China has already made its choice.  China is spending about $9 billion a month on clean energy.  It is also investing $44 billion by 2012 and $88 billion by 2020 in Ultra High Voltage transmission lines.  These lines will allow China to transmit power from huge wind and solar farms far from its cities.  While every country’s transmission needs are different, this is a clear sign of China’s commitment to developing renewable energy.

The United States, meanwhile, has fallen behind.

– U.S. Secretary of Energy, Steven Chu

In an attempt to generate support for implementing a cap on carbon dioxide, Energy Secretary Steven Chu and others paint a very dire picture of the U.S.-vs.-China race for clean energy, implying that China is quickly outstripping us in that race.[i] However, all the facts are not on the table. In both 2008 and 2009, the U.S. added more non-hydroelectric renewable capacity than it added traditional capacity (natural gas, coal, oil, and nuclear).[ii] At the end of 2009, the U.S. ranked first in wind capacity in the world with China’s wind capacity about 30 percent less than the U.S. level. At the end of 2008 (the most recent data available), the U.S. ranked fourth in solar capacity, with only Germany, Spain, and Japan having a larger amount. Where China is outstripping us in domestic construction is in coal-fired, nuclear, and hydroelectric generating technologies. Because of U.S. legal and regulatory red tape, it is much harder to build these energy technologies in the U.S. than in China.

What Does the Capacity Data Show for Wind and Solar Power?

According to the Solar Energy Industries Association, the U.S. ranks fourth in the world in solar capacity with 8,800 megawatts at the end of 2008.[iii] Germany, Spain, and Japan, in that order, had larger amounts of solar power at the end of 2008 than the U.S.[iv] China had just 0.3 megawatts of installed solar PV capacity at the end of 2009[v] or 0.003 percent of the solar capacity of the U.S.

According to the Global Wind Energy Council, the U.S. leads the world in wind generating capacity, with 35.2 gigawatts at the end of 2009; Germany is second with 25.8 gigawatts, and China is third with 25.1 gigawatts.[vi] In 2009, the U.S. installed almost 10 gigawatts of wind capacity, a record,[vii] and China installed 13 gigawatts.[viii]

Why is China Building Wind and Solar Capacity?

China builds wind and solar because ratepayers in other countries are paying them to do so. China has been taking advantage of the Clean Development Mechanism (CDM) under the Kyoto Protocol to obtain funding for its solar and wind power.[ix] 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 30 percent of its wind capacity is not operable because it is not connected to the grid.[x] However, in mid 2009, the U.N. 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.[xi] That is, China was reducing its own government’s support in order to get international subsidies.

How Do the U.S. and China Electric Construction Programs Compare?

While China is building non-hydro renewable slightly faster than the United States, overall it is building new electrical generation much, much faster than the United States. The most comparable international database on electric generating capacity is found on the Energy Information Administration (EIA) website.[xii] Comparing the electric generating capacity data by technology type for the two countries, at the end of 2007 (the last year of comparable data), the Chinese had a total of 716 gigawatts of generating capacity, about 280 gigawatts less than the 995 gigawatts of capacity in the U.S.

The U.S. has been building generating capacity at a very slow rate, adding between 8 and 15 gigawatts a year since 2004. The Chinese in contrast, to fuel their bulging economy, have added between 75 and 106 gigawatts a year, from 2004 to 2007. Based on Secretary Chu’s comments, one might think that the additional capacity that China was adding was all non-hydroelectric renewable and nuclear capacity. However, that has not been the case. Between 2004 and 2007, the Chinese have added 226 gigawatts of fossil fuel generating capacity, 40 gigawatts of hydroelectric capacity, 2 gigawatts of nuclear capacity, and only 6 gigawatts of non-hydro renewable capacity.

What are China’s Electric Construction Plans?

Both China’s generating sector and its industrial sector rely heavily on coal, with 79 percent of its electric generation being coal-fired.[xiii] According to the National Energy Technology Laboratory (NETL), from 2004 through 2007, China has been building 30 to 70 gigawatts of coal-fired power a year, and has about 70 gigawatts more under construction. NETL sees China building over 185 gigawatts of coal-fired plants in the future.[xiv] (See figure below.)

According to Australia, China is planning to build 500 coal-fired plants over the next ten years.[xv] That means: every week or so, for the next decade, China will open another large coal-fired power plant.[xvi] Australia has just signed a $60 billion deal with China to build a coal mine in Queensland and a 311-mile rail way for transporting the coal to the coast for export to China’s power plants.[xvii]

While China has been slow in adding nuclear power plants, it currently has 20 nuclear reactors under construction and more starting construction this year.[xviii] Four AP 1000 reactors are under construction at 2 different sites: Haiyang and Sanmen.[xix] These 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 before they can be constructed in the U.S.[xx] China expects to achieve a total nuclear capacity of 60 gigawatts by 2020, and 120 to 160 gigawatts by 2030,[xxi] surpassing the total nuclear capacity of the United States.

China has a goal to produce 15 percent of its energy from renewables by 2020.[xxii] 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 is for 5 gigawatts in 2010, expanding to 20 gigawatts in 2020, at a cost of $1 million per megawatt,[xxiii] or $1,000 per kilowatt, about half the cost of an onshore wind unit in the U.S., according to the Energy Information Administration.[xxiv]

What about the U.S.?

The U.S. has made it difficult to build generating plants in this country, particularly coal-fired and nuclear power plants. According to NETL, only eight coal-fired plants totaling 3,218 megawatts became operational in the U.S. in 2009, the largest increase in coal-fired capacity additions in one year since 1991.[xxv] Prospects of cap-and-trade legislation, reviews and re-reviews by the Environmental Protection Agency, direct action protests, petition drives, renewable portfolio standards in many states, competition from wind power, and lawsuits have slowed the construction of new coal-fired plants.[xxvi] As of late February, activists had derailed 97 of the 151 new plants that were in the pipeline in May 2007. According to the Sierra Club, 126 coal plants have been stopped since 2001.  And, for the first time in more than 6 years, not one new coal plant broke ground in 2009. The graph above compares the coal-plant additions in the U.S. to that of China, showing only a handful of coal plants under construction in the U.S.  With new coal-fired plants extremely limited by the above, some are purporting that the current direction for activists may be to phase out the existing fleet of coal-fired power plants.[xxvii] Because the capital cost of most of our coal-fired plants has been paid, that fleet produces almost 50 percent of our electricity at very little cost. Average production costs for coal-fired generators in 2008 were only 2.75 cents per kilowatt hour, second to our nuclear plants at 1.87 cents per kilowatt hour.[xxviii]

No nuclear plant has started up in the U.S. since 1996,[xxix] and no construction permits have been issued since 1979.[xxx]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 last month 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 are to be constructed at the Alvin W. Vogtle Electric Generating Plant in Burke, Georgia, supplementing the two reactors already at the site. The two new nuclear generating units are 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.[xxxi] (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.” Further, Obama’s budget cutbacks for Yucca Mountain, the proposed nuclear waste repository, are yet another signal that President Obama may not “walk the talk.”[xxxii]

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 2008, the U.S. added over 15,000 megawatts of electric generating capacity, of which 4,556 megawatts was natural gas-fired and 8,136 megawatts was wind power.[xxxiii] However, organized local opposition has halted even some renewable energy projects by using “not in my back yard” (NIMBY) issues, changing zoning laws, opposing permits, filing lawsuits, and bleeding projects of their financing.[xxxiv]

The Energy information Administration projects that the U.S. will need 200 gigawatts of additional generating capacity by 2035 to replace capacity that will be retired and to meet new electricity demand.[xxxv] Of that amount, EIA expects that 13 percent will be coal-fired, 53 percent natural gas-fired, 4 percent will be from nuclear power, and 29 percent from renewable power (23 percent is expected to be wind power), assuming that no changes would be made to current laws and regulations.[xxxvi]

Conclusion

China realizes that it needs affordable energy to fuel its economic growth, and 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, and legal problems. Without reasonably priced energy, it will be difficult to achieve high levels of economic growth in the U.S., and industry will move offshore where energy is more affordable. Will Secretary Chu’s policies get us to affordable energy, or will the administration’s policies divert us from obtaining the energy that we need to fuel our economy?

