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Carbon Trading, The Game

At our company Christmas party this year we played Carbon Trading, The Game. Bascially, I devised a simple cap and trade game in a power sector, and then we played out four rounds to see what happened. The results were an interesting summary of how small rules can have big impacts in the outcome. And perhaps a good Christmas lesson to everyone involved in carbon market design. The good news, the market in our game came in well under its caps even in the early round.

Basic rules were as follows:

Players start with a certain amount of cash, and then each round bid for different types of power plants, fuel, and carbon credits each round (there were shortages of each), then run their plants (assuming they were able to acquire power plants, adequate fuel, and adequate carbon credits to operate). In our simple cap and trade model, the cap was based initially off of a coal plant’s emission factor, and declined on a per plant basis each year. Power was priced at a flat $100/MWH (makes the math simple). The winner was the one with the most cash after converting carbon to cash at the market clearing price in the last round.

The idea was that the declining cap and fuel shortage would lead to players bidding high for low emissions hydro and wind farms to get under their cap, and lead to reductions.

A few interesting outcomes. Wind and hydro plants did command premium prices, but not all the way to pricing carbon in (probably since no one was sure what then final carbon price would be – proving uncertainty wins again). And since we did not let power prices float, nor require a must run component, fuel prices went on a wild swing but eventually fell as at least two players opted for a strategy to essentially mothball plants and instead just bank the carbon credits, and buy a few more. As a result, carbon prices also stayed low in the early rounds, since fewer operating plants were hitting their caps – however, the players who has stockpiled carbon then bid up the price of the final credit of the final round to $70 instead of the $10-$20 in previous rounds (it only stopped there because they ran out of money).

The final result, that high price of carbon in round 4 meant the winning strategy ended up being buy cheap coal plants throughout the game, run them only when fuel and carbon were very cheap, and make your money off the carbon.

I am planning on revising the rules for better play, then releasing an actual carbon trading game in the near future.

Besides operating CleantechBlog.com, Neal Dikeman is a partner at cleantech merchant bank Jane Capital Partners LLC, CEO of Carbonflow, Inc., and Chariman of Cleantech.org.

Pragmatism for the New President

by Richard T. Stuebi

I consider myself an equal opportunity offender. Many people in the energy industry or those who for some reason don’t believe in climate change think I’m somewhat of a radical. On the other hand, many ardent environmentalists think I’m too apologetic, conservative or pessimistic about what carbon reductions can realistically be achieved in what time frames and at what costs.

Therefore, I appreciate it when I find someone who makes well-argued, nuanced and balanced statements like those I would attempt to make. A recent example: a September speech at the Metropolitan Club in Washington DC by David J. O’Reilly, the Chairman and CEO of Chevron (NYSE: CVX).

I was particularly pleased by his comments on renewable energy and climate change. O’Reilly was quite clear and blunt: “Renewable energy is very real. We need it. It will be an essential part of the future I envision.” His only caveat, which I agree with: “It’s not realistic to suppose that it can replace conventional energy in a timeframe that some suggest,” referring to Al Gore’s well-intentioned but wishful-thinking goal of 100% U.S. electricity supply from renewable energy by 2018.

As for climate change, his comments were also measured and reasonable: “There is no doubt that carbon dioxide concentrations in the atmosphere have increased. And although there is uncertainty about the future impacts on climate, most people agree that it’s not a good idea to continue unrestricted hydrocarbon combustion. And I agree.” This line acknowledges that climate science is still subject to considerable uncertainty (see, as one example, a recent paper published in Geophysical Review Letters by two MIT Earth and Planetary Sciences professors), while at the same insisting that it’s very worthwhile to move concertedly towards lower carbon intensity in the likely case that the increased concentrations of carbon dioxide in the atmosphere will lead to unfavorable impacts on the planet.

O’Reilly closes by noting the importance for the next President to mobilize the public in a sustained commitment for change. “We need collaboration to achieve real progress. Businesses and consumers need affordable energy. Young and old want renewable energy. Republicans and Democrats seek reduced emissions….Today, public sentiment supports action on energy policy. That action should lead to a future of greater energy efficiency, enhanced supplies of all forms of energy and reduced emissions. While I am concerned about the urgency of the situation today, I’m also optimistic. I believe that, by the time my grandchildren are my age, our energy system will look much different. But we must get started now.”

Wise words, in my humble opinion. Let’s hope our new President can pull us together, in the face of declining oil prices and weakening economic conditions, towards a new resolve on energy.

A good start for the President-elect would be to read an open letter written by Ernest Moniz, the Director of the MIT Energy Initiative in this month’s Technology Review. Moniz’s four-pronged recommendation for a major step-up in Federal commitment:

1. Implement carbon dioxide emissions pricing, presumably through a cap-and-trade system
2. Add a surcharge on energy to generate $10-15 billion annually for the next 10-15 years to spend on development and deployment of new low-carbon energy technologies
3. Establish a mechanism spanning the various bureaucracies of the Federal government that will lead to a truly coherent energy policy — perhaps by appointing an energy advisor to the President
4. Commit to implementing a “smart grid” within 10 years

When one considers that the Federal government now allocates less than 3% of its research dollars to energy, down from10% in 1980, it seems pretty clear that the U.S. doesn’t put its money where its mouth used to be, and needs to get much more serious. Step one will be a President who himself is serious, and doesn’t fall prey to cheap populism or get swayed by protecting the interests of a select set of constituencies.

We need to stop the dogma and hyberbole from both sides, buckle down, and get on with it. I hope our new President can lead the way.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Climate Change a Game Changing Factor for Corporate Valuations

by Marguerite Manteau-Rao

Smart industry leaders better listen to McKinsey’s just released study on the likely impact of climate change mitigation scenarios on corporate valuations.

Depending on the type of industry, and the preparation level of businesses, including strategic planning and adaptation, the outcome for a particular business could run the gamete, from opportunistic gains, to spectacular losses.

For companies, climate change is no longer just a CSR issue, but a matter of long term financial survival.

Marguerite Manteau-Rao is a green blogger and marketing consultant on sustainability and social media. Her green blog, La Marguerite, focuses on behavioral solutions to climate change and other global sustainability issues. Marguerite is a regular contributor to The Huffington Post.

Climate Change Policy Thoughts, McCain, Palin, Obama, Et al

Those of you that know me know that fighting climate change is an issue near and dear to my heart – and day to day life, since I am currently involved with a start up working on helping to deliver even better transparency and environmental integrity to carbon credits.

So as a small government, energy focused, environmentally conscious, social liberal, fiscal conservative, who has worked in both oil & gas and alternative energy, I had a lot to like about the McCain-Palin ticket. And I’ve stated that and my reasons for it, and gotten ripped for it for an audience on this blog that is commendably and passionately progressive when it comes to these issues, but unfortunately doesn’t always read to the end of the blog articles or do their research before ripping me for being Republican. But one key area I struggled on was where Palin came down on climate change. Luckily for the 182 small government, energy focused, environmentally conscious, social liberal, fiscal conservatives like me left in America, John McCain’s climate change position has apparently rubbed off on her. Like her or not, this is a very good sign for progressives. It means we as a nation are joining the climate change fight no matter who wins the election fight.

To those of you who say we should have signed Kyoto, don’t forget, Obama, GW Bush, Hillary Clinton, and John McCain all agree on this one, multilateral climate change legislation has to include China and India committing to something. (Hillary actually flopped on this topic). And China and India haven’t agreed. The Senate voted something like 98 to 0 during the Clinton years saying no to Kyoto if China didn’t agree to caps.

The main difference between US politicians has been the willingness of every one on this list except Bush to work to push through some sort of cap and trade in the US – independent of a multilateral framework like Kyoto. McCain has been pretty lock step with the Democrats on this one. And then smaller differences emerge in their approach to tough the caps should be, and whether the profits from trading ought to go into the government coffers as a new (Iraq war size massive) tax, or back to industry to fund future abatements. Of those, Obama talks the toughest game, but McCain is the only one who has ever tried.

The problem with a unilateral approach to cap and trade is that it’s about like going into Iraq unilaterally – it’s a bad a idea. Carbon is a global problem, and lots of separate policies aren’t likely to solve it without significant economic collateral damage. And worse, with cap and trade or taxes, if we try to have separate markets or tax schemes, it means we likely get a different price of carbon in California than in Texas than in China, than in Europe. And if there is no way to equalize the price by trading credits in linked markets, the only route left for industry is to shift production out of the country with the highest price, or lose out to competitors from those markets with lower prices. If the markets aren’t linked (which Obama supports in small amounts and McCain in medium amounts), we will definitely see these geographical price differentials. Then industry will respond by shifting production to China and India, whether it’s overt or not, they won’t have a choice. The power of the consumer dollar will force it to some degree. And the tighter the US carbon legislation is compared to the Kyoto, the bigger incentive to shift production overseas. Hence Obama’s position on 80% auctions for very rapidly implemented, very tight caps results in a large tax windfall to the US government, and a correspondingly large effective price differential on the price of carbon from the US to Europe even, let alone the US to China which still has caps. Where as McCain-Lieberman’s slower and lighter (but still much faster and tighter than Kyoto) plan with explicit links to Kyoto markets, would result in more moderate price differentials. If the markets are linked (meaning you can buy Chinese credits to meet California demands), but the local carbon regulations are tighter, industry has less of a need to shift production ourseas, but can instead cans sometimes shift it’s carbon purchases overseas instead of labor or other materials, but instead we would still see an increased trade imbalance as dollars flow to China to pay for the carbon.

Basically, if the US cap and trade is tighter than foreign cap and trade, either manufacturing has to go off shore, or if the markets are linked and you can buy carbon offshore, then either dollars could go offshore for carbon to keep jobs and production home. That’s why the big push for multilateral climate change, carbon trading markets, and environmental regulation that moves in lockstep with our biggest trading partners.

