How to Deal with Coal in Federal Legislation

In his state of the Union address, President Obama set a goal of generating 80 percent of US electricity from “clean energy sources” by 2035. President Obama was using a very inclusive definition of “clean energy sources”, leaving coal without carbon capture and sequestration (CCS) technology as the big loser. Obama provided no details of how the country could achieve this goal but left it to Congress to work it out. Any new Federal legislation that comes out of this goal should recognize that electricity markets differ by state, and each state has its own body of laws, regulations, and administrative decisions that govern electricity regulation. A flexible approach from Congress will enable further regulatory innovation by states, dampen the effects of market failures, and allow states to allocate costs to meet their current situations and long-term priorities.

The President was indirectly acknowledging that there are only two ways to significantly reduce CO2 emissions from electricity generation: either reduce the amount of electricity generated by coal combustion or capture and sequester the CO2 emitted by coal-fired plants. Coal combustion for electricity generation is responsible for approximately 30 percent of all U.S. greenhouse gas emissions. Within the electricity sector, coal is responsible for more than 80 percent of greenhouse gas emissions. While the percentage of all U.S. electricity that is generated by coal has decreased over the past 15 years, the total amount of coal combusted by the electricity industry has actually increased by 4 percent from 1996 to 2009, peaking at a 16 percent increase as compared to 1996 in 2007. Coal use is currently widespread throughout the country but concentrated in a handful of states.   (more…)

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As the United States struggles to cope with stubbornly-high unemployment rates and a pollution heavy electricity sector, it has turned to alternative energy as a potential solution to both problems. Not surprisingly, most of the attention has focused on well established industries like onshore wind, solar, and nuclear. Yet, over the last two years another once-obscure industry has begun to carry increasing interest from private and public entities alike: offshore wind.

Although a nascent industry, offshore wind faces many of the same hurdles that other renewable industries and government agencies have gained experience in overcoming, suggesting offshore wind could be built out quicker than would be expected. Indeed, given the immense potential benefits of offshore wind, from the investment and employment derived from founding a novel industry to the exploitation of a significant renewable resource, achieving rapid expansion should be a top priority for the public and private sectors. Actions taken by both sides thus far suggest public and private entities agree with this assessment, but to date no offshore wind turbines have been erected in the United States. Why is this?

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As President Obama emphasized earlier this week in his State of the Union address, U.S. clean energy innovation has a crucial role to play in tackling climate change and ensuring the future vitality of the United States economy. However, at least two other factors – creating a demand “pull” for clean energy sources and shifting towards more sustainable lifestyles – are also crucially important and should not disappear from our policy discussions.

As my colleague Teryn Norris has argued here, the Obama Administration’s commitment to U.S. innovation – especially in the clean energy field – is a wise decision, and we can only hope that legislative victories follow. But while energy innovation can indeed boost U.S. economic leadership, it won’t be enough if we also hope to address the further problems of energy independence and climate change. In other words, technological innovation shouldn’t become the only focus of our energy discussion.

With repeated disappointments in climate and energy policy in recent years, it is indeed tempting to give up on conventional policy mechanisms and hope that a new technology will solve the problem. Some thinkers, such as Time magazine’s Bryan Walsh have argued recently that “putting a price tag on pollution isn’t solving our climate-change woes. It’s time to invest our muscle—and money—in breakthrough innovation.” Although I would be the last person to question the benefits of technological breakthroughs, I believe we shouldn’t overlook how policy, economics and human behavior ultimately determine how much we’re able to take advantage of these breakthroughs.

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A Lesson from the Great Australian Floods

Renewable energy has been put forth as the solution to a myriad of problems, some of which have received more attention than others. Perhaps most prominently, the implementation of renewable energies has been touted as a method of abating CO2 emissions and climate change, alleviating energy poverty in developing nations, as well as the boon to employment in the United States. Focusing on a small subset of benefits of renewables certainly has its advantages but also leads to the neglect of other benefits perceived at one time to be less important. One such neglected benefit, though, now merits much greater significance than has been previously accorded it given the tremendous floods that ravaged eastern Australia earlier this year: a hedge against marketplace volatility.

