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Offshore Wind: Europe Now, U.S. When?

by Richard T. Stuebi

Every two years, the European Wind Energy Association (EWEA) holds a major conference on offshore wind energy.

The last time EWEA convened its offshore event, in December 2007 in Berlin, the mood was relatively somber. Several major offshore wind projects had been completed, but had run into unforeseen technical and economic challenges. European policies and regulations for the next phase of offshore wind energy were in flux. Although everyone was convinced that offshore wind was going to be a significant growth sector in the European energy mix, there were real doubts as to when such opportunities would actually come to fruition.

Last week, EWEA held their 2009 offshore event in Stockholm, where 4,750 attendees (up from about 2,000 in Berlin two years ago) congregated to celebrate what is now clearly emerging: a boom in offshore wind in Europe over the next decade. EWEA projects 50 gigawatts of offshore wind installed by 2020. With 20 gigawatts of projected installation, the United Kingdom is making a play to steal (or at least share) German leadership in offshore wind manufacturing and deployment.

Wind manufacturers are clearly bullish. Recently, Siemens (XETRA: SIE) has established a separate business unit for offshore wind, with well over 100 employees — and still hiring. Also, General Electric (NYSE: GE) acquired ScanWind, a Scandanavian turbine manufacturer, to gain a product specifically designed for offshore application, thereby getting back in the offshore game after retrenching in the wake of its initial foray in Arklow Ireland a few years ago. At the exhibition, Vestas (NASDAQ OMS Copenhagen: VMS) unveiled a new model, the V112-3.0, for the offshore market.

So, the offshore wind industry seems to be really taking off – in Europe. Here in the U.S., as is the case with so many things on the energy front, we’re years behind.

In its industry roadmap, projecting how the U.S. could achieve the aspiration (set by both the Bush and Obama Administrations) in which 20% of the nation’s electricity supply would come from wind energy by 2030, analysis by the U.S. Department of Energy indicates that about 50 gigawatts would probably need to come from offshore wind. This is not because there’s insufficient onshore wind resource in the U.S., but rather, that most of this resource is too far removed from demand centers in the East and access to transmission would be problematic.

Developers are increasingly exploring opportunities in U.S. offshore wind, mainly along the North Atlantic, due to favorable policies and market conditions in states like New Jersey, Delaware, Maryland, and Rhode Island. In the Great Lakes — likely to be a separate market from the Atlantic for geographic and logistics reasons — the Cleveland area is pursuing offshore wind, and so are parties in New York, Michigan and Wisconsin.

While the private sector is most eager (and naturally so) to find lucrative profit opportunities, civic leaders in each of these areas are taking steps to encourage offshore wind from a job-creation perspective, aiming to attract manufacturing activity and all of the logistics services – shipping, engineering, installation, maintenance – that come with significant development of offshore windfarms.

The good news is that many of these jobs for offshore wind pretty much have to be done locally. The bad news is that, at least when it comes to technological leadership in offshore wind, the U.S. has pretty much absent from that game, with the massive 10 MW Brittania design by Clipper Windpower (AIM: CWP) being the only American exception — although, it should be noted, its initial deployment is planned for the U.K.

The worse news is that offshore wind is not on a track to becoming a significant activity in the U.S. for at least 5 and probably more like 10 years. In the above-noted DOE study, offshore wind penetration only begins in the late 20-teens. This is because there’s nowhere near the degree of policy commitment to offshore wind in the U.S. as is seen in Europe. In turn, this is because Europe has less developable land, greater renewable energy and environmental aspirations, and higher electricity prices than the U.S.

So, akin to Thomas Friedman’s “Have A Nice Day” op-ed piece in the New York Times last week, the U.S. has clearly abdicated leadership in offshore wind to other countries.

Until the profit prospects become significant, developers will find it challenging to explore offshore wind energy opportunities in the U.S. For the U.S. market to really bloom, this puts the burden on the suppliers of offshore windfarms – not just the turbine manufacturers, but also those who are working on foundation, erection and shipping designs – to drive the costs of offshore wind down to competitive levels in a timely fashion (10 years?).

The private sector is likely to need a “carrot”, in the form of some supportive public policy, to make the investments in technological advancement for offshore wind energy that ultimately produce a self-sustaining growth industry.

As the Fellow for Energy and Environmental Advancement at the Cleveland Foundation, Richard T. Stuebi is on loan to NorTech as a founding Principal in its advanced energy initiative. He is also a Managing Director at Early Stage Partners, and is the founder of NextWave Energy.

Ah, Chu

by Richard T. Stuebi

As Secretary of the Department of Energy, Steven Chu is a breath of fresh air. As a recent profile in The Economist noted, “Wags used to say that the one essential qualification for being energy secretary was not to know anything about energy.” Well, that definitely doesn’t apply to Dr. Chu.

A winner of the 1997 Nobel Prize for physics, and former Director of the Lawrence Berkeley National Laboratory, Steven Chu is by far the most expert energy secretary the U.S. has had since the founding of the Department of Energy in 1977. (See the list of other predecessors.)

Of course, in Washington, it’s not always the case that knowledge and experience begets success. But any failures that Chu might experience can’t be attributed to lack of resources.

Clearly, Secretary Chu has a lot of money to play with these days: in addition to annual budget of $26 billion (which is certain to increase substantially in coming years), over $38 billion was authorized to DOE as a result of the American Recovery and Reinvestment Act. So far, only about $7 billion of the ARRA monies has been awarded, and a measly $243 million has been actually spent, so Chu has a lot of “dry powder” left.

Let’s hope he puts it to good use, because the public sector is a notoriously poor selector of winners and losers — among technologies and among businesses. Chu is obviously a bright guy; let’s hope he’s smart enough to know what he doesn’t know. (Of course, the last guy to notably discuss the concept of “unknown unknowns” — former Secretary of Defense Donald Rumsfeld — was no dummy, and we all know how well his efforts panned out.)

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become Managing Director of Early Stage Partners.

Blogroll Review: P-Power, B-Buy, C-Can

P-Power

Pee power. Scientists may have found a way to extract hydrogen from urea, one of the main major components in ordinary pee. That compounds is way for the body to get rid of toxic ammonia that comes out at the end of various metabolic processes.

In many rural areas, urea would be the ideal source of nitrogen for fertilizing plants but it may also be a source of power one day.

Hank Greek at EcoGeek says:

Gerardine Botte at Ohio University has figured out an easy and efficient way to break the bonds in urea to produce hydrogen. The process consumes roughly one quarter of the energy needed to electrolyze water. And, yes, the world has a fairly plentiful (and renewable) supply of urea. Maybe not enough to power all our cars, but it’s a start.

And all this time, I was only interested in the nitrogen. 🙂

B-Buy

Best Buy! This next story is about the role of national retailers in transforming the economy to greenness. Joel Makower gives us Best Buy as an example. He sums it up really nice as to the role of these big companies:

While cutting-edge innovation will likely come from countless start-ups, it will be up to the mass merchandisers to accelerate market uptake beyond the green devotees and early adopters.

C-Can

Canadians can! The country up north is one of my favorite countries. I’ve also wondering what the government was doing to encourage corporate sustainability. Our friend Tyler Hamilton at Cleanbreak has a summary.

In other news, Robert Rapier reminds us that thermodynamics wins.

Celcias reports that the 100th coal plant has been defeated. I’m sure Lester Brown would be proud!

Finally, is the big battle between Google and Microsoft? Earth2Tech suggests otherwise.

Climate Change Legislation and the Midwest

by Richard T. Stuebi

As virtually every reader of this blog probably knows, Congress has recently made more progress on climate change legislation than it had ever before achieved. The House has now passed the American Clean Energy and Security Act (H.R. 2454), more commonly known as the Waxman-Markey bill.

The path forward for this bill is likely to be torturous. In the Senate, conventional wisdom is that passage is within reach if all Democratic Senators vote for a bill (augmented perhaps by a few Republican votes). But there’s a significant swath of Democratic Senators who are, at best, “on the fence” about supporting climate legislation.

Many of these swing votes reside in the Midwest, where a group of Senators loosely called the “Gang of 16” have publicly raised concerns about the prospect of climate legislation. As you might expect, their concerns largely stem from the potential economic harm that might be borne by Midwestern interests — through higher electricity prices and reduced global competitiveness in industrial markets — as a result of policies adopted by the U.S. to reduce carbon emissions.

