Other highlights[iii] are:

• Fossil fuels remain the dominant source of energy, supplying 78 percent of world energy use in 2035.
• Petroleum and other liquid fuels remain the largest energy source worldwide, but its projected share decreases from 34 percent in 2008 to 29 percent in 2035.
• Natural gas is the fastest growing fossil fuel with consumption increasing at 1.6 percent per year, reaching 169 trillion cubic feet by 2035, an increase of 52 percent from 2008 levels. Unconventional sources of natural gas (shale gas, tight gas, and coal bed methane) factor prominently in the forecast, particularly for the United States, Canada, and China.
• World coal consumption increases at a rate of 1.5 percent per year, reaching 209 quadrillion Btu in 2035, 50 percent higher than 2008 levels. China accounts for 76 percent of the projected net increase in world coal use.
• Renewable energy is the fastest growing energy source, increasing by 2.8 percent per year. But even at this growth rate, its share of total energy use grows from just 10 percent in 2008 to 15 percent in 2035.

• Electricity is the fastest growing end-use fuel, increasing at 2.3 percent per year between 2008 and 2035. Within the generation sector, renewable fuels grow the fastest at 3.0 percent per year, followed by natural gas at 2.6 percent, nuclear fuel at 2.4 percent and coal at 1.9 percent.

• Transportation energy use increases at 1.4 percent per year.  Its share of total petroleum consumption increases from 54 percent in 2008 to 60 percent in 2035. Transportation energy demand is projected to account for 82 percent of the total increase in world petroleum demand.
• Energy-related carbon dioxide emissions are expected to be 43 percent higher in 2035, increasing from 30.2 billion metric tons in 2008 to 43.2 billion metric tons in 2035. The majority of the increase is from energy consumption in developing countries, particularly countries in Asia.

Conclusion

Forecasts by government agencies indicate the fossil fuels will continue to be the dominant source of energy well into the future. While renewable energy increases at a faster rate than other fuels, its contribution will remain a small share of total energy requirements by 2035.

Various legislative and other proposals have promoted policies that would tax or place a price floor on petroleum-based transportation fuels such as gasoline because as President Obama stated in his recent address, “we’re running out of places to drill on land and in shallow water.”[1] Their object is to spur conservation and promote the manufacture of more efficient vehicles, as well as reduce greenhouse gas emissions, increase national security (by lessening our dependence on foreign oil), and decrease congestion. But such policies assume that oil is unduly scarce, even though current worldwide oil reserves are the highest ever. And reserves are only a fraction of potential oil resources, not to mention that technology is continually unlocking new resources.  Moreover, as the experience of Europe has shown, setting an artificially high price for petroleum-based transportation fuels will not change the growth of U. S. carbon dioxide emissions, which are the largest component of greenhouse gas emissions. In any case, lessened U.S. carbon dioxide emissions would be dwarfed by future increases in those emissions from developing countries, particularly China, making unilateral action problematic.

Introduction

Numerous policy proposals advocate higher prices on gasoline and other transportation fuels in order to spur conservation by both producers and consumers. Advocates of such policies believe that charging customers a “fair” or “socially optimal” price for their use of a “depleting fuel” will promote the manufacture of more efficient vehicles and foster consumers’ use of mass transit, carpooling, home relocation, or other fuel-reducing endeavors. An example of such a policy is the tax on gasoline in the American Power Act, a legislative proposal by Senators Kerry and Lieberman to reduce greenhouse gas emissions.

Another proposal appears in a paper by Thomas Merrill and David Schizer,[2] where they advocate a plan that would both increase the stability of the price of transportation fuels by not allowing them to fall and be revenue neutral. According to the plan, a fee would be added to the price of transportation fuels, and that fee would rise if the price of crude oil fell, but fall if the price of crude oil rose. In theory, this would keep the price of transportation fuels more stable by setting a dynamic floor on the price. In any case, the price of transportation fuels would never fall below the prices they had when the plan was launched, since the fee would keep rising to offset any decline in the price of crude oil. In order to ensure revenue neutrality, and thus to sell the policy politically, the stabilizing fee would not be kept by the government but would be rebated back to citizens, minus administrative costs. The fee, however, would not be rebated back to purchasers but would be distributed to all persons of driving age, so that those who used mass transit or drove less than the average amount would garner a sizable share.

The goals of these policies are to reduce greenhouse emissions, improve national security by decreasing oil imports, and hopefully reduce road congestion. But another reason for promoting such a proposal is to “help the economy adjust to a future of scarce petroleum”. That is simply not an issue, as will be seen below. In addition, as history has shown and as forecasters continue to show, carbon dioxide emissions, the largest component of greenhouse gas emissions, will continue to grow despite increasing crude oil prices and thus despite any such policies.

Global Oil Reserves vs. Oil Resources

Almost as long as people have been using oil, people have been declaring that we are running out of it.  Ronald Bailey, science correspondent for Reason Magazine, writes:[3]

Predictions of imminent catastrophic depletion are almost as old as the oil industry. An 1855 advertisement for Kier’s Rock Oil, a patent medicine whose key ingredient was petroleum bubbling up from salt wells near Pittsburgh, urged customers to buy soon before “this wonderful product is depleted from Nature’s laboratory.” The ad appeared four years before Pennsylvania’s first oil well was drilled. In 1919 David White of the U.S. Geological Survey (USGS) predicted that world oil production would peak in nine years. And in 1943 the Standard Oil geologist Wallace Pratt calculated that the world would ultimately produce 600 billion barrels of oil.

During the 1970s, the Club of Rome report The Limits to Growth projected that, assuming consumption remained flat, all known oil reserves would be entirely consumed in just 31 years. With exponential growth in consumption, it added, all the known oil reserves would be consumed in 20 years.

Some other interesting factoids from the past regarding oil depletion are:[4]

• In 1885, the U.S. Geological Survey indicated that there was little or no chance of discovering oil in California.
• In 1914, an official of the U.S. Bureau of Mines estimated total future production at 5.7 billion barrels. (By 1984, more than 34 billion barrels had been produced.)
• In 1920, the Director of the U.S. Geological Survey predicted that the U.S. had nearly reached peak production. (By 1984, production was over four times the 1920 rate.)
• In 1939, the Interior Department predicted U.S. oil supplies would last thirteen years.
• In 1949, the Secretary of the Interior predicted that the end of U.S. oil supplies was almost in sight.

On the other hand, and more currently:

• Edward L. Morse, an energy official in Carter’s State Department, indicates that the world’s deep-water oil and gas reserves are significantly larger than was thought in the 1990s, and high prices have spurred development of technologies  for extracting them. The costs of developing oil sands are declining, so projects that were not economic last year with the price of oil under $90 a barrel are now viable with oil at $79 a barrel.[5]
• Daniel H. Yergin, co-founder and chairman of Cambridge Energy Research Associates, writes “careful examination of the world’s resource base . . . indicates that the resource endowment of the planet is sufficient to keep up with demand for decades to come.” [6]

According to the Journal of Oil and Gas, global proved oil reserves as of January 1, 2009, were 1,342 billion barrels,[7] the highest level ever, and about 10 billion barrels higher than in 2008. Thus, enough reserves were found in 2008 to meet demand in that year and to add 10 billion barrels to the global reserve level. The Middle East holds the majority of proved oil reserves at 746 billion barrels,[8] followed by North America with 210 billion barrels. Canada with 178 billion barrels (85% of the North American share)[9] is second in rank only to Saudi Arabia with 267 billion barrels of proved oil reserves.

Proved reserves of crude oil are the estimated quantities that geological and engineering data indicate can be recovered from known reservoirs with existing technology and current economic and operating conditions. That is, they are quantities of oil that can be retrieved by producing companies to meet demand in the near future, without needing new technology or having to explore and develop a totally new oil well.  As such, they represent the lowest estimate of petroleum supplies. Estimates of proved reserves are developed from data reported to the U.S. Securities and Exchange Commission,[10] foreign government reports, and international geologic assessments.

Thus, the term ‘proved reserves’ refers to oil deposits that have actually been discovered and carefully estimated. Although it is true that every barrel of oil removed from the ground reduces the physical total by one, the economically relevant fact is that humans historically go out and find more usable oil reserves in order to keep pace with consumption.

The Institute for Energy Research put together a table of global oil reserves beginning with the year 1971 (when proved reserves were at a level of 521 billion barrels) and continuing through 2007 (when they were at 1,317 billion barrels).[11] Between 1971 and 2007, the world consumed 910.3 billion barrels of petroleum[12], which would have made the reserve total 2,227 billion barrels were they not used. As the table shows, in this 36-year time span, proved oil reserves worldwide have grown by a factor of 2.5, while global oil demand over the same period has grown by a factor of 1.7.  Thus, at the 2007 level of global demand, 31.3 billion barrels per year,[13] proved oil reserves were capable of meeting that demand for 42 years. As the table indicates, there have been periods during which global oil reserves have increased more than 200 billion barrels.[14] One such period occurred early this decade with the addition of Canadian oil sands reserves. Currently, the U.S. benefits from these reserves from our northern neighbor, but proposed government policies (such as a low-carbon fuel standard[15] or legislation enacting a cap-and-trade policy on greenhouse gas emissions[16]) could endanger this source of proved reserves, allowing other countries without such policies to benefit instead.

U.S. Oil Resources

Proved oil reserves are a subset of the oil resource base, which includes estimated quantities of both discovered and undiscovered oil that have the potential of being classified as reserves in the future. These oil resources may be difficult to produce with current technology or their access may be limited by government policy. Thus, new technologies and better government oil recovery policies, as well as “risk mitigation” incentives, could help industry convert the higher-cost, undeveloped domestic oil resources into economically feasible reserves. Access to additional offshore, Alaskan, and public-land resources could be accelerated rather than stalled, as under the current Administration.[17]

The U.S. Department of Energy estimates that light and heavy oil resources in the United States total 1,124 billion barrels, with 40% believed to be recoverable.[18] In addition, the U.S. has a world-leading 2,118 billion barrels of in-place oil shale,[19] of which 800 billion barrels is estimated to be recoverable.[20] Other estimates have the recoverable shale oil number even higher, at approximately 1.38 trillion barrels.[21] That’s five times the oil reserves in Saudi Arabia.

