cost of their upstream carbon tax downstream.  The business of mining coal has suddenly gotten less attractive, but the economics of turning coal into CO2 are unchanged.  This serves no purpose other than perhaps creating some degree of self-righteous - but misguided - satisfaction by penalizing the Don Blankenships of the world.  Maybe there is some punitive pleasure that comes from that, but ultimately this is not the purpose of CO2 pricing - the purpose of putting a price on CO2 is to lower the CO2 concentration in the atmosphere.  So long as we agree on that goal, there is no scenario in which any placement of that cost at any point in the system other than the point of CO2 release provides better overall economic signals to slow & reverse the rate of release.  At best, it is a break even.

I continue to come back to the original question - why push so hard for economic inefficiency?  If you want someone to stop taking an action, put the penalty at the action.  Doing otherwise is tantamount to trying to stop murders by taxing handguns.  Might such a policy provide some additive benefit to our existing criminal justice system?  Sure - but no reasonable person would argue for a handgun tax in lieu of our criminal justice system.  And yet this is precisely what the argument for upstream carbon pricing is doing.On They affect consumers the same either way, and upstream is simpler and more transparent posted 10 months, 3 weeks ago 27 Responses

Good news, bad news

Good news: Swapping Boucher for Markey is essentially a swap from pro-coal to pro-environment.  This is of enormous benefit to the likely shape of bills that could come out of the house where - barring a shift towards the executive branch - 2009 Climate bills will start.

Bad news: Whatever else may be said of Waxman-Markey, it is never going to be capable of a Nixon-goes-to-China approach to reach across the aisle, given the lefty slant (real or perceived) of both.  Dingell and Boucher, flawed as they may be had sufficient track record that they could bring votes on both sides.  

On balance, I think this is overwhelmingly good.  (And I also think that Markey's perception of a Massachusetts-lefty is far out of line with the throughtfulness and reasonable centrism I have personally seen in interactions with his staff.)  But the politics will be there, and we ought to watch carefully to see how it plays out.On With Markey in place, the House is geared for ambition on climate and energy posted 10 months, 3 weeks ago 2 Responses

The gas analogy doesn't wash

Gar,

An automobile owner has little choice whether or not to fuel their car with gasoline, and the carbon impacts of their use are purely a function of their fuel economy and driving habits.  Thus, your "anywhere in the system is the same" logic does have a certain applicability since up and down the fuel chain, there is no real ability for anyone to shift to other products.  (Note also that in the case of gasoline, almost all of the CO2 emissions occur just downstream of the consumer transaction at the pump.)

This is totally different for CO2 associated with electricity and thermal energy production.  

Taking electricity first, a carbon tax placed upstream (e.g., at the mine mouth) will be passed downstream in prices only to the degree that the resulting commodity can still be competitively sold against competing power plant fuels.  (Note the difference with the gasoline fuel chain, where there are no significant alternatives for the feedstock from the well-head to the pump.  You can't replace the crude oil with wood chips in a refinery and can't replace the gasoline in your car with solar energy.)  Thus, a higher price on coal given it's carbon content will only raise the price to coal consumers to the extent that coal is still competitively priced against same on a $/MMBtu basis.  This competitive pressure doesn't exist in the crude oil --> gasoline fuel chain. Thus, the 50/50 burden between consumers and producers you note in gasoline will almost certainly be shifted more towards producers in the power sector.  

This is even more pronounced when it comes to fuels burned for thermal purposes, since those consumers generally have even greater fuel flexiblity: a coal plant can blend a bit of gas, biomass or other fuels into it's operation, but major shifts require major capital investments.  By contrast, it is much cheaper to retrofit / swap out boilers and furnaces to opportunistically switch fuels in response to economics.  Still expensive, no doubt, but not nearly to the same degree, as anyone knows who's ever replaced their electric dryer with a gas dryer - or borne witness to the thousands of industrials who have modified boilers to fuel switch from coal to gas to biomass and back in response to various fuel environments.