Against this backdrop, over the past year, the Chicago Council on Global Affairs convened a Task Force, comprised of regional thought-leaders in the private, academic and non-profit sectors, to consider the challenges facing the Midwest in moving to a carbon-constrained world. The goal: to make a public statement to elected officials from the Midwest on appropriate directions for climate policy.

In June, the Task Force released its report “Embracing the Future: The Midwest and a New National Energy Policy”, which represented a synthesis of the perspectives of the Task Force members (of which I was privileged to be one).

The report is based on the presumption that human-induced climate change is occurring, and a national policy to mitigate emissions contributing to climate change is appropriate to put in place. The report offers no safe haven to those who believe climate change is bunk — or even if real, is not worth doing anything about. Rather, the question that the report wrestles with is what kind of climate policy should be put in place that will maximize opportunities for Midwestern economic revitalization while minimizing the downsides to the Midwest, given the region’s inherited assets and liabilities.

The summary findings of the report contain little that is groundbreaking:

1. “The Midwest can and must turn the challenge of changing energy and climate policy to its economic advantage.”
2. “Prompt enactment of national climate change legislation is essential to the Midwest’s future prosperity and competitiveness.”
3. “Regional and local action [in the Midwest] is likewise essential.”
4. “Addressing carbon emissions will not be cheap.”

To the last point, the report emphasizes the urgency of capturing the full range of economically-attractive energy efficiency opportunities — many of which are available at negative cost to society — or else the costs of climate policy are likely to be much higher. Ditto, the report advocates that emissions offsets be allowed in climate policy so as to enable economic sectors (e.g., agriculture) offering low-cost emission reduction possibilities to contribute to the overall solution at reduced societal cost.

Arguably, more important than what the report says is who the Task Force represents. The Task Force was co-chaired by John Rowe, Chairman and CEO of Exelon (NYSE: EXC), and included active participation by senior executives from such industrial stalwarts as Arcelor Mittal (NYSE: MT), Caterpillar (NYSE: CAT), Duke Energy (NYSE: DUK), Ford (NYSE: F), and Johnson Controls (NYSE: JCI).

Opponents of Waxman-Markey, or of any climate change legislation, will have difficulty claiming that these Midwestern industrial employers don’t accurately reflect the interests of old-line manufacturing concerns. If these companies are saying we can cost-effectively — and therefore should — do something to address climate change, it adds a lot of credibility to the position of taking definitive action.

Would it were that more Midwestern companies had the type of visible and proactive leadership exhibited by Mr. Rowe. At an event publicizing the release of the report on June 8 in Chicago, Mr. Rowe stated his strong support of Waxman-Markey (notwithstanding its imperfections), and urged those with close friends in D.C. to enlist more support. In the Senate, this means solidifying the positions of the Midwestern Gang of 16.

It will be an interesting summer here in the Midwest — the key battleground for the fate of climate change legislation.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become Managing Director of Early Stage Partners.

If Larry King Wrote My Column….

by Richard T. Stuebi

You heard it here first: the energy consultancy Douglas-Westwood is claiming in a May 11 white paper that “peak oil” may have already happened, as far back as October 2004, and that the oil price boom followed by economic collapse is indicative of how things will play out over the decades to come as oil supplies are unable to expand in the face of increasing demands. Stay tuned….

The American Wind Energy Association (AWEA) exposition WINDPOWER 2009 attracted 23,000 attendees to Chicago earlier this month. Glad AWEA didn’t ask me to do the headcount!….

Your stock portfolio isn’t the only thing that’s plummeted. According to a snippet in the March 2009 issue of Power, so too have PV prices fallen, by an estimated 10% since last October, with a further 15-20% decline expected in the coming year. Seems that, after several years of tight supplies, there’s now a glut in the market, due to collapsing demand in Europe….

Lots happening in DC these days. Looks like cap-and-trade requirements for carbon dioxide emissions are making real progress, embodied in the grandiosely called “The American Clean Energy and Security Act” (H.R. 2454) — better known as the Waxman-Markey bill. Cap-and-trade might even pass the House sometime this summer. Don’t think it’s going to be so easy in the Senate, though….

The U.S. Department of Energy (DOE) has created ARPA-E, to fund the initial evaluation of new whiz-bang ideas for energy, just like DARPA’s been doing for out-of-the-box defense gizmos for decades. One can only imagine what’s going to come out of that shop in years to come….

It also appears that the e-DII concept floated by Brookings earlier this year, to create Clean Energy Innovation Centers mainly affiliated with universities, is gaining traction, now having been tucked into the Waxman-Markey bill. Wonder what the national research labs, such as NREL, NETL, ORNL, LBNL and other alphabet soupers, think of this?….

Speaking of NREL, hats off to Joel Serface, who just completed a year’s residence there on behalf of uber-VC firm Kleiner Perkins to help accelerate technology commercialization and spin-outs from the lab. A year in Golden/Boulder is hardly hardship duty, but as Joel indicates in a recent post at this very CleanTechBlog site, it wasn’t enough time to make much of a dent in the bureaucracy….

Congratulations to my former colleague Cathy Zoi, who’s been tabbed by President Obama to lead the Office of Energy Efficiency and Renewable Energy at DOE. Wish her good luck: she’ll need it!….

Let’s hear it for Joseph Romm, now a Senior Fellow at the Center for American Progress. He calls ‘em like he sees ‘em. In a note in the May/June Technology Review, Romm claims “it’s not possible to have a sustained economic recovery that isn’t green” and calls our economic system a “global Ponzi scheme: investors (i.e., current generations) are paying themselves (i.e., you and me) by taking from future generations.” Whew!….

The U.S. Chamber of Commerce just released a study performed by Charles River Associates estimating 3 million jobs to lost in the U.S. by 2030 as a result of climate change legislation. Last year, the Chamber commissioned a similar study announcing a similar doom-and-gloom result. I’m not saying there won’t be job losses as a result of cap-and-trade – there certainly will – but I don’t think it’s going to be apocalyptic either….

Gotta hand it to Bob Galvin, former Chairman of Motorola. Not content to be retired, he has launched the Galvin Electricity Initiative to promote a “Perfect Power System” to help prevent future blackouts. In a sense, he’s trying to Galvinize the grid….

Last Wednesday evening, the Cleveland Chapter of the American Jewish Committee honored The Cleveland Foundation for its advanced energy initiative. Accepting the award on behalf of the Foundation was President and CEO Ronn Richard. A good time was had by all….

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become Managing Director of Early Stage Partners.

What the FERC?

by Richard T. Stuebi

The Federal government is a mighty bureaucracy, so it’s impossible to keep track of all the parts. Still, few areas are as unknown by the general public as the Federal Energy Regulatory Commission (FERC).

The FERC (it’s always referrred to as “The FERC”) is responsible for interstate regulation of energy markets, which in practice means the transmission or transportation of electricity and natural gas. As a result, the FERC is going to be a key player in all Smart Grid developments, which in turn will be a key driver of a variety of new energy technologies — renewable energy, energy storage, advanced meters, and so on.

President Obama recently appointed Jon Wellinghoff to be Chairman of the Commission. Wellinghoff is a long-time proponent of environmental protection, so it’s no surprise that he’s rapidly making moves to promote renewable energy and energy efficiency. For instance, Wellinghoff recently announced the formation of the Office of Energy Policy and Innovation, to be effective today. (Innovation in a Federal agency? Hmmmmm.)

Wellinghoff has already demonstrated the gall to radically challenge conventional wisdom — which is always a risky and courageous thing to do in the electricity sector. In late April, as noted in the New York Times, Wellinghoff told reporters following a United States Energy Association forum that baseload generation options may not be necessary in the future, thereby undercutting one of the key selling-points for the construction or continued operation of nuclear and coal-fired powerplants.

Quoting Wellinghoff: “I think baseload capacity is going to become an anachronism…People talk about ‘Oh, we need baseload.’ It’s like people saying we need more computing power, we need mainframes. We don’t need mainframes; we have distributed computing.”

Of course, Wellinghoff’s seductive vision depends on a major and costly overhaul of the national power grid, which seems light-years away to me. In his seminal New York Times editorial last November, Al Gore projected the cost of a Smart Grid at $400 billion — whereas the American Recovery and Reinvestment Act of 2009 (a.k.a., Stimulus Bill) allocates a seemingly large but comparatively paltry $4.5 billion to Smart Grid projects.

