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Energy Policy: The Dark Night? Written by PT (Policy Today) Editors Thursday, 24 July 2008
The Bat-Signal Having
saved the world from itself over 60 years ago and put a man on the Moon 25
years later, Americans are a proud lot. But, time waits on no one. As the
country’s vaunted financial infrastructure reports over $400 billion in
write-offs and credit dries up, the transportation infrastructure watches its
airlines charge for carrying a suitcase while bridges collapse, and its social
security infrastructure sinks slowly into the abyss of insolvency, dare we ask,
“what’s next?” Try energy. Meeting America’s energy needs and moving toward a low
carbon future look increasingly distant. This
article could as easily be about the financial or transportation infrastructure
as it is about energy. Or education or healthcare or immigration. We’re
reasonably good at fixing specific problems, considerably less adept at
developing policy over broader areas. The reasons are many but one is key: our
central government has sought—and failed—to fix and do everything. Blame it on
the media, personalities, or simply good intentions gone bad. But, debate, compromise
and principled consensus have become ever more difficult in Washington. The end
result is the country’s real challenges remain unsolved. THE
ENERGY CONUNDRUM
America
knows it has an energy problem, but the question is, how do you fix it? The
National Conference of State Legislators’ recent 2008 Energy Summit offered
several ideas. Says Kentucky State Senator Rodky Adkins, “there is no strategy
to get from A to Z. And as all of you know, the lead times on these projects
are enormous.” The
fact is, says, Dr, Howard Gruenspecht, Deputy Administrator, Energy Information
Administration, “we didn’t build much of anything in the 1990s. What’s been
happening is that we’ve been living off the coal and nuclear power we built in
the 1980s.” Most
(if not all) Americans care about what they pay at the pump. But, there’s a lot
more: heating homes in the winter, cooling them in the summer; generating
enough electricity to turn on light bulbs, run the dishwasher, and power up the
computer; and, then there’s street lamps, Big Macs, shops on Main Street, and
our entire industrial and commercial core. Over
centuries, fossil fuels have fully integrated themselves into the US and
world’s economies. Says Gruenspecht, “coal dominates the energy mix in the US.
Today, it is about 50%; natural gas is 21%, and nuclear accounts for 19%.
Renewable energy is about 2.7%.” And over the next 25 years, those percentages
won’t change much, though renewable energy could grow to about 7%. Some say
these percentages are skewed, and that the percentage of renewables—solar and
wind, for example—could increase to 20%. But, they offer little in the way of
proof. And other than being a great investment for venture capitalists, that
still leaves the US dependent upon fossil fuels for over 80% of its energy
needs. CLIMATE
CHANGE
There
is, of course, this problem—meeting the country’s energy needs. There is also
the issue of, how do we do it? Naysayers abound, but there is a growing
consensus that overuse of fossil fuels has endangered the planet’s survival.
Dr. Michael Maddox, CERA, notes that, “there’s a huge conundrum as we try to
deal with climate change and energy needs together.” Susan Tomasky, President,
AEP Transmission, asks, “most basically, when are we going to reduce carbon
emissions from the economy?” If you
do something about climate that will dramatically change what you do about
energy. Coal, for example, emits more C02 than other forms of energy. At higher
prices, it takes a lot of natural gas to offset costs of substitution. Power
demand is increasing despite gains in efficiency. Says Gruenspecht, “over time,
growth in demand for electricity has slowed down to about 1.1% annually because
of market saturation and improved efficiency. But, we still expect it to grow.
By 2030, it will be about 25% above today’s demand.” The US
has lost a lot of energy-intensive businesses to outsourcing. The decline also
has to do with structural changes in who’s using electricity. For example,
statistics show that electricity per individual has gone down. But, per
household, it has gone up. Why? We live in bigger homes with smaller families.
And, the saturation of other appliances has grown significantly. CHANGE
WE CAN BELIEVE IN?
