TODAY’S STUDY: BANKS’ PRINCIPLES FAIL TO SEE COAL FOR WHAT IT IS

On the face of it, the report highlighted below about the failure of an initiative in the banking industry to prevent big money from flowing to the coal industry looks like a triumph of greenwashing over activism. But anybody who reads it that way doesn’t know much about the anti-coal movement, the most successful and determined U.S. grassroots movement in decades.

What the report really represents is a message from folks in the Sierra Club’s Beyond Coal and its many allied organizations. It says this to Big Banking: We demonstrated, disrupted your business, and revealed the financial support you provide to an Old Energy industry and you said you were going to change your practices but you have not done so. If you don’t want to have to deal with us again, you better move your backing to New Energy and stop funding an industry that destroys the environment and aggravates the climate.

And the anti-coal movement's record shows they mean what they say.

The Principle Matter; Banks, Climate and The Carbon Principles
January 19-20, 2011 (Rainforest Action Network)

Introduction

In February 2008, three leading banks, Citi, JPMorgan Chase and Morgan Stanley, announced common coal power financing policies, known as the Carbon Principles. The principles were designed to address the risks associated with regulatory uncertainty of carbon emissions, and were also a direct response to growing public concern over plans for more than one hundred new coal-fired power plants. The risk of those plants being built would lock the United States into a carbon-intensive utility sector future with hundreds of millions of tons of new and additional CO2 emissions every year. The Carbon Principles placed stricter due diligence conditions on these banks for financing the construction of new coal fired power plants in the United States.

When the Carbon Principles were created, they were one of the first industry-wide statements from the banking sector specifically addressing climate change and carbon-intensive investments. Taking a cue from many other sectors of the economy that have acknowledged the urgency of climate change, the Carbon Principles were welcome additions to the diverse chorus recognizing that the private sector must respond to climate change without waiting for slow-moving governments. Banks recognized that carbon- intensive investments posed great risks, and that carbon must be included in traditional models for assessing risk.

According to the bank proponents, The Carbon Principles: “Represent the first time that financial institutions, advised by their clients and environmental advocacy groups, have jointly committed to advance a consistent approach to the issue of climate change in the US electric power industry.”

The Carbon Principles were the outcome of a nine month bank led process to evaluate and address “carbon risks in the financing of electric power projects” in the United States. Since the Principles were released, Wells Fargo, Bank of America and Credit Suisse have subsequently become signatories.

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This review of the Carbon Principles was completed by Rainforest Action Network (RAN) to assess their implementation and impact on the financing of U.S. coal-fired power plants and alternative low-carbon energy sources. In compiling this review, RAN:

»» Compared Carbon Principles with non-Carbon Principles bank underwriting in the U.S. electricity sector;
»» Reviewed signatory bank reporting of Carbon Principles implementation;
»» Interviewed bank and civil society participants in the Carbon Principles process;
»» Examined alternative policy frameworks.

Context for the Carbon Principles: The New Coal Rush

In 2005, the Department of Energy’s National Energy Technology Laboratory (NETL) published a list of 151 proposed new coal power plants. The NETL database helped galvanize public attention to the negative impacts on the ability of the United States to meet any scientifically meaningful green gas emission reduction targets if even a fraction of these 151 planned new coal power plants were built.

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TXU – King of the Coal Rush

Leading the new coal power plant charge, TXU, the fifth biggest energy utility in the country, announced on Earth Day in 2006 plans to construct 11 new conventional coal fired power plants in Texas. The plan was to use a standardized “cookie cutter” power plant design intended to speed construction and reduce costs. This $11 billion build-out project, the largest single proposed new coal power construction project of any utility in the U.S., became a lightening rod at both the regional and national levels, attracting the active opposition of a diverse set of stakeholders concerned about a range of negative health, environmental and economic impacts.

The 11 new coal fired plants would have increased TXU’s CO2 pollution emissions by 78 million tons of CO2 per year, an amount equivalent to 80% of the UK’s entire Kyoto Protocol emission reduction commitment, 100% of Japan’s, and 200% of Canada’s. TXU was also starting to vet plans to construct even more coal fired power plants in the Midwest, which, if implemented, would have vaulted the company into the rank as number one corporate greenhouse gas emitter in the United States.

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Oblivious to the climate implications, in June of 2006, Citi, Merrill Lynch and Morgan Stanley provided an $11 billion bridge loan to help initiate financing for TXU’s new coal power plant construction project. Shortly thereafter Rainforest Action Network (RAN) and others launched a campaign to draw attention to the financing role of these banks in the coal rush. RAN also approached other major banks in North America, Europe and Japan to alert them to the high carbon risks of TXU’s project.

In a surprising move, on February 26, 2007, two large U.S. hedge funds, Texas Pacific Group and Kohlberg Kravis Roberts, announced that they had struck a $45 billion deal to take TXU private in the largest leveraged buyout deal in U.S. history. As part of the deal, the new owners announced that they would suspend plans for 8 out of the 11 planned new coal fired power plants, which in turn freed up capital pledged to their construction to help finance the deal itself. Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup and Lehman Brothers provided $4 billion in equity “bridge” financing for the deal. The same banks also took on the $14 billion in existing TXU debt and $24 billion in new term debt to help close the deal.

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Birth of the Carbon Principes

The TXU buyout served as a wake-up call to Wall Street banks that carbon risk was a growing and poorly assessed material isssue on a number of levels. To address this, three of the banks involved in the TXY debacle: Citi, JPMorgan Chase and Morgan Stanley, initiated a dialogue in May of 2007 that led to the development and release of the Carbon Principles in February 2008.

The signatories to the Carbon Principles commit to the following:

“Encourage clients to pursue cost-effective energy efficiency, renewable energy and other low carbon alternatives to conventional generation, taking into consideration the potential value of avoided CO2 emissions.

Ascertain and evaluate the financial and operational risk to fossil fuel generation financings posed by the prospect of domestic CO2 emissions controls through the application of the Enhanced Diligence Process. Use the results of this diligence as a contribution to the determination whether a transaction is eligible for financing and under what terms.

Educate clients, regulators, and other industry participants regarding the additional diligence required for fossil fuel generation financings, and encourage regulatory and legislative changes consistent with the Principles.”

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In August 2008 the Carbon Principles came into effect for financing of investor owned utilities. In February 2009 their scope was further extended to include transactions for public power and electric cooperatives. To date, the Carbon Principles only apply to transactions in the United States. Most of the signatories to the Carbon Principles have a large global banking presence or are implementing strategies for global growth of their commercial banking businesses. New coal power plants are capital intensive, costing as much as $4 billion to build, with construction project cycle times as long as five years for larger power stations. The Carbon Principles themselves have only been in effect for two years. During this period a limited number of new coal power plant proposals have been moving forward and have received financing. (Table 1.2)

The Carbon Principles are process standards and not performance standards. They require that clients provide information demonstrating that the utilities have considered energy efficiency and renewable energy opportunities. They do not specify, for example, a carbon intensity threshold for new power generation above which the banks would not provide financing. Examples of such carbon intensity performance standards include the one mandated by the State of California, which excludes Californian utilities from making new long term investments or contracts with in or out-of-state providers of electricity from conventional coal or any other source with a carbon intensity greater than that for new combined cycle natural gas power plants.

