Coal Fuels Developing Countries, but We Need to Decarbonize Energy Right Away

Summary.  Coal is the worst of the three principal fossil fuels in terms of the amount of carbon dioxide, the main greenhouse gas, emitted into the atmosphere on burning.  Whereas annual rates of emission from developed countries are projected to remain steady, the emission rates from developing countries are predicted to rise by almost 3% per year as they burn more and more fossil fuels, mostly coal, each year.

Consequently, according to a growing group of leading climate scientists, the goal of limiting the long-term global average temperature rise to less than 2.0ºC (3.6ºF) likely will not be met.  This will have serious negative consequences on humanity and the planet. 

We conclude that every new investment in energy infrastructure starting “now” should construct renewable energy sources and institute energy efficiency instead of extending fossil fuel-based energy infrastructure.  The principal emitters of greenhouse gases, including the U. S. and China, should reach a “few-party” agreement to decarbonize their energy economies among themselves as soon as possible.

 

Introduction.  Coal is the worst of the three principal fossil fuels in terms of how much carbon dioxide (CO₂), the main greenhouse gas, is emitted into the atmosphere for a given amount of heat produced on burning.  This is shown in the following table. 

It is seen that, on the basis of carbon-atom-to-carbon-atom in the various fuels,  coal emits almost twice as much CO₂ per unit of heat obtained relative to natural gas.  This makes coal the most offending of the fossil fuels in contributing to the worsening of global warming. 

In view of this situation, it would be highly sensible to set policies in place that discourage expansion of coal-burning energy sources.  Yet coal is also highly abundant throughout the world, and readily mined at the scale needed to satisfy energy demand.  Indeed, use of coal for energy continues not merely at a level pace, but at an ever-growing rate, as energy demand around the world keeps increasing.

Growth in energy use and in emissions of greenhouse gases in China and other developing countries has been historically high, and is expected to continue growing in future decades (see Details at the end of this post).  China is the country with the greatest demand for energy sources, coupled with a very high rate of growth in its energy demand.  A large portion of its energy demand is provided by coal.  Use of coal for energy in China grew at an average rate of 8.8% per year from 2000 to 2011, while the rate for the rest of the world was 1.1% per year.  Overall, China’s total energy use more than doubled over this time period, closely tracking the growth in its economy.  Clearly, energy is needed to power expansion in production and infrastructure.

The U. S. Energy Information Administration (USEIA) foresees continued rapid growth in energy consumption in China, as well as in India, in the future decades from 2008 through 2035.  Most of this energy continues to be derived from coal and other fossil fuels, so their projected emissions of the greenhouse gas carbon dioxide likewise grow rapidly during this period. 

Energy use by India, though lower in absolute magnitude than that of China, also grows at a comparable rate, since its energy economy is also being developed with a strong reliance on coal.  In contrast, the growth in energy use among developed countries, and their corresponding annual rate of growth of greenhouse gas emissions, is much lower than that for China, India and other developing countries of the world.

Analysis

China, India and other developing countries of the world have relied on coal and other fossil fuels to provide the energy needed to power their economic growth (as have most developed countries as well).  Coal is the most offensive of these fuels, for on burning it releases almost 50% to about 90% more carbon dioxide, the major greenhouse gas, than other fuels.  This unremitting reliance on fossil fuels has resulted in a dramatic growth in the emissions of CO₂, and is expected to continue without significant change in future decades (see Details, below), in the absence of new energy policies curtailing greenhouse gas emissions.

CO₂ released into the atmosphere is rapidly distributed into the air all around the globe; it does not remain restricted to the air space over the region of the emitting source.  For this reason greenhouse gas emissions at any point on the planet exert their greenhouse effect on all humanity.  Every source of greenhouse gas emissions contributes to the climatic consequences of global warming inflicted across the face of the entire planet.  The developing countries of the world, for example, are continuing to expand their energy infrastructures by installing still more electric generating plants, industrial facilities, and motor vehicle fleets, mostly powered by fossil fuels, as seen in the projections for future fuel use and CO₂ presented in this post.  We must understand, however, that every new facility made operational today cements a commitment to continue emitting CO₂ throughout its operational lifetime: up to a century for housing and commercial structures, about 40-50 years for electric power plants, and 10-20 years for motor vehicles.  The actions our policymakers take today have decades-long consequences.