To get over the formidable humps we face in Washington, we’re going to need leaders who are willing to rattle the china on the dinner table. In Wellinghoff, it looks like we have one. His comments no doubt have a lot of people in the energy sector muttering, “What the FERC?”

Richard T. Stuebi is the Fellow of Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become a Managing Director of Early Stage Partners.

The Role of Government in Advancing the Green Economy

by Richard T. Stuebi

as posted to Huffington Post

Last week, I wrote a sizable check to the IRS. I wasn’t exactly happy about it, but I was happy for the fact that it stemmed from a nice payday in 2008 from one of my investments. Ah, the joys of capitalism, and the obligations of responsible citizenship.

This particular investment is advancing the cause of clean energy, as it involved the sale of interests in a pre-development windfarm to another firm that will (hopefully) take the project to fruition.

Clearly, the public sector played some factor in the fundamentals of my investment. States have imposed renewable portfolio standards driving the market for new windfarms to be developed, and the Federal production tax credit represents a significant portion of the financial value of an operating windfarm to its owner.

But, by and large, it was the forces of the marketplace – entrepreneurs, suppliers, landowners, financiers, customers – that drove the underlying business opportunity, the transaction, and its associated value-creation.

I hope that those days aren’t long gone.

Over the past year, there has unquestionably been a shift towards more government intervention in virtually all markets. It’s far beyond the scope of one blog post to delve into all of the causes and effects and all of the pros and cons of this shift.

In the cleantech realm, the tendency for increased intervention has been especially aggressive. The chatter in political circles is the notion of pushing forcefully towards the new energy economy – to achieve the admirable environmental benefits, but more for the prospect of creating some arbitrarily-large number of so-called “green jobs”.

Though I admire visionaries like Van Jones who newly brought the green job notion to the forefront of the public discourse just a few years ago, I’ve decried the excessive hype and the weak analytics behind the claimed magnitudes of green jobs that may or will emerge. I don’t doubt that many new green jobs will emerge, and I think they will be great for this country. It’s just that I don’t put any validity on any of the estimates of job creation, and I also acknowledge that there will be some job losses in other sectors that also need to be considered (but often aren’t).

I also lament the way in which many public sector leaders talk about “creating” green jobs, as if the job positions can somehow be invented by the government itself through the stroke of a pen or the wave of a wand.

Unless we want to move to a command-and-control economy where the government dictates the majority of all economic activity (remember the Soviet Union?), large-scale job creation is a private-sector phenomenon. In turn, the private sector (i.e., investors) must spot an opportunity to earn favorable returns, to generate attractive profits, in order for them to incur the costs of hiring people to perform work. In other words, value-creation (or at least the promise thereof) must precede job creation.

If a government throws money at inventing jobs that the market won’t somehow sustain after they’re created, this can’t be legitimately called job creation; it’s “make-work”. (And, never forget: the government doesn’t have any money of its own; it’s actually your money that the government is spending.)

In my humble opinion, the role of government is not to try to create jobs. Rather, governments should establish the playing field in such a way that the private sector will operate in its ruthlessly efficient manner to exploit – and, in so doing, hire a lot of people.

Governments can never match the intensity and the innovation of millions of properly-motivated private sector actors. Instead, governments should focus on aligning and harnessing these interests in ways that drive the system towards outcomes that are good for the public.

To be sure, the government has a key role – indeed, a responsibility – for setting policies that serve, advance and protect the public’s interests in transitioning towards an energy system that is more sustainable from both a supply and environmental standpoint. But, in the name of green jobs, the case is sometimes being stretched too far. An article in the April 4 edition of The Economist is particularly illuminating.

Spain is often touted as a model for how the public sector can exert leadership in setting a whole host of progressive policies (mainly generous subsidies) for rapidly pushing a move to green energy and creating many jobs while doing so. Yet, according to a recent study by a professor at King Juan Carlos University in Madrid, this way of building an industry is more than twice as costly on a per-job basis than if the private sector were to act on its own. Put another way, the study finds that, for every green job created by public sector prodding in Spain, more than two run-of-the-mill jobs were destroyed in the private sector. Ouch.

There’s a lot of talk in Washington about industrial policy these days. I’m a skeptic. I see Japan, and while it’s true that the Japanese industrial sector was the world’s envy in the 1980’s due to its strong government intervention, I also see nearly 20 years of uninterrupted economic stagnation now.

In sum, I just don’t think the public sector can actually build an industry better than the private sector can. In my ideal world, I would like to see the government intervene in the energy markets, for environmental and supply security, in one (and only one) simple way: high taxes on fossil fuel burn, to account for the social costs of climate change and dino-resource depletion.

High fuel taxes! The horror! The horror!

It’s lonely for me to write this, but the biggest problem facing the U.S. energy system is the enduring insistence of a “low price at any cost” energy policy, and the customer entitlement that bestows.

I see public service announcements (PSAs) about the little things that a viewer can do to become green, like changing from incandescent to fluorescent light bulbs, or using a reusable canvas shopping bag instead of use-and-chuck plastic bags. I understand that the average American needs to get engaged and feel like they can do something, even if it’s something simple and small, to contribute to the solution, but…. Please. Really. Enough feel-good talk about these piddling things.

I’d like to see some frank PSAs that confront the big issue head-on: higher energy prices, get used to it.

Obviously, a move to higher energy taxes will be unpopular, so we need some set of respected or well-liked voices in the public starting to lay the groundwork for its actual desirability, if not inevitability. In the grand scheme of things, shifting the U.S. mindset on the topic of energy taxes is much more important than urging people to put a recycling bin in the garage.

With energy prices that are predictably much higher, via a big jump in fossil fuel taxes, the private sector can go to work, busily eliminating wasteful energy consumption and developing new technologies that reduce fossil fuel requirements.

The twist is that the revenues collected from higher energy taxes can be offset by dramatic reductions in income and capital gains taxes. The way I figure it: we shouldn’t be heavily taxing things that are supposed to be good – such as income and savings – while undertaxing things that are supposed to be bad – like burning non-repletable fossil fuels that damage the atmosphere.

In the future, I want to get more good-sized checks from my cleantech investments, and I want all of you to get some checks from cleantech investments too. I also don’t want to send as big a chunk of those checks to the IRS. In return, I am willing to spend a lot more at the gas pump and in my utility bills.

Besides, I use my credit card when I buy those things, so higher energy prices means accumulating more points. In the move to the green economy, it’s important to always looking for the silver lining in every cloud encountered.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become a Managing Director of Early Stage Partners.

The T-Word

by Richard T. Stuebi

One of the bummers of having been in the energy/environmental field for so long is that rarely do I read or learn something I haven’t heard of before. It’s hard to for me get excited anymore.

Perhaps one of the silver linings of the current economic malaise is that thought-leaders are coming with novel and interesting ideas for the public sector to raise revenues. Yes, that’s right, new taxes.

Two recent examples. First, an intriguing idea put forth by Ian Ayres and Barry Nalebuff in the March 16 Forbes: a voluntary gas tax. This brings back, in different clothing, the concept of war bonds that could be marketed as a matter of patriotism to promote energy independence: citizens can optionally buy an advance tax rebate in exchange for paying an extra amount per gallon of gas purchased at the pump. If you drive little, or drive a fuel-efficient vehicle, you can actually profit from this transaction.

Second, Seattle city officials are considering a $0.20 charge per plastic or paper shopping bag. The idea is up for referendum in August, but unfortunately, it seems that the idea is on the ropes. It’s too bad, because the same idea has been in place (unbeknownst to me) in Ireland since 2002, and appears to be working well.

Although four-letter words are considered nasty, there’s no worse word in the American lexicon than that little three-letter devil. No politician can afford to raise the specter of new taxes, even when they’re desperately needed to balance budgets while encouraging more responsible behaviors.

The cap-and-trade legislation is being threatened by opponents who claim it is nothing but an energy tax (see, as an example, the March 9 editorial by the Wall Street Journal). The dirty little secret is that they’re right: cap-and-trade is a tax. Does the mere fact that something is a tax mean that it shouldn’t be adopted?

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become a Managing Director at Early Stage Partners.

