Secretary Chu in Newsweek

My dependence on good internet service has been underlined by a week where it has not been available. Unfortunately the motel we were staying at in Maine had a problem with its server, and we returned home to find a problem with our own internet connection. Thus a couple of the posts that I was completing will be a little delayed, until I have that indispensable tool, a good connection. This has been prepared largely without, and similarly posted with access just to find a couple of references.

And in that meantime I have been perusing this week’s NEWSWEEK, on my Kindle, and noted that the Secretary of Energy had a new interview. The first thing that he said in it was in response to a request to define President Obama’s energy policy. Here is what he said:

We look at all the factors and we say, how can we get to the lowest possible level of carbon as quickly as possible and not only at the lowest cost but with the greatest possible economic opportunity for the U.S.?

That’s it!

The rest of the interview was not that much more constructive (one of the benefits of the Kindle is that it counts words, in this case the article – including questions – ran to 782 words - the attempted length of this piece). There was no mention of peak oil, or energy security or prices in the article. In response to the criticism that the Stimulus package did not make enough investment in energy, the Secretary said that they would fund projects for up to three years maximum, and encouraged innovators to “swing for the fences.” Whatever that means (in context)! I will admit to having helped put a couple or more proposals into the DOE hopper, though most came back rather quickly and negatively (one was successful). What struck me about the process, and the attitude redolent in the Secretary’s remarks was the focus on short term benefits and application. Most of the work is also oriented to larger group efforts, with a lot less focus on the smaller innovator to stimulate new ideas. If you can’t claim a home run within the remaining life of this Administration, don’t bother applying.

He appears to hope for a start to a Smarter Electric Grid, to double renewable energy contributions by 2012, and to get the nuclear power plant construction industry restarted in this term. But he also recognizes that carbon capture and sequestration is at least 10-years away from deployment. His “blue sky” hopes are for cheap (below $2) per watt photo-voltaic systems, (current costs he quoted as being over $4) and he still looks to the generation of fuels such as gasoline directly from biomass. This is not the ethanol production that the industry and government are still heavily involved in, but rather focuses back on the work he was supporting while at LBNL looking at using natural fauna to do the digestion and fuel generation.

But he returned to the need to put a price on carbon, and for a cap-and-trade bill to make sure that the point on where his focus was, would not be missed.

Sigh! He sounds as though the “scientist in a tower” description still fits him like a glove. There are considerable issues in regard to the changing energy supply of the planet that should be giving him pause in his charge against carbon. Increasing numbers of people are pointing to a coming crisis in oil supply. The British government, at the urging of folk such as the head of Virgin Airways, has decided that perhaps it is about time that it took its head out of the sand, and took a hard look at the situation. Of course it is also taking a look at the reality of climate change predictions, though with the coming of a general election, it is not clear whether either effort will amount to much.

I am increasingly struck by the perception that many of the folk that write about both climate change and energy supply do so with a very complacent attitude toward the continuing situation. The potential impact from a major impact on climate from a severe eruption of the Laki suite of volcanoes in Iceland seems to be being totally ignored. (A quick skim through some of the scientific papers suggests that the major eruption follows within a couple of years of the current eruption of the smaller volcano). The problem is that should there be a problem, running around in a panic for a couple of days is going to do nothing constructive in stopping folk from being killed.

Well we will have to see, in the relatively short term, whether that complacency is warranted. Being a Cassandra is unlikely to get more recognition this time around.

The risks of "cap and trade"

When discussions arise about Climate Change, and the possibility that carbon dioxide and the other greenhouse gases are responsible for the rise in global temperatures, one prevailing argument is that “we cannot afford to take the risk of the AGW argument being right, without doing something.” However, in that discussion, there is rarely any mention of possible negative consequences to mitigating against increased levels of carbon dioxide in the atmosphere. The only positions mentioned are frequently the projections of dramatic rises in sea levels, the promise of worse storms, droughts and climate conditions and other projected severe costs of inaction. The costs of the actions themselves are not addressed, and the implications are that the world will be a better place if some of the current trends in Climate Change are, if nothing further, stopped from progressing further.

But there are costs to the required changes in lifestyle that a reduction in carbon dioxide production will require, and those potential impacts are rarely spelled out to the public, or to the politicians who must enact the legislation to put new laws in place. However politicians, particularly in those districts that are likely to be impacted by the changes in regulations, are already showing some sensitivity to the potential negative aspects of “cap and trade” and so it might be worth exploring the topic in a little more depth.

The Energy Summit in Columbia last week allowed some of the utility companies to spell out the levels of cost that will be incurred if cap and trade legislation is enacted, based on a projected cost for the allowance to generate a ton of carbon dioxide. But they largely built their discussion around the price of that portion of the electricity that they will still be allowed to generate. A cap and trade system, however, comes in two parts. The first part is to look at the overall production of carbon dioxide, say 6 billion tons/year, where the program cuts this back by, say 500 million tons a year. (This is the reduction in the capacity to produce or the “cap.”) For the sake of the following discussion I will assume that 1 ton of coal produces very roughly 3 tons of carbon dioxide to make the arithmetic easier.

The first argument of those who look at this problem of a reduced supply is to suggest that the gap can be met by improving efficiency of electrical use, and conservation. However the implementation of a cap and trade policy is not predicated on that efficiency change happening, but it will occur as a separate event. And Jevons Paradox will tell you that “improving energy efficiency increases energy consumption.” So that the savings in power required are unlikely to be realized.

Which means that if the utilities are restricted in the amount of power that they can generate with carbon-producing strategies, then they must have alternate supplies in place. Theoretically that may well be the case. The number of states that are including a “sustainable source” quotient in their mandated supplies is steadily growing. However, as Montana, for example, is discovering there may be a difference between the targets and the practical realities. As credit has become tight, available funds for new farms are becoming harder to raise, and without a perceived increase in demand, it is harder to justify a new investment in plant when the old coal plant is still producing at a relatively low cost. And without the lead time being used to produce the new energy sources that will be needed, when the time comes to flip that switch, it may not yet be connected.

The problem actually is a little worse that this. Because most of the coal-fired power plants are quite old, and while maintained to continue to produce power, they are less efficient and more polluting that the more modern plants that are planned to replace them. But with the anticipated change in regulation now that EPA has ruled on carbon dioxide , almost all the originally about 200 planned new coal-fired power plants are holding back on commitments and roughly half have cancelled or indefinitely postponed their planned construction. Thus the increased supply of power from new plants may not appear.

There are two additional thoughts to consider. The first is the proposed restriction on emissions from these new plants:

The (Waxman – Markey) proposal unabashedly bans new coal-fired electric plants. In 2009 new coal-fueled electric plants are limited to 1100 pounds of carbon dioxide per megawatt-hour (MWh) and 800 pounds after 2020. Present fossil-fuel electric plants emit the following pounds of CO2 per MWh: 2100 for coal, 1900 for oil, and 1300 for natural gas. . . . The bill that includes "security" in its title limits our plentiful secure coal supply to discharges of about one-half that allowed for oil and natural gas.

The second is that some parts of the country do not have the ability to tap into the wind and solar resources that are currently being suggested as the solution to the problem.

Productive wind is only available in a limited number of states and their regions, and similarly solar power cannot be relied on in a North-Eastern Winter. One cannot legislate an alternative technology that does not yet exist to fill in the gaps between what will be allowed from the power plants of yesterday, and the demands that a rebounding economy may place upon them. Mandating that the older suppliers of power close, before the new plants to replace them are installed will have significant consequences to the available jobs that can be supported, if the factories and industrial base begin to lose the reliability of the power sources that they have today.

