Thursday, April 9, 2009

2009 Energy Conference - Second Morning

This post is the fifth in a series that covers the material presented at the EIA Energy Conference in Washington this past week. In the earlier posts I covered first the Plenary Session; then the session on Natural Gas ; the growing demand for liquids; and the session on Renewable fuels. Following the Plenary Session (and my count of attendees was wrong there, since late in the Conference they reported 1,700 registrants) the Conference split into concurrent sessions. So, since I am but one, there is no report on the sessions that include The Future for Transport Demand; Electric Power Infrastructure; Financial Markets; Energy Data needs and Investing in Oil and Natural Gas – Opportunities and Barriers. For those all I can offer is that the EIA did say that they would post the presentations at some future time, and I believe that Robert Rapier is going to add his summary, and he attended a couple of the sessions I did not. (Gail of “Gail the Actuary” and The Oil Drum was also there and may also post her recollections).

I am going to combine the report on the last two sessions, “Energy and the Media” and “Greenhouse Gas Emissions – what’s next,” in part because I had to duck out of the former for an hour to take care of some “day job” business. (Though I attended to help advise our campus on where I think the Energy Research field is moving, and have already made a couple of recommendations since my return).

The Media session was chaired by John Anderson of Resources for the Future with Steven Mufson of the Washington Post; Eric Pooley of Harvard, who earlier was managing editor of Fortune; Robert Rapier of R-Squared Energy Blog ; and Barbara Hagenbaugh of USA Today.

The session began with John Anderson pointing out that the rise and fall of $4 oil and $147 crude was a big story, and asking if we (as in the media) got it right. Steve Mufson was the first to respond, noting that the coverage was so-so. The price rise occurred in part because it reflected the cost of the marginal barrels that spelled the difference between demand and supply, but when the recession came, suddenly there were lots of marginal barrels out there. He recognized that Peak Oil is out there (perhaps 10, perhaps 50 years) Speculation in oil price is difficult and while the futures market controls price it tends to magnify the trend, but cannot control it.

Eric Pooley felt that we need more transparency and disclosure of numbers. (Robert will be the first to tell you that there is tremendous transparency in the US oil industry, since at one time he helped collect and supply the agencies with the data that they (such as EIA) regularly report). Eric noted that we learned that while $3 gasoline did not affect consumption, once it got over $4 there was a clear impact and fall-off in demand. He has learned to be wary of making his own forecasts, and even more wary of those put out by others.

Robert Rapier noted that he bases his predictions on a close watch over oil stocks, and in the past has been able to predict unusual events by noting when inventory levels fell outside average values for significant periods. While this is easier to do just for the United States, it is possible to get some indication of global volumes.

Barbara Hagenbaugh noted that while they (her paper) cover oil and gas “ad nauseam” they find it difficult to find new angles to the story, and she prefers to find information from those that have “skin in the game.” But then it is hard to determine how some opinions are formed by the investments that those speaking have in the game.

In the following more general discussion it was noted that the reaction to oil price increase seemed to be triggered by the price reaching between $4 and $4.20, when driving habits suddenly changed.

One of the problem that the media has is that those appointed to the Energy beat are not necessarily trained by background in the subject. It might, therefore, be useful if someone like the EIA (hint) could provide training workshops to provide some background for newbies. Quite often, when reporters don’t understand the back story, it is possible that they may get it wrong. For example, with cap and trade there are a number of nuances that many reporters may not know to look for). This is becoming increasingly true as news organizations trim their staffs and lose some of their expertise at the same time as reporters are required to cover more subjects.

Another concern with reporting relates to the need for balance. As Robert put it, in writing about the world being round, how much space should be given to the Flat-Earth Society. This becomes a problem with the inexperienced reporter, who often may not know what the right questions are, or how unlikely some positions are. (And of course sometimes those prove to be right in the long term). The only safe passage is usually to know who you are talking to and how reliable they are. Yet reporters look for conflict and report it, even though some advocate that it would be better to report just the consensus of opinion. But then one should also fact check “the influential outlier,” and display a healthy skepticism on claims for popular items (such as ethanol).

(I slipped out just as they reached an agreement that society really did not understand the concept of scale in appreciating the changes that were likely to come in the future in regard to Energy Supply. The gargantuan size of our appetite for fuel is a “grey political story.”)

I returned to the political session of the week, in that the panelists represented in Joe Aldy, special assistant to the president for energy and the environment, the White House; in Greg Dotson, the Majority side of the House Committee on Energy and Commerce, and in Andrea Spring the Minority side ; while Joe Goffman provided some insight into the Senate view, from the Senate Committee on Environment and Public Works).

