When considering our opportunities and challenges for the energy sector, the answer will change depending on the viewpoint.  If we think about a dinner table filled with guests, each guest will have a different perspective of their glass.  The federal government is the host and energy producers, special interest groups, and our citizens are in attendance.

At the head of the table sits the federal government.  As the host, the federal government sets the table, arranges the seating, and directs the conversation flow.  In this case, the federal government sets the rules (policy, legislation) that control and affect energy producers, special interest groups, and our citizens.  With a budget that consumes 22.5% of the gross domestic product and legal authority, the government is clearly in charge.  However, the government is dependent on the support of the citizens, businesses, and special interest groups to exist.  To the government, the glass must be half full.  The government must see opportunities and progress that will overcome challenges.  To think otherwise would admit poor performance and loose the support of the citizens.

Along one side of the table are the energy producers.  This is a large and diverse family.  Their view of the glass depends on the energy they produce.  Big oil sits close to the head of the table and must think the glass is half full since they benefit from government subsidies, make large profits, and control the transportation industry due to their high energy return on investment from gasoline.  Big oil has always found a way to produce more oil and meet demand following crisis.  In the long term, big oil should be concerned due to the increasing world population and the ultimate scarcity of oil in about 50 years.  Next to big oil sits his cousin natural gas.  To Natural gas, the glass must also be half full.  Natural gas captured increased power generation due to recent access to low cost gas.  With domestic natural gas sources, there is good support since this represents possible energy independence in the near term.  While natural gas is viewed as less polluting than coal, it is still polluting.  Grandpa coal sits next to natural gas.  Everyone respects coal since there is plentiful local resources and coal built our industry.  However, everyone knows coal is the most polluting of the fossil fuel family.  We are trying to figure out how to clean up coal but the cost is expensive.  Coal must see a glass half empty since there is pressure to increase coal cost by putting a price on the carbon pollution.  To clean up the carbon by capture or gasification is expensive and coal will continue to drop in prominence.  Nuclear sits next to coal.  Nuclear sees a glass half empty since the government regulations inhibit building new capacity, the Fukushima nuclear accident turned public opinion against nuclear, and natural gas undercut the nuclear business.  Nuclear plants are in decline due to age and lack of replacement.  The renewable family sits next to nuclear.  The renewable family is a confused group who cannot figure out how full the glass is.  Renewables are not as well established and find it difficult to compete with fossil fuels.  They are dependent on subsidies that the government chooses to pass their way.  However, the confusion stems from vacillating government policy that leaves renewables wondering if they will continue to exist on subsidies.  There is also confusion on how to integrate the renewables since they are young and temperamental and vary depending on when the wind blows or the sun shines.  They know in the long term the price of fossil fuels will increase if we put a price on carbon.  Then, their glass will look half full since they will be able to compete on a more equal footing.

On the opposite of the table sits the special interest groups.  They work to capture the ear of the government and the citizens to clean up the environment and gain energy independence.  The environmentalists are a special interest group that is talking about the rising temperatures.  They provide a large body of evidence that points to the fossil fuel family as the problem.  Fossil fuel family counters their argument claiming it’s not their fault.  This creates confusion in the government and the citizens who struggle to make sense of the arguments and alternatives.  The environmentalist look fondly at the renewables and are not sure what to think about nuclear.  To the environmentalists, the glass must be half empty since change has been slow and behaviors are not really changing.  The problem only seems to be getting worse as global temperatures continue to rise.  Occasionally, the energy independence group speaks up and gains transient followings but big oil finds a way to quiet them down by passing them more oil.  This group must think the glass is half empty since we are still dependent on foreign oil.  The scientist are also a special group.  They are dependent on government support.  They also listen to the government, environmentalists, energy security, and energy producers to try and design a better way forward.  The scientists have always been successful in the past to solve the problems.  However, government divided big companies that could support their own research groups and has been reducing government research and development support.  The scientist are supported by education but our universities are producing fewer engineers and scientists recently.  This diet is reducing our scientists and must have them looking at a glass half empty.

The citizens at the far end of the table are split.  Some get their food from the energy groups, some get their food from the government, and some find their own food.  All of the citizens hear the conversation from all sides of the table.  The citizens tend to listen to and back the group that passes them the most food.  When the government demands too much from the citizens they get unhappy and make demands.  When the government passes resources to the citizens they quiet down and stop making noise.  The conversation and control of resources creates a divided citizenry that maintains status quo.  As a result of the divide, the government remains in charge.  The citizens ultimately pay the price since the government and energy producers shift their cost to the citizens.  The citizens support the government by paying taxes and support the energy producers by paying for the energy.

This dysfunctional family has many opportunities when it comes to the energy sector.  The greatest near term opportunity is the ability for natural gas to quickly produce electricity.  The capability enables integrating renewable energy variability into the electric grid.  This could make natural gas a bridging fuel to enable renewable energy to evolve and continue to provide an increasing percentage of our electricity needs.  Innovation is another opportunity.  Our scientist continue to develop energy production and efficiency technology.  We have many opportunities to improve energy efficiencies to reduce our power demands.  This opportunity is buying us some time to reduce our carbon footprint and shift our future energy mix.  The family has the opportunity to learn from others.  Europe stepped into the lead for carbon reduction policy and renewable energy development.  We have the opportunity to see what works and does not work with the European approach.  This should enable us to find the best path to take.

