Climate Change

The Price of Energy Security

The Front Page of yesterday’s Wall Street Journal features an excellent article by Guy Chazan entitled “Russia Outflanks EU’s Pipeline Bid.” The article describes Russia’s efforts to dominate European natural gas supply and politics by outmaneuvering American backed European attempts to build a pipeline to make them less reliant on Russian natural gas. The potential for heavy-handed petropolitics, exemplified by Russia’s 2006 shut-off of gas to Ukraine, has American policy makers concerned once more about Russia’s political influence in Europe.

During the Cold War, the balance of power was measured in nuclear warheads. Now a new kind of contest is playing out. The battlefield is Europe's energy market. The objective is pipeline proliferation. And Russia is winning.

Europe is witnessing a race between two mammoth pipeline projects that would bring natural gas to the Continent from the Caspian and beyond. One of the plans -- hatched in Europe, championed by Washington and named for a Verdi opera -- has been hobbled by bureaucracy. The other, backed by the Kremlin, is rolling ahead with a speed and success that has surprised and frustrated the West. The outcome could shape energy supplies, and political influence, in Europe for decades to come.

Europe is not the only place this dynamic is playing out. Chinese influence in oil-rich African nations has been much maligned due to a policy emphasis energy security, even at the expense of human rights. (Sudan is only one, albeit the most publicized, example of Chinese influence on the region.) This political turmoil, as well as high prices domestically, means that energy security has emerged as a hot topic in American media.

Responding to Chazan’s article on the Wall Street Journal’s "Environmental Capital" blog, Keith Johnson argues that:

You can have energy security, you can give consumers a break, or you can do something for the environment. But aiming for all three at once—that is, what passes for energy policy in the U.S. and Europe—appears next to impossible.

Take the U.S. High oil prices have given legs to Big Oil’s demand for more access to federal lands and coastal areas—a bid for energy security–even while many in Congress are still opposed. But environmentalists figure high oil prices will spur alternative energy and help fight climate change. The Liberman-Warner climate bill foundered thanks in part to high energy prices right now. Meanwhile, the consumer gets whacked regardless—with higher gas prices, or higher electricity bills, or both.

As the scramble for energy heats up, it’s useful to remember that the rules of the game aren’t changing—the game itself is. Energy policy isn’t a cardigan moment or a Rose Garden speech—it’s become the currency of international influence. And the countries that ruthlessly focus on one pillar, rather than trying to juggle all three, are more likely to come out ahead.

Johnson is incorrect to argue that this is a new dynamic, however. Energy security has been the backbone of American politics in the Middle East since the Presidency of Franklin Roosevelt, and what has been called a “New Great Game” in Central Asia has been an ongoing chess match over oil and natural gas for decades. Johnson is correct that a ruthless pursuit of energy security is more likely to work than other approaches, but the solution to this energy security issue has little to do with climate or economic security. Rather, Europe needs to employ stronger policies and act in a more hard-nosed fashion against Russian advances, and doing so does not mean subverting goals of handling climate change. This is more a matter of having leadership that knows when the trade-off of playing hardball in favor of political security is well worth it.

Securing Energy and the Economy: Avoiding short-term policy traps

The fundamentally new elements of the energy paradigm are that these resources are no longer available on the cheap in the Western world, in large part due to the rise of the developing world, especially Asia, and the concern about climate change. Johnson seems to argue that pursuing energy and climate security while trying to keep energy costs low is impossible. In the short term, he is probably correct. In the longer term, he couldn’t be more wrong. And, in the short term, there are better ways to protect consumers.

The link between energy and economic security is easy to see. If countries do not pursue energy security, they become unable to feed their economies and maintain economic security – talk about a hit to consumers. In the short term though, pursuing lower energy prices can come at the expensive of both energy and climate security and results in silly ides, like a gas tax holiday or opening up off shore drilling.

Thomas Friedman
, in yesterday’s New York Times, weighed in on the dire policy consequences of Egypt’s attempts to keep energy prices low:

From Shubra we drive into the desert toward Alexandria. The highway is full of cars. How can all these Egyptians afford to be driving, I wonder? Answer: The government will spend almost $11 billion this year to subsidize gasoline and cooking fuel; gas here is only about $1.30 a gallon. Sounds like a good deal for the poor — only the poor have no cars, and the fuel subsidies mean less money for mass transit.

