Unrealistic Goals

A couple of stories over the long weekend highlighted growing disconnects between major elements of energy and environmental policy and what is actually possible in the real world. The first concerns China's gambit that committing to a carbon-intensity target that could be met with initiatives already under way might be sufficient to induce the US and EU to sign up for deeper cuts in actual emissions--and incidentally release a flood of "carbon debt" payments from the OECD to the developing world. Meanwhile a pair of articles on ethanol highlight the infeasibility of the biofuel mandates established by the US Congress a few years ago and about to be embedded in new EPA regulations. In both cases, practical reality is at odds with the aspirations of regulators in ways that threaten to undermine support for less ambitious but more achievable efforts.

The Copenhagen climate meeting, officially the 15th Conference of the Parties to the UN Framework Convention on Climate Change, begins in one week. Politicians and diplomats have been scrambling to avert the possibility that after two years of work on the details of the framework set in Bali, the meeting might conclude without producing an agreement that could take the place of the Kyoto Protocol, which expires in 2012. Last-minute actions by the world's two largest emitters may have rescued the conference from this fate, in the form of a pledge by President Obama that the US will reduce its emissions by 17% below 2005 levels by 2020 and a commitment by China to reduce its emissions per unit of economic activity by 40-45% below 2005 levels. But while this might save Copenhagen from irrelevance, it illustrates how far the available degrees of freedom for action in countries that must keep their economies moving forward fall short of what would be required to halt the accumulation of greenhouse gases in the atmosphere and begin to reverse it.

As it is, President Obama is taking a considerable risk in offering emission cuts that have not been approved by Congress, which might not be inclined to stick out its neck quite so far going into a tough mid-term election that will hinge on the economy and employment. While China's offer represents a serious first step, a similar focus on "carbon intensity" by the previous US administration was met with derision by environmentalists. The problem is that the level of emissions this would yield if China's economy continues to grow at 8% per year or more is incompatible with scenarios for limiting peak CO2 concentrations in the atmosphere to 450 parts per million and eventually restoring them to pre-industrial levels. If we can't avoid blowing past the 450 ppm limit that was the basis of the Bali framework, then growing efforts to shift the official goalpost back to 350 ppm--a level we passed in 1988--look like King Canute ordering the tide not to rise. Expect a great deal of attention to be focused on these numbers in the next couple of weeks.

The disconnect on US ethanol policy is even more pronounced, because the current path can only be sustained for a few more years. An op-ed in Saturday's New York Times reminds us of the shortcomings of our current reliance on ethanol produced from corn, while comments by the CEO of Shell, a major investor in next-generation biofuels, makes it clear that the extremely ambitious targets for cellulosic ethanol and other non-food-based biofuels that the Congress mandated in the Energy Independence and Security Act of 2007 are extremely unlikely to be met. And even before that shortfall becomes serious, the nation's distilleries will exceed the capacity of current US motor gasoline sales to accommodate all the ethanol they can produce, unless the government also lifts the 10% blending limit.

While we can argue about whether that ought to happen, the bigger issue is that these two developments expose the failure of the key assumptions under which the Congress crafted the Renewable Fuel Standard: E85 has turned out to be a dud in the marketplace for good reasons--consumers have figured out that a fuel that costs more dollars to go fewer miles is a bad deal--and it turns out to be really hard to make fuels on a large scale or at an affordable cost from non-food biomass. The appropriate response when your expectations of the future turn out to be so badly wrong would be to freeze the status quo in place while revamping the standard to reflect more realistic assumptions, not to enshrine the false assumptions in new EPA rules that will drive up fuel costs for consumers without doing a thing to improve the environment.