[ii] Renewable Energy Policy Network for the 21^st Century, Renewables Global Status Report 2009 Update, May 13, 2009, http://www.ren21.net/pdf/RE_GSR_2009_Update.pdf

[iii] http://www.seia.org/cs/about_solar_energy/industry_data

[iv] Ibid.

[v] Center for American Progress, Out of the Running, March 2010, http://www.eenews.net/public/25/14571/features/documents/2010/03/04/document_cw_01.pdf

[vi] Global Wind Energy Council, http://www.gwec.net/index.php?id=13, and Global Wind Energy Council, Global wind power boom continues amid economic woes, March 2, 2010, http://www.gwec.net/index.php?id=30&no_cache=1&tx_ttnews[tt_news]=247&tx_ttnews[backPid]=4&cHash=1196e940a0

[vii] American Wind Energy Association, U.S. Wind Energy breaks all records, January 26, 2010, http://www.awea.org/newsroom/releases/01-26-10_AWEA_Q4_and_Year-End_Report_Release.html

[viii] Global Wind Energy Council, Global wind power boom continues amid economic woes, March 2, 2010, http://www.gwec.net/index.php?id=30&no_cache=1&tx_ttnews[tt_news]=247&tx_ttnews[backPid]=4&cHash=1196e940a0

[ix] CNN, U.N. halts funds to China wind farms, December 1, 2010, http://edition.cnn.com/2009/BUSINESS/12/01/un.china.wind.ft/index.html

[x] The Wall Street Journal, “China’s Wind Farms Come with a Catch: Coal Plants”, September 28, 2009, http://online.wsj.com/article/SB125409730711245037.html

[xi] CNN, U.N. halts funds to China wind farms, December 1, 2010, http://edition.cnn.com/2009/BUSINESS/12/01/un.china.wind.ft/index.html

[xii]http://tonto.eia.doe.gov/cfapps/ipdbproject/iedindex3.cfm?tid=2&pid=34&aid=7&cid=r1,&syid=2004&eyid=2008&unit=MK

[xiii] Energy information Administration, International Energy Outlook 2009,  http://www.eia.doe.gov/oiaf/ieo/index.html

[xiv] National Energy Technology Laboratory, Tracking New Coal-fired Power Plants, January 8, 2010,  http://www.netl.doe.gov/coal/refshelf/ncp.pdf

[xv] http://windfarms.wordpress.com/2009/01/29/china-building-500-coal-plants/

[xvi] The New York Times, “Pollution From Chinese Coal Casts a Global Shadow”, http://www.nytimes.com/2006/06/11/business/worldbusiness/11chinacoal.html?_r=1

[xvii] Australia Signs Huge China Coal Deal, http://windfarms.wordpress.com/2010/02/06/australia-signs-huge-china-coal-deal/

[xviii] Nuclear Power in China”, World Nuclear Association, November 6, 2009, www.world-nuclear.org/info/inf63.html

[xix] Westinghouse News Releases, “Westinghouse and the Shaw Group Celebrate First Concrete Pour at Haiyang Nuclear Site in China”, September 29, 2009, http://westinghousenuclear.mediaroom.com/index.php?s=43&item=200

[xx] Westinghouse Statement Regarding NRC News Release on AP1000 Shield Building, http://westinghousenuclear.mediaroom.com/index.php?s=43&item=203

[xxi] Nuclear Power in China, World Nuclear Association, November 6, 2009, www.world-nuclear.org/info/inf63.html

[xxii] USA Today, “China Pushes Solar, Wind Power Development”, http://www.usatoday.com/money/industries/energy/environment/2009-11-17-chinasolar17_CV_N.htm

[xxiii] The Wall Street Journal, “Wind Power: China’s Massive and Cheap Bet on Wind Farms”, July 6, 2009, http://blogs.wsj.com/environmentalcapital/2009/07/06/wind-power-chinas-massive-and-cheap-bet-on-wind-farms/

[xxiv] Energy information Administration, Assumptions to the Annual Energy Outlook 2009, Table 8.2, Electricity Market Module, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html

[xxv] National Energy Technology Laboratory, Tracking New Coal-fired Power Plants, January 8, 2010,  http://www.netl.doe.gov/coal/refshelf/ncp.pdf

[xxvi] A messy but practical strategy for phasing out the U.S. coal fleet, http://www.grist.org/article/death-of-a-thousand-cuts/

[xxvii]Ibid.

[xxviii]http://www.nei.org/resourcesandstats/documentlibrary/reliableandaffordableenergy/graphicsandcharts/uselectricityproductioncosts

[xxix] “Nuclear Power: Outlook for new U.S. Reactors”, Congressional Research Service, March 9, 2007, www.fas.org/sgp/crs/misc/RL33442.pdf

[xxx] Energy Information Administration, Annual Energy Review 2008, Table 9.1, http://www.eia.doe.gov/emeu/aer/pdf/pages/sec9_3.pdf

[xxxi] Environment News Service, Obama Backs First New U.S. Nuclear Plant with $8.3 Billion, February 16, 2010, http://www.ens-newswire.com/ens/feb2010/2010-02-16-091.html

[xxxii] The Wall Street Journal, An Energy Head Fake, March 11,2010, http://online.wsj.com/article/SB10001424052748704784904575112144130306052.html?mod=WSJ_Opinion_AboveLEFTTop

[xxxiii] Energy Information Administration, Electric Power Annual, Tables 1.1 and 1.1.A, http://www.eia.doe.gov/cneaf/electricity/epa/epa_sum.html

[xxxiv] For a repository of stalled and stopped energy projects, see U.S. Chamber of Commerce, “Project No Project Energy-Back On Track”, http://pnp.uschamber.com/

[xxxv] Energy Information Administration, Annual Energy Outlook 2010 Early Release, Table A9, http://www.eia.doe.gov/oiaf/aeo/pdf/appa.pdf

[xxxvi] Ibid.

Washington, DC – In anticipation of President Barack Obama’s return from Asia, the free-market Institute for Energy Research (IER) today released and delivered a policy brief for the president and his advisors on China’s booming energy economy and growth.

Thomas J. Pyle, president of IER, issued this statement:

“By all accounts, the president’s trip to Asia was a successful one, and we welcome him home. However, it’s critical to highlight the commonsense energy policies that China is pursuing. Because of China’s aggressive pursuit for affordable, reliable and secure energy – of all forms – their nation continues to be one of the world’s most powerful economic engines. And our team of experts have prepared a compelling outline of ways the U.S. can learn from China and once again make energy a top priority in this country.

“China is manufacturing coal-fired power plants by the week, nuclear plants every few months, the largest hydro-electric dams on earth, windmills and solar panels for export, and securing up oil and gas reserves around the world. They understand that affordable energy is key to economic activity, growth and prosperity.

“Unfortunately, policymakers in Washington are working to increase the cost of energy and limit access to our most affordable resources while others work tirelessly to shut down our nation’s power plants, regardless if it results in the loss of jobs and higher energy costs. Litigation and inaction from federal bureaucracies continues to delay responsible offshore energy exploration. And while China is deploying next generation nuclear technologies, our government continues to say no to low-carbon nuclear energy.

“We hope someday that expensive and unreliable alternative and renewable energy forms can exist in the market place without significant taxpayer assistance and government mandates. And we hope the president reads this paper with an open mind.”

NOTE: Click HERE to view the briefing paper sent to the President today.