Even, however, if they find some way of meeting the target for the renewable portion of their portfolio, the utilities won’t be out of the wood. Because the purchase of the allocation for the carbon dioxide they do admit will also bring additional cost. As noted at the Energy Summit a price of $50 per ton of carbon allocation would likely double electric bills in Missouri. Burning a ton of coal, that now costs $50, would raise its price to $250. While if the price per allocation ton was raised to $200 per ton (which has been suggested as being necessary to support some alternate energy choices) this would raise the cost by a factor of five (i.e. a current electric bill of $200 would rise to $1,000 per month). In much the same way as Secretary Chu recognized at the EIA Conference that increases in the cost of oil contributed to the severity of the recession, one can equally imagine that a similar effect will be felt with an equivalent rise in the cost of electricity.

The current path forward, with a hesitation in construction of new power plants holds the risk that the United States will not have the power that it needs in the future to match industrial and domestic demands. In those cases it is often industry that is the first to see the cutbacks in supply when load shedding is needed. But the resulting drop in production, and international competitiveness, may well damage or destroy the recovering economy after this recession comes to an end. That too is a risk that should be protected against.

Energy Summit - the second morning

The second day of the Summit began early, but still had all four University Chancellors and the University President in the room at 7:30 am although it took a fair while longer for the body of the room to start to fill. In his welcoming remarks the Chancellor of the University of Missouri-Columbia noted that by changing to burning tires, switchgrass and an assortment of waste, the campus had cut its coal consumption by 5% this past year.

The first speaker of the day was Robert Dixon of the Climate Change and Chemicals of the Institute for Environmental Security. He was a member of the IPCC, and has been Head of the Energy Technology Policy Division of the IEA. (A glitch meant we did not see his opening slides). He began with the point that the world has areas of extreme energy poverty and that we need to change the way in which we do business. Indonesia will soon pass the United States in the amount of GHG that it emits, yet all our economies are built around the use of petroleum, and this is not a sustainable base.

Having been part of the IPCC and the IEA he commented on the difficulty in explaining positions to world leaders when you only get ten minutes of their time. At the moment we are not on a path to a sustainable future, and that message cannot be conveyed in that small an amount of time.

The world needs not only new technologies, but also a new system that should include energy efficiency, since that is the gift that keeps on giving. Yet, if we are to reduce GHG we need some 24 – 32 new nuclear plants a year, and the world is only installing 1 or 2. To force the change he feels that we should have cap and trade with a $50/ton cost for allocations, but if the world is to get down to the carbon dioxide levels required, then the cost should rise first to $200/ton and then to $500/ton. (On an editorial note, based on Missouri consumption, where a $50/ton carbon cost doubles our electricity price, this is calling for pricing that will take it up, first by a factor of 4 and then 10 – so that electricity will approach $1.00 per kilowatt hour, and if your bill is now $200 it will become $2,000 a month).

Replacing coal will require ALL technologies be advanced forward, and they should be funded, but there are many pathways being proposed and these must be co-ordinated to give a viable roadmap for the future. They will provide many opportunities for investment, but given that the current system has had its investment cost covered there is a challenge to find the funding for replacements. Public sector R&D is down, and so politicians must work to reverse this trend if we are to find the answers that we need. An energy revolution is urgently needed, but there are barriers of funding and timeliness so we must take action to induce change.


Mark Templeton has recently been installed as the new Missouri Energy Czar (coming from heading up Yale Law School). He began by listing some pluses including the first city (Rock Port) that is powered entirely by wind. Yet at the moment Missouri ranks 45th in Energy Efficiency and so there is a need to communicate to the public, giving them ways that they can save. If we could just save 15% of our electric use, and 10% of our natural gas use, this would, over time, add up to $2.8 billion in savings.

Yet we cannot only address the problems of the past (by weatherization etc) but we also have to find new future answers. Missouri is 49th in use of renewables, and 18th in use of wind power. (Ed note: Possibly because we don’t have enough of the higher speed winds we need?) In summer we get as much sun as Florida, and while biomass is not that far along, it is an indigenous resource. If Washington is going to push us, then we might as well move ourselves.

He noted that fuel prices are going back up and we are now at a time where OPEC cuts in supply are controlling cost. Missouri is seeing record unemployment, we need to find and develop the next generation of green jobs. To this end they are working with the Office of Economic Development.

The University President. Gary Forsee, then introduced the Governor of the State, Jay Nixon. The Governor picked up on the theme carried by Mark Templeton, tying Education and the Economy together, and stressing that we need a trained workforce, in the right areas, to move us out of the recession. We need to change our economy but must recognize that the energy demand per capita will not go away, though improved efficiency and conservation are going to be vital parts of the future economy.

He cited the new wind farm, and work on batteries to store excess wind energy, as current indicators of progress, but justified his continued investment in education and retraining . He noted that while normal drivers brake around a curve, NASCAR drivers accelerate so that they can take advantage of the coming straight stretch. He views Missouri’s economy in the same way.

He drew attention to his program to fund young interns to work in future areas of renewable energy with the comment, in passing, that giving kids money was sure to stimulate the economy, since they were certain to spend it. We must both walk and talk the talk, and so, at the podium, he signed an Executive Order lowering the energy use in state buildings.

The Governor was followed by Richard Sayre of the Danforth Center who spoke of the benefits of algae, and some of the paths that are being taken, including using algal species that weep oil and can be milked (using alkanes) and then put back out to pasture, rather than internally producing it and having to be destroyed to recover the oil. He again commented that ice caps could be gone in the summer before long (no I’m not going to put the reality graph up again).

Energy from biomass has the potential to create more “green” jobs than other renewables, and he noted that the United States already produces more ethanol than Brazil. But the parts of the country that have highest solar intensity to help plant growth also have poor soils and a lack of water. He showed a map for the country locating the 30-inch rainfall line as running down almost through Columbia, and questioned, based on it, which biofuels we should focus on. Since oil crops have more energy than starch, biodiesel producers are more logical. At present oil costs from algae are divided with slightly more than half in production, and slightly under half for harvesting. With a pond only containing 0.1% useful product there is obviously a need to reduce the latter costs. Interestingly he noted that, growing algae in Missouri, it is not the cold of the winter that is the problem, but rather the warmth of the summer. He then went on to make a number of the arguments that I have made when I talk of the advantages of growing algae underground (light spectra control, use of the full amount and at levels that algae will grow at optimally). By adding sugars to the water, they have found a dramatic increase in the oil production rate, and by changing the algae to use lower light levels they have doubled the production rates from deep ponds. With the additional change to “weeping” algae they have had a 3-fold increase in biomass production and a 40% increase in the oil production rate.

Rob Duncan the Vice Chancellor for Research at UMC, was on 60 Minutes (video report ) last week talking about cold fusion. He gave an expanded talk on the subject, noting that he had gone from being a cynic to a believer.

After reviewing the history he went on to share some of the photos and experiences from his visit to the Israeli lab doing the work. And in the process of explanation he may have made a number of other converts. When there has been talk before of energy output being greater than input in the experiments, I always got the impression that it was not that much. But he talked of vessels boiling over, and getting a MegaJoule of energy, where there should have been a hundred joules. But more convincing to me was the surface of the palladium rod, which, after the experiment had small “volcanic” pits with molten ejecta.

He could not yet explain it, but he noted that at this stage it does look real. However there is a huge gap between discovery and useful engineering application and so the topic must be approached with less hype and more focus on a scientific method for determining evolution of the technology.