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Counting Our Energy Blessings

Thanksgiving is a perfect time to reflect on the many energy blessings the US enjoys. While we tend to focus on our problems, which seem numerous and overwhelming at times, there are a number of positives we should also recognize. Here's a short list of them to contemplate over tomorrow's turkey dinner:

1. The US still produces roughly three-fourths of the energy we consume, well ahead of the EU and Japan, and with prudent investment in energy efficiency and new production of all kinds, that ratio could grow significantly over the next decade.
2. The energy efficiency of the US economy has been improving steadily. Measured in terms of BTUs per dollar of real output, our energy consumption per GDP has fallen by more than 15% in the current decade. That's one reason that our greenhouse gas emissions increased by much less than expected, even before the recession started.
3. Only a few years ago, the US natural gas supply and demand balance looked like a slow-motion train wreck. Thanks to a tremendous surge of production from shale gas reservoirs and other unconventional sources, US gas production last year reached the highest level since the mid-1970s. If the incremental production added since 2005 were all turned into electricity, it would equate to the output of 100,000 MW of wind turbines.
4. Despite the weak economy and extremely challenging financial markets, US wind power capacity is on a pace to grow by more than 7,000 MW this year, surpassing all but last year's record additions, and bringing total wind capacity by year end to over 32,000 MW.
5. US crude oil production looks set to snap a 17-year trend of annual declines. The API indicates that year-to-date 2009 production is up by 6.8% over last year, as major new projects initiated earlier in the decade when prices began to rise come on stream.

Finally, here's a non-energy statistic that surprised me. Even after contracting by 3% from last summer's high point, US real GDP has grown this decade by an amount that exceeds the entire GDP of Brazil, and our nominal GDP is up by an amount roughly equal to the entire economy of China. That shouldn't make us feel complacent, as both of those countries are growing at much faster rates than we are, but it should at least provide some perspective on the discouraging comparisons we're accustomed to hearing.

Energy Outlook will observe the traditional long weekend and resume postings early next week. Happy Thanksgiving!

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Do Leaked Emails Undermine the Scientific Consensus?

For the last couple of days I've been ruminating about what to say concerning the emails and other data apparently leaked by hackers who penetrated the computer systems at the University of East Anglia's Hadley Centre Climate Research Unit, one of the major global sources of climate change data and analysis. It's clearly premature to attempt to draw sweeping conclusions about the implications for climate science and policy from the few tidbits that have been leaked to the press or published on the websites of leading climate skeptics, some of whom have already characterized the story as "Climategate." At the same time, it strikes me as naive--and perhaps ultimately counterproductive--of those in the "true believer" community who imagine that the publication of such interactions would not naturally lead to serious questions about the scientific basis of some very expensive proposed policy actions to address global warming.

Start with the official statement from the University of East Anglia. While I'm naturally sympathetic to their concerns about the breach itself and the resulting release of sensitive personal information of university employees, it is also worth recalling that the institution in question is funded by UK taxpayers and is not exactly covered by the Official Secrets Act. If laws have been broken, the perpetrators should be pursued and prosecuted. However, if university officials believe they can confine their response to the theft of data and easily dismiss the content of the material that was revealed, they are getting poor advice. I'm sure that the items that have been published so far have indeed been taken out of context, as they contend, but is that not the standard claim by nearly everyone who has suffered a similarly embarrassing exposure in the last couple of decades? The response of the University of East Anglia to date is simply inadequate in the modern era of information, and if I were in their shoes I'd at least announce a full and immediate academic inquiry into whether the emails have unearthed practices that were contrary to university policies and the normal standards of data integrity and peer review. They'd be much better off tackling this proactively than waiting for it to be forced upon them, or taken out of their hands as a result of a Question asked in Parliament--however unlikely that might be in the current political climate.

Next, consider email as a medium of discussion. In my career I have seen many emails that their senders would have subsequently preferred to see deleted from all systems, and I have probably written one or two myself. But that's not the reality of a world in which anything you write on a networked system can be divulged later as part of the discovery phase of a lawsuit or in a government investigation. The best advice I've heard on the subject is the lesson some of the authors of the Hadley emails have just learned the hard way: "Don't write anything you'd be embarrassed to see printed on the front page of the New York (or in this case the London) Times."