The meeting was chaired by Howard Gruenspecht the Acting Administrator of the EIA, who reminded the audience that the EIA job was to gather data, not to make policy, though from gathering data it could provide analyses of that data for Congress, and through reports to the American people. He gave examples to show that the stated preferences that folk proclaim do not necessarily match their revealed preferences, when they have the opportunity to fulfil their stated preference.

Joe Aldy began by quoting Mark Twain “everybody talks about the weather, but nobody does anything about it.” Noting that now Energy and Climate have become part of the great challenge for the country, that also now includes the Economic Challenge. Green activities can lead to jobs, and provide resilience against price shocks. He noted that the Stimulus package included funding for clean energy including everything from batteries to wind to transmission lines, to increasing energy efficiency.) He (the President) hopes to implement a cap and trade scheme by 2012, auctioning the allowances, and directing the revenues to vulnerable businesses and individuals. It will be designed so as not to provide an opportunity for windfall profits.

Greg Dotson explained that because Chairman Waxman had seen so much success with the cap and trade legislation contained in the Clean Air Act, which had survived without challenge for 19 years, he planned on using that model for cap and trade on carbon dioxide. However it took 10 years for the Clean Air Act, and he feels that we don’t have that time luxury this time around. This time they are also working with USCAP and feels that this is a useful collaboration. He noted that the coal industry has plans to spend a trillion dollars on new plant, but without more direction does not know how best to plan to spend that money. In the Waxman-Markey bill, Congressman Markey was largely responsible for the renewable energy components of the bill. In the debate over the price of allowances there was a concern for the cost of CCS, with mechanisms needed to ensure that it was deployed a prices below $50 - $60 per carbon ton. He forsees that the United States needs to get ahead in this research, so that it can export the technology it develops. He noted that 28% of GHG come from vehicles, but leaves that regulation to the states, though there could be some change in standards for energy efficiency.

With USCAP encouraging a 3% reduction by 2012 and a 20% goal for 2020, they plan on having a generous offset program, with a 5:4 turn-in ratio. Authority will be vested in the EPA, and they hope to have the legislation reported out of committee by Memorial Day.

Andrea Spring spoke for the Minority on the committee, casting some doubt on the anthropogenic origins of global warming, and concerns over the cost of cap and trade which the economy may be too weak to afford. She did not feel that cap and trade would have the votes in the Senate, though it would in the House, and suggested that the job cost may exceed its benefits. It would, however, create a commodity (allowances) that would allow traders something to profit by. Conditions differ between Michigan and California, and allowance allocation should recognize this. She brought up the problem of transmission lines and that the Fourth Circuit has given the states control, which may raise some problems down the road for renewable energy farms.

Recognizing the need for more research, she spoke up for nuclear power, and fuel reprocessing and the need for low carbon electricity. Yet without more data there is the risk of setting baselines in the wrong place – the UK has given an example of the problems that can arise with reliability and reality as it relates to concerns over nuclear power. (There will soon be a block of time where the UK lacks enough energy supply and the capability of meeting needs).

From the Senate side, there is a need for controls to be based on science, with cap and trade using allowances to help follow policy objectives, but given the needs to reduce GHG there is not that much difference between likely Senate legislation and that proposed by Congressmen Waxman and Markey. The debate in the Senate will more likely take place on the floor of the Senate, rather than in committee.

One of the comments was that, because of the need to get 60 votes, the process of getting those votes would define the policy that resulted. (As an example the use of carbon dioxide to enhance oil recovery might be persuasive to some members from oil-producing states).

In discussing the differences between cap and trade and a carbon tax, the success of the Clean Air Act was cited again, in contrast with the lack of simplicity likely to result from giving the legislation to the Internal Revenue Service. The feeling is that it will require the equivalent of a cost of $50 - $60 a ton for carbon, before industry will get serious about implementing CCS. Though developing the technology is a goal of this Administration, and they are already funding work to identify suitable geological horizons for use.

There was much more debate, with audience questioning, on the relative merits of cap and trade as against a straight carbon tax, but it seems to be a done deal that it will be cap and trade that flies, the only question then becoming when.

There was an interesting comment from Joe Aldy right at the end (and I will try and comment more on this on Saturday, given that it is a Saturday theme). He was talking about the statement that in regard to Global Warming , “the science is settled”, and seemed to suggest that the bar for settling the science was to raise sufficient concerns that GHG might raise the global temperature, that investing in counter measures was a justifiable insurance. He felt that the current level of science had provided enough information to make it prudent to take action, but not to say that the science of global warming from anthropogenic activity was fully scientifically settled.

This concludes my notes on the Conference. Obviously in the interests of time and space they are condensed and many points may be minimized beyond the level that others think they deserve. In which case please feel free to comment accordingly. In time the presentations should be released, and I will try and let you know when that occurs. I will also provide a short personal view of the proceedings and my opinions in a separate post.

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