This dysfunctional family has many challenges.  The largest single problem is atmospheric pollution.  With the wide ranges of development and views across the globe, achieving consensus beyond our dysfunctional family will be near impossible until the increasing global temperatures creates dramatic effects to drive salience and achieve the global consensus.  The U.S. political partisanship and desire to appease all in order to achieve consensus fails to send a clear signal and inhibits progress.  The energy policies contain provisions to support many types of energy and may have support for both fossil fuels and low carbon energy sources in the same bill.  This creates confusion about the intent of the policy.  This creates a challenge for the energy producers since they must commit resources to an energy source that may not be supported in the future.  The electric grid is not well positioned to integrate the amount of renewable energy needed to reduce the carbon footprint.  The electric grid also lacks the capacity to shift our transportation energy demand from fossil fuels to electricity.  We have a challenge changing personal behaviors.  The citizens enjoy the convenience of their automobiles, air conditioners, and a wide array of energy consuming electronics.  This challenge exists since the cost of energy remains low.  The low prices exist since the price does not account for carbon pollution.  As such, our citizens will continue their behavior to drive more than they need, use electronics for convenience and entertainment, leave the lights on, etc.  Higher costs will drive personal behavior changes.

50 to 100 years in the future we will have a change in the seating arrangements.  Renewable energy will move up the seating chart since sunshine and wind are free.  Technology improvements in renewable energy and energy storage will enable increased renewable energy usage.  Reduced ability to get easily accessible fossil fuels and a growing world population will increase fossil fuel cost and benefit renewable energy.  The most dramatic example will be the increasing scarcity of oil that will drive up the price of gasoline and move them down the table.  Coal will continue to decrease in use due to the high costs of carbon capture and the eventual price on carbon pollution.  Natural gas will retain a middle seat since the infrastructure will continue to evolve to support new natural gas sources.  Nuclear should achieve about 20-30 percent of the electricity production to provide low carbon base power production.  The transportation sector will shift to more biofuels that are based on non-food sources, fuel cell technology, and retain some fossil fuel in certain applications.

We can only speculate what the future will hold.  What is certain is that the glass is neither full nor empty.  In the end, the volume in the glass is half.  It is our choice about which path to take and what to support and what to discourage.  In any case, we need improvements to our current path.  This can start by guiding the conversation of our dysfunctional family.  Please pass the pitcher, I would like to fill my glass.

Why don’t Americans care about climate change?  It is clear from many studies that Americans are aware of climate change.  However, our efforts to change our behavior and greenhouse gas emissions have been very limited at a national scale when compared to other industrialized regions such as the European Union.  A review of many studies reveals that overall Americans realize that climate change is occurring but have failed to reach consensus on the cause or way forward (Clement, 2013), (Leiserowitz et al, 2012, 2013),  (McCright and Dunlop, 2011).  There appear to be a couple reasons Americans are not acting: relative priority and partisanship.

Americans are aware of global warming based on surveys that show about 70% of Americans agree that there is solid evidence that the earth is warming.  However, 64% of Americans don’t feel that global warming will present a serious threat during their life time.  This is reflected in the relative concern for global warming when compared to other national issues.  Global warming showed up behind the economy (68%), reducing federal spending (49%), restructuring the federal tax system (40%), enacting stricter gun control laws (32%), slowing the rate of growth in spending on Medicare and Social Security (29%), addressing gun violence (28%), addressing immigration issues (21%) with only 18 percent of those surveyed indicating addressing climate change was one of the highest priorities (Clement, 2013).  This low priority and a belief that we will not be significantly impacted by global warming during our life time reduces the sense of urgency to address global warming.

My blog post “Partisanship: The Most Pressing Concern for Energy Policy Today” discussed the partisanship problem.   A review of Americans views on climate change continues to support the increasing partisan divide today.  The partisan divide was shown by Clement, Leiserowitz et al, and McCright and Dunlap.  As noted by McCright and Dunlap, the partisan divide increased in the recent decades.  This divide has been polarizing on a wide range of social, economic, and cultural issues.  The polarization of the party elites diffuses down to the population and is evident in the bipolar views on climate change (McCright and Dunlap, 2013).  The ideological divide reaches deep and even questions the industrial capitalistic underpinnings of our society.  Without the current low cost benefit of alternatives to fossil fuels and no price on carbon emissions, people are questioning the capitalist model that would be slow to respond to climate change without the economic incentive or adequate policy.  Additionally, the shift towards socialist ideologies such a universal health care is viewed as a threat to capitalism by conservatives who support much of the oil and gas industry.  This shift is evident by a large divergence in partisan views on climate change that started in 2009 and continued to increase since.  Coincidentally, that recent divide coincides with President Obama’s election.  It is possible that Democrats drive to push an unpopular change to health care and an unwillingness to compromise by both parties is further exacerbating the partisan divide and putting climate change policy in jeopardy.  It is regrettable that our partisan divide creates a view of climate change as Democrat vs. Republican when the issue effects everyone.

How do we get Americans to recognize the impacts of climate change and increase the priority relative to other issues?  How do we bridge the ideological divide so that climate change policy does not become a victim of our current partisan struggles?  These are big questions we need to answer in order for our nation to move forward and address climate change.

References:

Clement, S.  How Americans see global warming – in 8 charts.  The Washington Post, 22 April 2013.

Leiserowitz, A., Maibach, E., Roser-Renouf, C., and Hmielowski, J. D.  Climate Change in the American Mind.  Yale University, New Haven, CT: Yale Project on Climate Change Communication. 2012.

Leiserowitz, A., Feinberg, G., Howe, P., and Rosenthal, S.  Climate Change in the Texan Mind.  Yale University, New Haven, CT: Yale Project on Climate Change Communication. 2013.

Leiserowitz, A., Maibach, E., Roser-Renouf, C., Feinberg, G. And Howe, P.  Global Warming’s Six Americas, September 2012. Yale University and George Mason University. New Haven, CT: Yale Project on Climate Change Communication. 2013.

Leiserowitz, A., Maibach, E., Roser-Renouf, C., Feinberg, G., Marlon, J. and Howe, P.  Public support for climate and energy policies in April 2013. Yale University and George Mason University. New Haven, CT: Yale Project on Climate Change Communication. 2013.

McCright, A., and Dunlap, R.  The Politicization of Climate Change and Polarization of the American Public’s Views of Global Warming 2001-2010.  The Sociological Quarterly, 52, 2011, pp 155–194.