Dr Duncan was the last of the Invited Speakers, and the Summit then broke into two consecutive parts. In the first there were four sets of concurrent papers by Missouri research groups talking about their work, and this was followed by two sets of two panels where there was discussion on Clean Coal, Transportation and Biofuels; Nuclear energy; and Infrastructure. Since this post is getting a bit long, I will summarize these in the next post.

Earlier posts in this series covered the program; the keynote address by T. Boone Pickens; and the first invited speakers; and the end of the first day.

Energy Summit - the second part (until 3 pm)

This is the second post on the contents of the Energy Summit held at the University of Missouri this week. The first post covered the keynote address by T. Boone Pickens, and that can now be seen, together with Chancellor Carney’s opening remarks, and those of Senators Bond and McCaskill as a video. (Warning it is a 1 hr 30 min video and some 219 MB). Mr. Pickens remarks were also picked up by the local Missourian. (The school of journalism was also holding briefings and interviews that ran concurrent with the summit). After the keynote, the Summit got underway with a brief review, by the chief research officers of the four campuses of the University of Missouri system, of the energy related research that each was carrying out. This was a fairly top level skim through a project range that covered fuel cells, hydrogen, a new way of storing gas on carbon bricks, and studies on a wide range of pathways to generate transportation fuels, and also prefaced a number of the papers, poster presentations and displays, the latter two of which were going on outside the main auditorium.

The first invited Speakers then came to the podium with Dale Klein, Chairman of the U.S. Nuclear Regulatory Commission leading off the presentations.

Mr Kein noted that his agency is a regulator, not an advocate, and that he is currently looking at 17 applications for 26 new nuclear plants, with another 3 applications for 5 plants being anticipated. (However this is likely to include the AmerenUE application for a second plant at their Fulton site. The company indefinitely suspended that request this morning, just after getting word that a bill that would allow it to charge for construction before it was finished was not going to happen).

Mr Klein walked us through the process of getting a permit, noting that it would take 30 months to review the application, 12 months to get public comment, and then it might take some 44 months to get the plant built. The current costs are in the range of $5 - $7 billion per plant, and they are licensed for 40 years initially, with a possible 20-year extension. (For comparison he noted that the USS Enterprise, the first nuclear powered aircraft carrier, was commissioned in 1960, and is coming to the end of its service life –within 3 – 5 years. He felt that the public needs more education on the benefits of nuclear power, and what not to be afraid of.

Coming next to the podium, Dr. Joan Woodard ( executive vice president at Sandia National Labs) mentioned her last visit to town, some 35 years ago as she drove out to Sandia to take up her first job there. She talked of nations climbing the energy ladder which takes nations from no power, through burning dung, and then to carbon fuels and to higher levels of consumption as society advances. However she noted that the US curve was flattening as is that of the European Union, and it is other nations, from Korea and Australia to China and India that are growing and seeing increased levels of energy demand as that growth continues. This is, in time, bound to strain the system, due to the demographics of a growing world population combined with growing standards of living, and thus individual energy demands.

She felt that Secretary Chu does a “wonderful job” in explaining the coming mandate that is Climate Change, and she noted the ever-shrinking condition of the Arctic ice cap. (Obviously she has not seen the latest ice data from the Arctic, which shows that the coverage is returning to the seasonal normal for the past 28 years, since she commented that the rate of shrinkage of the ice cap was accelerating, when, if you look at the plot, it obviously isn’t.) Nevertheless, in light of the mandate she felt that the energy enterprise must change to encompass not only the desire for economic prosperity (the ladder) and the regional environment, but also national security issues. In this she felt that while Global Trade can be good, it also creates tensions over such concerns as Russia, and now China buying up large quantities of the world reserves of a number of commodities. And in that regard we must consider that Chinese companies that are doing the purchasing are an extension of the state.

Droughts in Africa will drive migrations, leading to further conflict. Further the US is vulnerable to national disasters. Both of which threaten our security, although she then went on to mention more conventional threats. These include attacks by hackers into the control systems for our energy networks and the threats posed by global proliferation of nuclear knowledge. To protect against these threats we need a system that will, if it does fail, does so “gracefully” but which has high reliability and resilience against attack.

Daniel Cole senior vice president of Ameren then talked about his early job as a “pirate” down at Branson, MO. Here as part of the “tourist” entertainment he would regularly be pelted with bags filled with rock, but simulating gold. That job was excellent training for his current one with the utility. The company has 2.4 million electric customers, and a million natural gas customers. They produce some 16,600 MW which is nominally 61% coal, 30% natural gas fired. However because coal provides baseload and natural gas is for peaking demand supply, it turns out that 85% of actual production is coal-fired. It is also cheaper. But in the process last year, for example, it produced 70 million tons of carbon dioxide.

The nation produced some 6 billion tons. Now if the system goes to a cap and trade system and one might project growth to 6.2 billion tons generated in a couple of years, the cap might instead mandate total production is held to 5.5 billion tons. This amount would then be parceled out as a series of allocations. Each allocation would either be designated to a company at a price or subject to auction. The company could also offset some of its production with some alternate activity (such as paying for no-till farming for example).

They priced the cost that the company would face after the Lieberman Warner bill was proposed. It set a price of $50/allowance (1 ton of carbon) in 2015, rising to $100 by 2030. With the production of the company being 70 million tons, this will give an additional bill of $3.5 billion in 2015. This will mean, according to Mr Cole, the rapid disappearance of existing coal plants, but Missouri currently has the lowest electricity rates in the nation, and such a burden on their carbon production would have to be passed on as a very rapid increase in power costs per kWh to the customer to more than double that of today. The results when the requirements of the Waxman Markey bill were evaluated were even more severe.

Ameren is part of the Electric Power Research Institute (EPRI) which has examined different technologies (pdf) to see if, in fact, these targets are attainable, anticipating increases in efficiency of use, and a 0.1 to 0.7% growth in demand.

Their conclusion was that renewable sources will only act to stabilize carbon dioxide levels, and that while increased use of nuclear power can initiate a drop in levels, it will be a switch to advanced coal generation that will be required to make significant reductions. But to have a real impact the focus must look at coal, focus on adoption of new technology, and be international in application. But the answers will come as silver buckshot not as a silver bullet.

This is the third post on the Energy Summit
The second post covered the Keynote, and the first described the program.

The final speeches of the first day will be covered next.

P60. Pick Points

There seems to be a fair bit of chat in the blogs at the moment about the fate of the “cap and trade” legislation that has appeared in the House. It has drawn an editorial comment from the Houston Chronicle, and a column at U.S. News It is beginning to be viewed as only a first step, without likely passage this year. Kevin Drum feels that it is too weak to start with, open to abuse, and unlikely to get any stronger as it progresses through the process. On the other hand Grist is disappointed that it doesn’t deal with agricultural waste, the literal BS, which is specifically exempted. The intent is to have something to take to the Climate Change Meeting in Copenhagen in December, and the Huffington Post thinks it is better as a job creator than in dealing with climate change. At Climate Progress the feeling is that there aren’t enough votes to get it through the Senate. And Democrats from coal states are leary.

Despite the warm words for renewable energy, and the comforting thoughts of the legislature, in the real world companies out there trying to build market share are finding it tough going. Biofuel Energy is one of the latest that has to face this reality after losing $84 million in 2008, and without the needed margins between the prices of corn and ethanol, it is facing bankruptcy. The company produces some 230 million gal/year of ethanol. (15,000 bd). Renew Energy, another ethanol producer, went bankrupt in February. A calculation on relative profit has recently suggested that planting corn would yield $89 per acre, while soybeans would yield $108 per acre. Demand for corn is anticipated to exceed that which can be grown on 80 million acres this year, but the relative costs argue against planting corn after corn (as opposed to soybeans) and thus it is anticipated that less than 80 million acres will be planted. (Which will turn some of the economics around, but not favorably if you are trying to make ethanol).