Oil shale is found largely in Utah, Colorado, and Wyoming, and the best sources are believed to be on public lands. Oil producers need to have access to these resources in order to demonstrate that they can produce shale oil at current prices with technologies they believe will work. However, access is currently being stalled by the owner of the public lands, the federal government. [22]

The Denver Post carried an article that addressed this issue:[23]

Colorado is sitting on a bounty of oil shale that could make energy cheaper in America and free it from the whims of Middle Eastern oil barons. Unfortunately, it looks like oil companies can’t do the work necessary to extract the fuel because of political roadblocks. And this attitude seems to go all the way to the top. Interior Secretary Ken Salazar, one of Colorado’s two U.S. senators until he joined the Obama administration this year, tossed the latest obstacle into the path to progress in February when he canceled leases for oil-shale development in Colorado, Utah and Wyoming. Salazar’s backward thinking is typical of the politicians who embrace environmental hysteria. They seem to despise fossil fuels and want to stop Americans from using them.

Price Stabilization Policy Formulation

Analysts, such as Merrill and Schizer, who advocate policies that would stabilize transportation fuels, know that they need to make their fee formulation easy to implement and as free of administrative burden as possible. That is why they advocate having the IRS handle the fee: that agency collects the Federal taxes on gasoline. They also advocate that the fee should be based on the price of crude oil, since that is the largest component of the price of transportation fuels and is determined by global forces of supply and demand, making it less amenable to manipulation by domestic producers, refiners, and retailers. But one pitfall in their plan is that the price of the petroleum product does not always follow the price of crude oil, as can be seen by the following chart for gasoline.

The price of gasoline is based on four price components: crude oil, Federal and State taxes, refining operations and profits, and distribution and marketing.[24] In 2008, crude oil represented 69 percent of the gasoline price while the refining component represented only 7 percent. That was not typical of the past 9 years, however, when the refining component represented an average of 15 percent. Generally, there are certain times of the year when the refining component spikes gasoline prices. One example is in the spring, when refiners switch from winter grade gasoline to summer blends. This switch takes place the end of April and in May, causing the price of gasoline to spike, as seen in the chart for the years 2006 and 2007. Another phenomenon that affects the refining component is weather, and in the fall of 2005 the price of gasoline increased because many of the Gulf of Mexico refineries were shut in, owing to hurricane Katrina.

Another factor to note is that a price stabilization policy could in fact inflict a higher fee on petroleum transportation fuels than a likely cap-and-trade policy would provide. For example, if the price stabilization policy had been in effect in 2008, the world oil price increase would have resulted in a fee of about $2.50 per gallon, while according to EIA’s analysis of H.R. 2454, the American Clean Energy and Security Act of 2009, the “tax” on gasoline would have been closer to 35 cents per gallon.[25] Also, as we saw in 2008, the higher prices for petroleum-based transportation fuels had a secondary impact on consumer spending, increasing food prices and other products requiring transportation to move them to market.

The question remains whether a price stabilization policy or a gasoline tax will have the desired affects of limiting greenhouse gas emissions and increasing national security by reducing oil imports. To evaluate these issues, we’ll examine three oil price scenarios that the Energy Information Administration’s Annual Energy Outlook 2010 forecasts using different prices of crude oil.[26] The cases are the reference case, the high oil-price case, and the low oil-price case. They are depicted in the graph below:

In the reference case, the crude oil price rises gradually, until by 2035 it reaches $133 per barrel (in 2008 dollars), about $60 per barrel more than the current price. In the low price case, the crude oil price decreases to $51 per barrel during the next several years and remains there through 2035, the end of the forecast period. In the high price case, the crude oil price increases to $209 per barrel (in 2008 dollars) by 2035. Both the high price case and the reference case could very well represent a price stabilization scenario since the price of crude oil never falls and steadily rises.

The following graph depicts the carbon dioxide emissions, the largest component of greenhouse gases, in the 3 scenarios. Note that in each of the three cases, U.S. carbon dioxide emissions increase over time and by 2035 range from 2.5 percent to 12.5 percent higher than they were in 2007.

Another way to look at this issue is with the European experience in mind. Since World War II, European countries have had a hefty tax on gasoline to encourage the use of more efficient transportation fuels. Over the past 25 years, carbon dioxide emissions in Europe have ranged between 4,300 and 4,750 million metric tons, and in 2008 they were 5.5 percent higher than in 1983.[27]

The next graph depicts the net petroleum import share for each of the three price cases. The imported amount varies with the demand for liquid fuels, which is dependent on the price of crude oil, and which in 2035 varies by less than 4 million barrels per day across the three cases: 20.8 million barrels per day in the high price case and 24.5 million barrels per day in the low price case.

The petroleum import share also varies with the amount of ethanol production, which is mandated by the Energy Independence and Security Act of 2007 (EISA2007). That Act mandates the production of 36 billion gallons of biofuels, such as ethanol, by 2022.[28] It also requires the sale of flex-fuel vehicles that can burn E85, a blend of 85 percent ethanol and 15 percent gasoline—a much higher percentage of ethanol than the 10 percent blend that conventional gasoline vehicles can safely use without causing damage to the vehicle.

A further factor is the stricter mandates for Corporate Average Fuel Economy. EISA2007 requires the fuel efficiency of the combined fleet of all new passenger cars and light trucks sold in the U.S. in model year 2020 to be equal to or exceed 35 miles per gallon, 34 percent higher than the current fleet average of 26.4 miles per gallon.[29] In none of the three cases are petroleum imports at a level that is independent from foreign oil, and in fact, in none of the cases is the U.S. independent of petroleum imports from non-North American countries. In the high price case, where petroleum imports are the least, the higher oil prices increase the penetration of biofuels and the use of flex fuel vehicles.

World Implications

The Energy Information Administration provides forecasts of the next 18 months in their Short-Term Energy Outlook.[30] The next chart shows world demand for petroleum and the annual change in demand for the United States, China, and the rest of the world from 2003 through 2011. In 2008 and 2009, U.S. demand for petroleum declined. However, China’s petroleum demand increased in both 2008 and in 2009, even though the U.S. and the rest of the world’s demand decreased in 2009, and its demand is expected to continue to increase. Thus, any reduction in U.S. petroleum consumption will be made up by China or other countries.

As can be seen from the next chart, China’s domestic oil production is fairly flat, but its oil consumption is increasing at a fast pace, making its reliance on oil imports grow. The growth in oil consumption is primarily to provide for its expanding transportation sector. From 1996 to 2006, growth in the combined length of China’s highways averaged 11.3 percent per year. With this level of highway construction, China is on track to exceed the United States in total highways in the next decade.[31]

Infrastructure projects in China account for 15 percent of China’s gross domestic product, which grew by 8.7 percent in 2009, when the economies of the United States and Europe did not grow at all. Besides highway construction, their inventory projects include almost 100 new airports, some in isolated cities, and dozens of subways.[32]

In 2006, China became the world’s second-largest vehicle market, after the United States, and in 2009, it has overtaken the U.S market in vehicle sales.[33] New passenger car sales rose 55 percent in February of this year from a year earlier, following a 116 percent increase in January, aided by the extension of government incentives to boost purchases of smaller vehicles and spur rural demand for cars.[34]

In 2007, China produced nearly 8.9 million motor vehicles, an increase of 22 percent over production in 2006. The country is now the third largest vehicle producer in the world, after Japan and the United States. According the Energy information Administration, China’s passenger transportation use per capita is projected to triple by 2030.[35]

China is not endowed with a lot of oil resources. Its oil reserves totaled 16 billion barrels in January 2009.[36] As a result, China has spent nearly $200 billion on oil deals during the past few years, joining with more than 19 countries —including Russia, Turkmenistan, Kuwait, Yemen, Libya, Angola, Venezuela and Brazil[37]— and paying for exploration, production, infrastructure construction, as well as “loans for energy” deals.[38] Recently, China’s Sinopec International Petroleum Exploration and Production Company agreed to buy, for $4.65 billion, the 9 percent interest that ConocoPhillips holds in Syncrude,[39] a Canadian business involved in the production of oil sands (an asphalt-like heavy oil). .It is even pursuing buying leases in U.S. waters, in the Gulf of Mexico.[40]

During the first quarter of this year, China set records with huge year-over-year increases in oil demand.  In February, China’s oil demand rose 19.4 percent over a year earlier, the second fastest rise on record.  China is the world’s second largest oil user (second to the United States).[41] China’s oil imports were up 13.8 percent in March over February, reaching 4.95 million barrels per day, according to preliminary data from China’s General Administration of Customs.[42] In part, these large oil increases are fueling China’s passenger car fleet.

China’s economic and energy profile can be summarized as follows:[43]

• Between 2000 and 2008, China’s real gross domestic product averaged 10 percent per year. While its economic growth in 2008 and in the first half of 2009 is less than this average rate, its $586 billion economic stimulus package is expected to stimulate more normal growth in the second half of 2009 and in 2010.
• China is the world’s most populous country and the second largest energy consumer behind the United States.  Rising oil demand and imports have made China a significant factor in world oil markets.
• China is the world’s second-largest consumer of oil behind the United States, and the third-largest net importer of oil after the U.S. and Japan.
• China’s largest oil fields are mature and production has peaked, leading companies to focus on developing largely untapped reserves in the western interior provinces and offshore fields.
• In 2006, 93 percent of China’s energy consumption was from fossil fuels. (See figure below.)

China is the largest producer and consumer of coal in the world, with 70 percent of its demand for energy coming from coal. In the late 1980s, China surpassed the U.S. in coal consumption and the Energy Information Administration expects China’s coal consumption to be 4.5 times that of the U.S. by 2035.[44] Many of China’s large coal reserves have yet to be developed. 

• China’s electricity generation is dominated by fossil fuel sources, particularly coal. In 2007, coal-fired generators produced 80 percent of China’s electricity and the Energy Information Administration predicts that, by 2035, coal-fired generators will produce 74 percent of its electricity, with mainly wind and nuclear power making up the difference in coal’s lower share.[45] (See figure below.)