That doesn't mean I'm naive about how people--even scientists--interact with each other. Anyone who has spent five minutes peering behind the veil of academic politics wouldn't be terribly surprised at some of the caustic, small-minded, and downright vindictive comments that pepper the Hadley emails that have turned up around the Internet. Nevertheless, most of us aren't involved in work that is integral to a global effort to understand and avert the worst outcomes of something on the scale of climate change. These folks are expected to hold themselves to a higher standard, and if they don't, it jeopardizes not just their own reputations but the public's perception of the findings of the larger body of climate science. When I read an email in which one noted climate researcher asks another not to refer to a particular subject in his reply, but just say yes or no, or another indicating the author would delete some data points from a graph showing a recent change in the trend, I'm reminded of some precautionary advice I received at the very beginning of my oil trading career: "Avoid even the appearance of evil."

The basic issue here that many of those responding from the climate change community seem unable or unwilling to grasp is that their real problem is not how particular individuals or groups might exploit this information, but how the information itself could undermine the faith of the public in the integrity of climate science. I use the word faith deliberately, because for most of us it boils down to that. The number of people actually equipped to read the scientific papers in question and ascertain whether the manipulation of charts and data implicated in some of the leaked emails is serious or not is vanishingly small, compared to the much larger number of us who must simply take it on faith that the scientists studying the climate and reporting on alarming changes in it are behaving in a fair, transparent, and unself-interested way, to the greatest extent humanly possible. It would be hard for most of us to read the emails in question objectively and not have that faith shaken, at least a bit.

Now, it's possible this entire episode could blow over in a news cycle or two and have no impact on the impending negotiations in Copenhagen or on the Congressional debate on climate legislation. I wouldn't bet on that, because what little has come out so far fits neatly into the preexisting view by some of climate science as a conspiracy, or at least a process that has been politicized by the funding and bureaucratic power that large sums devoted to climate research have bestowed. If the climate science community wants to put this episode behind it without derailing the public's trust in the scientific consensus on global warming, then the researchers and institutions that are leading this effort should be calling loudly for a full airing of Hadley's linen, and an assessment of the center's practices by an unbiased panel, preferably one well-staffed with scientists from other disciplines. Any perception of a cover-up will only reinforce suspicions that conduct at Hadley wasn't what it should have been, and that at least one pillar of the climate change argument looks shakier than it did just a week ago.

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Energy Principles

My critique of a proposal for expanded tax credits to promote the electrification of transportation prompted some interesting comments. It also got me thinking again about an underlying problem that leads to the kind of scramble for government favor and largess that is exemplified by such efforts and by the badly-flawed Waxman-Markey climate bill. We have seen endless debates on energy policy, energy strategy and energy tactics, but far too little on energy principles. It would save much time, effort and money if we had a guiding principle that eschewed favoritism toward any particular technology, in favor of technology-neutral regulations and federal investments in broadly-useful energy infrastructure. Even more importantly, we would benefit from a clear principle of focusing policy and incentives on our desired ultimate outcomes, such as reducing emissions or oil imports, rather than on individual pathways for achieving them.

Take the example of electric vehicles (EVs) and their infrastructure. The US government has no business promoting a single-focus solution like this. It does, however, have a vital interest in promoting much more energy-efficient cars, based on any technologies that achieve that result. If handing out consumer tax incentives for new cars is necessary to further that goal, they should be given on the basis of total energy consumption, using a comprehensive metric like the MPGe of the Automotive X-Prize, which counts all energy in all forms delivered to the car. The higher the MPGe, the bigger the incentive. That would make a lot more sense than doling out tax credits in proportion to the size of a car's battery. Along with the proposal by the EPA and Department of Transportation to let carmakers count EVs twice towards their new corporate fuel economy and tailpipe emissions targets, that would create a perverse incentive similar to the old "SUV Loophole", possibly setting the stage for a new generation of large, inefficient battery SUVs.

Shifting transportation energy from oil to electricity makes more sense if that electricity is used efficiently, particularly since low-emission sources still account for less than 1/3 of our electricity supply, and the wind power most often mentioned in connection with powering EVs accounts for just 1.6% of US generation this year. On that basis, investments in the smart grid and long-distance transmission lines would probably be as helpful in supporting future EV deployment as underwriting specific EV recharging infrastructure, while avoiding the risk of becoming orphaned if EVs don't catch on.