Oops! The smooth relationship between Turkmenistan and Russia (er, Gazprom) seems to have just sprung a bump.

Ashgabat has expressed interest in participating in the US-supported trans-Caspian pipeline (TCP) project, which would become part of an export route to Europe that evades Russian control. But so far, Turkmen officials have made no firm commitments to the TCP route. The East-West spur is estimated to cost about $1.5 billion to build. The April 3 statement took repeated swipes at Russia, but gave no indication that Turkmen leaders were ready to embrace the US-backed TCP route. In not so subtle terms, the statement accused Russia of trying to bully Turkmenistan on energy-related issues.

It is not Gazprom’s week, since Moody has just lowered their debt rating, and with the slump in demand for natural gas, the company is talking about reducing its investment program. On the other hand it sold $350 million worth of bonds on Friday, and is now selling gas directly to Ukrainian industrial customers. However it is still expected that Turkmenistan will ultimately sign that contract with Russia.

After several months of falling numbers, the number of rigs exploring for oil and natural gas went up by 4 (to 1,043) this week, though it still fell a couple for natural gas (808 for natural gas, 224 for oil). Four wells, including three horizontals have just been completed in Illinois in what is claimed to be an innovative new layout (among other things the horizontals intersect the vertical) but the main plays continue to be in the gas shales. Even though activity in the Barnett shale, for example, has been cut 40% over last year, it still affects some 70,000 jobs, according to a recent report. Development is still going forward with the Marcellus Shale. Normally there would be some increase in demand over the summer, since about 25% of electricity is now fueled by natural gas, but with stocks high and lots of gas currently available, this may not help stop the falling gas price.

With the glut in natural gas, this may not be the best of times to note that Sakhalin finally shipped the first LNG cargo, bound for Tokyo on April 1, and (marking the change from Shell management) they toasted in vodka, not wine. The LNG market is revising some opinions about Shtokman and Norway would like to be considered as a place to build the tankers.

The House Energy/Climate bill

The first major energy/climate legislation has begun to take shape, and it is worth looking to see what the House seems to think is the way forward. Of the elements in the new bill (pdf), the ‘‘American Clean Energy and Security Act of 2009.” Given that it is 648 pages long, it is difficult to condense into a short post, but the key points can be summarized. The bill sets a target for the amount of renewable energy that is integrated into the national mix.

Percentage of electricity required to come from renewable sources, by date.


Federal renewable energy credits would be established at $50 apiece (each being equivalent to 1 MWh of electricity generated from a renewable source) and applicable utilities would be those that generate 1 million MWh or more per year. So for every MWh a utility fell below that annual target percentage it would have to pay $50, or 200% of the cost of the credit the year before the payment is required (whichever is the lesser). The program is also targeted to encourage distributed generation facilities cost competitive with other forms of renewable energy generation. The credits are tradeable between utilities.

The bill will set up a registry for identifying and permitting carbon dioxide sequestration sites around the country. Regulations will also be written to protect against any re-release of the CO2 one injected to ensure it does not escape. (This includes specifically EOR using CO2 injection. ) Regulations governing CO2 injection wells are to be promulgated a year after the bill goes into effect. The use of pipelines to carry the CO2 to the sequestration site will be examined to find out what the barriers are to that use. The bill calls for identification of market risks, and what the Administration will have to do to reduce that market risk in the use of pipelines to move the C02.

The Carbon Storage Research Corporation is posited as an affiliate of the Electric Power Research Institute and it is suggested that this will collect assessments from the industry over the next ten years, at a level of:

Assessment for CCS Research
This will be used to fund demonstration projects, at commercial scale, of CCS technology, and it is estimated that this should generate about $1 billion a year for the research.

EPA is called upon to provide regulations for funding in CCS commercial deployment applicable to plants larger than 250 MW., those that are more than 50% fed by coal or petroleum coke, or any entity that emits more than 250,000 tons of CO2 equivalent a year. Interesting funding will not be provided to entities that generate transportation fuels that contain more than 10 kg of fossil-based carbon per million Btu’s.

Standards are set for new coal-fired power plants (EGU – Electricity Generating Units) where units which get more than 30% power from coal and petroleum coke are covered. These EGU’s are not permitted to emit more than 1,100 pounds of CO2 per MWh. (falling to 800 lb after 2020), providing there are at least 2.5 GW of plant operating, either in the US or the world, that are collectively capturing 5million tons of carbon dioxide in the US, or 10 million tons world-wide.
Credits will be authorized for transportation fuels and used in encouraging the transition to electric powered vehicles (with the electricity generated from a source other than on the vehicle). Provisions are provided to establish electricity refueling stations for plug-in hybrids, and possibly integrating them into Smart Grids.

SEED (State Energy and Environment Development) funds are defined and these will be the conduit for money in the designated areas to flow from Washington to the States, primarily for “primarily for clean energy, energy efficiency, or climate change purposes”.

Money will also be directed toward the use of Smart Grids (for electricity generation). The first question to be answered being as to whether the installation makes sense. One of the objectives is to reduce peak demand for any load-serving entity that produces more than 250 MW. It is anticipated that these reductions will be through improved energy efficiency of generation and use. The Energy Star program will be used.

Target goals are set for improving the efficiency of building energy use, with 305 reduction being a quoted number and 50% after 2015. Building code standard changes in things like roof materials are included. Incentive funding will be provided to the States to encourage their adoption of the changes. And there is money to train those who will implement these new codes. A retrofitting program for old buildings is also established. This can include paying up to $500 for an energy audit of the building. Depending on the results of that audit between $1,000 and $2,000 might be provided to implement recommendations that reduce energy consumption by 10 or 20%.

It is interesting that the program also contains incentives ($600) for measures to reduce water demand by 35%. $20 more can be added per additional percentage point gained to a maximum grant of $1,200. And there is $2,000 for installation of new renewable energy items. Commercial programs are also described, with basically larger incentives.

The bill then goes into issues that address global warming, including targets for greenhouse gas emission reductions over the years. These caps are defined. Reports are called for on such items as who is polluting with what, how the global temperature is changing, and how the sea level is rising.

It establishes a registry of those that generate more than 25,000 tons of CO2 a year (including those that do it through a vehicular fleet). Emission allowances are then defined as relating to each individual ton of CO2 generated in a year. An offset credit can be used to compensate for a compliance obligation at the rate of 1.25 credits per ton of CO2 or emission allowance. The offset credit program is then established, with the opportunities of trading the credits.

I could not find a recommended price for these credits.

OPEC decisions, Cap and Trade, and Scientific Conclusions

The real impact, as opposed to the immediate market response, of the decision of OPEC not to cut their current levels of production will not be seen for some time. The impact will lead to a slow but steady increase in price if it is married with a more rigid compliance, by the OPEC partners with target production cuts, particularly if Russia stands by its commitment to redirect oil from export to domestic production, though there is some question as to whether the Russian cut is completely voluntary. The question out of this remains, however, how well discipline will be retained, through the summer, by the OPEC partners. Now this is, to a degree, a guessing game, and one has to offset the annual increase in gasoline demand as driving picks up for the summer, with the declines that arise out of the shrinking economy to first decide whether there will be increased demand to consume any surplus in the existing supply volumes, thereby increasing prices, before one begins. This is where, at the moment, opinions differ. What will happen first, an increase in demand, or the impatience in the OPEC nations to individually make more money by increasing production, while the rest of the group practice restraint.