California Dreamin’

by Richard T. Stuebi

as posted to Huffington Post

No-one has ever accused California of being timid. Certainly, in the area of energy and environmental policies, California has long been considered the leader among the 50 United States. But, maybe, California has bitten off more than it can chew — or at least, more than it thought it had bitten off.

The issue is the Global Warming Solutions Act of 2006, better known as AB 32, which compels the state to plan to achieve CO2 emission levels in 2020 equivalent to the emission levels in 1990.

As covered well in an article entitled “California Plans a Carbon Diet” by Heather Mehta, Briana Kabor and Dr. Robert Weisenmiller of MRW & Associates in the January 2009 Project Finance Newswire, a publication produced by the law firm of Chadbourne & Parke, two years after the passage of AB 32, California continues to struggle in implementing a regulatory approach for enacting the program.

Meanwhile, economically, the state is suffering, as well profiled in this recent article in The Economist, which argues that “California makes Washington DC look like a model of fiscal probity.” Facing a massive budget deficit of about $42 billion, the state government reached a painful agreement to slash spending and raise taxes.

In turn, these fiscal concerns are putting pressures on AB 32. Earlier in February, Stephen Moore in the Wall Street Journal wrote a highly negative piece entitled “California’s ‘Green Jobs’ Experiment Isn’t Going Well”, in which the state’s employment and budget downturn are implicitly linked to the passage of AB 32, while few of the “green jobs” and other economic benefits suggested by advocates of AB 32 have yet to materialize.

This is a damaging line of argument for the “green economy promoters”. In my opinion, Mr. Moore’s story is way too negative — most of the economic downturn in California has nothing to do with AB 32, and almost everything to do with the simultaneous collapses in housing, credit and equity markets, which are completely independent of AB 32.

But, underneath it all, Moore is onto something: that proponents of climate action have often been far too fast and loose with the promises of economic growth, and too-easily-dismissive of the economic costs and dislocations that will be endured. Those of us in the cleantech community must respect the near-certainty that there will be losers in the move to a low-carbon economy, and we can’t simply ignore that “inconvenient truth”, just as we are appalled when others deny the “inconvenient truth” of climate change.

At a micro-level, it’s interesting to see how one entrepreneur has responded to the doldrums in California. As profiled in the February issue of Fortune Small Business, Bob Hertzberg launched a company called Solar Integrated Technologies in Los Angeles, got fed up by government bureaucracy and changing of policies/programs at a whim, and moved from sunny La-La land across the ocean to cloud-shrouded Wales, where he started another solar company, G24i.

A solar company in Wales, as opposed to California? Hertzberg is convinced its a better place to be. Maybe some of the other VC-backed PV companies in the Bay Area could take note? Word through the grapevine suggests that the Sand Hill Road gang is now beginning to recognize that maybe other geographic areas are better-suited (i.e., lower cost) for building-out their ventures.

California may be the place of dreams, but with the hard realities it’s facing right now, the state is tossing and turning through nightmares.

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. Later in 2009, he will also become a Managing Director at Early Stage Partners.

Early Days in the Obama Administration

by Richard T. Stuebi

A few weeks into the Obama era, most of the attention has been focused on the raging economic stimulus bill debates. Of course, the economic stimulus package includes significant provisions related to energy and environmental issues, and these will be dissected in great detail as the final bill becomes more widely distributed and better understood.

In this column, I’m choosing to look past the economic stimulus package and examine some of the other actions taken so far by the Administration, as a leading indicator of other shoes to drop in the coming months and years.

(I’m not the only one crystal-ball-gazing: in the January 2009 Project Finance Newswire, a publication by the law firm Chadbourne & Parke, there’s a nice Q&A roundtable entitled “A Look Forward Into 2009” involving industry pundits who discuss their prognostications for Federal energy policy.)

On January 26, Obama signed two executive orders. The first mandates the establishment of Federal fuel economy targets for 2011, to implement the CAFE tightening enacted by law in 2007 but subsequently largely ignored. The second instructed the Environmental Protection Agency to reconsider its March 6, 2008 decision barring California from regulating greenhouse gas emissions from cars.

On another front, over at the Department of Interior, Secretary Ken Salazar reinvigorated and broadened the effort to implement a more comprehensive and far-reaching offshore energy strategy. Salazar’s February 10 press statement pulled no punches: “I intend to do what the Bush Administration refused to do: build a framework for offshore renewable energy development…The Bush Administration was so intent on opening new areas for oil and gas offshore that it torpedoed offshore renewable energy efforts…For them, it was oil and gas or nothing.”

Up on Capitol Hill, Senator Barbara Boxer (D-CA) released six carbon legislation principles for consideration, launching what is sure to be an increasing frenzy in D.C. on climate change. Much more on that, for sure, in coming months.

By this early flurry of actions, even when the capital is consumed with the economic crisis, it’s clear that the days of the Bush Administration are truly over. And, it’s clear that Obama isn’t buying the argument that the poor economy doesn’t allow us to afford to tighten environmental restrictions, and thus won’t be using the economic crisis as an excuse for inaction on toughening environmental standards.

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. Later in 2009, he will also become a Managing Director at Early Stage Partners.

Revolution Now

by Richard T. Stuebi

as posted to Huffington Post

Sandwiched around the election of the first African-American President of the United States, we find the debacles associated with the collapse of the international finance sector and the imminent end of the American automotive industry as we’ve known it for decades — accompanied by the scurrying of would-be leaders and experts around the world attempting to patch holes in the badly leaking dikes with hastily-applied band-aids.

It’s abundantly clear that the world has changed drastically. In my view, we’re now in the midst of truly historical sea changes, although the biggest implications of these dramatic changes are very unclear — and may not become fully apparent for some time to come.

But, the world spins on, waiting for no-one. Unable to stand still until clarity emerges, how can one make sense of what has happened in the relative blink of an eye? Here’s what I’ve been able to cobble together so far.

The Now-Dubious Ascent

For the past fifty years, the United States has implicitly pursued a social/industrial policy based on consumer largesse powered by low-cost energy. As outlined in a thoughtful December 4 USA Today opinion piece entitled “Blame and the Big 3” by Alan M. Webber, the government decades ago instituted what gradually became a fundamentally unsustainable social compact.

The two prongs of the compact were, first, to Detroit: Make big, powerful, low-cost and disposable vehicles, hire employees at high wages, and customers will flock to your products; we’ll ensure there’ll be plenty of cheap gas and cheap credit.

The second prong, to Joe & Jane Six-Pack: Work in factories at high wages, keep buying bigger new cars every few years, build big homes in the suburbs; we’ll build you roads and ensure cheap credit so you can live a good life.

For a while, it seemed to work pretty well. Sure, we had a tough patch in the 1970s, but with the demise of the Soviet Union and the Eastern Bloc in the late 1980s and early 1990s, we felt secure in our market-oriented supremacy.

At that moment in time, American hegemony looked limitless. It was, we were told, the end of history. The so-called “peace dividend” allowed us to enjoy a decade of almost unparalleled bliss — unburdened by any intrusions on the national consciousness more existentially serious than sexual peccadilloes in the White House.

Then, 9/11 happened. It was shocking and horrifying, but amazingly it didn’t become any wake-up call. Rather than altering the compact, the Bush Administration in effect told Americans not to worry: ignore the war, keep on going as you were — only more so.

And, boy, did we binge. For most of this still-young century, the United States has been borrowing money from lenders abroad, based on the expectation of ever-increasing housing values, to buy all sorts of stuff from China to fill their too-big and too-remote houses, and to buy oil from the Middle East to fuel their mega-vehicles and driving patterns. (Thanks to Thomas Friedman in a brilliant set of New York Times columns over the past several months for getting at the gist of this logic.)

American automakers went along for the ride, even encouraged it, with the shift to SUV’s. As has been long and widely documented, the Big Three focused heavily on SUVs largely because their ongoing and legacy cost structures made them uncompetitive in small cars, and their lingering brand weakness made them uncompetitive in performance and luxury cars. The only niche left for them were the big beasts.

In D.C., our fearless leaders doubled-down on the bet, by simultaneously waging two wars while cutting taxes. How to pay for this strategy? By cutting interest rates, printing money, and mortgaging the future. Dick Cheney said that deficits didn’t matter, and Treasury Secretary Paul O’Neill was given the axe for daring to suggest otherwise.

