The Libyan Oil Crisis Argues for Developing Renewable Energy

Summary.  The present political crisis in Libya, which produces 2% of the world’s oil, has resulted in a sharp spike in the price of oil.   The U. S. is projected to need a slightly higher amount of oil in future decades, of which an increasing amount will be imported from foreign sources.  Because of a) a projected increase in production of oil world-wide from reserves that to date are undeveloped or unidentified, b) an increase in the number of cars world-wide, and c) a consequent strong increase in the price of oil, the U. S. will be sending large and increasing amounts of funds abroad to buy the needed oil.  In view of this situation, the U. S. should wean itself from its dependence on imported oil.  Burning fossil fuels contributes to global warming by emitting greenhouse gases (mainly carbon dioxide, CO2), which have recently been shown to contribute directly to weather extremes.  Forest fires, droughts and floods resulting as effects of global warming have enormous economic costs associated with them.  It would be beneficial instead to invest expenditures now to limit greenhouse gas emissions by imposing economic penalties for use of oil and other fossil fuels.  This could be achieved by a cap-and-trade mechanism, or through a carbon tax.  The revenues from these policies could be distributed to the treasury or the public, or be applied to support innovative research and development of renewable energy sources.  As many have said, “If not now, when?”

A Sharp Spike in the Price of Oil.  The United States, as well as other countries of the world, is addicted to fossil fuels for their energy needs.  The present political crisis in Libya, which produces 2% of the world’s oil, has led to a shock-provoked spike in the price of oil in the last few days (see the 1-year price chart in the graphic below).  On this day, February 23, the price peaked at $100/barrel; according to Barron’s.  As may be seen, the price increased sharply from about $88/barrel on February 16 to its present price in 1 week.

Crude Oil Price, US$/barrel

Source: http://online.barrons.com/data

This week’s events show that the threat of instability in a very small fraction of the world’s oil supply has a dramatic effect on its price.  This effect, on a percentage basis, is much more profound than the amount of oil potentially lost if Libya were to cease production. 

Increased Demand for Oil Predicted for the U. S. The consumption of oil in the U. S., and the amount projected to be needed in future decades, is shown by the dark red band in the following graphic.

Actual fuel usage up to 2009 and modeled projections after that date.

Source: U. S. Energy Information Agency Annual Energy Outlook 2011 – Early Release Overview.  http://www.eia.gov/forecasts/aeo/

The amount of oil that will need to be imported increases slightly over the period 2009 to 2035.

The world-wide production of oil, projected to 2035 by the International Energy Agency (IEA), is shown in the following graphic.  The dark blue band shows projected delivery from sources known today, and the light blue triangle shows expected but unproven delivery from oil reserves that remain to be identified or developed.  The gold band shows projected oil production from unconventional sources such as tar sands and shale oil.



Reproduced from World Energy Outlook 2010 © OECD/IEA.  http://www.worldenergyoutlook.org/docs/weo2010/weo2010_london_nov9.pdf



Increased Demand Due to Higher Numbers of Cars. Oil is used world-wide to refine gasoline for use as a vehicle fuel.  The IEA projects total vehicle counts in the world through 2035 in the following graphic, broken down by region.  (The OECD is the Organization for Economic Co-operation and Development, consisting of economically developed countries including the U. S., Europe, Japan and Australia.)  Non-OECD countries include India and Brazil, for example.

Reproduced from World Energy Outlook 2010 © OECD/IEA.  http://www.worldenergyoutlook.org/docs/weo2010/weo2010_london_nov9.pdf

It is seen that the projected number of vehicles almost doubles from 2008 to 2035, with significant increases coming from developing countries (orange and red bands).  They will require ever-increasing amounts of gasoline to fuel them.

Higher Prices Predicted for Oil As Demand Grows. As oil demand throughout the world increases in the next decades, the price can be expected to continue increasing.   Some predictions prepared by the U. S. Energy Information Agency are shown in the following graphic.  The various scenarios are to be discussed in the full version of the Annual Energy Outlook 2011.  The Reference scenario traces the projected price if minimum efforts are made to limit consumption.

Source: U. S. Energy Information Agency Annual Energy Outlook 2011 – Early Release Overview.  http://www.eia.gov/forecasts/aeo/pdf/0383er(2011).pdf

The increasing share of American need for oil coming from abroad, coupled with the anticipated increase in price as shown in the graphic above and the growth in the number of cars on the road, mean that over the coming decades, Americans will be sending many billions of dollars abroad to buy oil, in ever-increasing amounts,. 

Why Not Reduce Dependence on Oil? It is fair to ask, given these predictions of expanding demand and increasing cost, “Wouldn’t it make sense to adopt policies that wean the U. S. from its dependence on oil imported from abroad?” 

