1.  The President denied the Keystone XL pipeline to transport oil from Canada to be refined and used in the U.S.

The Obama Administration decided on January 18 that constructing the Keystone XL pipeline was not in the national interest of the United States. The proposed pipeline had the capacity to carry 700,000 barrels of oil to American refineries, as well as deliver 20,000 jobs to a depressed economy. Only in Washington D.C. would this project not be considered an economic miracle and a key part in securing our energy future.

2. The President’s policies have restricted access to domestic energy resources

Despite numerous discoveries of abundant natural resources, only 2 percent of offshore areas are currently leased for oil and natural gas production. That means 98 percent of energy-rich offshore federal lands remain restricted for exploration and development. Furthermore, despite the claims of the Obama administration and his surrogates that U.S. oil and gas production has gone up during his tenure, the reality is that oil and natural gas production on federal lands—for which he could justifiably claim some credit—has decreased by over 40 percent since 2000. Only on state and privately held lands is production increasing, and it is increasing on account of technologies like hydraulic fracturing that the Obama administration wants to restrict.

3. President Obama acknowledges that electricity prices will have to increase under his proposed policies and regulations

Referencing his proposed cap-and-trade energy tax, President Obama had a rare moment of political clarity when he said, “…if someone wants to build a coal plant, they can – it’s just that it will bankrupt them, because they are going to be charged a huge sum…” Unfortunately the President’s crusade against affordable energy didn’t end there.  IER recently noted that new EPA rules and regulations for power plants would shut down roughly 10 percent of our coal electricity production.   The 28 gigawatts of generating capacity that would go dark are the equivalent of shutting down every power plant in the state of Indiana or North Carolina, and, in the administration’s own words, would “necessarily” make our energy prices skyrocket.

The most troubling aspect of the energy debate is that President Obama and his administration are actively pursuing policies that make energy more expensive for consumers and businesses, while sending billions to failed businesses like Solyndra. Taxpayer funded renewable energy is a fantasy, but the pain at the pump is very real.

Krugman on Mercury Regulation

Here is how Krugman used his extraordinary megaphone at the NYT blog to deal with the EPA’s decision. Krugman first quotes two paragraphs from Grist writer David Roberts, then returns to his own (Krugman’s) commentary:

David Roberts reports on the EPA’s decision, finally, to regulate mercury from coal plants:

Anyone who pays attention to green news will have spent the last two years hearing a torrent of stories about EPA rules and the political fights over them. It can get tedious. After a certain point even my eyes glaze over, and I’m paid to follow this stuff.

But this one is a Big Deal. It’s worth lifting our heads out of the news cycle and taking a moment to appreciate that history is being made. Finally controlling mercury and toxics will be an advance on par with getting lead out of gasoline. It will save…tens of thousands of lives every year and prevent birth defects, learning disabilities, and respiratory diseases. It will make America a more decent, just, and humane place to live.

[Back to Krugman writing:] Let me repeat part of that: it will save tens of thousands of lives every year and prevent birth defects, learning disabilities, and respiratory diseases. This is actually a much bigger issue, when it comes to saving American lives, than terrorism.

As Roberts explains, we’ve known about these costs of mercury pollution for decades, yet it took until now to get something done. The reason is, of course, obvious: special interests, hiding behind claims of immense economic damage if anything was done, were able to block action. [Emphasis in original.]

This is Krugman’s preferred M.O. when it comes to environmental issues: Copy-and-paste wild numerical claims, no matter how implausible on their face, and then pretend that all of the scientists agree with Krugman, while anyone who objects is either a fool or a paid shill of big business.

In this case, the numbers were so absurd that I decided to spend a few hours digging into the matter more deeply. Even those who are familiar with the progressive Left’s willingness to bend numbers to support their ideological causes may be surprised at what I uncovered.

The Origins of a Bogus Statistic: The Liberal Blogosphere Telephone Game

Most readers are probably familiar with the “telephone game,” in which one person whispers a statement to a second person, who whispers it to a third, and so on. With a big enough group, by the time the “statement” reaches the last person, it has morphed into something only faintly resembling the original utterance.

Something analogous partially explains what happened with Krugman’s over-the-top analysis. Glancing up again at the Krugman quotation, notice that the good doctor—in a post titled, “The Meaning of Mercury”—cited the claim that the EPA’s decision will “save tens of thousands of lives every year,” and then Krugman wrote, “[W]e’ve known about these costs of mercury pollution for decades.”

Because of Krugman’s title and discussion, the innocent reader would be led to believe that “the science” had shown that mercury pollution itself was responsible for at least 20,000 deaths annually, in the same way that (say) car crashes are responsible for a large number of deaths every year.

This is why my alarm bells went off. After all, in 2007 (the latest year of finalized data) the U.S. only had 2.4 million deaths total, with much of this number due to causes clearly unrelated to mercury. (For example, more than 123,000 died from accidents, some 35,000 were suicides, and 18,000 were homicides.) Was Krugman really telling us with a straight face that he thought at least 20,000—the lowest number that would render “tens of thousands” an accurate description—deaths were due to mercury emissions from coal-fired power plants?

We can see how Krugman’s version of reality starts to unravel, just by looking more closely at the very quote Krugman himself selected from David Roberts, who had written: “Finally controlling mercury and toxics will be an advance on par with getting lead out of gasoline” (italics added). Krugman, whether intentionally or through ignorance, led his readers to believe that this was a discussion about mercury, when, as we will see, the (bogus) statistic isn’t based on mercury emissions at all.

“Saving Lives” versus “Preventing Premature Deaths”

If we follow Krugman’s link to David Roberts’ piece, we don’t see any specific explanation of the “tens of thousands of lives” claim. However, in that piece Roberts’ links to this guest post at ClimateProgress (Joe Romm’s blog), by Daniel J. Weiss and Jackie Weidman. It is here that we start learning where the “tens of thousands of lives” number comes from, because the authors write, “These rules will remove millions of pounds of mercury, lead, arsenic and other dangerous pollutants from coal plants, preventing 17,000 premature deaths annually.”

Notice that the telephone game has struck again. Weiss and Weidman say the rules will prevent “17,000 premature deaths annually.” David Roberts incorrectly translated that into a claim that the rules will “save tens of thousands of lives.”[1] Besides being wrong numerically, it’s also misleading, since preventing a “premature death” doesn’t have quite the same ring as “saving lives.”

If a new air traffic control system reduces airplane crashes, so that fewer people die from “airplane crash” every year, then it is clearly saving lives, and the evidence for the efficacy of the new system is quite objectively verifiable. But if instead someone claims that a new pill will reduce “premature deaths” by a certain number each year, that is a much more abstract claim, dependent on a theoretical model. The new pill might in fact be a wonderful boon to public health, but the researchers in question have a lot more leeway to come up with a wildly wrong number when they can play with “preventing premature deaths.”

Reporting the Top of the Range Instead of the Range

Alas, even the “prevent 17,000 premature deaths” claim has fallen victim to the telephone game. If we follow the link that Weiss and Weidman provide, we are led to the EPA analysis fueling much of the progressive blogosphere’s commentary on the issue. Here we see, at long last, the origin of the factoid. On page 3 the report explains, “In 2016, these proposed rules would avoid: 6,800 – 17,000 premature deaths.” Thus, when Weiss and Weidman confidently asserted that the rules would “prevent…17,000 deaths annually,” they were reporting the very highest number in a range given by the EPA. (Note also that the low end of the range wouldn’t even constitute ten thousand, let alone “tens of thousands.”)

Bait and Switch: None of This Is About “Air Toxics” After All

We have already seen the telephone game’s ability to distort and inflate, resulting in Paul Krugman’s absurd implication that the scientific consensus has known for decades that mercury emissions from power plants currently cause at least 20,000 deaths annually, and that anyone who disagrees must be stupid or corrupt.

However, a reasonable person might respond, “Okay Murphy sure, the figures weren’t just about mercury, but ‘mercury and other air toxics.’ It’s also true Murphy that the actual number might be as low as 6,800 premature deaths avoided, rather than ‘tens of thousands of lives saved.’ But still, Krugman and his allies are only guilty of inflating the numbers and botching the summary of the facts. The basic spirit of their analysis is still sound, right?”

Unfortunately, what is happening here is far more Orwellian than a mere telephone game. The EPA’s analysis is based on a gigantic bait-and-switch, as Dr. Anne E. Smith explained in her August, 2011 technical commentary on the EPA’s proposed rule. From Smith’s summary of her findings:

EPA reports that the Proposed Rule will produce annual benefits of 6,800 to 17,000 avoided premature deaths and other types of health effects reductions, with an estimated value ranging from $53 billion to $140 billion, but these benefits have nothing to do with air toxics at all. The fact that none of these benefits are due to air toxics reductions is quite clear if one reads the Executive Summary (Chapter 1) of the RIA. [Emphasis in original.]