Because of China’s large population, high economic growth rate, and large consumption of fossil fuels, it is the world’s largest emitter of carbon dioxide, which is the largest component of greenhouse gas emissions. China surpassed the United States in emissions of carbon dioxide in 2006 and is expected to emit over twice as much carbon dioxide than the United States in 2035.

Since 2002, the average annual increase in China’s carbon dioxide emissions has been over 550 million metric tons.[46] In 2009, U.S. carbon dioxide emissions from transportation uses were 1,851 million metric tons.[47] Thus, if China continues its high level of economic growth and its use of fossil fuels as forecast, in just over 3 years, its increase in carbon dioxide emissions will equal the total carbon dioxide emitted from the U.S. transportation sector. Small, incremental changes in U.S. transportation emissions will not have an effect on overall global greenhouse gas concentrations.

And while China has professed that it will meet renewable generation goals, it will not partake in meeting targets for greenhouse gas reductions that will hurt its projected economic growth and its future status as a major world power.[48] Instead, China is willing to make reductions in greenhouse gas intensity (greenhouse gas emissions per unit of GDP), a measure proposed by the U.S. almost a decade ago, that allows for both economic growth and lower emissions per unit of GDP from improved efficiency and technology.[49]

Conclusion

Concerns about traffic congestion, greenhouse gas emissions, and the use of foreign oil are valid concerns, but increasing the price of oil does not do a good job of addressing those concerns. Policies that artificially raise the price of petroleum-based transportation fuels will have the desired effects of limiting usage and reducing demand. But even with the price of crude oil at a $200 per barrel (in 2008 dollars) the U.S. will still increase its carbon dioxide emissions and will still be dependent on non-North American sources of imported oil. Reductions of petroleum demand in the United States will just make crude more available for other countries to use, with little progress in reducing global carbon dioxide emissions.

The U.S. has transitioned to other sources of energy in the past without the need for government policies. The picture below from a 1910 Midwestern town depicts the transition from horse and buggy transportation to the horseless carriage. The smoke from the early autos was felt to be far less polluting than the horse excrement and carcasses on the street. Early autos were noisy and belched smoke, but they kept the streets clean of tons of waste and dead bodies of thousands of horses.[50] Now, of course, technology has improved automobile engines so that they are more powerful, efficient, and cleaner than those of the past, supporting our thirst for increased transportation, better mobility, and a higher quality of life—all at reduced emissions of criteria pollutants. The “ultimate resource” of human ingenuity has indeed improved the economic and environmental characteristics of petroleum.

[2] Thomas Merrill and David Schizer, “Advancing Energy Policy Goals in an Economic Downturn: A Proposed
Petroleum Fuel Price Stabilization Plan”, November, 2009.

[3] Ronald Bailey, “Peak Oil Panic”,  May 2006, http://reason.com/archives/2006/05/05/peak-oil-panic

[4] William M. Brown, “The Outlook for Future Petroleum Supplies,” in Julian Simon and Herman Kahn, eds., The Resourceful Earth (Malden, MA: Blackwell, 1984), p. 362.

[5] www.foreignaffairs.com

[6] www.foreignpolicy.com

[7] “Worldwide Look at Reserves and Production,” Oil and Gas Journal, Vol. 106, No. 48, December 22, 2008, pp. 23-24.

[8] Since the Middle East has had a high concentration of global oil reserves for decades, its reserve level is not an indicator of market share.

[9] A large portion of Canadian reserves are oil sands, which cannot be produced at the same rate as conventional oil, so the 178 billion barrels of Canadian reserves are not functionally equivalent to 178 billion barrels of conventional oil.

[10] Companies whose stocks are publicly traded on U.S. stock markets are required to report their holdings of domestic and international proved reserves to the SEC.

[11] Institute for Energy Research, August 26, 2008, www.instituteforenergyresearch.org/2008/08/26/has-oil-reached-its-peak/

[12] Energy Information Administration, Annual Energy Review 2008, Table 11.10, http://www.eia.doe.gov/emeu/aer/pdf/pages/sec11_21.pdf

[13] In 2007, the U.S. demand for petroleum was 20.68 million barrels per day or 7.548 billion barrels per year, approximately one-fourth of the world total. See Energy Information Administration, Annual Energy Review 2008, Table 5.1, www.eia.doe.gov/emeu/aer/petro.html

[14] The increase in Middle Eastern oil reserves in the late-1980s is somewhat controversial and has been questioned by some to be, in part, paper increases.

[15] A Low Carbon Fuel Standard reduces the carbon intensity of transportation fuels by requiring that the mix of fuels sold reaches pre-specified targets of carbon reduction. Since oil sands yield heavier crude, more energy is required for producing and refining it, thus giving that crude a higher carbon intensity than conventional crude.

[16] H.R. 2454 is a cap-and-trade proposal that the House of Representatives has passed to reduce future levels of greenhouse gas emissions. It requires that lower targets for emissions be met by manufacturers and other producers, either by reducing emissions themselves or by purchasing emissions permits from producers that can economically reduce their emissions at lower cost. The American Power Act is the Senate’s version of H.R. 2454 that proposes a cap and trade regime on electric utilities and later (in 2016) on industrial sources, and taxes gasoline consumption.

[17] Greenwire, “Oil and Gas: Industry knocks Obama admin claims on Utah leases,” November 20, 2009, www.eenews.net/Greenwire/2009/11/20/archive/9?terms=salazar;  and Land Letter, “Oil and Gas: Interior agencies showing marked shift in leasing policies”, November 19, 2009, www.eenews.net/Landletter/2009/22/19/archive/3?terms=salazar ; Greenwire, Offshore Drilling: Lift shallow-water moratorium, Landrieu tells Obama admin, May 20, 2010, http://www.eenews.net/Greenwire/2010/05/20/archive/6?terms=offshore+oil+moratorium,  the Washington Post, “Obama presses for action on energy bill”, June 16, 2010, http://www.washingtonpost.com/wp-dyn/content/article/2010/06/15/AR2010061505595.html?sub=AR , and the Wall Street Journal, Crude Politics, The drilling experts speak out on the Obama deepwater moratorium, June 17, 2010, http://online.wsj.com/article/SB10001424052748704198004575311033371466938.html?mod=WSJ_Opinion_LEADTop

[18] U.S. Department of energy, Office of Fossil energy, “Undeveloped Domestic Oil Resources: The Foundation for Increasing  Oil Production and a Viable Domestic Oil Industry,” February 2006, http://www.fossil.energy.gov/programs/oilgas/publications/eor_co2/Undeveloped_Oil_Document.pdf

[19] The U.S. Geological Survey recently updated its assessment of the Piceance Basin in western Colorado and found it to have oil shale resources that are 50% higher than the previous estimate of 1 trillion barrels. That resource update would increase the total U.S. shale oil resources to 2.6 trillion barrels. See http://www.usgs.gov/newsroom/article.asp?ID=2182

[20] Strategic Unconventional Fuels Integrated Program Plan, February 2007, http://www.unconventionalfuels.org/publications/reports/executiveSummary.pdf

[21] The Congressional Research Service, October 20, 2009, http://epw.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=01feb68b-ef57-4748-8f5c-d88c0e7d6bd5

[22] E&E Publishing, “Oil and Gas: Industry chafes over Interior’s revised oil shale leases,” October 29, 2009, www.eenews.net/Landletter/2009/10/29/archive/1?terms=oil+shale

[23] The Denver Post, “Oil shale opponents aren’t just evil—they’re just wrong,”’ November 23, 2009, http://www.denverpost.com/commented/ci_13846941?source=commented-

[24] Energy Information Administration, “Factors Affecting Gasoline Prices,” http://tonto.eia.doe.gov/energyexplained/index.cfm?page=gasoline_factors_affecting_prices

[25] Energy Information Administration, “Energy market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009,” August 4, 2009, www.eia.doe.gov/oiaf/servicerpt/hr2454/index.html

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

[27] Energy Information Administration, http://tonto.eia.doe.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=90&pid=44&aid=8

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

[29] Ibid.

[30] Energy Information Administration, Short-Term Energy Outlook,  June 2010, www.eia.doe.gov/emeu/steo/pub/contents.html

[31] The Washington Post, China may have dug a financial hole, June 18, 2010, http://www.washingtonpost.com/wp-dyn/content/article/2010/06/17/AR2010061705794.html

[32] Ibid.

[33] “China’s Car Sales Down in October—To 80 Percent Growth”, November 7, 2009, http://www.thetruthaboutcars.com/china%E2%80%99s-car-sales-down-in-october-%E2%80%93-to-80-percent-growth/

[34] Reuters, China oil demand rise second fastest, inventories drag, March 22, 2010, http://in.reuters.com/article/oilRpt/idINTOE62L01Z20100322?sp=true

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

[36] “Worldwide Look at Reserves and Production,” Oil and Gas Journal, Vol. 106, No. 48 (December 22, 2008), pp. 23-24.

[37] For example, Venezuela signed a deal with China under which the latter would invest $16 billion over three years. The deal could raise oil output by several hundred thousand barrels a day. http://www.eenews.net/Greenwire/2009/09/18/. China National Petroleum Corp. received a $30 billion low-interest loan from a state-run bank to finance overseas acquisitions, Beijing’s latest bid to secure mineral resources to fuel the country’s burgeoning economy. http://www.eenews.net/Greenwire/2009/09/09/. CNOOC and Sinopec have agreed to buy a 20 percent stake in an oil field off the coast of Angola for $1.3 billion, the latest in a series of Chinese acquisitions of overseas energy and mining assets. http://www.eenews.net/Greenwire/2009/07/20/

[38] Politico, To compete with China, U.S. must tap natural gas, April 13, 2010, http://www.politico.com/news/stories/0410/35689.html#ixzz0kyYru8gb

[39] Reuters, China bags oil sands stake, not finished yet, April 13, 2010, http://www.reuters.com/article/idUSTRE63C17X20100413 and www.conocophillips.com

[40]David Pierson, “China’s push for oil in the Gulf of Mexico puts U.S. in awkward spot,” Los Angeles  Times, http://www.latimes.com/business/la-fi-china-oil22-2009oct22,0,2776603.story?track=rss.