#####

“The joke among China hands goes like this: If the Americans and the Chinese start talking about a major project today, in two years the Chinese will be done and the Americans will still be talking and applying for permits.” – Michael Economides

China’s economy is growing at a rate of 9 percent per year, and forecasts have its fast pace of economic growth continuing, though at a slightly lower rate.[i] Eager to bring more of its citizens out of poverty, China will not let energy be a bottleneck for such growth. Because it has limited domestic oil and gas resources, China is investing globally to ensure supply. The world’s most populous country is also expanding its coal-fired electricity capacity at breakneck speed and making a major commitment to nuclear energy. In smaller quantities, and under international pressure from the environmental community, China is also constructing solar- and wind-powered generating facilities, to the point that 30 percent of its wind capacity cannot be supported by its electric grid. Yet even with all these other technologies, coal will remain China’s mainstay for a very long time since coal is its most abundant and least expensive resource.

All this is happening in a developing country that learns from others, and quickly outperforms them by manufacturing the same materials at significantly less cost, thus increasing its export market. It is also a country where there is a lot less red tape: regulations, legal delays, and financing issues do not stand in the way of its energy construction progress.[ii]

Coal

China currently gets 70 percent of its energy from coal[iii] and is expected to retain this fuel as its major source of energy at least through the next several decades. China ranks third in the world in recoverable coal reserves,[iv] after the U.S. and Russia. Its annual coal production and consumption is the highest in the world, more than twice that of the U.S.[v] Both China’s generating sector and its industrial sector rely heavily on coal, with 79 percent of its electric generation being coal-fired.[vi] The Energy information Administration (EIA) expects that 75 percent of China’s electric generation will still be coal-fired in 2030.[vii]

That EIA forecast expects 600 additional gigawatts of coal-fired capacity to be built in China between 2006, the most recent year of reliable data, and 2030.[viii] That equates to 50 plants a year of 500 megawatt (MW) capacity, or 1 coal plant coming on line each and every week for 24 years. From current reports, China is meeting this goal by planning to build 500 coal-fired plants over the next ten years.[ix] That means: every week to 10 days, China will open another coal-fired power plant that is big enough to serve all the households in Dallas or San Diego.[x]

Wind

Not only is China building coal-fired plants to increase its generating capacity; it is building them to back-up wind power when the wind doesn’t blow or when the grid is inadequate to handle the wind capacity. Last year, as much as 30 percent of China’s wind power was not connected to the grid. 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.[xi]

Even with these problems, China has a goal to produce 15 percent of its energy from renewables by 2020.[xii] 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 is for 5 gigawatts in 2010, expanding to 20 gigawatts in 2020, at a cost of $1 million per megawatt,[xiii] or $1,000 per kilowatt, about half the cost of an onshore wind unit in the U.S., according to the Energy Information Administration.[xiv]

While China is manufacturing wind turbines for domestic use, few of its wind turbines are currently being exported. But that may soon change if the U.S. allows a consortium of Chinese and American companies to build a 600-megawatt wind farm in West Texas, using turbines manufactured in China.[xv] One-third of the wind farm’s funding will be from federal stimulus money and about 330 jobs will be created in the U.S., mostly temporary construction jobs. The labor-intensive work of building the turbines will also create thousands of jobs in China. GE will provide the gearboxes of the turbines, but they too will be made in China.[xvi] GE, a major U.S. wind turbine producer, already owns three facilities in China that produce turbine components.[xvii] And GE is planning a factory in Vietnam that will employ 500 local workers and export 10,000 tons of components to GE Energy assembly plants around the world.[xviii]

Solar

China leads the world in solar cell manufacture, although 95 percent of its production is exported.[xix] Currently, China itself generates very little electricity from solar power. At the end of 2008, about 0.01 percent of its grid-connected electric generating capacity was from solar.[xx] However, in September, Arizona-based First Solar signed a deal to build the world’s largest solar farm in China by 2019, which will supply power to 3 million homes.[xxi]

Realizing that the U.S. may be a good market for solar, China’s Suntech, the world’s largest supplier of solar panels, announced plans to build a solar manufacturing plant in Phoenix, Arizona, with production beginning next year. Arizona was chosen because its Renewable Energy Standard requires that 15 percent of the state’s electricity generation be supplied from renewable power by 2025 and because Arizona favors distributed generation, whereby power is provided locally for homes or businesses.[xxii] 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.

Because of Chinese and other Asian competition, the cost of solar panels dropped 50 percent in the past 18 months.[xxiii] Due to lower operating costs in China, a U.S.-based firm, Evergreen Solar, after receiving over $58 million in incentives from the state of Massachusetts, is moving its assembly plant to China.[xxiv] (In 2008, Massachusetts’s industrial electricity prices were 115 percent higher than those of Arizona.[xxv] Industrial electricity prices in Massachusetts are lower in 2009, making the differential in prices through August 2009 only 69 percent.[xxvi]) The push to get China into the solar power market seems to have some environmental consequences. China is a major worldwide producer of polysilicon—the key component of sunlight capturing wafers. The manufacturing of polysilicon, however, produces a highly toxic substance, silicon tetrachloride, which can be recycled back into the production cycle. In China, however, many factories are dumping the waste product because of the high investment costs and time required for the recycling process, and because of the enormous energy consumption needed to heat the substance to more than 1800 degrees Fahrenheit. People close to the sites where the substance is being dumped are complaining of illness, crop failures, acrid air, and dead fields. But owing to the shortage of polysilicon, the Chinese Government is willing to overlook these complaints.[xxvii]

Nuclear

China is also building nuclear power plants, with 20 nuclear reactors under construction and more starting construction this year.[xxviii] Four AP 1000 reactors are under construction at 2 different sites: Haiyang and Sanmen.[xxix] These 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.[xxx] China expects to achieve a total nuclear capacity of 60 gigawatts by 2020, and 120 to 160 gigawatts by 2030,[xxxi] surpassing the total nuclear capacity of the United States.

Natural Gas

China is not well-endowed with natural gas, having only 1.3 percent of the world’s reserves. Nonetheless, it is expected to build an additional 23 gigawatts of gas-fired electric generating capacity by 2030, almost doubling its gas-fired capacity, according to the EIA.[xxxii] To fuel these generators, China will need to continue its dependence on natural gas imports, which will provide one-third of its total natural gas consumption by 2030. China opened its first LNG regasification facility in 2006 at Guangdong, and 2 others are planned to open this year. The first imports of natural gas into China by pipeline are expected in 2011, via a new pipeline running from Turkmenistan through Kazakhstan.[xxxiii]

Conclusion

China is on a fast track to bring online new generating units using coal, nuclear, solar, and wind power, which will allow its economy to continue to grow. However, because China is endowed with a sizable amount of coal resources and because coal is still the cheapest energy source in China, coal-fired generating additions will far outpace those of other technologies. “No matter how much renewable or nuclear is in the mix, coal will remain the dominant power source,” said Ashok Bhargava, a China energy expert at the Asian Development Bank in Manila.[xxxiv] By continuing to rely heavily on currently available coal technology, China will remain the number one emitter of carbon dioxide, almost doubling its carbon dioxide emissions by 2030, according to EIA’s forecast.[xxxv]

The U.S., 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 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.[xxxvi] 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.

[i] Energy Information Administration, International Energy Outlook 2009, http://www.eia.doe.gov/oiaf/ieo/index.html

[ii] USA Today, “China Pushes Solar, Wind Power Development”, http://www.usatoday.com/money/industries/energy/environment/2009-11-17-chinasolar17_CV_N.htm

[iii] Energy Information Administration, International Energy Annual 2006, http://www.eia.doe.gov/emeu/cabs/China/Background.html

[iv] Recoverable reserves are those quantities of coal which geological and engineering information indicates with reasonable certainty can be extracted in the future under existing economic and operating conditions.