Think about these numbers: This year Egypt will spend $6 billion on education and $3 billion on health care, far less than the subsidies for fuel. This is a terrible trap. The subsidies should have been phased out when food and fuel prices were lower. Now that they have soared, the pain of removing the subsidies would be politically suicidal. So education and health care get killed instead.

America is not currently in the trap Friedman describes, but with the wrong policies, could find itself moving in that direction. Incentives must be designed to stimulate infant technologies and decrease in amount over time as those technologies commercialize and scale, not the other way around.

Securing Energy and Climate: Building the 21st Century Economy

Climate and energy security are also not mutually exclusive. If all the West cared about was energy security, America could just build all the coal plants it wanted. We are, after all, the Saudi Arabia of coal. But that is fundamentally not in our climate or economic security interests.

What America needs is a policy that is focused on energy and climate security, indeed such a policy must see the two as interrelated, and must encourage the scaling of technologies capable of taking the place of fossil fuels. Building a 21st century post-carbon economy will not be simple and will not happen tomorrow, by this November, or by November of 2012, but failing to get on that path will ultimately prove the most difficult available option, as failure means economic surrender. Conventional sources of energy will remain important into the future, but the faster America is able to transition away from a hydrocarbon economy, the better our economic, energy, and climate security will be.

Renewables and the Plug-In Hybrid

The movie Who Killed the Electric Car about the the birth, recall and eventual crushing of every last example of the popular but short lived GM EV-1, blamed a variety of culprits for the car's demise.  But as evidenced by the standing room only crowd at last week's and Brookings conference on plug-in hybrids, enthusiasm for the car has returned. 

12 electric vehicles were on display at the conference where a variety of speakers talked about the potential of electric cars, the obstacles in their path and the needed role, if any, of the government.  The moment is auspicious.  The new Tesla sports car which can travel from 0 to 60 in 4 seconds and has a battery range of 240 miles, backed by Vantage Point Capital and Kleiner Perkins went in to production last month.  Meanwhile, the sleek Chevy Volt, a serial hybrid that can travel 40 miles on its battery before using any gas--but uses gas as a backup--slated for production in 2010, is enjoying extraordinary buzz.

Henry Ford thought that that electric engine would eventually beat out the internal ombustion one and electricity is an attractive fuel because it creates no carbon mess--mechanics working on electric cars don't have to wash their hands--and it currently costs only about one fifth as much as gas.  The barriers have always been two fold, the difficulty of storing electric energy in a battery as opposed to the chemical energy stored in oil, and the time needed to recharge--a matter of hours--as opposed to several minutes at the pump.  New battery technologies are on the verge of solving the first problem.  A variety of creative solutions--from swapping out batteries to installing public plugs have the potential to address the second.

However, a key sub-text of the conference last week--that was not addressed--is where will the power come from.  Analysts at Oak Ridge Laboratories and EPRI estimate that to meet future demand for electric cars, if people choose to charge during the day and unless they can be persuaded to only charge at night, hundreds of new power plants will need to be built.

Indeed, electricity demand is rising anyway, just from rising population, new gadgets and fancier living.  And herein lies a potential problem.  There is no obvious solution to the need for more power.  Consider the options: Nuclear power is extremely expensive and may be obsolete.  No plant has been greenlighted in 30 years; the US still has no viable plan for storing nuclear waste as the Yucca mountain plan is stalled; the costs of building a plant have exploded; and the US has not trained nuclear engineers in decades.  Building a new nuclear plant in the US is at least a decade away.

Coal, a fuel almost always preceded by the adjective "cheap" has climbed in price.  Perhaps more significantly, the price of a coal plant has ballooned due to the rising costs of concrete, raw materials, construction labor and compliance making new coal plants an increasingly unattractive economic option.  Banks are also reluctant to finance coal plants due to concern over climate change regulation.  And of course coal creates a lot of CO2.

A few years ago, localized, clean natural gas plants appered to be the future.  But many private investors in gas power plants lost their shirts when soaring gas prices made their plants unprofitable  To the degree more utilities turn to natural gas for electricity generation, this would drive its price up further.
The leaves renewable energy, such as hydro, wind and solar power.  Most of the good hydro sites have been exploited.  Wind, however, has emerged as growing, economic source of power and solar is growing more attractive daily.  Renewables have the advantage of zero cost of feedstock.  The cost consists only of plant and operations.  The key fact to remember is that while renewables only account for a tiny fraction of existing power consumption, they accounted for over 30% of new power capacity last year.