CO₂, once emitted into the atmosphere, remains airborne indefinitely for at least 100 years, if not much longer (after a fixed, known fraction, about one-third, is absorbed by oceans).  Humanity has been adding new CO₂ to the atmosphere since the industrial revolution began, and is doing so as shown in the Details at an ever-increasing rate.  The extent of increase of the global average temperature is determined by the total accumulated level of GHGs, not by the annual rate of emissions. The present level has already raised the long-term global average temperature by 0.7ºC (1.3ºF).  This increase is continuing higher as the CO₂ concentration continues to increase. 

The Intergovernmental Panel on Climate Change (IPCC)  has set a target of limiting emissions such that the overall global average would not increase more than 2.0ºC (3.6ºF).  But climate scientists, examining current trends in the use of fossil fuels, now realize that humanity will fail to meet this target (these include Sir Robert Watson, former Chair of the IPCC; James Hansen, climate scientist at the National Aeronautics and Space Administration’s Goddard Institute for Space Studies ; Glen Peters and coworkers, Nature Climate Change vol. 3, pp. 4–6 (2013), doi:10.1038/nclimate1783; and Greenpeace “Point of No Return, The massive climate threats we must avoid”, January 2013).  

Recent annual conferences held by the United Nations Framework Convention on Climate Change (UNFCCC), including those in Copenhagen (2009), Cancun (2010) and Durban (2011), have striven unsuccessfully to supplant the Kyoto Protocol on its expiration at the end of 2012.  At the Durban conference it became clear that agreement on a global warming treaty would be seriously delayed.   As confirmed at the Dubai conference in 2012, the objective now is to conclude negotiating a new treaty by 2015 for adoption by the nations of the world and implementation by 2020.

But this is most likely too late.  As seen in the projections shown in this post, representing trends in the absence of policies to reduce emissions, annual emission rates by developed countries will continue at a constant level, while annual rates by developing countries will rise indefinitely.  Neither of these trends points to reduced emissions.  Yet this is what is needed.  Moderate abatement measures instituted a decade or two ago would have been relatively easy to implement.  But in the meantime, in their absence, global emissions have raised the CO₂ content of the atmosphere, so now more drastic abatement measures have to be implemented as soon as possible. 

Thomas F. Stocker, a climate scientist at the University of Bern, Switzerland, calculates (Science2013: Vol. 339 pp. 280-282; doi: 10.1126/science.1232468)  that the longer the delay the more stringent the mitigation policy must be to attain a goal of any given maximum temperature increase over the preindustrial temperature.  As of now, for example, an ambitious goal of a limiting rise of 1.5ºC (2.7ºF) would need a relatively stringent abatement rate of more than 5% per year, while a higher limit of 2.0ºC (3.6ºF) would need a lower abatement rate of over 2% per year.  But if we wait until 2020, for example, a limiting rise of 1.5ºC would require almost a 10% per year abatement rate, and a limiting rise of 2.0ºC would require about a 3% abatement rate.  Dr. Stocker concludes “…even well-intentioned and effective international efforts to limit climate change must face the hard physical reality of certain temperature targets that can no longer be achieved if too much carbon has already been emitted to the atmosphere. Both delay and insufficient mitigation efforts close the door on limiting global mean warming permanently” (emphasis added).

This post concludes that every investment in energy infrastructure undertaken from this date forward should construct decarbonizing energy facilities and implement energy efficiency instead of extending fossil fuel-based energy infrastructure.  These measures can be initiated unilaterally, but in addition the principal emitters of greenhouse gases, including the U. S. and China, should reach a “few-party” agreement to decarbonize their energy economies among themselves as soon as possible, outside of the UNFCCC process.  Our climate future and that of coming generations demands nothing less.