Global Warming from Man-Made Greenhouse Gases Is Already With Us. This blog has treated the effects of burning increasing amounts of fossil fuels on global warming in several earlier posts (see, for example,

http://warmgloblog.blogspot.com/2010/10/we-need-to-achieve-alternativesustainab.html ;

http://warmgloblog.blogspot.com/2010/11/steven-chu-u-s-energy-secretary.html ; http://warmgloblog.blogspot.com/2010/10/co2-bathtub.html ).   These offerings point out that it is crucial to abate greenhouse gas emissions as soon as possible, because the level of greenhouse gases that lead to global warming in the earth’s atmosphere continues to grow.  

Greenhouse Gases Are Directly Related to Extremes of Weather.  Reducing emissions is necessary because the atmosphere already has a high enough greenhouse gas content to cause severe climatic effects on the planet.   Indeed, two recent papers published in Nature show, for the first time, that greenhouse gases originating from human burning of fossil fuels has directly contributed to extreme weather events such as heavy rain and flooding in recent years (see Note 1).

Economic Basis for Addressing Global Warming Now.

Economic Damage Wrought by Extremes of Weather.  Forest Fires.  Droughts and floods have been predicted for the last two decades as part of the weather disruptions brought about by global warming.  Regions of drought make more likely the occurrence of severe forest fires, such as those in the western U. S. in recent years.  These destroy valuable commercial timber lands and private homes, and have required intensive fire-fighting activities.  Forest fires consumed almost 7 times more federal land during the 1987-2003 period than during the preceding 17 years, and has been attributed to global warming. Such events potentially have losses in the billions of dollars.

Agriculture.  Drought in the U. S. affects water resources that nourish urban areas and irrigate farms.  Limitations on drinking water, and restricted irrigation, lead to potentially large economic losses in water supply activities and lost agricultural yield.  Abroad, in 2010 severe droughts in Russia and Australia severely reduced wheat harvests, adversely affecting world-wide availability of food.  Wheat prices around the world have risen considerably as a result, including in the U. S.

Floods. Major floods in the U. S. (“100-year floods”) have occurred repeatedly in recent years.  Examples include Hurricane Katrina in 2005 and several floods in the Mississippi-Missouri river basin.  Hurricane Katrina was the costliest natural disaster in the U. S., and produced tragic loss of life.   Human suffering leads to economic loss, and the adverse economic impact on the New Orleans area has been huge.

Elsewhere in the world, the tremendous flooding of the Indus river basin in Pakistan may be at least partly correlated with global warming.  20% of the population of the country has been directly affected, and one estimate of overall long-term economic impact may be more than US$40 billion.  Although this occurred abroad, the U. S. is likely expected to contribute to major relief and recovery efforts, incurring unforeseen budgetary expenses.

By this selection of potential economic effects that may be attributed to global warming, it is seen that enormous economic expenses and losses have already occurred, and are likely to increase in amount and severity in coming decades, as a result of global warming.

Economic Incentive Policies to Limit Greenhouse Gas Emissions.  Unexpected economic burdens such as those sampled above may be considered to be one arm of a zero-sum scenario.  The other arm would involve undertaking planned investment expenditures to prevent global warming from occurring.  Policies to combat the emission of greenhouse gases include imposing negative incentives on burning fossil fuels and emissions of all greenhouse gases that add to the direct cost of using them.  This added cost, much of which would probably be passed along to the consuming public, has been a major negative political factor that has impeded enactment of policies at the U. S. federal level that would reduce greenhouse gas emissions.  (Other factors include the argument that developing countries like China and India, whose emissions have grown dramatically in the past decade, were excluded from coverage under the Kyoto Protocol.)   It would be more cost-effective, over the long term, to spend funds on these long-term preventive measures than to wait until we have to react on an emergency basis to climate-induced disasters.

Cap-and-Trade.  In the face of inaction at the federal level in the U. S., three regional agreements have been put in place in recent years: the Western Climate Initiative, the Midwestern Greenhouse Gas Reduction Accord, and the Regional Greenhouse Gas Initiative of the New England and Mid-Atlantic States.  All three of these accords rely on a cap-and-trade (market-based) mechanism to limit the emission of greenhouse gases.  Generally, the cap-and-trade mechanism works by issuing “emission allowances” to each industrial and commercial source.  The number of allowances establishes the cap, or upper limit, of greenhouse gas emissions across the program.  The cap is reduced each year.  The allowances can be bought or sold (traded) in a regional market, which establishes a price for emitting greenhouse gases and in essence creates a penalty for emitting.  This provides an incentive for each source to innovate in order to reduce emissions, thus lowering its expenses toward purchasing allowances each year.  Proceeds from the trades are delivered to the participating states, and are used at least partly to promote research and development of renewable energy enterprises.

