2012: The Year in Energy

As in most recent years, energy was constantly in the news in 2012. A post attempting to catalog every noteworthy story or event would be quite long.  However, a few big trends stand out. For starters, it's a near-certainty that the average US gasoline price will set a new record for the second year running, in both real and nominal terms. Americans are responding by choosing more fuel efficient cars. Meanwhile, fundamental shifts emerged from obscurity into the awareness of policy makers and the public.  US energy exports have become a mainstream topic of conversation, and the goal of energy independence--a concept with debatable meanings--has acquired renewed respectability after spending a couple of decades on the fringes of energy policy debate.  Perhaps more significantly, our views of climate change and future oil supplies--once aligned--have diverged. 

For renewable energy it has been the best and worst of years.  Global overcapacity in solar equipment manufacturing drove down the costs of solar panels, at least partly counteracting reductions in government incentives, especially in Europe, and making solar power more competitive.  The US is on track to add a record 3,200 MW of solar capacity this year, while China could add 5,000 MW.  However, solar manufacturers' rapid expansion depressed their margins and extended last year's string of solar bankruptcies, with firms like Abound Solar, Konarka, Solarwatt, Q-Cells and others forced to restructure or liquidate in 2012.  A similar, if less dramatic wave is working through the more mature onshore wind industry, which faces the expiration of a key US incentive, the Production Tax Credit, or PTC on December 31.  In anticipation of that loss, wind developers have added 4,728 MW of new capacity in the US through the first three quarters of 2012, the most since 2009.

Energy played a complex and possibly decisive role in the US presidential election.  Remarkably, President Obama successfully co opted his opponent's energy platform by embracing an oil and gas revival that his administration had done little to help and much to hinder, even though it appeared to conflict with his emphasis on renewable energy and climate change mitigation.  Meanwhile, the shale gas revolution was creating hundreds of thousands of direct and indirect jobs and lowering energy costs across the economy, contributing to US manufacturing competitiveness.  The resulting economic growth, while still below the level of other post-war recoveries, apparently helped the President make his case for a second term.

The inherent tension between surging US oil and natural gas production and concerns about climate change--fanned by Hurricane Sandy--reflects a major shift that occurred this year, at least as an influence on future energy policy.  Recall that until recently, memories of past energy crises, combined with the influential Peak Oil perspective, shaped our expectations of resource availability and future production.  This narrative of hydrocarbon scarcity complemented prescriptions for a rapid transition away from fossil fuels as the only viable solution to climate change, supporting a shared goal of a more sustainable energy economy based on renewable energy, smart grids and electric vehicles.   The exploitation of unconventional oil and gas resources in previously inaccessible source rock--shale gas and "tight" or shale oil--poses significant challenges to both strands of that argument.

First, it undermines the notion of energy scarcity for at least the next decade, and probably well beyond.  US natural gas production set a new record this year, and US oil production returned to levels not seen since 1997, putting increased pressure on OPEC's control over global oil pricing. Nor does the US have a monopoly on these unconventional resources. Canada looks like the next big shale gas play, with China and South Africa possibly not be far behind.  The technologies that enabled the US shale gas revolution and its oil offspring are being transferred around the world.

Yet we also learned that US energy-related CO2 emissions have fallen back to 1992 levels, largely because of a dramatic reduction in the use of coal in power generation.  While renewable energy sources like wind and solar power deserve some of the credit, natural gas-fired turbines--driven by cheap shale gas--have added three times as much net generation since 2007 as non-hydro renewables.

Shale gas and oil might not provide a long-term solution to global warming, but they could at least buy us the time to develop the innovations like improved electric vehicle batteries and low-cost grid-storage that will be necessary if renewables are to displace fossil fuels across the entire spectrum of their use--and dominance.  They could also provide the time to develop and deploy the next generation of nuclear power, including small modular reactors.

I'd like to thank my readers for your continued interest and encouragement and wish you a happy holiday season.

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Sacramento's Role in California's Gasoline Price Spike

How much higher were gasoline prices in California last week than elsewhere?  Enough to raise the national average price for unleaded regular by about $0.10 per gallon.  So while the rest of us were paying an average of $3.75/gal., down slightly from the previous week, gas prices in the Golden State went up by 48 cents, leaving Californians paying nearly a dollar a gallon more than other Americans.  In general the media have done a good job of explaining the direct causes for this spike: a pair of unexpected outages at large refineries in the Bay Area and L.A., combined with the difficulties of supplying the state's unique gasoline blend when local refiners fall short.  Robert Rapier does an even better job of explaining the intricacies of that blend.  But what's missing from all this commentary is an explanation for why the supply for the nation's largest gasoline market, with more than 11% of US sales, should be so tightly balanced that such disruptions would lead to economic hardship for consumers.

As I've indicated before, California is effectively a gasoline island. The product pipelines connecting it with neighboring Arizona and Nevada run out, not in, and the only routes between California and the other West Coast refining center north of Seattle travel over water.  So the principal refineries serving the California market are in California, and obtaining supply from elsewhere that hasn't been prearranged takes time for special batches of fuel to be blended up, tankers to be chartered, and for those vessels to complete their voyages from ports as far away as the Gulf Coast or Singapore.  That entails at least a couple of weeks.

In a posting I wrote in 2007 during a similar price spike in California, I referred to a 2003 study by the Energy Information Agency of the US Department of Energy, looking at an earlier California gasoline spike. (This is a recurring problem.) Among the major factors explaining the higher prices and volatility of the California gasoline market, they found,

"The California refinery system runs near its capacity limits, which means there is little excess capability in the region to respond to unexpected shortfalls."

That also means that there is typically no local surplus from which to rebuild inventories once refinery production returns to normal.  That's a crucial factor in the speed at which prices return to normal.

So much for the diagnosis, but what about the cause?  Tackling the local pollution from large, stationary sources like oil refineries, and from the tailpipes of the state's 31million cars and other vehicles has been a top priority for the state's Air Resources Board (CARB) since the 1970s, for good reason.  However, over the years, CARB's increasingly strict regulations made it harder and less attractive to operate refineries in the state, and more difficult to blend the fuel it allowed to be sold there.  As it happens, I saw much of this first-hand when I worked as an engineer in Texaco's Los Angeles refinery and later when I traded refined products, crude and feedstocks for the company's West Coast operations in the 1980s and early '90s.  I watched one small refinery after another go out of business, and the magnitude of periodic price spikes grow, as the market became more constrained and isolated. I also saw refining margins for the survivors improve relative to those on the Gulf Coast and other parts of the country.  These trends seemed related, since the state, by its actions, was turning California gasoline into a boutique product and effectively blocking competition from outside the state.

The normal response of companies operating in a market such as that, with growing demand and healthy margins, would have been to invest in more capacity--new refineries or major refinery expansions--and collectively to overshoot somewhat.  But by then the prospect of obtaining the permits necessary to build a new refinery in California had gone from difficult to impossible, and most refining investment was focused on the substantial upgrades required to keep up with the state's periodic tightening of product specifications.  And since those investments generally did little to increase output or improve product quality in ways a consumer might notice and pay a premium for, they had awful returns and dragged down the total return on investment for the entire facility. This contributed to refineries shutting down or being sold to independents with less capacity to make further such investments in the future. 

The net result of all these factors is a California refining system that today is 21% smaller than in 1982, at least in terms of crude processing capacity, but must meet gasoline demand that has grown by a third in the meantime, even after shrinking from its 2006 peak.  Now, when an unplanned refinery outage occurs, the result provides as classic and dramatic a demonstration as you'll ever see of the price response to a shift in the supply curve for a good with inelastic demand.