[v] Energy information Administration, International Energy Outlook 2009, Table 9, http://www.eia.doe.gov/oiaf/ieo/index.html

[vi] Ibid, Tables H10 and H13

[vii] Ibid

[viii] Ibid, Table H4

[ix] http://windfarms.wordpress.com/2009/01/29/china-building-500-coal-plants/

[x] The New York Times, “Pollution From Chinese Coal Casts a Global Shadow”, http://www.nytimes.com/2006/06/11/business/worldbusiness/11chinacoal.html?_r=1

[xi] The Wall Street Journal, “China’s Wind Farms Come with a Catch: Coal Plants”, September 28, 2009, http://online.wsj.com/article/SB125409730711245037.html

[xii] USA Today, “China Pushes Solar, Wind Power Development”, http://www.usatoday.com/money/industries/energy/environment/2009-11-17-chinasolar17_CV_N.htm

[xiii] The Wall Street Journal, “Wind Power: China’s Massive and Cheap Bet on Wind Farms”, July 6, 2009, http://blogs.wsj.com/environmentalcapital/2009/07/06/wind-power-chinas-massive-and-cheap-bet-on-wind-farms/

[xiv] Energy information Administration, Assumptions to the Annual Energy Outlook 2009, Table 8.2, Electricity Market Module, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html

[xv] www.reuters.com/article/pressRelease/idUS200008+29-Oct-2009+BW20091029

[xvi] Dallas News, “Wind turbine jobs blow in China’s direction”, November 19, 2009, http://www.dallasnews.com/sharedcontent/dws/bus/columnists/jlanders/stories/DN-landers_17bus.1.ART0.State.Edition1.3f095e8.html

[xvii] “Overseas firms collecting most green energy money”, October 29, 2009, http://investigativereportingworkshop.org/investigations/wind-energy-funds-going-overseas/

[xviii] “Vietnam’s first turbine component plant underway”, May 13, 2009, http://www.vietnewsonline.vn/News/Business/Companies-Finance/6072/Vietnams-first-turbine-component-plant-underway.htm

[xix] http://www.guardian.co.uk/world/2009/may/26/china-invests-solar-power-renewable-energy-environment

[xx] http://en.wikipedia.org/wiki/Solar_power_in_China

[xxi] USA Today, “China Pushes Solar, Wind Power Development”, http://www.usatoday.com/money/industries/energy/environment/2009-11-17-chinasolar17_CV_N.htm

[xxii] Business Week, “China Solar Panel Maker Sets First U.S. Plant”, November 15, 2009, http://www.businessweek.com/technology/content/nov2009/tc20091115_970512.htm

[xxiii] USA Today, “China Pushes Solar, Wind Power Development”, http://www.usatoday.com/money/industries/energy/environment/2009-11-17-chinasolar17_CV_N.htm

[xxiv] The Boston Globe, “Evergreen Shifts Work to China”, November 5, 2009, http://www.boston.com/business/articles/2009/11/05/evergreen_shifts_work_to_china

[xxv] Energy Information Administration, Electric Power Monthly, March 2009, Table 5.6B, http://tonto.eia.doe.gov/ftproot/electricity/epm/02260903.pdf

[xxvi] Energy information Administration, Electric Power Monthly, November 2009, Table 5.6B, http://www.eia.doe.gov/cneaf/electricity/epm/epm_sum.html

[xxvii] Washington Post, “Solar Energy Firms Leave Waste Behind in China”, March 8, 2008, http://www.washingtonpost.com/wp-dyn/content/article/2008/03/08/AR2008030802595_2.html

[xxviii] “Nuclear Power in China”, World Nuclear Association, November 6, 2009, www.world-nuclear.org/info/inf63.html

[xxix] Westinghouse News Releases, “Westinghouse and the Shaw Group Celebrate First Concrete Pour at Haiyang Nuclear Site in China”, September 29, 2009, http://westinghousenuclear.mediaroom.com/index.php?s=43&item=200

[xxx] “Westinghouse Statement Regarding NRC News Release on AP1000 Shield Building”, http://westinghousenuclear.mediaroom.com/index.php?s=43&item=203

[xxxi] “Nuclear Power in China”, World Nuclear Association, November 6, 2009, www.world-nuclear.org/info/inf63.html

[xxxii] Energy Information Administration, International Energy Outlook 2009, Tables 6 and H3, http://www.eia.doe.gov/oiaf/ieo/index.html

[xxxiii] Ibid, Chapter 3, Natural Gas

[xxxiv] The New York Times, “China Far Outpaces U.S. in Cleaner Coal-Fired Plants”, http://www.nytimes.com/2009/05/11/world/asia/11coal.html

[xxxv] Energy Information Administration, International Energy Outlook 2009, Tables A10, http://www.eia.doe.gov/oiaf/ieo/index.html

[xxxvi] For a repository of stalled and stopped energy projects, see U.S. Chamber of Commerce, “Project No Project Energy-Back On Track”, http://pnp.uschamber.com/

1. What if the subsidies do not make a politically-favored energy source cost-effective?
2. What if the politically-favored energy source turns out to be less than advocates envision?
3. Can Congress kill a subsidy program after it has created a constituency that is receiving taxpayer dollars?
4. Won’t Members of Congress fight to keep subsidies to help their districts?

Surprisingly, these questions came from the Washington Post. As Congress inches closer to a vote on the largest tax increase in American history since World War II, the Washington Post asked these pointed questions in yesterday’s editorial column, displaying a surprising level of understanding concerning the pitfalls of government intervention in the marketplace. The editors opined:

Uncertainties abound: What if the costs of clean coal don’t come down enough to make it economical relative to other measures? If clean coal turns out to be less than its advocates envision, can Congress ever work up the political will to kill the subsidy program? Subsidies are set to phase out after 10 years of paying for operating costs, but won’t powerful coal-state lawmakers fight to keep them going? And even if it does work, won’t members of Congress insist that big carbon repositories not be located in their districts?

But the Post seems to suffer from economic amnesia, as it has argued many times in the past that economic intervention in its pet sources of energy is a necessity. For example, during the debate of the 2007 House energy bill, the Post lamented the lack of a “renewable energy standard”—a mandate forcing Americans to use more renewables. The Post explained:

Also making the House energy package less than optimal is the lack of a renewable energy standard. If the United States is going to ease its dependence on fossil fuels, it must institute a national benchmark for utilities to use more wind, solar, biomass or geothermal energy.

And while there is reason to be concerned about subsidized carbon dioxide capture technology at coal-fired power plants, the verdict has already been issued with respect to renewable energy.

For over 30 years the Federal and State government have been subsidizing renewable energy because of the claims made by proponents of renewables that breakthroughs are just around the corner.

Consider the two headlines from the Wall Street Journal. Thirty years ago the Carter Administration believed that solar power would provide 20% of our energy needs in 2000. In 2008, solar produced less than 0.1 percent of our energy, even though it was heavily subsidized in the interim.

In 2006, the Rand Corporation made a similar claim to the Carter Administration’s claim from 1978—renewable fuels are supposed to be the future.

The Post’s position in 2007 was that subsidies and set-asides for inefficient, but politically-favored sources of energy is a perfectly acceptable intervention in the marketplace. So why the change of heart today for coal subsidies even though the exact same arguments can be made about the seemingly endless stream of taxpayer financed giveaways to the wind and solar industry? The answer is quite simple—the Post does not want coal to be part of the energy mix, even though it is an abundant, reliable and affordable energy source that provides the nation with nearly half of all of its electricity.

When coal is concerned, the Post recognizes how the incentives Members of Congress face lead to troubling results. The Post’s editors should remove their blinders to examine how their concerns about coal subsidies apply equally to the renewable subsidies the Post supports.

The Post should join the Institute for Energy Research and call for an end to all energy subsidies. That would at least make them intellectually consistent. But it appears there is no room for logic and consistency when you have an agenda to advance.

But the Post wants exactly what the proponents of cap-and-trade want and that is to increase the cost of the types of energy they don’t favor (which currently produce 85% of our energy) and force us to use the types of energy they do favor, such as wind and solar (which currently produce 1.3% of our electricity). All Americans will pay more for their energy as a result of their policies, but none of the editorial writers at the Post will be forced to choose between paying the utility bill and saving for their child’s college tuition, or between filling their gas tank and filling a prescription.