Carbon Tax.  An alternative mechanism for limiting greenhouse gas emissions would be to impose a direct carbon excise tax on fossil fuels.  The tax rate is based on the amount of greenhouse gas emitted by the respective fuels.  The New York Times columnist Thomas Friedman has been advocating a carbon tax for several years, most recently on February 22, 2011.  Professor Daniel Esty of Yale University has also proposed a charge on burning fossil fuels that he calls a carbon charge, or a “harm charge”, on April 13, 2010. 

In each case, the authors propose imposing a low tax at the outset, then raising the tax according to a pre-established schedule, until it reaches a high enough level to have an effect on consumers’ energy habits.  Mr. Friedman suggests using the proceeds to reduce the U. S. national debt.  Prof. Esty, in contrast, suggests returning the proceeds to taxpayers by lowering the payroll tax (contribution to Social Security).  Overall, according to Prof. Esty, the higher cost associated with use of fossil fuels will lead businesses to change to measures and investments that increase conservation of fossil fuel use and produce a shift to renewable energy sources.

The Current U. S. Carbon Tax on Gasoline.  The United States imposes a modest tax on gasoline and diesel fuel at the federal level.  For gasoline currently it is US$ 0.184/gallon (US$ 0.049/liter).  (In contrast, as a result of high taxation, the representative price of gasoline in Europe in 2008 is about US$ 7.83/gallon, whereas in the U. S. it is about US$ 3.25-US$ 3.40/gallon.) As of April 2006 the federal tax is scheduled to fall to US$ 0.043/gallon on October 1, 2011.  This tax has been apportioned partly to the federal Highway Trust Fund, which is used mostly to support maintenance and expansion of the federal vehicle highway system, as shown in the graphic below:  

Collection and Distribution of Federal Gasoline Taxes, FY2001

It is to be noted that although the rectangles for the Highway Account and the Mass Transit Account appear the same size to the eye, the Highway Account is actually more than 5 times as large as the Mass Transit Account.

Source: U.S. Department of the Treasury, Internal Revenue Service, compilation of trust fund certifications dated June 18, 2001, Sept. 18, 2001, Dec. 28, 2001, and March 19, 2002; http://ncseonline.org/NLE/CRSreports/06May/RL30304.pdf.

The costs of cap-and-trade or a carbon tax would be higher than the current federal tax.

Opposition to the Present Carbon Tax.  Interest groups express differing opinions about the federal gasoline excise tax.  RedState.com feels that even the low present level of taxation on gasoline is too high. The group notes that combined federal and state gasoline taxes average about US$ 0.272/gallon.  It feels that with fuel prices rising, the taxes should be eliminated so that drivers don’t have to pay as much.  It also advocates eliminating federal support for highway construction projects.  On the other hand, the Public Policy & Sustainability Blog, which appears to be affiliated with Con-way freight, notes that the Highway Trust Fund is underfunded, requiring infusions from the Treasury to maintain its expenditures.  The blog suggests that the portion of the gasoline tax directed toward mass transit, such as high-speed passenger rail, be transferred into the Highway Account.

Conclusion.  The Libyan revolution in progress as this post is being written has critically affected its oil exports.  Even though only a small fraction of the world’s supply  is in question, the crisis has had a disproportionately large effect on the near-term price for oil, which results in higher prices of fuels for cars and trucks.  This has an adverse effect on our economic growth, and carries the disadvantage of transferring excessive wealth from the U. S. to the overseas producers of the oil.  Clearly, the instability and uncertainty of oil supplies from abroad should be a matter of serious concern to the American public, and to its government.

This occasion highlights the need for the U. S. to move away from its addictive dependence on fossil fuels for its transportation needs as soon as possible.  Renewable energy should be developed on an urgent basis to substitute for oil in our transportation.  Imposing a financial penalty on gasoline and diesel fuel, graduated over time, would help constrain our demand for these fuels, and would provide significant revenue for the federal treasury.  The penalty could come from a cap-and-trade system, or from a direct fuel tax, or from other mechanisms not yet identified.  The revenues could either be distributed as tax rebates to the driving public, or could contribute to paying down the national debt, or could be used to support research and development of alternative fuels and transportation modes as is currently done by the ARPA-E and other programs of the Department of Energy.  As many have said, “If not now, when?”

Note 1. Abstract available online free, or the full article for a fee or through personal or institutional subscription.  Many public libraries, and university libraries open to the public, receive the journal.

© 2011 Henry Auer

U. S. Federal Spending Proposals for Energy R&D – 2011 and 2012

Summary:   Global warming due to man-made emissions of greenhouse gases, arising from burning fossil fuels and other sources, threatens to cause large scale disruptions in our planetary agricultural and economic activities, and of the ecological balance across the face of the earth.  In the past two years the U. S. Department of Energy has implemented new programs and expanded others directed toward identifying new technologies that would reduce greenhouse gas emissions.  Most recently, however, the funding environment for these programs has grown uncertain due to a change in the political landscape in the U. S. Congress.  At this writing the situation is in flux. This post summarizes the present uncertain status of funding for energy programs.