On the generation side, whether intentionally or not, the stimulus bill passed early this year helped put wind, solar, and other renewable energy sources on a more technology-neutral basis by making them all eligible for the same 30% federal tax credit previously available only to solar power. Yet this provision still contains at least one glaring omission, because it was established under a very specific definition of renewable energy, rather than encompassing all energy sources meeting criteria for very low emissions that would also include nuclear power. Putting nuclear and renewables on a common footing would go a long way toward ending protracted arguments about which technology receives more (undeserved) government support and which is most commercially competitive, and it would foster a future generating mix offering similar depth and flexibility to the one we have now, without undesirable greenhouse gases.

Ultimately, whether you like my choice of principles or prefer different ones, we need a common set of criteria for making the energy decisions we face, instead of treating each as an ad hoc opportunity for one option or technology and its backers to win at the expense of the others--and often at the expense of taxpayers. While we certainly need to get on with deploying lower-emission ways of producing and using energy, it is premature to bet the ranch on any one option. We should still be creating new options and pruning them along the way, based on principles aligned with the basic problems we are trying to solve. While that might sound idealistic to some, it strikes me as intensely practical and much more useful in the long run than the prevailing plague of energy "answer-itis", in which everyone wants to push a specific answer before we even agree on the right questions to ask.

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Paying the Bill for Electric Vehicles

Perhaps it's merely a sign of the times, when a billion is the new million and firms in many industries have found it easier to get capital from the government than from bankers, bondholders and shareholders, but the price tag implicit in the recommendations of a new cross-industry group formed to promote electric vehicles is startling even in this context. Although I couldn't find the total anywhere in the lengthy report from the Electrification Coalition, the Washington Post tallied the combined cost of their proposals at $124 billion in new government incentives, over and above the billions already being spent under the stimulus bill and other programs to support the R&D, manufacturing, and infrastructure for plug-in electric cars, and to subsidize consumer purchases of them. The frustrating part of this is that I'm in general agreement that electric vehicles probably represent the long-term future of cars. However, I don't believe anyone can know this with sufficient certainty, any more than they knew a few years ago that fuel cell cars were the answer, or in the late 1990s that diesel hybrids were the answer. The report also raises basic questions about how new industries should be built, and at whose expense.

Without dissecting the entire document, the justification for its recommendations appears to hinge on a few key arguments concerning our current use of oil, which the Coalition is hardly alone in regarding as excessive. Although they go a bit overboard focusing on the $900 billion Americans spent on petroleum products last year--roughly half of which represented the value of domestic production, refining margins, and federal, state and local taxes collected on product sales, all of which are part of GDP and thus a plus, not a minus for the economy--they eventually get around to mentioning last year's oil import tab of $388 billion. (That figure is currently running at around $250 billion per year, based on the September refiner acquisition price applied to our average monthly net imports, but it is still a lot of money.) Yet as attention-focusing as that sum is, vehicle electrification is hardly the only way to go about reducing it, and from what I can tell it is almost certainly not the most cost-effective means of doing so.

Aside from the diesel options I discussed the other day, there are a variety of strategies available to improve fuel economy significantly without merely shifting our transportation energy consumption from one category (oil) to another (electricity generated from a mix anchored by coal.) Our approach to reducing oil consumption must also take into account the diminishing returns to increasing fuel economy. Doubling the average car's fuel economy from 25 mpg to 50 mpg saves twice as much gasoline as going from 50 mpg to 100 mpg--and it still saves more than achieving the fancifully hyperbolic mpgs we've seen quoted for various plug-ins and EVs that ignore the energy required to generate grid electricity. The avoided fuel cost effectively sets a ceiling on the financial rewards available from the notional fuel economy of grid-based vehicles. Because fuel savings can't justify today's high up-front cost of battery-powered cars, the Coalition proposes consumer tax credits for plug-in hybrids or EVs that could top $10,000, compared to the current $7,500 maximum. By comparison, for ten grand you could fuel a Prius for 100,000 miles at $5/gallon, or a pair of them at current gas prices.