 Details

The historical use of coal by China, and by all other countries, is shown in the following graphic.

Coal consumption, in billions of tons used per year, from 2000 to 2011 for China (red line) and the rest of the world (black line).

Source: U. S. Energy Information Administration, http://www.eia.gov/todayinenergy/detail.cfm?id=9751&src=email.

 

In all countries of the world not including China (black line), coal use grew from 3.8 billion tons per year to 4.3 billion tons over the eleven years shown.  This works out to an average growth rate of 1.1% per year.  In contrast, coal use in China grew from 1.5 billion tons per year in 2000 to 3.8 billion tons in 2011, for an average growth rate of 8.8% per year.  Use in 2011 grew by 9%, continuing the long-term trend. 

World trends for coal use for 1980 and 2010 are shown in the two images below

 

World use of coal in 1980 and 2010 in billions of tons (Images captured from an animated version tracing year by year changes).   While North American use has expanded slightly, coal use in Europe and the former Soviet Union has actually fallen.  In the same period, coal use in Asia, due primarily to China and India, has expanded dramatically.

Source: U. S. Energy Information Administration http://www.eia.gov/todayinenergy/detail.cfm?id=4390.

 

This link animates the above images year by year between the 1980 and 2010 endpoints.  The two still images and the animation bring home in striking visual impressions the vast growth in Asian coal use, originating mostly in China and India.

The growth in overall energy use by China tracks quite exactly with its economic expansion, as seen below:

 

 

Total energy use by China (in quadrillion British thermal units (aqua bars)) and its economic growth (in 2000 U. S. constant $ (brown line)).

Source: U. S. Energy Information Administration http://www.eia.gov/todayinenergy/detail.cfm?id=8070.

 

About 71% of China’s electricity originates from thermal generation, mostly powered by coal.  Electricity generation doubled between 2005 and 2011, with coal-fired generation growing proportionately.  In some years in this period, China was commissioning 1-2 new coal-fired electricity plants per week. Even though China has the largest coal reserves in the world, it imports additional coal to meet its demand, starting in 2009.  (A detailed accounting of China’s historical energy economy is available at the USEIA).

 

In 2010, China accounted for about 73% of Asia’s coal use.  From 1980 to 2010 Asia’s coal use increased 403% during a period in which total world use increased 94% and North America’s use increased 50%.  In 1980 Asia accounted for 24% of the world’s total use of coal, while in 2010 this share grew to 63%. (Source: U. S. Energy Information Administration).

 

 

USEIA published its International Energy Outlook 2011 in September 2011.  Using a Reference scenario which assumes no further governmental energy policies other than those already in place in 2011 it projects trends in energy production and consumption from 2008, the last year of historical data included, through 2035.  As seen in the graphic below, total energy use in China and in India increases by much higher annual growth rates than does the increase in usage by the U. S.

 

Source: U. S. Energy Information Administration http://www.eia.gov/forecasts/ieo/world.cfm

 

China and India, continuing the historical trend already noted, derive much of their energy in the period projected through 2035 by burning coal.  This contributes to large accumulations of atmospheric CO₂.  This is seen in the following graphic:



Historical emissions of CO₂ from 1990 to 2008, and projections under the Reference Scenario to 2035 for developed countries (OECD, black line) and developing countries (non-OECD, red line). Source: U. S. Energy Information Administration; http://www.eia.gov/forecasts/ieo/emissions.cfm.

 

Emissions for developed countries in the Organization for Economic Development (OECD) increase minimally over the projected period, while those for the non-OECD countries increase 73% from 2008 to 2035, to 28.9 billion metric tons of CO₂.  Emissions originate worldwide mostly from coal, then from liquid fuels (powering transportation), then natural gas.  The growth in emissions from coal originates almost entirely from developing countries, which are dominated by emissions from China and India.  Growth rates for emissions from China and India are 2.6% per year and 2.7% per year, respectively, and the rate for all developing countries is 2.1% per year.  By contrast, the growth rate for emissions from developed countries is only 0.2% per year.