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Wall Street Banks and Utility Sector Financing

The CP banks comprise six of the top seven ranked banks in Bloomberg League Tables for underwriting and loans in the electric utility sector in the U.S. (Table 1.2). They also accounted for more than 55% of the $125 billion in loan and bond underwriting in the United States to the sector from the beginning of the Carbon Principles implementation date of August 4, 2008 through June 30, 2010”.

Table 1.3 shows that the CP banks dominate loan and bond underwriting for the U.S. utility sector. A significant portion of this financing is to companies that are actively pursuing permitting for or construction of new coal-fired power plants in the U.S. At first level of screening, no clear pattern emerges distinguishing CP banks from non-CP banks by the percentage of financing deals that involve such utilities. It is clear, CP banks are not disproportionately avoiding financing deals with clients actively pursuing new coal.

Industry Participation in Carbon Principles Development

The Carbon Principles were developed in consultation with the U.S. electricity utilities sector, including representatives from American Electric Power, CMS Energy, DTE Energy, NRG Energy, PSEG, Sempra and Southern Company, as well as environmental representatives from Environmental Defense, NRDC and CERES”. In total, the seven utility companies above are responsible for nearly 10 percent of the total CO2 emissions in the United States, emitting approximately 496 million tons of CO2 in 2006. If these seven companies were a country, they would be the 10th largest greenhouse gas emitter in the world”. 85 percent of the seven companies combined electricity generation comes from combustion of coal. (See Appendix for profiles of the participant utilities.) The Carbon Principles require that prior to financing new coal power generation in the U.S. the company should demonstrate that it has evaluated cost-effective energy efficiency and renewable energy opportunities, and identified CO2 pipeline routes to potential underground storage sites if carbon capture and sequestration is mandated in the future…

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Alternative Policy Frameworks

The Carbon Principles was one of the first widely adopted policy frameworks in the banking sector that addresses the risks specifically posed by carbon-intensive investment and climate change. However, several other policies have emerged since then that offer a more comprehensive approach to addressing climate change from both a frame of ecological and social responsibility as well as addressing the economic risk posed by carbon-intensive investments. The Carbon Principles have often been compared to The Equator Principles, which were created in 2003 to address “social and environmental risk in project financing” and have since been signed by over 65 international banks. However, there are several important distinctions between them. While the Equator Principles are limited only to project finance specific financing arrangements, the Carbon Principles are a framework looking at transactions that include corporate financing, bond issuance, and even advisory services. The Carbon Principles affirm that banks can create policies that address a broader spectrum of corporate financing and services, beyond project financing. The Climate Principles are a similar industry-wide framework, created in December 2008 by primarily European and international banks including Credit Agricole, HSBC, Munich Re, Standard Chartered, and Swiss RE. While similar to the Carbon Principles in terms of incorporating a risk analysis regarding carbon and climate into their due diligence protocols, the Climate Principles look more broadly at carbon-intensive aspects of their operations, clients, and transactions rather than only looking at coal-fired power plants. They also go beyond concern for immediate risk in a transaction, and also seek to address greenhouse gas impacts of their supply chain while explicitly acknowledging the urgency of the climate crisis and the need for collective societal action.

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While industry-wide policies may appear simpler and more comprehensive, bank-specific policies often can lead to a more robust framework, rather than the lowest-common-denominator agreements across competitors. For instance, Bank of America has created a specific emissions-intensity target for its investment portfolio, and is aiming to lower the carbon-intensity of its portfolio by specific targets. Eight US and Swiss banks have also created sector-specific policies limiting their financing of mountain-top removal coal mining. While several Carbon Principles signatory banks have pledged to reduce their emissions from their direct operations (physical buildings, travel etc), Bank of America also recognizes its responsibility to reduce “financed emissions” or the emissions associated with its client portfolio. In 2004, the bank committed to reduce the emissions rate from its utility portfolio by 7 percent by the end of 2008. Bank of America did meet this modest goal, but did not continue or expand its commitment. The German bank WestLB recently announced its Policy for Business Activities Related to Coal-Fired Power Generation. This policy provides more than just a “due diligence framework”, but actually creates sector-specific regulations. While these regulations do not bar financing of new coal-fired power plants, they do create tangible performance benchmarks that can be reported and verified, and concretely push the industry to pursue cleaner energy projects.

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Conclusion

While lacking clear guidelines from national or international political institutions, the global economy has responded to climate change in myriad ways – from investment in clean energy technologies to voluntary commitments to reduce emissions. The Carbon Principles are not concerned with recognizing or addressing the environmental, social, or economic impacts of climate change and a carbon-intensive economy, they were adopted to address the “growing uncertainty around federal climate change policy and potential carbon costs.” In this way, the Principles reflect only a short-term responsibility to shareholders and profit, not recognition of responsibility to communities concerning the climate nor a comprehensive commitment to the transition to a low-carbon economy. At their launch, the Carbon Principles were touted by banks as an indication of the “Greening” of the banking sector, or at least as a step towards stronger corporate social responsibility from this sector. But despite dozens of media articles, press releases, and public comments that imply that the Carbon Principles are a step forward for corporate social responsibility – nothing in the Carbon Principles makes reference to such broader concerns. It is unclear why the guidelines of the Carbon Principles merited a stand-alone policy document. Banks should be expected to perform due diligence with a client that encompasses all aspects of risk – this is standard practice in any industry. Incorporating the risk associated with carbon should not be seen as any more unusual than assessing the revenue streams, debt ratios, or management competency of a client. The Principles represent business-as-usual for a bank, and singling out one aspect of standard due diligence for accolades seems unwarranted. In summary - have the Carbon Principles restricted financing to coal-fired power plants? Have they encouraged clients to evaluate low-carbon alternatives to coal-fired power plants? Are they adequately addressing the social and environmental risks posed by carbon-intensive projects? Are they even adequately minimizing the financial risk to investors in such projects – given the tremendous uncertainty of regulatory action? The answer is no to all these questions. Our research reveals that, while the broader economy has been shifting away from coal for myriad reasons, banks that have signed onto the Carbon Principles are continuing with business-as-usual in regards to coal and carbon.

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Recommendations

RAN calls upon leading financial institutions to develop a robust framework of policies and practices to address climate risk, which should include:

»» Phase out support for new and existing coal extraction and delivery projects
»» Phase out support for new and existing coal-fired power plants
»» Public acknowledgement of the risks and urgency of the climate crisis, and the need for economy and society-wide responses.
»» Assess and report on the GHG emissions associated with all their loans, investments and other financial services (Financed emissions) to develop a baseline on which to set reduction targets, starting with the most GHG intensive sectors.
»» Establish portfolio and business-unit emissions reduction targets in line with what is considered necessary to stop climate change from unfolding, as based on current scientific consensus on climate stabilization;
»» Performance, not just procedural, standards for financial transactions and client engagement.
»» Science-based emissions reduction targets that include emissions from both operational as well as financed emissions.
»» A commitment to support political climate policy frameworks and emission reduction goals that will limit global temperature rise to between 1.5-2C
»» A commitment to dramatically increase support for financing emissions reduction technology, renewable energy production and energy efficiency in all business lines
»» Development of products and services to help retail customers address climate change

QUICK NEWS, 1-31: WIND BEATING NAT GAS IN TEXAS; CHINA HCPV DEMO GOES LIVE; SO. DAKOTA WIND GOES WEST; MONEY IN TRANSMISSION

WIND BEATING NAT GAS IN TEXAS
Why Texas Is Using More Coal, Wind and Less Gas
Kate Galbraith, January 25, 2011 (Texas Tribune)

"…[L]ast year, nearly 8 percent of the power on [Texas]'s electric grid was generated by wind. That's more than three times the national average. And because Texas recently added several coal-generating units, coal plants — for the first time in recent memory — produced more power than any other electricity source. Nuclear power's contribution held about steady, at 13 percent of generation.