[41] Reuters, China oil demand rise second fastest, inventories drag, March 22, 2010, http://in.reuters.com/article/oilRpt/idINTOE62L01Z20100322?sp=true

[42] Reuters, Oil falls as demand, inventories weigh, April 12, 2010, http://www.reuters.com/article/idUSTRE6142V820100412

[43] Energy Information Administration, Country Analysis Brief on China, www.eia.doe.gov/emeu/cabs/China/Background.html

[44] Energy Information Administration, International Energy Outlook 2010,  Table A7, http://www.eia.doe.gov/oiaf/ieo/pdf/ieorefcase.pdf

[45]Energy Information Administration, International Energy Outlook 2010, Appendix H, http://www.eia.doe.gov/oiaf/ieo/pdf/ieoecg.pdf

[46] Energy Information Administration, Annual Energy Review 2008, Table 11.19, http://www.eia.doe.gov/emeu/aer/pdf/pages/sec11_39.pdf, and International Energy Outlook 2010

[47] Energy Information Administration, U.S. Carbon Dioxide Emissions in 2009: A Retrospective Review, May 5, 2010, http://www.eia.doe.gov/oiaf/environment/emissions/carbon/index.html

[48] Institute for Energy Research,  Lost in Translation,   http://www.instituteforenergyresearch.org/2009/07/28/lost-in-translation/.

[49]http://online.wsj.com/article/SB125409730711245037.html

[50] Robert L. Bradley, Jr. and Richard W. Fulmer, Energy: The Master Resource (Kendall/Hunt Publishing Company, 2004), page 49.

The Manteo Prospect off the shore of North Carolina is an exploration target estimated to contain as much as five trillion cubic feet of natural gas (TCF), [1] potentially the largest domestic find of conventional natural gas since Alaska’s Prudhoe Bay in 1968.[2]

For comparison sake, Independence Hub in the Gulf of Mexico can access an estimated two TCF in proven natural gas reserves. [3] Independence Hub consists of multiple subsea wells that are tied back to one centrally-located host platform producing approximately 850 million cubic feet of natural gas per day.[4] Given than the Manteo Prospect appears to have access to a larger reserve of natural gas, it is reasonable to assume that the Manteo Prospect could produce as much as, if not more than Independence Hub.

Cape Wind is a proposed wind project for offshore Massachusetts in Nantucket Sound. The Cape Wind developers propose installing 130 wind turbines, each with a maximum capacity of 3.6 megawatts, standing 440 feet tall across an area of approximately 25 square miles.[5] Overall, the project is estimated to have a maximum delivered capacity of 454 megawatts based on a design wind velocity of 30 miles per hour and greater to a maximum operational velocity of 55 miles per hour. Based on the average wind speed of the Nantucket Sound of 19.75 miles per hour, however, the average generation capacity of the Cape Wind project would be approximately 182.6 megawatts.[6] At this capacity, the Cape Wind project would annually deliver about 1,600 gigawatt-hours of energy.[7]

To compare offshore natural gas production and wind energy generation, the potential energy production for the Manteo and Cape Wind projects has been converted to British thermal units (Btu). If the Manteo project produced as much as Independence Hub, and as noted above, this is every reason to believe it will, it would supply 320 trillion Btu of energy[8]annually, while the Cape Wind project would supply 5.4 trillion Btu[9]. Therefore, it would take about 59 Cape Wind developments to equal the energy output of the Manteo project.

Both natural gas and wind energy developments pose some oil spill risk if the facilities are damaged or destroyed. Natural gas is often produced in combination with condensate, a form of liquid hydrocarbon, and the tanks and equipment on the production platform hold lubricating oils and other fluids. The turbines and service platforms that make up a wind farm also contain lubricating oils and other fluids. The Manteo worst-case scenario listed below is based on the Independence Hub worst-case discharge of 10,795 barrels of oil.[10] The equivalent wind farm scenario of 98,058 barrels is based on estimates of the Cape Wind project. This includes 27,820 gallons from 130 turbines and 42,000 gallons from one electric service platform, or about 1,662 barrels of oil, multiplied by 59 to equal the annual potential energy production of the Manteo development.[11] While a larger offshore wind farm may require fewer service platforms depending on the design, for simplicity, we are assuming the same ratio of turbines to service platforms.

[2] http://www.bp.com/liveassets/bp_internet/us/bp_us_english/STAGING/local_assets/downloads/a/A03_prudhoe_bay_fact_sheet.pdf

[3] E&P, Independence Project, p. 10, www.epplp.com/PDF/Ind_Hub_FINAL.pdf.

[4] http://www.gomr.mms.gov/homepg/offshore/egom/independence_hub.html

[5] http://www.mms.gov/offshore/AlternativeEnergy/PDFs/FEIS/Section2.0DescriptionofProposedAction.pdf

[6] http://www.mms.gov/offshore/AlternativeEnergy/PDFs/FEIS/Section2.0DescriptionofProposedAction.pdf

[7] http://www.mms.gov/offshore/AlternativeEnergy/PDFs/FEIS/Section2.0DescriptionofProposedAction.pdf

[8] Based on 1 cubic foot equaling 1,028 Btu

[9] Based on 1 kilowatt hour equaling 3,412 Btu

[10] http://www.gomr.mms.gov/homepg/regulate/environ/nepa/MMS2005-064.pdf – Pages 119 and 120, Tables A-3 and A-4

[11] http://www.mms.gov/offshore/AlternativeEnergy/PDFs/FEIS/Section5.0EnvironmentalandSocioeconomicConsequences.pdf, Page 5-24

[12] http://www.nccoastalmanagement.net/Archives/Offshore/Big%20Map.htm

[13] http://www.mms.gov/offshore/AlternativeEnergy/PDFs/FEIS/Section2.0DescriptionofProposedAction.pdf

[14] http://www.gomr.mms.gov/homepg/regulate/environ/nepa/MMS2005-064.pdf, page 7

[15] http://www.mms.gov/offshore/AlternativeEnergy/PDFs/FEIS/Appendix%20A%20-%20FiguresMapsTables/Fig2.1.1-1PropWTG.pdf

[16] http://www.mms.gov/offshore/AlternativeEnergy/PDFs/FEIS/Appendix%20A%20-%20FiguresMapsTables/Fig5.3.3-1DaytimeSimulation.pdf

[17]1.2 surface acres (page 7 of EIS for Independence Hub), 5053 subsea/seafloor acres (latter based on MMS high end for Independence Hub sea bottom impact of between 304 and 5,053 acres — high end estimate based on use of catenary mooring lines – p. 67 of EIS). EIS at: http://www.gomr.mms.gov/homepg/regulate/environ/nepa/MMS2005-064.pdf

[18] Based on 59 sites of 25 square miles each.

[19] http://www.gomr.mms.gov/homepg/regulate/environ/nepa/MMS2005-064.pdf – Pages 119 and 120, Tables A-3 and A-4

[20] http://www.mms.gov/offshore/AlternativeEnergy/PDFs/FEIS/Section5.0EnvironmentalandSocioeconomicConsequences.pdf, Page 5-24

The problem is that energy efficiency is not free. Appliances with greater energy efficiency cost more money—sometimes a lot more and frequently take more time to do the same amount of work.

Americans, not policymakers, should be free to choose which appliances make the most sense for their families instead of being forced to purchase more expensive and more energy efficient appliances.

Energy efficiency mandates are based on the premise that Americans consumers do not make wise choices about energy efficiency without the government forcing them to make “good” choices. It is a dubious claim. Consumers pay attention to their electric bill, and that is especially the case with commercial users of appliances.

Mandating greater energy efficient makes the appliances and equipment more expensive. In 2006, the Consumer Reports Best Buy for top-load washing machines only cost $380.[1] That was before the federal energy efficiency mandate for washing machines. In 2007, when washing machines had to comply with the new energy efficiency mandate, Consumer Reports said that “we can’t call any washer a Best Buy because models that did a very good job getting laundry clean cost $1,000 or more.”[2]

Since then, washing machines have improved—but the energy efficiency mandates still make them more expensive than they would otherwise be. The least expensive washing machine Consumer Reports recommends still costs $480[3] and the next lowest-priced recommend washing machine costs $650.[4] If a consumer saves $15 a year[5] in energy costs by using one of these more efficient washers, it takes nearly 5 years to recoup the extra costs of the $480 model and over 16 years to recoup the extra cost of the $650 model (even adjusting for inflation from 2006 to 2010).

Federal officials who desire to mandate energy efficiency standards apparently assume that households and businesses are not making smart choices about energy efficient appliances. This is not borne out by actual data. According to data from the Association of Home Appliance Manufactures, household appliances are becoming much more efficient. Between 1980 and 2008, air conditioners became 41.5 percent more energy efficient, dishwashers became almost twice as energy efficient, and refrigerators became nearly three times as energy efficient.[6] The graph below shows the percent improvement in energy efficiency of standard household appliances:

Americans are intimately aware of the costs of their utility bills and are always looking for ways to balance the convenience of their appliances with energy savings. When federal regulators step in and mandate energy efficiency improvements, the mandate increases the price of appliances and limits Americans’ choices. Actual data shows that appliances are becoming more energy efficient over time. There is no need for lawmakers to step in and artificially limit our choices.

[2] Consumer Reports Annual Buying Guide, Jan. 1, 2008, available at http://www.accessmylibrary.com/coms2/summary_0286-34226514_ITM.

[3] Consumer Reports, Washers & Dryers, Feb. 2010 p. 47. The model is a GE WJRE5500G.

[4] Id. at 46. The model is a Frigidaire Gallery GLTF2940F.

[5] In 2009, Consumer Reports noted online in subscriber only section of their website that “Each improvement in energy-efficiency scores, from good to very good, for instance, cuts an average of $10 to $20 from your annual energy expenditures.” The 2010 washing machines are rated at “Very Good” for energy efficiency, while the 2006 washer was rated as “Good” on energy efficiency.

[6] Data from the Association of Home Appliance Manufactures, cited by Mark J. Perry at http://mjperry.blogspot.com/2009/10/chart-above-shows-significant-increases.html.