Nor do I find the suggestion of providing federal tax credits to cover 75% of the cost of EV-recharging infrastructure (50% in later phases) appealing, other than as a gift to the member companies of the Coalition that paid for this study. Infrastructure is an expensive investment, and I'm quite familiar from my experience of the EV-1 rollout with its importance in breaking the chicken-and-egg market dynamic associated with battery cars. However, I don't see sufficient justification for taxpayers to pick up this much of the tab--and risk--for infrastructure for which the demand will be so small and uncertain for years to come.

Even measured against the scale of the bailouts of GM, Chrysler, and the big banks, $124 billion is a huge price tag to impose on taxpayers who have just begun to wake up to the likely consequences of the enormous debts that our deficits are piling up. While vehicle electrification might reduce our trade deficit in oil, it's not obvious that it won't replace it with offsetting deficits in cars, batteries and the scarce strategic materials they require. Nor does it seem equitable to ask average taxpayers to furnish other, perhaps higher-quintile taxpayers with EV tax credits so generous that they would exceed the depreciated value of the average car on the road.

I'm not opposed to electrification or the companies behind this initiative. In fact, I wish them well and look forward to someday having the choice of buying an attractive and affordable electric car. What I do oppose is another massive handout to another chosen industry on the basis of a highly uncertain scenario of future market development, bypassing all of the competitive pressures that should shape such a revolutionary change along the way. The first few million grid-powered EVs would have a negligible impact on the nation's energy consumption, emissions, and oil imports, yet even their advocates suggest they will cost a bloody fortune to put on the road. As you read the Coalition's analysis and their proposals for who should foot the bill for all this, I encourage you to consider who stands to benefit the most from it in the next ten years. Taxpayers should insist that the early adopters and the companies that will garner most of the value of these developments pay their own way, as was the case for personal computers, cellphones, and most other successful new technologies of the last several decades.

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Indexing Crude Prices

Although oil trading hasn't been my primary focus for many years, the recent announcement by Saudi Aramco that it is switching its price mechanism for oil delivered to the US caught my attention. Instead of basing its formula for deliveries here on the price of West Texas Intermediate crude oil, it will apparently reference the new Argus Sour Crude Index (ASCI.) While that lends substantial credibility to this new index and may gain Argus more than a few new subscribers, the implications for the widely-traded NYMEX WTI contract and the dynamics of the broader international oil market seem much less clear. In particular, I am skeptical of suggestions that this move could ultimately reduce whatever influence non-commercial financial participants--speculators, in common parlance--have on oil prices.

The question of how best to price crude oil for buyers and sellers is a perennial problem, particularly for oil that differs significantly in quality from the light, sweet grades behind the extremely liquid WTI and ICE Brent futures contracts. US refiners, in particular, have invested many billions of dollars in the hardware required to turn lower-quality oil into high-quality petroleum products. Any time the peculiarities of these contracts drag up the prices of the grades of oil they prefer to run, they grumble about basing deals on WTI. Likewise for sellers of sour crude, foreign and domestic, who suffer when the WTI price moves out of sync with world prices, such as when storage at its nexus at Cushing, OK fills up, as it did earlier this year. However, after listening to the Q&A podcast concerning the ASCI on Argus's website and reading the background document there, I'm skeptical that this index will settle the sour crude market's discontent, because it won't change the way this oil is traded by nearly as much as it might appear.

Without getting into all of its details, as I understand it the ASCI is effectively a composite daily report of the deals done for three specific streams of offshore Gulf of Mexico crude oil, all of which trade at a differential to WTI. In calculating a daily price, Argus will add the average daily discount or premium vs. WTI from the transactions it learns of to the daily price for WTI to come up with a single price in dollars per barrel. The Argus podcast was very clear that NYMEX WTI is still as the heart of the new index, not just because this reflects the way deals are done with reference to WTI, but also because WTI remains the highly-liquid futures contract that the buyers and sellers of the ASCI oil streams use to hedge their market risk. In other words, the new ASCI index is not a substitute for WTI-based pricing, but merely a more transparent gauge of the relationship between WTI and the sour crude market--though an index you have to pay to read falls a bit short of the kind of transparency currently provided by WTI itself.

