US Energy Security – Update from NY Energy Week

ImageOn Tuesday I had the pleasure of attending Redefining US Energy Security for the 21st Century as part of New York Energy Week.  The panel was composed of self described “Energy Warriors” Vice Admiral Lee Gunn (US Navy, Ret.), Brigadier General Steven M. Anderson (US Army, Ret.), and Brigadier General Stephen A. Cheney (US Marine Corps, Ret.) and offered insight into the massive amount of energy required by the DOD as well as their goals to reduce energy demand without compromising operational efficiency.  Here are some interesting facts:

  • The US military is the largest organizational user of petroleum in the world consuming around 120m barrels per year at a cost of about $17 billion.
  • Petroleum accounts for 71% of the DOD’s energy consumption by source; electricity ranks second at 11%, natural gas third at 8%.
  • Since 2005, DOD’s petroleum use has deceased 4% but spending on petroleum increased 381% in real terms.
  • After taking into account the hidden costs of personnel and assets required to move, store and protect fuel from the supplier to the point of use, one gallon of fuel can cost up to $50.
  • One project that used spray foam insulation on tents in Iraq reduced cooling costs by 75% and resulted in savings of $3.6 per day!  The original contract for $95 million saves up to $1 billion dollars annually and keeps 11,000 fuel trucks off the road.  Think about the reduced risk to our soldiers who would otherwise have to protect those convoys as the fuel makes its way from its origin to its final destination.

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All this adds up to a massive energy bill and a lot of time and resources dedicated fueling the operation rather than the operation itself.  The diversion of resources, vulnerability of supply chains and reduced mobility of combat forces make our military’s reliance on fossil fuels a national security issue as much as a financial one.  Each and every branch of the military understands this fact and has taken steps to increase their energy efficiency and reduce their demand.  However, the opportunities are endless.

As I stated in an earlier article, the DOD should leverage its purchasing power to drive cost reductions in advanced clean energy products.  In addition to economies of scale, the DOD would also provide real world testing of new technologies so they can be measured and verified and eventually reach commercialization.

Furthermore, as energy efficiency contributes to organizational effectiveness, there should be a top down approach where commanders are held accountable for reaching their energy reduction goals.

It is well established that our addiction to fossil fuels poses a national security risk.  It was especially motivating hearing the alarm being sounded by former members of the DOD.

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Mr. Greenbacks Goes to Costa Rica!

La Fortuna, CRIt has been much too long since my last post, but I think this one is worth the wait.  Back in February Mrs. Greenbacks and myself were invited to a wedding in Costa Rica and we gladly attended!  Special shout out to Connie and Dave – Congratulations Again!

Aside from the beautiful ceremony and spectacular reception, we got to enjoy much of what Costa Rica had to offer – beaches, rainforest and volcano.

Costa Rica is at the forefront of promoting sustainable practices in their everyday life and as Mrs. Greenbacks pointed out, one of the 5 “Blue Zones” of the world where people regularly live to be over 100 and generally enjoy better health and less incidence of disease than the rest of the world.

Just a few of the common practices that we saw in Costa Rica was composting of all organic materials, low flow faucets and showers as well as automatic shut off switches on the room lights after the key has been removed.  A heavy public awareness campaign also goes a long way toward making guest appreciate the natural beauty of the land.

ImageOn our hanging bridges canopy tour, our guide explained that Costa Rica was well on its way toward meeting its power needs using renewable sources such as hydro, wind, and geothermal.  Almost 95% of CR’s power is produced from renewable sources with hydro accounting for a full 75% of the total.  Geothermal ranks second due to the areas 5 active volcanos and wind installations have been steadily increasing in recent years.  Distributed solar would make a great addition to CR’s renewable energy portfolio and would help to power regions where grid transmission is simply too costly.

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Energy Policy Meets Federal Land

A recent article called Turning Pristine Public Lands Into Solar Farms in Bloomberg Businessweek highlighted the Obama administrations’ policy of opening federal lands maintained by the Bureau of Land Management and the Department of the Interior to renewable energy projects.  The executive powers that Obama is using are similar to the ones that the Bush administration used to bypass Congress and push for oil and gas drilling on those same lands in 2001.  Using Ken Salazar, the Secretary of the Interior, Obama has approved more than 37 renewable energy projects on federal lands that will power more than 3.8 million homes.