Indeed, if one knows what to look for, this shocking revelation is implicit in the EPA’s own fact sheet (which the ClimateProgress writers Weiss and Weidman linked to). On the very same page that provides the “6,800 – 17,000 premature deaths” bullet point, the EPA document says:

The updated standards will provide certainty and level the playing field so that all power plants will have to limit their toxic emissions – ultimately preventing 91 percent of the mercury in burned coal from being emitted into the air. The rule provides up to 4 years for facilities to meet the standards.

EPA did not estimate the benefits associated with reducing exposure to air toxics or other air pollutants, ecosystem effects, or visibility impairment. However, the proposed toxics rule would cut emissions of pollutants that are of particular concern for children. Mercury and lead can adversely affect developing brains – including effects on IQ, learning, and memory.

In addition to the benefits of reducing exposure to air toxics, these standards would reduce concentrations of fine particles (PM_2.5) in our air. This will significantly improve public health by preventing hundreds of thousands of illnesses and thousands of premature deaths each year. [Emphasis added.]

Thus we see that the figures (both for premature deaths and economic benefits) cited by the progressive bloggers refer not to emissions of mercury by itself or even of mercury plus all other “air toxics” combined, but rather to a certain type of fine “particulate matter,” denoted PM_2.5. In other words, EPA proposed a rule to limit mercury and other “air toxics” emissions and then, to justify the rule, almost completely relied on a model of the costs and benefits of reducing PM_2.5 emissions, which would be an incidental byproduct of the rule. Thus, even if we accept the EPA’s analysis as gospel truth, the numbers of “lives saved” cited by Krugman have virtually nothing to do with mercury at all.

But wait, it gets worse. As Dr. Smith explains later (pp. 6-7) in her analysis, the modeling assumptions behind these PM_2.5 numbers are themselves quite dubious:

[R]eaders unfamiliar with the literature on PM_2.5 health risks should be aware that the estimates of PM_2.5-attributed deaths (such as the 6,800 to 17,000 that EPA is attributing to the Proposed Rule) are based entirely on statistical associations between total mortality rates in various locations of the US and their respective monitored, region-wide ambient PM_2.5 concentrations….EPA’s estimate of 6,800 to 17,000 PM_2.5-related premature deaths avoided in 2016 as a result of the Proposed Rule is based on an assumption that 130,000 to 320,000 deaths, respectively, of 2005’s US deaths were hastened by breathing ambient PM_2.5….And yet, EPA identifies not a single death during 2005 that was attributed, even in part, to exposure to ambient PM_2.5. If PM_2.5 is indeed having this estimated effect on the public health, there is no evidence indicating when or where these events occurred, or who was affected. Rather, these mortality estimates are merely inferences drawn after making a host of assumptions about how to convert a statistical association into a concentration-response function. No one really even knows what types of deaths might be implicated. A common belief among researchers is that the deaths are primarily cardiovascular in nature, but this is far from an established fact: everything from cardiovascular causes to diabetes to lung cancer has been mentioned as having such an association in one paper or another. There is no clinical evidence to inform these inferences either, despite at least 15 years of efforts by researchers to find a clear physiological mechanism to explain and lend credibility to these estimates based solely on statistical correlations.

Conclusion

The deeper one digs into the actual science backing up the wild claims of Krugman & Co. on mercury regulation, the weaker their rhetoric becomes. The implausible assertions in Krugman’s blog post were generated by a comedy of transgressions, ranging from (perhaps honest) poor paraphrasing, to reporting the top number of a wide range, to justifying regulations on air toxics emissions based on dubious models of the health effects of particulate matter.

In conclusion, let me be clear: No one is claiming that little kids should play with mercury. (In fact, will Krugman, David Roberts, et al. join IER in opposing the government’s phased-in ban on incandescent bulbs that will effectively force all schools and daycare centers—not to mention homes—to use mercury-filled CFLs? These guys keep telling us how dangerous mercury is, after all.) Yet the public should get mighty suspicious when the allegedly airtight evidence on the benefits of mercury regulation turns out to be so very fragile indeed.

A recent WSJ article reports on the new trend:

Big Oil is redrawing the energy map.

For decades, its main stomping grounds were in the developing world—exotic locales like the Persian Gulf and the desert sands of North Africa, the Niger Delta and the Caspian Sea. But in recent years, that geographical focus has undergone a radical change. Western energy giants are increasingly hunting for supplies in rich, developed countries—a shift that could have profound implications for the industry, global politics and consumers.

Driving the change is the boom in unconventionals—the tough kinds of hydrocarbons like shale gas and oil sands that were once considered too difficult and expensive to extract and are now being exploited on an unprecedented scale from Australia to Canada.

At this point, some readers may hang their heads in disappointment. “Aww, too bad,” they might think. “It looks like Australia and Canada are doing well for themselves, but the U.S. is still in a crisis.”

Yet hold on. The WSJ article continues:

The U.S. is at the forefront of the unconventionals revolution. By 2020, shale sources will make up about a third of total U.S. oil and gas production, according to PFC Energy, a Washington-based consultancy. By that time, the U.S. will be the top global oil and gas producer, surpassing Russia and Saudi Arabia, PFC predicts. [Bold added.]

This prediction might shock some readers, who have bought into the myth that the U.S. is an energy-starved country. Yet right now the U.S. is the third-largest oil producer in the world, behind Russia and Saudi Arabia. The reason we still import so much oil is that the U.S. is (by far) the largest consumer of oil. This isn’t a reason to fret, incidentally; it reflects our high standard of living, and the fact that Americans are much more dispersed geographically than, say, the Europeans.

IER’s new report on the fossil fuel inventory of North America shows that the new technological advances in unconventional extraction will soon make this continent the breadbasket to the world of energy supplies. Here are just some highlights of the new report:

• The government’s own reports show that the United States’ combined recoverable oil, natural gas, and coal endowment is the largest on Earth.

• The amount of oil that is technically recoverable in the United States is more than 1.4 trillion barrels. Total recoverable oil in North America exceeds 1.7 trillion barrels. (That is more than the world has used since the first oil well was drilled over 150 years ago in Titusville, Pennsylvania.) To put this in context, Saudi Arabia has about 260 billion barrels of oil in proved reserves. For comparative purposes, the technically recoverable oil in North America could fuel the present needs in the United States (seven billion barrels per year) for around 250 years.

• The government estimates that the United States has 272.5 trillion cubic feet of proved reserves of natural gas. The total amount of natural gas that is recoverable in North America is approximately 4.2 quadrillion (4,244 trillion) cubic feet, enough (at current rates of consumption) to last the United States for over 175 years.

• North American recoverable coal could provide enough electricity for the United States for about 500 years at current levels of consumption.

This energy abundance is hardly the image most Americans have been presented in their schooling and through watching the mainstream media. Instead they have been taught the “fact” that the United States is an energy hog, gobbling up dwindling resources and pushing the planet to the edge of catastrophe.

The new inventory report shows just how wrong this common view is. Looking just at the United States but especially if we include our neighbors to the north and south, there are literally centuries’ worth of fossil fuel resources right here at home.

Conclusion

There is nothing wrong with importing oil or other goods from foreign countries. Economically, it is most efficient for countries to specialize in their “comparative advantage” and trade with each other to maximize per capita living standards of all people.

Yet many alarmists are claiming that the U.S. government must intervene in energy markets in order to wean Americans from their alleged “addiction” to fossil fuels. The new inventory report shows just how foolish and unnecessary this government intervention is. There is plenty of accessible energy even within this continent, if only the government would get out of the way and let private businesses do their jobs.

In contrast was Lee Raymond of ExxonMobil, rejecting investments in wind and solar as a fad that would not serve his stockholders well. Renewable energy, generally speaking, Raymond told the Economist magazine back in 2003, “is a complete waste of money.”

Today Enron is a decade gone, and a humbled BP is back to petroleum with gusto. Shell has big plans for Arctic oil and gas development and tells plodding regulators: Let’s Go. And as Chevron CEO John Watson explained in a recent policy address: “Affordable energy is the priority that should underpin all of our actions.” Renewables, he added, need to become cost-competitive to have their era.

Even the New York Times is waking up to energy reality. In its special energy section this week, the Times had multiple articles educating readers about how the future belongs to the efficient, and political favor is the lifeline for the inefficient. Clifford Krauss in the feature article explained that fossil fuels are entering a new phase of productivity and growth. Matthew Wald’s “Solar Power Industry Falls Short of Hopes in Job Creation” was joined by Kate Galbraith’s “Future of Solar and Wind Power May Hinge on Federal Aid.” Reading these articles, Myron Ebell of the Competitive Enterprise Institute said: “It will be interesting to see how the Times’s columnists Paul Krugman and Thomas L. Friedman will handle [all this energy] news.”