 © 2013 Henry Auer

President Obama Proposes Expanded Growth of Sustainable Energy

Summary.  In his second inaugural address U. S. President Barack Obama highlighted the need for developing sustainable energy sources.  He noted the damages inflicted by recent extreme weather and climate events.  He then set forth the objective of expanding the role of sustainable energy in the American economy, expressing the intent to make the U. S. a world leader in this field.  By including this topic among the relatively few areas covered in his remarks, he emphasized the importance he ascribes to making sustainable energy a significant portion of the American economy.

Introduction. Each passing day brings new evidence of the ravages that worsening global warming wreaks on our planet.  In recent months we have witnessed destructive weather-related disasters, including worsening droughts coupled to  forest wildfires, droughts that lead to shortages in important food staples, and intense storms with heavy rainfall, floods, damaging winds and coastal storm surges.  These calamities have been experienced across America and around the entire world.  They invariably cause physical damage valued in the billions of dollars, long-lasting disruptions in economic activity worth additional billions of dollars, disruption to social structures and loss of life.  The world’s climate scientists are in overwhelming agreement that these events are consistent with, indeed are manifestations of, global warming brought on by increased emissions of man-made greenhouse gases.

President Obama’s Inaugural Address. U. S. President Barack Obama recognized these facts, and the need for action on the warming climate, in his second inaugural address delivered Jan. 21, 2013.  According to the transcript of his speech he committed to “respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations”.  The President pointed out that although there remain some who deny the scientific truth of global warming, in the face of severe weather and cliimate events “none can avoid the devastating impact of raging fires and crippling drought and more powerful storms”.   In order to combat these trends, the President called on the nation not to “resist this transition” to “sustainable energy sources”, but rather to “lead it”, by taking a primary role among nations to develop the new “technology that will power new jobs and new industries….That is how we will preserve our planet…”.

Analysis

These objectives are highly significant in many ways.  Although to date the U. S. has failed to enact a legislated national energy policy, President Obama’s administration has already put policies in place that will roughly double the fuel efficiency in cars and trucks by 2025, and significantly reduce carbon dioxide emissions from electric power plants.    Second, further undertakings along the lines outlined in his address would expand on these initiatives.  The role of sustainable sources in providing the energy supply for the country will be expanded.  This goal is foreseen to be accomplished by restoring American research, development and deployment of renewable energy to a prominent place among nations.

The President’s pledge in this regard is very important.  Every renewable energy facility will supplant energy currently provided by fossil fuels.  For this reason it is not true that reducing the demand for fossil fuels will lead to job losses, as some opponents state, because the new energy forms being developed will themselves require large investments in both labor and capital.  The President clearly pointed this out.  Moving toward sustainable energy does not destroy jobs.

Perhaps one way of expanding energy production using sustainable technologies would be to encourage the major fossil fuel producers themselves to undertake research, development and deployment of new technologies as a new business model.  Currently oil companies, for example, expend vast resources to find and exploit yet more fossil fuel reserves.  Every new production facility, however, enshrines a new capability to emit still more greenhouse gases, when the fuel is burned, for the full service lifetime of the installation, i.e., for several decades.  This expanded use of fossil fuels serves to worsen the global warming we create.  In contrast, an alternative choice within these companies to develop and deploy industrial scale renewable energy sources would relieve the world of an added burden of greenhouse gases, and would still preserve the need for investment in labor and facilities.  President Obama’s initiative on sustainable energy could be promoted if a suitable incentive could be found to encourage these companies to let fossil fuel development lapse in favor of renewable energy sources.

President Obama is to be commended for including the policy objective of combating global warming by developing a robust American renewable energy industry in his second inaugural address.  This emphasis is highly significant, for it is one of only a few major policy themes developed in the speech, showing that he regards this issue with high priority.  This policy is broadly supported among the American public.  Practical implementation of this policy would be a major accomplishment of President Obama’s final term in office.