Is natural gas a transition fuel?  Natural gas is viewed as a transition fuel to allow further development of low carbon alternatives.  Natural gas releases less CO2, SO2, NOx and particulate than coal.  This makes natural gas a better choice than coal.  However, as Stephenson et al point out, there are some unintended environmental impacts that may weigh against using natural gas as a transition fuel.

Natural gas provides a relatively inexpensive energy source that in many cases releases less CO2 than coal or oil.  Natural gas combustion, unlike a coal fire which burns for a longer duration, is easy to start and stop.  This makes natural gas a convenient fit with renewable energy sources such as wind and solar which exhibit a variable electricity production.  A natural gas fired plant can be relatively easily started up to compensate for the drops in electric power when the wind stops blowing or clouds or night reduce solar output.  Natural gas is an abundant US energy source in our shale formations.  This will allow us control over some of our energy future vice being reliant on external energy sources.  These two properties are strong drivers to use natural gas as a transition fuel.

According to Cathles, natural gas is a good transition fuel.  Natural gas could reduce CO2 by 40% if substituted for coal.  This benefit will remain regardless of the duration of the transition.  He refutes the methane fugitive leakage rates that have been estimated as high as 8 percent and believes they are closer to 1.5 percent for both conventional and hydraulic fractured wells. Even if a higher leakage rate exist, he argues that natural gas is a better substitute due to the different decay rate of methane released by natural gas extraction and the greater amounts of CO2 released by burning coal and oil.  Finally, he validates the “surge capacity” of natural gas to buffer solar and wind farms (Cathles, 2012).

According to Stephenson et al, natural gas from British Columbia (BC) shale gas has additional greenhouse gas (GHG) emissions that should be investigated.  There are several sources of higher GHG emissions from BC shale formations.  The gas in the Horn River BC shale formation has a higher CO2 level that other natural gas sources with a concentration of about 12%.  This CO2 is likely vented to the atmosphere make the gas suitable for pipeline use which requires a CO2 concentration less than 1%.  There is evidence the hydraulic fracturing process may release methane as a fugitive emission.  Methane is a more harmful GHG than CO2 and could drastically sway the environmental benefits of natural gas when compared to coal or oil.  However, the fugitive emission problem requires additional study to adequately quantify.  The end use of natural gas due to its low price could offset low carbon emission sources such as nuclear power.  BC intends to open a liquid natural gas (LNG) terminal to ship gas overseas.  The liquefaction process has been a traditional source of CO2 emissions since the process requires energy that is usually provided by burning a fraction of the gas.  Additionally, ships burn fossil fuels to transport LNG.  Finally, the regasification process releases some CO2 (Stephenson et al, 2012).  With all of these additional GHG sources, natural gas from BC may not be the best transition fuel from an environmental lens.

There are other environmental issues with shale gas.  As noted by the Energy Information Administration, there are several negative consequences of hydraulic fracturing for shale gas.  The hydraulic fracturing process requires a lot of water.  This demand on water resources could negatively impact some regions.  The hydraulic fracturing fluid (a mixture of chemicals, water and sand) may contain potentially hazardous chemicals that can spill, leak or find other ways to contaminate the environment.  The hydraulic fracturing process produces large amounts of waste water.  This water contains the potentially hazardous chemicals added for the process and other contaminants that could be brought up from deep underground.  This water requires treatment which may not remove all of the impurities.  These impurities may be released to the environment from the treatment facility or spills.  The waste water may also be disposed of in deep wells or non-potable salt-water aquifers.  Finally, the hydraulic fracturing process can cause small earthquakes (EIA, 2012).

Let’s bring this problem a little closer to home.  Pennsylvania is no stranger to hydraulic fracturing.  According to the NRDC, hydraulic fracturing is suspected of contaminating drinking water in Pennsylvania.  Additionally, three spills of more than 8,000 gallons of fracturing fluid near Dimock Township, Pennsylvania in 2009 contaminated wetlands and caused a fish kill (NRDC, 2013).  Shale sediment near Blacklick Creek in Pennsylvania contains more than 200 times the normal level of radium.  The radium is brought to the surface along with salts such as sodium, calcium, magnesium, chlorine, bromide.  The radium and salts have resulted in surface contamination and appear to have been detected in the creek (Efstathiou, 2013).  These examples show the environmental impact on Pennsylvania beyond the GHG benefits over coal.

It is evident that not all shale formations are created equal.  The formation near Blacklick Creek Pennsylvania contains high levels of radium and the Horn River BC formation contains high levels of CO2.  The lesson is that each well needs to be individually evaluated to determine its unique features.  Some wells may be abandoned due to high CO2 levels or other contaminants such as radium.  The variation between formations will challenge regulators to ensure the proper regulations are in place on a region to region basis.  These regulations are necessary to ensure the proper price is placed on the natural gas to account for the varied environmental impacts.  The hydraulic fracturing process appears to be ahead of regulators and is spurred on by a drive for cheap energy.

In conclusion, natural gas is a transition fuel.  Natural gas has some great properties that will allow it to be a good transition fuel such as “surge capacity” to enable better near term use of wind and solar, lower CO2 emission when compared to coal and oil.  Additionally natural gas is a domestic energy source.  However, with the different properties of shale formations, the environmental impacts from hydraulic fracturing to obtain shale gas may vary based on the formation and uses of the natural gas.  Each well or region should be evaluated to determine the local and global impacts.  These environmental impacts need to be accounted for to ensure the proper price is placed on natural gas.

References:

Cathles, L.  Assessing the greenhouse impact of natural gas.  Geochemistry, Geophysics, and Geosystems, Volume 13, Issue 6, 19 June 2012.

Efstathiou, J.  Radiation in a Pennsylvania Creek Seen as a Legacy of Fracking.  Bloomberg.com, 2 October 2013.

Energy Information Administration.  What is shale gas and why is it important?  www.eia.gov, 5 December 2012.

Natural Resources Defense Council.  The rapid expansion of natural gas drilling across the nation endangers human health and the environment.  Nrdc.org, 2013.