Coal-fired electricity generation is far cleaner today than ever before. The popular misconception that our air quality is getting worse is wrong, as shown by EPA’s air quality data. Modern coal plants, and those retrofitted with modern technologies to reduce pollution, are a success story and are currently providing about 50% of our electricity. Undoubtedly, pollution emissions from coal-fired power plants will continue to fall as technology improves.

Executive Summary

America’s improving air quality is an untold success story. Even before Congress passed the Clean Air Act Amendments of 1970, air quality had been improving for decades.[i] And since 1970, the six so-called criteria pollutants have declined significantly, even though the generation of electricity from coal-fired plants has increased by over 180 percent. [ii] (The “criteria pollutants” are carbon monoxide, lead, sulfur dioxide [SO₂], nitrogen oxides [NO_x], ground-level ozone, and particulate matter [PM]. They are called “criteria” pollutants because the EPA sets the criteria for permissible levels. [iii]) Total SO₂ emissions from coal-fired plants were reduced by about 40 percent between 1970 and 2006, and NO_x emissions were reduced by almost 50 percent between 1980 and 2006. On an output basis, the percent reduction is even greater, with SO₂ emissions (in pounds per megawatt-hour) almost 80 percent lower, and NO_x emissions 70 percent lower.

Figure 1 below shows the increases in Gross Domestic Product, vehicle miles traveled, energy consumption, and population since 1980, and it compares them to the decline in the aggregate emissions of criteria pollutants. Today, we produce more energy, drive further, and live more comfortably than we did in the past, all the while enjoying a cleaner environment.

Figure 1: EPA’s Comparison of Air Quality, Emissions, and Societal Trend

Source: http://www.epa.gov/airtrends/images/comparison.jpg

One factor in improving air quality has been the pollution-control technologies used by coal-fired power plants. Today’s coal-fired electricity generating plants produce more power, with less emission of criteria pollutants, than ever before. According to the National Energy Technology Laboratory (NETL), a new pulverized coal plant (operating at lower, “subcritical” temperatures and pressures) reduces the emission of NO_x by 86 percent, SO₂ by 98 percent, and particulate matter (PM) by 99.8 percent, as compared with a similar plant having no pollution controls [xv]. Undoubtedly, air quality will continue to improve in the future because of improved technology.

Today, coal-fired electricity generation produces nearly half of the electricity generation in America and provides many jobs. For example, Prairie State Energy Campus, a 1,600-megawatt coal plant under construction in southern Illinois, provides 1,200 people with jobs in around-the-clock construction. Between its power plant, coal mine, and other assets, the campus will inject some $2.8 billion into the Illinois economy, creating 2,300 to 2,500 temporary construction jobs and 500 permanent positions, while emitting 80 percent less in pollutants than most existing power plants.[iv] When completed, the power plant will deliver electricity to 2.4 million homes in at least nine states.

Background

• Even before Congress passed the Clean Air Act Amendments of 1970, creating the Environmental Protection Agency, air quality was improving. Prior to 1970, business saw certain types of pollution as waste, and worked to reduce them through technological improvements in order to increase efficiency. Furthermore, state and local policymakers worked to reduce pollution.[v]
• The Clean Air Act, last modified in 1990, requires the Environmental Protection Agency (EPA) to set National Ambient Air Quality Standards to control pollutants considered harmful to public health or the environment: these are the so-called criteria pollutants.
• Two of these pollutants, SO₂ and NO_x are the principal pollutants that cause acid precipitation (colloquially known as acid rain). SO₂ and NO_x emissions react with water vapor and other chemicals in the air to form acids that fall back to earth. Prior to controlling for these emissions, power plants produced most (about two-thirds) of the SO₂ emissions in the United States. The majority (about 50 percent) of NO_x emissions came from cars, buses, trucks, and other forms of transportation, with power plants contributing about 25 percent. The remainder came from other sources, such as industrial and commercial boilers.[vi]
• The 1990 changes to the Clean Air Act introduced a permanent cap on the total amount of SO₂ emissions that may be emitted by electric power plants nationwide, thereby reducing the level of these emissions in the atmosphere. The approach used was a cap-and-trade program with a steadily declining cap through 2010.
• In order to comply with the Clean Air Act Amendments of 1990, electric utilities could either switch to low sulfur coal, add equipment (e.g., scrubbers) to existing coal-fired power plants in order to remove SO₂ emissions, purchase permits from other utilities that exceeded the reductions needed to comply with the cap, or use any other means of reducing emissions below the cap, such as operating high-sulfur units at a lower capacity utilization.
• EPA devised a two-phased strategy to cut NO_x emissions from coal-fired power plants. The first phase, finalized in a rulemaking in 1995, aimed to reduce NO_x emissions by over 400,000 tons per year between 1996 and 1999. The second phase began in 2000, and it aimed to reduce NO_x emissions by over 2 million tons per year. The second phase reduction goal was exceeded, owing in part to additional state-initiated NO_x reductions in the Northeast.[vii]
• In 1998, EPA issued a rule that required 21 states and the District of Columbia to further reduce NO_x emissions through the use of newer, cleaner control strategies. The rule gave each affected state a NO_x emission target and let the state determine how to reduce its emissions. The goal was to reduce total emissions of NO_x by 1 million tons in the affected states by 2007. Most states were required to begin reductions in 2004.[viii]
• EPA issues air pollution control standards under the Clean Air Act Extension of 1970. These standards are called New Source Performance Standards (NSPS). EPA’s NSPS require all power plants for which construction commenced after February 28, 2005, to not exceed 1.0 lb/megawatt hour (0.11 lb/million Btu) of NO_x, 1.4 lb/megawatt hour (0.15 lb/million Btu) of SO₂, and 0.14 lb/megawatt hour (0.015 lb/million Btu) of particulate matter (PM). [ix] However, as can be seen below, most new plants are built to more stringent criteria.

Coal Industry Emissions Reduction

• Of the 328,720 megawatts of coal-fired capacity reporting their control technologies to the Energy Information Administration in 2005, 48 percent (158,493 megawatts) have cooling towers, 31 percent (101,338 megawatts) have flue gas desulfurization equipment (scrubbers), and 100 percent have particulate collectors.[x]
• The following graph compares the SO₂ and NO_x emissions from coal-fired power plants divided by the fuel consumed by these plants from 1970 to 2006. Between 1970 and 2006, SO₂ emissions in lbs per million Btu were reduced by almost 80 percent and NO_x emissions in lbs per million Btu were reduced by over 70 percent. Between 1970 and 2006, total SO₂ emissions were reduced by about 40 percent. Between 1980 and 2006, NO_x emissions were reduced by almost 50 percent.



• A study by the National Energy Technology Laboratory (NETL) compared the emission rates from pulverized coal plants and integrated gasification combined cycle plants based on the environmental regulations that would apply to plants built in 2010 using technology designs from several vendors, including General Electric Energy (GEE), ConocoPhillips (CoP), and Shell. These rates are provided in Table 1 for three criteria pollutants: sulfur dioxide, nitrogen oxides, and particulate matter (PM).[xi] The rates range from .0105 to .0848 lbs/million Btu for SO₂, .055 to .07 lbs/million Btu for NO_x, and .0071 to .013 lbs/million Btu for PM, depending on technology type. These emission rates are 43 to 93 percent lower than the current NSPS for SO₂, 36 to 50 percent lower than the current NSPS for NO_x, and 13 to 53 percent lower than the current NSPS for PM. Integrated gasification units have lower criteria pollutants than pulverized coal plants.

• According to NETL, for a new pulverized coal plant (subcritical) built in 2008, pollution controls reduce NO_x emissions 86 percent, SO₂ emissions by 98 percent, and PM by 99.8 percent when compared with a similar plant with no pollution controls. The target emission level for NO_x is 0.070 lb/MMBtu, for SO₂ is 0.085 lb/MMBtu, and for PM is 0.013 lb/MMBtu. Without control technologies, a subcritical coal plant would emit 0.5 lb/MMBtu of NO_x, 4.35 lb/MM Btu of SO₂, and 6.5 lb/MM Btu of PM.[xii] The figure below graphically depicts the criteria pollutants from a new controlled plant vs. a new uncontrolled plant.