Brownfields WindSince taking office, Obama has issued an average of 1,000 fewer drilling leases per year to oil and gas interests.  Instead, the administration has green lighted more than 18 other utility-scale solar plant, 7 wind farms, and 9 geothermal facilities.

However, certain projects have angered environmentalist groups such as the Sierra Club and the NRDC who feel that some of the projects would be better sited on 80,000 – 285,000 abandoned mine sites on federal lands instead of pristine desert space near treasured national parks such as Joshua Tree in southern California.  A coalition called the Western Lands Project is suing the Dept. of the Interior in federal court hoping to have the projects moved to those less desirable, degraded lands.

While I am generally skeptical of politicians bypassing Congress to achieve a political goal, I do favor building renewable energy plants on federal lands.  I also agree with the Western Lands Project that the Interior should look for better locations for these projects that redevelop sites that have already been ruined by mining operations.  Reusing depleted lands and brownfield development would be ideal for PV installation because the land does not have to be cleaned up beforehand and solar PV requires very little maintenance and can be seated on top of the land, not disturbing the contamination.  The EPA announced a brownfield redevelopment project called Brightfields that aims to achieve exactly that.  As with any major project, land use should be a major factor.  This is especially true when using public lands for private development.  By identifying sustainable sites that promote redevelopment of tarnished lands, the government can achieve a double victory of renewable energy and brownfield remediation.

The below image shows a refurnished open pit mine in Germany that is now one of the world’s largest PV plants at 166MW.  This site would have otherwise been left uninhabitable for any purpose.

Brownfield Solar

China’s Opportunity

This week’s Bloomberg Businessweek had an article titled On China’s Electricity Grid, East Needs West, that explained the mega cities of China’s east coast are consuming resources from the coal rich areas in the country’s far western provinces resulting in lengthy transmission lines and growing instability among the minority ethnic groups there.

coal chinaOne of the biggest problems with having cities so far removed from the natural resources that power those cities is transmission.  In China, freight railroads and river barges are already overloaded and overcrowded.  This led party leaders to push for development of interior regions of the country and build high voltage transmission networks called the West-East Electricity Transfer Project.  By 2020 the total capacity of this project is projected to equal 60 Hoover Dams.

china water scarcityThe second problem with this large-scale coal driven buildup is the lack of water resources available to produce steam in these plants.  Many of these planned coal plants are located in water scarce regions including Xinjiang and Inner Mongolia and has led to tensions with ethic Mongolians and Uighurs who depend on farming and herding for their livelihood.  By tapping already stressed aquifers and wetlands, there could be a larger problem looming.

Coal currently generates 80% of China’s electricity and the country is responsible for half of the annual consumption of coal worldwide.  Following the traditional model of building coal plants located far away from the end users is simply not the answer.  While high-voltage transmission lines are more efficient that shipping coal by rail or barge, much of the electricity produced is still lost in transmission.

solar chinaA better idea would be harness China’s production capacity of solar PV cells and adopt a domestic policy of distributed generation.  DG is sited near the end user of the electricity and therefore less vulnerable to losses during transmission.  PV cells can be placed vertically up the sides of the country’s many skyscrapers eliminating the need to clear land for ground-based systems.  Smart building design is another idea that could drastically reduce demand for electricity and save the country from building expensive, inefficient, centralized power plants.

Distributed generationChina’s massive infrastructure build out has been nothing short of extraordinary.  Now it has the opportunity to leap ahead of other developing nations by committing resources towards building the next generation cities.  Distributed generation, microgrids, and smart integrative building design can all help to make this idea a reality.

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All Fracked Up and Nowhere to Go

I read an interesting article in The Economist this week regarding LNG exports in the US. This is a rather interesting article, so please read the full version for yourself.

LNG TankerYears ago, when the US thought they would have to import LNG’s from abroad there was a massive build out of over 24 LNG plants for regassification.  Thanks to horizontal drilling and hydrologic fracturing, the US will not have to worry about LNG imports for the next century at the earliest.  Converting these regassification plants to be export terminals makes economic sense and environmental sense.  With the exception of Sabine Pass in Louisiana who was just recently granted permission to export, all that equipment now sits idle along the gulf coast.