Stephenson, E., Doukas, A., and Shaw, K.  Greenwashing gas:  Might a ‘transition fuel’ label legitimize carbon-intensive natural gas development?  Energy Policy 46, 8 April 2012.

The solar hot water capstone project proposes that Alabama mandate the installation of solar hot water systems on new subsidized housing and HUD homes.  The policy would be enacted through changes to the building codes and enforced during construction.  The intent of the policy is to increase renewable energy, reduce greenhouse gas emissions, improve the renewable energy industry in the State, and reduce the utility bills for the poor.  Other nations and have enacted regulations or building codes to require solar hot water such as British Columbia, Spain, Israel, Germany, Italy, Ireland, and Portugal (SolarBC, 2013).  While Israel appears to be the policy innovator with policy in place since 1980, we will continue our European vacation with another sailor’s view of the world.  Early last spring, a sailor boarded a ship in Lisbon, Portugal.  The ship sailed south to Rota, Spain.  A cold driving rain drenched the sailor as the ship pulled into the lee of the harbor.  Several local houses had solar thermal panels installed which made perfect sense with the normally sunny weather in Spain.  What was not obvious to the sailor was the policy that directed solar thermal hot water with new homes.

Spain provides an interesting case study in solar thermal hot water policy.  Barcelona was the first Spanish municipality to require solar hot water to cover a percent of the hot water demands in new construction and significant refurbishments with their policy that went into effect in August 2000.  The Barcelona mandate produced tangible results with an approved surface area of 31,050 m2 (21.7 MWth capacity) by December 2005.  This represents an energy saving of over 25.000 MWh/year, and will reduce carbon emissions by over 4,300 tons of CO2 equivalent emissions (Barcelona Energy Agency, 2006).  Other Spanish municipalities followed Barcelona’s lead including Madrid which enacted a similar regulation in 2004.  Madrid estimated their results at 28,197 m2 of solar thermal installation by December 2006 equivalent to 19,700 MWh per year and a reduction of 6,900 tons of CO2 equivalent emissions (Institute for Energy Diversification and Savings, 2006).

With the significant results seen in Barcelona and other jurisdictions across Spain, the Spanish Government enacted similar national building codes with the approval of the Technical Buildings Code (CTE, Codigo Tecnico de la Edificacion) in 2006.  The building code was an extensive change which included a building energy performance standard that mandated 30-70% of the Domestic Hot Water (DHW) demand be provided by solar thermal energy.  The building code applied to any kind of new buildings and those undergoing major renovation.  The building code allows for exceptions for DHW that is produced by other renewable sources such as cogeneration.  There are exceptions for buildings with insufficient access to the sun or certain historic-artistic concerns.  In these cases, the reduced solar contribution by other renewable or efficiency measures leading to similar results (European Solar Thermal Industry Federation, 2007).  It is important to note that municipal regulations such as Barcelona and Madrid were allowed to remain in place as long as they were stronger than the national building code.  The recession in Spain impacted new building projects in 2008 and 2009 but estimates show that about 80% of the new installations were motivated by the new building codes (European Solar Thermal Industry Federation, 2013).

The Spanish building code provides a great set of lessons and a foundation upon which US municipalities, states, or the federal government could build an effective local policy.  The results are clearly evident in Spain.  With Spain leading the policy innovation, we can and should study and implement similar policies.  Hawaii appears to the first US state to follow the Spanish model with a mandate for solar hot water on all new residential construction.  This model could certainly be applied more broadly to all new construction in Alabama but the capstone focus will remain limited to new subsidized and HUD housing to benefit Alabama’s poor.

References:

Barcelona Energy Agency.  The Barcelona Solar Thermal Ordinance: A local contribution to global sustainability.  www.barcelonaenergia.com July 2006.

European Solar Thermal Industry Federation.  Solar Ordnances.  www.estif.org  2013.

European Solar Thermal Industry Federation.  Best practice regulations for solar thermal.  www.estif.org  August 2007.

Institute for Energy Diversification and Savings.  The bylaw for Solar Thermal use by the Madrid Town Council: Implementation and Results. www.idae.es December 2006.

SolarBC. Regulations and Government Policies: Building regulations that incorporate obligations for solar hot water are the single most powerful tool for promoting increased use of renewable energy in our homes.  www.solarbc.ca  2013.

On a beautiful sunny summer day in 2009, a Navy ship sailed West across the Baltic Sea on the way toward Kiel Germany.  The goal was to participate in Kiel Week and enjoy some of Germany’s world famous hefeweizen.  To the North, an amazing sight came into view that distracted the sailor form thoughts of the upcoming port call, hundreds of windmills as far as the eye could slowly turning and generating electricity. (For a picture of the windmills, please visit Denmark’s official web site).  The sailor walked across the bridge to check the chart.  The windmills stand in Danish territorial waters.  How is it that Denmark built a renewable energy source not matched in the United States?  Policy and common vision.

Today Denmark produces 28% of their electricity from wind.  Denmark was an early leader in on-shore and off-shore wind energy.  They developed the industrial base and expertise to become the leader in wind energy.  As a result, Danish companies have installed about 90% of the world’s off shore wind turbines.  This leadership in wind energy grew from the will of the people and progressive energy policy.  Denmark set future goals to produce 50% of their electricity by wind power in 2020 and complete freedom from fossil fuels by 2050 (Denmark, 2013).

Denmark developed an innovative three phase energy strategy to achieve their fossil fuel independence.  The first phase involves short term initiatives to reduce fossil fuel independence through energy efficiency and renewable energy.  The next two phases continue to build on these initiatives by developing a smart grid and a green transport sector (IEA, 2012).  This plan is outlined in the energy strategy 2050 (Denmark, 2013).