At Energy Biz, Ken Silverstein, a perennial cheerleader for politically correct renewables, wrote of a new mentality from the oil and gas industry. “The fossil fuel sectors are fighting back against a wave of popular sentiment that they say is ill-founded,” he noted. “The oil, gas and coal industries say that their products are abundant and reliable, allowing this nation to achieve its economic well-being.” Silverstein quoted the philosophical, public-good argument of Chevron’s Watson.

I believe the United States has an opportunity – in fact, a great responsibility– to create an energy policy with affordability at its core. We need a refreshed policy approach that recognizes the value of fossil fuels and allows a market-driven transition to affordable substitutes over time. And I would suggest that only an energy policy with affordability as its central goal has the potential to deliver long-term economic, energy and environmental security.

Hear! Hear!

But what is new is really old. As W. S. Jevons explained so well in his 1865 classic The Coal Question, dilute, unreliable renewables cannot power machinery. Today, the message of energy density is being promulgated by the nation’s leading energy journalist, Robert Bryce.

Energy reality is demoting “politically correct” to Obama Bad. Does the President’s so-called “dream ‘green’ team” get it

One of the major factors behind increasing fuel poverty in the UK is government policies instituted to meet carbon stabilization targets, the most aggressive in the world. Britain has a legally binding carbon dioxide reduction target of 80 percent of 1990 levels by 2050. As a result of current measures and increasing fuel prices, industrial electricity prices in the UK are already among the highest of any industrialized country in the world.[ii]

Current Statistics

The average annual bill for a customer using electricity and natural gas is about 6 percent of median household income now, up from 3.3 percent in 2004. Since 2004, the cost of energy in the UK increased by 117 percent–more than six times faster than UK household income (which only increased by 18 percent since 2004). If these trends continue, energy’s share of median household income in the UK will reach 7.4 percent by 2013, 8.2 percent in 2014, and 10 percent in 2015.[iii]

The data show that the majority of households in fuel poverty in the UK contain “vulnerable” individuals, defined by the government as elderly, disabled, the long-term sick, or children. According to Age UK, the UK’s largest charity for older people, almost half the people living in fuel poverty were over 60. Michelle Mitchell, the charity director of Age UK, said: “Research shows many older people are forced to choose between eating and heating their homes, causing illness and in extreme cases, needless deaths.”

Centrica, which owns British Gas, blamed rising wholesale costs, which increased 30 percent since last winter on higher global demand for natural gas and the impact on supply of unrest in the Arab world. However, government policies also have an effect on the increasing energy costs. Currently, UK “policy costs” add 10 percent to household energy charges, mainly because of the “renewables obligation”, which mandates electric utilities to buy a proportion of their electricity from renewable sources, and the European Union’s carbon trading scheme.

The UK Energy and Infrastructure Plan

The UK government put together a white paper that proposes a plan that will guarantee a fixed price for electricity and include a carbon price floor effective in 2013 that will make it more costly to run coal and natural gas plants. Using these mechanisms, the government plans to change the UK’s energy mix in favor of renewables and nuclear power. EDF Energy, a subsidiary of EDF of France, has plans to build four nuclear reactors in the UK. The UK also has a “renewable energy roadmap” setting a target of building 18 gigawatts of offshore wind generating capacity by 2020, predicated on reducing the cost of wind generation by almost 50 percent (from up to £190 per megawatt hour ($300 per megawatt hour) to £100 per megawatt hour ($158 per megawatt hour)). The UK government is investing £30 million ($47 million) of innovation support to this goal. To deal with the intermittency issue of renewable energy, the plan includes a capacity mechanism that would keep non-renewable power stations on standby to ensure permanent spare capacity. The plan also contains tougher environmental standards for coal-fired power stations, forcing them to add equipment for reducing emissions or close down.[iv]

The country has an official target to spend £200 billion ($316 billion) on new infrastructure by 2020, which includes the large expansion of wind power. The total cost of building power stations is expected to be £110 billion ($174 billion), which will lead to higher household bills. But according to the government, the average electricity bill would increase by £160 ($252) by 2020 under this plan, compared to an increase of £200 ($315) if current practices are continued. The assumptions behind the higher cost number for current practices are not clear, but most likely include the policy changes that lead to more renewables and nuclear power.

Current practices mean more fossil-fueled plants. Dozens of new gas-fired power plants are being planned by energy companies in the UK. Scottish Power wants to construct a 1.2 gigawatt plant at Avonmouth, near Bristol; RWE npower is building a 2 gigawatt gas plant at Pembroke, South Wales and a 2.4 gigawatt plant at Willington in Derbyshire. It is also looking to build a smaller facility at Fawley, near Southampton. Smaller projects for gas-fired power include ones by Welsh Power, which wants to construct an 850 megawatt plant at Fleetwood in Lancashire, and Trafford Peaking Power, which is developing one in Manchester. As many as 30 potential gas projects that are either in late development stage or very early proposals have been identified. Utilities are building natural gas plants because they are relatively cheap to build and quick to construct. But, building those plants could result in a higher carbon emissions levels than the government’s plan that promotes renewable power and nuclear energy.[v]

What the government has not faced up to is that the shale gas revolution has decoupled the prices of oil and gas and is reducing natural gas prices significantly in the countries that have begun shale gas production. Recently, an estimated 200 trillion cubic feet of shale gas was discovered near Blackpool. Shale gas could supply the UK’s energy needs for a century and create an energy industry that would generate revenue and jobs unlike green energy and expensive subsidies. Shale gas could make UK manufacturing more competitive, reduce gas and electricity bills and reverse the rising trend in fuel poverty.[vi]

According to Deutsche Bank, the most effective policy to bring down energy costs would be to abandon the “renewables obligation” and the carbon floor price, cutting bills by 15 percent from 2015 levels. And, an additional 15 percent or more could be cut if the shale gas revolution was encouraged.[vii]

A New European Commission Study

The European Union (EU) study examines how it can meet its target of cutting greenhouse gas emissions to 80 to 95 percent of 1990 levels by 2050 through use of efficiency measures, renewable energy, nuclear power and carbon storage. According to the study, the EU’s green energy campaign could double household electricity bills by 2050. It predicted rising electricity prices over the next 20 years as Europe meets half of its electricity demand from wind farms, which provides 5 percent of its electricity currently. The result will be 50 percent higher bills by 2030 and 100 percent higher bills by 2050.[viii]

Conclusion

Energy costs in the United Kingdom are increasing due to higher fuel prices and government policies. Currently, the UK has over 5.5 million households that are facing fuel poverty, most of which are elderly or disabled. Policies currently in place such as a renewable obligation and a carbon trading scheme have increased prices by 10 percent. The government has a plan that will increase prices further by adding a carbon price floor, a guaranteed price for power, a requirement to ensure standby power to back up intermittent power sources such as wind, and a requirement to either make coal-fired power plants “clean” or retire them. That will increase energy costs further. By 2015, the average household in the UK is expected to be in fuel poverty.

[i] AFP, Fuel poverty on the rise amid energy price hikes, July 15, 2011, http://www.google.com/hostednews/afp/article/ALeqM5jX6Ox5adrhTfx2tYh41Aq-3JPPfQ?docId=CNG.d49bc7cdcf00b93d5c189e6d2d9ee1a0.451

[ii] City A.M., A few cold facts in the debate on high energy bills, October 18, 2011, http://www.cityam.com/forum/few-cold-facts-the-debate-high-energy-bills

[iii] Financial Times, Average household faces fuel poverty by 2015, October 10, 2011, http://www.ft.com/intl/cms/s/0/f4213ec2-f287-11e0-931e-00144feab49a.html#axzz1ag5hoWqf

[iv] Financial Times, Huhne aims for ‘cleaner energy future’, July 12, 2011, http://www.ft.com/intl/cms/s/0/c6aab426-ac70-11e0-bac9-00144feabdc0.html#axzz1alFujOXA

[v] The Guardian, Energy firms plan dozens of new fossil-fuelled power stations, July 17, 2011, http://www.guardian.co.uk/business/2011/jul/18/energy-industry-gas?CMP=twt_fd

[vi] City A.M., A few cold facts in the debate on high energy bills, October 18, 2011, http://www.cityam.com/forum/few-cold-facts-the-debate-high-energy-bills

[vii] Ibid.

[viii] UK News, GREEN ENERGY COULD DOUBLE HOUSEHOLD BILLS, October 18, 2011, http://www.express.co.uk/posts/view/278122/Green-energy-could-double-household-bills

Photo credit for natural gas flame: Public Service Commission of Wisconsin.

Department of Defense’s Energy Policy

Tom Hicks, Deputy Assistant Secretary for Energy in the U.S. Navy, said that the rising price of oil “dramatically impacts the military.” For every $1 a barrel increase in oil, the Navy and Marine Corps pay more than $30 million. So, it is no surprise that the U.S. military would like to find a more economic source of petroleum products.