What would happen if speculators drove up the price of WTI by $30/bbl? In theory, ASCI would reflect any disconnection between the fundamentals-based pricing of its included sour crude streams and the financially-driven WTI market by remaining more or less unchanged, after summing the combination of correspondingly wider discounts for the ASCI grades to the inflated daily WTI prices. Only by looking at the differentials themselves would we see any indication of distortion of the market by non-commercial players. But is that realistic? Consider that between January 2007 and July 2008, when the price of WTI rose more or less steadily from the mid-$50s to nearly $150/bbl, the discount between WTI and the monthly average refiner acquisition price for imported crude only widened from around $4.75/bbl to roughly $9/bbl. If WTI was being driven by speculation in that interval, differentials-based trading of the kind that ASCI will measure hardly insulated refiners from its effects.

That historical result might merely indicate that speculation had little real effect on the market in that period--a view to which I'm sympathetic--but it might just reflect the inertia of negotiated crude differentials. Either way, if you're Saudi Aramco and you're selling crude into the US based on ASCI, I'd conclude that your prices would still go up more or less in tandem with the NYMEX, despite the superficial "arms-length" mechanism flowing through ASCI. Perhaps I've missed some subtlety in the mechanism.

From what I can tell, neither ASCI nor the prospect of new futures contracts based on it addresses the underlying concerns I have had since the industry migrated to pricing based on differentials against the WTI and Brent futures contracts, and away from negotiating actual "fixed and flat" prices for each cargo or pipeline deal, back when I was trading oil in the 1980s and early 1990s. While that shift made life much easier for risk managers and took a lot of heat off traders to strike the best deal on any given day, it also opened the door to a host of other influences on pricing that I still don't think we entirely understand.

The market will pass its own judgment on ASCI and other new tools like it. If it proves useful to traders and risk managers, it could become the new industry standard, as Argus must hope, having made such a big splash over its launch. If it's not useful, it will fade into the background, becoming just another dataset in an already bewildering sea of energy-related information. With Gulf of Mexico output booming and more discoveries yet to be made, it looks like a reasonable bet to join other useful physical crude indices around the world. But anyone hoping it will shine a beacon on speculators in the next oil price spike is likely to be disappointed by the core of a system still rooted in WTI, the speculative influences over which remain uncertain and possibly unprovable.

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Green Power or Green Jobs

Until now I've avoided the debate over a proposed wind project in Texas involving Chinese investors, federal renewable energy stimulus grants and wind turbines from China, mainly because I didn't think I had anything salient to add to the unpleasant mix of protectionism and second-guessing that was unfolding. This morning I read a posting on the subject from the Breakthrough Institute that, while offering a coherent explanation of how we got to this point, convinced me that the real problem still hasn't been addressed. Although the inconsistency of past and present US energy policy is readily apparent, the current concerns arise from general confusion over the benefits of renewable energy, exacerbated by the recent effort to spin these projects and technologies in terms of "green jobs." When we don't really understand why we are doing something, it's easy to make any outcome look like a failure--and there is no shortage of elements from which to craft such a view in the situation at hand.

The chief complaint about the project in question is that it might be eligible to take advantage of a key energy provision of the American Reinvestment and Recovery Act of 2009--this year's stimulus bill--that allows the developers of a qualifying renewable energy project to collect an up-front cash grant from the US Treasury equal to 30% of the cost of the project. In this case much of that money, along with the funds provided by the US and Chinese partners, would go to pay for wind turbines imported from China. As a result, most of the jobs this project would create would be in China, not the US. On the face of it, this looks like a colossal loophole that some high-profile legislators--who incidentally voted for the stimulus bill including this feature--are rushing to plug. However, this only looks like a nasty unintended consequence of a hastily-crafted law if you misunderstand the mechanics and purpose of the Treasury renewable energy grant program.