A closer look at the first phase shows a comprehensive plan to achieve the near term goals of more renewable energy from wind power,
increased biomass and biogas usage, and energy efficiency improvements.  To increase wind power the policy calls for an additional 1000 MW of offshore wind power, support for municipal planning for onshore wind power, analysis to reduce the distance requirement for wind turbines, and cooperation with industry for the wind turbine secretariat and the mobile wind turbine task force.  The biomass and biogas initiative includes amending portions of the heat supply act to support large scale biomass plants, allowing small scale plants a free choice of fuels, set a 10% biofuel goal for 2020, and set the right framework to promote more biogas production.  The energy efficiency policy is broad including: energy saving obligations for energy companies to renovate building and conversion of oil and natural gas heating, increasing energy savings obligations for energy companies by 50% from 2013 and by 75% in 2017-2020, minimum efficiency standards for building components, converting oil heating and eventually natural gas heating to district heating, heat pumps, and other renewable forms of energy, launching market promotion of energy efficient heat pumps and solar heating to replace oil boilers, and incorporating “low-energy rating 2020” building regulations (IEA, 2012).

The second phase includes initiatives to support a green transport sector, an intelligent energy system, regulations for a new era in energy policy, and push toward global and regional reduction in fossil fuels.  The green transport sector includes:  a continuing series of technology assessments to ensure the right framework conditions exist for new energy technologies, establish a fund of DKK 25 million to support electric car recharging stations, push the EU for tightened standards for vehicle energy efficiency and CO2 emissions to help promote electric vehicles, and push the EU to promote electric car recharging stations across the EU.  The intelligent energy system policy includes: establishing a new international electricity transmission capacity for the future off shore wind park at Kriegers Flak, evaluate the need to expand international transmission lines, work with the distribution companies to install intelligent electric meters for consumers who install heat pumps or vehicle recharging stations, prepare a strategy for to promote smart grids, and evaluate the future of the natural gas infrastructure.  The new era of energy policy regulation includes: an in-depth review of electric supply regulation, promotion of strategic energy planning with municipalities, local enterprises and energy companies by setting aside DKK 20 million, evaluate the use of biomass for energy-related purposes, examine the subsidy and tax system to assess the need adjustments for the existing system, and improve the procedures to reduce the cost of offshore wind park expansions after 2020.  The policy to lead global and regional transition to fossil fuel independence includes: working in international forums for ambitious actions for climate control and green energy growth along with a phase out of fossil fuels, promoting a long term vision for EU independence from fossil fuels, attempt to raise the common EU GHG emission reductions from 20% to 30% for 2020 targets, double the funds for energy research, development and demonstration in the energy area by 2020 (IEA, 2012).

The third phase is focused on technology development for green growth through research, development, and demonstration to prepare the energy market.  This phase includes: a strategic review of public climate and energy sector research, development and demonstration initiatives, set aside DKK 10 million for demonstration of large heat pumps for district heating, set aside DKK 20 million for geothermal energy exploration projects, continue the existing public service support for small electricity-producing renewable energy technologies, set aside DKK 10 million to support demonstration projects for household solar heating, establish large testing grounds for green solutions, partner with private enterprises and research institutions that can help develop, test, and prepare clean energy solutions, and assess a wide range of technologies, and recruit university graduates and researchers into the green energy sector (IEA, 2012).

Years later, this sailor reflects on the impressive sight of the Denmark’s wind turbines while studying energy policy at Penn State.  What can the US learn from the example set by Denmark?  Recent US energy policy lacks clear focus since it tries to appease a wide variety of special interests from fossil fuels (oil, clean coal, and natural gas) to renewable energy.  Often one portion of the policy can work against the goals of another.  The fossil fuel support is contrary to the goal of reducing GHG emission with renewable energy.  Variable renewable energy is detrimental to our current base load electrical generators.  When excess renewable energy exists, the price of electricity drops which reduces the viability of our base load generators.  This could impact the reliability or our electric supply if too many nuclear and coal base load generators are forced out of business.  Additionally, replacing nuclear power with natural gas to compensate for the variability of renewable energy, increases the carbon footprint.  The US could learn from the single focus of Denmark to craft a better long term energy policy as we chart our voyage into the future.

References:

Denmark.  Wind Energy. The official website of Denmark, http://denmark.dk/en/green-living/wind-energy/.  2013.

International Energy Agency.  Energy Policies of IEA Countries:  Denmark, 2011 Review.  http://www.iea.org/publications/freepublications/publication/name,34631,en.html.  2012.

Denmark.  Independent from fossil fuels by 2050.  The official website of Denmark, http://denmark.dk/en/green-living/strategies-and-policies/independent-from-fossil-fuels-by-2050/.  2013.

Does innovation drive policy or does policy drive innovation?  That question is as perplexing as the great American vehicle debate, Ford or Chevy?  Getting an opportunity to take a brief look at Ford’s energy innovation this week helped to solidify my typical answer to the great vehicle debate: Ford.  Perhaps my answer is partly biased since I learned to drive in a 1969 Ford Bronco and have since owned many Ford vehicles.  Now that I may have gotten the attention of the die-hard Chevy fans, I will shift gears to the real discussion.

From my previous post, Complimentary Energy and Climate Policy is generally better than a Single Policy, I provided examples of historic energy innovations (steam power from coal, combustion engine using petroleum) that were developed without government policy.  In those cases, policy followed innovation.  This is a perfectly natural market response.   So historically, I am inclined to say that innovation comes first.  So let’s take a look at Ford’s current energy research and development.

The Energy Policy and Conservation Act of 1975 really started the energy efficiency improvements in our automobiles.  Without this policy, the economics would have eventually led vehicle efficiency improvements as consumers got tired of high fuel prices.  Part of the motivation behind the act was energy independence through a reduction in our dependence of foreign petroleum.  The CAFE standards were noted as a driving force behind Ford’s research and development focus (Rissman and Savitz, 2013).  Today, Ford has a couple interesting energy innovation research and development projects; hydrogen fuel cell research and battery research.  Both of these projects have used some government support.