Cost Factors in Emission Reductions

• According to the EIA, the costs of adding flue gas desulfurization (FGD) equipment to remove sulfur dioxide are, in 2006 dollars, $301/KW for a 300 MW plant, $230/KW for a 500 MW plant, and $190/KW for a 700 MW plant. The costs for selective catalytic reduction (SCR) equipment to remove nitrogen dioxides are $124/KW for a 300 MW plant, $108/KW for a 500 MW plant, and $98/KW for a 700 MW plant. The costs per megawatt of capacity decline with plant size.  FGD units are assumed to remove 95 percent of the SO₂ and SCR units are assumed to remove 90 percent of the NO_x.[xiii]
• The NETL study provides estimates of both the capital cost and the levelized cost of these technologies, which are given in Table 2 in 2007 dollars.[xiv] The levelized cost is the present value of the total cost of building and operating the plant over its economic life, converted to equal annual payments. The plant costs range from $1,549 to $1,977 per kilowatt for a 550 megawatt plant, with integrated gasification combined cycle technology having the higher costs. The 20-year levelized plant cost was computed using fuel prices from the Energy Information Administration’s Annual Energy Outlook 2007. The levelized plant costs range from 6.33 to 8.05 cents per kWh.

Source:  National Energy Technology Laboratory, Cost and Performance Baseline for Fossil Energy Plants, DOE/NETL-2007/1281,
http://www.netl.doe.gov/energy-analyses/pubs/Bituminous%20Baseline_Final%20Report.pdf

• NETL estimates that for a pulverized subcritical coal plant, the equipment to control NO_x, SO₂, and PM comprises $324/kW of the $1,549/kW plant cost (21 percent). At the request of IER, NETL estimated the cost of a subcritical pulverized coal plant without controls for criteria pollutants. The levelized cost of the new controlled plant is 6.4 cents per kWh and that of the new uncontrolled plant is 5.2 cents per kWh, 19 percent lower. A controlled plant has slightly lower output, less than 1 percent lower, and its capital costs are about 25 percent higher due to the cost of the control technologies.[xv]

Coal-fired electricity generation is far cleaner today than ever before. The popular misconception that our air quality is getting worse is wrong, as shown by EPA’s data.[xvi] Modern coal plants, and those retrofitted with modern technologies to reduce pollution, are a success story and are currently providing about 50% of our electricity. Undoubtedly, pollution emissions from coal-fired power plants will continue to fall as technology improves.

Cap-and-Trade: “Acid Rain” versus Greenhouse Gases

The results of using a cap-and-trade system to fight “acid rain” have led some to argue that it is a model for efforts to reduce carbon dioxide emissions. But the analogy fails. Stark differences exist between the “acid rain” emission-reduction program and the challenge of reducing carbon dioxide, a natural byproduct of combustion, emitted by natural and man-made sources.

Carbon dioxide is emitted in the U.S. by hundreds of millions of sources, including every personal automobile, the appliances many of us use to cook our food and heat our homes, and the businesses upon which we depend for our livelihoods, to name a few. The “acid rain” emission reduction program was initially limited to 110 site-specific utility plants, and then later expanded to 445 plants.[xvii] In addition, carbon dioxide is a world-wide byproduct of combustion, whereas all criteria pollutants are local or regional. In other words, what the United States did for SO₂ and NO_x directly affected air quality here, while national action to limit carbon dioxide emissions will have little bearing on aggregate global emissions.

Furthermore, at the time of the SO₂ and NO_x reduction program, alternative low sulfur coal sources existed and utilities had available affordable and proven technologies to utilities to reduce their emissions. When Congress passed the Clean Air Act Amendments of 1990, therefore, coal-fired utilities could responsibly reduce emissions from their plants using various options that limited cost impacts to the consumer.

In addition, attempts to extrapolate the “acid rain” success story to the challenge of reducing carbon dioxide emissions fail to recognize the history of similar programs in other parts of the world. For example, the “Emissions Trading Scheme” of the European Union has been ineffective at reducing carbon dioxide emissions at the same time it has increased prices and harmed businesses and consumers.[xviii] Further, the EU program has enriched some companies and industries at the expense of consumers.

A recent study by Laurie Williams and Allen Zabel, career employees of the Environmental Protection Agency, makes these points about what the authors call the “Acid Rain Myth.”[xix] As the authors explain, that those who champion the use of cap-and-trade to address global warming ignore the crucial distinctions between the issues we faced in 1990 with acid rain and the issues we face today with global warming.

The following highlights Williams and Zabel’s study demonstrate that the experience of the acid rain program cannot and should not be compared to cap and trade for greenhouse gas emissions:

• “Most importantly, the success of the Acid Rain program did not depend on replacing the vast majority of our existing energy infrastructure with new infrastructure in a relatively short time. Nor did it depend on spurring major innovation. Rather, the Acid Rain program was successful as a mechanism to guide existing facilities to undertake a fuel switch to a readily available substitute, the low sulfur coal in Wyoming’s Powder River Basin.”
• “The goal of the Acid Rain program was to reduce sulfur dioxide emissions, while keeping the cost of energy from coal low. To be effective, climate change legislation must do the opposite; it must gradually increase the relative price of energy from coal and other fossil fuels to create the appropriate incentives for both conservation and the scale-up of clean energy.”
• “Further, the Acid Rain program did not allow any outside offsets and so provides no basis for the widespread assumption that an offset program will help with climate change. In addition, the success of the program was aided by the low, competitive price of low-sulfur coal.”
• “According to Professor Don Munton, author of ‘Dispelling the Myths of the Acid Rain Story’ the impact of the program has been overstated: The potential for a massive switch to low sulfur coal was no secret. Such coal was cheap and available, and it became cheaper and more available throughout the 1980s. Indeed, low-sulfur coal became very competitive with high-sulfur supplied well before the Clean Air Act became law.”

In short, the mechanisms available to reduce pollutants allowed for more generation of energy with less pollution. But this success cannot be extrapolated to the regulation and reduction of carbon dioxide, a much more challenging undertaking. None of the conditions existing at the time of the apparent success of the SO₂ and NO_x reduction program apply to carbon dioxide, and, in any case, unilateral action by the United States will have little impact upon global carbon dioxide concentrations. Indeed, the challenges presented by the control and regulation of carbon dioxide have no parallels in the history of emission regulation.

[xi] National Energy Technology Laboratory, Cost and Performance Baseline for Fossil Energy Plants, DOE/NETL-2007/1281,

http://www.netl.doe.gov/energy-analyses/pubs/Bituminous%20Baseline_Final%20Report.pdf

[xii] Ibid.

[xiii] Energy Information Administration, Assumptions to the Annual Energy Outlook 2008, Table 44, http://www.eia.doe.gov/oiaf/aeo/assumption/electricity.html

[xiv]Ibid.

[xv] Email from J. Kukielka ,NETL to M. Hutzler, IER, January 9, 2009.

[xvi] Environmental Protection Agency, Air Trends, http://www.epa.gov/airtrends/.

[xvii] Kenneth P. Green et. al, Climate Change: Caps vs. Taxes, American Enterprise Institute, (June 2007) http://www.aei.org/publications/filter.all,pubID.26286/pub_detail.asp

[xviii] See European Union, Emissions trading: 2007 verified emissions from EU ETS businesses, May 23, 2008, http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/787&format=HTML&aged=0&language=EN&guiLanguage=en

[xix] Keeping Our Eyes on the Wrong Ball, 2/21/09, http://www.carbonfees.org/home/Cap-and-TradeVsCarbonFees.pdf

Download PDF (289KB)

The Energy Information Administration (EIA) produces forecasts of energy supply and demand for the next 20 years using the National Energy Modeling System (NEMS)[1]. These forecasts are updated annually and published in the Annual Energy Outlook (AEO).[2] All sectors of the energy system are represented in NEMS, including the electric power generation, transmission, and distribution system.