As an ex-Californian and ex-Angeleno there's no doubt in my mind that air quality, especially in Southern California, has improved as a result of many of the regulations imposed on industry and on fuels.  However, you'd have to ask the state's current residents whether that result is worth the high price they periodically pay at the gas pump, or whether some degree of compromise that would have allowed refineries to expand to keep pace with demand, while cleaning up the air almost as much, would have been preferable. 

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How Green Is My Electric Vehicle?

One of the biggest challenges in assessing the environmental benefits of electric vehicles is that electricity is generated in so many different ways, with differing costs and consequences, and that patterns of generation vary by region, season, and time of day. As a result, categorical claims that EVs are always greener than the hybrids against which they compete most directly, or even compared to efficient non-hybrid compact gasoline or diesel-powered cars, must be suspect. The Union of Concerned Scientists (UCS) has just issued a report that takes some of the mystery out of such comparisons, including a helpful map showing likely greenhouse gas emissions associated with EV use expressed in terms of equivalent miles per gallon from a gasoline vehicle. The takeaway is that as of now, the emissions advantage of purchasing an EV depends heavily on where you live, with equivalent emissions from average grid power in many parts of the country about on a par with those from a small car like the Chevrolet Cruze, and not even as good as from a Prius-type non-plug-in hybrid.

This apparent paradox becomes clearer when you examine the cities map that the New York Times distilled from the report, reflecting the local basis of electricity generation. An EV operated in L.A. or San Francisco would unambiguously beat a Prius on emissions, while an EV in my neighborhood in Northern Virginia would have only a slight edge, and one in Denver would yield emissions comparable to an ordinary car getting 33 mpg, unless the owner was scrupulous about recharging only when greener power was available. That's because despite the declining share of coal-fired power in our national generation mix, there are still many regions and locales where coal dominates the grid, and the GHG emissions from coal-fired generation are considerably higher than from natural gas or low-emission nuclear and renewables.

Any report such as this must incorporate a number of assumptions, and from my fairly quick perusal of the details they seem generally well-identified here. The UCS's emission-equivalent miles per gallon calculation is based on a Nissan Leaf getting 3 miles per kilowatt-hour (kWh.) Grid emissions are calculated using a model of average hourly emissions over the course of the year. It didn't appear that these hourly-averaged figures were weighted for seasonal variations in driving patterns, but that's probably more nuance than is necessary at this level of scrutiny.

The report also includes information about recharging costs in different locations under different rate plans. Prospective EV buyers would benefit from taking the time to understand what these issues mean in their specific locations before investing in one. From my perspective, the report should also provide serious food for thought for policy makers concerning the wisdom of a single federal tax credit for EV purchasers in the US. As hard as that policy is to justify in the best of locations, based on the equivalent cost per ton of CO2 avoided, it looks positively senseless in locations where coal is still king. And while the report makes the point that the generation mix in many regions will become cleaner over time as utilities respond to renewable portfolio standards and other policies, buying an EV in a high-emissions region and counting on that factor to improve the car's environmental benefits during its lifetime seems like a risky bet, particularly in economic terms.

The biggest caveat I'd offer about the report concerns its emphasis on comparing EVs to non-hybrid compact cars, both on costs and emissions. That just doesn't seem realistic, given the array of choices and types of consumers in the market. While the number of consumers willing to consider an electric vehicle is increasing, the "take rate"--the number who actually convert their interest into a purchase decision, remains minuscule, resulting in sales of just 0.3% of all US cars sold in March. Meanwhile hybrids have benefited from rising gas prices to hit 3.4% of sales. It's also worth recalling that the fuel, emissions and dollar savings from improved fuel economy decline with each additional increment. Hybrids already capture the most valuable savings over conventional cars, while the incremental fuel savings from stepping up from a hybrid to an EV are roughly comparable to what hybrids achieve, but require additional battery capacity and electricity, neither of which is free. That makes hybrids the technology for EVs to beat. As helpful as the information provided in the UCS report should be for consumers, the ultimate decision to buy an EV seems driven more by values than value, at least until EV costs fall significantly.

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Shale Gas Likely to Alter China's Energy Mix

Two recent news stories highlight the significant shifts underway in China's energy sector, along with the global impact that is already apparent from these changes. Last week the Chinese government announced a new estimate for the country's potential resources of shale gas that is nearly double the Department of Energy's latest estimate for US shale gas. However, having the resource and developing both it and the infrastructure and market to take advantage of it are distinctly different things, as I pointed out in a brief interview on the subject on public radio's Marketplace program. The key to that may be found in a front-page story in today's Wall St. Journal describing the recent pace of Chinese investment in the North American energy sector.

When we think about energy in China, we tend to focus on the vast scale of its coal use, which affects local, regional and, at times, trans-Pacific air quality, to say nothing of its huge greenhouse gas impact. Coal made up 70% of China's total energy mix in 2010. Or we might think of the explosive pace of renewable energy deployment, although China's solar industry, and to a lesser extent its wind power industry, are still mainly export-oriented. Non-hydropower renewables, which were identified as a strategic industry within the 12th Five-Year Plan, account for just 0.5% of China's energy, but the government has recently indicated it would rein in the "blind expansion" of such sources. Together with hydro and nuclear, low-emission energy sources account for just 8% of the total, less than half the 18% share of oil, which is likely to continue expanding as the transport sector grows and encompasses more personal cars. That leaves natural gas with just 4% and a much lower profile than in the US, where it supplies roughly one-fourth of total energy.

If the resource figures that were just released are any indication, the potential growth of gas in China may exceed that of all other energy sources over the next several decades. Nor is that growth dependent on shale gas development, which is in its infancy there, with only a few wells having been drilled. China has some conventional gas production and a small but growing coal-bed methane industry, and it is already one of the world's largest purchasers of liquefied natural gas (LNG). Although the shale gas figures might seem like bad news for companies planning LNG exports from the US, or for the enormous new LNG projects in Australia and elsewhere in the region, they could prove complementary in two ways.

First, the current availability of large and growing quantities of LNG in Asia-Pacific provides the basis for developing both the enormous potential gas market in China's coastal industrial centers and the infrastructure for serving it, including the crucial "reticulation system"--what other industries call the last mile. You simply don't build this unless you have a large, reliable supply on hand, and you also don't develop huge new domestic supplies unless they have an assured market. LNG could thus be the key to avoiding a classic chicken-and-egg dilemma that might otherwise retard the growth of gas in China for years.

At the same time, the recently identified shale gas resources solve a major problem for LNG vendors, by reassuring Chinese buyers that they will have access to ample gas to satisfy industrial, commercial and residential demand long after the 20-year or longer LNG contracts expire and the reservoirs feeding the region's LNG plants are depleted. But that's only true if China acquires the expertise for developing its own gas, and that's where its North American energy deals come into play.

The Journal article provides a good overview of how Chinese companies changed their approach to North American oil & gas mergers and acquisitions in the aftermath of CNOOC's failed bid for Unocal in 2005. Chinese investors have learned not to raise the hackles that that deal did, and they have focused on minority shares in oil & gas companies or in specific field developments, mainly in unconventional plays such as the Eagle Ford shale in Texas with Chesapeake Energy. Even if no intellectual capital flows back to the investing companies, the mindset required for selecting and managing such projects surely will, and that will have a direct bearing on China's enormous new shale resources, which if proved up would equate to 230 years of current consumption.

No one can know at this point how durable last week's estimate of 25.1 trillion cubic meters (886 trillion cubic feet--TCF) of undiscovered, technically recoverable shale gas will be. The Energy Information Agency recently cut its previous US shale gas estimate of 827 TCF by 42%, based on updated information on per-well recovery rates and other factors, particularly in the Marcellus formation underlying New York, Pennsylvania and other northeastern states. (Despite being widely publicized by critics of shale development, this adjustment won't have any bearing on actual shale gas output for many years, during which the resource estimate is likely to be further refined many times.) China will gain similar experience as it develops its shale resource and should have a much better handle on its probable size within a few years. As with nearly everything else related to the country's economic development, the number is still likely to be very big.