Marketplace Volatility

The world stands at a crossroads when it comes to market volatility. Historically, market volatility has largely been a result of anthropogenic influences, such as geopolitical conflicts (e.g. the 1973 oil crisis) or abrupt surges in supply or demand as new reserves are discovered or nations rapidly industrialize (e.g. China’s recent rise to power). However, in the 21st century, these historic drivers of market volatility may be dwarfed by a growing player on the world stage, natural disasters. Certainly, natural disasters have always caused market fluctuations, but as climate change escalates and increases the frequency of extreme weather events and shifts global weather patterns, these events will have an even greater effect on the world’s economy.

The effect of the recent floods in Australia provide a perfect illustration of this claim. First and foremost, while true that climate change has not been (and perhaps cannot be) linked to the floods, the Intergovernmental Panel on Climate Change (IPCC) nevertheless found that the likelihood of heavy precipitation events becoming more frequent over most areas is “very likely”. Thus, although climate change may be entirely unrelated to this instance of flooding, it almost certainly will drive other instances in the future. Furthermore, floods are not the only severe weather event that will be impacted by climate change; tropical cyclones, droughts, heat waves, and fires will most likely all be exacerbated as well. In other words, expect to see considerably more naturally-induced disturbances to supply chains as in Australia earlier this month. (more…)

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Jerry BrownWith gridlock likely in the 112th Congress and the Administration’s mandate accordingly tempered, those interested in America’s energy policy and 21st century competitiveness should look West.  As newly-elected California Governor Jerry Brown’s ambitious state budget undergoes the scrutiny of multiple media cycles, other elements of the senior statesman’s agenda may easily go unnoticed – including what impact Governor Brown part deux may have in renewing an American innovation economy.

California’s GDP weighs in as the eighth largest in the world, and the state accounted for 60% of all North American venture capital investment in the clean tech sector in 2009.  After making headlines with its seminal 2006 climate legislation (AB 32), adopting the first Low Carbon Fuel Standard, and establishing the second most aggressive state Renewable Portfolio Standard (RPS), what’s next for California?

In Mr. Browns campaign literature, one of the objectives that dominates his energy and environmental platform is a rapid and expanded deployment of localized electricity generation.  To be precise, he calls on California to produce 20,000 new megawatts (MW) of renewable electricity by 2020, of which 12,000 megawatts would consist of “onsite or small energy systems located close to where energy is consumed that can be constructed quickly (without new transmission lines) and typically without any environmental impact.”  To fulfill this goal, he envisions solar systems up to 2 megawatts being installed on the roofs of parking lot structures, schools, warehouses, industrial parks, and other attractive sites while larger solar projects up to 20 megawatts in size would be accommodated on large public and private lands.  Candidate Brown even proposed the state’s first “Solar Highway” by placing PV panels alongside swaths of state roads.

To facilitate this deployment, he has singled out a new feed-in tariff mechanism and ensured that having the legislature or the California Public Utilities Commission (CPUC) authorize such renewable power payments would be an administration priority. All-too-keenly acquainted with the Governor Moonbeammoniker that has shadowed him throughout his political career, Mr. Brown went to great lengths during the campaign to emphasize that any feed-in-tariff system will not be a quixotic quest at the expense of consumers and has stated explicitly that “holding down rates must be part of the design.”  Brown’s clearly-articulated goals can also be seen against the backdrop the UK’s young feed-in tariff and its early impacts on energy markets across the pond.

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When President Obama recently made his first state visit to India, environmentalists and energy reformers were excited to see renewable energy cooperation on the agenda.  Yet, on further inspection, the scope of cooperation envisioned is narrow indeed.

On the occasion of this visit, President Obama announced the creation of a joint clean energy research and development center, with $5 million to be contributed annually by both the American and Indian governments over the next five years.  The center is to focus on improvements in energy efficiency, solar technology, and advanced biofuels.  This effort, limited though it may be, is to be applauded.