"The big loser was natural gas. While natural gas is abundant in Texas, less polluting than coal and substantially cheaper than it was jut a few years ago, it is also easily replaced by the wind. The percentage of power on the grid generated from natural gas dropped from 42 percent in 2009 to 38 percent in 2010; coal, at 39.5 percent, slightly edged it out. Since at least 1990, natural gas has generated more electricity than coal in Texas…Hot weather and the recovering economy caused Texans to use more power overall…"

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"Perhaps the most interesting aspect of the Texas figures centers on the relationship between natural gas and wind power…Texas has nearly three times as much wind capacity in place as the next-closest state…The recent growth (from 6.2 percent of the Texas grid's generation in 2009 to 7.8 percent last year) came despite well-documented transmission-line constraints in West Texas, home to the vast majority of the state's wind capacity. There, some wind turbines sometimes get shut down even when the wind is blowing, because there is not enough room on the wires …

"Much of the new wind has come from a different part of Texas — along the Gulf coast in the south…The state has planned $5 billion worth of other transmission lines to remedy the congestion in West Texas…Wind goes onto the grid before natural gas because the "fuel" of the wind is free, unlike that of natural gas plants — so it costs nothing to add more wind to the grid, when the wind is available. Gas units are also relatively easy to turn on and off — making it a good complement to the vagaries of wind power…"

Volatility, a problem. (click to enlarge)

"The long-term drop in the share of natural gas on the Texas grid — as recently as 2002, gas accounted for 46 percent — contrasts to the rest of the country. Nationally, reliance on gas has increased (from 18 percent in 2002 to 23 percent in 2009), while the share of coal generation has dropped, from 50 percent in 2002 to 45 percent in 2009. The reasons for this difference are rooted in history: Decades ago, Texas depended nearly entirely on natural gas for its electricity while many other states built coal plants…Texas did not begin building coal plants until the 1970s and 1980s…so while some of natural gas plants here may be older and closer to retirement, Texas' coal generators are newer and sturdier…

"Natural gas could regain some of its share…Electricity use on the Texas grid at peak hours — meaning hot summer afternoons — is projected to increase by 37 percent by 2030…Coal plants, which are under fire from environmentalists unless they put in expensive new technologies to capture and bury carbon dioxide, may be tough to build…Lt. Gov. David Dewhurst…has proposed phasing out old coal plants and replacing them with gas-fired generation. Tom "Smitty" Smith, the Texas head of the environmental advocacy group Public Citizen, said he endorsed this idea…Meanwhile, wind will continue to grow. Smitherman noted that the state-planned $5 billion transmission line build-out, which is proceeding, should nearly double the wind-energy capacity…"


CHINA HCPV DEMO GOES LIVE
Cyrium Technologies Deploys its QDEC High Efficiency Solar Cells; Cells Installed in Modules Designed and Manufactured by Suntrix Ltd.
January 26, 2011 (Cyrium Technologies)

"Cyrium Technologies, Inc., a leading developer and supplier of concentrating photovoltaic (CPV) cells…announced the grand opening of a 200 KW HCPV (high concentrating photovoltaic) power station owned and operated by Qingdao HG Solar Energy Co., Ltd. The HCPV systems at the facility are powered by Cyrium’s QDEC high efficiency triple junction CPV cells installed in modules manufactured by Suntrix Co., Ltd. and mounted on tracking systems designed by Suntrix and produced by Qingdao HG Solar Energy Co. Ltd…

"Collaboration on this demonstration project began several months ago…[It] highlights the opportunity that exists in China for HCPV systems. Construction of the power station started in November 2010 and was completed this month, clearly demonstrating the ease and speed with which HCPV systems can be deployed for utility scale solar energy projects."

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"Cyrium’s portion of the project received support from Environment Canada’s Asia Pacific Partners (APP) program, as part of the Canadian government’s effort to bring Canadian and China based companies together to foster cross-border collaboration on cleantech projects…"

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"HCPV is considered to the 3rd generation of PV technology making use of low cost, light-concentrating optical systems and group III-V semiconductor materials for the solar cell. The photo-electric conversion efficiency is 2 times more than Si (silicon) technology and requires significantly less land area than other technologies…

"…[HCPV] also has the highest possibility of reducing the power generation cost to the level of using coal, which is of considerable importance in China. The completion of this 200KWp project is a signature event in moving China towards greater deployment and application of HCPV systems to meet its rapidly growing energy needs."


SO. DAKOTA WIND GOES WEST
Western SD First Wind Farm
Austin Hoffman, Janaury 24, 2011 (Keloland Television)

"As energy prices climb higher, more people are looking for green, renewable sources…Renewable Solutions, a Minnesota-based company, is looking at building the first large-scale wind farm, in western South Dakota. The $100 million project would span 9,000 acres and turn up power for an area that can use it.

"Right now it's seemingly endless open prairie, but could soon be home to 27 wind turbines as they crank out 50-megawatts of power. Tom Davis is one of two landowners who have lease agreements for the towers…The main thing Davis is worried about is how his livestock will take to the large spinning windmills. But from what he's seen elsewhere…[he expects] livestock would graze right around them [unbothered]…"



"…Renewable Solutions, the company spearheading the project…[plans] to use local contractors for much of the ground work which would create around 30 jobs…[The project will] create two to five full-time, post-construction jobs. And much of the tax revenue from the turbines would go to local schools.

"The project isn't 100-percent finalized…[N]egotiations over finding a buyer for the power [continue]…[C]onstruction will be next."


MONEY IN TRANSMISSION
2010 Value Proposition Reveals $1.3B-$1.6B in Annual Benefits; 10-Year Regional Benefits Estimated from $11.2B-$14.6B
January 25, 2011 (Midwest Independent System Operator)

"…[The Midwest ISO 2010 Value Proposition] reflects the quantitative and qualitative benefits the regional transmission organization provides to the region through its grid reliability and efficiency measures. The study identifies between $1.3 billion to $1.6 billion in annual benefits to the region. Over the next 10 years, the Midwest ISO estimates the region could receive between $11.2 billion and $14.6 billion in benefits on a net present value basis…"

"The analysis shows realized annual benefits ranging from $650 million to $875 million from the Midwest ISO’s greater grid reliability and efficiency measures. In addition, the study identifies benefits of between $600 million and $760 million from reduced generation investment. The generation investment benefit will be realized as load grows or current generating infrastructure retires due to age or environmental restrictions.

click thru for a complete ppt presentation


"Like prior Value Proposition studies, the Midwest ISO’s analysis included input from all interested stakeholders in an open and transparent process. The 2010 study measured 10 value drivers in which the Midwest ISO’s members and their customers are benefiting…[including] Improved reliability…Market commitment and dispatch - Dispatch of energy, Unloaded capacity, Regulation, Spinning Reserves…Wind integration …Generation investment deferral…[and] Demand response (dynamic pricing and direct control interruptibles)…"

click thru for a complete ppt presentation


"New in 2010 was the addition of Wind Integration as a quantitative benefit. Midwest ISO’s regional planning enabled more economic placement of wind, resulting in annual economic benefits between $34 million and $42 million. The regional transmission organization’s Regional Generation Outlet Study (RGOS) shows that a combination of wind placed in states with renewable portfolio standards and regional areas enable a significant reduction in the cost of generation compared with only building the wind generation locally. This area of benefits will grow as the region continues to build wind turbines to meet state renewable portfolio requirements.