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B.C. Aims to Sell Cleaner LNG

I just ran across British Columbia's new provincial natural gas strategy, which includes a specific strategy for expanding liquefied natural gas (LNG) production as a way to mitigate global climate change. That might sound odd to those who are worried--unnecessarily--that gas might be even worse than coal, emissions-wise, but the province seems to have a good grasp of the benefits of replacing coal combustion in Asia with cleaner fuels like natural gas. They've also come up with a unique selling point for their LNG, on the basis that it would be produced using low-emissions electricity and thus have an emissions edge over other LNG sources. Whether this will confer an advantage on B.C.'s LNG by enabling it to collect a premium or capture a larger share of rapidly growing global LNG trade remains to be seen.

This story caught my eye because it fit neatly with one theme of a webinar in which I recently participated at The Energy Collective. Although most greenhouse gas emissions from fossil fuels occur at the point of combustion in a car, truck, plane, train, ship or power plant, the upstream emissions aren't insignificant and can be reduced in some cases by employing renewable energy in their production. Examples I cited in the webinar included an enhanced oil recovery demonstration project in California that employs concentrated solar power to produce some of the steam used to extract oil from an old oil field, and another project to extract geothermal energy from hot fluids brought to the surface as part of the oil production process.

The case that B.C. makes for reducing greenhouse gas emissions from LNG production by relying on the province's bountiful hydro- and wind power resources is a different application of the same principles. That's because whether the energy for cooling billions of cubic feet per day of natural gas to its liquefaction temperature of -162ºC comes from a local electricity grid or from burning some of the gas in a dedicated cogeneration facility, in most locations this adds significantly to the lifecycle emissions of the LNG. One study that I found on the California Energy Commission's site, produced by PACE Consultants, indicates that liquefaction accounts for around 10% of the lifecycle emissions of LNG converted to electricity in an efficient gas turbine power plant. Eliminating those extra emissions by powering a liquefaction plant with green electricity would bring the emissions from LNG much closer to those from pipeline natural gas and increase its advantage versus coal.

So now what B.C.'s LNG projects need is customers in Asia who will put a premium on "cleaner LNG"--presumably in countries that have committed to large greenhouse gas emission cuts that they can't achieve with indigenous fuels. Japan comes to mind, but I'm sure there are others. These customers would also have to be willing to deal with the longer voyage times from Kitimat, northern B.C. to Asia, compared to competing projects in Australia. That extra 1,000 miles or so translates into higher freight costs and a larger tanker fleet, along with somewhat higher emissions from transportation--though not enough to negate the liquefaction advantage. With so many new and expanding LNG projects around the world competing for market share, I'll be very interested to see whether B.C.'s new strategy pays off.

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Applying Innovation to Oil & Gas

This Friday at noon Eastern Time I'll be participating in a webinar on The Energy Collective covering the application of innovation to the emissions from oil and natural gas. The topic is timely, not just because of the current debate over the fate of the Keystone Pipeline, but because despite the growing importance of renewable energy, oil and gas will constitute a major part of our energy diet for decades to come. As I was thinking about my remarks, it occurred to me that the best starting point might be a refresher on how the industry's current emissions are distributed along the value chain. For all the heavily-publicized concerns about higher emissions from the extraction of unconventional hydrocarbons such as oil sands crude and shale gas, combustion by end-use applications accounts for the biggest slice, to the tune of 80-84% of the average lifecycle emissions from gasoline, diesel and jet fuel. Even for fuels refined from oil sands, our tailpipes still put out more than two-thirds of the total emissions attributable to oil. The proportions are similar for natural gas.

The data I'm using come from a presentation of the National Energy Technology Laboratory, which is part of the US Department of Energy, and the NETL reports on which it was based. I could have chosen other sources, but they all reach pretty much the same conclusions, and I liked the way this one displayed the differences among various source crudes. It also goes beyond dividing the total "well-to-wheels" lifecycle (WTW) into well-to-tank (WTT) and tank-to-wheels (TTW) sources, those that happen before the fuel gets to your car and those that happen in your car, respectively. The former category was further broken down into segments of extraction, crude oil transport, refining, and finished fuels transport. All of these are amenable to improvements through innovation, and I plan to focus on the four WTT categories on Friday.

However, as helpful as it would be from an emissions perspective to get oil out of the ground with less expenditure of energy and less leakage of methane and other gases, and then to transport and refine it as efficiently as possible, the most effective emission-reduction strategies by far are those that address vehicle emissions from transport. That includes all the ways we normally think of to improve fuel economy, including hybridization and dieselization, which reduce CO2 emissions in direct proportion to fuel savings. Yet it also includes a whole gamut of strategies for reducing vehicle miles traveled, which are currently below the record set in 2007 but remain about 10% above year-2000 levels. Trip consolidation, telecommuting, carpooling, and using public transport can all make an important dent in emissions, and in the long run they eliminate upstream WTT emissions, too, as less oil is required for the same economic activity.

I'm sure that most of this is old hat to those who are well-informed on energy issues, but it's important periodically to remind ourselves of the basics, before we get overly enamored with all the exotic technology we could apply to other portions of the value chain. Deploying wind and solar generation in oil fields, generating geothermal energy from the hot fluids brought to the surface with oil and gas, and making the liquids shipped through pipelines slipperier can all contribute to reducing greenhouse gases, but we should understand clearly that these techniques can only tackle the 20% of emissions that happen before the fuel gets to the local gas station.

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Because That's Where the Emissions Are

Yesterday the Environmental Protection Agency released its tabulation of greenhouse gases (GHGs) from large facilities in the US. In perusing the data I couldn't help thinking of the quote attributed to Willie Sutton concerning why he robbed banks. Even if he never actually said, "Because that's where the money is," the simple logic of that analysis transfers neatly to the question of why we might be interested in assessing and ultimately managing GHG emissions from such installations. While there are other important sources, notably including motor vehicles and aircraft, the more than 6,000 sites reported in the agency's online registry account for roughly half of all US GHG emissions. Furthermore, just a quarter of these sites--power plants--contribute nearly three-fourths of US emissions from large facilities. That's where the emissions are and where US climate policy should focus.

Although that doesn't dictate that we should entirely ignore all the other facilities, it certainly raises serious questions about the threshold of reporting for the hundreds of installations emitting less than 10,000 tons of CO2-equivalent gases per year, compared to the top-100 facilities, the smallest of which emitted nearly twice that much every day.

It should also challenge the belief systems of some members of Congress concerning the relative importance of different sectors. The highest-emitting oil refinery in the country is also one of the biggest in the world by throughput capacity, at 573,000 barrels per day. Yet it comes in at #45 on the list, with only one other refinery appearing in the top 100. The entire refining sector, comprising 145 plants, emitted around 5.7% of the total GHGs represented in the registry, and thus less than 3% of the US total. Why does that matter as more than an industry talking-point? Because reducing emissions from refineries by 10%--no easy task when they are already roughly 90% efficient in terms of their total energy output vs. inputs--would be lost in the rounding in our national emissions statistics. We won't get very far chasing expensive diminishing returns.