The hydrogen fuel cell research is being used to develop a fuel cell vehicle (FCV).  From 2005 to 2009, Ford participated in a FCV technology demonstration that had partial funding support from the Department of Energy.  Ford also participated in technology demonstrations in Canada and Europe that were partially government funded.  This policy supported research and development assistance led to 30 Ford Focus FCV’s that traveled over 1 million miles to demonstrate the technology.  Currently, more innovation is needed to make the technology economically viable, more reliable, and acceptable to government safety regulators.  Ford has partnered with Daimler AG and Nissan Motor Co ltd to develop a hydrogen fuel cell that will be commercially viable.  Ford hopes to have a FCV vehicle available by 2017 (Ford, 2013).  This is encouraging since the byproduct of the fuel cell is water and heat.  However, it is important to understand the carbon footprint needed to produce the hydrogen.  Typically, electricity is used to separate water into hydrogen and oxygen.  If the electricity is largely based on fossil fuel power generation, we may not be making much progress in saving the environment but may be making progress for energy independence since we have large coal and natural gas resources in the US.

Ford recently partnered with the University of Michigan, battery manufacturers, and State and Federal governments to open a battery lab to develop smaller, lighter, less expensive batteries for electric vehicles.  Ford has certainly been involved in battery research for a long time and has an extensive battery testing laboratory (Ford, 2013).  While this is a new initiative and has not produced innovative results yet, the battery testing laboratory is partly supported by government policy providing funding.

With financial support through government policy, the FCV and battery research should produce innovation that could help lead the energy transition away from petroleum based fuels for transportation.  Since the economics does not currently support shifting away from petroleum based transportation technology for Ford, policy is driving innovation for now.  This policy is working to fix two factors in advance of natural market forces; energy security through independence from foreign petroleum and emissions reductions to help mitigate climate impacts.

This result is consistent with the solar incentives article by Sarzynski, Larrieu, and Shrimali as well as the small scale wind policies article by Weiner and Koontz.  In these articles like the Ford innovations, the economics did not support deployment of the product without government policy assistance through research and development assistance as well as financial incentives.  Finally, the motivation for solar and wind technology policy support is the same as Ford example; ensuring energy security and mitigating climate impacts.  For current energy and climate innovation, policy is driving innovation.

References:

Rissman, J. and M. Savitz.  Unleashing private-sector energy R&D: Insights from interviews with 17 R&D leaders.  AEIC Staff Report, American Energy Innovation Council (2013).

Ford Motor Company.  Sustainability Report 2012-13: Hydrogen Fuel Cell Vehicles (FCVs).  Corporate.ford.com. 2013.

Ford Motor Company.  News Center: Ford, University of Michigan Create New Kind of Battery Lab to Speed Development of Future Electrified Vehicles.  Corportate.ford.com. 14 October 2013.

Sarzynski, A., J. Larrieu, G. Shrimali.  The impact of state financial incentives on market deployment of solar technology.  Energy Policy 46 (2012).  pp. 550-557.

Wiener, J.G. and T.M. Koontz.  Extent and types of small-scale wind policies in the U.S. states:  Adoption and effectiveness.  Energy Policy 46 (2012).  pp. 15-24.

This week we read about energy and climate change policy instruments. The purpose of the blog assignment is to take a position on the use of joint vs. single instruments as a way to affect innovation. In the spirit of making our blog responses more interesting, I am attempting to take the contrary view to my peer (the only other student in the class this semester) and defend the use of single instruments as a good instigator of innovation.

According to Oikonomou et al (2010), there are four types of policy instruments for energy and climate policy: energy tax, subsidies for energy efficiency, labeling in buildings, white certificates, and carbon tax. They span four different types of measures – tax, subsidies, regulations, and certificates.  The article claims that each of the five policy instruments do very little for innovation and for raising climate awareness. When the instruments are combined, only four combinations create any value greater than that of a single instrument. Three of these four combinations include subsidies for energy efficiencies, which seems to work as a balance to additional costs related to taxes, certificates, and regulations.

However, something interesting emerges when the combinations of the five instruments are tested for their contribution to diffusing existing technology or spurring new innovative technologies. Of course, all combinations lead to greater diffusion of existing technology but all four of the highest combinations for innovation include a carbon tax. Could it be that a carbon tax is an ideal way to drive innovation? The data in this study suggest that in combination with other instruments it leads to innovation. But what about as a single instrument?

A closer look seems to suggest that innovative technologies follow a carbon tax. For example, the Copenhagen Economic’s work for European Commission DG TAXUD finds global evidence of a link between taxes and innovations. The report references findings of a study in the quote below:

A recent study carried out by the OECD finds that current and future expected carbon prices appear to have powerful effects on R&D spending and clean technology diffusion. The study assumes a global carbon price reflecting the CO2 emission trajectories necessary to keep temperature increases below 2˚ Celsius. Under this scenario new technologies will contribute with ca. 50 percent decarbonisation where current rates are ca. 35 percent. These calculations are based on a detailed description of the energy sector (bottom-up) and the carbon markets combined with a general description of the global economy (top-down, CGE).

Frankly, it’s easier to find support that carbon tax and cap-and-trade (and other instruments) do NOT lead to innovation. So, this is a tough position to argue…it seems that policy rarely inspires innovation.

But, I will end by pointing out that the single instrument does have the advantage of economy and simplicity, and supposedly greater efficiency. Those characteristics make it an appealing option. It is difficult to project whether a carbon tax in the US would lead to greater innovation or just long-term higher costs for the energy consumer. Regardless, it is an interesting concept to consider.

Oikonomou et al. assert that stand alone instruments for climate or energy policy actually have little effect on innovation as compared to the effect of combining certain types of instruments.  It is certainly easy to agree that innovation is better spurred by complimentary policies that provide a greater incentive for innovation.  With energy and climate policy, the need for complimentary policies seems necessary to spur technological innovation to reduce the effect of carbon on the climate.  However, the statement may not be universally true.  As a counter argument, I will provide a couple of examples of technological innovation without policy pressure and one significant technological advance promoted by a single policy.