Introduction.  On Nov. 29, 2010 U.S. Energy Secretary Steven Chu addressed the National Press Club (see the post reporting this speech here).  He advocated support for new federal programs to create domestic U. S. industries in the fields of alternative and sustainable energy, and energy efficiency.  This theme was reinforced by President Barack Obama in his State of the Union Speech in January 2011.

As part of the American Recovery and Reinvestment Act of 2009 (the anti-recession fiscal  “stimulus” bill) the Department of Energy received considerable one-time funding, with a duration of two years, to support new research and development in the areas of renewable and sustainable energy, and energy conservation research, among others.  As an example of the programs established, a recent post reported on the Advanced Research Project Agency-Energy (ARPA-E) support for new startup companies, many of which have progressed to receiving additional venture capital funding to expand their activities.  This is considered to be a significant achievement that helps vindicate the ARPA-E program, since the venture capital firms made their decisions as little as one year after the initial ARPA-E awards.  As noted, the federal budget support for these programs ends after two years, i.e., more or less at the present time.

Fiscal Year 2011.  The U. S. fiscal year 2011 runs from Oct. 1, 2010 to Sept. 30, 2011.  Every year the President and his Administration submit a proposed budget for a given fiscal year more than six months before it begins, so that the Congress can consider it and prepare the various appropriations.  The Congress, however, (repeating a pattern common in recent years) failed to enact any appropriations before Oct. 1, 2010.  When this happens, Congress typically passes one or more of a series of “continuing resolutions” (CRs) that continue federal spending levels from the preceding fiscal year into the actual fiscal year whose budget has not yet been acted on.  This has happened for the present fiscal year, 2011; no federal budget has passed Congress.  At this writing, the current CR expires March 4, 2011.

The U. S. Congressional elections of Nov. 2, 2010 resulted in a new Congress, the 112^th Congress.  It took office in January 2011. The majority in the House of Representatives changed from the Democratic Party to the Republican Party, and the Senate Democratic Party majority was narrowed.  Since fiscal year 2011 is almost half over, the new Republican majority in the House has introduced a proposal for an extended CR to last through the rest of the fiscal year, one which involves drastic reductions in many programs. 

The Republican CR addresses so-called “discretionary funding” in the budget, and focuses on that portion, about 15% of the total, to which it proposes to apply pronounced reductions.  (The CR leaves Social Security and Medicare, whose expenditures are governed by the legal rights of the recipients, as well as spending for the Department of Defense, untouched.)   In this 15% slice of the overall Federal budget, the CR now proposes to reduce spending by $60 billion in the remaining 6 months or so of the fiscal year, compared to the spending rates extended from the previous fiscal year. 

For programs in the Department of Energy related generally to addressing global warming and energy efficiency, the proposed reductions in the various programs are very severe, as included in the table presented below:

                              gov/hudportal/HUD?src=/program_offices/cfo/reports/2011/main_toc; “FY 2011 Budget

                              and Related Information”, available at http://www.usgs.gov/budget/2011/2011Index.asp.

                              Source: http://www.americanprogress.org/issues/2011/02/budget_cuts_innovation.html

Chairman Hal Rogers of the House Appropriations Committee, in a press release dated February 11, 2011, summarized the reductions proposed for the FY 2011 CR.  In it, he states in part, concerning energy-related reductions,

“Funding for non-core research … have been reduced in the bill, and most agencies are prohibited from starting new programs without Committee approval. The Committee also sought to reduce excess and unnecessary spending by cutting Energy Efficiency and Renewable Energy (EERE) and Science accounts – both of which received huge funding levels in the stimulus bill.” 

This proposed CR is almost certain to pass the House of Representatives with little or no change.  It is not likely to pass the Democratic-controlled Senate, however, in its present form.  And even if it does, President Obama will most likely veto it. 

As noted above, the present situation must be resolved by March 4, 2011.  It is not clear at this time how this apparent impasse will be resolved.  One solution would be to extend the FY 2010 CR unchanged to the end of this fiscal year.

Fiscal Year 2012.  President Obama has presented a proposed budget for FY 2012, which begins Oct. 1, 2011.  Overall, he proposes budget reductions of $1.1 trillion over 10 years, as a start to addressing growing annual deficits and the expanding U. S. national debt.  However, in the face of this effort, the President proposes increasing funding for renewable energy and related programs in the Department of Energy, according to Platts.com's web site.  The overall budget for the department is proposed to increase by 12% over 2010 levels to $29.5 billion.  Importantly, renewable energy research and development programs are proposed to increase by 70% -- almost $1 billion -- for renewable energy R&D, such as solar, biomass, geothermal, and building and industrial energy efficiency, compared to FY 2010 levels. 