At the heart of the issue is the fact that American gas now sells for $3.40 per MBTU domestically but over $12 in Europe and up to $20 in Asia.  Turning American nat gas to LNG cost about $5 per MBTU, so exports of LNG can be beneficial to the economy.  Furthermore, the glut of natural gas has actually forced producers to stop producing until the supply dwindles or demand picks up.  Tapping the international markets would allow this process to balance out.  Of course, there is steady opposition to LNG exports from uncommon bedfellows of environmentalist and business proponents who respectively oppose fracking on environmental grounds and who want to maintain their access to cheap fuels.

I have gone back and forth on the subject of fracking several times now but generally agree with the economic arguments set forth in this article.  While I am not a proponent of fracking, the following issues deserve mention:

  • Nat Gas is priced on a regional market as opposed to a global market.   The lack of export infrastructure acts as a subsidy thereby keeping the price of gas artificially low and promoting inefficient use of the fuel.  Increasing LNG exports will increase the price but will hopefully establish a free and transparent market.  The revenues of the fuel trade should be used in clean technology research and developing next generation technologies.
  • With cheap nat gas prices in the USA, developing nations have been leaning towards coal to fuel their consumption.  Access to natural gas will hopefully reduce the emissions in the developing world more than if the gas were kept in the US.

ny_fracking_rallyThese two points rely on the assumption that fracking remains legal.  As I write this, a moratorium on fracking (bill A.5424-A) was just passed by the Assembly and will go before the NY State Senate and then on to the Governor for signature.

Clean technology has never been more affordable or accessible to the masses.  Policy makers are now realizing the national security and economic concerns of relying on fossil fuels.  Clean, distributed sources of energy combined with sustainable development are our best options for a healthy, prosperous future.

Burning Money . . . by Wasting Energy

If you have ever wondered how much energy is wasted in the United States, then look no further than this chart from the Lawrence Livermore National Laboratory.
US Energy Flow Chart 2011What your are looking at here shows how many Quads (Quadrillion BTU’s) of energy is produced from each source of energy . . . and how much is wasted through inefficient processes or simply lost as heat energy.  In 2011 more than half (57%) of the energy produced was rejected.  In terms of electricity generation, almost 2/3 of the potential energy is lost.  Cogeneration plants achieve a much higher efficiency level than conventional coal or natural gas plants.  In the transportation sector the efficiency ratio is even worse with only 25% of the energy produced actually being used.  If there are any entrepreneurs out there, I see many opportunities for improvements here.  In fact, I think this chart could show the next trillion dollar opportunity!

 

Fracking New York

No, the title of this post is not just something I heard uttered by a disgruntled Red Sox fan on our road trip to Boston this past weekend. It actually has to do with Governor Andrew M. Cuomo’s decision to begin a new environmental study of the effects of fracking on public health. This decision would restart the regulatory process and almost certainly push a final decision into 2013 or later.

While a big victory for the environmentalists, it has angered upstate residents and land owners who were looking for economic development or to simply lease out their land to natural gas companies. Mr. Cuomo is caught between a rock and a hard spot on this issue because of his committment to economic prosperity and job creation on one hand, and his environmental conservatism on the other. With both sides fervently pushing to allow or deny fracking on the New York region of the Marcellus Shale, the Governor decided to review more data and let the facts make the decision for him.

I say, “Congratulation Mr. Cuomo! Thank you for not bending to one political pressure or another and instead reviewing actual science and data. This is something that has been missing from many of the major political arguments recently.”

America really needs to learn the facts about natural gas – do not base your decision on a 30 second tv commercial sponsored by the Natural Gas Alliance. Get out and do some research. This is such a big deal for America’s economy and our environment. If fracking is for the public good, then a public health study of the effects of fracking is exactly what the doctor ordered.

FULL DISCLOSURE: I must admit that I was originally in favor of fracking in certain areas and more importantly, in favor of natural gas as a “transition fuel” until renewable sources were cost competitive. I saw the economic benefits and job creation associated with fracking as outweighing the environmental degradation. Since then I have changed my opinion. I have to ask myself, why are we taking a bunt when we could be swinging for the fences in terms of renewable energy technology. Natural gas will still play a large role in America’s future – after all, we need a diversified energy portfolio. But now I see the economic benefits of renewable energy technology being even more important to our economy. Instead of risking potential poisoning to our fresh water supplies and still being dependent on the spot price of a commodity, our renewable energy future will protect our most vital resources and at the same time create a demand for good, high-paying jobs in science, engineering, and operations and maintenance of distributed, renewable energy systems.