With all of the positive feedback loops in force — gas less than $1.50/gallon, home values increasing 10% a year, ample supplies of debt at low interest rates — the social compact held together… at least at a superficial level, at least for a time.

The Rapid Decline

But, for those sufficiently observant, the warning signs were increasingly obvious. By 2005, what was considered a strong year economically, the aggregate savings rate for the U.S. went negative — which had only happened before in 1932 and 1933, in the midst of the Great Depression. Americans financed their profligacy by increasing their borrowing on what-they-thought-were-appreciating balance sheets.

As long as the asset base increased, and as long as there were lenders, the bubble kept growing. But, clearly, it couldn’t last.

Meanwhile, the dollar weakened, and weakened, and weakened. Given the insistence for low interest rates and the persistence of demand for borrowing capital to fund ever-increasing imports of oil and other stuff, the only way that foreign investors would lend to the U.S. is if they could also gain from their currency strengthening in relation to the greenback.

In other words, the world was screaming to the U.S. that the key measure of its relative economic standing on the planet — the Almighty dollar — is on the wane. The fundamental forces underlying the U.S. economy may have been invisible to many Americans, but in retrospect, foreigners were the first to pierce the veil.

All of the fundamental precepts underlying U.S. vitality started eroding badly, and in an escalating death-spiral, in the last two years.

First, due to a combination of tightening supplies and a weakening dollar, gasoline prices followed oil prices up to extraordinary levels. According to a March 2008 Petroleum Intelligence Weekly article, it was projected that the U.S. would send $400 billion overseas in 2008 to buy oil, an increase of 300% relative to just 6 years previously. With cheap oil, Americans had been lulled into buying inefficient vehicles and locking into inefficient commuting patterns — and now with much higher priced oil on the market, we were saddled with our prior decisions.

By May 2008, Gal Luft had seen the future very clearly: “Oil Dependency is America’s Financial Ruin”. Jeff Rubin of CIBC is similarly on record with the opinion that spiking oil prices were the true trigger for the recession to follow.

High fuel prices pinched consumers, and they had to borrow more money to continue fueling their lives. But, alas, they couldn’t take out second (or third, or fourth) mortgages, because housing values were no longer appreciating to enable additional financings. Indeed, housing prices began falling, as speculative demand for real estate began to waver.

As housing values fell, more and more loans went “underwater”, which as they accumulated — and exacerbated by extreme leverage, through collateralized debt obligations and other repackagings of mortgages in secondary trading — eventually tipped many of the banks (and hedge funds) into insolvency. And so it was that we started circling the drain in late 2007 and early 2008.

The wipeout of Bear Stearns, acquired for virtually nothing by J.P. Morgan Chase at the end of March, was widely thought to be the turning point, after which we could all go back to normal. During the summer, we became distracted and enthralled by the McCain-Obama campaigns and the Beijing Olympics, but behind the scenes, the economy was in fact gulping its final death gasps.

As profiled in a December 29 Wall Street Journal article entitled “The Weekend That Wall Street Died”, the mid-September decision by the Feds to step back and allow the stunningly rapid collapse of Lehman Brothers put the world’s financial markets on brutally vivid notice that all bets were off, nothing was safe anymore. This had everyone running for the exits, and in the financial world no one has stopped running since. Securities of virtually all flavors and nations have been routed.

Meanwhile, the so-called “real” economy is now stuck at a standstill. In the U.S., car sales are off about 40% from the previous year, housing values continue to slide because there are few viable buyers, new real estate development has been terminated, manufacturing is at the lowest levels in decades, steel production has fallen by 50% since August, and businesses can’t get financing.

Oil prices — what had been a leading indicator of our troubles — have crashed back to historical norms, falling by about 75% from $147/barrel on July 11 to the mid-$30s by December, even though demand is off just a few percent from their highs. (For various reasons, it is probably wisest to view this decline as a temporary phenomenon, as the inescapable growth of oil requirements to fuel the slowed but nevertheless major economic growth in China, India and elsewhere in the developing world will quickly chew up the demand-destruction that has occurred in the U.S. and developed economies. But this is a story for another day.)

Taking Stock of the Debris

Before problem-solving on how to stop the panic, it’s worth reflecting upon the fundamental priorities that the U.S. had set over the past few decades that has culminated in us spinning and sinking inside this financial black hole.

There’s lots of blame to be spread around. It’s easy to finger the capitalists on Wall Street for our woes, and certainly they deserve their share of hostility directed toward them. Clearly, plenty of executives in the banking sector were key enablers to our present morass with their often dubious (or worse) ethics and practices, leading to lots of economic activity that is now revealed to have been essentially fictitious.

But, as the preceding text indicates, the list of foundational culprits must truly begin with the U.S. societal devotion to cheap energy, inefficient autos, outsized homes, sprawl, roads in lieu of public transit, and excessive materialism.

In other words, many of the things that make the U.S. economy environmentally unsustainable are what have also made the U.S. economy financially unsustainable.

We have met the enemy, and it is us.

These are not factors that are simple or quick to change, so the way out of our current conundrum will not be an easy one. Barack Obama inherits an incredibly daunting set of challenges. Perhaps this is the rare historical confluence of the right man at the right time, true leadership rising to meet challenges that only historically gigantic leaders can surmount.

Some of you may know that I was academically trained as an economist. Actually, I was almost certainly the least motivated student ever under the tutelage of current Fed Chairman Ben Bernanke (while he was at the Stanford Graduate School of Business, 1984-85), so it would be presumptuous to say that I have found the yellow brick road out of this economic nightmare. And, for sure, I’m not in any particularly influential position to offer advice. (“Hey, Ben! Remember me, your worst pupil? Listen up: I’ve got the answers!” Yeah, right.)

The few macroeconomic fundamentals I dimly remember suggest, to me at least, that any economic recovery will need to be driven by a boost in aggregate demand. With interest rates offered by the Federal Reserve Bank now essentially at zero, monetary policy tools will have limited power. Thus, fiscal tools will need to carry the load to spur aggregate demand.

As widely reported, the Obama Administration is angling for a major economic stimulus package of nearly a trillion dollars (how fondly I remember the days when a few billion dollars was a lot of money) that will focus on new infrastructure and energy projects.

Given the “Green Team” that the President-elect has picked to lead the nation’s energy and environmental agenda, sustainability appears well-positioned to become the essence of an Obama Doctrine. A true test will be if the Administration’s economic plan leads the country to pursue only projects that will help us reverse direction from the trajectory we’ve been headed since World War II.

Even if the Obama plan is large and properly pointed, it’s not likely to be enough to restore the American economy and put it on a financially (and environmentally) sustainable path. More will be needed.

Given that the average consumer is far overstretched, there is little scope for increased consumption (and, indeed, lots of evidence to suggest a need for reduced consumption). Thus, any additional demand stimulus needs to come from promoting private-sector savings (which translates to investment), along with the near-certainty of increased government spending.

Bluntly, along with the economic stimulus package that the Obama team is now concocting, we need to cut capital gains taxes and expand R&D to accelerate the turnover to the future, and we need to increase consumption taxes to end the era of living beyond our means.

This is especially the case on the cleantech front.

Investments in new cleaner energy technologies — both to develop them and to deploy them — will need to grow dramatically, perhaps even by an order of magnitude. This isn’t gonna happen on its own.

Certainly, a cap-and-trade program on carbon dioxide emissions will help, and Obama promises this. However, the magnitude of emission reductions likely to be compelled by any legislation that can get passed through Congress will not cause enough of a tilt in favor of clean energy to drive any rapid shift to a sustainable economy. Additional impetus will be needed.

The capital markets are so broken right now, and savings rates so low, that investment in the U.S. must be more aggressively encouraged. Possible solutions: slash capital gains tax rates, and make R&D expenditures tax-deductible.

And, as politically unpopular as it certainly would be, taxes on fossil-fuel based energy must be raised. We’re not going to wean ourselves from our addictions if we don’t make it more economically burdensome to maintain the status quo. And, if we raise government expenditures and reduce tax-based disincentives against investment, Uncle Sam is going to need to collect more revenue somehow, some way.

Given the recent freefall in oil prices, many have argued (including a December 8 editorial in the Washington Post called “Start Making Sense”) that the time is now to put in place taxes that set a floor on the prices paid by consumers for gasoline. This will not only stimulate more far-sighted decisions and behavior by drivers and vehicle suppliers, but will also provide more certainty for investors in alternative fuel technologies and projects that are so badly needed.