According to Platt.com, the Energy budget proposes funding of $550 million for ARPA-E, identified above.  ARPA-E has so far only received $400 million in the 2009 stimulus bill, since the program was not supported by the Republican Party at that time.  The proposal also seeks $5.4 billion for the Department’s Office of Science, a $500 million increase about 2010 levels. This is contrary to Chairman Rogers’ proposal (see above). 

For those who support the need to address global warming, reduce America’s dependence on imported fossil fuels, and stimulate new economic activity based on renewable energy and energy conservation, the President’s budget proposal is truly heartening.  It is clear that the President and his administration whole-heartedly support expanding these programs in face of the overall atmosphere of reducing federal expenditures.  This budget proposal is only the first step in arriving at actual spending levels, however.  The actual appropriations bill must be written and an identical version agreed to in each chamber of the Congress.  Then the President has to sign the result, if he agrees to its terms.  As seen from recent experience and the fact that the Congress is divided between Republicans and Democrats, considerable hurdles remain to be overcome before the proposed programs are supported by actual expenditures.

Conclusion.  The appropriations that could support federal research and development projects in renewable energy and energy conservation, and related clean energy projects, are in a high state of flux at present.  The funding levels both for current spending and for the year beginning Oct. 1, 2011 remain to be determined.  This is highly disadvantageous for creating new enterprises in this field, because the high level of uncertainty hinders private equity investors from committing to supporting these innovations.  Yet the participation of private funding is critical for development of alternative energy regimes.

© 2011 Henry Auer

The Regional Greenhouse Gas Initiative of the New England and Mid-Atlantic States

Summary:  The Regional Greenhouse Gas Initiative, including the six New England states and four Mid-Atlantic states, is the oldest greenhouse gas reduction regime in the U. S, using a cap-and-trade mechanism. Greenhouse gases are responsible for global warming occurring in recent decades.  It is also the most modest, affecting only emissions originating from electric power plants.  Since it began operating in 2009, it has collected large sums of money and has led to the creation of many new jobs and businesses.  While this modest beginning is praiseworthy, it is important to strive toward major, significant reductions in greenhouse gases, so that the increased level of greenhouse gases in the atmosphere can be stabilized.  

Introduction:  In recent years three regional initiatives have been set in place in the U. S. The Western Climate Initiative, formalized in February 2007; the Midwestern Greenhouse Gas Reduction Accord, set in place in November 2007; and the Regional Greenhouse Gas Initiative (RGGI), established in July 2007.  RGGI is discussed in this post.  The three regional accords encompass 23 states in the U. S. as well as several Canadian provinces.  Additional states and provinces are “observers” of the various accords.

The American states participating in these three agreements, and their greenhouse gas emissions, are shown in the following map:

Map displaying the three regional greenhouse gas emission reduction programs in the U. S. (omitting Canadian provinces in WCI and the Midwest Group as well as their contributions to emissions).  WCI: Western Climate Initiative; Midwest Group: the Accord; RGGI: Regional Greenhouse Gas Initiative.  MtCO₂e: Millions of metric tonnes of greenhouse gas emissions expressed in terms of carbon dioxide-equivalent greenhouse activity.  Percents are the portions of total U. S. emissions.  

Source: World Resources Institute (http://www.wri.org/stories/2007/11/midwest-greenhouse-gas-accord-numbers)

RGGI incorporates the ten states of Maine, New Hampshire, Vermont, Rhode Island Massachusetts, Connecticut, New York, New Jersey, Delaware, and Maryland.  The notion of setting up this regime began with Gov. George Pataki of New York.  In 2003, he wrote the governors of 11 other states in the Northeast proposing to limit greenhouse gas emissions.  He recognized the success of cap-and-trade in combating the sulfur emissions from Midwest power plants that cause acid rain, and identified under the U. S. Clean Air Act.  

RGGI was formalized in July 2007 by the establishment of the nonprofit corporation RGGI, Inc., whose role is to coordinate and oversee the administration of the Initiative.  As with the other two accords, it is up to the individual states to enact the enabling laws for operation of the Initiative in the respective states.  A Memorandum of Understanding (MOU) among the member states was initially issued in December 2005 by seven of the ten states.  The remaining three joined by early 2007.  As such, RGGI is the first of the three regional greenhouse gas accords currently operating in the U. S.

The MOU recognizes that global warming due to man-made greenhouse gases is occurring, and that the resulting increase in average global temperature has negative effects on the states involved, including more severe droughts and floods, changes in forest composition, and increasingly damaging storm surges along the coast.  It also recognizes that reducing the need for imported fossil fuels will enhance energy security and will lead to development of new industries related to renewable and sustainable energy sources.