Hey wait, does that mean that the Democratic position on climate change will actually exacerbate outsourcing to Asia and trade imbalances even MORE than the Republican position this time? ‘Fraid so. The thing I like about McCain on climate change, is that despite getting a bad rap on economics, he’s the only candidate who’s bothered to include the impact on you and I into the complex calculus of climate change legislation.

It’s a catch-22 with no real way out, and a lot of bad options. The worst option however, is doing nothing. Luckily, with Palin now toeing McCain’s line on climate change. That option may finally be off the table.

McCain-Palin is the Energy / Cleantech Dream Ticket

John McCain picked first term Governor Sarah Palin of Alaska as his veep choice today. I love this pick.

She’s a 44 yer old first term, youngest and first, woman Governor of Alaska. She’s known as a maverick and anti-establishment in Alaska, and has taken on Republicans and the oil industry over ethics and pork. She beat two longtime Alaskan political heavyweights to win the Governorship. She’s a fiscal conservative, anti pork, pro drilling, and pro Alaskan gas pipeline. She used to be on Alaska’s oil & gas commission, and is a progressive on climate change. Her bio from Wikipedia. So what does the choice of Palin mean for McCain’s climate change and alternative energy focused energy policy?

In some ways she and John McCain make an energy /cleantech dream ticket. He has made his reputation in energy around proposed legislation like the McCain-Lieberman climate change bill, the most well thought out climate change bill yet proposed in the US. He’s got an energy plan hinging on domestic drilling, transport fuel switching, alternative energy expansion in power, progressive climate change policy and energy efficiency. More progressive on energy and environment than any Republican in history.

And he’s adding a climate change progressive domestic energy expert to the ticket. Not a bad combo for cleantech.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is the founding CEO of Carbonflow, founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, Chairman of Cleantech.org, and a blogger for CNET’s Greentech blog.

Green Supply Chain Management, It’s Good For the Environment, It’s Good For the Bottom Line

by Marguerite Manteau-Rao


While the majority of global executives consider carbon reduction an important aspect of purchasing and supply chain management, only a minority follow through:

That’s too bad, according to the McKinsey study. Not only are these companies not helping fight climate change as much as they could, they are also missing out on some cost lowering opportunities. The facts:
  • For consumer goods marketers, high-tech, and other manufacturers, between 40-60% of their carbon footprint is in their supply chain.
  • For retailers, the number is even higher, 80%.
  • Many of the opportunities to reduce emissions carry no net life-cycle costs, with the upfront investment more than paying for itself through lower energy or material usage.
  • Others may require tradeoffs between emissions and profitability, in areas such as logistics and product design.
  • Forward-looking companies are using such discussions as opportunities for supplier development.
  • This opens up the possibility of still lower costs and improved operational performance, in addition to helping suppliers remove carbon from their supply chains.

Wal-Mart comes to mind, as a great example of a company that understands the multiple benefits of a greener supply chain. The question of, why are not more companies following Wal-Mart‘s lead, warrants further examination. Is it lack of knowledge? Having to attend to other, more pressing issues? Inertia? What do you think?

Marguerite Manteau-Rao is a green blogger and marketing consultant on sustainability and social media issues. Her blog, La Marguerite, focuses on behavioral solutions to climate change. 

A tipping point in water re-use?

There were two interesting recent headlines which support the view that we are approaching a tipping point in relation to water scarcity and water resources.
Firstly, Orange County, California was awarded the Stockholm Industry Award for its pioneering work to inject treated wastewater into deep wells to re-charge ground water aquifers. This water can then be extracted at a later date for water supply. What you are seeing here is the start of a convergence in advanced wastewater treatment and water supply. They say that water has no memory, but the public certainly does, and they don’t like the thought that what comes out of their tap, might in the not too distant past have disappeared down their toilet. Aquifer injection provides that one degree of separation.
However water is the ultimate re-cyclable commodity and re-cycle it we must if we are to avoid some of the alarming predictions reported at the Goldman Sachs ‘Top Five Risks Conference’ Goldman Sachs reported that a catastrophic water shortage could prove an even bigger threat to mankind this century than soaring food prices and the relentless exhaustion of energy reserves. The report said water was the “petroleum for the next century”, offering huge rewards for investors who know how to play the infrastructure boom.
So how exactly do you go about playing this boom? Goldman Sachs suggest eyeing companies that produce or service filtration equipment, ultraviolet disinfection, desalination technology using membranes, automated water meters and specialist niches in water reuse.
Water re-cycling is going to be huge, particularly in the sunshine belt between California and Florida. Groundwater, in the context of our lifespans at least, is a non-renewable resource. If you drain it down, it can take hundreds of years to re-charge. Nicholas (Lord) Stern, author of the UK Government’s Stern Review on the economics of climate change, warned that underground aquifers could run dry at the same time as melting glaciers play havoc with fresh supplies of usable water.

There are a myriad of companies out there that can take salt out of water, but if someone can comes up with a) the midas touch to turn the briny waste produced into a product, or b) a lower energy method of doing it they will be on to a winner.

Paul O’ Callaghan is the founding CEO of the Clean Tech development consultancy O2 Environmental. Paul lectures on Environmental Protection technology at Kwantlen University College, is a Director with Ionic Water Technologies and an industry expert reviewer for Sustainable Development Technology Canada.

Is Al Gore Nuts?

In his speech in Constitution Hall this week, former Vice President and renewable energy investor Al Gore extolled a stretch goal challenging America to achieve 100% renewable power within 10 years. The quote: “Today I challenge our nation to commit to producing 100 percent of our electricity from renewable energy and truly clean carbon-free sources within 10 years.” And my favorite part: “When President John F. Kennedy challenged our nation to land a man on the moon and bring him back safely in 10 years, many people doubted we could accomplish that goal. But 8 years and 2 months later, Neil Armstrong and Buzz Aldrin walked on the surface of the moon.”

That statement is about like challenging your 2 year old to finish college by the time she is 12. Not exactly practical, more than a little crazy, and likely to be either ignored, or if you push it, to cause lots of therapy sessions by the time she is 8. I will, however, credit him with getting almost every renewable energy platitude I’ve ever heard into one succinct speech.

He does raise lots of good points about the need for a new energy policy not built around shipping dollars to the MidEast for oil (a definite must), for long term support for renewables (it is critical for us to get off our fits and starts mish mash idea of renewable energy policy), and for moving faster and larger to fight climate change (a topic near and dear to my heart, and one that is only partially helped by making broad statements about how fast the sky is falling, I mean, the glaciers are melting). In fact, there is no better way to give anti renewable energy and climate change naysayers fuel and ammunition than to make statements like these. Any path we go down, I’d still rather challenge that two year old to do something they can achieve, not try and make it through college by age 12 – especially if I’m asking her to pay for it. Slow and steady wins the race.

The core of Al Gore’s argument in his speech on the practicality of a 10 year all renewable energy goal boils down to this quote from his speech on fuels:

“What if we could use fuels that are not expensive, don’t cause pollution and are abundantly available right here at home?

We have such fuels. Scientists have confirmed that enough solar energy falls on the surface of the earth every 40 minutes to meet 100 percent of the entire world’s energy needs for a full year. Tapping just a small portion of this solar energy could provide all of the electricity America uses.

And enough wind power blows through the Midwest corridor every day to also meet 100 percent of US electricity demand. Geothermal energy, similarly, is capable of providing enormous supplies of electricity for America.”

And this one on costs and technology:

“To those who argue that we do not yet have the technology to accomplish these results with renewable energy: I ask them to come with me to meet the entrepreneurs who will drive this revolution. I’ve seen what they are doing and I have no doubt that we can meet this challenge.
To those who say the costs are still too high: I ask them to consider whether the costs of oil and coal will ever stop increasing if we keep relying on quickly depleting energy sources to feed a rapidly growing demand all around the world. When demand for oil and coal increases, their price goes up. When demand for solar cells increases, the price often comes down.”

These quotations, while partially true and very seductive, are highly misleading in this context. The effective conversion rates of that energy to usable electric power or liquid fuel is still horrendously low, and requires lots and lots of capital expenditures, and thousands of miles of new transmission lines to implement. And that’s not taking into account the state of technology – as an industry we really are the two year old in my analogy.

So given those conversion rates and the current high capital expenditures per unit of energy, the cost is still 5-20x (depending on what you count) the cost of conventional electric power generation (yes I know, unless you add in the carbon price and environmental externalities, but that’s still extra cost any way you slice it . . . unless you’d like to subsidize mine). Frankly no serious analyst is suggesting that within 10 years, given the state of technology and the best case forecast capacity, that solar can make up more than a small single digit fraction of even electricity needs or that wind can make up more than a meaningful minority share (let alone after doubling the global power demand by replacing liquid fuels in cars with electricity, which Al Gore also suggests), especially given lead times on power plants and transmission lines.

Most likely even if the technologies were already cost comparative, which they are not – if you need evidence, just look at our wind and solar industries in their current tizzy because their biggest subsidy programs are up for renewal this year – most analysts wouldn’t project a fabled grid parity on cost for renewables for at least the next decade, and certainly not at scale. So Mr. Gore’s statements on cost and technology are in part true, but imply a maturity level in these industries that just doesn’t exist yet. Given manufacturing scale up issues on the technology, transmission infrastructure requirements at least as large as the new generation requirements, and long lead times on building projects of this size (industry executives point to seven year time frames just to build a single transmission line), probably reaching even significant low double digit percentages of carbon free power within ten years is a stretch (excluding large hydro and nuclear which we already have but are hesitating to expand) across the whole nation. Notwithstanding that California has managed to come close to its target 20% number over the last decade, that’s one state leaning on the resources of many states, using the best available sites, federal subsidies paid for from all of our pockets, and that took a decade. When it comes to carbon capture and storage for coal fired generation, a concept with lots of legs – if it works – 10 years just isn’t enough time to achieve scale. The first big pilots are scheduled over the next several years, and there are too many unknowns to bet the farm on, without the lead time and capital cost issue. Though still definitely worth trying.