© 2013 Henry Auer

American Public Opinion Supports Measures to Combat Global Warming

Summary.  A consortium of the Yale Project on Climate Change Communication and the George Mason University Center for Climate Change Communication has summarized current American public opinion regarding global warming.  The public is worried about global warming and its effects, both on themselves and on future generations.  Voters across the political spectrum favor policy action to counteract global warming.  There is strong support for developing renewable energy and extending energy efficiency measures.  Among voters who say that election candidates’ positions on global warming would affect their vote, most agree the planet is warming and that human activity is responsible. 

A review of other surveys agrees with these findings.  We conclude that in the U. S., popular support for legislation effectively addressing global warming is strong.  It is clear that the public “has the legislators’ back” in this matter.

 

Introduction.  Implementing new policies intended to counteract worsening global warming, in the U. S. and other democratic countries, necessarily requires the support of the population.  Administrative measures put in place by the U. S. executive branch, as well as new legislative measures enacted in the Congress, both depend on the assent of the people.  Barring such popular approval neither administrative policies nor proposed legislation would become reality, since there have always been many powerful corporate and economic interests dedicated to preserving the status quo.

Public opinion on various aspects of the global warming issue has been the focus of an ongoing series of surveys carried out by a consortium of the Yale Project on Climate Change Communication and the George Mason University Center for Climate Change Communication, involving Emily Vraga, Connie Roser-Renouf, Anthony Leiserowitz and Edward Maibach, among others.  Their most recent survey entitled “Climate Change in the American Mind”, was released in September 2012 (after the summer heat wave and drought in the Midwest, and an unusually intense season of forest wildfires in the West, but before the U. S. presidential election and before Hurricane Sandy struck the east coast).  This most recent survey worked with 839 subjects; their earlier surveys involved variously 774-832 subjects.

This post presents a selection of results from the most recent survey concerning the voting public’s attitudes toward global warming, including a breakdown by political affiliation.  These are categorized as Democrats (more liberal), Republicans (more conservative), and Independents (frequently called Unaffiliated by others).  This selection was released on Jan. 15, 2013 by Anthony Leiserowitz.

Survey Results.

There is strong concern among American voters about the effects of global warming.  Majorities of Democrats and Independents were worried about effects on them and succeeding generations.

Taking medium-scale or large-scale measures to reduce global warming is broadly supported, amounting to 69%, with 88% of Democrats and 78% of Independents in agreement.  Republicans in the past have been characterized as being more doubtful or skeptical concerning global warming and its effects.  Yet in this survey a majority of Republicans favor at least some level of effort to counteract global warming.

Various policies aimed at developing renewable energy sources are supported by an overwhelming majority of voters of all three affiliation groups. Such policies include eliminating current subsidies to the fossil fuel industry (many of which have been in place for almost 100 years).  Across all three groups, strong majorities favor additional research on developing renewable energy sources.

The public understands that carbon dioxide is a major greenhouse gas accumulating in the atmosphere.  Voters in the survey support regulating carbon dioxide emission (69%), including imposing a carbon tax.  There were slightly differing degrees of support for the tax depending on the use to which the proceeds would be applied; of the alternatives presented the most strongly supported were using the proceeds for job creation in renewable energy and energy efficiency, and promoting development of energy sources that minimize greenhouse gas emission.

93% of Democrats, 75% of Independents and 52% of Republicans were in agreement that global warming should be at least a medium priority for the President and Congress.  In the 6 months since the previous survey, these percentages for Democrats and Independents were 7-9% higher, while the percent for Republicans remained unchanged.

58% of registered voters say that the presidential candidates’ positions on global warming would be a factor in deciding how they would vote (note that this survey dates from before the U. S. presidential election).  Within this group, 83% agree that the temperature of the planet is warming, and 65% affirm that human activity is responsible for this warming. 