By comparison, reducing emissions from the 1,555 power plants on the list by an average of 10% would reduce US emissions by more than 3%. And because we are blessed with many more processes for generating electricity than for refining oil, this could be achieved in a variety of ways, nor does 10% represent any kind of ceiling for what might be possible. One option would be to retire the least-efficient coal-fired plants and take up the slack at existing gas-turbine power plants, plus some additional renewables. That may happen anyway, as a consequence of other EPA regulations. We could also replace the worst coal plants with near-zero-emission nuclear power plants of advanced design, such as the AP-1000 reactor that won NRC approval late last year, or the various modular nuclear reactors now under development. Capturing and sequestering the CO2 from coal-fired power plants would be another option, if it can be perfected at a reasonable cost.

I would never suggest that climate policy could be truly simple, but the numbers the EPA just reported, combined with what we know about the lifecycle emissions from the petroleum value chain, indicate that the scope of the US climate policy debate could usefully be narrowed to focus on just two main emissions sources: power plants and the end-use combustion of hydrocarbon fuels. On the scale of overall US emissions, almost everything else is noise. Of course that leaves plenty of room for discussion and disagreement on the most effective ways to address these emissions at the lowest cost and least disruption to an already-fragile economy. We can still argue endlessly about the relative merits of putting a price on emissions, providing incentives for emission-reducing technologies, and setting command-and-control regulations. Yet when we contrast the potential effectiveness of such a limited approach with the intricacy and distortions entailed in "comprehensive" efforts like the failed Waxman-Markey climate bill of 2009, it looks like a very helpful simplification to pursue.

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The Durban Climate Deal Inkblot Test

After going into sudden-death overtime, the UN climate conference in Durban, South Africa wrapped up this weekend with an agreement that only a climate diplomat could love. Constituting in effect an agreement to agree to some future agreement, the outcome is open to interpretation. Is this the failure that was widely predicted, the breakthrough indicated by some involved, or just a fig leaf to perpetuate a seemingly endless series of climate conferences in the only manner possible, by avoiding a breakdown that might have ended the entire effort for good? From what I have read in the last day, it's probably a bit of all three. The reactions from environmental groups have certainly been a mixed bag.

Briefly, it appears that the participants agreed to begin negotiating toward a new global climate "protocol, another legal instrument or a legal outcome"--the key compromise wording that saved the day--to be adopted by 2015 and take effect by 2020. In the meantime, the Kyoto Protocol, which was due to expire at the end of next year, will be extended through 2017, even though three of the largest emitting countries, Canada, Japan and Russia, will apparently not take on binding commitments on emissions for that period, nor will the US, which never ratified Kyoto. Still, this should be sufficient to keep international emissions trading and the Clean Development Mechanism for capitalizing on projects to reduce emissions in developing countries, going in the interim. While the delegates had the good grace not to call this result another roadmap--two years after the deadline of the Bali roadmap--that's pretty much what the "Durban Platform for Enhanced Action" amounts to.

Even in a global fiscal and economic environment that made any outcome more ambitious than this a virtual non-starter, the Durban Platform doesn't inspire confidence in the UN climate process. The most notable aspect of the agreement is that for the first time emitters from both the developed and developing world have signed up to a process under which they would all be asked to take on more or less legally binding commitments to reduce emissions. As the Economist notes, this "promises to break a divisive and anachronistic distinction", and one that makes little sense when developing countries now account for more than half of global greenhouse gas emissions. US climate envoy Todd Stern was quoted as saying that the US had been seeking this kind of "symmetry...since the beginning of the Obama administration." In fact, that has been the consistent goal of US climate policy since the Clinton administration. The problem is that this all remains contingent on the details of a future negotiation and subject to ratification by future governments, many of which will change between now and the COP-21 in late 2015.

Ever since the debacle in Copenhagen two years ago, the UN climate process has looked like a weak reed. Whatever the optimum size of a committee might be, it is not one made up of 194 countries, particularly when the top 20 accounted for nearly 80% of global CO2 emissions in 2009. Even if you don't share my conclusion, reinforced by the aftermath of the recession and financial crisis, that international agreements are unlikely to result in enough emissions reductions to materially alter the trajectory of global warming, it ought to be abundantly clear that if climate change is as big a problem as the folks meeting in Durban believed, then we had better have a Plan B in mind. For some that means a much stronger focus on innovation, while for others, including myself, it also suggests we should get a lot more serious about both adaptation to climate change and the exploration of geoengineering options. Or perhaps the horse will learn to sing, after all.

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Message to Durban: It's The Economy

What if they held a UN climate conference and no one came? That's certainly not the case at this year's COP-17 (Conference of the Parties) meeting now underway in Durban, South Africa, but with expectations for dramatic progress low, and a breakthrough on the scale needed to salvage the expiring Kyoto Protocol nearly unimaginable, it could be where the UN-led process is headed. If Durban fails to deliver the goods, it won't be because the participants were any less concerned about climate change than those at past sessions. Nor will it be because of the latest release of Climategate emails, as embarrassing as some of them should be for the scientists involved. The reason is much simpler, and it's the same one that helped Bill Clinton unseat George H.W. Bush in 1992: "It's the economy, stupid." The solution to climate change is unlikely to be found in Durban or any future COP site until the leaders in Brussels, Washington and other capitals come to grips with the massive economic challenges they face and create the framework for a return to robust growth.

That observation might seem paradoxical, given the linkage between economic growth and the growth of greenhouse gas (GHG) emissions. One climate change expert at Shell recently questioned whether it's even possible to reduce these emissions, because the expansion of low-emission energy sources is merely displacing fossil fuels into other markets where the appetite for them remains insatiable. We've also seen the rebound in emissions that occurred once the US economy began to recover from the worst effects of the financial crisis and recession that began in 2008, and a new report from the International Energy Agency projects a similar result globally. Yet it's also the case that prosperity and concern for the environment go hand in hand, along with the capacity to afford the costs and penalties that a massive global reduction in GHGs would entail. It's no coincidence that the UN climate process and parallel US efforts lost most of their previous momentum during the Great Recession.

Although the "road map" that came out of 2007's Bali climate conference was ambitious, its timetable for developing a new set of binding emission-reduction commitments to dovetail with the end of the 2008-12 "first measurement period" of Kyoto looked achievable, allowing for some slippage. Just two years later, the delegates to Copenhagen were lucky to come away with a last-minute set of voluntary, non-binding commitments that, even if they were all implemented, would barely shift the trajectory of rising emissions. Nor did last year's meeting in Cancun restore the Bali road map.

At this point, even the less ambitious proposals on the agenda in Durban ultimately depend on developed countries that are grappling with high unemployment, crippling deficits and debt, and political turmoil underwriting large investments in the developing world. The present structure of the European Union--the primary supporter of action on climate change--is itself in jeopardy, and European economies are facing an oil price shock arguably as large as that of 2008. It's questionable that the EU can even pay for its own future emissions reductions, let alone subsidizing reductions and climate adaptation in the developing world. Meanwhile, support for Kyoto among other large emitting countries is flagging, and the US appears little closer to taking on binding emissions commitments than it was in 1997.

I don't dismiss the possibility that the Durban talks may accomplish more than just punting the ball to next year's session in Qatar. However, if they don't, then the folks that are footing the bills for this seemingly endless succession of sprawling confabs--wonderful for local chambers of commerce and tourism, but practically meaningless for tackling global emissions--should consider calling a hiatus pending the resolution of the global economic problems that will undermine any agreement they could reach in the interim. There might even be a scientific justification for that, in the form of a new, peer-reviewed paper in Science suggesting that the global climate's sensitivity to increasing concentrations of CO2 might not be as strong as previously thought. If Schmittner, et al, are correct, then we might have a bit more time before extreme climate change becomes imminent. Let's hope so, because it looks a lot more fruitful to reboot this whole effort once the global economy is back on an even keel.