Yet, receiving less attention were agreements to expand U.S. and Indian cooperation on a number of fossil fuel related efforts. If we wish to take an optimistic approach to the recent visit, we will put aside the fact that this clean energy research and development center comes in tandem with an American promise to deploy the United States Geological Survey expertise in identifying potential sites for oil shale extraction.  We won’t dwell on the fact that oil shale contributes to significant environmental damage at the extractions site and increased particulate when burned, nor shall we recall that it is a high-carbon means of energy generation.  Most importantly, we shall disregard the exceptional demands that oil shale extraction would place on scarce water resources in an already very thirsty India.

We also won’t focus on the R&D centers stated focus on clean “clean coal” technologies.  We won’t question the long-term risks of captured and sequestered carbon seeping into the atmosphere should we fail to sequester as effectively as promised.  Nor will we wonder aloud whether we really ought to be turning to a type of coal generation that may well be more costly than many forms of alternative generation.

No.  We won’t dwell on any of the questionably “green” credentials of Indian-American energy cooperation.  Instead, we will merely pose a question. Is that really the best we can do?

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On December 21, 2010, China’s State Grid announced a $1 billion investment in Brazil, buying 7 Brazilian power transmission companies. What is State Grid, why is State Grid investing in Brazil, and why does the investment matter?

What is State Grid?

State Grid is China’s largest transmission and distribution company; according to State Grid, the company provides electricity to 88% of China’s “territory.” State Grid both builds and operates its networks. In 2010, State Grid ranked 8th on the 2010 Global Fortune 500, generating $184.5billion in revenues in the last fiscal year.

While State Grid may seem massive, its predecessor, State Power Corp. (SPC), a remnant of China’s thoroughly planned economy, was even bigger. As Sonal Patel of Power Magazine succinctly puts it, “By the end of 2002, China had dismantled its single, vertically integrated utility—the State Power Corp. (SPC), which by then had 46% of the country’s generating capacity and 90% of transmission capacity—into 11 separate generation, transmission, and service units.” One of those units is State Grid.

Why is State Grid investing in Brazil?

In one word: profitability. While State Grid is indeed large, it is not necessarily particularly profitable. According to the Fortune Global 500’s numbers, the company generated over $12 billion in profits in FY2008, $665 million in profits in FY2009…and $334 million in profits in FY2010. Those downward trending numbers may simply reflect State Grid’s increasing investments. However, profitability is still a key concern at State Grid: According to a State Grid executive quoted in Caixin, State Grid only considers forgeign projects with expected returns “two to three times” those expected in China. While future profits from the Brazilian venture are unclear, the Brazil investment is expected to generate $110 million in revenues each year.

State Grid’s investment in Brazil may seem curious or undisciplined, given simultaneous headlines detailing critical coal shortages across China causing power shortages. But State Grid internally emphasizes profitability, and learning from international projects may enhance the company’s ability to be profitable later on.

Why does the investment matter?

State Grid’s Brazil-ward foray is not its first venture into foreign assets. Previous investments or cooperation agreements exist with the Philippines, Russia, Mongolia, and Kazakhstan. The Brazilian venture is perhaps indicative of further international investment and outreach, ultimately rooted in boosting profits at home. Profits can be used to rectify domestic issues, such as lack of electricity in some rural areas.

These international ventures seem mutually advantageous, in theory: the host country gets State Grid to perform a service, presumably because of an attractive offering made by State Grid, and State Grid (ideally) makes profits and is advantaged through exposure to learnings that can be applied back home.

The US, however, seems unlikely to engage in such international power generation and transmission agreements — as makes sense, given nervousness about national security (see: cyberspies on the US electrical grid in 2009). This inability to engage at a deeper level leaves the US-China energy dialogue somewhat stalled—limited to the private sector cooperation, government initiated R&D consortia, joint standards development, and assorted quibbles (including those over rare earths). Perhaps some progress, though, is better than none at all.

State Grid’s move may indicate a more broad trend, Chinese public service providers moving overseas to garner profits. Expanding operations overseas has the dual benefit of potential immediate profits and a learning experience in different power systems.  What does it mean if State Grid continues to struggle with profitability? Only time will tell. But, if current investments don’t yield expected returns, look for State Grid to seek new opportunities to boost profits—either at home or abroad.  Either way, any time two of the worlds largest emerging economies make a deal of this scale pertaining to their basic electrical functions, it is worth keeping an eye on.