And as far as paying for it, there was an article in the San Francisco Chronicle today calculating our Federal government long term liabilities at $450,000 per American already mainly for Medicare and Social Security. Actually trying to replace our entire fossil fuel infrastructure within 10 years would push that to how much? Somebody please do the math before we launch a government funded mission to the moon, or legislate that our citizens pay for it instead. On costs, Mr. Gore made the statement in his speech “Our families cannot stand 10 more years of gas price increases.” I agree, but Mr. Gore, your 10 year, hell for leather, man to moon race for 100% renewable energy would guarantee just that.

So while extolling stretch goals for a two year old is probably a good idea, let’s keep it within the realm of possibility, and not just make grandiose statements for media effect. Now if Al Gore’s silly challenge on renewable energy was simply a trojan horse to get people talking about how to move forward on fighting climate change and addressing our long standing energy policy issues, I’m all for that and am happy to help. After all, the words Al Gore and climate change make for very searchble blog articles! But personally when I make outlandish statements, I do like to bring an modicum of practicality to the discussion.

I will leave you with one final note, and please remember, I am actually a proponent of the ideals in Al Gore’s speech, I just prefer to get there in one piece. One theory on the effect of the history of the man on the moon driven space race that Mr. Gore challenges us to copy basically says that we pushed for a single high profile goal so fast and furious that we effectively skipped ahead and outran our infrastructure and capabilities to get a nonscalable shot at the moon in the target time frame. The theory goes on to suggest that’s why after reaching the moon so fast we haven’t progressed at the same rate in space since, and had we taken it slower, we would have gotten there a few years behind, but might be on Mars by know. Akin in a military campaign to outrunning your supply chain, and then getting your army surrounded and destroyed – or perhaps invading a country half way around the world, winning the war in weeks and forgetting to prepare for the peace. And just to show that I can deliver as many platitudes in one article as Mr. Gore, that’s why you never get involved in a land war in Asia.

Energy and environment are the two pillars of everything in our lives. Mr. Gore and I want the same thing, but he thinks we can’t afford not to swing for the fences – I think we can’t afford to mess it up.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is the founding CEO of Carbonflow, founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, Chairman of Cleantech.org, and a blogger for CNET’s Greentech blog.

Green Jobs or Industrial Calamity? Dueling Economic Models in Carbon Politics

by Richard T. Stuebi

In early June, the U.S. Senate considered the Lieberman-Warner Climate Security Act (S. 2191), which proposed the establishment of a cap-and-trade system for CO2 emissions, analogous to the cap-and-trade program in place in the U.S. for acid rain pollutants since the mid-1990’s.

Predictably, the bill was defeated, before even going to a formal vote. In a press release, Senator Lieberman bravely painted the defeat with a positive spin: “We have convinced a majority of the Senate to support mandatory, comprehensive, market-based legislation to curb global warming and enhance U.S. energy security.” No-one expected the bill to make it out alive from the Senate, and even if it somehow had, the House would never have passed a similar bill, and surely President Bush would never have signed any such bill into law.

As might be expected, the Senate debate on the Lieberman-Warner bill largely came down to economic considerations. Those who favored the bill foretold of the massive “green economy” that would be spurred by its passage: the creation of wealth and jobs that would occur by pursuing technology innovations and growing businesses in renewable energy and energy efficiency necessary to combat climate change. On the flip side, those who voted against the bill saw the threat – increases in energy prices, loss of industrial competitiveness, declining economic activity – much more acutely than the opportunity.

In my view, both sides of this debate are guilty of hyberbole and exaggeration. Let’s take each in turn.

Regarding the green economy, perhaps no phrase is more in vogue these days than “green-collar jobs” — a concept most compellingly articulated by Van Jones, the Founder and President of Green For All. A dynamic speaker, Mr. Jones was among the first to recognize that the adoption of green energy (renewables and energy efficiency) leads to local economic activity consisting of jobs that look very much like what used to be called “blue-collar” jobs – which offers the opportunity to rescue a segment of the U.S. population that has been increasingly disenfranchised in the past few decades.

I think this line of argument is conceptually solid. Certainly, energy efficiency retrofits and solar panel installations cannot be sent offshore: they must be done locally. And, in many instances, the best opportunities are available in downtrodden urban areas that badly need building rehabilitation, economic revitalization and new job possibilities.

My primary beef with the green economy crowd is not with Van Jones, but to his often overly-ardent disciples that assign way too much credibility to estimates – in my view, guesses – of how many green jobs exist or will be created. Every politician and reporter wants to know the number of new jobs that will result from a move to an advanced energy economy. My pat answer to that question is “It’s likely to be a very big number, but no-one can possibly quantify it with any degree of rigor.” Yet, these “job studies” invariably produce numbers that are told and retold until they become accepted as fact — when actually, they are pretty darn dubious.

This is most pointedly illustrated by the 2007 study commissioned by the American Solar Energy Society, developed by Roger Bezdek of Management Information Services, which claims a current “direct” green energy job count in the U.S. of 3.7 million. The incredulity of the study’s results becomes clear when reviewing a case study for the state of Ohio, in which about 500,000 jobs are credited to 2006 energy efficiency activities in Ohio. Note that Ohio’s current employment level is about 5.3-5.4 million. Does anyone who knows anything about Ohio really think that nearly 10% of today’s Ohio workforce is employed in energy efficiency products and services? I sure don’t.

The other side of the climate change policy debates, those clinging to the status quo and skeptical of the advanced energy economy, is also guilty of overstatement to defend their position.

Earlier this year, the American Council on Capital Formation (ACCF) and the National Association of Manufacturers (NAM) commissioned a study by Science Applications International Corporation (SAIC) of the economic implications of Lieberman-Warner. The ACCF/NAM/SAIC study projected strong adverse impacts on manufacturing and industry, especially for many key states.

However, as well summarized in reports by both the Electric Power Research Institute (EPRI) and the Congressional Research Service (CRS), the ACCF/NAM/SAIC study is just one of several studies on this issue, with results that are far more economically scary than others performed by unbiased organizations such as U.S. EPA, U.S. DOE’s Energy Information Agency, and MIT. The ACCF/NAM/SAIC results are outliers – yet, they are used again and again by those interests who wanted to see Lieberman-Warner killed.

In short, both sides of the carbon debate – green jobs vs. economic destruction – use economic models inappropriately to justify their stances. This tendency reflects badly on both sides. But, of course, it is the side with the deeper pockets – the established industrial sector – that wins. And, good policy loses.

As an economist, I wish that people would use economic models for insights, not numbers – a point very well summarized in an excellent white paper by Janet Peace and John Weyant issued by the Pew Center. If political leaders were to strip away the overly bold rhetoric and review the facts and analyses with the proper context and perspective, I think we would make a necessary first large stride towards forging an agreement on good carbon policy. In the meantime, the world is hostage to dueling models wielded by careless advocates making overly bold statements.

Because insight is desperately needed to cut through the fog of biased chatter, to provide some closing perspective on the tradeoffs between the costs and benefits of climate change policy, I’ll leave the last word to remarks made last year by an eminent economist, the former Chairman of the U.S. Federal Reserve, Paul Volcker, who gives a succinct personal view on the thorny economic questions associated with climate change:

“First of all, I don’t think [taking action on climate change] is going to have that much of an impact on the economy overall. Second of all, if you don’t do it, you can be sure that the economy will go down the drain in the next 30 years. What may happen to the dollar, and what may happen to growth in China or whatever, pale into insignificance compared with the question of what happens to this planet over the next 30 or 40 years if no action is taken.”

What more need be said?

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also Founder and President of NextWave Energy, Inc.

Cap-and-Trade Gold in the Golden State

By John Addison (7/2/08). Obama and McCain have both stated that climate change requires decisive action. Both support cap-and-trade, putting a limit (cap) on greenhouse gases and enabling the market to work by allowing the trading of permits.

How would this work in the United States? We will all learn from California’s progress with its enacted law – AB32 Climate Solutions Act. The implementation is detailed in the 93-page Climate Change Draft Scoping Plan.

By requiring in law a reduction in greenhouse gas emissions to 1990 levels by 2020, California has set the stage for its transition to a clean energy future.

Since the law was enacted in 2006, the lead implementing agency, the California Air Resources Board (ARB), has been getting an earful from everyone from concerned citizens to industry lobbyists. It moves forward publishing data from the California Climate Action Registry, facilitating 12 major action teams, conducting public workgroups, and drafting plans which get more feedback in public meetings. The ARB Board will next meet to review the proposed Scoping Plan on Novembers 20 and 21.

Climate change is already impacting everything in California from draughts that cause agricultural loses to water shortages that impact industry. But instead of seeing the glass as half empty, the California Plan states, “This challenge also presents a magnificent opportunity to transform California’s economy into one that runs on clean and sustainable technologies, so that all Californians are able to enjoy their rights to clean air, clean water, and a healthy and safe environment.” Cleantech will be a major winner.

The plan is ambitious because California’s population in 2020 is forecasted to be double the 1990 level. The Climate Solutions Act will require that per capita CO2e emissions be reduced from today’s 14 tons per year to 10 tons per day by 2020. The total state cap for 2020 is 427 MMTCO2e. Keys to success will include:

  • Green buildings with improved construction, insullation, energy efficient lighting, HVAC, equipment, and appliances.
  • Electric utilities that use at least 33 percent renewable energy.
  • Development of a California cap-and-trade program that links with other western states and Canadians provinces to create a regional market system.
  • Implementation of existing State laws and policies, including California’s clean vehicle standards, goods movement measures, and the Low Carbon Fuel Standard.

The Plan shows that California has learned from the Kyoto implementation. California’s scope is much broader, covering 85 percent of the State’s greenhouse gas emissions from six greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulfur hexafluoride (SF6), hydrofluorocarbons (HFCs), and perfluorocarbons (PFCs). AB32 calls for incremental improvements all the way to 2050.