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Breaking Our Oil Addiction

In an article in today's Washington Post an official of the National Wildlife Federation was quoted linking rejection of the Keystone XL pipeline with breaking our addiction to oil. Even with the administration apparently having delayed its decision on the project until 2013--quite possibly killing it--this point merits further exploration. Just how might we go about breaking that "addiction", and when could we reasonably expect the task to be accomplished? As with everything else to do with energy, the answers to those questions must be based on facts and figures, rather than wishfulness.

The brief quote and its context imply that a decision to forgo additional supplies of oil from Canada or any other source would, by itself, move us significantly closer to breaking our addiction to oil, a rather vague phrase brought into common usage by President Bush's 2006 State of the Union address. Of course if delaying or rejecting the pipeline only results in continued or additional oil imports from other countries, that would be counterproductive from an energy security standpoint, and perhaps even from an environmental perspective. Ending our oil addiction requires more than just a real or artificial supply constraint; it calls for enormous quantities of energy from other sources, mainly for transportation, along with significant improvements in the efficiency with which we use that energy. How soon should we expect such a transformation?

Start with electric vehicles, which are essentially the only pathway by which renewable electricity sources like wind, solar and geothermal power would have any impact on our oil consumption, because less than 1% of US electricity is now generated from oil. Even if EVs turn out to be the long-term solution to our transportation needs, as I suspect, it will be many years before they can displace enough fuel demand to make a dent in our oil addiction. The current goal is to have a million EVs on the road by 2015. As ambitious as that target seems compared to current sales of less expensive hybrid cars, that would constitute just 0.4% of the 238 million cars and light trucks in the US as of 2008. Moreover, even if EVs replaced cars of only average efficiency, one million of them would displace just 31,000 barrels per day of gasoline. In other words, it would take more than 20 million EVs to save the volume of oil that the Keystone Pipeline could have delivered annually.

If we want to kick our oil habit quicker than by waiting for a hundred million EVs to turn up, we'll need an energy source that's compatible with the vast majority of existing cars, and the ones like them that will probably dominate new car sales for some time. Consider ethanol, our largest and most successful alternative energy initiative so far. Through August, ethanol accounted for 9.2% of 2011 US gasoline consumption, nearly four times its contribution in 2005. However, before we could use a lot more ethanol in our cars, in the way Brazil has, we would need to overcome some big hurdles. Raising the proportion of ethanol in gasoline above 10% creates logistical and reliability problems, and the flexible fuel vehicles that can run on nearly pure ethanol are relatively scarce. In addition, we would need to produce most of the incremental ethanol from a feedstock other than corn. With the latest disappointing crop forecast from the US Department of Agriculture, ethanol production will consume about 41% of this year's harvest. Whether or not that's already enough to cause major food vs. fuel concerns, doubling corn use for ethanol would clearly push corn prices up drastically and cause ripple effects throughout the global food economy.

The good news is that biofuels--including better fuels than ethanol--can be produced from a wide variety of non-food crops, along with their efficient production from sugar cane in the tropics. The bad news is that with the exception of cane ethanol, none of these has been demonstrated on anything close to the scale required. Two of the largest cellulosic ethanol projects under construction, POET's Emmetsburg, Iowa project and the Vero Beach, FL facility of INEOS Bio, will together be capable of supplying just 0.02% of US vehicle fuel needs. And until these plants are up and running, their owners won't know whether their economics are sufficiently favorable--even with the current $1.01 per gallon cellulosic tax credit--to provide a basis for building more and larger versions. Although some of the many competing processes for producing biofuels from non-food biomass including wood, waste, dedicated energy crops and algae look very promising, they all face major uncertainties in development and scaling-up, including the scale-up of their supply chains, and none is yet ready for prime time. That might still be the case ten years from now.

Of course there are many other fuels we could put in our cars, after some modifications, including methanol, compressed natural gas (CNG), liquefied natural gas (LNG) or possibly even ammonia. However, the production of all of these, aside from a relatively small amount of landfill gas, is currently based on fossil natural gas, and all would require major investments in infrastructure and/or vehicle fleets. For that matter, 78% of the energy content of corn ethanol comes from natural gas and other fossil fuels--it also consumes enormous quantities of water--and most of the incremental electricity consumed by the first EVs will likely be generated from gas.

Although it appears that we have ample resources of natural gas to expand its use beyond current demand, I'm not sure that's quite what environmentalists have in mind when they talk about breaking our addiction to oil. And so far we've only considered alternatives to gasoline, without factoring in the significant demand for petroleum products for moving goods by truck, train and ship, along with aviation fuels, lubricants and many other products. Together, they account for as much oil as we use in cars, with non-oil alternatives for most of them at an earlier stage than for gasoline. And while energy efficiency measures, including the substantial improvements in vehicle fuel economy that are possible on a technology-neutral basis--including shifting cars to fuel-efficient diesels--can help to reduce the size of the mountain we must climb, they can't turn it into a valley.

Taking all these considerations into account it's not realistic to imagine that we could break our addiction to oil to any great extent for at least another decade. In the interim, we should certainly pursue all options that could alter the feasibility of such a shift in the years ahead, in a manner consistent with the fiscal constraints we face. I'm also not oblivious to what that implies for greenhouse gas emissions and climate change, though I would point out that our use of oil in transportation is neither the worst emissions offender, nor the easiest high-emitting segment of the US energy economy to tackle in that time frame. In the meantime, we are committed by virtue of scale, infrastructure and fleet requirements to burn many billions of barrels of oil over the next few decades, from wherever they may come. In that light, the administration's decision on the Keystone XL pipeline could prove to be a costly misstep, no matter how much political pressure they were under to withhold approval.

Addendum: Bloomberg has put out an interesting post-decision editorial suggesting that there's no reason for the review of an alternate pipeline route to take as long as the State Dept. has indicated.

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Is Mount Everest the Best Place for Solar Power?

A new study on the impact of regional temperature differences on solar generating potential arrives at some surprising conclusions about the world's best locations for solar power. While the US desert southwest still ranks high, as you'd expect, it turns out that some of the best sites may be in places most of us would never suspect, including the Himalayas and Antarctica. That's because the crystalline silicon-based photovoltaic (PV) cells that dominate the market today are sensitive to ambient temperature and perform best at low temperatures, such as those found in the polar regions and high altitudes. These results could have interesting implications for future energy supply and greenhouse gas emissions in India and China, and for regional cooperation in what has historically been a tense neighborhood.

The paper by researchers from Japan's National Institute for Advanced Industrial Science and Technology was published in Environmental Science & Technology. Their approach involved superimposing mapped global average temperatures onto the map of average solar radiation, or "insolation", that has been the standard guide for assessing solar power potential. This produces some interesting shifts in the world's best solar locations, particularly by reducing the PV potential of the tropics and increasing that of colder regions. (Note that this comparison isn't applicable to solar thermal installations.) High-altitude locations look especially attractive for PV for two reasons: Not only are they colder, with average temperatures falling by 4-10ºC for each kilometer of altitude (12-28ºF/mile), but they also receive more sunlight, due to the thinner atmosphere at these heights.

The resulting differences in output are significant. The same PV module that generates 600-800 kWh/year per Watt of nameplate capacity in the UK or Germany and 1,400-1,600 kWh/W in Arizona would top 2,000 kWh/W in the Himalayas and parts of the Andes, as well as near the South Pole. The authors recognize that the latter might not be very useful without low-cost, high-volume energy storage, perhaps in the form of hydrogen, due to extended periods of darkness in the antipodal winter. I would note that the enormous distances to the nearest market might also be overcome by borrowing some ideas from the plans for space solar power (SSP). Either way, it doesn't take high storage or logistical costs to render large-scale Antarctican PV impractical, and the installation, maintenance and transmission challenges in the Andes and Himalayas aren't trivial, either. Whether the paper's conclusions turn out to be more than just scientifically interesting will depend on the detailed economics of the projects necessary to implement them.