In short, the fates of electric cars and renewable energy are inextricably linked.  For the electric car to realize its potential, renewable power will have to come onstream in a major way.

Time to Lead on Energy and Climate

Buried in Wednesday’s NBC News/Wall Street Journal Poll was this fact: 18 percent of Americans view energy and the cost of gas as the most important issues for the federal government to address. That number ranked third, behind the economy and the war in Iraq, and ten points ahead of health care. Add that to the 4 percent of Americans who see the environment and global warming and the environment as the number one issue, and 22 percent of Americans see some sort of energy concern as the most important federal issue.

Concern about the fact that only four percent see global warming as the most important issue notwithstanding, this is a welcome shift in political consciousness. The next step is for our leaders to explain why the top two issues, the economy and the war in Iraq, are actually related to energy and the cost of gas, and why confronting global warming relates to all three.

Unfortunately, political rhetoric and action is not yet where it needs to be on these issues. Instead of convincing dialogue about building a clean energy future that enhances energy and climate security, the American people get irresponsible talk from a supposedly pro-climate candidate about a gas tax holiday. The Senate debates cap and trade legislation, but won’t even extend the Solar Investment Tax Credit. Four dollar a gallon gasoline means that it is time to move forward to new sources of energy, not despair about the fact that the old ones aren’t working for us as well as we’d like.

High energy prices are here to stay, and the American people are struggling because of it. For now, it seems that many politicians are unwilling or unable to tell the American people that we have to innovate, not drill, out of this problem, and that there is no short-term solution.

Leadership means connecting the dots, from high energy prices, to climate change, to green collar jobs, to turmoil in the Middle East. It means realizing that four dollar a gallon gasoline is related to the Solar ITC. America is nowhere close to leading on energy, and the consequences will be grim should we take a pass on building the premier 21st century green economy. Thankfully, it seems that the market is taking hold. Companies like GM are starting to get the picture that we need to build plug-in hybrids like the Chevy Volt, and California is primed to install 200-250 Megawatts of solar in 2008 alone. Let’s hope political leadership can create the policy needed to support them.

Action on Solar Investment Tax Credit Delayed

The failure of the Senate to obtain cloture today on the Solar Investment Tax Credit, coming on the heels of the collapse of Climate Change legislation last Friday should send a wake up call to the environmental and clean technology communities that a new more forceful strategy is needed to make progress on climate change and energy independence.

At a moment when the US economy is suffering from the effects of a full blown oil shock, when the United States is fighting a hot war in the Middle East in part to protect access to oil in a volatile region and when much of the domestic news consists of extreme weather reports--from floods in the mid-west to school closings in the east due to dangerous temperatures though it is not yet summer--it is hard to fathom the lack of leadership on energy issues coming out of Washington.

On top of our other challenges, America is facing soaring electricity prices over the next 18 months as the prices of natural gas and even coal continue to rise and slack capacity evaporates.  Renewable energy such as solar is currently the only energy category whose cost is declining.  However, to bring the cost of renewables below that of legacy technologies, it is critical that solar be allowed to scale.

The delay in renewing the ITC has already caused American solar companies to lay off workers and postpone or cancel projects.  The Senate and House have both passed versions of the Solar ITC but as Rhone Resch of the SEIA has remarked, need to find a version that both can support.  In coming weeks, NDN will be releasing a paper on the solar industry and we are going to be working to create a policy environment supportive of this key piece of America's future.

Climate Change Legislation Fails Cloture Vote

Perhaps the arrival of a 100+ degree heat wave in New York where I am typing this post is a good moment to reflect on the defeat of climate change legislation yesterday.  There is no point in sugarcoating the result: sponsors could get only 48 Senators to vote for cloture and the fact that six indicated they would have voted in favor had they been in Washington is scant consolation. Nor was the debate particularly helpful.  By consuming an entire day in reading the bill, opponents largely blocked serious debate. 

Yet while the legislation did not advance yesterday, the devotion of almost a week of Senate floor time to consideration of climate change is nonetheless a milestone.  As I wrote in an earlier post, floor time served to draw out opposing arguments.  It has put opponents on the spot.  And the cause of climate change is seriously ahead of where it would have been had the bill not gone to the floor.