A New Beginning

Some might say that we’re poised on the edge of a precipice. For instance, the current environment looks like the early days of what James Howard Kunstler has memorably called The Long Emergency, a dire depiction of a bleak long-term future.

While clearly very urgent, I don’t see our situation as hopeless. I prefer an interpretation similar to what I’ve seen from a number of sources in recent weeks: that innovation and ingenuity are in fact amplified during difficult times, during which many of the most enduring and important enterprises are founded. See, for instance, the recent report on entrepreneurism by the Kauffman Foundation, George Gilder’s “The Coming Creativity Boom” in the November 10 issue of Forbes, or the December 15 interview with Harvard’s Clayton Christensen in the Wall Street Journal.

Necessity is the mother of invention, and desperate times call for desperate measures. They may be old cliches, but there’s a lot of truth in them nevertheless.

Recall that Microsoft was born in 1975, during the last really bleak period of U.S. economic history. In that context, it’s interesting to read the perspective of Nathan Myrvhold, formerly Microsoft’s Chief Technology Officer, who in “Inventing Our Energy Future” in the November/December issue of EnergyBiz clearly sees the opportunities for reinventing the energy economy.

It’s not just the hardware of the energy economy that needs to change, but also the software: how we as Americans think about and operate in the world of the future.

I’ve written before that we need a whole new story to move us forward in the 21st Century in a truly sustainable manner. I think the story’s being rewritten right before our very eyes. The rules of the game are changing, and we don’t yet see what they will become yet.

I believe we’re in the midst of a revolution. It is uncomfortable, to say the least. But, that’s the nature of revolutions.

The Beatles asked if you wanted a revolution, if you wanted to change the world. If so, here’s your chance.

But, be assured, this will be a participative sport — indeed a full-contact sport — and it won’t be a spectator sport.

Advance forward a few years after the Beatles into the music of Gil Scott-Heron, who noted darkly that the revolution will not be televised. No, indeed, it won’t. We are living it now. It’s reality TV turned inside-out: the fantasy is inside the boob-tube, the reality is on this side of the screen at which you’re looking.

The revolution is now. Are you game to take part?

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. In 2009, he will also become a Managing Director at Early Stage Partners.

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.

The Energy Policy Act of 2008

by Richard T. Stuebi

Betcha didn’t know that there was an Energy Policy Act of 2008, did you? Well, you won’t find any bill of that name. But, the passage of last week’s appropriately titled “Emergency Economic Stabilization Act of 2008” is almost tantamount to an energy bill.

The Senate prepared a nice summary of the energy-related provisions that were stuffed into the bill during the chaotic process to get something passed promptly that would reassure the financial markets. I have yet to review all of the provisions, but it’s clear that many of them have favorable implications for a variety of clean energy technologies, inluding wind, solar, energy efficiency, hybrid vehicles, biofuels, and smart grid.

It’s nice that there has been at least one small silver lining to the dark cloud of financial implosions in the past few weeks.

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.

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.

Ohio: Open for Advanced Energy Business

by Richard T. Stuebi

I’ve been waiting a long time to write this blog….

On May 1, Governor Ted Strickland signed into a law an energy bill SB 221, which includes an advanced energy portfolio standard (AEPS) that finally puts Ohio in the advanced energy game.

By 2025, 25% of electricity sold in Ohio must come from “advanced” energy sources, including renewable energy, fuel cells, clean coal powerplants, next-generation nuclear technologies, and energy efficiency. Of this 25%, half (or 12.5%) must come from renewables (primarily wind, solar and biomass), and 0.5% must come from solar energy. Additionally, half of the 25% is directed to come from generation sources located within the state of Ohio. And, by 2025, 22% energy reductions must be achieved by energy efficiency programs.

Critically, unlike previous drafts of the legislation, the energy bill as passed includes a gradual ramp-up of AEPS requirements, beginning as soon as the end of 2009. This means that the advanced energy industry in Ohio can begin to emerge right away, as utilities are required to meet AEPS requirements almost immediately. Also of importance, utilities are subject to penalties for AEPS non-compliance, known as “alternative compliance payments”, whose proceeds will be used to install advanced energy assets that otherwise should have been developed.

The only significant “out” for utilities is the existence of a so-called 3% price cap provision, in which utilities can ask the Public Utilities Commission of Ohio (PUCO) to allow less/later compliance with the AEPS requirements if they can prove that full compliance would increase the costs of wholesale power supply acquisition by more than 3%. Obviously, this will be an area of contention, requiring vigorous and diligent intervention at the PUCO to ensure that the analyses and assumptions used by utilities cannot spuriously claim a significant cost increase associated with advanced energy so as to evade compliance with AEPS requirements. It will be incumbent on those of us promoting an advanced energy industry in Ohio to keep these evaluations honest. Obviously, advanced energy advocates would have preferred no price cap provision, or a provision that was worded more favorably. That said, if the 3% price test is applied fairly, the advanced energy industry is confident that it can work with the language that was ultimately adopted.

Significant pre-existing limitations on “net metering” – the ability for customers to install their own power generation source and sell excess generation back to the grid – were alleviated. This should greatly improve the economics of deploying solar energy, fuel cells, and other forms of so-called “distributed generation” technologies in Ohio.

My colleagues from the legal firm Bricker & Eckler have prepared summaries that provide an excellent overview with more detail on SB 221.

In short, the law represents a major step forward for advanced energy policy in Ohio, and will create a substantial market for advanced energy technologies in our state, thereby helping us build this important industry here. The law does not contain everything we would have wanted, and not all of the wording is exactly as we would have liked, for the interests of advanced energy, I’d score this bill at least a 7 and maybe an 8 on a scale of 1 (poor) to 10 (excellent).

With this law passed, Ohio will now be solidly on the advanced energy map. Advanced energy companies of the world, take heed: Ohio is now open for business. Ohio will be one of the largest regional markets in the U.S. for renewables, which will surely attract the attention of the renewable energy manufacturers and installers to set up operations here, employ people here, and pay taxes here.

The list of people to thank for their contributions towards the passage of this critical legislation for the economic revitalization of Ohio is too long for a short note, but must include the following:

Governor Ted Strickland for firmly inserting the AEPS concept into the energy debates last summer.
The Governor’s Energy Advisor Mark Shanahan and his staff (especially Michael Jung) for insisting that the AEPS could not be jettisoned from the deliberations about overall electricity markets and regulation.
House Speaker Jon Husted for strengthening most of the AEPS provisions that found their way into the final bill.
House Public Utilities Committee Chairman John Hagan and House Alternative Energy Committee Chairman Jim McGregor for holding many hearings on advanced energy topics to ensure that the final bill would be drafted soundly.
Senate President Bill Harris for leading his Senate colleagues to concur unanimously with the bill passed by the House.
Erin Bowser and Amy Gomberg of Environment Ohio for their diligent work in educating lawmakers on the importance of a strong AEPS policy in Ohio.
Terrence O’Donnell of Bricker & Eckler and the members of Ohio Advanced Energy (especially Norm Johnston of McMaster Energy) for expressing the voice of Ohio businesses who see advanced energy as a huge growth opportunity – if Columbus legislators would only create a favorable market environment.
Hans Detweiler of the American Wind Energy Association and Colin Murchie of SunEdison for compellingly portraying the views of the national wind and solar industries and their interests in Ohio – if good policy were to be instituted.
Jack Shaner of the Ohio Environmental Council and Janine Migden-Ostrander and staff of the Ohio Consumers’ Counsel for their tireless advocacy to promote strong energy efficiency standards in the final bill.
Gene Krebs of Greater Ohio for, well, being Gene Krebs: advising anyone who cared to listen on how to navigate the byzantine processes of the Ohio Statehouse, with good humor to boot.
Juanita Haydel and Kamala Jayaraman of ICF Incorporated for producing an excellent analysis of the potential impact of AEPS policy on electricity prices in Ohio.
Ronn Richard, J.T. Mullen, and Bob Eckardt and the grantmaking staff (especially John Mitterholzer) of The Cleveland Foundation for providing me enough latitude to assist in these various efforts in Columbus, and for providing some financial support to some of them too.
Due Amici in Columbus for providing an excellent location for an end-of-day debrief over cocktails – and for serving the cocktails too. (Alas, not gratis.)