 
Analysis

The atmospheric concentration of carbon dioxide and other greenhouse gases continues to rise inexorably year by year, as humanity across the globe relentlessly burns more fossil fuels to satisfy its energy demands.  Over the past decade, more, and more severe, climate and weather events negatively impacting human life and livelihood have occurred.  These frequently lead to loss of life, major damage to property and infrastructure, and loss of economic activity, all of which create a need for financial relief that is frequently borne by taxpayers.  These events are associated in the minds of the public with the idea that increased greenhouse gases are causing the increased extent of global warming that we are experiencing.

The Yale/George Mason survey shows that the voting public supports governmental action to help abate the worsening of global warming.  The public favors eliminating subsidies for the fossil fuel industry, and government-sponsored development of renewable energy sources.  American people, as represented by the survey, support a carbon tax whose proceeds would be applied to several objectives including job creation in renewable energy and energy efficiency, and development of innovations in renewable energy.

The survey results developed by the Yale/George Mason consortium are corroborated in other recent public opinion surveys on global warming.  In a review of several surveys ClimateNexus reports similar results as of Dec. 18, 2012.  Thus they were able to report that Hurricane Sandy, the record melting of Arctic Sea ice, and other North American weather patterns already mentioned have reinforced in the public mind that global warming is happening “right here, right now”.  Global warming acted to make such disasters and extremes worse than they would otherwise have been.  The harms to Americans are understood by the public.

In another analysis, Krosnick and MacInnis (Daedalus, Winter 2013, Vol. 142, pp. 26-39; (doi:10.1162/DAED_a_00183) ) similarly find the American public understands the increase in global warming, its origins from human activity, and the need to embark on policies to mitigate warming.  They conclude that the failure to enact legislation combating continued warming cannot be ascribed to a lack of popular support.

Policymakers should be heartened by the results of surveys such as those summarized here.  It is clear that the public “has the legislators’ backs”.  In view of the strong scientific basis underlying our understanding of global warming and its worsening trends, it is highly necessary to embark on measures to abate the process as soon as possible, and as intensively as possible.  Public opinion supports enacting such measures.

© 2013 Henry Auer

One-Year Extension of Tax Credits for Renewable Energy in the U. S.

Summary.  The American Taxpayer Relief Act of 2012 included a one-year extension of tax credits favoring renewable energy growth in the U. S.  It liberalizes the credits, expanding their applicability to include projects whose construction will have begun during the present year, 2013.  A primary component within renewable energy that benefits from these tax credits is generation of power by wind.  It is projected that wind energy could provide 20% of U. S. energy by 2030.

Tax credits in the U. S. for renewable energy have a history of being allowed to expire, then being reinstated later, each active period enduring for only one or a few years.  This is highly disruptive for the industry, as it makes long-term planning with certainty largely impossible.  The U. S. needs to implement long term policies governing development of renewable energy in order to provide such certainty.

 

Introduction. Renewable energy is playing an increasingly significant role in the U. S. and around the world.  Wind energy provides a large fraction of this growth, as well as much of the total installed capacity, among the various renewable sources. In addition to wind, these include solar energy, hydroelectric power, biofuels, geothermal energy and ocean or tidal energy.

In the U. S., renewable energy has received subsidies in the form of an investment tax credit (a credit favoring investment in new facilities to promote construction) or a production tax credit (PTC; a credit based on the amount of energy delivered once a facility is operating).  Wind energy has received tax credits, much in the form of PTCs.  In the recent decade the U. S. Congress allowed credits to lapse, and then reinstated them, in an arresting pattern of fits and starts.  This is shown for wind energy in the following graphic:

 

 

History of ITCs and PTCs for wind energy in the U. S. The blue bars show annual wind generating capacity added each year, using the scale for gigawatts added shown on the left vertical axis.  The light blue section of the bar for 2012 shows planned capacity additions at the time this report was prepared late in 2012, presumably in anticipation of the expiration of the PTC at the end of 2012.  The green line shows the total wind capacity installed in the U. S., using the values on the right-hand vertical axis.  The 1603 Grant was a provision of the American Recovery and Reinvestment Act of 2009 (the “stimulus” combating the recession) that made a fractional direct cash payment for renewable energy projects.

