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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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!

 

2013 State of the Union

Well Mr. President, you proved me wrong.  “Climate Change” was mentioned a total of 3 times during your SOTU speech last night.  But more importantly was the context in which you used the phrase such as:

But for the sake of our children and our future, we must do more to combat climate change.  Yes, it’s true that no single event makes a trend.  But the fact is, the 12 hottest years on record have all come in the last 15.  Heat waves, droughts, wildfires, and floods – all are now more frequent and intense.  We can choose to believe that Superstorm Sandy, and the most severe drought in decades, and the worst wildfires some states have ever seen were all just a freak coincidence.  Or we can choose to believe in the overwhelming judgment of science – and act before it’s too late.

To stress his point, Mr. Obama directed Congress to come up with “market based solutions” (think cap and trade) to climate change or else he would step in with an executive order.

The good news is, we can make meaningful progress on this issue while driving strong economic growth.  I urge this Congress to pursue a bipartisan, market-based solution to climate change, like the one John McCain and Joe Lieberman worked on together a few years ago.  But if Congress won’t act soon to protect future generations, I will.  I will direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy.

The bill that Obama mentioned was the 2007 Climate Stewardship and Innovation Act that proposed a reduction to 2004 levels by 2012, 1990 levels by 2020, and 60% below 1990 levels by 2050.  This can be done.  We need to evaluate how we use energy and how we can make our products more efficient.  As any homeowner knows, wasted energy is wasted money and right know we can’t afford it.

Obama 2013 State of the Union

Melting Ice Caps

The ice sheets on Greenland and Antarctica are melting, sea levels are rising, and the rate of ice loss is increasing.  These are the conclusions a new peer-reviewed report published in the journal Science came to.  The study, authored by 47 experts from 26 institutes, used satellite images to show that the ice sheet melting has contributed to an 11 mm (0.4 in) rise in sea levels.  The Greenland ice sheets contributed 2/3 to this rise while Antarctica contributed the remaining 1/3.  Also startling were the comments on the Pine Island Glacier, an iceberg the size of New York City that is set to calve off in the upcoming months.  While most of this information is probably not news to you, it does offer scientific proof that the planet is warming.  We must act now.  Please inform yourselves about solutions to climate change – whether through cap-and-trade or a carbon tax – and pressure your elected officials to enact policy measures.  The only way to slow the rate of warming is to reduce our emissions through every means possible.  Use less energy by making energy-efficient upgrades to your house.  Write a letter to your representatives to end subsidies for fossil fuels so renewable technologies can compete on a level field.  Or simply turn off electronics when they are not in use.  Climate change is a problem that touches all areas of modern society – it is a national security issue, an economic issue, a development issue, and a humanitarian issue.  And as this study proves it is getting worse.  The paradox is that by the time we see changes that affect us, it may be too late to stop it.

ice sheet

Four Climate Change Policy Ideas for the Next President

Congratulations! We are finally out of this election cycle and all the negative ads. And no matter who the winner is, I hope that we can all come together to build a stronger economy and a healthier society. While we wait for the mudslinging over the fiscal cliff to begin, here are the top four recommendations on climate change policy for the incoming (or returning) president as stated in Businessweek.

1) Put a price on carbon. I alluded to this in a previous post called Carbon Emission where we discuss the differences between a carbon tax and a cap-and-trade policy. Businessweek says that “A $20-per-ton carbon price—collected as a tax or by auctioning carbon allowances—would raise on the order of $100 billion per year while creating powerful economic incentives to curb pollution in the most cost-effective manner (and develop new technologies to do so). A carbon price is also an ideal way to help address the coming “fiscal cliff”: Using some of the revenue to pay for lower taxes on labor or capital would provide a double dividend by reducing distortions in our tax system. For that reason, a carbon price enjoys broad support from economists across the political spectrum, from N. Gregory Mankiw, Douglas Holtz-Eakin, and Arthur Laffer on the Right, to Paul Krugman, Joseph Stiglitz, and Jeffrey Sachs on the Left.”

2) Cut Non-CO2 Greenhouse Gases. CO2 is obviously the biggest contributor to global warming, accounting for over 80% of GHG’s, but it is not the most potent. Other GHG’s such as Methane, Nitrous Oxide, and other flourinated gases such as hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride are numerous time more potent warmers than CO2.  I wrote a paper on this earlier this year and will post it later this month.  Needless to say, focusing attention on these High Global Warming Potential gases may do more in the short-term to curb warming and create some international “good will” for tackling the CO2 problem. 

3) Promote Clean Energy and Energy Efficiency.  The administration should further the transition to renewable energy sources by removing subsidies for fossil fuels and encouraging smarter subsidies for clean energy.  I wrote extensively on this subject here.  In short, current subsidies to fossil fuels should be removed and invested into R&D.  The current subsidies in place for renewable energy promote widespread deployment of these technologies, but do nothing to increase their output and reduce their cost.  A better subsidy policy would promote increases in efficiency or reductions in cost in order to make these technologies competitive with cheap and abundant natural gas.  After all, the taxpayer wants to see results from their money.

4) Use the Clean Air Act.  Finally, the new administration should take full advantage of the Clean Air Act that sets new vehicle mileage standards, sets limits on pollution from industrial sources, and sets more protective standards for air quality.  “The next administration should build on these steps by setting carbon-pollution emission standards for stationary sources, including new and existing power plants. In doing so, the EPA can draw on a proud tradition, dating back to the Reagan administration, of making clean-air rules as economically efficient and flexible as possible—for example, by allowing averaging and trading so companies can meet standards on a fleet-wide basis rather than at each facility individually. The EPA should also design the carbon standards in a way that rewards states that implement their own rigorous programs—such as the innovative cap-and-trade approaches already in use in the Northeast and getting under way in California.”

There you have it.  In only a few hours from now we will know the next leader of the United States of America.  Now if the time for action on climate change.  The four steps outlined above are only the beginning, but they will help to reduce our dependence on fossil fuels, improve the health of our citizens (and the other 6.7 billion citizen of this planet), and even provide opportunities for the growth of new industries.  This is a tall order, but we have never backed down from a challenge before, why start now?

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.

World Wide Electricty Use

Have you ever seen a picture of the world at night? Take a look at the picture below and then try to comprehend the numbers – USA has a population of 300 million, North America and South America combined have about 800 million inhabitants.  Now look across the Atlantic and take a look at Africa – you don’t see many lights for the more than 1 billion people living on the continent.  Then take a look at Asia, which sports a population of 4 billion.  Now if all these areas had the same electricity usage of the USA, think about much energy we would need.  Think about the air quality in the cities, the reduced cropland from the pollution, the destruction caused by mining and drilling, the traffic on the highways, etc.  That is why we need cleaner sources of energy.  Energy production runs hand in hand with economic development and will bring billions of people out of poverty.  Further innovations in renewable technologies combined with a scale-up in production can drop the cost of clean energy and light up this map without the negative externalities associated with fossil fuel.  Now that is something to think about! 

I would just like to say a quick thank you to Professor John Zindar for teaching a great class on carbon constrained economies and to Chip, Dipa, Iana, Pedro, Terence, and Thiago for making each class fun and interesting.  I learned a lot from each of you and wish you the best in all that you do. The Earth at Night