Affordable energy would help to heal an ailing economy because affordable energy facilitates economic growth. Energy’s share of Gross Domestic Product is one measure of the relative importance of energy in the overall economy. While the share of energy in the U.S. economy has declined from its high in the early 1980’s, it still remains a large component, and energy as a share of world GDP is also large.

United States

The Energy Information Administration calculates the share of U.S. Gross Domestic Product (GDP) that is energy-related and publishes it in its Annual Energy Review.[i] Prior to the embargo of 1973-74, total energy expenditures constituted 8 percent of U.S. gross domestic product (GDP), the share of petroleum expenditures was just under 5 percent and natural gas expenditures accounted for 1 percent. The price shocks of the 1970s and early 1980s resulted in these shares rising dramatically to almost 14 percent, 8 percent, and 2 percent respectively, by 1981. Since that time, the shares have fallen until the early part of this decade when they began to rise again.

The energy component still remains a major share of GDP in 2006 at 8.8 percent.[ii] In 2006, Americans spent $1,158 billion on energy, 2.7 times more than in 1981, when they spent $427 billion on energy (both in nominal dollars).  The U.S. economy in 1981, however, was about one-fourth of its 2006 size. That fact and lower Middle Eastern crude oil production due to Iraq’s invasion of Iran raising energy prices in 1981 are some of the reasons why energy represented a larger share of GDP in that year.

Another reason for energy’s lower share of GDP since 1981 is that energy intensity has been declining. Energy intensity is energy consumption (measured in physical terms, such as BTUs) per dollar of GDP. Its decline means that the American economy uses less physical energy to produce a dollar of output (GDP) because of efficiency improvements in energy consuming technologies and structural shifts in the U.S. economy. The U.S. economy has become more service oriented, requiring less energy than many manufacturing industries, such as steel and cement, that have been moving offshore due to competition and lower energy prices in other parts of the world.

World

Neither the Energy Information Administration nor the International Energy Agency publishes energy expenditures for the world. Thus, there is no definitive number or source of energy expenditures as a percent of the global economy. Energy journalist Robert Bryce estimated global energy expenditures at $5 trillion, of which at least $4.4 trillion is directly derived from hydrocarbons—coal, natural gas, and petroleum.[iii] According to Bryce, total global energy use in 2008 was 11.29 billion tons of oil equivalent, which is about 82.8 billion barrels, using the conversion factor of 7.33 barrels per ton. Assuming an average oil price of $60 per barrel, results in energy expenditures at $4.968 trillion.[iv] The world economy in 2008 was $60.587 trillion. Thus, the energy share of the global economy is about 8.2 percent according to this method.

Another way to calculate the global share that energy represents of world GDP is to assume that the entire world shares U.S. prices for energy and a fuel distribution similar to that of the U.S. This improves upon the calculation by recognizing other fuel prices besides that of oil, but may still overstate the global share that energy constitutes of GDP since the U.S. uses more oil (about 3.5 percentage points more) and less coal  (about 4.5 percentage points less) than the world. Using the following formula,

(US physical energy use / US GDP) /percent of US economy that is energy = (world physical energy use / world GDP) / percent of world economy that is energy, and solving for the percent of the world economy that is energy results in a 7.9 percent share.  Global energy intensity (world physical energy use/world GDP) can be obtained from the International Energy Agency’s Key World Energy Statistics 2009.[v]

Conclusion

Under either method of estimation, about 8 percent of GDP is associated with energy expenditures worldwide, and a slightly higher 9 percent is associated with U.S. GDP. In many countries, this may be second only to health care costs, which are almost 16 percent of GDP for the U.S., but in the 8 to 11 percent range for many European countries and Canada.[vi] This means that energy prices, like health care, have a large effect on the economy and policies that promote energy price increases may result in negative consequences to economic growth. Politicians worldwide should be cautious regarding energy policies that may disrupt their economies.

[ii] The share was also 8.8 percent in 2007 when energy expenditures were $1,233 billion, and GDP was $14,078 billion. See www.bea.gov/national/pdf/dpga.pdf and www.eia.doe/emeu/states/sep_prices/notes/pr_print2007.pdf .

[iii] Robert Bryce, Energy Tribune, December 18, 2009, www.energytribune.com/articles.cfm?aid=2746

[iv] Roger Pielke Jr.’s Blog: How Large is the Global Economy? December 21, 2009, http://rogerpielkejr.blogspot.com/2009/12/how-large-is-the-global-energy-economy.html
[v] International Energy Agency, Key World Energy Statistics 2009, http://www.iea.org/publications/free_new_Desc.asp?PUBS_ID=1199

[vi] Health Care Spending as Percentage of GDP, Robert Wood Johnson Foundation, June 30, 2009, http://www.rwjf.org/pr/product.jsp?id=45110 , and The Commonwealth Fund, January 29, 2007,

www.commonwealthfund.org/Content/Publications/Fund-Reports/2007/Jan/Slowing-the-Growth-of-U-S-Health-Care-Expenditures–What-Are-the-Options.aspx

One criticism was that we focused too heavily on EIA’s estimate that fossil energy will continue to be the dominant source of U.S. energy and economic growth for decades, accounting for nearly 80 percent of our energy needs in 2035, and neglected to mention that EIA also projects a significant increase in renewables.

In his tweet, one green journalist points out that the EIA report indicates renewables will increase by 20 percent. Actually, that’s an understatement. EIA predicts wind, solar, and some biomass (read: politically correct “renewable” sources) will increase by 88 percent[1]. That sounds impressive, but even with their dramatic increase EIA estimates that by 2035 these politically correct renewables will only produce about 8 percent of our total energy consumption. And that is despite billions of dollars in subsidies, set-asides, and preferential treatment.

In comparison, EIA estimates that our most efficient, proven, and prolific (albeit not as politically fashionable) sources of carbon-free and renewable energy – nuclear and hydroelectric power – together will provide for 10.8 percent of our energy needs in 2035 (2.6 percent from hydro and 8.2 percent from nuclear).

But how accurate are these forecasts? The EIA is taking a glimpse nearly 30 years into the future, after all.

The oldest Annual Energy Outlook on EIA’s website is from 1996. Their forecast for renewables’ slice of the energy pie in 2008 was 7.39%; the actual number last year was 7.36%. That’s very accurate, and of all the energy sources, their forecasts were the closest on renewable energy.

The question of whether their forecast will be that precise thirty years from now remains to be seen.  However, we’re confident it will be more accurate than many other projections we’ve seen over the years.

Although the EIA projects a large percentage increase in renewable energy by 2035, this will account for less than 10 percent of our total energy use. The American taxpayers have contributed billions of dollars to renewables for decades and yet EIA predicts they will continue to play a minor role in our energy supply thirty years from now.

• In 2008, solar represented 0.09 percent of all energy consumed in the U.S. [1] and 0.02 percent of all electricity generated in the U.S.[2]

• In 2008, solar generating capacity in the U.S. totaled 514 megawatts and generated 843 million kilowatt hours.[3] Solar turbines generated only a percentage of their theoretical maximum output due to their intermittency (the sun does not always shine).
• In 2006, photovoltaic cell and module shipments totaled 337 megawatts, and were estimated at 430 megawatts in 2007. These include communications, transportation, health, and grid-interactive and remote electric generation applications. [4]
• Due to incentives in the stimulus and to state mandates highlighted below, the Energy Information Administration projects solar thermal and photovoltaic generating capacity in the electric power sector to increase to 0.60 gigawatts by 2010, 1.02 gigawatts by 2020, and 1.24 gigawatts by 2030. End-use photovoltaic capacity is expected to grow to 1.86 gigawatts in 2010, 10.78 gigawatts in 2020, and 12.3 gigawatts in 2030. Together, generation from solar is projected to increase to 4.12 billion kilowatt hours by 2010, 20.11 billion kilowatt hours by 2020, and 23.22 billion kilowatt hours by 2030. This level of projected solar generation in 2030 represents 0.46 percent of total U.S. electricity generation.[5]
• Because solar power is available only when the sun shines and varies with the seasons of the year, statements about how solar units can produce enough electricity to serve a large number of homes are misleading. Since a solar unit cannot supply power continuously, dispatchable generators (usually fossil-fuel) are required to provide back-up power to the system.

Transmission Facts

• Total spending on new transmission by all investor-owned utilities in 2006 [current dollars] was $6.9 billion.[6] This figure underestimates total transmission spending since it excludes Government-owned utilities and cooperatives.
• According to a November 2008 study by Brattle Group, total investment in transmission and distribution through 2030 is expected to total $880 billion, where $298 billion would be for transmission and $582 billion would be for distribution. The figure includes integration of 214 gigawatts of new generating capacity of which 39 gigawatts is for renewable technologies required under existing state renewable portfolio standards, continued installation of a “smart grid”, accommodation for new end-use technologies such as plug-in hybrid electric vehicles, and bringing new efficiencies and service options to end use customers. The authors caution that the figure could be an underestimate since it is derived from shareholder-owned electric utility expenditure data that excludes investments made by electric cooperatives and Government-owned utilities. [7]
• There is no standard definition of a “smart grid”. It generally refers to technologies that: 1) provide customers with information and tools that allow them to be responsive to system conditions, 2) ensure more efficient use of the electric grid, and 3) enhance system reliability. The latest federal stimulus law provides $11 billion for smart grid technology, including $4.5 billion for smart-technology matching grants. [8] The $11 billion is a small percentage of what’s needed to get to the $880 billion mark, and that amount does not support a 20 percent renewable scenario by 2030.
• In Europe, it is estimated that 1.2 trillion Euros ($1.55 trillion) would be needed to build a super grid that captures offshore wind, hydropower, and solar panel arrays. [9] It would require a new network of cables and interconnectors to bring offshore generated electricity to land and modernization of the onshore grid to deal with sudden changes in supply and demand and clear bottlenecks.

