February 7, 2006
Energy Numbers, Part 1
On this week's 10 News Conference on WJAR-TV, Jim Taricani observed that promises to increase American energy independence are made year after year, but that there never seems to be adequate follow through. One reason for this, I believe, is that people (including myself) don't really know what is possible. To help separate what is not being done because of unsolved technical problems from what is not being done because of a lack of political will, I pulled a few proposed numbers together to serve as a basis for discussion...
1. President George W. Bush offered some macro-scale goals for reducing America's foreign oil consumption in his State of the Union...
Breakthroughs...will help us reach another great goal: to replace more than 75 percent of our oil imports from the Middle East by 2025.However, the day after the speech, Kevin G. Hall of Knight-Ridder Newspapers reported that the Secretary of Energy had already backed off of the President's remarks...
"This was purely an example," Energy Secretary Samuel Bodman said.So, lets drop the "Middle East" part from the equation, and just focus on foreign oil imports. Is a 75% reduction in foreign oil imports to the United States by 2025 a feasible goal? If not, how much of a reduction would be reasonable by 2025?He said the broad goal is to displace foreign oil imports, from anywhere, with domestic alternatives. He acknowledged oil is a freely traded commodity bought and sold globally by private firms. Consequently, it would be very difficult to reduce imports from any single region, especially the most oil-rich region on Earth.
2. Senator Lincoln Chafee has offered a target of his own (in conjunction with other Senators) focusing on overall consumption, not source-of-supply. Here is Senator Chafee in his response to the State of the Union...
I have joined with 11 other senators to introduce a bipartisan measure to reduce oil consumption by 2.5 million barrels per day within a decade, and by 2031 reduce oil consumption in the United States by half.Is a 50% reduction in total oil consumption by 2031 a feasible goal? (And, is that a true reduction total oil-consumption, or oil-consumption per capita, projecting for the effects of 25 years of population growth?) If a 50% reduction in consumption by some metric is not feasible by 2031, then how much is?
3. Steve Laffey has approached energy policy with a different philosophy. He appears less interested in a central planning model, where the government declares what the ideal amount of oil consumption is and, instead, looks at what other countries have been able to do with alternative energy production. Here are some figures from Laffey's energy policy presentation...
Germany: Wind & solar now 10% of nation’s electricity and going to 20% by 2020.Mayor Laffey believes that America is not getting as much of its energy from alternative sources as Europe is because our government's policies are out of synch with the needs of innovators and early adopters.Denmark: 20% of Denmark’s electricity is wind power; total installed wind power is greater than 3,000 megawatts.
Europe: Utilizes 35,000 megawatts of wind...Compare this to only 7,000 megawatts of wind used by the U.S.
Mayor Laffey wants to extend a tax-credit available to producers of renewable power from 2 years to 20 years and increase the tax-credit amounts for purchases of hybrid vehicles and alternative home-energy systems. Is it reasonable to believe that changing the tax-code to lower barriers-to-entry can create a boom in alternative energy production? If not, what else needs to be done to spur the development of oil alternatives?
Focusing on supply is more precise. If the alternatives are there, demand for oil will naturally decrease. One just cannot say "let's reduce consumption by xxx amount by xxx time". Consumption does not take place in a vacuum. One must have a well-designed plan for jump-starting the production of solar, wind, and hydrogen power - among other "clean/renewable fuel options.
Interestingly, the one option that has proved highly cost-ineffective and wasteful has been ethanol. Thirty years of subsidies and it still takes more energy to produce than it saves. Plus, it is more harmful to the environment than standard fuel, lowers gas mileage, and harms engines (particularly high-performance ones).
Guess which option Bush touted the most? Go to the head of the class if you said ethanol. This is inexcusable, given the issues above and the fact that the number one beneficiary of $2 billion in federal ethanol hand-outs is Archer Daniels Midland, a convicted corporate criminal that has paid out over $200 million in fines associated with both criminal and civil cases. ADM is very clever in its use of substantial lobbying funds as well as its sponsoring of those beloved Sunday morning "news" shows.
Germany, Japan and other nations that are progressive on this issue frame it in terms of percentage of production coming from renewable energy. Some are targeting figures as high as 50% by mid-century.
Laffey's "permanent" tax credit idea differs from the German model in that the consumer is not directly forced to pay an extra $12/year or so in utility bills to subsidize an embryonic wind and solar sector. Germans are directly willing to foot this bill. Americans outside of states like California may not be so amenable.
Posted by: bountyhunter at February 7, 2006 12:30 PMSorry to multiple post, but this is an issue I have studied in relation to the stock market. Ever since Ca's one million roof solar initiative looked like it would pass, the solar energy stocks have skyrocketed. Venture money is now rolling in at a run-rate of over $1 billion annually. There have been three major stock offerings in the last three months alone. The major venture capital firms in Silicon Valley are now touting solar companies as pioneers in new areas such as nanotechnology, which will eventually replace silicon chips.
Yet the solar industry in this country still suffers from lack of FEDERAL government support. The amounts dedicated to it are only in the low hundreds of millions. A pittance. The feds give mutiple billions to unproductive sectors such as Sugar and Ethanol and over $125 billion overall to corporate welfare recipients.
If the California initiative in itself turbo-charged the sector, federal support would make it an absolute moonshot!
Posted by: bountyhunter at February 7, 2006 12:39 PMYou've stolen my thunder! I'm going to mention ethanol in a part 2 or part 3.
I can't decide whether to call ethanol the soccer of American energy production -- it's the {sport|energy} of the future, and always will be...
...or whether Myrth York is a better analogy. Like Myrth York, ethanol has a lot of establishment support and people put a lot of sincere effort into trying to get it to succeed, but it just can't get anywhere on its own merits.
Posted by: Andrew at February 7, 2006 12:48 PMAlso BH, no need to apologize for multiple postings. This is the sort of knowledge-sharing I was hoping to stimulate when I put the post up (You're also building a convincing case for the position that the technical know-how is there; it's just the political will that is missing).
Posted by: Andrew at February 7, 2006 1:02 PMHey, Laffey was all over this before anyone. I think that Sen. McCain was at the Laffey web site recently based on what he has been saying.
Sen. Chafee had 6 years in the U.S. Senate to accomplish anything and he did NOTHING, nothing to help our country get off foriegn oil.
Laffey understands the war for the free world and uses alternative fuels as a way to chop off the legs of our enemies.
I can't wait to get rid of Chafee. Can not wait!
Posted by: Joe L at February 7, 2006 3:05 PMAndrew-
With the right incentives (or lack of disincentives!), U.S. competitive advantages in the technological and venture financing spheres will usually result in dominant world market share in value-added areas. The industries in which we lose competitiveness are oftentimes on the verge of reaching commodity status and are better left to the Asian producers anyway (e.g. steel, autos, shipbuilding, electronics, computers).
Solar plays right up our alley.
For historical perspective one can look at our dominant status in this industry in the 1970s, the last time it had major federal government support. Berkeley was the industry's capital. It was supplanted by Germany in the 2000-2001 period as a result of a major initiative on the part of the German federal government.
Have fun with your research, Andrew. I have only pitched the first inning here.