The transportation sector – largely the cars and trucks – is the largest contributor with 38 percent of the state’s total greenhouse gas emissions. Electricity generation is 23 percent. Industry 20 percent. Commercial and residential buildings are 9 percent.

Look for economic growth in a number of areas. New buildings will increasingly be LEED certified, often at the Silver level. Building efficiency retrofits will be an active area employing contracts large and small.

Distributed power generation will grow. Combined heat and power will be actively deployed. Process efficiency will continue.

Renewable energy will experience strong growth including wind, solar, geothermal, and bioenergy. Ocean power pilot projects will continue. Controversial new power from nuclear and petroleum coke gasification with CSS will be considered. In-state coal power generation is history in California. Using out-of-state coal power will continue to decline as GHG emissions are priced into the equation.

Wind continues to grow in California and the nation. A fascinating read is the Department of Energy (DOE) report, entitled 20 Percent Wind Energy by 2030, which identifies the real feasibility of the United States reaching meeting 20 percent of its energy requirements from wind by 2030. A path to over 300 GW of wind power by 2030 is detailed.

California and much of the nation is blessed with an abundance of sunlight. The Utility Solar Assessment (USA) Study, produced by Clean Edge and Co-op America, provides a comprehensive roadmap for utilities, solar companies, and regulators to reach 10% solar in the U.S. by 2025 with both PV and CSP.

C02 costs are not likely to significantly increase the cost of fuel, but rocketing oil costs have changed the game. Use of corporate flexible work programs, commuting, and use of public transportation are now at record levels in the state and will grow in popularity.

California High-Speed Rail (HSR) is likely to be on the California ballot this November, with a price tag that will be a fraction of the cost of expanding highways and adding an airport. HSR would link major transit systems throughout the state, and save billions in fuel costs and emissions.

AB32 is also likely to reach its goals because cars will increasingly outsell SUVs and trucks in California. By 2020, electric cars and plug-in hybrids may experience and explosion of popularity. New low-carbon fuels are likely to be widely used.

California is working closely with six other states and three Canadian provinces in the Western Climate Initiative (WCI) to design a regional greenhouse gas emission reduction program that includes a cap-and-trade approach. ARB will develop a cap-and-trade program for California that will link with the programs in the other partner states and provinces to create this western regional market. California’s participation in WCI creates an opportunity to provide substantially greater reductions in greenhouse gas emissions from throughout the region than could be achieved by California alone. AB32 may give the United States a head-start in its own cap-and-trade program.

John Addison publishes the Clean Fleet Report.

Into the Blue

by Richard T. Stuebi

Last week, the International Energy Agency released a study entitled Energy Technology Perspectives 2008, in which the agency estimated the shifts in the world’s energy system required to reduce CO2 emissions substantially.

In their so-called “BLUE” scenario (I haven’t figured out what “BLUE” refers to), a 50% CO2 reduction from 2005 levels by 2050 — what many scientists believe is about what needs to occur to stabilize the climate — is only achievable by tackling emission reductions that have a marginal cost of over $200/ton CO2. Ouch!

Even more provocatively, IEA estimates that the BLUE scenario would imply a widespread move to near-zero carbon buildings and the deployment a billion electric/hydrogen vehicles plus annual investments between 2010 and 2050 of 55 coal plants with carbon sequestration, 32 nuclear plants, 17,500 utility-scale wind turbines, and 215 million square meters of solar panels. By their accounts, this represents $45 trillion of investment above and beyond business as usual.

In IEA’s words, “BLUE is only possible if the whole world participates fully” in shifting to “a completely different energy system.”

Does anyone doubt the magnitude of the CleanTech challenge/opportunity in the coming decades?

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

The Increasing Ubiquity of Cleantech

by Richard T. Stuebi

I have subscribed to Forbes for over a decade because, unlike many other popular business journals, it seems to have a genuine voice — even if I sometimes disagree with it.

On a plane flight from Cleveland to L.A. last Thursday night, I read the March 10, 2008 issue, and was amazed at how pervasive cleantech has become — even in its stoutly conservative pages:

It was the SKF ad that really floored me, making me take notice just how ubiquitous cleantech is truly becoming. I’ve never seen SFK advertise anywhere before. Just which decision-makers is SKF trying to reach with this placement in a mass-market magazine?

Cleantech is seemingly everywhere. True, some of it may be “greenwash”, but a lot of it is real, and it is growing.

Then I went back to reading the magazine, and realized we still have a ways to go: on p. 19, Steve Forbes writes yet another editorial continuing to stoutly deny climate change. I laugh and shake my head: some things never change.

Maybe Mr. Forbes should take better note of what the major corporations showing up in the pages of his magazine are actually doing to make money. After all, isn’t Forbes the paragon of capitalism? If companies are rushing to cleantech in droves, shouldn’t Forbes take heed of what the market is leading these companies to do to increase their profitable growth?

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Blogroll Review: Biocrude, Alaska, & Policy

by Frank Ling

Waste to Oil

Think you need special enzymes to convert plant materials into fuel? It looks like science is getting closer to eliminating that step. Pretty soon we might be able to directly convert crop residues, waste paper, and pretty much anything organic into bio-crude, which is essentially oil.

The secret ingredient? Heat. It turns out that raising the temperature breaks the bonds of organic materials (in fact heat pretty much breaks any bond at a high enough temperature) through a process known as pyrolysis.

Jim Fraser, in a recent article at the Energy Blog, explains how this works:

Fast pyrolysis is a process in which the organic materials are rapidly heated to 450 – 600 °C at atmospheric pressure in the absence of air. Under these conditions, organic vapours, pyrolysis gases and charcoal are produced. The vapours are condensed to bio-oil. Typically, 70-75 wt.% of the feedstock is converted into oil.

The product can be used not only to replace gasoline and diesel, it can be used as feedstock for the chemical industry.

Steamed Alaska

Geothermal power is coming to a resort near you. At least the ones in Alaska.

At the Chena Hot Springs Resort in Fairbanks, Alaska engineers have created a breakthrough hydrothermal system that generates power using “low-temperature” reservoir water at 165 F, in contrast to conventional systems that required at least 300 F.

Jack Moins writes in EcoGeek:

The plant cost a mere $2.2 million to build as it uses all off the shelf parts. It produces 200 kw at a cost of 5 cents per kwh, compared to the former costs of 30 cents per kwh when using diesel. The design is projected to pay for itself within four to five years. Hydrothermal power is very promising, as it is estimated that the water beneath the Earth’s surface holds 50,000 times the amount of energy in the remaining gas and coal resources

Among its innovations, the system uses a three-pressure system and ammonia-water cycles, which limits the use of toxic coolants. With this early success, the entire town of Chena is adopting hydrothermal for its buildings and a greenhouse for food production

U.S. Climate Legislation

All the major US presidential candidates are making global warming a part of the their platform. Whoever wins, policy for energy, environment, and even agriculture are bound to change significantly.

But democracy is not always a fast process. Dan Reicher, director of climate and energy initiatives for Google.org and former U.S. assistant energy secretary, says that the next president will indeed push for change but any regulations will take time to phase in.

Rachel Barron, in Green Tech Media, writes:

2009 could bring a dramatic increase in support from Congress for R&D and more favorable approaches to clean-energy incentives.

Frank Ling is a postdoctoral fellow at the Renewable and Appropriate Energy Laboratory (RAEL) at UC Berkeley. He is also a producer of the Berkeley Groks Science Show.

Super Tuesday was Super for US Carbon Cap and Trade

One things for sure, post Super Tuesday with Governor Mike Huckabee far behind, Mitt Romney out, and McCain the all but crowned Republican nominee, the US is getting a cap and trade system for carbon. The question is which one. I thought I’d track a little of the candidates’ various positions.

The major differences that are left between the parties are on how to do it. In general the Republicans favor US based systems, the Democrats favor a Kyoto based approach, sort of. The Democrats favor 100% allowance, the Republicans favor a slower adjustment scheme (The Kyoto mechanisms today are actually closer the Republican stance).

Don’t forget, the real reason the US has not ratified Kyoto is less about whether to use the market based mechanisms (we were the ones who actually advocated putting carbon trading in), and more about the fact that under Kyoto, our major economic competitors in China and India have no commitments to reduce greenhouse gases, and under Kyoto effectively receive foreign aid from developed nations to build out their powerplants and infrastructure. And this concern has gotten worse, as China has now passed the US as the largest emitter of greenhouse gases, but has consistently refused to consider its own emissions reductions. So in reality, even if the Democrats win, we may still get a US focused cap and trade system if that is all that can get through the Senate.

But while any candidate election would likely make a US cap and trade a foregone conclusion, unlike McCain who has actually put forward US cap and trade legislation with a Kyoto “linkage”, Hillary and Barack both talk a new treaty and about a G-8 plus major emitters “extra Kyoto” approach that includes China. This sound surprisingly like the approach George W Bush took at the G-8 summit proposing to work within a group of the 15 largest emitters. Not surprisingly, it failed when the Bush Administration refused to sign up to commitments without China and India on the hook, and China still is not interested in signing commitments. Unlike McCain, I’m not sure Barack Obama and Hillary have figured out the details here. But we shall see.

First, the last naysayer.

Mitt Romney

In 2004 Mitt Romney told the Boston Globe he was not sure global warming is happening.

In 2007 on the global warming issue he continued to be anti Kyoto, at least. “As governor, I found that thoughtful environmentalism need not be anti-growth and anti-jobs. But Kyoto-style sweeping mandates, imposed unilaterally in the United States, would kill jobs, depress growth and shift manufacturing to the dirtiest developing nations.” Source

And the Republicans.

Mike Huckabee

Bottom line, likely no Kyoto and but maybe a cap and trade.

Huckabee has come out in support of “economy-wide” cap and trade, in a Bloomberg article on Huckabee’s support for the McCain sponsored bill.