Source: U. S. Energy Information Agency; http://www.eia.gov/todayinenergy/images/2012.11.21/windcaplarge.png.

 

It is quite clear from this graphic that periodic expiration of tax credits (see the years following expirations in 1999, 2001, 2003, and 2009) had drastic negative impacts on installation of new generating capacity during the following year.  In addition, as noted in the legend to the graphic, during 2012 wind industry planners were factoring in a scheduled termination of the PTC effective at the end of the year by accelerating new construction.

 

Extension of Renewable Energy Tax Credits.  The so-called “fiscal cliff” in the U. S. raised the possibility of sharply higher taxes and reduced spending as of Jan. 1, 2013.  At literally the last minute, in an effort to avoid this fiscal crisis, the U. S. Congress passed the American Taxpayer Relief Act of 2012 (the “Act”) on Jan. 1, 2013, and President Obama signed it into law on Jan. 3. 

 

In addition to provisions averting many facets of the looming fiscal disaster, the Act included provisions extending tax credits for renewable energy.

 

Renewable Energy Provisions of the Act.  The Act provides extensions of tax credits with slightly more favorable terms than in previous years.  Most of the provisions are summarized here.

 

a)     A production tax credit or an investment tax credit for wind energy is extended for one year ending Dec. 31, 2013, but the terms are liberalized by requiring only that construction must have begun by that date rather than, in earlier versions, been completed by then.  A total of $12 billion may benefit the wind industry over the next 10 years;

b)     a credit for energy efficiency in existing or new homes;

c)     a credit for vehicle refueling facilities providing alternative fuels;

d)     a credit for biodiesel and renewable diesel fuel mixtures, applied to fuels sold after Dec. 31, 2011 and by Dec. 31, 2013;

e)     for the four tax credits described above, the deadline is extended to Dec. 31, 2013, but the subject of the credit must have become available for use after Dec. 31, 2011.  Thus they are retroactive for about one year, and expire after one year;

f)      a credit for producing cellulosic biofuels after Dec. 31, 2008 and before Jan. 1, 2014, applicable to a wide range of newer cellulosic sources and to cultivated algae; thus this provision is retroactive for four years and remains effective for one year.  There is also a special allowance for facilities that produce the newer cellulosic or algal biofuels, placed in service after Dec. 31, 2012 and effective for one year; and

g)     a credit for geothermal facilities whose construction begins before Jan. 1, 2014.

 

The New York Times reports that electricity produced from other forms of renewable energy sources, including tides and ocean waves, landfill methane and hydroelectric facilities were also included in the tax credits.

 

Analysis

Extension of Tax Credits. The American Taxpayer Relief Act of 2012 included several provisions extending PTCs or ITCs for the relatively short period of 1 year, as itemized in this post.  This 1-year extension contributes, albeit only briefly, to helping wind energy and other renewable energy technologies to provide an increased share of America’s energy demand.  In a report issued in July 2008, The Office of Energy Efficiency and Renewable Energy of the U. S. Department of Energy modeled a scenario (EERE) in which wind energy would supply 20% of U. S. demand by 2030.  To achieve this objective, generating capacity would have to expand from about 46 gigawatts (GW) in 2011 (see graphic above) to 305 GW in 2030 (EERE).

 

The legislative wrangling over whether, and how, the fiscal cliff could be averted was itself a cliffhanger.  It was not until the last days before the fiscal cliff deadline of Jan. 1, 2013 that the outlines of the law were assembled, and final passage required a late night session of the lower chamber, the House of Representatives, on New Year’s Eve extending into the early hours of the new year.  Most of the renewable energy credits were extended for only one year.  Thus the Act guarantees yet another period of uncertainty promising yet another contentious legislative struggle over further extensions in one year’s time.  Nevertheless the Act liberalized the credits by extending them to projects whose construction will have begun before the expiration date, replacing the earlier requirement that projects must have been completed by the deadline date.