Currently, there is a Congressional ban on the Pentagon’s using high-carbon alternative fuels. Section 526 of the Energy Security and Independence Act of 2007 blocks the Department of Defense from using coal-to-liquid fuels because the life cycle greenhouse gas (GHG) emissions from those fuels would be much larger than the GHG emissions from conventional petroleum. That puts a damper on Air Force plans to certify planes to run on synthetic fuels from coal, natural gas and biomass. While there are ongoing efforts in Congress to repeal this law, no repeal has been enacted as of yet.

For the past few years, the military has promoted alternative fuels from biomass, but so far these fuels are very, very expensive.  According to Undersecretary of the Air Force, Erin Conaton, biomass fuel is about 10 times the cost of military aviation jet fuel.[ii] Since the Energy Information Administration reports kerosene-based jet fuel to sell for just over $3 per gallon[iii], jet fuel from biomass according to this account would cost around $30 per gallon. Other estimates are much larger. For example, a blend of 50 percent camelina-based biofuel[1] purchased for the Air Force and Navy last year was reported costing $65 a gallon, making a 100 percent biofuel around $130 per gallon.[iv] Regardless, whether the cost is 10 times or 40 times higher, proponents of biomass fuels would like us to believe that costs can get down to $2 per gallon, but when and how are still an issue

China’s Coal-to-Liquids Project

China, unlike the United States military, has no problem  getting its petroleum products from coal. China’s largest coal producer, the Shenhua Group, is reaping huge profits from a coal-to-liquids project completed in late 2008 in North China. In just the first 3 months of this year, their profits reached more than 100 million yuan or $15.38 million from production of 216,000 tons of refined oil products. The project located in Inner Mongolia is the world’s first large coal-to-liquids plant. Last year, it operated for 5,000 hours and produced 450,000 tons of oil products. It is expected to reach one million tons of annual capacity.[v] With profits of that magnitude in only two years of operation, China has proven that coal-to-liquids is a lucrative business.  Meanwhile, the United States is shut out of that market for military use when it has the largest coal reserves in the world.

China’s Growing Use of Imported Coal

While China ranks third in coal reserves, behind the United States and Russia, its coal is low quality containing sulfur, fly ash and dust. Starting this July, China plans to blend cleaner burning imported coal with its domestic coal in six massive silos being constructed near an industrial port in northeastern China. The blended coal will meet tighter environmental regulations and burn more efficiently than domestic coal since it is of higher quality.[vi]

China’s Need for Coal is Enormous

China has been faced with electric power shortages since April due to high demand, high coal prices, and a drought in southern China causing low hydroelectric output. Precipitation in April was 50 percent less than the average level of past years, resulting in a 20-percent reduction in hydroelectric power generation growth. And, coal prices have doubled in the past five years in China, reaching $130 a ton for coal with high heat content. Statistics from the China Electricity Council indicate that electricity demand is already 12 percent higher than last year having reached 1,090 billion kilowatt-hours during the first four months of this year.[vii]

While China has more hydroelectric and wind generating capacity than any other country in the world, those power sources are reliant on water and wind availability and have not been able to fill the increase in China’s electricity demand. Unlike the United States, China does not mind satisfying its electricity demand with reliable coal generation, which represents 73 percent of China’s total generating capacity, and produced a whopping 83 percent of its generation last year.[viii]

According to the director of the power industry department of the China’s National Energy Administration, China is constructing 180 million kilowatts of new coal fired plants. In responding to the power shortages, he said, “The government will speed up the examination and approval of these projects and put them into use ahead of schedule.”

China is the world’s largest coal producer and consumer, consuming 3.5 times as much coal as the United States.[ix] And, rather than consuming U.S. coal at home, U.S. coal producers are looking to sell their coal to Asian markets since U.S. laws and regulations are either slowing or derailing new growth here.

Conclusion

China is on a fast track to meet its electricity demand, but not through hydroelectric power or wind power, where it leads the world in capacity, but through coal-fired generation. China is now the home of the world’s largest coal to liquids plant that is reaping in the profits. Yet, the United States fails to learn from China’s lead. The United States has banned the use of coal-to-liquids technology because the greenhouse gas emissions over its life cycle will exceed those of conventional oil. This is despite coal to liquids costs estimated at $45 to $65 per barrel.[x] Thus, U.S. military establishments will either continue to pay for imported crude oil or invest in biofuel technologies that have a long way to go before they will ever become competitive with conventional sources.

American Electric Power’s announcement last week that it will soon begin shutting down one quarter of its coal-fired power plants, combined with the news that replacing just a fifth of coal-fired power in Illinois could raise utility rates by as much as 65 percent over the next six years, is making the long-simmering issue of coal suddenly red hot. If the Illinois projections are true, it also appears to give the lie to the refrain that cap and trade, or other efforts to phase out coal, would be cheap and easy. On the other hand, there is something slightly odd about this story, as natural gas-fired power is now very competitive with coal on price. Shouldn’t we be able to replace coal with gas at a more reasonable cost than these news stories seem to suggest?

A look through the basic numbers of the coal-fired power fleet may contain the rough outline of an answer to this question, and it may turn out that the costs of phasing out coal power will be front-loaded instead of back-loaded. In other words, we’re going to take our biggest cost hits now, with the costs declining as time goes forward. At the same time, however, the numbers suggest the likelihood that a significant portion of coal power is likely to survive for a long time, such that coal-hating environmentalists will be very disappointed with the results a decade or two from now.

There are 595 coal-fired power plants in the U.S. in the Department of Energy’s 2008 database (the most recent available), providing 337 gigawatts of electricity, nearly half the nation’s total. Right now the consensus estimate is that we’re going to close down about 21 gigawatts of coal capacity (about 6.2 percent to the total) in the very near future, as perhaps as much as 60 gigawatts by 2017 (about 18 percent of total).

The average age of the coal fleet is 42 years; the oldest operating plant, Interstate Power and Light’s Linn unit in Iowa, first began operating in 1921. Figure 1 shows the share of coal plants by the decade of their first operation and their cumulative power output; over one-quarter of the fleet was built in the 1950s, though as can be seen, the coal plants built in the 1970s were much larger by capacity.

Figure 1: Number of Coal Plants Built by Decade and Total New Power Output

Source: Department of Energy and Author’s Calculations

The age of coal-fired plants is misleading, however, as most plants have been constantly upgraded over the years, and can be compared to a house built in 1950 that has a remodeled kitchen, bathrooms, new attic insulation, heat and A/C, and a new roof. In the case of power plants, improvements emphasize better turbines and more efficient boilers. Maybe a better comparison is an old car with a rebuilt engine and fuel injection replacing carburetors, or an aging film starlet with plastic enhance . . . never mind.

The more important variable is the size of the plants. Figure 2 displays the distribution of our 595 coal-plants by power output. The 130 largest coal-fired plants—22 percent of the total fleet—produce 65 percent of total coal-fired electricity. (The two largest coal plants are Georgia Power’s two 3,500-megawatt behemoths, the Bowen and Scherer units, each with four boilers.) By contrast, the 373 plants that produce less than 500 megawatts generate only 16 percent. In fact, the ten largest coal-fired power plants produce nearly 9 percent of total coal electricity; the ten largest plants produce more power than the 310 smallest coal plants combined. If the bottom half of the output distribution of coal-fired plants in the nation were shut down, it would only reduce coal use by about 15 percent.

Figure 2: Number of Coal Plants by Megawatt Capacity

Source: Dept. of Energy and Author’s Calculations

While some large, 1,000-megawatt-plus coal plants may be closed down, it is more likely to be the smaller plants that will be shut down for the simple reason that the fixed capital costs of additional pollution abatement will be too high, while the costs will not be excessively high for the larger plants. (Would the University of Alaska Fairbanks, for example, really want to spend the money to abate pollution from its 13-megawatt coal units? Will it make any sense to attempt carbon capture and sequestration on tiny coal plants?) Conversely, although new gas-fired power has become very cost competitive on average, the replacement cost of small coal units with small gas units (or renewables such as wind and solar that require gas-backup) is likely to be higher than average in many cases. Hence, the kind of numbers we’re seeing out of Illinois.

This discussion leaves out of account whether new environmental regulations for coal-fired mercury emissions make sense purely in terms of health and environmental benefit, something I’ve commented on in this space before.