The upshot of all this demonstrated ability to fuel switch in the electric and thermal sectors - which, in aggregate, add up to more than 2/3rds of all US CO2 emissions - is that upstream prices on carbon will be disproportionately borne by producers rather than consumers, creating a wholly undesirable outcome where the net impact of carbon policy is to lower the profit margins of fossil fuel producers without actually providing any lower incentive to burn more fossil fuel (since consumers - aka, fossil fuel burners - see little increase in the actual cost at the burner tip that relates to the carbon content of their fuel.)  In other words, creating a national, economy wide carbon bill based on the rather unique conditions in the transportation sector is a really bad idea.  More specifically, upstream carbon pricing is a really bad idea.

But I remain confused as to why you are so adamant about upstream.  Putting carbon price signals at the point where the CO2 is released absolutely ensures that the person making a decision to reduce CO2 factors the emissions into their economic calculus.  Putting the carbon price anywhere else in the system places a bet that those prices will manifest themselves at the point where CO2 is released and affect behavior.  If your theory is right, notwithstanding my objections, then upstream is no different from downstream.  But if your theory is wrong, upstream is vastly worse than downstream.  (To be semantically clear, when I say "downstream" I'm referring to pricing carbon at the point where fuel is burned, regardless of where that happens in the value chain.)  

Why make such a fuss in defense of an untested economic theory?  The stakes of getting this wrong are far too important to hope on the basis of economic theories and inappropriately applied lessons from other sectors that it will all be the same if we stick the price elsewhere.  On They affect consumers the same either way, and upstream is simpler and more transparent posted 10 months, 3 weeks ago 27 Responses

No doubt, Max

Although that's really not the point of the post - it was simply that if you aren't (a) cognizant of the need for market reform and/or (b) focused on finding companies with the regulatory skills (and chutzpah) to affect such reforms, then you're not likely to get a good return on your money.On The VC models are to blame, not the green technologies posted 10 months, 3 weeks ago 34 Responses

Karen

Couple responses:

1. I wouldn't make too much of peer-reviewed papers when it comes to major capital allocation.  (After all, a luxury of writing research reports is - usually - that you don't have to actually make the billion dollar equity bet.)  The much more convincing point to me about the economics is where investors are putting their money and - with the exception of those few cases where utilities were able to get ratepayers to guarantee all their capital costs - they aren't building nuclear plants, even while they are building cleaner alternatives.  That seems a bit of good news, no?  My personal feeling, looking only at the economics is that $10 - 25/t CO2 probably does make nuke competitive with coal, but don't bring either down far enough to the point where they can compete with efficiency, CHP and wind.  Ergo, I wouldn't bet that people will build those plants absent a much bigger regulatory stimulus.  I might be wrong, but again, I'd watch capital investments to see where the truth lies rather than research papers.

2. Fundamentally, I agree with the need for nuke in the long-term at some level.  Not because I like the risks, but simply because I see global warming as a big near term threat and waste disposal as a big medium-long term threat.  Both are legitimately hard, but if you've got to pick one, I think AGW trumps.  That said, what I think on that front - or the lab directors - ultimately doesn't matter.  What matters is what will get built and at least so far, both coal and nuke are getting trumped by Other.  To the extent that one believes that this means that nuke, coal (or anything else not currently getting built) deserves more subsidy is entirely separate from this discussion, but wasn't really the point of my initial post.

Rhetorical quibbles

I agree with your larger point, but take issue with your framing.  Saying that conservatives want to flow income upward while liberals want to promote equality is a stereotype, and not a very useful one at that.  I personally much prefer the old Churchill line that the great flaw of liberalism (aka, modern-day US conservativism, at least in theory) is it's unequal distribution of wealth, while the great flaw of socialism (aka, modern day US liberalism) is it's equal distribution of misery.

But the flaw in Churchill's and Baker's framing is that it assumes all are equal.  Are conservatives aren't Cheney-ish wealth hoarders just as all lib