"In addition to the quantitative benefits, the Midwest ISO also demonstrated significant qualitative benefits that wholesale market participants receive from the Midwest ISO including…Price and informational transparency…Planning coordination…Regulatory compliance…[and] Seams management…"

WIND SOLUTIONS IN EUROPE

Solving wind intermittency in Europe; Manufacturers and operators are pursuing a number of avenues to solve wind energy’s biggest bugbear…
Jason Deign, 21 January 2011 (Wind Energy Update)

"…[T]he answer to one of wind energy’s most intractable problems could one day be in your garage…[if] using electric car batteries as storage devices for excess wind energy [proves viable]…Dubbed Cars4Grid, the project is the most ambitious of three Gamesa is carrying out to reduce the intermittency of supply to the electrical grid, an issue that has long been seen as the Achilles heel of renewable energy in general and wind power in particular.

"However…the fact that the wind does not blow every day should not be seen as a challenge for renewable energy but rather a challenge for the power distribution model we are used to. It does not rain every day, either; but that has not been a problem for water distribution…"

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"…[Gamesa believes accommodating] a variable supply is not a need that comes from wind power or from renewable energy but from the evolution towards a more modern system of distribution…This more modern system of distribution will likely be the smart grid, a regional or even continental electricity network able to control and route power much more intelligently…making better use of available energy sources to maintain constant supply.

"Much of the success of future smart grids will depend on their ability to tap into distributed power sources such as the car batteries envisaged in the Cars4Grid scheme. In the meantime, Gamesa is focusing on other types of battery development for its other power storage projects…One is a short-term plan to develop electro-chemical batteries based on current technology that will sit alongside individual turbines and provide an immediate storage capability…[They] should be available commercially in the next three years."

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"The final Gamesa storage project… still very much in the initial research and ‘high risk’ phase, is to develop high-capacity flux batteries capable of storing tens of megawatts an hour…These could be used to store excess power from wind farms or over-saturated electricity grid nodes…Xcel Energy…has already developed a wind-to-battery system that can store 7.2 megawatt hours of electricity.

"…Batteries are not the only answer to intermittency, however, and may not even be the best…[T]otal wind energy delivery [can be evened out] by tweaking output rates at the turbine, farm, farm cluster and regional levels…[Output levels would be kept] below the optimum for average conditions, so that if the wind drops turbine throttles can be relaxed and additional turbines, farms or farm clusters can be started up to maintain a constant supply to the grid…Doing this will require turbines and grid systems to be more flexible and responsive… [They are being developed and] could start yielding results this year…"

SUN MAKING WATER IN THE SAHARA

Is CSP the solution to water poverty in MENA?
Heba Hashem, 24 January 2011 (CSP Today)

"…Countries in the MENA region are facing serious water deficits that are expected to worsen unless major investments are pumped into more sea desalination projects…[T]he UAE risks depleting groundwater within 50 years at current consumption rates. [The water deficit in the United Arab Emirates (UAE) is projected at 0.84bn m³ by 2030…[T]he country spends almost $3.2bn per year on the production of desalinated water, accounting for about 14% of the world’s total output]…

"Although rich with oil and gas resources, the GCC states are the poorest in water, relying heavily on desalination projects, which supply 70% of their water needs and drain their budgets…Saudi Arabia’s water consumption is forecast to reach 7.32 bn m³ in 2030. The kingdom, which considered transporting icebergs from the South Pole in 1977, has pumped nearly 26% of the world’s total water desalination production over the past few years. In the next 17 years, the Saudi government plans to build 16 water desalination facilities worth $14bn, with a combined capacity of 2.1mn m³/d."

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"A MED-CSD project recently carried out studies of combined CSP and desalination plants in the south and eastern Mediterranean region, in which it assessed the water demand and deficit as well as of electricity demand…[It] found that all CSP technologies can be combined with thermal desalination systems…[P]arabolic dish systems and central receivers were excluded. ..[and] two options of combining CSP with seawater desalination were investigated: reverse osmosis [RO] power by electricity from a CSP plant and MED using heat and power from a CSP plant…CSP plants were found to save more fossil fuel and replace more conventional power capacity compared to other renewable energy sources like PV and wind power, especially if applied for desalination services…

"…[T]he more profitable [hybrid CSP water desalination] technologies were found to be Linear Fresnel mirrors for the solar field technology, and reverse osmosis for the desalination technology…Of the 72 different studied configurations, only considering the CAPEX for desalination, RO desalination was found to have a lower initial investment cost than MED. However, this cost excluded the maintenance cost over the years, especially the replacement cost for the RO modules every 5 years…The MED-CSD study stressed that a direct comparison for the desalination unit alone is misleading as the MED unit replaces the heat rejection section of the power plant (cooling tower) as well as expensive condensing stages of the steam turbine…MED is also gaining increasing market shares due to lower power consumption for pumps and for requiring less heat exchange surface…"

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"Currently, the use of desalinated seawater in the MENA countries relies mostly on fossil fuels, which are neither sustainable nor economically feasible - especially considering that oil and gas prices have increased by 300% since 2000…The region also relies on the over-exploitation of groundwater resources, which results in falling groundwater levels, intrusion of salt water into the groundwater reservoirs and desertification…

"Egypt…installed a solar sea water desalination system based on a thermal evaporation method…Libya…conducts research programs in both PV and solar thermal technology…[T]he King Abdulaziz City for Science and Technology (KACST) launched the National Initiative for Solar Water Desalination (NISWD)…[T]he desalination process will hinge on a nanomembrane that filters out salts as well as potentially harmful toxins in water while using less energy than other forms of water purification…Abu Dhabi launched a pilot project for the world’s largest underground reservoir…[and is] testing a new system to desalinate sea water using solar energy…"

UGANDA, VIETNAM LAUNCH ADVANCED NEW ENERGY INCENTIVES

Uganda Launches Sophisticated Feed-in Tariff Program; Vietnam Drafts FIT Proposal
Paul Gipe, January 20, 2011 (Wind Works)

:…[T]he US's former military foe, Vietnam…dipped its toe into the feed-in tariff waters by announcing a draft proposal…[But] Uganda…set heads spinning…Quietly, without fanfare, Uganda has announced one of the most sophisticated, if not the most sophisticated program in Africa.

"…Vietnam's program is ill-defined and limited, providing a tariff only for wind energy…[and] the tariff is supplemented by a government subsidy, presumably paid by taxpayers in the communist country…In addition, Vietnam will also provide preferential loans and tax abatement for selected projects."

click thru to Paul Gipe's Wind-Works for the best feed-in tariff info on the web

"…Ugandans have quiety launched a program they simply call a Renewable Energy Feed-in Tariff (REFIT). Uganda follows South Africa and Algeria with early feed-in tariff programs. However, Uganda appears to have learned lessons from other programs worldwide. The Uganda program offers tariffs for a full suite of technologies, including geothermal and bagasse, detailed hydro tariffs, as well as technology specific program caps."

click thru to Paul Gipe's Wind-Works for the best feed-in tariff info on the web

"Of particular interest are the highly differentiated tariffs for hydro projects from one to eight megawatts…Further, the Uganda program specifies capacity caps for each technology by year. This is clear policy guidance on how much the country wants of which technology.