Next year, there will be a new President who supports climate change, probably a lot more Democratic Senators and a new era will have begun in Washington. Last week's debate thus accomplished something important.  It set the stage for serious consideration and hopefully passage of climate change legislation next year.

Another Oil Shock

How bad is a one day $11 dollar jump in oil prices? In concert with some bad job news from the government, enough to cause the Dow to drop 400 points, wiping out trillions of dollars in wealth. Friday's oil surge was the greatest in the history of the New York Mercantile Exchange.The next question is why did oil take this sudden leap?

Earlier this week, Fed Chairman Ben Bernanke took the unusual step of signaling the Fed's desire to staunch the dollar's decline. When the Central Bank in concert with Treasury starts talking up the dollar that's usually a good sign that it will rise as indeed it has. This would ordinarly suggest easing oil prices but instead we got the reverse.

Did supplies tighten enough to drive a one day 8% rise in the commodity's price? No, not literally. The immediate cause of the spike was a Morgan Stanely report by an analyst arguing that supplies are tight enough that oil prices may go up to $150. But normally one report does not drive a record spike. Indeed, there has never been a spike like that on Friday. The sharp jump may be evidence that computer trading by hedge funds is driving extreme volatility. But it clearly testifies to just how jittery the market is as demand in Asia soars and supplies stay pat. The fact is this sort of volatility is likely to continue.

Longer term, oil prices at this level threaten huge changes in our economy. At NDN we have begun thinking about the long term consequences of sky high oil. SUV sales are said to be down 30%, GM is threatening to put its Hummer brand on the block and home sales in the energy dependent southwestern exurbs have plummeted.

At prices like these, the old America is rapidly receding.

See You Next Year

After several days of no real substantive discussion of climate change on the Senate floor but a great deal of posturing by opponents, Senate Leader, Harry Reid has scheduled a vote this morning to cut off debate before Senators return to their states for the weekend. It is unlikely that supporters will get the 60 votes required to end debate but, for symbolic purposes, they are hoping to get at least 50. Among the disinformation advanced this week by opponents is the charge that climate change legislation would raise gas prices. Most climate change proposals including Lieberman Warner, by placing a cap on carbon emissions, would increase the price of power from dirty coal plants and goods from dirty factories. However, the caps are placed only on industrial facilities, not on consumers or on tailpie emissions so gas prices would increase nominally if at all.

While the debate covered little substance, it did serve the purpose of drawing out opposition arguments and highlighting key issues that must be addressed next year for the legislation to pass. In particular, the block of Senators from coal states, Democrats as well as Republicans not only from large producers such as as West Virginia and Kentucky but also from Ohio and even North Dakota will seek support for clean coal to ease the impact on their economies. This relief would mostly take the form of money for carbon sequestration technologies or economic assistance to coal regions to help with a transition towards cleaner, renewable power.

The other result of this year's floortime will be to get Senators on record regarding climate change. Polls show that people are ahead of legislators on the climate issue and those Senators who vote against the legislation may well hear about it in their districts.

Climate Change Shenanigans

If you're wondering what the Senate is doing on climate change, since taking up the bill earlier this week, the answer is not much thanks to the bill's opposition. Senator Mitch McConnell (R, Ky) arranged for the reading of the entire bill which continued through about 10PM last night. Meanwhile, Republicans have been running through their talking points on how the bill is not about saving our climate but about restributing wealth. Senator McCain, a supporter of climate change, has been conveniently absent during this charade since his views are in opposition to that of his party.

While this may seem to be all bad news, in fact getting Republicans on the record about climate change and, even drawing out reservations from Democrats such as Jay Rockefeller and Robert Byrd from the coal-rich state of West Virginia is the point of bringing it to the floor. For this or similar legislation designed to put a price on carbon to pass, it is critical that opposing arguments be flushed out so that they can be addressed either through arguments or changes to the bill. That's what this process is about.

Thus, while it may not make for good viewing on C-Span, debating climate change on the floor of the Senate is a necessary part of developing legislation as cross cutting with regard to the economy as this. Legislation this transformative with the ability to help build the new, clean post carbon economy and dismantle the old dirty one, can't be passed overnight. Still let's hope the debate gets a bit more substantive soon.

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