Contrary to the WCI and MGGRA which cover all major activities that produce greenhouse gases, the RGGI accord agreed on controls only for fossil fuels used in electric power generation, affecting facilities with greater than 25 megawatts (MW) generating capacity.  It covers 209 facilities across the region.  The member states agreed to create a CO2 Budget Trading Program within the region, with the goal of stabilizing and then reducing the overall emissions from this source.  Each state’s base emission amount was established at the outset, totaling 188 million tons of CO2, and is to remain fixed at that level from 2009 through 2014.  The emissions limits are implemented by selling emission allowances, where 1 allowance covers 1 ton of CO2 emissions.  Starting in 2015, the allowances for each state are to be reduced by 2.5% per year, so that by 2018 the emissions will be 10% below the starting level.  The Trading Program is in fact a cap-and-trade regime, in which the allowances are tradable in an auction market.  The auctions occur quarterly.  They ensure fair pricing of the right to emit greenhouse gases on an open market available to all parties.  RGGI estimates that the auction price increases the cost of electricity to the consumer by only 0.4% to 1%.

The MOU also allows for offsets that serve as substitutes for actual reductions of CO2 emissions from a particular source.  Instead of achieving reductions in emissions at an emitting site, the source may use a limited part of its CO2 allowances to purchase offsets from remote facilities that accomplish reductions of emissions or new increases in CO2 removal from activities such as afforestation.  Initially the offset facilities must be within the region covered by the Initiative, but can be expanded to be anywhere in North America.  Allowances granted are biased to favor using offsets within the region.

Each RGGI state uses two thirds of the proceeds from the sale of allowances to promote activities that contribute to further reduction in greenhouse gas emissions.  These include subsidizing energy conservation activities and promoting renewable energy industries.

The RGGI model presents itself as serving as an example for a) a functioning cap-and-trade regime, b) a program that will reduce greenhouse gas emissions from fossil fuels, and c) identifying and promoting new ventures developing renewable energy sources and conservation.   As the oldest regional accord in the U. S., RGGI should serve as an example for the other regional greenhouse gas reduction accords, as well as for any federal regime that may emerge directed toward reducing greenhouse gas emissions.

Political Environment and Practical Results.  RGGI is the first regional initiative in the U. S. set in place to combat greenhouse gas emissions that cause global warming; as noted, it uses a cap-and-trade system to achieve its objectives.  Political supporters of such programs point out that the revenues received from allowances should be considerable, and will support development of new businesses and creation of new jobs.  Enterprises involved in energy conservation, and the development and installation of renewable energy sources, benefit from investment of these public funds in their activities.  Opponents of such programs, and especially cap-and-trade regimes, point out that consumers wind up paying the extra costs to cover the expense of buying allowances.  This extra expense, they argue, inhibits job growth and enterprise creation, leading to exporting jobs elsewhere.

These considerations, and others, have led to the failure to impose greenhouse gas restrictions at the federal level in the U. S.  It is reported, however, that as of December 2010 RGGI has been a success in most of the states covered by RGGI.  Nine auctions have been held, garnering $729 million.  The auctions have proceeded without problems, contrary to the early experiences of the European Union’s Emission Trading Scheme.  In New York, for example, every dollar spent promoting renewable energy spawns six dollars of overall new economic activity.  RGGI states have created hundreds to thousands of new jobs from these funds.  This modest success in RGGI (based on power plant sources only) suggests that the two other, newer, greenhouse gas initiatives, WCI and MGGRA, should also have positive effects.

Unfortunately, positive revenue balances in government accounts are always susceptible to attack.  In the present economic environment in which most U. S. states have severe budgetary deficits, such reservoirs look very attractive.  It is reported that Gov. Chris Christie of New Jersey has diverted $65 million from RGGI revenues for general expenditures.  In Connecticut former Gov. Jodi Rell likewise diverted ratepayer funds for the energy Efficiency Fund; currently some may be restored (email from Clean Water Action). 

RGGI Leads the Way toward Stabilizing the World’s Atmospheric CO2 “Bathtub”.  The modest reductions in the emissions of greenhouse gases under RGGI are first steps toward achieving a leveling off of the atmospheric CO2 concentration.  Much more needs to be done, however. The global atmosphere, and its CO2 component, can be thought of as a "bathtub", having a "faucet" that adds new CO2, and a "drain" that removes CO2.  The present amount of CO2, about 390 parts per million (ppm), is already higher than in the past several thousand years, and the highest since the start of the industrial revolution.  The”faucet”, including increased burning of fossil fuels worldwide, is adding about 2 ppm CO2 each year; the “bathtub” is getting fuller.  (There are fewer balancing activities that “drain” CO2 and other greenhouse gases from the atmospheric “bathtub”.)  The stronger greenhouse effect from this CO2 leads to higher overall, long-term, global temperatures, which are also higher than in the past. 

Thus it is imperative not merely to reduce the rate of adding new greenhouse gases to the atmospheric “bathtub”, but rather to achieve zero world-wide emissions as soon as practically possible. 

References:

RGGI Fact Sheet http://www.rggi.org/docs/RGGI_Fact_Sheet.pdf.