My take at the moment is that the ability to show restraint has had an effect. Prices are beginning to rise, and this effect of the cuts has to have an effect on the thinking of those trying to sneak out additional supplies. Further, if Russia does go along with their proposed export cuts, then this is going to further reduce supply, even as China is still providing incentives to increase demand. But these factors take time to realize. Shipping volumes of oil from point A takes time, and the impact of stopping the tankers takes time also, before it has an effect. How long? About a month before the hypothetical becomes the real in this case, I suspect. The market will react in the next few days, and their result is more ephemeral, but will not, in the longer term stop the slow increase in prices that we have now been seeing for a while. Whether that increase will stop at the end of the summer is a whole different question, and for that we’re going to have to see, among other things, what happens with Russian supplies.


The second thread I would like to weave is that of the move toward cap and trade legislation. The early assumption that this would be a simple deal already seem unrealistic, and the forces lining up on either side have become more numerous that in earlier times.

In the five years since Congress last voted on climate change, there's been a 300 percent increase in the number of climate lobbyists, according to the Center for Public Integrity. There are now more than 2,300 lobbyists from 770 companies and organizations -- more than four lobbyists for every member of Congress.

And those lobbyists collected at least $90 million last year from 770 companies and organizations, including the American Coalition for Clean Coal Electricity, a group of 48 firms that spent a total of $9.95 million exclusively on the issue.
The explosive growth in energy lobbying was reported last month by the Center for Public Integrity, which noted that just 45 percent of the interests now weighing in on the issue were energy companies and manufacturers, compared with 70 percent in 2003. Finance and investment firms, which had virtually no role in the debate in 2003, now have about as many lobbyists as alternative energy corporations, according to its report, "The Climate Change Lobby Explosion."

At one time the President had, apparently thought to use reconciliation procedures (which require only a Senate majority) to get the legislature through, but:

By threatening to use the budget reconciliation process (which requires fewer votes) to pass climate legislation, the administration has kicked a hornet’s nest. Yesterday, 28 senators led by Robert Byrd warned the President not to try such a “backdoor” approach to such sweeping regulatory change.

The second type of opposition is more substantive. It started after the budget was unveiled, which included $646 billion in federal revenues from a yet-to-be-written climate bill. The lion’s share of that money–$63 billion out of $78 billion in 2012—is set aside for tax breaks, not for energy research or anything else directly related to the environment or climate change. Some $15 billion per year is earmarked for clean-energy research, exactly matching President Obama’s campaign pledge.
As Mr. Leonard notes, that kind of rebate has many environmentalists upset—what’s the point of a cap-and-trade plan to change energy behavior if consumers don’t feel a reason to change?

The note is from Andrew Leonard at “How the World Works.”. I have written earlier about the need for cap and trade money to cover some of the tax cut needs. The only change since then is a growing sense that this is not going to happen this year. Senator Reid has said he will divide the process, and this way well further weaken the chances of getting there this year. And then next year gets back into an election year, so it may, again, prove more expensive to try and get that final part of the process through.

And the revenue from the system, and its viability are vulnerable to the recession, and fall in power demands. Consider the experience in New England:

The complex arrangement, called a "cap and trade" plan, works like this: Power plants obtain emission allowances from states for every ton of carbon dioxide they emit, with plants that emit larger amounts having to obtain more allowances than cleaner ones. As the cap is reduced, there are fewer available allowances, pushing the price up and thus encouraging the dirtiest power plants to instead invest in cleaner technologies. Over time, cleaner power plants will then out-compete dirtier ones.

But with emissions now about 17 percent below the cap, allowances are not in particular demand, so market forces are not kicking in. Emission allowances are not expected to get high enough anytime soon to spark investment in clean energy.

The experience has been similar in Europe. So without the surety of income, and the political cost of putting up the price of power, this may be a lot longer coming, and all those lobbyists will just have to work that bit harder to get there.

And the final thought relates to President Obama’s comment earlier this week on scientific integrity:

But let's be clear: promoting science isn't just about providing resources - it is also about protecting free and open inquiry. It is about letting scientists like those here today do their jobs, free from manipulation or coercion, and listening to what they tell us, even when it's inconvenient - especially when it's inconvenient. It is about ensuring that scientific data is never distorted or concealed to serve a political agenda - and that we make scientific decisions based on facts, not ideology. 

By doing this, we will ensure America's continued global leadership in scientific discoveries and technological breakthroughs. That is essential not only for our economic prosperity, but for the progress of all humanity.



That is why today, I am also signing a Presidential Memorandum directing the head of the White House Office of Science and Technology Policy to develop a strategy for restoring scientific integrity to government decision making.

And is this where I ask how well that is going to be applied to the debate on climate change ? David Shaywitz has an interesting column on this (I really do read other papers) on Saturday, and I agree with a fair bit of what he says. He points out that the initial announcement of a research result gets lots of press, but should it prove wrong the correction rarely gets much of a mention. He discusses the paper by John Ionnidis who found that the majority of research findings published are in error, and

In this framework, a research finding is less likely to be true when the studies conducted in a field are smaller; when effect sizes are smaller; when there is a greater number and lesser preselection of tested relationships; where there is greater flexibility in designs, definitions, outcomes, and analytical modes; when there is greater financial and other interest and prejudice; and when more teams are involved in a scientific field in chase of statistical significance.

Mainly this was written about medical research, but it has considerable application, I would expect, in other fields. And so consider Shaywitz’ opinion

University researchers are in a constant battle for recognition and the rewards associated with success: research space, speaking engagements, funding and autonomy. Consequently, while academic research is often described as "curiosity-driven," the reality is messier . . . . . . since academic success is determined almost exclusively by the number and prestige of research publications, the incentives to generate results are exceedingly powerful and can encourage investigators to see patterns that may not exist, to disregard contradictory observations that might be important, to overvalue data that might be preliminary or unreliable, and to embrace conclusions that deserve to be viewed with far greater skepticism.

I leave you therefore with the thought that I did offer some conclusions in this post, but on the other hand, it is hard to see my reward in the list provided (grin).

Why we really need Cap and Trade

In President Obama’s interview with the NYT he said “We have proposed a cap and trade system, which could create some additional costs, but the vast majority of that we want to give back in the form of tax breaks to the 95 percent of working families.” Now I would like to turn that around, and look at the situation from the other side.

Here we have an Administration coming into one of the worst financial messes of modern times. In order to get things moving again money has to be generated into the system, and the one available entity that can do this is government. And governments around the world are stepping up to the plate to lubricate the path to restore economic health. But one cannot spend money blithely and forever run up deficits, despite the opinion of our last Vice President. So, what to do? Where to find a source that can be tapped for money at the levels that are going to be needed to come close to the amounts that are going to be expended? Where can we look for companies that generate the billions of dollars that are needed, and where adding billions will not be seen as an excruciating tax?

Well the ones that got all the negative publicity last year were in the energy field – lots of money there (at least there was). But the problem is that if we raise the money as a tax, then there are all sorts of advocates that will come out of the woodwork talking about how regressive a gas tax is, how negatively it will influence the economy, etc. etc. But consider, if instead of selling it as a tax, let us adopt the arguments of the Global Warming crowd. Let us garb ourselves in the mantle of the need to collect and sequester carbon dioxide. We put that to industry, and say that all generators of carbon dioxide must pay a fee for the amount of carbon dioxide they generate, say, for the sake of discussion $50 a ton.