The economics of PV entail a lot more than just the solar generating potential in a given location. Proximity to markets, or at least access to transmission, is a big factor, as is price, including both the market price for power and any relevant government or utility incentives or carbon pricing. However, it's also true that it takes either very high local prices or very high subsidies, such as Germany's solar Feed-in Tariffs, to make PV competitive in regions with low temperature-adjusted solar output. Such subsidies are a rich-country game on any scale large enough to matter, and even European countries are finding it hard to sustain these added costs as their economies teeter on the brink of another financial crisis and recession. The advantages to developing countries like China and India of pursuing high-altitude solar--even if it requires long transmission lines--could be compelling in the long run.

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Energy Efficiency: An Uphill Battle on A Slippery Slope

With apologies for the dueling clichés in today's title, that image conveys the conflicting messages I received from a pair of events on the topic of energy efficiency this week. Yesterday I watched a panel discussion on energy efficiency finance, part of the valuable First Wednesday series of seminars from Resources for the Future in D.C. Yet as I listened to the discussion of creative mechanisms for overcoming the numerous financial and behavioral obstacles impeding the widespread adoption of efficiency technologies, I couldn't help framing it in the context of Tuesday's blogger call on "efficiency rebound", also known as the Jevons Paradox, hosted by the Breakthrough Institute. This latter, offsetting effect has been controversial in the US but is apparently more widely accepted in EU policy circles.

Energy efficiency is probably the energy topic to which I've devoted the least space in this blog in the last seven years. That hasn't been a deliberate slight, though perhaps it reflects the bulk of my personal experience on the supply side of energy. It's also a tricky subject because it's a moving target. We often hear efficiency described as the low-hanging fruit in discussions of energy security or emissions reductions, but that usually ignores the fact that the truly low-hanging fruit in efficiency was mainly captured during the energy crises of the 1970s and early 1980s, and in subsequent price spikes in electricity and natural gas. That doesn't mean there isn't still ample scope for further improvement, but it does leave those efforts subject to the long list of barriers described in yesterday's presentations. They include lack of funding, low awareness, landlord/tenant issues, and lack of expertise.

One of the other obstacles that intrigued me was the mismatch between the scale of most efficiency projects, even in the commercial sector, and the much larger scale of investor interest in financing efficiency, as described by the panelist from Citibank. He suggested the answer lies in aggregation, in which the financing of numerous smaller projects would be bundled and sold off in tranches to investors. If that sounds familiar, it should, because it reflects a similar approach to securitization to the one that contributed to the recent housing bubble. However, I would stress that efficiency instruments need not be inherently very risky, as long as they are assembled with due concern for the creditworthiness of the project owners, and without heroic assumptions about the risk-abating portfolio effect of aggregation. Another element that could assist this process is the sort of project performance guarantees described by the panelist from Johnson Controls. In any case there is no shortage of federal, state and local programs focused on energy efficiency financing, including the controversial Property Assessed Clean Energy (PACE) mechanism.

I hope you get the sense from this brief summary that implementing energy efficiency on a large scale is quite difficult enough in its own right, even when those investing in such improvements can safely assume that they will enjoy 100% of the promised cost savings when the projects are completed. The research on rebound by a team commissioned by the EU's Directorate General for the Environment highlighted a number of mechanisms by which efficiency gains may lead to additional energy consumption, either by the individual or organization implementing it or within the larger economy. In some cases this could even lead to post-efficiency consumption exceeding the pre-efficiency level, a condition referred to as "backfire." The potential for these offsetting effects not only makes efficiency a tougher sell on a project basis, but it also undermines the efficacy of macro-scale efficiency measures in mitigating climate change or reducing energy imports. This view is consistent with the findings concerning rebound assembled by the Breakthrough Institute.

The logic of rebound begins simply and locally, before becoming complex and widespread. When you invest in efficiency, your energy bill goes down, leaving you more money to spend on either more of the services that consume energy (e.g., transportation, lighting, heat or air conditioning) or on other goods or services, after accounting for the cost of the upgrade or the cost of financing it. Now think about what happens in the economy: the demand for energy has dropped by a little bit, as has the money spent on it. You'd expect energy prices to fall and the freed up money not spent on energy to result in consumption or investment somewhere else. But those goods and services likely consume energy, too, along with the embedded energy in the efficiency technology, the installation of which started this cascade. And as overall energy productivity goes up, economic growth should also increase, resulting in additional energy use. The EU report found evidence of rebound in the range of 10-30%, including 26% for the UK efficiency investments that were studied. For example, the UK government apparently assumes that 15% of the benefit of home insulation will be lost to rebound.

Some of these mechanisms are more intuitive than others, and I am still thinking through what I heard, particularly in terms of why much of the rebound effect wouldn't be offset by market feedback mechanisms or by the reaction of company management to disappointing post-expenditure reviews on efficiency projects. When I raised these points during the call, Dr. Maxwell, the co-leader of the EU study team, assured me that my concerns weren't supported by the empirical research they examined.

If this rebound effect is as prevalent as the evidence seems to indicate, then the implications aren't very positive. Although individuals and companies implementing efficiency measures are likely to get most of the value they expect, even if it's in some form other than direct savings on their energy bills (e.g., more mobility, more comfort, higher output) society likely wouldn't see the expected energy and emissions savings at the level of the entire economy. That requires increasing efforts on efficiency even further--against all the barriers discussed above--or expending more effort on the supply side of energy, through promotion of higher energy production and more investment in renewables. In other words, those low-hanging efficiency gains that have defied so many efforts to implement look even harder to achieve in practice and somewhat less valuable.

I'm not sure to what extent I buy into all this, yet. Direct rebound due to less expensive energy services for the individual or firm seems fairly straightforward, but the wider ripple effects involve positive and negative feedback loops requiring complex modeling to assess--with all the uncertainties to which such models are subject. Nor does it require the existence of a large rebound effect to appreciate just how difficult it will be to move the needle on total energy consumption and emissions very far by means of efficiency measures that must ultimately be implemented by individual companies and consumers that already face a large array of competing priorities. I intend to look into this further and report later on any insights that turn up.

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Secretary Chu Advised on "Prudent Development" of Oil and Gas

A news item concerning last week's release of the National Petroleum Council's "Prudent Development" report referred to a recommendation supporting a national tax on carbon. That caught my attention. Given the NPC's makeup, a consensus on such a controversial issue would be surprising. The actual text of the report proved somewhat less dramatic on the climate policy front, but no less worthwhile for its comprehensive assessment of the abundance of North American hydrocarbon resources, as well as the development approach "necessary for public trust, protection of health, safety and the environment, and access to resources." The report doesn't just focus on macro concerns about climate change and other environmental issues, but also on timely details such as the methane emissions, water and land-use impacts involved in shale gas production and other resource development.

For those not familiar with the NPC, the organization is charged with advising the Secretary of Energy on matters relating to oil and gas, though in practice it looks at a much broader array of energy issues. In 2007 I helped with the renewable energy analysis in the group's previous study, entitled "Hard Truths." The current study is one of two requested of the NPC by Secretary Chu; the other will look at future transportation fuels and is due out in the first half of next year. What makes these reports unusual is that they incorporate the views of academics, government officials, non-governmental organizations, and the legal and financial sectors, along with those of the energy industry. In the current study, just under half the participants represented oil and gas companies, while the Emissions and Carbon Regulation Subgroup included members from the National Resources Defense Council and US EPA, and the Environment and Regulatory Subgroup was chaired by someone from the Environmental Defense Fund. I think we'd all benefit from more such "strange bedfellows" collaborations.