To meet electricity demand, the EIA represents the existing generating plants, retires those that have come to the end of their economic life, and builds additional plants to meet projected demand from the residential, commercial, industrial, and transportation sectors. As a result, EIA must represent a slate of technologies, their capital and operating costs, their availability and capacity factors, the financial structure and subsidies, the time to construct the plant, the utilization of the plant, and expected future cost changes, including fuel input for fossil and nuclear plants.

To determine the most economic technology for the type of demand (base, intermediate, or peaking load) for which new capacity is needed, NEMS competes the technologies based on the economics of their levelized costs. Levelized costs represent 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 from an assumed duty cycle.

The table below provides the average national levelized costs for the generating technologies represented in the AEO2010 reference case.[3] The values shown in the table do not include financial incentives such as state or federal tax credits, which impact the cost and the competitiveness of the technology. These incentives, however, are incorporated in the evaluation of the technologies in NEMS based on current laws and regulations in effect at the time of the modeling exercise, as well as regional differences in the cost and performance of the technology, such as labor rates and availability of wind or sun resources.

In the AEO2010 reference case, a 3-percentage point increase in the cost of capital is added when evaluating investments in greenhouse gas intensive technologies such as coal-fired power plants without carbon capture and sequestration (CCS) technology and coal-to-liquids plants. The 3-percentage point adjustment is similar to a $15 per ton carbon dioxide emissions fee when investing in a new coal plant without CCS technology. This adjustment represents the implicit hurdle being added to greenhouse gas intensive projects to account for the possibility that they may need to purchase allowances or invest in other greenhouse gas emission-reducing projects that offset their emissions in the future. Thus, the levelized capital costs of coal-fired plants without CCS are likely higher than most current coal project costs.

The levelized cost for each technology is evaluated based on the capacity factor indicated, which generally corresponds to the maximum availability of each technology. However, some technologies, such as a conventional combined cycle turbine, that may look relatively expensive at its maximum capacity factor may be the most economic option when evaluated at a lower capacity factor associated with an intermediate load rather than base load facility.[4]

Simple combustion turbines (conventional or advanced technology) are typically used for peak load, and are thus evaluated at a 30 percent capacity factor. Intermittent renewable resources, e.g. wind and solar, are not operator controlled, but dependent on the weather or the sun shining. Since the availability of wind or solar is dependent of forces outside of the operator’s control, their levelized costs are not directly comparable to those for other technologies although the average annual capacity factor may be similar. Because intermittent technologies do not provide the same contribution to system reliability as technologies that are operator controlled and dispatched, they may require additional system investment as back-up power that are not included in the levelized costs shown below.

Levelized Cost of New Generating Technologies, 2016

($2008 per megawatt hour)

Source: Energy Information Administration, Annual Energy Outlook 2010, http://www.eia.doe.gov/oiaf/aeo/electricity_generation.html

[1] Energy Information Administration, NEMS documentation, http://www.eia.doe.gov/oiaf/aeo/overview/index.html

[2] Energy Information Administration, Annual Energy Outlook 2010, http://www.eia.doe.gov/oiaf/aeo/index.html

[3] Energy Information Administration, Annual Energy Outlook 2010, http://www.eia.doe.gov/oiaf/aeo/electricity_generation.html

[4] Base load plants are facilities that operate almost continuously, generally at annual utilization rates of 70 percent or higher. Intermediate load plants are facilities that operate less frequently than base load plants, generally at annual utilization rates between 25 and 70 percent. Peaking plants are facilities that only run when the demand for electricity is very high, generally at annual utilization rates less than 25 percent.

FOR IMMEDIATE RELEASE
April 17, 2009
CONTACT:
Laura Henderson 202.621.2951
Chris Tucker 202.346.8825

The Day the Earth Stood Still: EPA Says CO2 a Threat to Human Health, Paves Way For Backdoor Tax on All Sectors of U.S. Economy

Washington, D.C.—Institute for Energy Research (IER) president Thomas J. Pyle today issued the following statement in response to the announcement by the Environmental Protection Agency (EPA) that carbon dioxide is a threat to human health and welfare, and as such: must be regulated, rationed and restricted by the federal government.

“Carbon is lighter than oxygen, more abundant than nitrogen, and forms the basis of all human, plant and animal life on earth. At least it did yesterday. Today, it’s a danger to human health and, upon meeting air, a clear and present threat to our existence. That was the pronouncement made by the EPA today, and it will be one this generation and others that follow will not soon forget.

“In defending today’s decision, EPA was quick to promise that the rationing of carbon dioxide would only have limited application. This is incorrect. EPA will start by issuing new regulations on cars. Next will come restrictions on stationary sources. After that: the wholesale regulation of anything that uses oil, natural gas, or coal. And it won’t end there. If carbon dioxide is deemed a threat, other greenhouse gases like water, vapor and methane must be too.

“While the American people will need to wait a few more months to see how today’s announcement manifests itself in their daily lives, we know one thing for sure: EPA is about to become the largest, most powerful and most distended government agency in American history. And that alone should give every American who has a job, or may want one in the future, reason for serious concern.”

More from IER on the dangers of broad EPA regulation of CO2:

• Study: Eight reasons why cap and trade harms the economy and reduces jobs
• Release: Road to Serfdom: Climate Bill Envisions Future with Less Energy, Fewer Jobs
• Blog: The Size of President Obama’s Massive Energy Tax Grows Larger

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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www.InstituteforEnergyResearch.org

FOR IMMEDIATE RELEASE
March 25, 2009
CONTACT:
Laura Henderson (202) 621-2951

Obama Mobilizes EPA Troops for War on Coal

Agency to Kill Jobs, Prevent Access to America’s Cheapest, Most Abundant Energy Resource

WASHINGTON, D.C. – Institute for Energy Research President (IER) Thomas J. Pyle issued the following statement today in response to the Environmental Protection Agency’s (EPA) decision to place a strict and indefinite moratorium on new mountaintop mining projects—a decision about which Democratic Gov. Joe Manchin (W.Va.) and others in the Appalachian region are “very concerned.”

“President Obama has made his intentions to bankrupt the coal industry clear. EPA’s actions this week demonstrate that he will wage a war against the energy source that generates half of America’s electricity and is our nation’s most abundant, reliable, and affordable energy resource.

“Even more dismal are estimates that show how this action will affect the 65,000 members of the Appalachian workforce who stand to lose some of the best, highest-paying jobs available in the region. That’s not to mention the $12 billion in lost economic development that an area already wrestling with our current economic downturn will have to reconcile.

“Evidently and regrettably, the president’s plan to redistribute the country’s wealth won’t make anyone any richer; instead it’ll eliminate jobs and increase energy costs until all Americans face equally devastating economic struggles.”

NOTE: The average American miner earns $66,000 each year – nearly 60 percent more than the average wage for industrial jobs. It is unclear whether miners are eager to trade the high-paying jobs they have now, for low-paying, government-sponsored “green jobs” that may or may not exist in the future.

More from IER on domestic energy policy:

IER Analyses: Coal Overview and Coal Facts Sheet

Press Release: Interior Decision Locks Away American Energy Resource Larger than Middle East Reserves

Blog Posting: Obama’s Budget Includes Biggest Tax Increase in U.S. History

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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www.InstituteforEnergyResearch.org

FOR IMMEDIATE RELEASE
February 18, 2009
CONTACT:
Laura Henderson (202) 621-2951

IER: Embrace Canadian Energy

Washington, D.C. – The Institute for Energy Research (IER) today released the following fact sheet on the important energy trade relationship between the United States and Canada in advance of the President’s trip there tomorrow. President Obama should resist the call from some organizations to antagonize Canada, our largest and most stable trading partner. Today’s economic climate should reinforce that he instead must move to strengthen our important economic ties with our northern neighbors.