Left to our own devices innovation will occur without policy pressure.  This is due to basic market forces that will enable innovation.  This is due to our desire for better or new products or a less expensive alternative.  Looking back through history it is easy to find some examples of energy innovation that occurred without policy forces.  Let’s take a look at some energy revolutions.  At the start of the industrial revolution, coal was used as a heating source.  To pump water out of the mines, a steam engine was developed.  The steam engine was fairly quickly adapted to many applications from transportation to powering industry.  This innovation did not require policy.  However, the results of coal consumption required regulation to protect the environment from acid rain and other problems.  The petroleum age ushered in new innovation with the combustion engine.  This technological innovation vastly changed the transportation industry and enabled efficient flight.  The combustion engine did not start with policy.  Regulations followed the petroleum innovations such as the current fuel efficiency standards for automobiles.  Finally, the electrical industry also started without policy.   Electricity started as a replacement for the gas lamp and quickly expanded when the electric motor proved an efficient replacement for coal or petroleum fired plants.  Electricity enabled the polluting fossil fuel power source to be moved away from the population center while providing a relatively inexpensive and safe energy for use in our cities.  Regulations followed our initial electrification to protect the consumers by regulating the monopolies that were created.  Policy regulating these examples came into being after the technological innovation not before.  It’s clear to me that major technological innovation can occur without policy pressure.

One example of a major technological innovation that occurred with a single policy is nuclear power.  This is a truly remarkable example of rapid technological innovation.  According to Walker and Wellock, the Atomic Energy Act of 1954 spurred the rapid development of the nuclear power industry in the United States.  This act was created by a fear of falling behind other nations, namely the Soviet Union and England, in the development of civilian nuclear power.  We had a sense of urgency to become the world’s leader in the peaceful application of nuclear power.  This single act created a combination of government and private industry where the government started to share controlled critical information, provided large research and development assistance through the national laboratories and research subsidies, and provided fuel.  Meanwhile industry provided the investment to build the plants and pay for operating costs (other than fuel) to demonstrate the peaceful application of nuclear power with nuclear power generation plants (Walker and Wellock, 2010).  This heavy policy assist enabled the industry to rapidly progress from concept in 1946 to the first commercial pressurized water nuclear power plant, Yankee Rowe, and the first commercial boiling water nuclear power plant, Dresden 1, to both start-up in 1960 (World Nuclear Association, 2013).  In the end, the policy support and direction enabled an industry today that provides 20% of our electric power.  This was truly a remarkable and rapid technological innovation that was made possible by a single public energy policy, the Atomic Energy Act of 1954.

With historical examples of significant technological innovation occurring without policy pressure and the rapid innovation achieved through nuclear power with a single policy, why do we need complimentary policy to spur innovation for the combined energy and climate policies?  As recognized by Oikonomou et al., market forces are a key driver for innovation.  This was certainly true for the steam engine, the combustion engine, and electrification.  In the case of climate change, putting a price on carbon runs contrary to a free market since it tries to create social value.  The social value is not a natural response in our capitalistic market society.  Left to our own devices, we would choke the world for a profit without due regard for the future.  The complimentary policies are needed in order to create the market pressure or salience needed to spur technological innovation to reduce our carbon footprint.  With the urgency of the climate change we are already experiencing and the dramatic increase in carbon emissions from developing nations, technological innovation is needed to put low-carbon energy sources in place in order to allow Mother Earth to heal herself for our future generations.  In the end, the opening statement that complimentary policy is better at achieving technological innovation than a single policy is generally true but not universally true.

References:

Oikonomou, V., A. Flamos, and S. Grafakos.  Is blending of energy and climate policy instruments always desirable?  Energy Policy 38 (2010) pp. 4186-4195.

S. Walker and T. Wellock.  A Short History of Nuclear Regulation 1946-2009.  United States Nuclear Regulatory Commission, October 2010.

World Nuclear Association.  Nuclear Power in the USA.  www.world-nuclear.org, 31 July 2013.

Both a carbon cap and trade system and a carbon tax are intended to reduce the emission of carbon by putting a price on carbon emissions.  The Decision about enacting either a carbon cap and trade system or carbon tax depends on your goals and who you represent.  If you are a business that has a carbon footprint, you may prefer a carbon tax since the cost is predictable and making an economic value decision would be easier.  If you are a regulator, you may prefer a cap and trade system to set definite emission reduction goals.

Let’s take a look at why each approach may be preferred.  Each approach has its own benefits and disadvantages.  A cap and trade system has known emission reductions set by the cap and may be able to generate revenue for the government is allowances are sold by the government.  However, the cap and trade system created a variable cost to the business that may need to purchase the allowances from an auction or competitor.  The carbon tax creates a continuous incentive for reduction, is straight forward to administer, has a known price to the business, and creates a revenue stream for the government.  However, the tax system creates an unknown emission reduction and is less politically acceptable (Sumner, Bird, and Smith, 2009).  Opinion:  With rampant partisanship in the United States and the inefficient use of tax revenues by our federal government, a carbon tax would be difficult to pass and likely squandered with limited results.

Both systems have been tried in various forms and varying levels.  Carbon taxes were the first to enter the stage in the 1990’s with several European nations putting the taxes in place.  Carbon cap and trade entered the stage in the 2000’s with the EU and other municipalities.  Today the cap and trade has become the system in widest use and the most successful (Pew Center, 2009).