RGGI CO2 Allowance Tracking System http://www.rggi.org/docs/RGGI_COATS_in_Brief.pdf

© 2011 Henry Auer

Federal Energy Research Projects Win Venture Funding Support

Summary.  The U. S. Department of Energy is supporting selected high-risk, innovative projects that, if successful, would contribute to new commercially viable technologies for increasing energy efficiencies and reducing the need to burn fossil fuels.  Fossil fuels  produce greenhouse gases and lead to global warming.  In a recent announcement, the Department noted that six of the projects it has supported with seed money have succeeded in winning supplementary funding from private venture capital firms.  Thus the program has succeeded in identifying promising technologies that may mature into practical methods for reducing greenhouse gas emissions while contributing significantly to national economic activity.

Introduction.  Global warming due to greenhouse gases (mainly carbon dioxide, CO2) accumulation is widely accepted to pose a serious threat to the global economy, disrupting many geographical features such as coastlines, and fertile vs. arid regions, and leading to serious disruptions in agricultural production. 

In an effort to develop activities that may contribute to combating global warming, the U. S. federal government has given support to some innovative research programs. The New York Times reported on February 2, 2011 that several pioneering research projects initially funded by the U. S. Department of Energy (DOE), using seed money provided under the American Recovery and Reinvestment Act of 2009 (the “economic stimulus” bill) had succeeded in attracting private venture capital funding.  The supplemental backing by venture capitalists demonstrates that the DOE had initially selected enterprises deemed by the capitalists as having commercial prospects, i.e., that the technologies chosen had a good chance of achieving commercialization and profitable development.

The U. S. Secretary of Energy, Steven Chu, has called the present era a “Sputnik moment” with regard to investing in new technologies leading to development of renewable energy in the U. S.  This theme was echoed by President Barack Obama in his January 2011 State of the Union address. Such a program can help the U. S. regain leadership in the global competition to develop sustainable energy resources.  It can also reduce our reliance on fossil fuels such as those imported from abroad for our energy needs.  Currently much renewable energy technology is being developed abroad, including in China. 

ARPA-E Development program in DOE.  DOE’s Advance Research Projects Agency-Energy (ARPA-E) is the funding source for these start-up ventures.  It is modeled after the earlier U. S. Defense Department’s Defense Advance Research Projects Agency (DARPA) which funds innovative research directed toward defense and the armed forces.  DARPA is credited, for example, for giving rise to the communication system that became the Internet. 

ARPA-E was initially funded with a budget of $400 million over two years in the stimulus bill.  With this money it awarded 43 grants,  with an average grant size of about $2 million.  The selection process was quite rigorous,  This initial round attracted 3,600 summary proposals, of which 300 were selected to be resubmitted as full-fledged grant applications.  Expert scientists were drawn from universities around the country to evaluate the proposals.  As a result the winning grants are assured of having received critical scrutiny for innovative potential as well as technical rigor even before getting off the ground.

Venture Capital Support Gained.  The ARPA-E program disclosed that after only a year of support, six programs that it initially supported, with grants ranging from $700,000 to $8 million, had attracted private venture capital investments totaling more than $100 million. “This amount of private capital support indicates that the business community is hungry to invest in truly innovative solutions to the country’s energy challenges,” Energy Secretary Chu stated.  The six projects, originating in start-up technology companies, are from:

1366 Technologies develops new manufacturing technologies for the silicon wafers needed for photovoltaic (PV) solar energy harvesting.  The company was awarded $4 million, and received $33.4 million from venture capital investment.  PV cells directly convert sunlight falling on them into electric current.  At present, manufacturing silicon wafers for PV energy is sufficiently expensive that it is considered not to be economically feasible.  According to ARPA-E, the 1366 Technologies innovation could reduce wafer capital costs by as much as 90%. 

Envia Systems received $4 million from ARPA-E, and was granted $17 million more from GM Ventures.  In collaboration with the Department of Energy’s Argonne National Laboratory, the company is developing lithium ion batteries with the highest energy density known.  It uses its unique electrode materials to greatly increase the amount of electrical energy the batteries can store, making this innovation an important step in developing battery-powered electric vehicles.

FloDesign Wind Turbine was granted $8.3 million by ARPA-E to pursue its development of an alternative wind turbine design based on the structure of airplane jet engines.  The company attracted an additional $27 million in venture funding, permitting further development and expansion of its executive and research staff.  The design relies on use of a shrouded turbine that delivers far more energy per unit of rotor sweep area, and uses rotors that are 50% smaller than comparable conventional rotors.

SunCatalytix received $4 million from ARPA-E and has since received venture funding of an additional $9.5 million.  The company’s technology integrates sunlight harvesting and water to permit producing highly distributed energy from the sun for individual applications.  Its novel devices promote (catalyze) the breakdown of water into its components, hydrogen and oxygen, which can then be recombined to capture the energy released in a controlled fashion, on demand, using the company’s solar-to-fuel device.  The gases produced serve to store the sun’s energy in small scale installations, such as residential, for reuse on need.