Huckabee adopted the National Governors Association policy:

“not sign or ratify any agreement that mandates new commitments to limit or reduce greenhouse gas emissions for the US, unless such an agreement mandates new specific scheduled commitments to limit or reduce greenhouse gas emissions for developing countries within the same compliance period;”

Kyoto was a mistake, but “Earth in the Balance” is not. You do not have to hug a tree to appreciate one. It would have been a mistake to sign the Kyoto Treaty since it would have given foreign nations the power to impose standards on us. But Al Gore was not entirely wrong when he spoke of earth “in the balance.” Balance is exactly what we need more of in this discussion. All of us need to have a healthy respect for our resources, a responsible level of use of those resources, and a comprehensive plan for either preserving or renewing those resources. Source: From Hope to Higher Ground, by Mike Huckabee, p. 70 Jan 4, 2007 Source

John McCain

A keen proponent of market based environmental solutions, and anti tax to boot. He is heavily in favor of cap and trade, and as coathor of the McCain-Lieberman Senate bill backing a US cap and trade is the only candidate who has actually been doing anything about it. But he has not necessarily supported ratifying Kyoto without Chinese participation like Hillary Clinton (her husband was the one who signed it originally) used to advocate.

Among other things McCain-Lieberman calls for cap and trade, with the amount of allowances to be determined in the future, up to 15% of allowances permitted from other systems (like Kyoto’s CDM mechanism), and an enforcement penalty of 300% of the per ton market price for companies over their cap. A good summary has been done by the Pew Center, as well as a comparison with other climate change legislation.

In 2003 he did a good LA Times Op Ed piece defending cap and trade as a solution to global warming.

In a further interview he reaffirmed his belief that market based environmental solutions will work.

“Is your party where it needs to be on global warming yet?

Sen. McCain: It varies in my party, so I can’t say “my party.” But where I think our party needs to be is to be more involved in market-based economically beneficial green technologies which will then reduce greenhouse-gas emissions.In other words, Lieberman’s and my cap-and-trade proposal is market based. General Electric, the world’s largest corporation believes they’re going to make profits off of green technologies. I was just out at the port of Los Angeles with Schwarzenegger and BP is going to sequester carbon and take some offshoot materials and convert them into some kind of fuel, as I understand it. That’s going to be beneficial to BP to do that; in other words, it’s economically profitable to do these things.

Ponnuru: One of the stumbling blocks people sometimes have is that they look at these proposals to deal with the problem and they seem, not the ones you’re talking about but some of these other ones, incredibly draconian, like Kyoto, and then you look at the pay-off and it’ll solve 0.7 percent of the problem. Is the problem so enormous that these kinds of measures can’t really get you very far?

Sen. McCain: [They can] if they’re market-based. If business and industry sees a way to make money and get returns to their stock holders, then they’re going to move in that direction. And I really believe that again, this cap and trading thing, which is still being sorted out a bit in Europe, is a good market-based approach to it. And again, carbon sequestration is fine, all of these things are fine, but if you want an immediate impact on reduction of greenhouse gases then start building nuclear power plants. And I’m not saying that’s the only answer but I think it’s a significant part of the answer.”

McCain has adopted the Republican Main Street Partnership issue stance:

“The Republican Main Street Partnership supports the goal of immediate, near-term reductions in greenhouse gases, and would move toward this goal by providing strong incentives that have minimal adverse impact on the economy, and to continue to apply our best scientific minds to developing a better understanding of the long-term nature of climate change and the means to cope with it.

Two objectives should be accomplished:

create an “early action crediting system” to provide assurances to companies that actions taken now to reduce emissions of greenhouse gases will be recognized and credited in the eventual system of emissions reductions standards that will be developed; and

commit the necessary resources to national and international scientific efforts to better understand the cause and effect of global climate change.

With regard to global warming, the Republican Main Street Partnership recognizes that a longer debate over the proper U.S. role in implementing the Kyoto Protocol should and will occur. In so doing, we hope to bolster our scientific understanding of the problem and perhaps, in turn, provide immediate incentives for communities and corporations to act in their own and the nation’s best interests in reducing emissions. We are strongly committed to acting on the emerging consensus for progress and constructive change, and maintaining America’s ability to lead the world in the critical area of environmental protection. Source: Republican Main Street Partnership Issue Paper: Environment 98-RMSP2 on Sep 9, 1998″

Ron Paul

A strong environmentalist and free market libertarian, who opposes the Iraq war, Kyoto, and energy company subsidies for all the same reasons, for one, the constitution does not permit it, two, it is the job of the private sector, not government. Despite being the only non cap and trade Republican left in the mix, I always find it hard to disagree with Ron Paul. He and I are kindred spirits when it comes to small government.

Ron Paul on the environment:

“The federal government has proven itself untrustworthy with environmental policy by facilitating polluters, subsidizing logging in the National Forests, and instituting one-size-fits-all approaches that too often discriminate against those they are intended to help.

The key to sound environmental policy is respect for private property rights. The strict enforcement of property rights corrects environmental wrongs while increasing the cost of polluting.

In a free market, no one is allowed to pollute his neighbor’s land, air, or water. If your property is being damaged, you have every right to sue the polluter, and government should protect that right. After paying damages, the polluter’s production and sale costs rise, making it unprofitable to continue doing business the same way. Currently, preemptive regulations and pay-to-pollute schemes favor those wealthy enough to perform the regulatory tap dance, while those who own the polluted land rarely receive a quick or just resolution to their problems.

In Congress, I have followed a constitutional approach to environmental action:

  • I consistently vote against using tax dollars to subsidize logging in National Forests.
  • I am a co-sponsor of legislation designed to encourage the development of alternative and sustainable energy. H.R. 550 extends the investment tax credit to solar energy property and qualified fuel cell property, and H.R. 1772 provides tax credits for the installation of wind energy property.
  • Taxpayers for Common Sense named me a “Treasury Guardian” for my work against environmentally-harmful government spending and corporate welfare.
  • I am a member of the Congressional Green Scissors Coalition, a bipartisan caucus devoted to ending taxpayer subsidies of projects that harm the environment for the benefit of special interests.

Individuals, businesses, localities, and states must be free to negotiate environmental standards. Those who depend on the land for their health and livelihood have the greatest incentive to be responsible stewards.”

From an interview with Grist:

“What, if anything, do you think the government should do about global warming?
They should enforce the principles of private property so that we don’t emit poisons and contribute to it. And, if other countries are doing it, we should do our best to try to talk them out of doing what might be harmful. We can’t use our army to go to China and dictate to China about the pollution that they may be contributing. You can only use persuasion.

You have voiced strong opposition to the Kyoto Protocol. Can you see supporting a different kind of international treaty to address global warming?

It would all depend. I think negotiation and talk and persuasion are worthwhile, but treaties that have law enforcement agencies that force certain countries to do things, I don’t think that would work.

You believe that ultimately private interests will solve global warming?
I think they’re more capable of it than politicians.

What’s your position on a carbon tax?
I don’t like that. That’s sort of legalizing pollution. If it’s wrong, you can buy these permits, so to speak. It’s wrong to do it, it shouldn’t be allowed.”

Then the Democrats.

Hillary Clinton

Hillary Clinton has previously stated she would ratify Kyoto (though has discussed “fixing” it first), and has come out in favor of aggressive cap and trade systems. It is a little hard to understand how she will reconcile her stated desire for environmental protection as a key part of trade policy, and a Kyoto protocol that places no emissions reduction commitments on major US trading partners like China and India. The short answer may be she has backed off Kyoto, focused on cap and trade and a new treaty for Kyoto.

The Hillary Clinton global warming agenda from her website:

“Hillary’s plan to promote energy independence, address global warming, and transform our economy includes:

A new cap-and-trade program that auctions 100 percent of permits alongside investments to move us on the path towards energy independence;

A requirement that all publicly traded companies report financial risks due to climate change in annual reports filed with the Securities and Exchange Commission”

Her previous statements were very strongly pro Kyoto. “As Senator, I will work for New York to get its fair share of federal mass transit funds and to increase the amount of money that goes to transit funds. And, I will vote to ratify the Kyoto Protocol to bring all nations together to address global warming and build a better future for us all. Source: www.hillary2000.org, “Environment” Sep 9, 2000”

But recently she has started hedging a bit, talking about the flaws of Kyoto. “I will start by reigniting our international involvement. We cannot sit here, in the United Sates and expect to deal with global warming if we do not cooperate with other countries. Getting back into process, you know when President Bush took us out of Kyoto, I regretted that but he had an opportunity to start his own process, he didn’t want to do Kyoto, do something else. Reach out to India and China they have to be part of this. One of the flaws of the Kyoto process was I don’t think people anticipated, even in the early 90s how quickly China and India would grow. China is now growing at 12 percent a year. They are the second highest user of energy but they are now the highest emitter of green house gases in the world. India is not far behind. We have got to get a new international process.” “Energy and Environment: Speech on the Green Building Fund,” Hillary Clinton’s official candidate website, July 24, 2007

And further here.

“The President’s failed unilateral energy policy is a part of our failed unilateral foreign policy. It’s deprived us of the credibility and the leverage we need to solve the climate crisis. I’ll change that by leading the process to develop a new treaty to replace the Kyoto Protocol, which is set to expire in 2012. One of the worst messages the President sent was when he took office and rejected completely Kyoto. He could have said we don’t like Kyoto but we’re immediately starting a new process. But that didn’t happen. Well, come January 2009, I’m sending a different message. I want to act quickly to help develop a new treaty. I will engage in high level meetings with leaders around the world every three months, if that’s what it takes to hammer out a new agreement. My goal will be to secure a deal by 2010. We can’t wait for two more years. I will establish an E8 that’s modeled on the G8 which is where the big industrial economies come together. We need the world’s major carbon-emitting nations to come together to tackle these challenges.”

Barack Obama

As aggressive a global warming activist as you will find in the election, he is actually more Republican on his global warming position that he looks. He like Hillary, favors cap and trade, technology investment, and a 100 percent auction for allowances. But with his extra-Kyoto Global Energy Forum and a noncommital “re-engage” Kyoto strategy, like Hillary he does not appear to have worked out the details.