Now we don’t sell this as a tax. No it is an incentive for industry to change to non-polluting forms of energy generation. The fact that the solar and wind energy contributions to the current US Energy economy equate to about the energy output of a medium sized coal mine means that it will take years (according to the Hirsch Report at least a couple of decades) before industry can switch over, and renewable energy sources can produce the majority of the energy needs of the United States.

In the interim consider that one ton of coal produces 2.86 tons of carbon dioxide on average – it depends somewhat on the carbon content of the coal, a function of its rank, but we’ll work with the average for now. The United States had around 1,374 mines in 2007, which produced 1.14 billion tons of coal. Let us for the sake of simplicity assume that this all goes into generating power in the United States (as most of it does) and you can see that the coal generates some 3.26 billion tons of carbon dioxide. If the charge-out rate for the CO2 is $50 a ton, then this will generate some $163 billion in revenue per year.

Given that it will take say 20 years to move the industry into other fuels that gives a total income to the Federal Government of $3.26 trillion. Now that does go some considerable way towards repaying all the vast expenditures that are going to be incurred in the next couple of years in getting the economy back onto the right track. Particularly if you recognize that coal is not the only fuel that generates carbon dioxide when it burns, all the fossil fuels do. For example if the United States consumes 21 million barrels of oil a day, this is equivalent to some 1.045 billion tons of oil a year. However, because oil is refined into different products (roughly 44% gasoline; 21% distillate; 9% Kerosine and 5% residual fuel oil) one must calculate the CO2 generated for the different fractions and add. Turns out that doing that will take some 3.15 barrels of crude to make 1 metric ton of CO2. Or that our billion tons of crude will transform to 2.4 billion tons of CO2 per year. So. Over the same time frame, that is a revenue stream that totals some $2.4 trillion.

(Let’s give natural gas a pass, for the moment). Now we are looking at a serious answer to the expenditures that we are in the process of starting to make. In fact we have generated a revenue stream that covers half the national debt.

But think of the benefits to the government, outside of just the money. They are not generating a new tax, no it is an incentive to change to a new form of energy. It appears to punish the energy companies, who have been seen to be making “obscene profits.” And it is not immediately seen as being applied to individuals. Now of course the latter is not true. In the end, the companies, whether the coal company, the oil company, or the utility company that converts the fuel into energy, will pass on the cost. Coal that used to cost say $50 a ton, is now going to cost the utility almost four times that amount when the CO2 cost is factored in. And so electric bills will go up, dramatically. But it will be the power company imposing the increase, and the feds standing there promising regulation to make sure that no fees are improperly charged, and thereby looking (potentially) like heroes.

So does it matter whether climate change is real or not? We can’t get into that debate! The issue is settled! (It has to be otherwise we won’t be able to use this path to getting the money). And so the hymn book is passed out to the Administration spokesmen, and they will all sing dutifully from it. Just don’t expect them to be very credulous to dissenting voices. They can’t afford to listen.

It was ex-Vice President Gore who quoted Upton Sinclair "it is difficult to convince someone of something when his paycheck depends on his not understanding it." (for paycheck read success).
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P48. Pick Points

Half-a-dozen or so stories of interest:

There has been considerable debate about fossil fuel producers being given tax breaks to encourage production. Treasury Secretary Geithner has suggested that those days should be over, since the companies contribute to global warming. It is perhaps an indication of things to come.

"We don't believe it makes sense to significantly subsidize the production and use of sources of energy (like oil and gas) that are dramatically going to add to our climate change (problem). We don't think that's good economic policy and we think changing those incentives is good for the country," Geithner told the Senate Finance Committee at a hearing on the White House's proposed budget for the 2010 spending year.

I suspect the days of being able to separate the debates on peak oil and climate change may be coming to an end. And yet, at the same time he spoke of the need to reduce the national dependence on foreign oil. The proposed budget would also charge $4 per acre for leases in the Gulf that are nonproducing. But the core proposal is to raise money from the cap-and-trade system that could be used to help pay for the middle class tax cut. The apparent rate for carbon dioxide production that is being bruited about is $20 a ton.

German Chancellor Merkel has said that the Nabucco gas pipeline should not be subsidized by public money. She sees the problem as being one of getting enough gas to supply the pipe, rather than raising the cash, since she anticipates enough private investment.. Germany has long been suspicious of the pipeline. Former Chancellor Schroeder, who is on the Board of the Nordstream pipeline to bring Russian gas to Germany, (as well as the TNK-BP Board) was today in Yugra, visiting the Kamennoe field, where TNK-BP get 70% of their production (40 million tons in 2008 or roughly 800,000 bd). The ex-Chancellor noted that it was one of the most modern fields he had seen, despite the economic conditions they hope to hold production at current levels this year. Italy meanwhile is calling for a high-level meeting with Turkey and Azerbaijan to discuss getting gas from the Shah Deniz field. This is some of the gas that might end up in the Nabucco pipeline.

On a slightly worrisome note, there was an interview with Kate Watters of Crude Accountability about Turkmenistan’s oil production. Worrisome since it has been through ecological concerns that Eastern European governments have sought control of Western investments. And there are areas where concerns are now being raised

Unfortunately, we have seen serious problems with IFI-financed projects in the Caspian region to date. The Karachaganak Field in Kazakhstan is one example where a recent audit by the IFC's own compliance mechanism found it to be out of compliance with numerous air monitoring requirements. Numerous complaints have been filed against the EBRD and IFC for their investments in the Baku-Tbilisi-Ceyhan pipeline, and we have grave concerns about the environmental impacts of EBRD financing at the Bautino Port in Aktau, Kazakhstan, which services the Kashagan field. Among other concerns at Kashagan are threats to the habitat of the Caspian seal.

Completion operations are underway on a well to test multiple prospective intervals in theHaynesville shale. The first fracture stimulated a fourteen-foot interval with 78,000 pounds of proppant. This zone is currently testing at approximately 400 thousand cubic feet per day (kcfd). The Company plans to test this first stage for three to four additional weeks before testing additional intervals. (Note these are vertical wells in the Haynesville gas shale).

One of the big targets for the stimulus package is to improve the national electricity grid, and its ability to distribute power. There are some growing concerns that the investment alone might not be enough. One problem is a recent court ruling said that states could over-rule the Federal Energy Regulatory Commission regarding putting these lines in place. Another is that there are not yet enough standards established for the new grid components, although with encouragement these could be developed relatively quickly. Standards are needed, since there are a number of competing products, for example in the smart electricity meters that are used to optimize domestic electricity use, and legislation may end up favoring one over others.

The TVA is spending over $1 million a day in cleaning up the coal ash spill in Tennessee, with the ultimate bill being expected to be in the $500 - $800 million range.

The Department of Energy is already starting to post some of the steps they are taking to spending their portion of the stimulus package. The initial breakdown into ten overarching programs is first defined and then the subdivisions are broken down into the sub-divisions, each with their own web page. These ultimately lead to the Funding Opportunity Announcements, two of which came out today, as an example:

The first FOA offers $35 million for component research, development, and analysis. The funding will support 20 to 30 projects to develop advanced technologies that will address important aspects of creating, managing, and using engineered geothermal reservoirs. The second FOA offers $49 million to support 5-10 domestic EGS demonstration projects. DOE seeks projects in a variety of geologic formations that will quantitatively demonstrate and validate reservoir creation techniques that sustain sufficient fluid flow and heat extraction rates for 5-7 years and produce at least 5 megawatts of electricity.