 

Subsidies to the Energy Industry

“I am a big fan of clean energy, but I am bigger fan of a robust economy.”

-Mr. Greenbacks, 2012

Subsidies to the energy industry are nothing new, they have been around for decades.  Generally speaking, subsidies fall into three main categories: Direct Spending, Tax Expenditures, and Loan Guarantees.   For most of the 20th century, fossil fuels have enjoyed a long run of subsidies such as tax breaks, tax credits, tax exemptions, and deferred depreciation, just to name a few.  This extended period government support firmly entrenched fossil fuels as the sole providers of energy by making renewable energy prohibitively expensive by comparison.  The roles reversed in 2009 with the passage of the American Recovery and Reinvestment Act that eliminated some subsidies for fossil fuels and expanded subsidies for renewables.  However, as you can see below, the level of support to fossil fuels is still 6x greater than renewables.

  • The IEA estimates that in 2010 worldwide fossil fuel subsidies totaled $409 billion.  That number is expected to rise to over $650 billion by 2020 unless changes are made.
  • By comparison, only $66 billion was spent to subsidize renewable energy.

Misguided Policy?
So what is the role of subsidies?  Subsidies should be used to level the financial barriers for new and emerging technologies in order to compete in the marketplace.  Once these technologies are mature enough to stand alone, the subsidy should be removed in order to let the market forces take over and determine a true price for the product.  The support should then go on to fund another technology that could possibly compete with the first one in order to advance a competitive marketplace.   By keeping the subsidy in place for too long, one can create artificial demand that encourages waste and can quickly drain government coffers.  This could apply to any industry, but right now we are focused on the energy industry.

So should we remove all subsidies to the energy industry?  No!  The renewable energy industry has seen more ups and downs than the Cyclone on Coney Island.  Most of these Boom and Bust cycles have been created through a rush of investment in good times (subsidy ON!) followed by a lack of capital (subsidy OFF!) when the music stops.  A clear and definite subsidy policy should be implemented in order to remove the uncertainty faced by investors of clean energy projects.

Subsidies to Renewable Energy
I am a big fan of clean energy, but I am bigger fan of a robust economy.  In today’s economic climate, governments must be extremely careful how they spend their resources.  The current policies offering subsidies to the renewable energy industry have done a wonderful job of creating widespread deployment of clean energy projects.  However, many of these projects are only profitable because of the subsidy.  Current policies should be revamped in order to drive innovation and cost reductions so that renewables such as wind and solar can compete with cheap natural gas WITHOUT the subsidy.

In order to maximize the value of taxpayer dollars the following objectives should be implemented:

  1. Remove subsidies to the fossil fuel industry in order to establish a true market value that takes into account the negative externalities of these resources.  A small fee can be added to fossil fuel transactions to help fund clean energy research.
  2. New subsidies should promote efficiency gains and cost reductions through the use of steadily improving, performance-based standards.
  3. These subsidies should target advanced technologies, decrease as the cost declines, and be temporary in order to deter ongoing support.
  4. The US must increase its investment in R&D as well as leverage talent from universities and the private sector in order to establish public-private partnerships and regional clusters of advanced research and manufacturing.
  5. Utilize the strength and size of the DOD to drive commercialization of technological advances made through ARPA-E.

Implementing these policies will go a long way toward maximizing public dollars, creating a competitive clean tech industry, and ending the addiction to fossil fuels.

Primer on US Solar Industry

The following is an excerpt from a white paper I wrote this summer regarding the US solar industry.  I hope you enjoy!