Solar Subsidies

• The Energy Information Administration estimates that total Federal subsidies for electric production for fiscal year 2007 from solar power are $24.34 per megawatt hour, compared to 44 cents for traditional coal, 25 cents for natural gas and petroleum liquids, 67 cents for hydroelectric power, and $1.59 for nuclear. Solar subsidies for non-electric production in fiscal 2007 totaled $2.82 per million Btu, second only to ethanol/biofuels at $5.72 per million Btu. (Figures are in 2007 dollars.) [10]

• According to the General Accounting Office, in fiscal year 2007, solar received 9.2 percent of all federal research subsidies to power generation but produced only 0.016 percent of U.S. electricity. Per kilowatt-hour, this was 1255 times higher than the amount allocated to coal, most of which was spent to develop cleaner technologies. Coal produced 51.4 percent of all U.S. electricity in fiscal year 2007.[11]

Policies Affecting Solar

• While no federal renewable portfolio standard (RPS) exists, 28 states and the District of Columbia have a renewable portfolio standard mandating a certain percentage of a utility’s power plant capacity or generation to come from renewable sources by a certain date.[12] However, most States are out of compliance with their own program due to issues with their RPS formulation, reporting mechanisms, monitoring, and exaction of penalties for non-compliance.[13] (Texas is the major exception.)
• Tax incentives directed toward solar generation originated with the Energy Tax Act of 1978 (Public Law 95-618), which established a business energy tax credit of 10 percent of investment in solar technologies. The business tax credit was extended periodically until passage of the Energy Policy Act of 1992. As part of the Energy Policy Act of 1992, it became a permanent 10 percent tax credit. Section 1335 of the Energy Policy Act of 2005 (EPACT2005)(Public Law 109-58) established a 30-percent personal tax credit, not to exceed $2,000 for the purchase of solar electric and solar water heating property. The Emergency Economic Stabilization Act of 2008 extended it to 2016 and lifted the $2,000 cap. The 2008 law allowed electric utilities to qualify. [14]
• The New Technology Credit , also known as the Production Tax Credit (PTC), was first introduced as part of the Energy Policy Act of 1992 (EPACT1992) (Public Law 102-486). The credit was defined as a 1.5-cents-per-kilowatthour (kWh) payment (adjusted annually for inflation), payable for 10 years, to private investors as well as to investor-owned electric utilities for electricity from wind power and closed-loop (dedicated crops) biomass facilities. The American Jobs Creation Act of 2004 (AJCA) (Public Law 108-357) expanded the PTC to include solar energy. However, the recipient of the credit had to choose one of the two credits (i.e. either the PTC or the ITC). The Energy Policy Act of 2005 (EPACT2005) (Public Law 109-58) made solar facilities placed into service after December 31, 2005, ineligible for the PTC. While solar was eligible for the PTC for a brief period, its impact on solar development was largely inconsequential. [15]

What Does Solar Cost?

• The Energy Information Administration assumes the total overnight capital cost of solar thermal technology to be $5,021 per kilowatt (in 2007 dollars).[16]
• The Energy information Administration calculates the levelized cost of generating technologies, 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. In 2016, the levelized cost of solar thermal is 26.37 cents per kilowatt hour (in 2007 dollars) and for solar photovoltaic, it is 50 percent higher, 39.57 cents per kilowatt hour. The costs for solar technologies are higher than that of natural gas combined cycle, whose costs are 7.99 to 8.39 cents per kilowatt hour. Pulverized coal and coal-fired integrated gasification combined cycle have levelized costs at 9.46 and 10.35 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, such as these coal projects, which is equivalent to a $15 per ton carbon dioxide emission fee, and a 2 percentage point reduction in the cost-of-capital for eligible renewable technologies under the loan guarantee program of the Stimulus Act. [17]
• According to Houston-based Standard Renewable Energy, an installed residential solar system for a 2,100-square-foot-home would cost about $25,500. [18]

Land Mass

• For comparison purposes, the land mass and output of California’s Diablo Canyon Power Plant is compared to the land mass required to produce a similar quantity of electricity using solar power. The 2,200 megawatt nuclear facility requires 3 square kilometers, while a solar power station would require 687.5 square kilometers with a power density of 3 watts per square meter.[19]
• Examples of solar plants are the 14-megawatt Nellis solar facility in Nevada with some 70,000 panels and the 11-megawatt solar facility in Serpa, Portugal, with 52,000 panels. [20]

Texas

• Texas law requires that 5,880 megawatts of new renewable generation be built in the state by 2015, which will meet about 5 percent of the state’s projected electricity demand. The legislation also sets a cumulative target of installing 10,000 megawatts of renewable generation capacity by 2025. The measure also includes a requirement that the state must meet 500 megawatts of the 2025 target with non-wind renewable generation.[21]
• According to Houston-based Standard Renewable Energy, an installed residential solar system for a 2,100-square-foot-home would cost about $25,500. The existing federal incentives (the 30-percent ITC) would subsidize that cost by $7,650. In Austin, residents get an additional subsidy of $13,500, and in Dallas, they get approximately another $7,900. [22]
• The Texas legislature recently passed a measure to let homeowners finance their solar installations with help from the local government, and pay back the cost via extra property taxes over 20 years. [23]
• The staff of the Electric Reliability Council of Texas (ERCOT) with input from stakeholders estimated the costs and benefits of various generating technologies. The cost of solar photovoltaic was estimated at $314 per megawatt hour (about 8 times more than a coal-fired plant) and the cost of solar thermal was estimated at $169 per megawatt hours (over 4 times the cost of a coal-fired plant). These costs are approximate generation cost averages with many variable factors including capital costs, life expectancy, operation and maintenance, capacity factor and fuel costs. They exclude ancillary services costs and transmission impacts. [24]

California

• The California Energy Commission has estimated that its requirement of 33 percent renewables in 2020 will entail $5.7 billion in new 500 and 230 kV transmission lines alone, in addition to lower-voltage lines, substations, and reactive power supplies. The figure does not include lines associated with new or upgraded conventional generation.[25]
• In 2006, solar capacity in California was 402 megawatts, 0.6 percent of the state total capacity of 63,213 megawatts.[26]
• In 2007, California’s solar capacity produced 0.26 percent of the state’s electricity.[27]
• In 2008, California had the most installed photovoltaic panels that are tied to the power grid, and increased its share by 179 megawatts.[28]

International

• The U.S. ranks fourth in the world for cumulative installed solar electric power. Germany is first, Spain is second, and Japan is third. [29] In Germany, a feed-in tariff of 27 cents per kilowatt hour has produced an explosion in the use of solar photovoltaics. Under a feed-in tariff, electric utilities are obligated to purchase renewable electricity at a higher rate than retail, in order for the renewable technology to overcome price disadvantages. In Japan, the government has set a target for 30 percent of all households to have solar panels installed by 2030. [30] See the bullet below on Spain.
• The International Energy Agency is projecting solar capacity to reach 208 gigawatts by 2030, 2.7 percent of the total capacity projected for that year, generating one percent of the world’s electricity. In 2006, it generated 0.02 percent of the world’s electricity and represented 0.2 percent of the world’s capacity. [31]
• Britain has a European target of meeting 15 percent of its electricity demand in 2020 with renewable sources. Some government insiders feel the task is hopeless. The government’s own clean-energy advisers have warned that Britain could spend £100bn over the next decade and still not hit the target. The credit crunch slowed the already slow rate of renewable deployment to a crawl. Almost half the power generated in Britain comes from coal and a bit more than a third from natural gas. Nuclear power stations contribute 17 percent and wind provides 0.6 percent. [32] In 2007, solar PV provided 0.3 percent of the UK’s renewable generation capacity and 0.1 percent of its renewable electricity. [33]
• Spain has legislation that requires 20 percent of its electricity production to be from renewable energy by 2010. Spain’s National Energy Commission estimates that 2,945 megawatts of solar capacity were installed by year-end 2008, with 2,253 megawatts installed in 2008, making Spain the second-largest country for installed solar capacity. Solar energy generated less than 1 percent of Spain’s total electricity production in 2008 at a price per kilowatt hour that was over 7 times higher than the average price. To attract investors and make renewable energy profitable against other forms of energy, Spain found that renewable energy must be subsidized. Spain provides both regulated rates and direct incentives to attract investment and meet its policy goals. However, a Spanish university researcher found that the “green jobs” agenda that the Spanish Government has instituted, and to which the U.S. government now promotes, has, in fact, resulted in job loss elsewhere in the country’s economy. For each “green” megawatt installed, 5.28 jobs on average were lost in the Spanish economy, and for each megawatt of solar energy installed, 12.7 jobs were lost. Although solar energy may appear to employ many workers in the plant’s construction, in reality it consumes a great amount of capital that would have created many more jobs in other parts of the economy. [34] Recently, the Spanish Government decided to slash subsidies to solar power. The government will subsidize just 500 megawatts of solar projects this year, down sharply from 2,400 megawatts last year. [35]

[2] Energy Information Administration, Monthly Energy Review, Table 7.2a, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec7_5.pdf

[3] Capacity found at Energy Information Administration, Electric Power Annual, http://www.eia.doe.gov/cneaf/electricity/epa/epaxlfile2_2.pdf for 2007 and preliminary 2008 data provided in an email from R. Schnapp, EIA, to M. Hutzler, IER, April 29, 2009; generation at Energy Information Administration, Monthly Energy Review, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec7_5.pdf.

[4] Energy Information Administration, Annual Energy review 2007, Table 10.8, http://www.eia.doe.gov/emeu/aer/contents.html, and Energy Information Administration, Annual Energy Outlook 2009, Table A16, http://www.eia.doe.gov/oiaf/aeo/index.html .

[5] Energy Information Administration, Annual Energy Outlook 2009, Tables A8 and A16, SR-OIAF/2009-3, April 2009, http://www.eia.doe.gov/oiaf/aeo/index.html .

[6] Edison Electric Institute, Actual and Planned Transmission Investment by Shareholder-Owned Utilities, 2000-2009. http://www.eei.org/common/images/industry_issues/Energy_Data_Alert/bar_Transmission_Investment.jpg

[7] The Brattle Group, “Transforming America’s Power Industry: The Investment Challenge 2010-2030, November 2008, www.thebrattlegroup.org/_documents/UploadLibrary/Upload726.pdf

[8] Greenwire, Electricity: “Will Americans learn to love the ‘smart grid’?”, www.eenews.net/Greenwire/2009/02/27/archive/1?terms=smart+grid+cost .