 

Policymaking by fits and starts is highly disruptive.  Governing in this way, by awarding and withdrawing tax benefits literally at the last minute on a schedule of once a year to once every few years, is extremely disruptive for business activity (see the graphic above).  Corporations and entrepreneurs seeking to develop renewable energy need multi-year periods for planning, funding, and installing renewable energy facilities.  Depending on the particular technology and location, this can include factors such as gaining zoning and siting approval, undergoing environmental impact analysis, assembling financing, garnering purchase contracts for the energy ultimately produced by the renewable source, and construction.  For example, according to the American Wind Energy Association, developing a new wind farm requires 18-24 months.  Many of these factors are interdependent.  Singly or in conjunction with one another, settling these arrangements requires extended periods of time.  It is highly counterproductive for developers to have to contend with short-term provision and expiration of tax credits.  Effective energy policy must create long-term stability in order to enable the justified expansion of renewable energy technologies.

 

It would be far more reasonable and effective to develop policies on subsidizing the development of renewable energy on a long-term schedule. In this way corporations and entrepreneurs could plan the development and implementation of projects secure that subsidy policies were intact, available as scheduled, and could be used as appropriate throughout the lifetime of the project.

This view conforms with the history of the use of subsidies in the

U. S. for newly emerging energy technologies throughout this country’s history, beginning in the nineteenth century. Federal and/or state subsidies were consistently applied, and have been found to be most effective when a new technology was in the  early years of its development.  Unfortunately, at least in the case of crude oil, subsidies continue to be granted even now, more than 100 years after the birth of the industry. Clearly, subsidies are no longer warranted for this industry, given the enormous revenues and profits among the major crude oil producers.  Those expenditures could more justifiably be applied to the current group of nascent technologies encompassed within renewable energy.

 

Advantages of renewable energy.  Construction and development of renewable energy projects have many positive policy features. The new facilities will operate within the U. S., rather than abroad.  In contrast, much new petroleum exploration and development  occurs in more and more remote locations and environments.  Commonly these require deep drilling and frequently involve deep sea operations including development in the extreme conditions of Arctic oceans.  These conditions are fraught with environmental hazards that can come to fruition with disastrous consequences. Furthermore, as drilling operations take place under increasingly challenging technical conditions, their costs increase correspondingly.  In contrast, the costs for renewable energy are well-understood and easily budgeted.

 

Developing renewable energy preserves and/or creates jobs.  The American Wind Energy Association states that currently 75,000 workers are engaged in wind energy.  It expects that the policies in the Act could save as many as 37,000 of those jobs and create many more in later years.  There are almost 500 manufacturing facilities in the U. S. related to wind energy, located in all 50 states.  A thorough summary of job economics related to renewable energy is presented in this post.

 

Renewable energy sources have the very important feature of not emitting greenhouse gases into the atmosphere.  Global warming due to manmade greenhouse gases is already a very serious problem and is destined to get worse as humanity's demand for more energy grows. New fossil fuel-based energy- facilities put into service now, such as oil and gas pipelines, electric generating plants, oil refineries, and the like, will continue operating for a useful lifetime of, say, 40-50 years.  These new facilities will continue spewing greenhouse gases into the atmosphere throughout their service lifetime, adding to those already accumulated and worsening global warming.  In contrast, renewable energy facilities, once placed in service, have close to zero lifetime emissions of greenhouse gases, yet have the potential capacity to provide a significant portion of America’s energy demand.

The American Taxpayer Relief Act of 2012 laudably includes a one-year extension of tax credits for wind energy and other forms of renewable energy.  It is lamented that the extension is for only one year.  This prevents entrepreneurs and businesses from making plans for further development of renewable energy with the certainty of having a long-term policy in place.  The expanding renewable energy industry provides jobs for American workers, contributes to freedom from reliance on foreign sources of energy, and relieves the burden of accumulating greenhouse gas emissions in proportion to its installed generating capacity.  All efforts should be undertaken to implement a long-term energy policy in the U. S. that includes appropriate support for the expansion of renewable energy.



 

© 2012 Henry Auer