We import more energy from Canada than any other country:

• The United States imports more natural gas, refined gasoline, and oil from Canada than any other nation in the world—17 percent of our oil and 18 percent of our natural gas.
• Nearly 100 percent of Canada’s energy exports go to the United States.
• Canada supplies 2.5 million barrels of oil for the U.S. each day, which is roughly the equivalent of what we import from Saudi Arabia and Nigeria combined.
• Oil sands make up 97 percent of Canada’s total proven reserves and 13 percent of total U.S. imports.
• The United States imports 36 percent more oil from Canada than Saudi Arabia and 320 percent more than Iraq.

We export more goods to Canada than any other country:

• According to the U.S. State Department, The United States and Canada share the largest energy trading relationship in the world.
• Among other products, the United States exports 18.4 million short tons of coal to Canada.
• In 2007, 65 percent of Canada’s imports came from the United States.

Our shared resources could provide both nations with an energy and economic boon:

• Canada’s total oil sands resources could be as large as 2.6 trillion barrels.
• According to the Department of Energy, if developed, U.S. oil shale resources—which could total 2.1 trillion barrels—combined with Canada’s tar sands, could allow the U.S. and Canada to claim the largest oil reserves in the world.

NOTE: The important energy trade relationship between the United States and Canada is indisputable. Any attempt to impede on that relationship would further the economic uncertainty in the United States.

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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www.InstituteforEnergyResearch.org

Energy is the lifeblood of our economy.  As our competitors around the globe have shown us in recent years, job creation and economic growth begin with access to abundant, affordable energy supplies. 

Unfortunately, the Obama administration’s stimulus proposals are founded on the fundamentally flawed notion that we will achieve prosperity if we make coal, oil, and natural gas, which make up 85 percent [1] of the energy that fuels our economy, more expensive and less available.  Meanwhile, President Obama wishes to spend billions of taxpayer dollars on the most expensive and least efficient energy sources and force American consumers to pay more to purchase them.

Energy is, literally, “the capacity to do work.”  More energy means more work, more jobs, and more economic growth.  Less affordable energy means less work performed here at home.  Affordable energy creates jobs and stimulates investment in America.

IER supports government policies that encourage private investment, foster job creation, and provide American consumers access to the vast, proven, affordable energy supplies they own beneath the 2.3 billion acres of government lands not leased for responsible energy production.  These enormous taxpayer-owned resources, and the American jobs they would create, have been held hostage by a decades-long government policy of saying, “No, we can’t”.

Today, IER is offering a bold economic stimulus plan that will create jobs, strengthen our economy, enhance our national energy security, and make the U.S. more competitive in the world.  Best of all, it won’t cost taxpayers a dime.  In fact, it could generate hundreds of billions of dollars, along with jobs and new energy supplies for the future.

IER’s plan represents the most significant change in government energy policy in more than three decades.  We urge the Obama Administration to say, “Yes, we can” to our two-part plan, which begins by embracing the fundamental medical precept: First, Do No Harm:

• Vow to defend jobs and investments against expensive, job-killing climate regulations.  German Chancellor Angela Merkel recently stated that she would not allow EU climate regulations that “take decisions that would endanger jobs or investments in Germany.”  President Obama should follow suit and vow to defend American jobs against costly climate regulations.
• Halt EPA’s attempt to regulate carbon dioxide using the Clean Air Act. The Clean Air Act was designed to regulate regional air pollutants, not global concentrations of carbon dioxide.  President Obama needs to apply a cost-benefit analysis to EPA’s proposal to make 85 percent of the energy that fuels our economy more expensive and less available, cost Americans $7 trillion over the next 20 years, and accomplish little, if any, real reductions in global temperature.
• Renounce plans to bankrupt coal companies. As a presidential candidate, Obama said he would bankrupt coal-fired power plants with climate regulations. America currently gets 48 percent of our electricity from coal. Unlike wind and solar, coal is reliable, affordable, and proven. Wind and solar cannot power modern society’s always-on electricity needs.
• Join other policymakers in denouncing billions for “project[s] that depend on significant taxpayer subsidies while potentially doubling power costs” for American consumers and abandon all efforts to implement Federal Renewable Fuels Standards, Federal Renewable Portfolio Standards and Low Carbon Fuel Standards.

And second, say “Yes, we can” and pursue the following landmark changes in federal energy policy:

• End subsidies for all forms of energy and return the money to American taxpayers. The government should not be in the business of picking winners and losers in energy production.  Furthermore, according to the Congressional Budget Office (CBO), direct payments to individuals and cutting taxes have the fastest and most significant impacts on the economy.
• Continue our progress on the most significant change in energy policy in decades: Streamline regulations to produce energy from American resources on American lands and coastal waters.  ICF International recently released a study that shows developing America’s abundant but currently off-limits domestic energy supply would create 160,000 new jobs alone and generate $1.7 trillion for local, state, and federal tax revenue.
• Provide coastal states with 50 percent of revenue from offshore and onshore energy leasing.  Last year alone, the U.S. raised over $23 billion from energy leasing on federal lands.
• Support exploration and energy production in ANWR. According to the Energy Information Administration, ANWR “is the largest unexplored, potentially productive geological onshore basin in the United States.”  It contains a mean expected value of 10.4 billion barrels of oil. Opening ANWR would create hundreds of thousands of American jobs, generate billions of dollars in state and federal revenue, and enhance our energy security.
• Expedite job creation by waiving all regulations on federal lands for the expedited construction of the Alaska natural gas pipeline.  Congress did this in 1973 for the 800 mile-long Trans-Alaska Oil Pipeline, which was built in just three years and has since delivered 16 billion barrels of oil to American consumers. Russia, Iran, and Qatar control 60 percent of the world’s natural gas supplies. We should use our abundant supplies of natural gas, and not allow another OPEC-style cartel to limit our energy sources.
• Allow the exploration and experimentation necessary to produce affordable energy from America’s oil shale resources. The western United States is home to an estimated 800 billion barrels of recoverable oil equivalent in oil shale. This is about three times the amount of proven oil reserves in Saudi Arabia. This resource is untapped and needs research to develop economically.
• Permit the exploration and experimentation necessary to produce affordable energy from methane hydrates.  A 2007 study found that the U.S. has about 5,700 trillion cubic feet of methane hydrates—about 900 times the current annual gas consumption in the U.S. Like oil shale, this resource is untapped, and companies need to research ways to bring it to market.
• Limit frivolous lawsuits designed to thwart responsible development of American energy and the American jobs it creates. The following quote sums up this problem best.  In an interview with Dow Jones Newswires in January 2003, The Wilderness Society’s Peter Morton threatened:  “If you bid on a lease on public land, you can expect (environmental litigation).“
• Remove regulatory impediments and repeal punitive laws that make it increasingly difficult to build or expand refineries.  While existing refineries have gone to great lengths to expand their capacity to meet growing domestic demand, refinery expansions are becoming more and more difficult due in part to regulatory impediments, bureaucratic red tape and a barrage of punitive federal legislation in recent years.
• Resolve issues involving the Yucca Mountain Repository for spent nuclear fuel.  The Federal government has been studying Yucca Mountain as a fuel repository for the last 30 years.  Ratepayers have paid billions to the Nuclear Waste Fund—it’s time for the Federal government to move forward and provide a return on that investment.
• Remove regulatory barriers to building the next generation of nuclear power plants. The Federal government should not stand in the way of developing nuclear fuel reprocessing, pebble-bed reactors, or whatever forms of nuclear energy are economical.

[1] According to EIA, in 2007 39 percent of our energy came from petroleum, 22 percent from coal, 23 percent from natural gas, 8 percent from nuclear, 2.4 percent from hydroelectric, 2.1 percent from wood derived fuels, 1.0 percent from biofuel, 0.3 percent from geothermal, 0.3 percent from wind, and 0.1 percent from solar. The latest data from EIA is available here: http://www.eia.doe.gov/cneaf/alternate/page/renew_energy_consump/table1.html