More stories can be found at The Energy Bulletin and Drumbeat at The Oil Drum.

P47. Pick Points

Half-a-dozen or so stories of interest:

Up in Canada Suncor expects to produce around 300,000 bd of crude from its operations in Alberta. But all is not well in those operations. The rise and then fall in petroleum prices has had a significant impact on the oil sands industry.

Companies financing oil sands projects out of cash flow have been relatively unscathed, besides suffering substantially lower stock prices and having to delay projects due to lower revenue. Companies financing oil sands projects on credit are up for sale at bargain basement prices. The most likely buyers of those credit-short companies are supermajors and sovereign wealth funds.

The Canadian and Albertan governments have lost substantial tax revenue because of rapidly rising project costs eating into corporate profits. Relatively more upgrader projects being delayed or cancelled compared to mining and in-situ projects contributes to less value-added in Canada and a lower tax base for those governments.

The article goes on to discuss the significant costs of a cap and trade rule for the oil sands, and the potential serious consequences to the industry if it chooses to ignore that coming freight train. The report anticipates a cost of $80 a ton for carbon from operations on the scale of the oil sands.

In order to help the industry the Alberta Government is slashing royalty rates. The Alberta Government has also set aside $2 billion for work on carbon capture and storage for the oil sands and coal. There are however some doubts that the effort will result in any significant benefit. The current article in National Geographic has stimulated debate on the issue. But it has also brought a note that, if America does not want oil sand crude, (or makes it difficult to buy through CCS legislation) then China is ready to move in and take the oil instead. In Australia, meanwhile, a company has suspended its work on underground sequestration due to the plunging prices of permits (the problem that Europe also has).

While wandering around the various websites looking for comment on the demonstration at the Capitol Power Plant yesterday (which was a lot less dramatic that the organizers had intended I suspect, and a lot less well attended, I came on a couple of other folk that had been watching the video feed. One of them was OpenMarket who quoted a couple of interesting reports about some of the downside of moving from coal to other renewable fuels. The Reports were: M. Harvey Brenner, Ph.D., “Health Benefits of Low-Cost Energy: An Econometric Case Study,” AWMA Environmental Manager, November 2005, and Adam Z. Rose, Ph.D., and Dan Wei, “Economic Impacts of Coal Utilization and Displacement in the Continental U.S., 2015” (Penn State University, supported by a grant from CEED, July 2006). These looked at the conditions that would occur with different coal future production levels. The results were along the lines of

An econometric model was applied to a hypothetical regulatory case study, whereby U.S. coal was replaced by alternative higher-cost fuels such as natural gas for the purpose of electricity generation. The model was used to estimate the premature mortality associated with increased unemployment and reduced personal income. The adverse impacts on household income and unemployment due to the substitution of higher-cost energy sources were estimated to result in 195,000 additional premature deaths annually.

Somehow I doubt if we will hear much of those findings.

Pemex is sticking to its target of 756,000 bd from Cantarell this year, even though apparently their own figures are showing production is dropping at 7% pa. They are having some success with the Tsimin-1 exploratory well that came in with 4,400 bd of oil, while the Cali-1 well in the Burgos project is producing at 9 mcf/d.

Russia is signing energy deals with Spain that include renewable energy collaboration. This might bring the Spanish oil company Repsol into working on the Yamal fields. Given that investors have been lukewarm to the latest news of Gazprom profits this agreement, and the promise of some Shtokman gas for Spain supplied as LNG starting in 2014, may be helpful, since it may bring in Spanish investors.

And a quick note on the coal situation in Bangladesh. Apparently the Chinese company that has been working on the Barapukuria coal mine has told the authorities that if the mine does not start this week, they would pull out. The operation is tied up in compensation claims.

More stories can be found at The Energy Bulletin and Drumbeat at The Oil Drum.

Cap and Trade

The Administration has stated that it is looking favorably at the concept of “cap and trade” as a way of controlling the generation of carbon dioxide from power plants, and concurrently encouraging power generation from renewable and sustainable sources that do not generate these gases. So it is reasonable to ask what exactly “cap and trade” is, and what else we might know about it.

I started by going to the MIT study (pdf) on the subject that was published in 2007. Looking for a simple definition of the term I found:

The term “cap-and-trade” is used to describe a policy that identifies greenhouse-gas-emitting entities covered by the system, sets caps on their emissions and allows trading in the resulting emissions allowances. The “entities” are the points of responsibility for emissions and they may be defined at various levels in the economic system from the coal mine and refinery gate (upstream) to the firm or gasoline station (downstream). At these points the emissions accounting is carried out. Emissions allowances (actually entries in an electronic bookkeeping system) are distributed such that the total is equal to the national cap, and covered entities must surrender allowances equal to their emissions, or the emissions that result when the fuel they supply is burned. Market trading in these allowances establishes a price on emissions that in turn creates economic incentives for cost-effective abatement.1 It is common practice to distribute allowances to the entities that are the point of regulation, but this procedure is not a requirement of the system. Allowances could be distributed without charge to any persons, firms or other organizations in the economy, or they could be auctioned.

In other words the mine/power plant/car owner is first assessed to determine how much carbon (which is short for carbon dioxide) that source will emit. After individual entities have been assessed there is a national summation of the volumes that are emitted. Knowing that, and the individual sources, a source is given a maximum capacity (cap) or allowance that it can produce in a year. As it produces the carbon, the allowance must be given up. Once the allowance is used up then, presumably, the source must be shut down until the start of the new year. If the owner of the source wants to continue using it (you still need to get to work, for example) then he/she must purchase an unused allowance from someone else who wants to sell it. The initial assumption is that the seller will do this at a price that is established in the free market. This is the “trade” part of the term. Initial prices set in the abstract to the MIT report suggest a value of $30 to $50 a ton of CO2 as the price for this allowance.

DOE and NASA have combined to create the North American Carbon Program, and there is a map available that shows the relative levels of CO2 around the nation. It is rumored that there will be a ruling, fairly soon, from the EPA finding that CO2 is a danger to the public. This ruling will likely drive standards for allowable emissions of the gas, particularly from automobiles.

"EPA's going to look at Mass. Vs. EPA and will make an endangerment finding," Browner told Dow Jones Newswires in an interview. The Supreme Court ordered the EPA in the Mass. Vs. EPA case to determine if carbon dioxide endangered public health or welfare.

The ruling will bring with it the need for rules for sources that generate CO2, and the current date for these announcements has been suggested as April 2, the anniversary of the Mass judgement. Congress is hoping to have legislation approved by Memorial Day.

There is a web site that allows you to calculate, based on your car, and how many miles you drive, how much carbon you produce. I input the information on the Camry (15,421 miles since I bought it last January, using 455 gal of gas) and I get a carbon production of 8,893 lbs – or roughly 4.5 tons. If we assume a price per ton of $45, then the cost, if I were to buy the allocation would be $200. The car I replaced was a Buick Regal, and for the same amount of driving I would have generated 13,339 lbs of carbon (682 gal of gas). The price of the carbon would be $300. (Incidentally it also allows you to calculate the carbon cost of an airline ticket – so my flight to Washington is going to cost 645 lb of carbon). The Web site I was doing the calculation on is one that allows trading in carbon offsets. These are defined as

A carbon offset is a certificate representing the reduction of one metric ton (2,205 lbs) of carbon dioxide emissions, the principal cause of global warming. Although complex in practice, carbon offsets are fairly simple in theory. If you develop a project that reduces carbon dioxide emissions, every ton of emissions reduced results in the creation of one carbon offset. Project developers can then sell these offsets to finance their projects.

