Sunday, January 26, 2014

Tech Talk - Coal begins to fight back

As the President moves further into his second term, he appears to be growing more willing to tackle the concerns that his supporters have over projected Climate Change over the next century. Given the makeup of the Congress it is likely that this will be through additional regulation and Executive orders. There have been a number of reports that have documented the projected costs of climate change. Some of these have been relatively modest in statement. The Copenhagen Consensus Center, for example, noted:
Climate change is real and man-made. It will come as a big surprise that climate change from 1900 to 2025 has mostly been a net benefit, rising to increase welfare about 1.5% of GDP per year. Why? Because global warming has mixed effects and for moderate warming, the benefits prevail. The increased level of CO₂ has boosted agriculture because it works as a fertilizer and makes up the biggest positive impact at 0.8% of GDP. Likewise, moderate warming avoids more cold deaths than it incurs extra heat deaths. It also reduces the demand for heating more than increases the costs of cooling, totaling about 0.4%. On the other hand, warming increases water stress at about 0.2% and negatively impact ecosystems like wetlands at about 0.1%. Storm impacts are very small, as the total storm damages (including naturally caused storms) are about 0.2%.

As temperatures rise, the costs will rise and the benefits decline, leading to a dramatic reduction in net benefits. After year 2070, global warming will become a net cost to the world, justifying cost-effective climate action.
This, of course,led The Guardian to stress the post-2070 part of the comment. On the other hand there are the projections of the latest IPCC report (available here) that suggest that costs are already present in the global economy and that they see impacts ranging from a possible fall of 2% in global economic growth, as well as impacts on health and agriculture.

The projections, of which there are many, have focused on the need to cut greenhouse gas emissions and have moved governments around the world to take steps to reduce gas emissions, without a lot of comment from the industries most effected by the proposed regulatory changes. It appears that this relatively low key approach is going to change as a new report prepared for the American Coalition for Clean Coal Electricity (ACCCE) provides some strong factual discussion points that argue rather for the benefits of carbon use, and contrast these with the costs.

It has become politically popular in recent years to increasingly demonize the fossil fuel industries, and particularly the coal industry. And I have suggested, in the past, that this was an over-reaction. However it is of value to rational discussion of the issue to recognize the points that Management Information Services have put forward in this report.

Much is made of the increased fuel use that continues to power the Industrial Revolution as it continues to spread into under-developed countries and brings their standards of living up to those enjoyed by many in North America, Europe and the more well developed countries. The transition to the better standards of life is considered to need an energy consumption, per capita, of 4,000 kWh per year.

Figure 1. The UN Human Development Index and per Capita Electricity Use (America's Power )

When one considers the relative benefits of the use of power it sometimes help to recognize the mind-set of those making the comparison. The view of someone just gaining access to electric power, and who built a windmill to provide that power, reflects a greater recognition of the benefits of electricity than sometimes seems to be currently politically correct.

The benefits brought by the available power that is now in individual hands as a result of the Industrial Revolution are manifest in virtually every aspect of our daily lives. To maintain and spread that wealth of benefits through the expanded use of electricity to an increasing global user market the IEA projects that there will be an increase in virtually all power sources for electricity over the next twenty-five years.

Figure 2. Projected Electric Power Generation by Energy Source (America's Power )

However one of the impacts of increasing regulation, and the drive to switch to alternate, renewable power sources in Europe has already been an increase in the cost of that power. This is already leading the European Union to review their policies since increasing power costs lower the competitive position of European industries relative to those of countries (such as the USA) with lower power costs.

Within the United States the report concludes that there is a negative correlation between electricity prices and the economy with a suggestion that a 10% increase in electricity prices will cause a 1 % drop in GSP. (This is an awkward argument to make given that the economies of places such as Massachusetts are significantly better with an energy cost of over $0.14/kWh that those of West Virginia where the cost is about $0.08 per kWh – though the argument is about relative change).

But the increases in power costs do not just impact the competitive advantage of industry. As prices rise, so the poorer segment of the community find it harder to meet all their living needs. There is a graph that shows their choices:

Source: National Energy Assistance Directors’ Association. Figure 3. Potential Health Impacts of Increased Energy Costs on Low Income Persons (America's Power )

It is the broad use of coal that keeps the prices of power in many countries low, and the ability of many to utilize a domestic resource allows developing countries the opportunity to climb the ladder faster than the rates that they would be able to achieve without this resource. It should be remembered that over the course of the changes brought by industrialization since 1750 (as the report notes):
From 1750 to 2009, global life expectancy more than doubled, from 26 years to 69 years; global population increased 8-fold, from 760 million to 6.8 billion; and incomes increased 11-fold, from $640 to $7,300. . . . . . . in the U.S. from 1900 to 2009 population quadrupled, U.S. life expectancy increased from 47 years to 78 years, and incomes (denoted “affluence”) grew 7.5-fold while carbon dioxide emissions increased 8.5-fold.
The reality of the next decades is that coal and the other fossil fuels will, over the next twenty-five years, remain the basis for electricity generation for a significant portion of the global economy. This is likely to be particularly true for those nations that will grow the most in population and GDP over that interval.

By discounting the benefits that these improvements in life will bring to those countries, and focusing more on the hypothetical costs of anticipated problems the Administration has made a case for changing the energy mix. It is interesting to see that the industry that it likely to be most changed by their policies is now beginning to publically and with facts, shown willing to rebut some of those arguments.

1 comment:

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