Deficit Reduction and Clean Energy

A 'Wall Stats' visualization of government spending in 2011

Obama’s freeze on federal employee salaries and Republican efforts to eliminate earmarks are two of the tangible signs that deficit reduction has, and will continue to be a hot topic in the near future. The 112th Congress will almost surely take up the issue, making it crucial to understand what impact serious deficit reduction plans may have on the nation’s clean energy industry. An apt starting point for this investigation is the ever-increasing array of deficit-cutting plans that aim to shape the national dialogue surrounding this issue.

Perhaps the most prominent deficit reduction plan released recently has been The Moment of Truth by the President’s National Commission on Fiscal Responsibility and Reform. The commission proposes two major reforms that would directly impact clean energy: cuts to discretionary spending and tax reforms. The discretionary spending cuts amount to an immediate $50 billion and a further $150 billion by 2015, divided evenly between security and non-security spending. The commission specifically proposes eliminating the Department of Energy’s applied research on fossil fuels, saving approximately $0.9 billion; reducing research, development, testing, and evaluation by the Department of Defense by 10%, which could lower the DoD’s ability to procure and develop alternative energy sources; and instituting a 15-cent per gallon gas tax, which would go toward transportation funding but could be a boon for hybrid and electric vehicles.

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Written by Lon Huber with contributions from Alex Christensen

Anyone working in renewable energy will tell you that when it comes to getting a project off the ground, financing is key. Treasury Grant 1603, found in the American Recovery and Reinvestment Act, was designed to address the front loaded costs to entrepreneurs of installing renewable energy. Otherwise known as the Treasury cash grant, this program has been a lifeline for an industry that has had to depend on a complicated tax code and the likes of Lehmann Brothers and AIG for financing. At midnight on December 31st of this year, the 1603 Treasury Grant Program is set to expire, and unless Congress renews it, the young renewable energy industries will be forced to compete in a tax system designed to the advantage of fossil fuels.

Without Treasury Grant 1603 the clean energy industry would not be enjoying the success it is today.  To effectively compete against a fossil fuel industry that is heavily subsidized by the federal government, the renewable energy industry has needed federal help to level the playing field.

Unfortunately, the lack of a strong national energy policy has required the renewable energy industry to become cost effective through tax credits. The problem with trying to stimulate an emerging industry with tax credits is that it fails to eliminate two central problems facing small businesses, large up front costs and lower initial profits meaning lower initial tax credits. Many new clean energy businesses did not have enough income to fully utilize these tax credits, forcing them to turn to large financial institutions like Lehmann Brothers for assistance in realizing the advantages of such credits. After the financial meltdown and the resulting lack of finance, it became next to impossible to take advantage of the tax credits in the same way.

The Treasury cash grant program provided a lifeline by transitioning the unfavorable tax credits to upfront payments not tied to a particular company’s income. This was huge help to renewable energy developers and did not cost taxpayers any additional money – since it merely shifted the tax credit to an upfront subsidy.

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Special Series: The Future of Energy Technology

Thin Film Solar Panel

As we collectively stepped back this past week for Thanksgiving, the prospects for real change in the United States’ energy policy – at least in the near term – look rather bleak. If the policymaking machine is at a roadblock, can technology save the day?

The host of Democratic lawmakers and (a few liberal Republicans) who championed the fight against global warming pollution in the past two years will find it hard to promote the same approaches in the post-election environment. And while climate negotiators from around the world will make some headway on international climate talks as they gather in Cancun next week, most experts agree that any progress will be limited.

In this context, it is disturbingly unclear how the United States will manage to meet its climate pledge in the next ten years. And it remains equally uncertain how countries across the world will manage to keep global warming below 2 degrees Celsius. As it becomes increasingly clear that lawmaking and international negotiations won’t be enough to help us meet these goals, many have begun to look at technology as the answer.

In a forthcoming series of posts for Americans for Energy Leadership, I will explore the role that new technologies can play in helping us face the challenges – and opportunities – of our common energy future.

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