The United States has until recently lagged behind Europe in terms of embracing solar energy.  However, over the past few years there has been a steady increase in federal and state incentive policies that make solar energy more beneficial to producers and consumers alike.  Due to the lack of a clear federal mandates, there are many policies and incentives offered through the federal government, state governments, local governments, utilities, and private companies.  These incentives can be mandates to acquire a certain amount of energy from renewable sources, cash grants, tax credits, tax exemptions, performance based incentives such as feed-in tariffs, accelerated depreciation of equipment as well as many other measures.
Renewable Portfolio Standards
Renewable Portfolio Standards (RPS) are state policies that require energy suppliers or utilities to purchase a certain amount of energy from renewable sources such as solar, wind, and geothermal.  For example, Arizona can say that 2% of its energy must be generated from renewable sources.  This also creates a market for renewable energy credits (REC’s) that can be purchased, sold, or traded by the utility to comply with RPS policies.  Currently, 29 states and the District of Columbia have enacted RPS policies.  Together these states account for almost 40% of the US electricity load.  In addition to requiring a certain percentage of the electricity mix come from renewable sources, states can create “carve outs” or “set asides” that specifically target a certain type of renewable energy.  One example of this is New Jersey’s solar carve-out that requires 5,316 GWh of solar power by 2026.  There is no federal RPS yet although the Obama administration has advocated for 25% of America’s electricity come from renewable sources by the year 2025.
Financial Incentives 
Financial incentives can include grant programs that usually target larger commercial or industrial projects and offer direct cash payments to defray the cost of eligible systems or equipment.  A rebate is another financial incentive that is offered to the purchaser after a system has been installed in order to make the cost of the system more competitive compared to conventional energy systems.  These direct financial incentives lower the initial cost of the technology and lead to an increase in production, thereby decreasing the price further.  The goal is to have producers ramp up the production cycle to reduce costs to the point that a subsidy is no longer necessary.  Performance based incentives are cash payments resulting from the actual energy output of a solar system on a dollar per kilowatt-hour ($/kWh) basis.  These incentives are generally reserved for large scale solar facilities, however, there is a new interest in feed-in tariffs based on their success in Europe that can be used on a smaller scale and even residential properties through the use of net metering.
Net Metering
Net metering allows the owner of a solar system to sell back energy to the grid via a contract with the utility at a determined rate per kilowatt-hour.  Basically, electricity flows both ways through the meter – using power when it needs it and selling power back to the grid when the solar system is producing more energy that the facility is using.  Net metering is the cornerstone of distributed generation, and distributed generation lends itself to solar photovoltaic installation on residential and commercial properties.  Distributed generation not only allows a PV user to power their property, but it also rounds out the peak electricity loads that utilities face in the afternoon when power comes from the dirtiest sources.   There is no federal net metering policy yet, but 43 states have adopted policies to allow it.
Two of the most common financial incentives are direct cash incentives that provide money to lower the upfront costs associated with solar projects and tax incentives that reduce the tax liability of the individual, company, or organization that installed the solar energy system.
Federal Grant Program
Currently, the federal government is offering direct cash incentives for solar energy through the Federal Grant Program, but more than 30 states and 130 utilities throughout the US offer anywhere between a few hundred dollars up to a million in cash for solar PV projects.  In 2009, as part of the American Recovery and Reinvestment Act (ARRA) the federal government passed the Section 1603 Treasury Grant Program that offers a renewable energy grant worth 30% of the value of qualified renewable energy projects including solar, wind, and geothermal.  This grant includes commercial, industrial, or agricultural solar projects started before 12/31/2011 and completed by 12/31/2016.  As of May 5, 2011 the 1603 program has awarded 2,044 grants for solar electric technology totaling $936 million for more than 6,300 individual solar projects in 45 states and has supported over $3.1 billion in investment. The largest problem with direct cash incentives is that they have to be budgeted for and are not politically feasible in difficult economic times.  This leads to volatility in the solar industry and discourages long-term investment and stability.
Federal Tax Credits
Tax incentives including credits, deductions, and exemption are other financial incentives that the federal and state governments are using in order to expand solar energy production.  An investment tax credit reduces the taxpayer’s liability for a portion of the cost of buying and installing a solar energy system.  Investment tax credits are fairly straightforward and usually limit the dollar amount that the taxpayer can claim.  Policy makers favor tax credits because the amount of the incentive generally does not have to be appropriated or withdrawn from a budget.  By encouraging development through tax credits, policy makers hope to grow the industry and eventually create jobs in solar and related industries and thus increase the tax base in that district.  The 2009 American Recovery and Reinvestment Act (ARRA) also extended the investment tax credit through 12/31/2016 for residential solar electric installations.  The credit is equal to 30% of expenditures with no limit to the maximum amount.  The ARRA allows taxpayers eligible for the federal renewable electricity production tax credit (PTC) to take the federal business energy investment tax credit or to receive the grant from the US Treasury Department instead of taking the PTC for new installations.  Currently, twenty-one states and Puerto Rico offer personal and/or corporate investment tax credits to help offset the expense of purchasing and installing solar energy equipment.  Tax credits range from 10% to 50% of project costs, with maximum credit limits ranging form $500 to $12,500 for residential systems and from $25,000 to $10 million for commercial systems.  However, a major drawback of the investment tax credit is the policy discourages institutions with a low tax liability from reaping the benefits.  Recently, some states and municipalities have attempted to remedy this problem by creating provisions that would allow a “pass-through” option whereby the tax credit can be claimed by a third party who does have a tax liability.  This could include a partner of a non-profit as well as homebuilders who integrate solar systems into new construction.  In either case it encourages solar power systems to organizations that would not normally be afforded the tax benefit.