The report's specific recommendation on carbon pricing as a mechanism for addressing greenhouse gas emissions appears in the Executive Summary and originates in an entire chapter on "Carbon and Other Emissions in the End-Use Sectors." Although it's much more generic than the Fuelfix article indicated, it's still noteworthy. It deals with the need to internalize emissions costs into fuel and technology choices, with a carbon tax mentioned as just one option among a range of measures for establishing an explicit or implicit price on carbon. It states,

"As Congress, the Administration, and relevant agencies consider energy policies, they should recognize that the most effective and efficient method to further reduce GHG emissions would be a mechanism for putting a price on carbon emissions that is national, economy-wide, market-based, visible, predictable, transparent, applicable to all sources of emissions, and part of an effective global framework."

It goes on to address non-market mechanisms such as performance standards and clean energy standards, and how a policy on carbon should be phased in. While individual oil and gas companies have supported cap and trade or a carbon tax either individually or within multi-industry groups, I can't recall such a broad cross-section of this industry going along with the idea of carbon pricing, even in this non-specific manner.

The timing of this is interesting. It's hard to envision a comprehensive climate bill passing the Congress between now and the November 2012 election, or even being introduced on anything other than a symbolic basis. The pork-laden monstrosity of the Waxman-Markey bill succeeded only in making cap and trade toxic, and I can't imagine a worse environment for introducing any kind of new tax--a price on carbon is clearly a tax--even if the concept behind cap and trade has a solid bipartisan pedigree. Short of the miraculous materialization of a carbon tax as a compromise revenue solution from the deficit-fighting Supercommittee, carbon pricing in the US looks dead until 2013 and possibly well beyond. I'm also starting to see more comments along the lines of this one from the blog of the Information Technology and Innovation Foundation suggesting that policies promoting innovation might be a lot more important in addressing climate change than any level of carbon pricing that could realistically be implemented here.

So whether you regard this recommendation by the NPC as an attempt to restart a stalled debate on carbon pricing, or merely a tardy entry in a formerly crowded field, I think it also signals that the energy industry isn't oblivious to the fact that its emissions--including the lion's share associated with end-user consumption of their products--must eventually be dealt with. Chances are, that will await a return to economic health and stability, when US consumers, voters and taxpayers might be expected to prove more willing to incur the sacrifices this will entail. The report also includes a good perspective on the considerable North American resource upside that could be unleashed with different policies than the ones now in place, and that might just hasten the arrival of more favorable economic conditions for carbon policy.

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Three Studies Confirm Shale Gas Is Not Worse Than Coal

For most of this year the enormous potential of shale gas has been clouded by controversy over its alleged climate impact. This began with the draft and later the leaked pre-publication version of a paper from a Cornell professor suggesting that the greenhouse gas emissions from gas were no better than those from coal and might even be worse. When I examined Dr. Howarth's analysis in two postings last December and this April I found that his methodology and assumptions were sufficiently flawed to undermine his conclusions. However, I also recognized the informal nature of my assessment and suggested the need for further scrutiny of this issue by organizations with more resources. That has now taken place, though I claim no credit for it. Within the last month three separate teams have issued reports bearing on this question, and not one of them validates Dr. Howarth's findings against shale gas.



The first of these studies comes from IHS Cambridge Energy Research Associates, addressing not just Dr. Howarth's paper, but also the EPA's estimates of methane leakage that were a key input for its calculations of greenhouse gas emissions from shale gas. Although a skeptic might find reasons to dismiss a study from a consultancy with a large energy industry clientele, the other two studies have connections to groups with unimpeachable environmental/sustainability credentials. One is a collaboration between Worldwatch Institute and Deutsche Bank, while the other paper, published in Environmental Research Letters, is from a team at Carnegie Mellon University with financial support from the Sierra Club. I encourage you to read them, but here are the highlights:



The Carnegie Mellon team focused on shale gas from the vast Marcellus formation underlying several eastern states. (See Friday's posting for some perspective of the scale of this resource.) They found that while the current techniques for developing and completing a Marcellus shale gas well do result in higher methane emissions than from conventional gas wells, the extra methane only increases lifecycle emissions from well to burner tip by 3% on average. This is the case because, "The life cycle emissions are dominated by combustion that accounts for 74% of the total emissions." As a result, when burned in a combined cycle power plant to generate electricity, shale gas results in emissions per kilowatt-hour (kWh) that are 20-50% lower than those from coal, depending on equipment and sources. This is the crucial comparison that Howarth's paper gave short shrift. They also compared shale gas emissions to those from LNG, which we'd now be importing in large quantities had shale gas development not ramped up as it did a few years ago. The Mellon team found shale gas and LNG roughly comparable, with both emitting around a quarter less CO2 equivalent per BTU than diesel fuel. That suggests that shale gas isn't just a lower-emitting fuel for power generation, but also for transportation. Finally, they looked at the possibility of shale gas wells being fractured multiple times, rather than just once during their production life, and found that it would take more than 25 fracturing events to negate gas's advantage over coal.



The Worldwatch/Deutsche Bank study considered both top-down and bottom-up views of shale gas emissions, including that of Howarth. They looked at the average US natural gas supply including current proportions of shale gas and found that the emissions from gas-fired power plants beat coal-fired plants by an average of 47%, even with the EPA's higher figures for methane venting during gas production. They also found that among bottom-up assessments of shale gas emissions, including the one from Carnegie Mellon and another from the DOE's National Energy Technology Laboratory, Howarth's results appear to be an outlier, and that shale gas is materially lower than coal in lifecycle emissions for power generation. And while their analysis was performed using the standard 100-year global warming potential for methane of 25 times CO2, they considered sensitivities ranging up to a GWP of 105:1, at which extreme gas still performed better than coal.



It's probably too much to hope that these independent studies will alleviate all of the concerns that have been raised about the greenhouse gas emissions from shale gas, which will only improve as technology and standards progress. (The studies also highlighted both the need and potential to reduce methane emissions from shale gas development, in order to minimize the extra greenhouse gas contribution, irrespective of any comparison to other fuels.) I also get that with the current mood in much of this country, claims for the game-changing energy potential of shale gas must sound too good to be true, without some fatal flaw. Yet everything I see indicates that the problems associated with shale gas development are all manageable, and that while it isn't a panacea, it does represent an extraordinary opportunity for the US from an economic, energy security and environmental perspective. It's time to recognize this as the tremendous gift that it is.

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The Next Big CAFE Loophole

The great pitfall of government policies, no matter how well-intended they might be, is their inevitable unintended consequences. When those are truly surprising, it's hard to attach much blame to the legislators or regulators involved. However, that degree of indulgence shouldn't apply when the unintended consequences are as obvious as the ones inherent in the new fuel economy regulations that were announced with such fanfare last week. After all, an earlier generation of CAFE standards gave rise to what might just be the classic unintended consequence of recent times: the "SUV loophole" that fed a 20-plus-year SUV fad and dug the nation's oil consumption hole much deeper than it needed to be, affecting oil prices, trade deficits and energy security. Now regulators are proposing the creation of a similar loophole for electric vehicles.

I'm not surprised that the coverage I have read on the latest CAFE debate didn't remind the public of the ongoing consequences of treating pick-up trucks and delivery vehicles differently than passenger cars when the first CAFE standards were established in the 1970s. (That loophole was mostly closed just a few years ago.) Who could have guessed that a provision intended to help small businesses would blow up, because an entire generation embraced deluxe versions of such vehicles as their primary transportation--by the tens of millions--undermining the purpose of the CAFE standards to reduce gasoline demand? When I looked at this several years ago, I estimated that SUVs had increased US gasoline consumption by over 400,000 barrels per day, or roughly 5% of total demand, equivalent to the energy contribution of around 10 billion gallons per year of ethanol.