“Under my goal of a cap-and-trade system, electricity rates will necessarily skyrocket.” President Barak Obama

“Coal is my worst nightmare.” Secretary of Energy Steven Chu

“Number one, electric rates are going to go up. Number two, whether or not construction jobs in the green industry are created, I think there’s virtually no manufacturing jobs that are likely to be created from the replacement of coal. Three … transmission grid stability is likely to emerge as a major issue, both because of the shutdowns and because of the intermittency of renewables.” James Wood, Deputy Assistant Secretary for the U.S. Department of Energy

James Wood, Deputy Assistant Secretary for Clean Coal, U.S. Department of Energy, is not very optimistic regarding the outlook for coal generation and future electric rates. That is because new regulations from the Environmental Protection Agency will shut down 35 to 70 gigawatts of coal-fired power generation. The intent is to replace the coal plants with renewable generation. However, replacing coal fired-generation intended to run continuously, with wind or solar power that are intermittent, will cause electric grid-related problems and other issues. And because the new renewable plants are much more expensive than the existing coal-fired plants that they will be replacing, electric rates will go up. This administration has been advocating higher energy prices from its onset, even beginning with President Obama’s speeches on the campaign trail. And now, they are trying to implement those promises.

Compliance with Current Regulations

The Clean Air Act Amendments, established decades ago, provided a market means for power plants to meet environmental standards for sulfur dioxide, nitrogen oxide and other criteria pollutants. The legislation proved effective in that the targets set were easily met by adding control equipment to power plants most conducive to modification. A number of old coal plants, however, did not get modified due to the cost. Since the electric utility companies met the targets set by EPA, they were in compliance and air quality greatly improved. (See chart below.) Now, those coal plants that are generating electricity at production cost levels since their capital has already been paid are to be scrapped for high-cost generation from renewable technologies, funded by taxpayers and ratepayers, who will have to pay for subsidies provided by federal and state governments and the cost of constructing the renewable plants through the electricity used.

Source: Environmental Protection Agency, http://www.epa.gov/airtrends/2010/report/airpollution.pdf

Issues with Closure of the Coal Plants

Speaking at the Eastern Coal Council’s annual conference, Mr. Wood identified a number of additional issues. First, some coal-fired units could be shut down because it is not possible to find the materials and skilled labor to complete the required upgrades by the tight deadlines set by EPA. Second, the burden of the increased costs would be borne primarily by “the not so wealthy.”  Third, there are issues related to  local economies and lost manufacturing jobs.  For instance, a shutdown occurring in local communities where the power plant is the major employer and businesses rely on the relatively inexpensive power would have a major effect on the town’s economy. In contrast, renewable power plants only require a few operators to run the plant.

Mr. Wood also pointed out that a recently announced closure of a coal plant in Salem, Massachusetts is expected to cause problems with the New England power grid.  The organization that oversees the power grid in New England indicated that the coal plant closure would threaten the reliability of the New England, northeastern Massachusetts and Boston power grid. And there are also tax implications. The mayor of Salem announced that the coal plant was the town’s largest taxpayer. Obviously, someone else would have to pay the lost taxes.

Also at issue with the coal plant closures is what technology will provide the needed base-load replacement power. Even without these coal plant closures, base-load power is needed to partially meet the increase in future electricity demand. The Energy Information Administration (EIA), in its Annual Energy Outlook 2011, is predicting over a 20 percent increase in electricity demand by 2035. Solar and wind are intermittent technologies and cannot be counted on to generate electricity when it is needed most, and certainly not to replace base-load power. Thus, if coal and nuclear are not replacement power sources due to environmental and waste disposal issues, natural gas combined cycle plants would be required to fill the void. While natural gas prices are currently low due to the boom from shale gas production, if natural gas becomes the base-load generation fuel of choice, natural gas prices could skyrocket. That was the prediction from conference speaker Megan Parsons of the engineering firm Burns & McDonnell. In its Annual Energy Outlook 2011, the EIA is predicting that natural gas prices to electric utility plants  will increase by over 40 percent by 2035. But that forecast includes only 8 gigawatts of coal plant retirements. Not the large amount expected from the new EPA regulations.

Conclusion

The Obama administration’s energy and environmental policies will clearly result in higher energy prices, if implemented, and as it has already announced. At issue is whether the policies are needed and what benefit is achieved from them. At a time when Americans are still feeling the crunch of a recovering economy and high gas prices, should the government be trying to increase other energy prices even more?

Committee on Energy and commerce

The Institute for Energy Research (IER) is a non-profit organization that conducts historical research and  evaluates public policies in energy markets. IER articulates free market positions that respect private property rights and promote efficient outcomes for energy consumers and producers. IER staff and scholars educate policymakers and the general public on the economic and environmental benefits of free market energy. The organization was founded in 1989 as a public foundation under Section 501(c)(3) of the Internal Revenue Code. Funding for the institute comes from tax-deductible contributions of individuals, foundations, and corporations.

Energy Secretary Steven Chu and other administration officials paint a very dire picture of the U.S.-vs.-China race for clean energy, implying that China is quickly outstripping United States in that race.[1] However, all the facts are not on the table. In both 2008 and 2009, the United States added more non-hydroelectric renewable capacity than it added traditional capacity (natural gas, coal, oil, and nuclear).[2] At the end of 2010, the United States and China each had over 20 percent of the world’s installed wind capacity.[3] While it is true that China’s total installed wind capacity was about 5 percent more than that of the United States in 2010, not all of China’s wind capacity is connected to the electric grid. Adjusting for that difference, the United States has in essence over 30 percent more useable wind capacity than China.  At the end of 2009, the United States ranked fourth in solar capacity, with only Germany, Spain, and Japan having a larger amount; China did not even make the list of the top 8 countries.[4] According to the Pew Environment Group, in 2010, China had about 75 percent less solar capacity installed than the United States. [5]

Where China is outstripping us in domestic construction is in coal-fired, nuclear, and hydroelectric generating technologies. Legal and bureaucratic red tape makes it is much more difficult to build these energy technologies in the United States than in China. China is eclipsing the United States in all forms of energy, and especially the most cost-efficient energy sources. For example, their ability to quickly permit energy projects allows them to build the cleanest and most efficient coal plants.[6] China is building supercritical plants that produce about 15 percent less carbon dioxide emissions for $500 to $600 per kilowatt[7], much lower than the $2800 per kilowatt cost in the United States, exclusive of financing costs, according to the Energy Information Administration.[8]

China realizes that it needs affordable energy to fuel its economic growth and manufacturing productivity, and it is building all forms of generating technologies at breakneck speed. By contrast, the electric generating construction program in the United States has slowed tremendously, owing to regulatory, financial, legal and demand problems. Economic growth has slowed in the United States and with it our energy demand has grown more slowly. History shows that the United States became the world’s workshop – replacing Britain – shortly after we became the world’s largest consumer of energy. Since energy is literally, “the capacity to do work,” the United States needed enormous amounts of energy in the 20th century to do more work than our competitors, and ended up the lone superpower in the world. Policymakers need to understand that energy availability and affordability spur economic growth. Without reasonably priced energy, it will be difficult to achieve high levels of economic growth in the United States, and industry will move offshore where energy is more affordable, taking jobs away when we can least afford to lose them.

As the following chart illustrates, the use of energy to propel the U.S. economy and increase the capacity to do work led to unprecedented growth and opportunity. Of note is the fact that the U.S. economy once ran entirely on renewable forms of energy from well before our founding until well after the Civil War, at which time the advent of new forms of concentrated energy enabled us to surpass Britain in energy consumption and economic output. It is therefore important to understand China’s energy path today realistically. Data from the International Energy Agency indicated that China consumed more energy than the United States in 2009 – the first time since 1885 that the United States was no longer the number one user of energy.[9] Just 8 short years ago the United States used twice as much energy as China, according to statistics from the Energy Information Administration.[10]

Comparison of Generating Capacity Data for the U.S. and China

Energy Information Administration data for 2008 (the most recent year available from the Energy Information Administration) indicates that China added more than 5 times the total generating capacity that the United States did (80 gigawatts of total capacity for China, versus 15 gigawatts of capacity for the United States).[11] While that statistic is in itself interesting, the split between fuel types is even more interesting. Embedded in these capacity addition statistics is China’s 26 gigawatts of hydroelectric capacity to none for the United States. China also added 47 gigawatts of thermal capacity (primarily coal), while the U.S. added 6 gigawatts (primarily natural gas). That’s almost 8 times more thermal capacity and on a carbon dioxide-emitting basis, over 15 times more.

So, based on an apples-to-apples comparison of newly built capacity in 2008, China is out stripping us in hydroelectric and coal-fired capacity, which the Administration and environmental organizations fail to mention. Not only did they build more hydroelectric and coal-fired capacity in 2008 than we did, but their total hydroelectric capacity is over twice that of the United States, and as of the end of 2008, their coal-fired capacity was almost twice that of the United States.

Why is China Building Wind and Solar Capacity?