Now that the bill is law, the first half of the game is over, and we’re ahead at halftime. The second half of the game will be played at the PUCO, where the intentions of the lawmakers must be codified into fair and workable rules and procedures that cause the advanced energy industry in Ohio to actually come into being. So while this law is essential, in many ways, it is just the beginning. Expect many months, and perhaps years, of activity before the details are fully sorted out in the PUCO.

As I wrote in an editorial in last week’s Crain’s Cleveland Business, the advanced energy community will need to maintain a high level of activity at the PUCO to protect the interests of building this new industry to revitalize Ohio. We’ll be there.

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.

"A Special Report on the Future of Energy" by Mother Jones

by Richard T. Stuebi

I’ve never been a fan of the periodical Mother Jones – it’s always seemed a bit too “alternative” for me. That said, I was recently given a copy of the May/June 2008 issue – a special report on the future of energy – and was surprised by the quality and balance of the articles.

I particularly found “The Seven Myths of Energy Independence” by Paul Roberts (author of The End of Oil) to be a compelling read. To him, the seven myths are:

1. Energy Independence Is Good
2. Ethanol Will Set Us Free
3. Conservation Is a “Personal Virtue”
4. We Can Go It Alone
5. Some Geek in Silicon Valley Will Fix the Problem
6. Cut Demand and the Rest Will Follow
7. Once Bush Is Gone, Change Will Come

I think many advocates are well-advised to really reflect on #7. Bush is unquestionably the bête-noire of all things environmental, but he’s only a part of the problem – and arguably not even the biggest part. Congress and the entrenched interests completely stymie good energy/environmental policy. A new President will help, but won’t be a simple cure-all, for what ails us in the energy and environmental arenas.

Which brings me to another article in the issue: “Congress’ Top 10 Fossil Fools” by Chris Mooney, profiling the “foes and thwarters of renewable energy”. In his list, they are:

1. Senator Pete Dominici (R-NM)
2. The Southern Company (NYSE: SO)
3. Senator Mary Landrieu (D-LA)
4. Representative Joe Barton (R-TX)
5. Senator Jim Bunning (R-KY) and “Coal-State Dems”
6. Representative John Dingell (D-MI)
7. Senator Lamar Alexander (R-TN)
8. Senator Ted Kennedy (D-MA)
9. Senator John Thune (R-SD)
10. Senator John McCain (R-AZ)

Probably no surprise that there are more R’s than D’s on the list, but I was really surprised at the omission of Senator James Imhofe (R-OK), and by the inclusion of McCain. Apparently, the League of Conservation Voters gave the impending Republican Presidential nominee a rating of 0 (that’s right, zero) last year “because McCain missed every single environmentally relevant vote”, including ones in which he could have been the tie-breaker to overcome a filibuster on the 2007 clean-energy bill. Alas, what could have been…

Other good articles in the issue include:

“The Greenback Effect” by Bill McKibben on why markets aren’t necessarily antithetical to the environment, but can be the driving force for environmental solutions.
“Breaking the Gridlock” by Jennifer Kahn on how the smart-grid could be the major enabler for energy efficiency.
“The Nuclear Option” by Judith Lewis – a reasonably fair and balanced view of the pros and cons of nuclear energy, without the expected hyperbole.
“Tar Wars” by Josh Harkinson, which paints a not-at-all pretty picture of what’s happening to the landscape in Northern Alberta as the tar sands are mined to make oil.
“Put a Tyrant in Your Tank” by Joshua Kurlantzick, profiling the bad guys leading many of the major oil producing nations – who are financed every time you fill up at the pump.

Lots of interesting nuggets to be found in the sidebar boxes too. For instance, did you know that 30% of the electricity supply at the infamous Guantanamo Bay Naval Base is provided by wind turbines?

Well worth spending $5.95 at the newsstand, pick up the May/June 2008 Mother Jones.

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.

2007 Roundup

by Richard T. Stuebi

As has become my custom, with the year drawing to a close, I now look in the rear-view mirror and try to distill what I see. In no particular order, here are my top ten reflections on 2007:

1. Popping of the ethanol bubble. Not long ago, it seemed like anyone could get an ethanol plant financed. Now, no-one will touch them. Why? Corn prices have roughly doubled, and producers can’t make money selling ethanol into the fuel markets when having to pay so much for feedstock. Along with the increasing realization that public policies so far to build ethanol markets has largely been for the financial benefit of big agri-businesses such as Arthur Daniels Midland (NYSE: ADM), ethanol has now become a dirty word to many. Progress on cellulosic ethanol technologies may not happen fast enough to redeem seriously diminished public perceptions about ethanol generally.

2. Continuing photovoltaics bubble. For illustration of this phenomenon, let’s take a look at First Solar (NASDAQ: FSLR). Nothing whatsoever against the company; indeed, they make a very fine product. It’s just that their share price has increased by a factor of 10 — from $27 to nearly $280 — in one year. At current levels, the company’s market cap is $20 billion, at a P/E ratio of over 200. I know the solar market is hot, but geez, c’mon. A 10x return in one year on a publicly-traded stock is simply not supposed to happen.

3. Increasing costs for wind energy. For many years, wind energy has become more competitive, as the industry matured and production efficiencies were tained. However, with increasing prices for virtually all commodities (e.g., steel, copper, plastics) and a weakening dollar against the Euro (note that most turbines are made in Europe), the economics of wind are unfortunately moving in the wrong direction right now.

4. Gore as rock star. First, an Oscar for An Inconvenient Truth. Then, the Nobel Peace Prize. To top it off, becoming a partner at top-notch venture capital firm Kleiner Perkins. What next for the what-could-have-been 43rd President? Whatever it is, at least the cleantech sector now has its iconic poster-child.

5. Cheers to Google. Google (NASDAQ: GOOG) has gotten into the cleantech game in a big way by creating an initiative with the mission to develop and launch renewable energy technologies that produce electricity more cheaply than coal. Once that aim is achieved, renewable energy will rapidly become ubiquitous, and we really will start getting on a path of serious carbon emission reductions.

6. Death of the incandescent lightbulb. Early in 2007, Australia led the way to ban incandescents, to force a shift to more energy efficient lighting technologies (fluorescents for now, perhaps eventually LEDs). Amazingly quickly, the U.S. followed suit, passing an energy bill by year-end that effectively phases out incandescents by 2014. This should have a major energy efficiency impact, and yield a big cut in greenhouse gas emissions, in a relatively short amount of time.

7. Tightening CAFE — finally! After decades without change, the U.S. Congress finally acted to impose more stringent corporate average fuel economy (CAFE) standards for auto/truck manufacturers. The main milestone is a 35 mpg combined car/light-truck standard by 2020. For the first time, trucks are now part of the CAFE equation, closing the loophole that helped propel SUVs to prominence. Strengthening CAFE is probably the most important thing that American politicians could do to actually make a meaningful dent in reducing dependence on Middle Eastern oil.

8. Uncertain future for coal. On the one hand, MIT released a major study entitled “The Future of Coal” that compels a radical R&D push to commercialize technologies for carbon capture and sequestration (CCS), underscoring the reality that coal-fired electricity generation is going to be a major factor for a long time. On the other hand, I don’t see any such coal R&D push actually happening, nor even that much progress on CCS. A recent statement by the U.S. Department of Energy concerning its oft-touted FutureGen program for piloting CCS technology indicates a possible retrenchment. Meanwhile, Pacificorp — which is owned by Warren Buffett’s legendary holding company Berkshire Hathaway (NYSE: BRKA and BRKB) — recently cancelled a coal CCS project in Wyoming, with a spokesman quoted as saying that “coal projects are no longer viable.” Ouch.

9. Oil at $100/barrel. Starting the year at about $60/barrel and then promptly falling to near $50, oil prices increased steadily from February to November, reaching the high-90’s. I suspect we’ll see $100/barrel sometime in 2008; I don’t suspect we’ll see oil below $40/barrel very much anymore. Even at prices not long ago considered absolutely stratospheric, it appears that there’s been very little customer/political backlash so far: the world doesn’t seem to be ending for most Americans.