There are hundreds of different types of carbon reduction projects. For example, a wind farm generates clean energy, which reduces carbon emissions from coal-burning power plants. In order to finance its operations, a wind farm can sell these reductions in the form of carbon offsets.

In the above example with the trading of my car I generated around 2 tons of carbon that I no longer used. In theory I could sell that offset to someone who needed the credit.

(In practice it is unlikely to work that way, or at that level, but it illustrates, perhaps, the point, which would apply if I did something on a much larger scale). Using a car as an example is not bad, from the point of view that about a quarter of emissions come from them in the United States, but it is difficult, short of just putting a simple tax on gasoline or diesel, to monitor how much driving an individual does, and thereby to impose penalties for driving too much.

The initial approach will therefore begin with businesses that generate significant amounts of energy, or conversely, generate power without creating carbon, and which thus would have allocations to sell. It almost has to be a national program since, as the LA Times pointed out

All existing cap-and-trade programs have one thing in common: They regulate the source of the emissions. The power plant or refinery or factory churning out the carbon is responsible for controlling its own emissions and trading credits. That won’t work in California, because from 22% to 32% of our power is generated out of state, and California can’t regulate plants outside its borders. Moreover, those out-of-state plants tend to be much dirtier than local ones. So how does a statewide cap-and-trade program account for all that pollution?

Europe provides an example of a situation where cap and trade is already in existence. It has some current problems :

The price of a ton of carbon dioxide in the current phase of the trading system has fallen to record lows recently. And although there are few suggestions the price could collapse entirely, the recent drop still is a worrying reminder that a market-based system to reduce emissions can be subject to significant volatility.

The question of price, and who gets the “profit” is obviously one that governments must decide. It has been suggested that the White House hopes that the sale of credits might raise as much as $80 billion a year, starting in 2012.

In Europe last summer a carbon credit cost $40 a ton (31 EUR) it now costs $10 (8.2 EUR). This has a negative impact on the drive for change, as Julian Glover notes:

A year ago European governments allocated a limited number of carbon emission permits to their big polluters. Businesses that reduce pollution are allowed to sell spare permits to ones that need more. As demand outstrips this capped supply, and the price of permits rises, an incentive grows to invest in green energy. Why buy costly permits to keep a coal plant running when you can put the cash into clean power instead?

All this only works as the carbon price lifts. As with 1924 Château Lafite or Damian Hirst's diamond skulls, scarcity and speculation create the value. If permits are cheap, and everyone has lots, the green incentive crashes into reverse. As recession slashes output, companies pile up permits they don't need and sell them on. The price falls, and anyone who wants to pollute can afford to do so. The result is a system that does nothing at all for climate change but a lot for the bottom lines of mega-polluters such as the steelmaker Corus: industrial assistance in camouflage.

"I don't know why industrials would miss this opportunity," said one trader last week. "They are using it to compensate for the tightening of credit and the slowdown, to pay for redundancies."

In Europe he considers that the cost of the credits would need to be in the $40 - $60 range to allow renewables to compete with fossil fuel.

It will be interesting to see how the rules over here develop.

P34. Pick Points

Half-a-dozen or so stories of interest.

Beginning by perusing the snippets that dribble into the Houston Chronicle blog from CERAweek, Representative Markey admitted there would be some role for coal in the future; while IHS looked to see the recession last through this year, bottom out next and rebound in 2011, in the process demand for oil will fall another 1 mbd this year. In the same session company assets were foreseen as dropping further below real value, according to an IHS analyst; and the imbalance between operating costs and commodity prices would continue to feed increasing supply volatility. The BP Chairman felt that with enough investment (a trillion dollars a year) enough energy will be found to meet global demand. If we can overcome the human problems, the geological problems will be insignificant. He called for a confident relationship between government and companies, since without it investment would not be forthcoming; an open energy market; a heavy investment in conservation and energy efficiency; a program to address global warming, through increasing the price paid for carbon fuels (cap and trade); opening up the reserve areas now off limits including the continental shelf; incentives to encourage CCS and low carbon technology; and more investment in energy research – he bragged about the model program he set up with Dr Chu. In questions he said that the industry must get costs in line so that $40 becomes a good price again; that corn ethanol is not an answer (but cane ethanol is); and before we decide on electric cars we have to decide where the power is coming from.

The Schlumberger Chair reminded the audience that before the economic collapse we were having a hard time meeting supply, and his job is to keep a viable company until those times come back, and that includes keeping R&D going. The Director General of Pemex, said that they plan on producing 2.9 mbd this year, but needs more money for investment in new resources and a refinery. The Vice Chairman of CNPC said that China had a remarkable year and were concentrating on technology, including EOR for mature fields. In questions they saw a role for gas from shale, and a need for a better image for the industry .

The lunch speaker was the Shell CEO and he also pointed out that as the recession ends so the demand for oil will return, and fast. This will require use of all resources and will raise carbon dioxide levels. But it also will require investment, even through these hard times. They are now living on past investments, but fears that in 3-4 years the cost of insufficient investment will be hurting production. They plan on continued investment in R&D, he bragged about the unmanned offshore monotowers that produce gas. He also supported cap and trade, and many of the items listed by the BP head. In questions he said that Europe, having higher taxes was equivalent to a carbon tax, and had led to more efficient cars. In other talks, they admitted Texas was in recession with the country economy expected to continue to contract all year. And then Exxon spoke out against cap-and-trade, preferring a straight tax. Finally the IEA Chair said that they expected to revise this years demand down another notch, before starting to grow next year. But he also said that energy professionals were more optimistic than financiers at this point.

The struggle between water and energy from hydroelectric projects continues to divide Tajikistan Kyrgyzstan and Uzbekistan as the situation turns bad enough that growers are burning their orchards for fuel.

In the United Kingdom the National Grid is planning on sequestering its carbon from 5 coal-fired power plants near the Humber in rock layers under the North Sea which once held natural gas. They feel they can do this within 3 years. On the other hand Brazil’s Energia hopes to trap 1- 15% of the gas from a power plant in algae that can then generate oil. Another UK Power company Centrica has upset shareholders who would rather it invested in natural gas rather than nuclear power. And in the gas business Gazprom which is anticipating a 5% cut in Western European demand is also now expecting a 15% drop in demand from Eastern Europe. But that has no stopped them denying the rumors and pledging to move forward on development of the Shtockman field, starting next year, yielding natural gas in 2013, and LNG the following year. Gazprom is also investing in LUKoil to help it repay some loans. And speaking of LNG the anticipated shipment of LNG from Sakhalin has been postponed until April In the meantime they are making up the contracted amounts by using gas from Abu Dhabi. (Unrelated but they also have a wakening volcano – just like Alaska). Gazprom are also making another move at the UK market, this time trying to sell electrical power.

Russia is considering a tidal power plant near Murmansk. And half-way around the world similar plans are being considered for the Columbia river in the Northwest USA. Rolls Royce, meanwhile are testing turbines in the UK that can generate up to 1 MW, with a sea trial for a 0.5 MW unit scheduled for this summer , they foresee up to 300 MW of tidal power being possible around the UK by 2020.

The power crisis in Bangladesh is likely to continue until at least mid-May when the Monsoon starts, since the current drought has dropped the water levels needed for hydropower and at present they are drawing down the existing gas fields so fast that they risk damaging the rock structure, and still don’t have enough. Chittagong, a major city, now only has power for half the demand.

For more stories see The Energy Bulletin or Drumbeat at The Oil Drum