China builds wind and solar partly because ratepayers in other countries pay them to do so. China has  taken advantage of the Clean Development Mechanism (CDM) under the Kyoto Protocol to obtain funding for its solar and wind power.[12] Under this program, administered by the United Nations, wealthy countries can contribute funds and get credit for “clean technology” built elsewhere as long as it is additional, that is, as long as that technology would not have been built otherwise. China is the world’s largest beneficiary of the program and has benefited to the point where about 30 percent of its wind capacity is not operable because it is not connected to the grid.[13] However, in mid 2009, the United Nations started questioning whether the Chinese CDM program was in fact “additional,” because the U.N. found that China was lowering its subsidies to qualify for the program.[14] That is, China was reducing its own government’s support in order to get international subsidies.

What are China’s Electric Construction Plans?

Both China’s generating sector and its industrial sector rely heavily on coal, with 80 percent of its electric generation being coal-fired.[15] Even with China’s substantial clean energy targets, the Energy Information Administration expects fossil fuels, mostly coal, to generate 75 percent of the country’s electricity in 2035. Clean energy sources (nuclear, wind, solar, biomass, and hydroelectric power) generated 19 percent of China’s electricity in 2009, and they are expected to increase their share to 25 percent by 2035. China has the world’s largest hydroelectric capacity, generating 16 percent of its electricity from water.

Hydroelectric  Power

Most of China’s hydroelectric capacity is from very large dams on major rivers. China’s most famous hydroelectric project, the Three Gorges Dam that many thought was an impossible engineering feat, brought its final generator on line in October 2008, with a total capacity of 18.2 gigawatts. The Three Gorges Project Development Corporation plans to further increase the project’s total installed capacity to 22.4 gigawatts by 2012. The 12.6-gigawatt Xiluodu project on the Jinsha River is scheduled for completion in 2015 as part of a 14-facility hydropower development plan. China also has the world’s second tallest dam (at nearly 985 feet) currently under construction, as part of the 3.6-gigawatt Jinping I project on the Yalong River. It is scheduled for completion in 2014 as part of a plan by the Ertan Hydropower Development Company to construct 21 facilities with 34.6 gigawatts of hydroelectric capacity on the Yalong.

The Chinese government has set a target for 300 gigawatts of hydroelectric capacity by 2020, and according to the Energy Information Administration, the Chinese government has sufficient projects underway to meet the target.[16] China currently has about twice the hydroelectric capacity of the United States and its 2020 goal is almost four times more capacity than the United States is expected to have by then.

China has a goal to produce 15 percent of its primary energy from renewable energy by 2020.[17] According to an official from China’s National Energy Administration, “Hydropower is the key to reaching that target. It will make up 9 to 10 percentage points out of the 15.”[18] By comparison, most proposals for renewable energy mandates in the United States do not include existing hydroelectric power as a source.

Wind

The Global Wind Energy Council reports that China had 42,287 megawatts of wind capacity at the end of 2010, 5 percent more than the U.S. total of 40,180.[19] China added 16,500 megawatts in 2010 to 5,115 megawatts added by the United States. Both Europe and the United States saw a slowdown in installations of wind turbines due to the financial crisis, reduced electricity demand expectations, and issues regarding the future forms of subsidies.

According to the Pew Environment Group, China has a goal to produce 150,000 megawatts of wind by 2020.[20] To help meet this goal, China is planning to build the world’s largest wind farm in the northwest part of the country. The plan was to complete 5 gigawatts in 2010, and expand to 20 gigawatts by 2020, at a cost of $1 million per megawatt,[21] or $1,000 per kilowatt, about 40 percent of the cost of an onshore wind unit in the United States, according to the Energy Information Administration.[22]

Unlike the United States that can back up its wind power with several fuel types, China backs up its wind power with coal-fired plants when the wind does not blow or when the electric grid is inadequate to handle the wind capacity. According to the China Power Union, only 72 percent of the country’s total wind power capacity is connected to the grid.[23] Adding to the problem is poor connectivity between regional transmission networks, which makes it difficult to move surplus power from one part of the country to another and thus requires each region to have sufficient reserve capacity.[24] For example, the wind project in Jiuquan in Gansu, although fairly large at 10 gigawatts, is located too far from the regional load-bearing center. In Inner Mongolia, less than 2 gigawatts of wind power was originally connected to the grid, with an additional 8.3 gigawatts needing to be connected. China plans to spend over $600 billion to upgrade its power grid to accommodate all of its new electricity expansion over the next decade.[25]

Currently China is mainly manufacturing wind turbines for domestic use, but with saturation in China’s domestic market, many wind turbine manufacturers have looked to overseas markets to meet their expanding output. With the Investigative Reporting Workshop of the American University finding that 79 percent of U.S. stimulus funds for renewable projects have gone to overseas firms, mainly for wind projects, it is no wonder that the Chinese are looking into U.S. markets.[26] China’s wind industry tried to enter the U.S. market to build a 600-megawatt wind farm in West Texas as part of a consortium of Chinese and American companies. The original proposal had the wind turbines manufactured in China, creating thousands of jobs there, but only a few hundred temporary installation jobs in the United States.[27] Due to criticism from some U.S. senators, the Chinese firm agreed to build a plant in Nevada to manufacture turbine parts. However, although the Chinese are providing the financing for the project, the consortium needs $450 million, 30 percent of the wind farm’s cost, to come from a federal stimulus grant. The $1.5 billion cost for the project is $2.31 million per megawatt, or $2,310 per kilowatt,[28] over twice the cost of wind farms in China.

Not only does China want to enter in the U.S. market by building wind farms, but U.S. manufacturers have plants in China, capitalizing on their lower labor cost. GE, a major U.S. wind turbine producer, already owns three facilities in China that produce turbine components.[29] And it opened a factory[30] in Vietnam that employs 500 local workers and will export 10,000 tons of components to GE Energy assembly plants around the world.[31]

Solar

China leads the world in solar cell manufacture, but 95 percent of its production is exported. [32] According to the Pew Environment Group, China had 800 megawatts of solar capacity at the end of 2010 compared to 3,100 megawatts in the United States. China’s target for 2020 is 20,000 megawatts of solar capacity so it has a long way to go.[33] In 2009, China generated only 0.01 percent of its grid-connected electricity from solar energy.[34] However, Arizona-based First Solar has signed a deal to build the first phase (30 megawatts) of what was to be the world’s largest solar farm (2,000 megawatts) in China in cooperation with China Guangdong Nuclear Solar Energy Development Company Ltd. (CGN SEDC).  CGN SEDC will be the majority project owner and operator, providing the engineering, procurement and construction functions. First Solar will supply its thin-film solar photovoltaic modules and will support CGN SEDC with advisory services.[35]

Realizing that the United States may be a good market for solar, China’s Suntech, the world’s largest supplier of solar panels, opened a solar manufacturing plant in Arizona last year.[36] Suntech will be supplying solar panels to the 150-megawatt Mesquite solar plant in Arizona with construction beginning this year and completion in 2013. The company has orders for 350 megawatts of utility sales in 2011.[37] Suntech’s factory will create finished panels from subcomponents that will be manufactured in the company’s Chinese facilities. According to Suntech, locating the assembly in the U.S. will lower delivery time and costs, as well as reduce the overall carbon footprint of getting finished panels to U.S. customers.[38]

Due to lower operating costs in China, a U.S.-based firm, Evergreen Solar, after receiving at least $43   million in incentives from the state of Massachusetts, moved its assembly plant to China, laying off 800 workers in the United States.[39] Chinese solar manufacturers have been able to lower prices because of financing from state-owned banks and lower manufacturing costs. World prices for solar panels have fallen as much as two-thirds in the last three years.

Nuclear

According to the World Nuclear Association, China has 13 nuclear reactors operating and at least 25 reactors under construction, half of the units in the world’s construction pipeline.  Many more units are planned with construction due to start within three years. As of June 2010, official installed nuclear capacity projections were 70 to 80 gigawatts by 2020, 200 gigawatts by 2030 and 400 to 500 gigawatts by 2050.[40] If China meets its 2030 target, it will have twice the amount of nuclear capacity as the United States.[41] China Daily reports that nuclear power should contribute up to six percentage points towards China’s goal of attaining 15 percent of primary energy consumption from non-fossil energy by 2020.[42]

China has under construction the world’s first Westinghouse AP1000 units, a demonstration high-temperature gas-cooled reactor plant. China’s four AP 1000 reactors under construction at two different sites,  Haiyang and Sanmen,[43] are the same reactors that the U.S. Nuclear Regulatory Commission (NRC) has ruled need additional analysis, testing, or design modifications of the shield building to ensure compliance with NRC requirements.[44] At least eight more at four sites are planned, and about 30 more are proposed to follow. For the first four units, construction is expected to take 50 months from pouring of concrete to fuel loading and an additional six months to be connected to the grid. The construction time is expected to be significantly reduced for the following units. The cost of the first four is expected to be less than $2000 per kilowatt and $1600 per kilowatt for future units.[45] The initial cost is over 2.5 times the cost projected for a plant built in the United States exclusive of financing costs, according to the Energy Information Administration.[46] China builds these reactors at lower cost than the United States because of less red tape, state-owned financing, and low cost labor familiar with large infrastructure projects.