"…[Summary:] Project size cap: <20 MW…Inflation adjustment based on O&M costs of tariff…Administered by Uganda's Electric Regulatory Authority (ERA)…Tariffs based on the cost of generation plus profit…Hydro tariffs differentiated by size in 100 kW increments…Tariffs for eight different technologies, including geothermal…Program capacity caps by technology and by year…"

SPAIN TO BUILD GIANT OCEAN TURBINES

Spain: World leader in offshore wind turbine technology? A research project led by Gamesa is looking to give Spain a head start in the production of bigger turbines for offshore wind farms.
Jason Deign, 18 January 2011 (Wind Energy Update)

"…Spain’s [11 company, Gamesa-led] Azimut initiative to build a 15MW offshore turbine…will not result in a 15MW turbine…[It] finances research…[but not] a complete turbine…[Azimut] includes three competing turbine makers…[It] is about carrying out basic research into the technology elements each project partner would need to develop in order to work with offshore wind farms providing up to 15MW per turbine.

"And it is not just about the turbines. Hence the inclusion of companies such as Iberdrola and Acciona Windpower, which will be studying issues such as how to get the energy back to shore and how to install and maintain such massive wind farms…It’s about investigating the viability of different project elements [such as bi-pole and leeward-positioned rotors]…"

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"Mapping out the groundwork in this way makes a lot of sense given Azimut’s ambitions. The largest turbine built so far, the Enercon E-126, delivers less than half the energy planned by Azimut, and on land-based, not offshore, locations…Improvements to the Enercon turbine should take it up to 7.5MW, and at least four manufacturers (AMSC Windtec, Clipper, Sway Turbine and Wind Power) are currently studying 10MW offshore machines…But 15MW is a [paradigm-changing] conceptual leap…

"…[T]he project will need to come up with ways of minimising the turbine’s total head mass…Gamesa will focus research on vertical-axis configurations potentially similar to Wind Power’s 10MW Aerogenerator X design…[T]he six-month-old, four-year project [is not expected] to start yielding results until 2012 or 2013, which would mean the first commercial turbine designs might not emerge from manufacturers until 2015 or 2016…"

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"…[Though] the Spanish government… has pulled support for its domestic wind energy market, [it] is at least helping companies…Almost half of the EUR€25 million assigned to the project will come from [Spain’s] Ministry of Science and Innovation’s national strategic technical investigation consortia…The rest is coming from the Azimut’s 11 private-sector partners: Gamesa, Alstom Wind, Acciona Windpower, Iberdrola Renovables, Acciona Energía, Técnicas Reunidas, Ingeteam, Ingeciber, Imatia, Tecnitest Ingenieros and DIgSILENT Ibérica; 22 research centres are also involved…

"…[Industry experts believe] an integrated approach is the best way to tackle the large-scale offshore projects that will characterise European wind energy in the coming decades…[T]he aims of the project may no longer seem so grandiose when it finishes in 2013…"

FROM SHELL REFINERY TO SOLAR POWER PLANT IN JAPAN

From oil refinery to solar power plant / Showa Shell plans to use site of closed factory to generate clean electricity
Tatsuya Watanabe and Yomiuri Shimbun, January 11, 2011 (AP via Daily Yomiuri)

"Major oil company Showa Shell Sekiyu K.K. is considering constructing a solar power plant at the site of an oil refinery the firm plans to close this autumn…[B]usinesses and local governments [are seeking] an effective way to use sites of shuttered factories, which have caused serious problems in places around the nation as a growing number of firms move plants overseas.

"Showa Shell decided in February 2010 to close the 227,000-square-meter Ogimachi refinery run by its affiliate Toa Oil Co. at its Keihin Refinery in Kawasaki. The firm judged the facility would face difficulty remaining profitable as demand for petroleum products declines due to the chronically low birthrate and the aging population, as well as the popularity of eco-friendly cars."

Artist's conception of the solar power plant on the Niigata refinery site (click to enlarge)

"The Kawasaki municipal government and other entities earlier approached chemical makers about using the refinery's equipment, but the negotiations made little progress as the chemical industry is also in the process of off-shoring factories…

"Eventually, they hit on the idea of Showa Shell keeping the site and remaking it into a solar power plant, which would not require a costly soil clean-up…Showa Shell opened a solar plant in August at the site of an old refinery in Niigata, and the company is considering a similar design for the plant at the Ogimachi facility."

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"A comprehensive renewable energy purchase system the government plans to introduce as early as fiscal 2012 is expected to stimulate business interest in building solar plants in vacant lots. The new purchase scheme is an expansion of the current system under which electric utility firms buy excess solar energy generated by households. The new system would allow households and corporations to sell all of the renewable energy they generate.

"In anticipation of the expanded system, companies in various industries have approached solar panel makers about entering the solar power business…The Economy, Trade and Industry Ministry, which wants to promote the purchase system, hopes Showa Shell's project will be an example of how to put vacant lots to use."

T. Boone Pickens On The Daily Show (Extended Version)

Exclusive - T. Boone Pickens Extended Interview
This is what was broadcast on Comedy Central and what was only available on the web. It’s worth the entire 22 minutes. T. Boone is a lot more confident than he should be that producing natural gas with hydrofracking can be done safely. Jon Stewart stipulates a big IF in the 16th minute and confronts T. Boone on fracking in the 18th minute but never gets an answer. T. Boone also glosses over the role of plug-in vehicles and the role of wind, solar, and geothermal to power them. From Comedy Central.

The Military And The EV

"
This is the latest in the series of public service announcements from Plug-in America to familiarize the car-buying public with battery-powered personal transport. From pluginamerica via YouTube

The Elusive Case Against Climate Change

At Any Cost from Joe Public Films on Vimeo.

This is a wonderful summary of how the opposition to action against climate change, largely funded by the fossil fuel industries, has evolved. It is worth 7 minutes of anybody's time to see how those against New Energy, Energy Efficiency and the fight to cut greenhouse gas emissions continue to stay one step ahead of logic.

THE OBAMA CLEAN ENERGY GOALS

The Clean Energy Standard’s Five Goals

"A global race is underway to develop and manufacture clean energy technologies, and we are competing with other countries that are playing to win. America has the most dynamic economy in the world, but we can’t expect to win the future by standing still. That’s why, in his State of the Union address, President Obama proposed an ambitious but achievable goal of generating 80 percent of the Nation’s electricity from clean energy sources by 2035. Meeting that target will position the United States as a global leader in developing and manufacturing cutting-edge clean energy technologies. It will ensure continued growth in the renewable energy sector, building on the progress made in recent years. And it will spur innovation and investment in our nation’s energy infrastructure, catalyzing economic growth and creating American jobs.

"1. Double the share of clean electricity in 25 years: Currently, 40 percent of our electricity comes from clean energy sources. President Obama is calling for a national goal of doubling the share of clean energy to 80 percent by 2035."

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"2. Draw on a wide range of clean energy sources: To give utilities the flexibility to generate clean energy wherever makes the most sense, all clean sources – including renewables, nuclear power, efficient natural gas, and coal with carbon capture and sequestration – would count toward the goal.