10. Serious dollars betting on energy technology. There’s been a lot written about the big surge in venture capital invested in new energy deals. I find even more intriguing the increasing amount of corporate and public sector investment in new energy R&D. As perhaps the most prominent example, in the U.K., the government has pledged up to $1 billion over the next 10 years in matching support to private investments in the Energy Technologies Institute, which includes the participation of such leading corporate lights as BP (NYSE: BP), Shell (NYSE: RDS.A and RDS.B), Caterpillar (NYSE: CAT), Electricite de France (Euronext: EDF), E.ON (Frankfurt: E.ON), and Rolls-Royce (London: RR.L). That’s a lot of money and corporate weight in the mix. I can’t imagine that such an initiative will produce nothing of use.

Best wishes to you and yours for 2008. Let’s hope it’s a good year, even better than the one wrapping up.

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.

Sausage-Makers Unite!

by Richard T. Stuebi

People often ask me what I think of a particular piece of energy-related legislation. Unfortunately, it’s usually difficult for me to answer with anywhere near the degree of earnestness in which the question is typically asked.

For instance, this past week, I received inquiries to comment upon the action taken by the U.S. Senate to pass an energy bill. (See Washington Post article.) This is a piece of legislation that includes a tightening (finally!) of the corporate average fuel economy (CAFE) standards for new automobile sales, and a move to phase-out inefficient incandescent light bulbs. However, a long-term extension of the production tax credit for renewable energy and a proposed national renewable energy portfolio standard was dropped at the last minute.

While I do support the energy efficiency provisions of the bill, the abdication of any responsibility for pushing the U.S. towards further adoption of renewable energy for power generation – in the face of compelling needs for economic development, enhanced energy security and reduced carbon emissions that can be provided by renewable energy – is quite galling.

I continue to be astonished that many people must have the naïve belief that the public sector is capable of passing good energy legislation. I wish I could say otherwise, but there’s not much historical evidence or precedent to suggest that assumption. It would be wiser for people to ask me whether there’s anything positive about a particular energy bill, rather than assuming that the bill is generally favorable and inquiring whether there’s anything to be worried about.

This weekend, I finally had the chance to watch the documentary film “Who Killed the Electric Car?” If anyone wonders if (or why) U.S. energy policy is on the wrong track, this would be a good entry point. I was forewarned that I would be angry at the end of the film, but I guess I’m simply too experienced (or jaded, or even cynical) to fall into that trap.

As the old adage says, there are two things you don’t want to see being made: policy and sausage. My father was in the pork business, so I’ve seen sausage being made. With my work in D.C. in the late 1980’s and in Columbus in the past 18 months, I’ve also seen energy policy being made. From being a close witness to both professions, I can assure you that comparing energy policy-makers to sausage-makers is a gross insult to sausage-makers.

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.

California’s Low Carbon Diet

By John Addison (12/5/07). When Coke and Pepsi were in the middle of their diet wars, California was an early battle ground. It is a state which tends to do much in excess, including drinking colas. In fact, only a handful of countries spend more money on beverages. Parties of happy and surprisingly fit youth were shown on TV commercials drinking their beverage of choice.

Now millions of Californians are being targeted as early adopters for a low carbon fuel diet. More miles, less carbon emission. It is the law. Executive Order S-1-07, the Low Carbon Fuel Standard (LCFS), calls for a reduction of at least 10 percent in the carbon intensity (measured in gCO2e/MJ) of California’s transportation fuels by 2020. Low Carbon Fuel Standard Program

Successful implementation of the LCFS will be critical to California’s even more ambitious law, the California Global Warming Solutions Act (AB-32), which requires California’s 2020 greenhouse gas emissions to not exceed 1990 emissions. The challenge is that in 2020, California’s population will be double 1990.

Because transportation is the main source of greenhouse gases in California, it is urgent that Californians use vehicles with better miles per gallon and that less greenhouse gases be emitted from the use of each gallon of fuel.

The world will learn from the successful implementation of LCFS because gasoline and diesel are currently becoming more carbon intense. There has been a shift from oil that is easy to get, to extraction and refining that increases greenhouse gases, as we make gasoline from tar sands, coal-to-liquids, and a future nightmare of shale oil. For example, monster earth movers strip-mine northern Alberta, extracting tar sands. Elizabeth Kolbert reported in the New Yorker that 4,500 pounds of tar sand must probably be mined to produce each barrel of oil. The converting of tar sands to petroleum will require an estimated two billion cubic feet of natural gas a day by 2012. Carbon intensity includes all the emissions from the earth movers and all the natural gas emissions from refining.

“All unconventional forms of oil are worse for greenhouse-gas emissions than petroleum,” said Alex Farrell, of the University of California at Berkeley. Farrell and Adam Brandt found that the shift to unconventional oil could add between fifty and four hundred gigatons of carbon to the atmosphere by 2100. Article

So, how can California reduce the carbon emission from fuel use? As a major agricultural state, E10 ethanol will be part of the solution. E10 can be used in all gasoline vehicles including 40 mile per gallon hybrids and in the new 100 mile per gallon plug-in hybrids being driven by early adaptors. Higher percentage blends of next generation ethanol are even more promising. Biodiesel is better at reducing carbon intensity than corn ethanol. Most heavy vehicles have diesel engines, not gasoline. Exciting new European diesel cars are also starting to arrive.

There are over 25,000 electric vehicles in use in California. Heavy use of electricity for fuel would take California far beyond the minimal target of a ten percent reduction in carbon intensity. This is especially true in California where coal power is being phased-out in favor of a broad mix of renewable energy from wind, geothermal, solar PV, large-scale concentrated solar, ocean, bioenergy and more.

California Low Carbon Fuel Standard Technical Analysis documents that there is a rich diversity of sources for biofuels within the state and in the USA including the following in million gallons of gasoline equivalent per year:

In-state feedstocks for biofuel production Potential volume
California starch and sugar crops = 360 to 1,250
California cellulosic agricultural residues = 188
California forest thinnings = 660
California waste otherwise sent to landfills = 355 to 366
Cellulosic energy crops on 1.5 million acres in California = 400 to 900
California corn imports =130 to 300

Forecasted 2012 production capacity nationwide Potential volume
Nationwide low-GHG ethanol = 288
Nationwide mid-GHG ethanol = 776 to 969
Nationwide biodiesel = 1,400
Nationwide renewable diesel = 175

A variety of scenarios have been examined with detailed analysis by U.C. Berkeley, U.C. Davis, and stakeholder workgroups that include technical experts from the California Energy Commission and the California Air Resources Board. Several scenarios are promising including one that would achieve a 15% reduction in carbon intensity with the following percentage mix alternate fuels and vehicles of some 33 million light duty vehicles by 2020:

Fuels:
Low-GHG Biofuel 3.1%
CNG 1.7%
Electricity 0.6%
Hydrogen 0.4%
Low-GHG FT Diesel .9%
Sub-zero GHG Biofuel 3.9%

Vehicles:
CNG vehicles 4.6%
Plug-in hybrid vehicles 7.4%
Flex-fuel vehicles 34.7%
Diesel vehicles 25.5%
Battery electric vehicles 0.5%
Fuel cell vehicles 1.9%

The ultimate mix will be determined by everyday drivers in their choice of vehicles and fuels. Low emission choices are becoming more cost-effective with the growth of electric vehicles, waste and renewable hydrogen, fuel from biowaste and crops grown on marginal land, and even fast growing poplar trees that absorb more CO2 than is emitted from resulting biofuels. The alternatives make fascinating reading for those interested in future scenarios for fuels and vehicles:

California Low Carbon Fuel Standard Technical Analysis and Scenario Details
California Low Carbon Fuel Standard Policy Analysis

California’s ambitious goals to reduce greenhouse gas emissions will benefit by the increased motive energy per CO2e that is described in these scenarios. California will also benefit from vehicles that will go more miles with the same energy input. Vehicles are getting lighter and safer as high-strength carbon fibers and plastics replace heavy metal. The shift to hybrids and full electric-drive systems allow replacement of heavy mechanical accessories with light electric-powered components. Hybrids allow big engines to be replaced with smaller, lighter engines. Pure electric vehicles can eliminate the weight of engines and transmissions. Less fuel weight is needed. Aerodynamic vehicles are becoming more popular.

Employer programs are leading to more flexible work, less travel, and increased use of public transit. Demographics may also cause a shift to more urban car sharing, use of public transit, bicycling, walking, and less solo driving. It can all add-up to a celebration of low-carbon living.

John Addison publishes the Clean Fleet Report which includes over 50 articles about clean transportation.