The Obama statements:

“Restore U.S. Leadership on Climate Change

Create New Forum of Largest Greenhouse Gas Emitters: Obama will create a Global Energy Forum — that includes all G-8 members plus Brazil, China, India, Mexico and South Africa –the largest energy consuming nations from both the developed and developing world. The forum would focus exclusively on global energy and environmental issues.

Re-Engage with the U.N. Framework Convention on Climate Change: The UNFCCC process is the main international forum dedicated to addressing the climate problem and an Obama administration will work constructively within it. “

“Reduce carbon emissions by 80% by 2050

Cap and Trade: Obama supports implementation of a market-based cap-and-trade system to reduce carbon emissions by the amount scientists say is necessary: 80% below 1990 levels by 2050. Obama’s cap-and-trade system will require all pollution credits to be auctioned. A 100% auction ensures that all polluters pay for every ton of emissions they release, rather than giving these emission rights away to coal and oil companies. Some of the revenue generated by auctioning allowances will be used to support the development of clean energy, to invest in energy efficiency improvements, and to address transition costs, including helping American workers affected by this economic transition.

Confront Deforestation and Promote Carbon Sequestration: Obama will develop domestic incentives that reward forest owners, farmers, and ranchers when they plant trees, restore grasslands, or undertake farming practices that capture carbon dioxide from the atmosphere.
Source: Campaign booklet, “Blueprint for Change”, p. 24-27 Feb 2, 2008″ Source

“Q: What do you think the toughest choice you have left to make is? What haven’t you made up your mind on yet? And why haven’t you?
A: The issue of climate change. I’ve put forward one of the most aggressive proposals out there, but the science seems to be coming in indicating it’s accelerating even more quickly with every passing day. And by the time I take office, I think we’re going to have to have a serious conversation about how drastic steps we need to take to address it.
Source: 2007 Democratic radio debate on NPR Dec 4, 2007″ Source

“As president, I will place a cap on carbon emissions and require companies who can’t meet the cap to buy credits from those who can, which will generate billions of dollars to invest in renewable sources of energy and create new jobs and even a new industry in the process. I’ll put in place a low carbon fuel standard that will take 50 million cars worth of pollution off the road. I’ll raise the fuel efficiency standards for our cars and trucks because we know we have the technology to do it and it’s the time to do it.”
Source: Take Back America 2007 Conference Jun 19, 2007

“I proposed a cap-and-trade system, because you can be very specific in terms of how to reduce the greenhouse gases by a particular level. What you have to do is you have to combine it with a 100% auction. Every little bit of pollution sent up into the atmosphere, that polluter is getting charged for it. Not only does that ensure that they don’t game the system, but you’re also generating billions of dollars that can be invested in solar & wind & biodiesel. On a carbon tax, the cost will be passed on to consumers. Under a cap-and-trade, plants are going to have to retrofit their equipment. That’s going to cost money, and they will pass it onto consumers. We have an obligation to use some of the money that we generate to shield low-income and fixed-income individuals from higher electricity prices. We’re also going to have to ask the American people to change how they use energy. Everybody is going to have to change their light bulbs and insulate their homes. It’s a sacrifice that we can meet.”
Source: 2008 Facebook/WMUR-NH Democratic primary debate Jan 6, 2006

So here comes the cap and trade. But the how is still up in the air. In the interests of full disclosure, this is an area I fully believe in, and I am not only involved with at least one business that would likely benefit from a US cap and trade, though also a few businesses that would likely suffer from a cap and trade.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, and a blogger for CNET’s Cleantech blog.

FutureGen Stalled?

FutureGen is the major US Department of Energy backed effort to pilot a technological solution to prove that carbon capture and sequestration from coal fired power plants is possible. At a slated price tag of $1.5 Billion ($1 Bil estimated originally, now estimated at $1.8 Billion), it is one heck of a science project – but one that sorely needs to be done.

Now that project appears to have hit a snag. While the site the consortium picked to build the project was selected in December as Mattoon, Illinois, after a short delay in responding, the DOE is now hesitating to give formal approval – their Record of Decision.

The CEO of the FutureGen Alliance, Michael Mudd, seems confused as to why, though cost overruns, disagreements about the scope and technological objectives, and objections to moving to fast for good practice have been suggested.

After thinking about it this morning, I had a few initial reflections:

  1. We are a nation of massive coal reserves and 50% of our power comes from coal generation. Investing in clean coal technology should definitely be a prime DOE objective. let’s keep our comparative advantage in energy.
  2. While CCS is likely to be an expensive way to abate greenhouse gases, if we are going to solve the global warming problem, we are going to need help from everything and the kitchen sink. Pilots exactly like this need to be tried.
  3. At the kind of price tag and scale up risk we are talking about with CCS, government research support and funding is vital.
  4. On a practical level, the Department of Energy is 74% of this project. I really do not understand why there should be any miscommunication. He who writes the checks makes the call. If they have real concerns over cost overruns, technology, or management, make the changes and get going.

There, I said it. Now let’s just get it done, people.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, Chairs Cleantech.org, and a blogger for the CNET Cleantech Blog.

Powering the Planet

by Richard T. Stuebi

“Powering the Planet” is the title of an extraordinary speech that is regularly given by Nate Lewis, Professor of Chemistry at CalTech. It is a bit long and detailed, but very much worth reading, as it elegantly frames the scale of the worldwide energy/environmental challenges to be faced in the coming decades.

The gist of the presentation is that aggressive pursuit of energy efficiency is critical — but we still need to supply the remaining human energy requirement in some carbon-free fashion, which leaves us relatively few viable options:

  • Nuclear power, which concerns Lewis not for safety/security reasons but because of inability to expand nuclear utilization quickly/sufficiently to meet the world’s needs
  • Carbon sequestration of fossil fuel burning, which Lewis says may not be available in time or at the volumes necessary to have significant beneficial impact on climate change
  • Hydro, geothermal, wind and ocean energy, which are all fine in Lewis’ view, but inadequate in scope to supply global energy demands
  • Bio-based energy, which Lewis finds to be highly inefficient and therefore unlikely to be able to provide more than a small fraction of worldwide energy requirements

This leaves solar energy, which Lewis concludes is the best hope for the planet — technologically known to work, scalable with no binding supply limitations, at potentially reasonable economics with continued advancement. Then Lewis closes with the clincher: if we’re going to succeed with solar energy, our priorities need to change:

“In the United States, we spend $28 billion on health, but only about $28 million on basic solar research. Currently, we spend more money buying gas at the pump in one hour than we spend funding basic solar research in our country over an entire year. Yet, in that same hour, more energy from the sun is hitting the Earth than all of the energy consumed on our planet in that year. The same cannot be said of any other energy source.”

‘Nuf sed.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Big Technology: Geo-Engineering

by Richard T. Stuebi

For a while now, I’d been reading bits and pieces about the concept of geo-engineering: undertaking macro-scale actions in the atmosphere to counteract the impact of increasing greenhouse gas emissions. From what little I’d read, it seemed like the ideas of crackpots.

That was until my Cleveland Foundation colleague Kathleen Cerveny sent me a most intriguing link to a videoed lecture by David Keith from the University of Calgary on the website TED.

No kook, Prof. Keith argues that it’s very possible to inject large quantities of sulfates high above the stratosphere, and in so doing put a brake on climate change far more rapid than can be accomplished by shifting our energy system to reduce emissions.

In this talk, he leaves unstated the technological approach for accomplishing this task, though he claims interestingly that it could be done at relatively moderate costs of a couple percent of world GDP.

He also points out how dangerous this pandora’s box of geo-engineering would be to open. It seems akin to the dilemmas associated with the discovery of how to harness atomic energy: once you know about it, it so profoundly affects the future fate of the human species that it becomes imperative to institute a global approach to controlling this knowledge for the forces of good rather than evil.

Interesting watching — have a look.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Bringing Seapower to the Fight Against Global Warming

The cleantech sector has developed as a major player in the fight against climate change. One of my friends, Dan Whaley, has founded a company called Climos to attack global warming in a new way, sinking massive amounts of carbon into the ocean depths using ocean iron fertilization. The approach has seen significant scientific study, but as he acknowledges, still has a ways to go to prove its effectiveness. That is where Climos comes in. The exciting part is the sheer scale of the potential carbon sequestration (on the order of a billion tons) and the low cost (possibly on the order of $5 to 7 per ton, according to Dan). Dan and Climos believe that they can use iron fertilization to sequester tremendous amounts of carbon, play a big part in reducing global warming, and use the carbon trading markets to finance the projects. I was also intrigued to learn more from Dan given the quality of the companies, like DNV and Ecosecurities (LSE:ECO.L), that Climos is working with to help design the carbon abatement methodology, and the care that Climos is taking to understand the environmental science. Like our own efforts in carbon, Dan believes in science and standards first. (On a personal note, I do not have a lot of choice in that matter, as my wife is an environmental scientist and statistician.) As a result, we asked Dan to do an interview with Cleantech Blog and tell us how they believe harnessing the power of the sea can play a big role in the fight against climate change.

Dan, you are one of the new class of technology entrepreneurs who is moving into cleantech. Can you share some of your background, and why you chose carbon?

In 1995 I founded the first company to commercialize travel reservations over the net, GetThere.com. We went public in 1999 and sold to Sabre in 2000. If you’ve booked a ticket on United Airlines’ website, you’ve used an example of the infrastructure we built.

I think that entrepreneurs by nature love big challenges. We like to find opportunities where key technologies, services or business transformations can make a profound difference to the world. We understand that the missing ingredient we provide is the vision and the sheer will to make those transformations happen. We are perhaps at our best when the odds are against us, and when most people say we’re crazy.

A few years ago, I drove from here down to Buenos Aires. Somewhere along the way, I think I woke up and really fully realized that there were some extraordinary challenges out there facing us that were much more pressing than most people had been giving them credit for. Challenges that were much more important than whether people could book their travel online, for instance. GetThere was a powerful lesson to me that I could set my mind to something and achieve it, but it was also a little numbing at times too—sometimes I wondered just exactly what I was really contributing to the world.