"3. Deploy capital investment to sustain and create jobs: The private sector is currently sitting on billions of dollars of capital, as investors and businesses wait to see what policies the future holds. By providing a clear signal towards a clean energy future, the President’s proposal will move that capital off of the sidelines and into the economy, mobilizing tens of billions of dollars each year in new investment and creating jobs across the country."

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"4. Drive innovation in clean energy technologies: The engine of economic strength is technological innovation. By providing American businesses a market here at home for innovative clean energy technologies, we will unleash the creative power of American entrepreneurs – and ensure that our nation leads the world in clean energy.

"5. Complement the clean energy research and development agenda: The President’s Budget proposes to increase overall investment in clean energy technologies by about one-third compared to 2010, including doubling energy efficiency investment at the Department of Energy and increasing investment in the Advanced Research Projects Agency-Energy (ARPA-E) program to push bold new ideas through to commercialization."

THE OBAMA CLEAN ENERGY PRINCIPLES

The Clean Energy Standard’s Five Core Principles

"The President is proposing that a new Clean Energy Standard (CES) be founded on five core principles:

"1. Doubling the share of clean electricity over the next 25 years. To mobilize capital and provide a strong signal for innovation in the energy sector, a CES should be established that steadily increases the share of delivered electricity generated from clean energy sources, rising from 40 percent today to 80 percent by 2035."

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"2. Credit a broad range of clean energy sources. To ensure broad deployment and provide maximum flexibility in meeting the target, clean energy credits should be issued for electricity generated from renewable and nuclear power; with partial credits given for clean coal and efficient natural gas.

"3. Protecting consumers against rising energy bills. The CES should be tailored to protect consumers, and coupled with smart policies that will help American families and businesses save money by saving energy.

"- 3a. The CES should be paired with energy efficiency programs that will lower consumers’ energy bills, such as stronger appliance efficiency standards, tax credits for energy efficiency upgrades, and the proposed Home Star program.

"- 3b. The CES should also include provisions to help manufacturers invest in technologies to improve efficiency and reduce energy costs."

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"4. Ensuring fairness among regions. Different regions of the country rely on diverse energy sources today, and have varying clean energy resources for the future. The CES must ensure that these differences are taken into account – both among regions and between rural and urban areas.

"5. Promoting new technologies such as clean coal. The CES should include provisions to encourage deployment of new and emerging clean energy technologies, such as coal with carbon capture and sequestration."

THE OBAMA CLEAN ENERGY STANDARD (CES)

The Clean Energy Standard Will Build on Progress

"An ambitious Clean Energy Standard [CES] will build on the enormous recent progress in renewable energy, with 16,000 megawatts of new electric generating capacity from wind, solar, and geothermal energy that has come online since 2008 – an increase of nearly 60 percent in just two years.

"1. Creating jobs and clean energy through the Recovery Act: ARRA made an historic investment in clean energy of over $90 billion, which has already created or saved 224,500 American jobs and tens of thousands of domestic renewable energy projects – including some of the largest in the world – putting the country on target to double renewable energy generation by 2012."

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"2. Expanding production through the successful “1603” grant program: The renewable energy grant program under the Recovery Act has been an essential tool in deploying renewable energy resources in the U.S. over the past two years, successfully increasing U.S. manufacturing and creating tens of thousands of new American jobs. The Recovery Act converted these pre-existing tax credits into grant payments, making it easier for recipients to quickly expand clean energy generation and hiring. To date, the 1603 program has helped encourage more than 4,000 clean energy projects. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the 1603 program for one year."

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"3. Staying on the cutting edge through Clean Energy R&D: Through the Recovery Act, we have invested in 120 cutting edge research projects through Advanced Research Projects Agency – Energy (ARPA-E) program across areas ranging from grid technology and power electrics to nuclear technology and batteries and energy storage. Past Budgets funded three “Energy Innovation Hubs” that explore building efficiency, fuel from sunlight, and nuclear reactor modeling and simulation. This year’s Budget will more than double funding for ARPA-E and will double the number of Hubs.

"4. Siting a record number of renewable projects on public lands: In the last year alone, the Department of Interior green-lighted the first nine commercial-scale solar energy projects for construction on public lands, including the largest solar power plants in the world. When built, these projects will supply nearly 3,700 MW of power—enough to power more than 1,100,000 homes—and are expected to create about 7,300 new jobs. Interior also approved the first offshore wind farm in the U.S., and has launched an initiative to accelerate the rapid and responsible development of America’s vast offshore wind resources."

EV GETS BOOST FROM VEEP

Biden unveils plug-in vehicle initiatives
Brent Snavely, January 26, 2011 (Detroit Free-Press)

"U.S. Vice President Joe Biden…announced a $118.5-million grant from the Department of Energy for [battery company Ener1 to produce advanced lithium-ion battery systems for electric vehicles, grid energy storage and industrial electronics].…as well as several new proposals to spur the development of electric vehicles nationwide…

"…[O]n the heels of U.S. President Barack Obama’s renewed commitment made…[in the] State of the Union Address to put more than 1 million plug-in cars on the road in America by 2015…Biden said…the president’s budget will include proposals to…[1] Make electric vehicles more affordable with rebates up to $7,500…[to] replace the existing $7,500 tax credits that are available for plug-in and electric cars…[They are expected to] be more effective because consumers would get the money when they buy the car…"

click thru for the latest info on plug-in vehicles

"…[2] Enhanced research and development investments for electric drive, batteries, and energy storage technologies…[3] A new initiative that will provide grants to up to 30 communities that have made the deployment of advanced vehicle infrastructure…

"…[4] Increase investments in research and toward research initiatives for batteries that will go 300 miles on a single charge…[5] Expand a Department of Energy program that helps communities become early adopters of electric vehicles through regulatory streamlining, infrastructure investments and vehicle fleet conversions…"

SUN GETS BOOST FROM SEC ENERGY

Steven Chu On Solar Power - The Apollo Projects Of Our Time
27 January 2011 (Energy Matters)

"In an online town hall…dubbed Energy Matters, U.S. Secretary of Energy Steven Chu discussed President Obama's Clean Energy and Innovation Agenda…[He made] references to his previous comments about the USA facing a Sputnik moment in relation to energy and President Obama's vision of up three new major energy innovation hubs, which will be the ‘Apollo projects of our time’.

"Secretary Chu said part of the goal of these hubs would be to develop the technology to reduce the cost of solar panel based solar energy to a quarter of what it is today by the end of the decade - and without subsidies. He compared the push towards the goal with the space race ‘moonshot’ project - calling it a ‘sunshot’."

From BerkeleyLab via YouTube

"In regard to the goal of the USA achieving 80% of its electricity generated from clean energy sources by 2035, he said the nation was already halfway there based on the broad definition of clean energy. Further clarifying, Secretary Chu said in terms of zero emissions electricity generation, such as hydro, wind energy and solar power; the USA was at over the 30% mark.

"The clean energy goals have generated some controversy since the State of the Union announcement considering ‘clean coal’ was also included in President Obama's speech. Some argue that clean coal is an oxymoron and has no role in a clean energy future aside from being a stepping stone - and that all fossil fuels need to be removed from the energy mix."