In this case the problem starts with the evolution of Corporate Average Fuel Economy standards from a tool intended solely to improve US energy security by reducing the consumption of petroleum products in transportation, to one encompassing the greenhouse gas emissions implicated in climate change. Although there are important overlaps between these two goals--keeping a chorus of pundits employed touting them--they are not identical in operation or effect. Consider the specifics of the new CAFE proposal.

The "supplemental notice of intent" from the National Highway Traffic Safety Agency (NHTSA) of the Department of Energy, the body that along with the EPA designs and enforces the CAFE standard, spells out the special treatment accorded EVs in the rules that will be forthcoming. It states that EPA intends to give manufacturers multiple credit for each EV, plug-in hybrid (PHEV) and fuel cell vehicle they sell, starting at a multiplier of 2.0 for EVs and fuel cells and declining to 1.5 by 2021, as if these cars somehow canceled the emissions of more than one vehicle. They also intend to treat EVs and the electric portion of PHEVs as having zero emissions, regardless of how the power they use is generated. So in order to meet the tough greenhouse gas standards that accompany the 54.5 mpg CAFE standard, carmakers will have every incentive to produce as many EVs they can. Unfortunately, it's not obvious that this will reduce emissions in the real world, except in the rare instances when EVs recharge exclusively from renewable or nuclear power, which provide only 30% of our electricity mix today, up from 28% in 2005.

One needn't assume that EVs might be recharged using only coal-fired power to see that they aren't always a big improvement, emissions-wise, over non-plug-in Prius-type hybrids or clean diesels. Using the average US grid CO2 emissions of around 1.3 lb/kWh, a Nissan Leaf getting 3 miles per kWh is responsible for the emission of roughly 200 grams of CO2 per mile traveled. By comparison, a 2011 Prius with its 50 mpg EPA average emits around 196 g/mi. A more rigorous comparison would require a full well-to-wheels lifecycle assessment, but that is precisely what the new CAFE rules eschew in the interest of leaning on the scales to help today's preferred vehicle technology.

Subject to further refinement, this back-of-the-envelope analysis suggests that skewing the new CAFE regulations in favor of EVs isn't going to do much to reduce greenhouse gas emissions. Its main advantage is in reducing oil consumption, since less than 1% of our electricity is generated from oil. But if we only cared about oil and not emissions, producing gasoline from domestic coal--in the same manner as a sizeable fraction of South Africa's fuel supply--would be equally effective at backing out oil imports. Meanwhile, a gallon of gasoline saved by an advanced internal combustion engine with stop-start technology and other low-cost efficiency features would be worth exactly as much as a gallon saved by an EV, while costing dramatically less. That's especially true when you factor in the $7,500/car EV tax credit, which I can't help thinking will be a prime target when the joint Congressional committee on deficit reduction established by the debt limit bill passed by the House of Representatives last night and by the Senate just a few minutes ago sets up shop this fall.

The unintended consequence that is easily envisioned from this special treatment of EVs is a massive over-investment in a particular and still very expensive vehicle technology, at the expense of other, less costly and more cost-effective technologies. I certainly accept that EVs represent a major long-term trend in cars, but I don't believe that their development requires fiddling with the CAFE rules in this way. Nor is it obvious that US manufacturers enjoy any particular competitive advantage in producing EVs, which depend on ingredients such as rare earths for which we are even more import-dependent than for oil. If saving oil and emissions is what we really care about, then we are entitled to expect that new fuel economy regulations would focus squarely on those outcomes, without being diverted by the industrial policy fad of the moment. Perhaps this will be one of the topics taken up by the House Oversight and Government Reform Committee of the Congress as it investigates the new CAFE rules.

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Carmageddon, Hybrid Cars and Diamond Lanes

The looming "Carmageddon" in Los Angeles made the front page of today's Wall St. Journal, as residents there brace for the two-plus day closure of ten miles of the famed San Diego Freeway (I-405) this weekend. The disruption is apparently required to allow for some demolition necessary for the construction of new high-occupancy vehicle (HOV) lanes on the 405. As locals assess their alternate routes--there are many--they might also want to spend some time thinking about who will be allowed to drive in those new HOV lanes. California recently decided to deny ordinary (non-plug-in) hybrid cars that privilege, in preference to plug-ins and other alternatively fueled vehicles. The new policy and the one it replaces both reflect muddled thinking, but I would argue that abandoning hybrids at this juncture is a mistake, at least if saving gas is still a priority in the Golden State.

I routinely commuted on that stretch of the 405 between the Santa Monica Freeway (I-10) and the Ventura Freeway (US-101) when I lived on the West Side and worked in Mid-Wilshire and later in the San Fernando Valley. I carpooled for part of that time but for most of it, like most other Angelenos, I drove alone. I would have found the option of going solo in the HOV lanes a very appealing way to avoid the frequent stop-and-go traffic, and that's why offering that right to hybrid cars has been a useful non-cash incentive to boost their sales. State officials apparently concluded that normal hybrids are now commonplace, so the incentive should be shifted to the even more efficient cars now becoming available. They have emissions data on their side, because California's electricity mix is dominated by hydropower, nuclear and efficient gas turbines, plus a growing contribution of non-hydro renewables, though it also includes some imported coal-fired power from the Four Corners region. A plug-in should indeed emit less CO2 (directly and indirectly) than a Prius-type hybrid under those conditions.

What I think the state's regulators have missed, however, is that simpler hybrids, which currently enjoy no other incentives, still look like an equally effective way to save gasoline. That's particularly true if most buyers of plug-in cars are choosing them in preference to non-plug-in hybrids, rather than instead of gas-guzzling conventional cars. It comes down to the simple, but often counter-intuitive math of fuel economy the way we calculate it in the US, yielding diminishing gallon savings for increasing miles per gallon (see chart below.) Consider a 50 mpg hybrid that replaces a 25 mpg conventional car. Driven 12,000 miles per year, this choice saves 240 gallons per year. Trading in that hybrid for a plug-in like a Nissan Leaf only saves an additional 240 gallons per year, while a Chevy Volt would save somewhat less than that, unless it were never filled up.



Moreover, plug-ins didn't lack for incentives already. In addition to the federal tax credit of up to $7,500 per car, California offers its own rebate of up to $5,000 for qualifying plug-ins, which also receive discounted rates for electricity. Then there's the money the state is investing in recharging infrastructure. Whether or not the aggregate level of incentives is justified on grounds of economics, environmental and energy security benefits, throwing the HOV benefit on top of them seems like an unnecessary gilding of the lily. The 85,000 hybrids that were given the sticker allowing HOV access for solo drivers still represent a tiny fraction of the state's 39 million registered motor vehicles, and offering 40,000 new stickers for EVs won't make a noticeable dent in California's emissions, or its 40 million gallon-per-day gasoline consumption.

I don't know whether this weekend's Carmageddon will live up to its name, or like L.A.'s 1984 Summer Olympics result in lighter-than-normal traffic because motorists had enough notice to allow them to plan ahead. Yet it does seem that continuing to offer HOV access for non-plug-in hybrids would provide a meaningful incentive for a class of gas-saving vehicles that still represents only around 3% of US car sales, at no cash cost to the state. And if the state is truly concerned that a growing hybrid population could choke the HOV lanes and make them less useful for everyone, an even better option would be to auction the stickers, with only buyers of hybrids, plug-ins and other alternative fuel cars eligible to bid. The proceeds might be sufficient to relieve the state's battered budget of a large portion of the cost of the cash subsidies they're already paying on plug-in cars.

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