By contrast, the energy and environmental challenges we face as a species are exactly the kind of thing an entrepreneur likes to tackle head on. Plus it actually makes a difference whether we succeed or not.

Tell me a bit more about the concept of ocean fertilization and how it could abate C02? Why iron?

Ocean Iron Fertilization (OIF) was first proposed nearly 20 years ago by an oceanographer here in California named John Martin, at the time he was the Director of Moss Landing Marine Labs. He was the first to discover that iron was the trace nutrient limiting photosynthesis, and hence primary production, in most of the world’s oceans.

Photosynthesis uses freely available sunlight to convert CO2 to organic material, which higher level organisms consume directly or which sinks into deep waters of the ocean to be sequestered for up to 1000 years. Clearly we need to lower our emissions dramatically, and immediately, but if atmospheric CO2 that we have already put into the atmosphere is ever to decline, it will be photosynthesis that eventually does the work.

Over the last billion years, phytoplankton (the micro algae that grows ubiquitously in the ocean) have helped to concentrate over 80% of all mobile carbon on the planet into the deep ocean. This process is referred to as the Biological Pump, where after plankton bloom, mature and die, they sink to the deep ocean, carrying carbon along with them. The deep ocean recirculates over very long time periods. The lag between downward flux and eventual recirculation creates an extremely effective trap. This process is probably easily 20-30x more effective at storing carbon than plant growth on land, which returns most carbon back to the atmosphere on short time scales (10-100 years).

A tiny amount of iron can stimulate a lot of phytoplankton growth. 12 publicly-funded, open ocean experiments over 15 years have shown this. The science community is now proposing the next generation of experiments, at moderate as opposed to small scale and potentially funded by private sources. We hope to answer the question just how much carbon is sequestered (not just grown), at what scale can this be done safely, and whether this can fit in to the market mechanisms that have evolved worldwide to fund the mitigation of carbon dioxide.

Who else is doing this and what exactly do you do differently as far as ocean fertilization goes?

Up until now, it has been purely been a research effort, with cruises funded by public agencies such as the National Science Foundation. There are now a few companies proposing to do this, though the primary competitor, Planktos, appears to be winding down operations due to problems fundraising. We decided to pursue this because we feel like this is one of the largest potential tools mankind might have to address global warming. Perhaps our primary differentiator is that we want to make sure that if this is done, it is done credibly and scientifically.

Our Chief Science Officer, Dr. Margaret Leinen left NSF in January. She was the head of Geosciences there and managed a $700M research budget. Her research career was in paleoceanography and biogeochemistry. Our Science Advisory Panel includes people such as Dr. Rita Colwell, the former Director of NSF, Dr. Tim Killeen, the Director of the National Center for Atmospheric Research and the recent President of the American Geophysical Union, Dr. Bob Gagosian, the former President of Woods Hole Oceanographic Institute, Dr. Tom Lovejoy, the President of the Heinz Center, and so forth.

What is different about what is happening now is that the demonstrations of OIF will be larger, focused on different questions and also funded in part by the private sector. The carbon market is the mechanism that the world has chosen to fund emissions reductions and carbon mitigation, and so if OIF can be an effective way to safely remove CO2 from the atmosphere, that will probably be financed via the carbon market.

How will you verify that the abatement is happening?

To quantify the carbon removed, we deploy a range of sensors, the most important of which are called “Neutrally Bouyant Sediment Traps” to measure the amount of carbon falling past a certain depth in the ocean. Identical measurements are taken both inside the project area as well as outside the project area—this gives us an idea of what would have happened if we hadn’t been there.

There are further nuances which are important to account for, such as how much carbon really ends up coming out of the atmosphere to replace that which is being used at the ocean’s surface. Also, we will need to model the impact on nutrient stocks before they are replenished via deep winter mixing, etc. There many important other details, but this probably illustrates the basic concept.

Can you go into some more detail on the questions of permanence, always a major concern in new carbon reduction methodologies.

The permanence of storage is measured in choosing the depth we place the sensors at. This depth is determined by looking at what is called the ventilation or residence time of water at difference depths in the project area. Because the oceans circulate so slowly, most of the world’s water mass, in fact the majority, has not seen the surface since before fossil fuels began being combusted in the late 1800s. I think that is a fairly surprising fact to most people. By sampling water at depth for signs of human activity which also have a known history, such as tritium from bomb testing in the 1950s or from CFCs that began being released in the 1920s, oceanographers can tell how long any cubic meter of water has been away from the surface.

Putting this to practice, if you sink carbon past water that hasn’t seen the surface for 300 years, and if you know the directionality of circulation in that place in the ocean, you can be fairly sure that this carbon won’t see the surface for at least 300 years moving forwards. This is how we understand permanence in addition to quantity.

The IPCC defines permanence as at least 100 years, so we will likely use this definition—but ultimately the carbon market will decide what that number is, not us. Keep in mind that significant amounts of carbon are stored for timeframes which are shorter as well, i.e. 75 years, 50 years, etc. This timeshifting of carbon is meaningful and helpful as well, but we won’t claim credit for this. Also, the minimum (i.e. 100 years) is just that, the minimum. Much of the carbon will be stored for much longer—hundreds to even thousands of years.

Many people question the value of ‘timeshifting’ carbon. They wonder if we’re creating a problem for ourselves later when this carbon comes back. There are several important things to consider here. First, we really have no other options—other than emissions reductions, which are important—but really separate. There is no other way to ‘dispose’ of the carbon that we’ve put up in the atmosphere already. Nature timeshifts carbon—at some point, nearly all carbon will see the atmosphere again, the question is on what timeframe. The effectiveness of sequestration in the ocean is the reason that the majority of ‘mobile’ carbon has ended up there over time. Second, this approach gives us time to address our emissions problem. People have likened this to a concept called ‘oscillation damping’, where if you have a pulse that takes time X (as in the number of years we have been adding too much CO2 to the atmosphere) then it may take you 2X or 3X or 4X to ‘dampen’ that pulse, depending on its amplitude. So if we’ve been creating this problem for 100 years, and it takes us another 25 years to solve, then we may have to mitigate for several multiples of that. This is an unscientific quantification, but perhaps a useful illustration—and I think it also serves to highlight what a huge challenge we have ahead of us.

Aren’t you worried about the impact on the environment on “adjusting” ocean nutrients? I know that has been a concern of some environmental groups.

I think there are a number of distinct concerns rolled up in your statement. One is the fear that OIF is ‘messing with mother nature.’ Many people feel that humans simply can’t get anything right, and that we if we try to fix what we’ve already broken, we’re likely to make it worse. This is an unscientific attitude, and one that I think also fails to appreciate some of the unique aspects of this concept.

Other concerns are whether a change in the level of iron is potentially harmful, or whether the drawdown of existing macronutrients such as nitrates, phosphates and silicates (which is what the addition of iron triggers) could result in permanent shifts, or deplete productivity elsewhere—i.e. no net benefit. There are a number of answers for this.

First, this is already happening. Iron naturally fertilizes phytoplankton blooms—and these are the largest source of carbon sequestration happening as we speak. About three billion tons of CO2 is stored safely at depth in the ocean every year, and has been for a long time. Iron is a benign mineral. It in and of itself is simply not harmful.

Second, nature has already done more aggressive iron fertilization at scales much larger and for periods much longer than we are contemplating. During the last million years on at least five or six separate occasions between the major ice ages, natural iron inputs to the ocean increased by many times what they are now for thousands of years at a time. Productivity (i.e. plankton) increases appear strongly correlated with these times of increased iron. A recent paper by Cassar, et al this year has linked nearly 40ppm of the 80-100ppm swing of carbon in the last interglacial to increased iron enrichment of ocean waters by aerosol and other transport mechanisms. If iron fertilization simply removes nutrients that would have eventually been used elsewhere, then you would not have seen sustained productivity increases in the paleo record. Where we are now is a result of all of these previous episodes—and more than likely this will happen naturally again in the future, whether humans do it on purpose or not.

Lastly, OIF will be done gradually, over decades. It can be stopped at any time.

The key is to continue to explore this as a potential mitigation mechanism and to see whether it can be both effective and safe. Demonstrations run by scientists, and funded by the private sector which can deploy the capital required for the larger projects, are probably our best chance of this.

You intend to sell carbon credits based on this process. What standard will you use, and who do you expect will be the likely buyers?

Long term if this is to be meaningful it will need to be accepted in regulated markets, in the short term the voluntary market can help provide the bridge financing to get us there. We think the Voluntary Carbon Standard (VCS) is probably the best current standard, but there are others as well. We’ll target as many standards as appropriate. The methodology we are currently developing is designed around the UN Clean Development Mechanism (CDM) specification—though since it takes place in the middle of the ocean it will never qualify for those credits without changes to the regulatory framework.

You mentioned you approached the problem from the science, standards and measurement & verification end first. That’s an approach I definitely agree with. Can you go into some more detail? I know you had mentioned working with DNV, among others.

A number of things need to be done before larger demonstrations like the one we propose.

First, the key science questions that will to be asked of this next generation of experiments need to be asked. We will be proposing a series of science workshops with the community this year to help facilitate that. One of the conferences will be on long term modeling. Another will be on measurement and verification techniques. We will be announcing these over the next several months.

Second, a comprehensive Environmental Impact Assessment needs to be performed by an outside party that reviews concerns in detail and against the peer-reviewed literature, identifying which are likely not an issue, which are questions of appropriate project design, and which need more study. We will be initiating this process over the next several months.

After these processes are complete we will begin to structure our proposed cruise, and publish this ahead of time. This also involves applying for appropriate international permits, etc.

DNV, or a company like that, will be involved in validating the Project Design Document (PDD) after we select a specific operating site, and before we actually go to sea. They will also come on the cruise to provide direct verification of the results.