TODAY’S STUDY: WHAT TEXAS SHOULDN'T DO FOR ENERGY

Few things are as instructive as a bad example. The report highlighted below, which describes Texas energy as if it was 1955, overlooks all of the state’s astonishing wind and solar assets and uses worst-case price data to emphasize the short-term affordability and familiarity of the state's fossil fuels. It also fails to explain that the fossil fuels' existing price advantages are the result of supporting subsidies and incentives long in place.

The archly reactionary report comes from researchers at the ExxonMobil-funded American Enterprise Institute. Texas planners would be creating a huge opportunity for New Energy developers in the other 49 states if they take this short-sighted advice and fail to provide support for Texas' nascent New Energy industries.

If Texas planners want an authoritative, forward-looking examination of what is possible, they can consult STUDY: ALL NEW ENERGY BY 2030 (Part 1) and STUDY: ALL NEW ENERGY BY 2030 (Part 2) below.

Texas Energy and the Energy of Texas; The Master Resource in the Most Dynamic Economy
Steven F. Hayward, Ph.D. & Kenneth P. Green, Ph.D., January 2011 (American Enterprise Institute via Texas Public Policy Foundation)

Summary: “If It Ain’t Broke, Don’t Fix It”

There are few current conditions in America to which this old folk axiom applies better than the Texas economy. The Texas economy is (or ought to be) the envy of the nation. The Texas economy has been notably outperforming the nation’s economy for at least a decade. Texas’ relative share of total national economic output has grown by a full percent over the last decade, and it has been racing ahead of the nation’s largest state, California, as shown in the table below. Although Texas has shared the nation’s economic pain during the current Great Recession, its economy continues to outperform the nation, with unemployment about 2 percent lower than the national average. Over half of the nation’s total net new private sector jobs between August 2009 and August 2010 were generated in Texas.

Two main macroeconomic factors explain this success:

- The first—sensible low taxes and moderate regulatory policy—are well known, and explain the dynamic entrepreneurial culture of the state. Texas has succeeded in avoiding the mistakes of Washington, D.C. and other states that have hampered economic growth with high taxes and cumbersome regulations. Few people in Texas are proposing to abandon this winning formula.

- The second factor is less fully appreciated: the role of energy in the Texas economy. Texas is the largest energy producing and consuming state in America; energy use is a central factor in the state’s prosperity. Understanding the details of this story is the focus of this study. Any proposal that may threaten to disrupt this side of Texas’ winning formula should be carefully avoided.

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- Just as the Midwest is regarded as the “breadbasket of America,” Texas should be regarded as the “energy breadbasket of America.”

- Texas accounts for more than half of the nation’s total domestic production of oil and natural gas. The long history of oil and gas in Texas is well-known, but that is far from the end of the story.

- Texas is also the leading coal-consuming state in the nation, using nearly twice as much coal to generate electricity as the second-place state (Indiana). Texas is also the eighth largest coal-mining state.

- While much of Texas’ oil and gas production is for export to other states, its coal production and consumption is the mainstay of its electricity production.

- Although Texas, like many other states, has more gas-fired electric generation capacity, it relies on its coal-fired power capacity for a larger share of its 24/7 baseload electricity needs. Texas, like most states, uses natural gas as a “swing” producer for peak periods of power demand because it is a higher cost source than coal. This contrast is evident in the above figures.

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- Coal is the cheapest source of Texas electricity after nuclear power (but nuclear power only supplies 10 percent of electricity in Texas—see above); suppressing coal-fired electricity will entail higher energy prices for Texas consumers.

- The Texas energy picture is changing rapidly and presenting new challenges for policymakers—chiefly the challenge of doing no harm to the sector.

- Texas natural gas production has soared with the development of new drilling technologies and the opening of “unconventional” gas fi elds in the state. New supply is putting downward pressure on natural gas prices—a blessing for consumers but a market risk for gas producers, who fear falling prices may render gas production less profitable.

- Market mandates on picking one fuel source are akin to sawing off one of the legs of the three-legged stool (oil-gas-coal) that comprises the Texas energy portfolio. This balanced portfolio has been critical to Texas’ success.

- Texas’ position as the highest energy consuming state in the nation needs to be better understood, not presumptively criticized. Energy consumption is controversial today: environmentalists especially mark out high energy consumption as a sign of inefficiency or profligacy.

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- Texas is in fact America’s largest industrial state, with a high concentration of energy-intense manufacturing industries, especially petrochemical refining. Texas uses more energy for industry than the next top three states combined (California, Louisiana, and Ohio). Nearly half of Texas’ total energy use is in its industrial sector. This is one-third higher than the national average. Higher energy prices will reduce the competitiveness and profitability of Texas’ manufacturing sector.

- The affordability of energy is a key component in the economic competitiveness of the state. The states that have attempted to intervene in energy markets are saddled with the nation’s highest energy prices.

- Texas’ strong position as a fossil fuel energy producing state is an asset rather than a liability, as it is better shielded from price and supply shocks.

- The Texas energy sector faces several key uncertainties from both federal regulatory initiatives and potential state regulation.

- Energy markets are volatile; price swings from national and global changes in supply and demand for different energy sources can have significant effects on the economy.

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Conclusions

- The best energy strategy is to develop energy resilience through a diversified energy portfolio that emphasizes abundance, aff ordability, and reliability.

- The best policy for achieving energy resilience is an open, adaptable marketplace for competing energy supplies and technologies, rather than mandates and patchwork subsidies that introduce artificial distortions and constraints in energy markets. The goal of policy should be to make the entire “energy pie” bigger, not to try to force favored parts of the energy pie to grow or shrink. Existing mandates should be reviewed for possible elimination.

- To adapt another popular slogan, the best advice for Texas policymakers can fit on a bumper sticker: “Don’t Mess with Texas Energy.” Texas should not do to the energy sector what it would not do to any other sector of its economy.

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Introduction: “Energy 101” Why Energy Literacy Is Necessary

Energy is rightly called “the master resource” because it makes possible nearly all forms of human activity and advancement, and drives the economy. We tend to take it for granted precisely because of its abundance, convenience, affordability, and reliability. Consumers whose primary interaction with energy is turning on a light switch or filling up an automobile fuel tank take its abundance, reliability, and aff ordability too much for granted. In fact, mass-scale energy is relatively recent aspect of human existence—really just the last 200 years, although energy has a long and important history. And it requires a sophisticated supply chain that cannot be replaced or supplanted on wishful thinking or through blunt force government mandates.

Energy Literacy: Basic Measurements and Their Meaning

Energy is not a unitary phenomenon; in other words, energy comes in many different forms and has many different purposes. It is common to lump the majority of our energy consumption under the banner of “fossil fuels” (oil, coal, and natural gas) versus “renewable” energy, but this is misleading.

The most basic distinctions to keep in mind are that energy is consumed in the form of combustion for transportation, in the form of electricity, and in the form of a feedstock for industrial production (such a natural gas and oil for plastics, chemicals, and pharmaceuticals). About two-thirds of total American energy is consumed in the form of electricity, and one-third for transportation, which depends overwhelmingly on liquid fuels refined overwhelmingly from oil. Very little oil is used to produce electricity (only about 1 percent nationally), which is why expanding wind and solar power, or swapping natural gas for coal-fi red electricity, do nothing to reduce America’s dependence on imported oil.