You have to begin with the renewable energy tax credits that were in place prior to the passage of the stimulus bill. Qualifying wind projects normally received a federal tax credit of 2 cents per kWh generated for ten years after start-up, adjusted for inflation. Along with similar tax benefits for solar and geothermal power and other renewable energy technologies, the wind Production Tax Credit (PTC) was due to expire at the end of last year. Last fall's TARP bill extended this benefit through the end of 2012*. So it's important to note that the West Texas project would have collected a similar amount of money from the government in the form of tax credits over the next decade, even without the option provided by the stimulus bill to convert those credits into an up-front cash grant. The latter merely made the cost of providing this benefit much more transparent. As noted in a report by the Investigative Reporting Workshop at American University, well over 80% of these grants to date have gone to non-US firms.

I can appreciate the outrage this has caused, particularly when this program was so heavily hyped as a way to create new jobs in the US during a recession, and in an industry that many see as holding the key to future US competitiveness in a carbon-constrained world. However, that outrage ought to be tempered by a clear understanding of the principal purpose for establishing the grants. Prior to the failure of Lehman Bros. last year and the subsequent seizing-up of the so-called "tax equity" market, it was customary for project developers to enter into agreements with banks and other parties to exchange the rights to their future PTC benefit stream for up-front cash to invest in the projects generating these credits. When that market became illiquid, new wind project development came to a virtual standstill. With financial markets in turmoil at the beginning of 2009, the Treasury grant program was conceived as a way to jump-start renewable energy project development, until the tax-equity market revived. In that regard it has been fairly successful, as evidenced not least by the sums issued under this program so far.

I can't tell whether the architects of this program failed to work through the consequences of their efforts sufficiently to see that, with domestic turbine makers such as GE Energy accounting for less than half of the US market, a large portion of the grants would end up benefiting foreign manufacturers. Perhaps they saw that potential but didn't appreciate the firestorm of controversy it would create, when someone figured out where the money was actually going. Or perhaps at that moment they were merely hyper-focused on getting legislation passed in order to arrest the apparent free-fall of the US economy. I'll leave that to others to sort out.

There's a deeper issue here, as well. The whole episode evokes memories of the endless debates over "industrial policy" in the 1980s. The US wind industry lags its European competition in market share because European countries chose to subsidize the sector through much more generous and consistent tax benefits and a hidden tax on electricity consumers (a.k.a. the "feed-in tariff".) But while that created an advantage for the European companies involved, it didn't make them self-sustaining or overcome the inherent shortcomings of wind power's intermittent output. In that light it's hard for me to regret that the US didn't invest more money in wind over the last 20 years. Another way to look at this is that European taxpayers and consumers have borne much of the pain of driving down the costs of wind power to a point at which it can begin to compete with power generated from natural gas (and to a much lesser extent from coal) with only the modest subsidies US taxpayers have been willing to provide.

That gets to the essence of the choice we need to clarify if we are to judge fairly outcomes such as the one presented in the proposed West Texas wind farm. Are we investing in these projects and these technologies mainly to create jobs in the US, or are we investing in them to generate low-emission electricity at the cheapest cost possible, in order to run the 90+% of the economy that is not devoted to producing energy?

Selling green energy as a jobs initiative has led directly to the confusion and consternation apparent in the reaction to Chinese investors and Chinese wind turbines in this West Texas wind project. The wind industry has already developed a globalized supply chain, similar to many other industries, and no one should be stunned if wind turbines from China show up in Texas, any more than China should be surprised that its nuclear power plant construction projects are creating jobs in the US. Our assessment of the value of renewable energy sources such as wind power should hinge on their efficacy at providing reliable and cost-effective energy supplies and reducing greenhouse gas emissions, not on domestic jobs creation--even in a recession.

*Correction: A reader reminded me that the TARP bill only extended the wind PTC by one year; the longer extension occurred in the stimulus.

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