The Chinese are aiming to enter into the global nuclear marketplace by 2013—just a few short years. With Western know-how being transferred and low-cost manpower, China can become a formidable competitor, as they have become to wind and solar markets. The World Nuclear Association indicates that the Chinese are very quickly becoming self-sufficient in reactor design. That is not surprising, when western nuclear companies provide technical training and related documents to the Chinese. Westinghouse, for example, as part of their contractual agreement with its Chinese customers, turned over more than 75,000 technical documents.

The United States is not the only country working with the Chinese to construct nuclear plants. France, for example, is honchoing a project of third-generation reactors in the Guangdong province, where construction on two European pressurized reactors is underway based on a contract signed in November 2007 with France’s Areva. In fact, work is progressing much better than the company’s other projects due to the experience Areva gained on them and to the 9,000 Chinese laborers on-site, who work 7 days a week at 10-hour shifts. The first reactor should be on-line at the end of 2013 and the second in the fall of 2014. Two more may follow in the future.[47] Clearly, western nuclear companies are hoping for a long-term partnership with the Chinese, but, in reality, they may only be gaining near term profits, instead.

Public concern over Japan’s nuclear accident has led China to review the safety of its operating and proposed nuclear units. The country temporarily suspended approvals for new nuclear units to revise its safety standards and has asked for safety checks at their six operating nuclear plants.[48] One of the problems at the Japanese nuclear units affected by the earthquake and the tsunami has been fixed in the design of advance nuclear reactors. Instead of using diesel generators to pump cooling water into the reactors, Westinghouse’s AP1000 uses a passive cooling system where water circulates by natural convection instead of needing electricity to pump the cooling water.[49]

Coal

China gets over 70 percent of its energy from coal,[50] and 80 percent of its electricity. According to the Department of Energy’s National Energy Technology Laboratory (NETL), from 2006 through 2009, China has been building 55 to 80 gigawatts of coal-fired power a year, and has over 70 gigawatts more under construction. NETL reports that China has plans to build over 200 gigawatts of coal-fired plants in the near future.[51] (See figure below.)

According to Australia, China is planning to build 500 coal-fired plants over the next ten years.[52] That means every week or so, for the next decade, China will open another large coal-fired power plant. The Energy Information Administration forecasts that coal will still generate about 75 percent of China’s electricity in 2035, even with its massive building programs in other generating technologies. According to Ashok Bhargava, a China energy expert at the Asian development bank, “No matter how much renewable or nuclear is in the mix, coal will remain the dominant power source.”[53]

Prospects for Electric Capacity in the United States

The United States has made it difficult to build generating plants in this country, particularly coal-fired and nuclear power plants. According to NETL, only eleven coal-fired plants totaling 6,682 megawatts became operational in the United States in 2010, but this was the largest increase in coal-fired capacity additions in one year since 1985.[54] Prospects of cap-and-trade legislation, reviews and re-reviews by the Environmental Protection Agency, direct action protests, petition drives, renewable portfolio mandates in many states, competition from subsidized and mandated wind power, and lawsuits have slowed the construction of new coal-fired plants.[55] According to the Sierra Club, plans for over 150 coal plants have been shelved due to their activities.[56] The graph above compares the coal-plant additions in the United States to that of China, showing only a handful of coal plants under construction in the United States. Because the capital cost of most of our existing coal-fired plants has been paid, that fleet produces 45 percent of our electricity at very little cost. Average production costs for coal-fired generators in 2009 were only 2.97 cents per kilowatt hour, slightly higher than our nuclear plants at 2.03 cents per kilowatt hour.[57]

No nuclear plant has started up in the United States since 1996, and no construction permits have been issued since 1979. NRC requirements, financing difficulties, and slow fulfillment of the nuclear provisions of the Energy Policy Act of 2005 have slowed the construction of new nuclear power reactors. However, as part of the 2005 Energy Policy Act, President Obama announced that his administration is offering conditional commitments for $8.33 billion in loan guarantees for nuclear power construction and operation. Two new 1,100 megawatt Westinghouse AP1000 nuclear reactors were to be constructed at the Alvin W. Vogtle Electric Generating Plant in Burke, Georgia, supplementing the two reactors already at the site. Before the nuclear accident in Japan, the two new nuclear generating units were expected to begin commercial operation in 2016 and 2017 at a cost of $14 billion. As part of the conditional loan guarantee deal, the U.S. Nuclear Regulatory Commission must determine if the AP1000 fulfills the regulatory requirements for a construction and operating license. (These are the same units permitted, licensed, and being constructed in China right now.) But, as a recent Wall Street Journal energy conference noted, loan guarantees are “meaningless in the absence of regulatory certainty.” [58]

Natural gas and wind power are the technologies that seem best able to surmount the financial, regulatory, and legal hurdles of getting plants permitted and operational in the United States. However, organized local opposition has halted even some renewable energy projects by using “not in my back yard” (NIMBY) arguments, changing zoning laws, opposing permits, filing lawsuits, and bleeding projects of their financing.[59]

Generating Costs of New Technologies

According to the Energy information Administration (EIA), the annualized cost of solar photovoltaic technology is 21.07 cents per kilowatt hour (in 2009 dollars), and solar thermal is 31.18 cents per kilowatt hour. Offshore wind is expected to cost 24.32 cents per kilowatt hour, and onshore wind is less at 9.7 cents per kilowatt hour. These costs are levelized costs, which is the present value of the total cost of building and operating a generating plant over its financial life, converted to equal annual payments and amortized over expected annual generation. The EIA estimates these costs for the year 2016, which is the first future year that generating technologies can be compared because of the different lead times for building the plants. Some plants, such as photovoltaic plants, require 1 or 2 years to build, while others (such as nuclear plants) require 6 or more years.[60]

The costs for new solar and wind technologies are generally higher than the costs of competing technologies. For 2016, natural gas combined-cycle technologies have costs estimated at 6.31 to 6.61 cents per kilowatt hour, and pulverized coal and coal-fired integrated gasification combined-cycle technologies have costs of 9.48 and 10.94 cents per kilowatt hour, respectively. EIA includes a 3-percentage point increase in the cost of capital when evaluating investments in greenhouse gas intensive technologies to represent the difficulties in obtaining financing, which is equivalent to a $15 per ton carbon dioxide emission fee.[61] (See figure below.)

If one considers just the capital cost of building these plants, without finance charges, the EIA estimates those at $4,755 per kilowatt (in 2009 dollars) for photovoltaic technology, $4,692 per kilowatt for solar thermal technology, and $5,975 for offshore wind.[62] Of course, plant costs can vary depending on site locations, terrain, labor costs, and other factors. For a solar photovoltaic plant that came on line last October in southern Florida, Florida Power and Light spent $152 million building a 25-megawatt plant, which is equivalent to $6,080 per kilowatt. [63]

The Cape Wind project, off the coast of Cape Cod in Massachusetts, is expected to be the first offshore wind farm in the United States. The 130-turbine wind farm is estimated to cost at least $2 billion and was approved last year by Interior Secretary Ken Salazar after more than eight years of federal review. National Grid, the state’s largest utility, is to buy half of Cape Wind’s power, starting at 18.7 cents per kilowatt hour,[64] less than EIA’s estimate of 24.32 cents per kilowatt hour, but increasing annually at 3.5 percent in a 15 year deal.  But that’s still about twice what the utility pays for power from conventional sources, and almost twice the average U.S. cost of electricity—9.9 cents per kilowatt in 2010.[65] As one might expect, the project is having trouble getting buyers for the other half of the project’s output due to its high cost.[66]

Summary

China is on a fast track to bring online new generating units using coal, nuclear, hydroelectric, solar, and wind power, which will allow its economy to continue to grow. Because China is endowed with a sizable amount of coal resources and because coal is the cheapest energy source in China, coal-fired generating additions will far outpace those of other technologies. By continuing to rely heavily on currently available coal technology, China will remain the number one emitter of carbon dioxide. According to the Energy Information Administration, China’s carbon dioxide emissions are already 5 percent higher than those of the United States, and by 2035, they are expected to be over twice that of the United States.[67]

The United States, on the other hand, has made it difficult to build generating plants in this country. Prospects of cap-and-trade legislation and reviews and re-reviews as well as changing emissions requirements by the Environmental Protection Agency have slowed the construction of new coal-fired plants. NRC requirements, financing difficulties, and slow fulfillment of the nuclear provisions of the Energy Policy Act of 2005 have slowed the construction of new nuclear power reactors. Even renewable energy projects have been halted by “not in my back yard” (NIMBY) protesters. They have blocked energy projects by organizing local opposition, changing zoning laws, opposing permits, filing lawsuits, and bleeding projects dry of their financing. Without reasonably priced energy, it will be difficult to achieve high levels of economic growth, and U.S. industry will just move offshore where energy is more affordable.