If cap and trade is working, how are we trending?  The Energy Information Administration contains worldwide date on carbon emissions (EIA, 2013).  The EIA data was used to trend the emission data.  For this discussion, we will look at the emission trends for major players: United States, Europe, China, and India.  The United States has cap and trade instituted in a couple of regions with the Regional Greenhouse Gas Initiative cap and trade system in seven Northeastern states and the California cap and trade system (Newell, Pizer and Raimi, 2013).  These cap and trade systems cover a portion of the United States.  The European Union has a cap and trade system across its member nations.  China and India are both developing nations without cap and trade systems.  What is clear is that the major regions using cap and trade systems are having a real reduction in carbon emissions (US has seen a 8.9% reduction and the EU has seen a 8.3% reduction from 2007 to 2011) while the developing nations without cap and trade are having marked increases in carbon emissions (China has seen a 37.8% increase and India has seen a 26.3% increase from 2007 to 2011).  It is possible that some of the carbon reductions are from causes beyond the cap and trade system such as economic slowdowns or renewable energy incentives.  What is clear is that the emissions from the developing nations is outpacing the reduction from the industrialized nations (from 2007 to 2011, the US decreased emissions by 535.7 million metric tons of carbon, the EU decreased emissions by 391.2 million metric tons of carbon, China increased emissions by 2338.9 million metric tons, and India increased emissions by 359.5 million metric tons).  This fact is also evident from the fact that from 2007 to 2011 the world’s carbon emissions increased from 29.7 to 32.6 billion metric tons of carbon.   There was a worldwide increase of 9.8% while the industrialized nations had around an 8.5% decrease.  Looks like the globe is losing the carbon fight.

In order to reduce carbon emissions, I would recommend a cap and trade system because it has proven effective and sets clear emission reduction goals.  The next step should be a national cap and trade system in the United States to achieve a wider carbon emission reduction at home.  The big question: How do we get a global cap and trade system put in place in order to limit the effects of rapid increases in carbon emissions by developing nations?  The European Union and United States cannot solve this alone.  We all live on the same planet.

References:

Sumner, J, Bird, L, and Smith, H.  Carbon Taxes:  A Review of Experience and Policy Design Considerations.  National Renewable Energy Laboratory, December 2009.

Pew Center on Global Climate Change.  Climate Policy Memo #1 – Cap and Trade v Taxes.  www.pewclimate.org, March 2009.

Energy Information Administration.  International Energy Statistics: CO2 Emissions 2007-2011.  www.eia.gov, 2013.

Newell, G, Pizer, W, and Raimi, D.  Carbon Markets 15 Years after Kyoto: Lessons Learned, New Challenges.  Journal of Economic Perspectives, Volume 27 Number 1, winter 2013.

As I mentioned in my earlier blog post, the Intergovernmental Panel on Climate Change (IPCC) issued a report titled “Climate Change 2013: The Physical Science Basis” that removed any doubt about the role of humans in global warming. Although there has been some skepticism, the scientific community appears to accept the findings which raise questions about energy and environmental policy.

I can’t help but wonder what the role of sustainability and sustainability communication should be in companies’ responses to the recent news. Clearly, corporations need to continue to reduce emissions and begin to adopt more clean energy and renewable sources of energy. But, I would go one step further. As part of their social and environmental responsibility, corporations need to consider promoting sustainable behaviors to their audiences. Some of my prior research suggests that corporation spend a lot of time talking about their environmental good works but very little time trying to encourage the public to think critically about environmental issues or take action toward issues. Yet, engaging the public in solving environmental problems will lead corporations to greater respect and trust by the public.

Carbon Emission: Where do we go from here?

According to the EPA and IPPC, the energy supply contributes more greenhouse gas emissions than any other source.  However, the competition in the energy business is heating up as new energy sources are becoming more readily available – particularly natural gas from shale drilling. And, investment in emission reduction and new technology development does not seem realistic without incentives that balance the competitive landscape and reward environmentally responsible behaviors.

The findings from the climate change report are grim, and experts are calling for action. According to a column in the New York Times by Eduardo Porter “William Nordhaus of Yale, to cite one estimate, wrote recently that allowing uncontrolled carbon emissions would raise the world’s temperature 3.4 degrees Celsius (6.1 degrees Fahrenheit) above that of the preindustrial era by the end of the century and cost the world a fairly modest 2.8 percent of economic output.” Something really does need to be done.

Two popular options for motivating emission reductions are a carbon tax and a cap-and-trade system. Both have benefits and drawback, as we have seen in other countries and regions. For example, according to the National Renewable Energy Laboratory’s report Carbon Taxes: A Review of Experience and Policy Design Considerations, countries such as Finland, Norway, Sweden, Denmark, and some Canadian provinces have experienced success with a carbon tax. They have seen marked decreases in carbon emissions, and the tax funds have been redirected to environmental projects, and in some cases to reduce income taxes and other taxes. But, carbon taxes raise a number of concerns. First, while a carbon tax sets a known cost per pound of emissions, it does not inherently limit emissions. It may increase costs to businesses but not achieve the overarching goal – reduce emissions. Recently, the Australian government announced its intentions to repeal a carbon tax in the near future.

The other common approach is cap-and-trade, which seemed to be welcomed policy in 2009 when the American Clean Energy and Security Act was approved by the US House of Representatives. However, later, it was defeated in the Senate. In many ways the bill was similar to the European Union Emissions Trading System, which has had the greatest volume of CO2 allowance trades of any carbon market program. Despite a few bumps in the road, it has been successful in reducing carbon emissions. The advantage of a carbon market is the ability to set an emissions threshold and permitting allowances to be traded on the market, setting a reasonable price. As the economy improves, prices rise, and should the economy fall, prices follow.

But, as Newell, Pizer, and Raimi write in the journal article Carbon Markets 15 Years after Kyoto: Lessons Learned, New Challenges, “A key question for – and sometimes criticism of – current market-based policies concerns the degree to which they encourage long-term investment in new technologies rather than solely short-term fuel-switching and energy conservation” (p. 132).  Will cap and trade programs lead to the long-term goal of creating technologies that reduce emissions and/or use renewable energies?

To add a dose of reality, the current political environment in the US would hardly allow for either policy. Congress can’t even get a budget passed. That is why we see regulations on emissions coming from the Whitehouse and EPA in conjunction with programs that will fund research into new technologies that will help industry reach the regulation requirements. It’s not a perfect solution, but considering the current state of our political system, it may be the best solution to keep forward momentum.