[9] ClimateWire, “Renewable Energy: Pricey ‘supergrid’ seen as key to offshore wind power in Europe”, 2/9/09, www.eenews.net/climatewire/2009/02/09/1

[10] Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/execsum.pdf, Tables ES5 and ES6.

[11] General Accounting Office, Federal Electricity Subsidies, Oct. 2007, page 21, http://www.gao.gov/new.items/d08102.pdf

[12] Annual Energy Outlook 2009, Legislation and Regulations, Table 3, http://www.eia.doe.gov/oiaf/aeo/pdf/leg_reg.pdf.

[13] “A National Renewable Portfolio Standard: Politically Correct, Economically Suspect,” Robert J. Michaels, April 2008 Electricity Journal.

[14] Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/index.html, and American Solar Energy Society, http://www.ases.org/index.php?option=com_content&view=article&id=286&Itemid=58.

[15] Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/index.html .

[16] Energy Information Administration, Assumptions to the Annual Energy Outlook 2009, Table 8.2, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html.

[17] Email from C. Namovicz, Energy Information Administration, to M. Hutzler, Institute for Energy Research, April 29, 2009.

[18] Houston Chronicle, “Solar power, Looking for ray of sunshine”, May 27, 2009, http://www.chron.com/CDA/archives/archive.mpl?id=2009_4744238 .

[19] Seth Myers, Energy Tribune with input from the Energy Information Administration and the Pacific Gas and Electric Co.

[20] Energy Information Administration, International Energy Outlook 2009, May 2009, http://www.eia.doe.gov/oiaf/ieo/pdf/0484(2009).pdf

[21] http://www.pewclimate.org/node/1303

[22] Houston Chronicle, “Solar power, Looking for ray of sunshine”, May 27, 2009, http://www.chron.com/CDA/archives/archive.mpl?id=2009_4744238 .

[23] Greenwire, Solar Power, June 1, 2009, http://www.eenews.net/Greenwire/2009/06/01/archive/10?terms=solar .

[24] Issues Associated with Renewable Energy in Texas, Informal White Paper for the Texas Legislature, Mar. 28, 2005, http://www.ercot.com/news/presentations/2006/RenewablesTransmissi.pdf

[25] California Energy Commission, Intermittency Analysis Project: Summary of Final Results, CEC 500-2007-081 (2007) at 26. http://www.energy.ca.gov/2007publications/CEC-500-2007-081/CEC-500-2007-081.PDF.

[26] http://www.eia.doe.gov/cneaf/solar.renewables/page/state_profiles/california.html

[27] Energy Information Administration, http://www.eia.doe.gov/cneaf/electricity/epa/epa_sprdshts.html

[28] Reuters, U.S. installed solar capacity up 17 percent in 2008, March 20, 2009, http://www.reuters.com/article/rbssUtilitiesMultiline/idUSN2050533620090320 .

[29] Solar Energy Industries Association, http://www.seia.org/cs/about_solar_energy/industry_data .

[30] Energy Information Administration, International Energy Outlook 2009, May 2009, http://www.eia.doe.gov/oiaf/ieo/pdf/0484(2009).pdf .

[31] International Energy Agency, World Energy Outlook, November 2008.

[32] The Guardian, March 21, 2009, http://www.guardian.co.uk/environment/2009/mar/21/renewable-energy , and “Windmills flap helplessly as coal remains king”, February 18, 2009, http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article5755210.ece

[33] House of Lords, The Economics of Renewable Energy, HL Paper 195-I, November 25, 2008, http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeconaf/195/195i.pdf.

[34] Study of the effects on employment of public aid to renewable energy sources, Universidad Rey Juan Carlos, March 2009, http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf .

[35] Wall Street Journal, “Darker Times for Solar-Power Industry”, May 11, 2009, http://online.wsj.com/article/SB124199500034504717.html .

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

Titusville, Pennsylvania. While historical records indicate that naturally occurring seeps of petroleum were collected and used for a variety of purposes as early as the 1600s, Colonel Edwin Drake was the first to devise a mechanical system to drill into underground reservoirs and secure sufficient quantities of petroleum to make it commercially marketable.
Source: http://www.eia.doe.gov/neic/infosheets/petroleumproductsconsumption.html

What was the first commercially marketed use of petroleum in the U.S.?

Medicine.  Early settlers of northwestern Pennsylvania skimmed petroleum from streams and used it medicinally.  Impressed by the apparent benefits of petroleum as a medicine, about 1849, Samuel Kier, a shipper and merchant, began bottling the petroleum he collected from salt wells on his father’s land and marketed it as a cure for all sorts of human and animal ailments.
Source: http://www.pabook.libraries.psu.edu/palitmap/bios/Kier__Samuel_Martin.html

How much crude oil is supplied to U.S. refineries each day?

In 2007, total refinery input of crude oil averaged 15 million barrels per day.
Source: Energy Information Administration, Annual Energy Review2007, Table 5.8, page 139.

How much of the crude oil/petroleum America uses annually comes from foreign sources?

In 2007, approximately 65% of the crude oil/petroleum used in the U.S. was imported.
Source: Energy Information Administration, Annual Energy Review 2007, Table 5.1, page 125.
Please note that the 65% number is for gross imports. If net imports were used as the numerator, the percentage would be 58%.

How much of the crude oil/petroleum America uses annually is produced within the U.S.?

In 2007, approximately 35% of the crude oil/petroleum used in the U.S. was produced domestically.
Source: Energy Information Administration, Annual Energy Review 2007, Table 5.1, page 125.

The following are the top U.S. producers of crude oil.  Which state produces the most?

The top crude oil-producing state in the U.S. is Texas, followed in order by Alaska, California, Louisiana, and Oklahoma.
Source: http://tonto.eia.doe.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_a.htm

How many barrels of oil does the world consume every day?

In 2007, the world consumed 85.8 million barrels of oil every day.  That is about 42,000 gallons per second!
Source: Energy Information Administration, Short-term Energy Outlook Sept. 2008, Table 3a.

How many refineries are there in the U.S.?

There are currently 149 U.S. refineries owned by 54 companies in 33 states, with total crude oil processing capacity at roughly 17 million barrels per day.
Source: Energy Information Administration, Annual Energy Review 2007, Table 5.9, page 141 and http://tonto.eia.doe.gov/state/state_energy_profiles.cfm?sid=HI

When was the last U.S. oil refinery built?

The last new U.S. refinery was constructed in 1976.
Source: Andrew P. Morriss, Engage, Vol. 8, No. 3, pp. 4-13

How much of the gasoline consumed in the U.S. is produced by U.S. refineries?

U.S. refineries produce 90% of the gasoline Americans consume. The remaining 10% of finished gasoline and gasoline additives is imported.
Source: Energy Information Administration, Short Term Energy Outlook Sept. 2008, Table 4a.

Refineries are owned by large, integrated oil companies as well as independent companies.  What percentage of refinery capacity does the largest U.S. refiner control?

The largest U.S. refiner controls just 13% of U.S. refining capacity.
Source: http://en.wikipedia.org/wiki/List_of_oil_refineries#United_States, and Energy Information Administration, Annual Energy Review 2007, Table 5.9, page 141.

A barrel of crude oil equals 42 gallons.  How many gallons of gasoline result from refining a barrel of crude oil?

On average, about 20 gallons of gasoline can be produced from a barrel of crude oil.  Gasoline represents about 47% of the yield from a refined barrel of crude.
Source: http://www.eia.doe.gov/kids/energyfacts/sources/non-renewable/oil.html#How%20used

What is the most significant factor affecting the price of gasoline?

The cost of crude oil is the single greatest factor affecting the price of a gallon of gasoline.  The Energy Information Administration estimates that, in August 2008, the national average retail price of a gallon of gasoline was $3.78 and the cost of crude oil represented 73% of that price.  Taxes constituted another 11%, distribution and marketing 10%, and refining 6%.
Source: http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp

What portion of the average consumer’s transportation budget is spent on gasoline (and motor oil)?

According to the Bureau of Labor Statistics, in 2004, the average consumer spent 20% of their transportation budget on gasoline and motor oil.
Source: http://www.bls.gov/cex/csxann04.pdf

How much do Federal and state taxes add to the price of a gallon of finished gasoline?

In August 2008, Federal and state taxes made up about 11% of the price of a gallon of gasoline.
Source: http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp

How much do all sources of “renewable energy” (wind, solar, biomass, hydropower, geothermal) contribute to meeting total U.S. energy needs?

The Energy Information Administration estimates that, in 2007, renewable energy supplied 7% of total U.S. energy needs.  Fossil fuels and nuclear power provided 93% of the energy used by Americans.
Source: Energy Information Administration, Annual Energy Review 2007, Table 1.3, page 9.

How much has the U.S. refining industry spent over the last 10 years on environmental improvements to their facilities and processes?

The U.S. refining industry has spent  $54.5 billion over the last 10 years on making environmental improvements, much of it to make cleaner fuels.
Source: http://www.api.org/ehs/performance/upload/ENVIRON_EXPEND_REPORT.pdf

What is the greatest source of crude oil and petroleum products found in U.S. waters?

The vast majority (63%) of petroleum found floating in oceans, rivers, streams, and lakes comes from oil seeping naturally out of the ocean floor, lake beds, and the land.  Spills caused by petroleum users such as improperly discarded motor oil, gasoline spilled during fueling, leaky petroleum storage tanks, and even fuel leaking from pleasure boat engines are responsible for about 33% of petroleum in U.S. waters.  Only 4% of oil spills result from the exploration, production and transportation of crude oil and refined petroleum products. Data are for 1990-1999.
Source: http://www.eia.doe.gov/kids/energyfacts/sources/non-renewable/oil.html#Environment

What percentage of retail gasoline outlets/service stations are owned and operated directly by the large, integrated oil companies?

Large, integrated oil companies control only 10% of the Nation’s retail gasoline service stations.  About 90% of gas stations in the U.S. are owned by non-integrated companies and individuals.  Individual service stations may bear the logo of a major petroleum company, but they are typically owned by franchisees – people who purchase the right to market and sell a company’s name-brand products, just like people who invest in a 7-11 or McDonald’s.
Source: http://www.api.org/aboutoilgas/sectors/marketing/index.cfm#q12

How much of the nation’s refining capacity is controlled by the four largest U.S. refining companies?