Says
Tomasky, “fundamental changes need to happen over the next several decades: it
can be done piecemeal or as a country, but are we going to take an overall look
at the issue(s)?” She adds, “we will have to use all sources to meet demand
plus a significant component of energy efficiency.” Dr.
Brian McLean, US Environmental Protection Agency (EPA), notes that, “changing
the path will require transformational efforts. It will require a portfolio of
technologies and policy tools.”
Wind farm: good energy, bad transmission In
terms of electricity, today’s grid was largely built in the 1950s and 1960s,
mostly by local companies. It is outmoded and almost at capacity. Says Tomasky,
“if we are to change the existing grid, we will need a new type of transmission
system. We will need a sophisticated Extra High Voltage (EHV) network: one with
a lot of off-and on-ramps to add load and generation resources.” She
cautions, though, “EHV has to serve a regional purpose. It will not get built
if we have to go state-by-state. It also requires a conscious public policy
decision—this is a critical part of our solution.” And, she notes, we will be
making these decisions in the context of increasing commodity and material
costs.” Wind
represents over 50% of the small percentage of renewable energy in the current
mix, but its growth has been largely driven by the production tax credit. The
main reason is that the numbers stand right on the cusp of commercial
viability. Once that’s solved, we will have to move wind-generated power from
the southwest to where the customers are. To that end, for example, Texas
approved a $4.93 billion investment to integrate wind into the state’s power
grid. Have
the resources been mobilized? Says Tomasky “we will have no problem building a
transmission system if the path has been identified.” ENERGY
EFFICIENCY
Another
big issue is energy efficiency. Policy initiatives include codes striving for
zero net energy buildings; conservation and demand reductions; using clean
energy like solar and wind; and advancing the use of ‘smart’ devices,
programmable thermostats and heat pump water heaters for example. All of this
will require considerable customer education. And,
then there are the policies that state governments have put in place: system
benefit funds, high performance building requirements, energy efficiency
resource standards, and appliance and vehicle efficiency standards for example.
Then there are financial incentives – tax credits, for example. PRICING
That
leads to what all of this will cost—billions if not trillions. At a macro
level, there are the policy questions. On a micro level, we have to make sure
that use of an asset reflects its scarcity. Dr.
William Shobe, University of Virginia, says that it’s better to use a price
signal that allows all users to understand what they get for what they’re
paying. He thinks that we are currently underpricing electricity. “Why are
electricity prices so low? It doesn’t reflect the true marginal cost of production,”
namely the externalities of carbon emission. Economists
have historically advocated two acceptable price signals: charge for the goods
directly or cap use and let those who need it trade the resource among
themselves. This
has given rise to creating assets in CO2 via a cap. But, this has far reaching
consequences: for starters, who “owns” the carbon asset—federal, state or local
governments? And, things work against each other: there’s more efficiency but
more appliances, higher incomes and more technology working against it. What
about fossil fuels? Should we encourage offshore drilling, coal mining, and
natural gas exploration? Says Steve Bossart, US Department of Energy, “in the
short term, the aim is to use all available resources. In the long term, we
have to go to sustainable energy.” What
about nuclear energy? The lone plant that is far enough along in the US could
be commissioned by 2015—seven years from now. The plutonium waste issue remains
unsolved. And, granted that the waste problem exists, the world is currently
building 30 nuclear plants: do we as a country want to be part of that debate? ROLE
OF THE STATES
Finally,
there is the question of how these issues get solved. There’s tremendous
variation across the country and between states. Congress has been gridlocked
on energy policy, while certain issues are better dealt with at the state
level, e.g., building codes and utility regulation. Broad participation will be
needed. Action will be needed by federal, state and local governments, by
industry and individuals. So, where does all this leave the US? And, remembering, that energy is just one among many issues clamoring for attention and resources. Hard to say, but Commissioner Gordon might warn, “time to put up the Bat-Signal!” http://www.policytoday.com/index.php?option=com_content&task=view&id=301&Itemid=149 |
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