Our President has a goal to reduce oil imports by one-third by 2025 to improve our energy security. However, we may be just trading one energy source for another since Chinese manufacturers can easily produce solar and wind generating technologies for far less than manufacturers in the United States. After many years of relying on unstable governments in the Middle East and elsewhere for oil, the United States may now turn to China for renewable energy technologies.

The United States became the world’s most productive economy by using its energy resources to increase output and make life better for its citizens. Contrary to the claims of some, the Chinese are not fixated on “green technology” solely, and in fact, are growing other parts of their energy mix much more extensively. The Chinese are building all generating technologies much more quickly than the United States, and are using energy to build an economy for the future.

At IER, we urge Members of the Committee to look at his matter comprehensively, since history tells us energy consumption is directly linked with economic growth. Should the United States choose to concentrate solely on a path of expensive energy sources for our future “capacity to do work,” our nation will do less work. That is a stark departure from the path that led and sustained our position in the world, and has implications far beyond those related to energy security.

Thank you for the opportunity to supply this testimony for the Committee’s use.

ExxonMobil[i] recently joined the Energy Information Administration (EIA)[ii] and the International Energy Agency (IEA)[iii]in that determination when they released their energy outlook last month. While the EIA assumes no regulatory or legislative changes, ExxonMobil includes policy changes regarding energy efficiency gains and policies to address the risk of climate change. The IEA addresses both through a current policies case and a new policies case. In the new policies case, IEA assumes that governments will implement announced policies such as cutting greenhouse gas emissions and removing fossil fuel subsidies with subsequent impact on technological improvements and innovations.

But, in each case, fossil fuels dominate the energy picture being the fuels of choice for many developing countries to further their economic growth. By 2030, fossil fuels are expected to provide 79 percent of the world’s energy, according to ExxonMobil, who sees energy demand in the developing countries growing by more than 70 percent in 2030 as those countries require more transportation fuels to power their vehicles and more electricity for appliances, lighting, and other comforts. EIA and IEA concur with the dominance of fossil fuels, but with different shares. In EIA’s International Energy Outlook, fossil fuels represent 80 percent of the energy market in 2030; in IEA’s World Energy Outlook, fossil fuels represent 79 percent in its current policy case and 75 percent in its new policies case. Either way, fossil fuels remain the dominant energy suppliers in 2030.

A major difference between ExxonMobil’s outlook versus the other two outlooks is the ranking of the three fossil fuels toward meeting global energy demand. They all agree that petroleum will rank first. But, ExxonMobil places natural gas second, while EIA and IEA in both the current policies and new policies cases place coal second. ExxonMobil’s higher ranking of natural gas is due to the fuel’s increased use for electricity generation replacing aging coal plants in developed countries and producing needed new electricity in developing nations, its lower carbon dioxide emissions output compared to coal, and technological advances that have increased supplies of liquefied natural gas worldwide and that have made shale gas accessible in North America. By 2030, Exxon Mobil expects 26 percent of the world’s energy consumption to be from natural gas, while EIA and IEA expect shares to be at 23 percent and 22 percent, respectively. Between 2005 and 2030, ExxonMobil projects that demand for natural gas by the electric power sector will increase by 85 percent.

Energy Demand

ExxonMobil sees energy demand in the countries of the Organization for Economic Development and Cooperation (OECD) as flat even though economic activity increases by 60 percent, while the non-OECD countries led by China will see their energy demand increase by 71 percent between 2005 and 2030, for a world increase of 36 percent. Efficiency improvements are a major factor in ExxonMobil’s forecast keeping energy demand increases, particularly for developed countries, down.

Even though ExxonMobil expects 400 million more cars on the road by 2030, gasoline demand declines in their forecast due to efficiency improvements and increased numbers of hybrid and advanced vehicles. While Asia’s demand for transportation fuels for light duty vehicles is expected to rise by 80 percent between 2005 and 2030, that demand will be more than compensated by OECD countries whose transportation fuel demand for light duty vehicles will drop, by 20 percent for the United States and 33 percent for Europe by 2030. Overall, however, transportation fuel demand including rail, marine, aviation, and light and heavy duty vehicles, is expected to increase by nearly 40 percent in ExxonMobil’s forecast led by the Asian countries whose demand is expected to nearly double, due to increased economic activity and rising incomes.

EIA and IEA both expect minor increases in energy demand in the OECD countries by 2030, by 3 percent in IEA’s new policies case, 7 percent in IEA’s current policies case, and by 10 percent in IEA’s reference case compared to current levels. But energy demand in the non-OECD countries is expected to increase more by 53 to 64 percent in the IEA cases, and 66 percent in the EIA reference case. Overall, transportation demand is expected to increase by 32 to 38 percent in the IEA and EIA cases by 2030, and for the non-OECD countries by 83 to 100 percent, somewhat similar to ExxonMobil’s forecast.

Electricity Generation Comparisons[1]

Coal remains the dominant fuel for electricity generation in 2030 for all forecasts, but its share varies widely based on the assumptions with IEA’s current policies’ forecasts giving coal a 43 percent share and EIA’s forecast giving coal a 41 percent share of the electric generation market in 2030.  When new policies are considered by IEA, coal’s share shrinks to 34 percent. Natural gas ranks second in the generation market for all the forecasts with its share ranging from 20 percent for EIA to 22 percent for IEA’s New Policies case. EIA and IEA are pessimistic on nuclear power’s growth with its share ranging from 11 to 14 percent in 2030, the higher end of that range equal to its share in 2008.

Hydroelectric power dominates the renewable energy market with its share between 14 and 16 percent of the generation market in 2030. In 2008, hydroelectric power represented 16 percent of the generation market. Wind power’s share in 2030 ranges between 4 and 7 percent, the higher figure a result of government support in IEA’s new policies case. Biomass, waste, geothermal and solar power all remain with low shares due to their higher cost and/or their more limited availability. IEA in its new policies scenario is the most bullish on renewable energy, but the agency admits that heavy subsidies will be required if renewable growth is to meet the agency’s new policies forecast.

China Leads Demand Growth

All forecasters see China leading the world in energy growth. EIA expects China’s energy use to be 46 percent  greater than that of the United States in 2030, which is similar to ExxonMobil’s forecast at 45 percent. For IEA, the disparity is even greater.  In the current policies case, China’s energy use in 2030 is 66 percent higher than that of the United States, and in the new policies case, it is 56 percent higher.  In the IEA cases, China increases its share of the energy market from 17 percent today to 22 in the new policies case and 23 percent in the current policies case. In EIA’s forecast, China consumes 24 percent of the world’s energy consumption in 2030. China has the lowest share of the energy market in ExxonMobil’s forecast — 21 percent.

Energy-Related Carbon Dioxide Emissions

Energy-related carbon dioxide emissions vary between 34.6 and 40.0 billion metric tons in 2030, depending on whether the assumption is current policies or new policies.  The new policies assumptions of the IEA and those of ExxonMobil reduce global energy-related carbon dioxide emissions in 2030 by about 12 percent from what they would have been with current policies. In these scenarios, the developed countries make progress in reducing emissions because of technologies that improve the efficiency of energy use and government support to induce renewables into the market. In developing countries, just bringing energy to millions of people without electricity, transportation, and modern cooking devices spurs growth in energy demand that exceeds the energy reductions due to efficiency gains in developed countries.

Conclusion

What is most interesting from these forecasts is that regardless of whether policies are instituted to limit greenhouse gas emissions or not, the expected range in global energy shares of fuels over the next 20 years is not great. Fossil fuels are expected to dominate with 75 to 80 percent of the energy market. Nuclear’s share is expected to remain in the 6 to 8 percent range of total energy consumption in 2030, with a greater market share for those forecasts that assume new policies. Renewables, including hydroelectric power, are expected to command a 14 to 17 percent share of the market, depending on policies in place to promote them. The question to policy makers should be: “How much effort and money do we want to spend to gain such little change?”

[1] Because ExxonMobil reports its generation numbers in non-electric units, its forecast for electric generation is not comparable to that of EIA and IEA.

[i] ExxonMobil, The Outlook for Energy, http://www.exxonmobil.com/Corporate/energy_outlook_dm.aspx and http://www.exxonmobil.com/corporate/files/news_pub_eo.pdf

[ii] Energy Information Administration, International Energy Outlook 2010, http://www.eia.doe.gov/oiaf/ieo/index.html

[iii] International Energy Agency, World Energy Outlook 2010, http://www.worldenergyoutlook.org/docs/weo2010/WEO2010_ES_English.pdf and http://oce.iea.org/weo2010annexa.xls