The Air Up There . . .

I read an interesting article this weekend in The Economist called Air-Quality Regulations: Don’t Hold your Breath. At issue is the EPA’s Cross-State Air Pollution Rule or CSAPR for short. CSAPR is set to take effect January 1st, 2012 and would require that power plants in 28 states (mostly east of the Mississippi with the exception of the Northeast) reduce their emission of sulphur-dioxide and nitrogen-oxide by 27% and 46% below their 2005 levels respectively. As you can imagine by the political bickering in Congress the past few years, this rule is bitterly opposed by at least 36 entities who have petitioned the US Court of Appeals for the DC Circuit to stop the EPA from implementing CSAPR.

So what is the dispute about and what does it mean for our economy? Those against the rule say that forcing power plants to meet these requirements would cost the consumer more in higher electricity bills as well as cut jobs at a time of 9% national unemployment because the utilities could idle some of their less efficient coal burning plants, costing jobs to plant technicians not to mention related industries such as mining. Others oppose the regulation simply because they see the federal government as interfering on state issues. Supporters of states rights argue that the government should outline a pollution reduction target and leave states to their own authority to meet the limits. The EPA claims that CSAPR will prevent 13,000-34,000 pollution-related premature deaths, and yield between $120 billion and $280 billion in health and environmental benefits annually.

Here is the way I see it. If the states wanted to create their own regulations, they would have done so by now. Why is the Northeast immune from this new law? Because those 9 states(ME, NH, VT, MA, RI, CT, NY, DE and MD) created a club called the Regional Greenhouse Gas Initiative (RGGI) that tackles the emission problem head on. By being proactive about this problem, these states now have wiggle room in terms of the decisions they can make. In addition, RGGI states show that not only are the emissions reductions working, but jobs are being created and $3 to $4 of benefits are being created by every $1 invested in the program.

In response to shutting down the old coal fired plant at the cost of jobs: do it! Shut that dinosaur down. And while you are shutting it down, start hiring Americans to build a new natural gas, wind, solar, geothermal or nuclear plant (or read my related post on distributed generation). This will create even more jobs as well as provide us with energy than doesn’t burn our eyes and harm our lungs. Side note: Don’t site a nuclear power plant on a fault line or frack under a watershed supplying drinking water to 19 million people – that is just stupid!

Climate change is one of the major problems facing our country, but another big one is health care costs. Any small business or large corporation will give you the same answer when it comes down to costs of employment – health care costs are absolutely prohibitive and are only expected to increase. Allergies, asthma, chronic obstructive pulmonary disease, and lung cancer are all results of air pollution. I see a trade off here – either face the cost now and comply with the new regulations, or keep the status quo and face higher health care costs later on.

If I can think of one inelastic product out there, it is electricity. When the price of gas rises, people drive less. They still get up and go to work each day, but they do drive less. If the price of electricity increases, you can be sure people will still turn on their coffee makers each morning and televisions at night. But hopefully the increase will make people think about turning the lights off when they leave a room. After all, if using electricity more sparingly prevents little Johnny from a visit to the emergency room, maybe he can stay in school long enough to graduate and earn a decent paycheck at the new clean energy plant instead of the old coal-fired one that almost killed him.

***UPDATE***: The American Economic Review just released a study on the air-pollution damages for several industries in the United States.  Its findings suggest that the economic loss from poor health due to pollution from coal fired plants is 0.8 to 5.6 times the market value of the power itself.  It doesn’t require an advanced degree to figure this one out.  A copy of the report is attached.