General Compression gathers unneeded electrical energy produced from a wind farm.  The company received an ARPA-E grant of $750,000, and has been granted over $12 million in venture funding. Using a reversible compressor/generator module, it pumps compressed air into underground storage cisterns when energy produced exceeds demand, and uses the compressed air to generate electricity when demand exceeds production.  The installation can cycle between these two modes in seconds, and operates with efficiency approaching 75%, making it highly responsive to demands of the power grid.

24M received an ARPA-E grant of $2.55 million, and has won an additional $10 million in venture capital.  The company, collaborating with the Massachusetts Institute of Technology and Rutgers University, is developing new, alternative batteries for electric vehicles that exceed the performance and reduce the cost, compared to lithium ion batteries.  The company is working on new materials for storage of electrical energy, and a flow system that separates the storage function from the external electrical circuit.

Overview of ARPA-E Programs.  The ARPA-E office has categorized its programs into six groups.

BEEST (Batteries for Electrical Energy Storage in Transportation) seeks to develop new high energy-density batteries for use in electrical vehicles, with the objective of extending the driving range available.

IMPACCT (Innovative Materials & Processes for Advanced Carbon Capture Technologies) is directed to remedying the high carbon dioxide emissions from coal-fired electric power plants.  Its objective is to identify and develop new technologies for capturing and storing CO2 from coal burning plants, thus preventing the CO2 from entering the atmosphere.

GRIDS (Grid-Scale Rampable Intermittent Dispatchable Storage) seeks to develop new methods for storing large quantities of electric energy produced from intermittent sources such as solar or wind energy, removing the energy from regional and national grids when in excess, and delivering the energy to the grids when demanded.

ADEPT (Agile Delivery of Electrical Power Technology) seeks to develop new materials and modalities such as soft magnetic materials, high-voltage switches, and high-density electrical storage.  These will enable, for example, high capacity feeding of photovoltaic electrical energy, and use of new solid-state electrical substations and wind turbines.

Electrofuels seeks to develop microbial organisms to capture atmospheric CO2 and convert it into liquid fuels for use in transportation.  The objective is to carry out research and development of new technologies that complement existing research on biofuels and photosynthetic fuel production, for example, in algae. 

BEETIT (Building Energy Efficiency Through Innovative Thermodevices) seeks to develop new efficiencies for use in cooling buildings.  The program focuses on identifying new refrigerants that are not themselves greenhouse gases (contrary to currently used refrigerants) and on developing new air conditioning systems that have high efficiency and low energy requirements.

Other projects are also supported that do not fit readily into the categories above.

Budgetary Outlook.  According to the New York Times, the original funding from the stimulus bill was a two-year allocation.  That support was effective up to the present fiscal year, 2011.  But there has been no federal budget enacted for fiscal year 2011, so there is no new funding available at present to extend the grant program.  A budget request will be included in the proposed budget for fiscal year 2012.  Support for such an allocation will certainly be difficult given the present federal budgetary crisis and a strong spirit in the Congress for reducing discretionary (optional) spending.  Thus the Administration will need to present a strong case for this program, and defend it vigorously.

Balancing Governmental vs. Private Financing.  There is an active debate concerning the proper role of government support for high-risk innovative research.  The Department of Energy believes the ARPA-E program has struck the balance rather well.  It does not want to support every proposal regardless of quality.  In using outside scientists to vet incoming proposals, the Department believes it has identified proposals with a high probability of success.  On the other hand, government should not support research that would have been undertaken in the private sector anyway. 

The fact that these and other energy-related startup companies rely on initial seed money from the federal government shows that in their quest for support in the private realm, such firms were initially unable to attract the needed seed money.  The technologies in question generally are highly innovative and carry high financial risk.  And yet, the ARPA-E program, according to the report, feels justified in its choices of projects to support, since one-sixth of the chosen proposals have succeeded in attracting venture capital funding after only one year; perhaps some others will also succeed in this regard in coming months.

Urgent need to eliminate greenhouse gas emissions.  In several previous posts, including this simple model, I have discussed the need, highly urgent, not merely to lower the rate at which we release new greenhouse gases into the atmosphere, but rather to eliminate all new emissions as rapidly as possible in order to keep the total accumulated greenhouse gas amount at its present level.  The current level of atmospheric greenhouse gases is already higher than in recent geological history.  Climate scientists agree that this exceptional situation is even now  contributing to adverse climatic effects, and that higher levels of greenhouse gases will make the situation globally far worse. 

For this reason, the ARPA-E program is a necessary and fruitful undertaking.  It will provide several new technologies that, each in its own way, can potentially make major contributions to achieving this ultimate objective.  For relatively minor expenditure of public funds, it will foster the development of new enterprises that will contribute to the growth of the national economy and help reduce the need to burn conventional fossil fuels.

© 2011 Henry Auer