Many of these general activities are called for by a document we produced last year which we call a Code of Conduct. We think that it is vital that companies like ours operate in a scientific, responsible and transparent manner.

So this process is kind of like planting trees, except in the ocean?

Yes, except it happens faster and the storage is more permanent. Forests store carbon in the form of standing biomass—in other words, you get storage for as long as the forest is managed and preserved. If it burns down, or gets harvested, a large part of that carbon is returned to the atmosphere. Also, if the tree dies and is not replaced, nearly all of that carbon is returned on short time scales (< 100 years). This is not to say that we shouldn’t be planting trees. We should, and we are—the UN just finished planting a billion trees the week before the recent Bali conference. We need to be doing a lot more of that.

Two of the most attractive aspects of ocean fertilization are low cost and large scale. Can you give us some insight into where ocean fertilization fits on the spectrum of cost and potential abatement levels?

We think credits from OIF can be delivered for about $5-7 a ton long term. No one knows what the annual global capacity might be. Certainly three billion tons a year (CO2) are already being done naturally. It is possible that another billion tons annually might be able to be added to this number, but that is pure speculation. Some people have quoted numbers that are much higher than this, but I think that’s probably not a constructive exercise right now.

And of course, when do you expect to be able to offer credits off of this platform, now that the VCS has been released?

We have just received the first draft of the methodology back from Ecosecurities and DNV (Det Norske Veritas) is in the process of a formal assessment. After their comments, and possible revisions, we will submit the methodology to the VCS steering committee. They have told us they will require a 2nd formal review by a qualified verifier, after which it would qualify to be accepted as a VCS methodology.

We will also be asking other peers in the science community to help us evaluate and refine the methodology. They will certainly be the most important check. We expect it will be refined many times as measurement and modeling approaches improve.

The credits of course will be dependent on the successful completion of our first cruise. We expect this in 2009.

Dan, your OIF approach is certainly exciting given the scale and low cost of the potential CO2 abatement, and I wish you the best. It is certainly not a easy task.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, Chairs Cleantech.org, and a blogger for the CNET Cleantech Blog.

Climate Legislation: Who Gains? Who Loses?

Most Americans now agree that something needs to be done to reduce our greenhouse gas emissions. Hopefully most Americans now appreciate that this is not a small, but even more so, not a simple problem. I am a big believer that the playing field for our low carbon future should start level, and the market should be structured to allow our major power and energy companies a chance to lead the way, instead of simply dishing out punishment for our combined historical choices. Carrots and sticks work well together, but sticks alone are not going to solve our global carbon problem. I think it is also important to ensure that our carbon legislation does not result in a higher cost to consumers in middle America, just because the MidWest happens to have been historically coal fired, than the cost to those of us living on the coasts. Jim Rogers of Duke Energy puts this much more eloquently than I do.

Duke Energy (NYSE:DUK), one of the largest power companies in the US, has been a long supporter of energy efficiency, and known for being forward looking when it comes to a low carbon future, smart metering, and advanced energy technologies, despite having a generation fleet that is 70% coal fired. Cleantech Blog is delighted to welcome Jim Rogers, CEO of Duke Energy, to give us his thoughts on the devil in the details from their perspective. It is heartening to see a major power company take on the carbon issue full force, and like Duke has done, push energy efficiency in a big way.

– Neal Dikeman, Cleantechblog.com

By Jim Rogers
Chairman, President and CEO of Duke Energy

As we debate our differences on how to address the challenge of global climate change, surely we can agree on the end-goal – a secure, sustainable and affordable supply of energy now, and for future generations.

Most Americans also agree that we must act now – and begin building a bridge to an energy-efficient, low-carbon economy.

As the third-largest coal consumer in the United States, and one of the largest greenhouse-gas emitters, Duke Energy has a responsibility to be part of the solution. That means looking at not only how climate change affects our business today, but also the implications for the future.

We support federal legislation to address global climate change by putting a cap-and-trade system in place. The U.S. Senate is in the process of vetting a cap-and-trade bill introduced by Senators Lieberman and Warner in October. This bill is well-intended, contains some good points and appears to have bipartisan support.

But on closer examination, questions arise. Who really stands to gain, and who stands to lose? What are the real costs to average Americans?

You would expect the bridge to a low-carbon economy to have a cost, just as you might pay a toll to cross any bridge. But should some of us have to pay twice? With the Lieberman/Warner approach, that’s exactly what would happen.

Lieberman/Warner proposes to auction a large number of emissions allowances to the highest bidder. In effect, an auction becomes a carbon tax, levied on consumers in the 25 states that depend on coal for electric power – primarily the Midwest, the Great Plains and the Southeast.

Electric power customers in those regions would have to pay for the auctioned allowances up front, and then pay again later to upgrade power plants, or build new ones, as carbon-control technologies become available.

A better approach is to allocate allowances at no cost to generators who emit greenhouse gases – and reduce the number of allowances over time, while new carbon-control technologies are being developed and put in place.

Some say that an auction is the only way to take action to reduce emissions, but history tells us otherwise. Allowances were not auctioned under the 1990 Clean Air Act Amendments; nearly 97 percent of them were allocated at no cost. Since then, new technologies to reduce sulfur dioxide and nitrogen oxide emissions have been developed and implemented. Those environmental controls have reduced emissions by more than 40 percent since 1990, and they continue to decrease, without dramatic rate hikes. In fact, the nation’s average electric rates have declined.

In contrast, some estimates put the Lieberman/Warner bill’s cost to the average family at more than $1,000 per year, while emissions traders would stand to profit greatly from a volatile market for carbon allowances. According to Bloomberg, the Lieberman/Warner bill would create a potential $300 billion annual carbon-trading market by 2020.

So the question comes down to this – are we interested in protecting consumers or enriching emissions traders?

Customers who live in the Midwest, the Great Plains and the Southeast did not choose to get a large portion of their electricity from coal – it was a matter of economics, geography and geology. They should not be punished for decisions made decades ago, in good faith, using the best and lowest-cost technology of the time, with regulatory approval – and long before anyone knew about the impact of carbon emissions on climate change.

And before we dismiss coal as a viable energy source for the future, consider this: The U.S. is sitting on more than 250 years of coal reserves, more than any other nation in the world. This rich natural resource has untapped potential for ensuring our country’s energy security. The challenge is primarily technological – to find smarter and cleaner ways to use it, such as carbon capture and storage. Until those technologies are available, we must continue to use our existing coal resources and protect the interests of consumers who rely on coal.

The goal for carbon legislation should not be to punish utilities for building coal plants to keep the lights on in the past. It should be to create the incentives to put new clean technologies in place for the future – not just clean coal, but also nuclear and renewable energy, natural gas and the “fifth fuel” – energy efficiency.

Under the Lieberman/Warner approach, electric power customers in half of our states will carry a disproportionate share of the burden. We need to pass climate legislation that is fair to all consumers and protects the economic interests of all states and regions. Our climate is at stake, and so is our economy. By allocating most allowances, following the precedent set by the successful Clean Air Act, we believe both can be protected.

Jim Rogers is the CEO of Duke Energy, writing as a guest columnist on Cleantech Blog.

Policy Progress in the Midwest

by Richard T. Stuebi

When it comes to clean energy, it’s no secret that the Midwest U.S. far lags beyond the East and West Coasts. This is because, on the coasts, public policy far more aggressively promotes advanced energy. The Regional Greenhouse Gas Initiative (RGGI) in the Northeast and the Western Climate Initiative in the West are regional emission-reduction compacts that will drive significant adoption of renewable energy and energy efficiency. Correspondingly, much of the future advanced energy industry is emerging on the coasts, getting established to serve local markets, while the Midwestern industrial base largely hollows out and stagnates.

A few weeks ago, the Midwestern Governors Association (MGA) began to take steps to close the gaps. The Governors of Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Ohio, South Dakota and Wisconsin, along with the Premier of the Canadian province of Manitoba, met to discuss shared energy challenges. The result: two pacts that start to lay the groundwork for regional collaboration and commitment to energy/emissions reductions.

The Energy Security and Climate Stewardship Platform sets significant goals in four areas:

  1. Energy efficiency: electricity demand reduced by 2% by 2015, 2% per year thereafter
  2. Biofuels: 1/2 of regional transportation satisfied by biofuels and other low carbon fuels by 2025
  3. Renewable energy: 30% of regional electricity supply from renewables by 2030
  4. Coal with carbon sequestration: all new coal plants with sequestration by 2020, all plants in fleet by 2050

The Energy Security and Climate Stewardship Platform also proposes six areas of regional collaboration:

  1. Carbon management infrastructure: for transporting and storing CO2 in a coordinated fashion
  2. Bioproduct procurement: to establish a common marketing/sales framework for bioproducts
  3. Electricity transmission: to expand transmission to accomodate greater amounts of renewables (especially wind)
  4. Renewable fuels infrastructure: for transporting biofuels and other low carbon fuels
  5. Bioenergy permitting: to avoid duplicating or conflicting efforts in various jurisdictions and arrive at common standards
  6. Low carbon energy integration: to demonstrate the potential to harness multiple forms of advanced energy synergistically

Lastly, some of the Midwestern governors signed the Greenhouse Gas Accord, which commits the signatories to establishing targets and timeframes for greenhouse gas reductions on the order of 60-80% reductions by 2050, along with a cap-and-trade mechanism for reaching these targets.

Note that only some of the Midwestern governors got on board with the Greenhouse Gas Accord. Signatories were Iowa, Illinois, Kansas, Michigan, Minnesota, Wisconsin, and Manitoba. Indiana, Ohio and South Dakota only opted for “observer” status — whatever that really means.

A spokesman for Ohio Governor Strickland was quoted by Gongwer in saying that “the governor supports the Midwest states’ effort to move forward in the way outlined in the agenda, but Ohio is not in a position today to participate actively in [the Greenhouse Gas Accord].” I am compelled to ask: what exactly about Ohio’s current energy situation is materially different than, say, Michigan (which signed the Greenhouse Gas Accord)?

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.