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Most people have a good grasp of one aspect of energy use—gasoline. Because we regularly buy gasoline at the pump, we have a good idea of the utility of gasoline (that is, the miles per gallon) as well as its price. The basic unit of energy analysis is the BTU—the “British Thermal Unit.” A BTU of energy, unlike a gallon of gasoline, is an utterly meaningless number to anyone except an energy engineer. It might as well be a Qautloo from Star Trek or measuring speed in furlongs per fortnight. But energy analysis requires a common unit of measurement, and if we did not use the BTU, we would use a similarly opaque composite unit. (In fact, the alternative unit of energy measurement is the Joule, an even more unwieldy unit that measures energy in terms of force necessary to move 1 kilogram a distance of one meter.)

A BTU is the amount of energy required to heat a pound of water by 1 degree Fahrenheit. What does this mean in practical terms? Consider a common cup of tea, which is about 8 ounces of water. It requires 75 BTUs to heat a cup of water from average room temperature to boiling. In the standard microwave oven, it requires about 22 watts of electricity to boil a cup of water; in other words, about as much electricity as a 75 watt lightbulb uses in 18 minutes.

To put this in perspective, Texas consumed 11.5 “quads” of BTUs (or quadrillion BTUs) in 2008. (More on how this energy use breaks down in the next section.) Th is is enough energy to boil over 9.6 trillion gallons of water, or about 14,600 Olympic size swimming pools.

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One gallon of gasoline contains 124,238 BTUs of energy—enough to boil 1,656 cups of tea. To put this in alternative terms, a sedan that gets 20 miles per gallon of gasoline requires 6,212 BTUs to travel one mile, or the equivalent energy of 83 cups of tea.

This comparison helps explain why gasoline is such a useful fuel, and why attempts to replace it are so diffi cult. Gasoline has 1000 times as much energy as the same weight of fl ashlight batteries, and 100 times as much energy as an equal weight of lithium-ion batteries such as are found in today’s computers and cell phones. Th is disparity between conventional fossil fuels and other energy sources explains why fossil fuels dominate the world’s energy marketplace and will continue to do so for decades to come.

The key concept that emerges here is energy density—that is, the energy content of various sources. A lump of coal, a cubic foot of natural gas, a gallon of oil (and an ounce of uranium fuel for that matter) contain more energy by orders of magnitude over diff use “renewable” sources such as wind, solar, and biofuels. According to Prof. Nate Lewis of CalTech, all of the batteries ever made in history would only power the world for about 10 minutes.

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It is hard to overstate the role of energy as the “master resource” or cornerstone of the entire modern economy. With out aff ordable, abundant energy, most commercial industry would become uneconomic or cease altogether. Consider that a gallon of gasoline, which is produced from oil extracted from the ground, transported to be refined, and transported again for consumer use, is delivered for a price less than bottled water. This does not happen spontaneously. Yet it is precisely the high energy density and sophisticated organization of conventional fossil fuel sources, largely unseen by most consumers and unappreciated by policymakers, that have lulled us into complacency or superficial thinking that our energy marketplace can be rearranged through government diktat.

We have forgotten the lessons of the 1970s, where many aspects of the “energy crisis” of that time was the result of outmoded or ill-considered state and federal regulation of the energy marketplace. Th e de-regulation of energy from the 1970s, starting with oil, gas, pipelines, and railroads to enable more interstate transport and competition, and going through electricity de-regulation in the 1990s, played a large role in the economic growth of the nation during the last generation.

The following sections of this report will explore some of the details of energy production and use in Texas, a state that is unique among the states in both respects. It is hard to overstate the centrality of the place of energy in the Texas economy and therefore impossible to exaggerate the importance of policymakers proceeding with considerate wisdom in making new decisions affecting the sector…

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Energy Production in Texas

Texas is the leading energy producing state in the nation. This has a major macroeconomic benefit to Texas that nonenergy producing states do not have. The primary benefit is that energy-producing states are less likely to suffer economic damage from energy price shocks. The logic is relatively straightforward for this dynamic: when world prices for oil go up, revenues for energy producing states go up with it. And to the extent that residents of energy producing states hold energy stocks, their investment and retirement portfolios improve. Mark Wiedenmier of Claremont McKenna College and the National Bureau of Economic Research explored the relationship between consumption and gross state product for all 50 states from 1963 to 2007, and concluded:

The results show that an increase in oil prices reduces economic activity in non-energy states, but not in states where energy production constitutes more than 5 percent of gross state product. Oil shocks increase unemployment and reduce the number of jobs in nonenergy-producing states, but they do not have a signifycant impact on unemployment or employment in energy-producing states. In some cases, an increase in oil prices actually reduces unemployment and creates jobs in states with a signifi cant energy sector. Overall, the analysis shows that increasing domestic fossil-fuel production could potentially reduce unemployment, create jobs, and help jump-start the U.S. economy out of the Great Recession…

Oil and gas extraction in Texas account for 52 percent of the nation’s total GDP in that sector. Oil and gas extraction account for 8.2 percent of Texas’ total economic output, compared to 1.3 percent for the nation as a whole, and 0.7 percent in California. As shown in Figure 1, natural gas—not oil—accounts for the largest share of energy resources produced in Texas: 68 percent on a BTU basis. Much of this gas production is for export to other states, however.

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Conclusions

Energy is an enormously complicated subject susceptible to multiple levels of analysis, and even more levels of confusion and misrepresentation. Some key points that emerge from the preceding analysis bear reiterating:

- The affordability of energy is a key component in the economic competitiveness of Texas. States that have attempted to intervene in energy markets are saddled with the nation’s highest energy prices, and fi nd key industries (i.e., aviation and auto manufacturing in California) are no longer competitive.

- Energy markets are volatile; price swings from national and global changes in supply and demand for different energy sources can have signifi cant effects on the economy. Policies that constrict the energy market—or tilt it to favored energy sources—will reduce the resiliency of the energy sector and risk higher prices for consumers and industry.

- Texas’ strong position as a fossil fuel energy producing state is an asset rather than a liability, as it is better shielded from price and supply shocks.

- The Texas energy sector faces several key uncertainties from both federal regulatory initiatives and potential state regulation. Uncertainty is the enemy of future planning for capital investment.

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It is remarkable that so many people have forgotten the lessons of the 1970s, where much of the disruptions, scarcities, and price volatility of the “energy crisis” was the result of obsolete or ill-considered federal and state regulation.

Leaders of both parties, on both the state and federal level, began de-regulating markets—first for oil and natural gas, later for transportation infrastructure such as pipelines and railroads, and finally with electricity—that enabled the U.S. to end that period of energy volatility. To paraphrase the old cliché, those who forget the lessons of policy history are doomed to repeat them.

- The best energy strategy is to enhance energy resilience through a diversified energy portfolio that emphasizes abundance, affordability, and reliability.

- The best policy for achieving energy resilience is an open, adaptable marketplace for competing energy supplies and technologies, rather than mandates and patchwork subsidies that introduce artificial distortions and constraints in energy markets. The goal of policy should be to make the entire “energy pie” bigger, not to try to force favored parts of the energy pie to grow or shrink. Existing mandates (such as “renewable portfolio standard”) should be reviewed for possible elimination.

- To adapt another popular slogan, the best advice for Texas policymakers can fit on a bumper sticker: “Don’t Mess with Texas Energy.” Texas should not do to the energy sector what it would not do to any other sector of its economy. Tilting the marketplace almost always leads to bad outcomes; in the energy sector, adopting policies favoring some sources over others will reduce the reliability and resilience of the energy market.