In 2003, the four largest U.S. refining companies controlled a little more than 40% of refining capacity.  In contrast, the top four companies in the auto manufacturing, brewing, tobacco, floor coverings, and breakfast cereals industries controlled between 80% and 90% of their markets.
Source: http://www.eia.doe.gov/neic/rankings/refineries.htm

Of the industry sectors listed below, which has the largest earnings profit margin?

For the 2rd quarter of 2008,  the pharmaceutical and medicine industry  reported making an estimated 26.3 cents in earnings per dollar of sales.  Oil and natural gas industry earnings, at about 6.8 cents per dollar of sales, were the lowest among these industry sectors.
Source: http://www.api.org/statistics/earnings/upload/earnings_perspective.pdf

Most crude oil and petroleum products are transported at some point by pipelines.  How many miles of pipelines are there in the U.S.?

There are a whopping 2.3 million miles of pipelines crisscrossing the U.S.  If all these pipelines were laid end to end, they would circle the Earth a little more than 92 times!
Source: http://www.phmsa.dot.gov/portal/site/PHMSA

How many barrels of petroleum does a typical modern ocean-going supertanker hold?

“Supertankers” are generally defined as those greater than 250,000 tonnes deadweight (meaning the maximum weight they can carry when fully loaded).  Today’s supertankers, on average, can carry about 2 million barrels or 84 million gallons of crude oil and petroleum product.  The largest supertanker in the world is the Norwegian-owned Knock Nevis which is 647,955 tonnes deadweight and can hold 4.1 million barrels of petroleum.
Source: http://www.eia.doe.gov/emeu/cabs/Saudi_Arabia/pdf.pdf

• In 2008, wind represented 0.5% of all energy consumed in the US.[1]

• In 2008, wind represented 1.3% of all electricity generated in the US.[2]

• In 2008, wind generating capacity in the U.S. totaled 25,170 megawatts and generated 52.0 million megawatt hours.[3] Wind turbines generated only a percentage of their theoretical maximum output due to their intermittency (the wind does not always blow).
• Due to incentives in the stimulus and to state mandates highlighted below, the Energy Information Administration (EIA) projects wind capacity to increase to 39.7 gigawatts by 2010, 66.6 gigawatts by 2020, and 68.1 gigawatts by 2030. Generation from wind is projected to increase to 112.1 billion kilowatt hours by 2010, 203.5 billion kilowatt hours by 2020, and 207.8 billion kilowatt hours by 2030. This level of projected wind generation in 2030 represents 4.1 percent of total U.S. electricity generation. The tapering off of new wind facilities after 2020 indicates that the development of the most economic sites with the best wind resources has occurred in EIA’s representation by 2020, making wind more expensive to site and construct after 2020. Thus, it will be more difficult for wind to compete with traditional technologies due to increased costs of less accessible sites and/or less wind resource availability. See EIA’s levelized costs for wind in 2016 below compared to other generating technologies. [5]

• The U.S. Department of Energy’s Energy Efficiency and Renewable Energy (EERE) report “20% Wind Energy by 2030” (2008) envisioned production that is over 7 times more than the generation level that EIA is projecting.[6] This would require, according to the DOE, 280 gigawatts of new wind capacity (or almost 13,000 megawatts of new wind turbines) each year. This growth level is equivalent to adding about half of the total installed wind capacity in the U.S. in 2008 each and every year through 2030. This growth in wind turbine capacity would require siting wind units on publicly owned lands where a large percentage of the development sites are located, continued taxpayer-funded subsidies, the building of power lines to remote areas where wind turbines are located, and the public acceptance of noise and other wind-related effects. Since wind is intermittent, the wind capacity would also need to be backed-up with reliable capacity, most likely from fossil fuels, adding additional cost and reducing the carbon dioxide benefits of introducing this level of wind energy. The DOE analysis is also predicated on the assumption of very high capacity factors for wind of more than 40 percent. The experience of wind in Texas highlighted below does not support capacity factors at that level, although such technology is improving (along with the technology of conventional energies).[7]

• Because wind power is available a relatively small fraction of the time, typical statements about how a wind unit can produce enough electricity to serve a large number of homes are misleading.[8] Since a wind unit cannot supply power continuously or even upon customer demand due to intermittency, dispatchable generators (usually fossil-fuel) are required to provide back-up power to the system to maintain reliability.[9] Wind on average serves fewer homes than advertised, and on hot summer days wind can serve far fewer still.

U.S. Transmission Statistics

• Total spending on new transmission by all investor-owned utilities in 2006 [current dollars] was $6.9 billion.[10] This figure underestimates total transmission spending since it excludes government-owned utilities and cooperatives.
• According to a November 2008 study by Brattle Group, total investment in transmission and distribution through 2030 is expected to total $880 billion, where $298 billion would be for transmission and $582 billion would be for distribution. The figure includes integration of 214 gigawatts of new generating capacity of which 39 gigawatts is for renewable technologies required under existing state renewable portfolio standards, continued installation of a “smart grid”, accommodation for new end-use technologies such as plug-in hybrid electric vehicles, and bringing new efficiencies and service options to end use customers. The authors caution that the figure could be an underestimate since it is derived from shareholder-owned electric utility expenditure data that excludes investments made by electric cooperatives and Government-owned utilities.[i]
• There is no standard definition of a “smart grid”. It generally refers to technologies that: 1) provide customers with information and tools that allow them to be responsive to system conditions, 2) ensure more efficient use of the electric grid, and 3) enhance system reliability. The latest federal stimulus law provides $11 billion for smart grid technology, including $4.5 billion for smart-technology matching grants.[ii] The $11 billion is a small percentage of what’s needed to get to the $880 billion mark, and that amount does not support a 20 percent renewable scenario by 2030.
• In Europe, it is estimated that 1.2 trillion Euros ($1.55 trillion) would be needed to build a super grid that captures offshore wind, hydropower, and solar panel arrays.[iii] It would require a new network of cables and interconnectors to bring offshore generated electricity to land and modernization of the onshore grid to deal with sudden changes in supply and demand and clear bottlenecks. It would also allow countries to export electricity at times of surplus wind generation and import from other green power sources. Currently, Denmark exports its surplus wind power free to Germany and Norway and imports coal-powered electricity from Germany.
• A report prepared by organizations responsible for electricity-system reliability in roughly half the states in the U.S. indicates that it would cost $100 billion to build a transmission system, including 15,000 circuit miles of extremely high voltage lines, that would move power from the Midwest and Great Plains, where most of the wind resources are located to big cities along the East Coast. They also estimate that building the wind turbines would cost about $720 billion. The report was prepared by the Midwest Independent System Operator, SERC Reliability Region, PJM Interconnection LLC, the Southwest Power Pool, the Mid-Continent Area Power Pool, and the Tennessee Valley Authority.[iv]

U.S. Wind Subsidies

• The Energy Information Administration estimates that total Federal subsidies for electric production for fiscal year 2007 from wind power are $23.37 per megawatt hour, compared to 44 cents for traditional coal, 25 cents for natural gas and petroleum liquids, 67 cents for hydroelectric power, and $1.59 for nuclear.[11] For wind power, these subsidies include a production tax credit of 2.0 cents per kilowatt-hour.[12] However, they do not include accelerated depreciation, (a five-year write-off), a favorable accounting treatment that wind developers receive. (Figures are in 2007 dollars.)

• According to the General Accounting Office, in fiscal year 2007, wind received 2.8 percent of all federal research subsidies to power generation but produced only 0.4 percent of U.S. electricity. Per kilowatt-hour, this was 14.7 times higher than the amount allocated to coal, most of which was spent to develop cleaner technologies. Coal produced 51.4 percent of all U.S. electricity in fiscal year 2007.[13]

• Approximately nine percent of electricity generated is lost in its transmission and distribution from power plants to end-use consumers (also called “line losses”).[14] Given that the production tax credit for wind is based on electricity generated, not sold, the PTC is actually costing taxpayers and consumers more than its current value (since 1/1/09) of 2.1 cents per kilowatt-hour since one-tenth of that electricity is not reaching consumers. Also, wind is an inefficient user of transmission because capacity must be available to handle the full rated output of turbines but wind turbines run at full capacity only a small portion of time.

U.S. Policies Affecting Wind

• While no federal renewable portfolio standard (RPS) exists, 28 states and the District of Columbia have a renewable portfolio standard mandating a certain percentage of a utility’s power plant capacity or generation to come from renewable sources by a certain date.[15] However, most States are out of compliance with their own program due to issues with their RPS formulation, reporting mechanisms, monitoring, and exaction of penalties for non-compliance.[16] (Texas is the major exception.) Wind is the technology that generally benefits the most from an RPS since it has lower costs than many other renewable generating technologies, particularly when subsidies are included.
• The federal production tax credit (PTC) for wind was first introduced as part of the Energy Policy Act of 1992. It was defined as a 1.5-cents-per-kilowatthour payment (adjusted annually for inflation), available for 10 years to investors for facilities placed in service between 1994 and June 30, 1999. The PTC for wind has expired and been reinstated several times since its origination. The Emergency Economic Stabilization Act of 2008 (Public Law 110-343) signed on October 3, 2008 extended the PTC to 2.1-cents-per-kilowatt-hour through 2012. The $787 billion economic stimulus President Obama signed into law in February 2009 makes a 30 percent investment tax credit available in lieu of the production credit.[17]

What Does Wind Cost?

• The Energy Information Administration assumes the total overnight capital cost of an onshore wind turbine to be $1,923 per kilowatt (in 2007 dollars) and that of an offshore wind unit to be $3,851 per kilowatt.[18] These costs are similar to the estimated cost made by the National Association of Manufacturers (NAM) and the American Council for Capital Formation (ACCF) of $2,000 per kilowatt for onshore units and $3,800 per kilowatt for offshore units (in 2008 dollars).[19].
• The Energy information Administration calculates the levelized cost of generating technologies, 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. In 2016, the levelized cost of onshore wind is 14.15 cents per kilowatt hour (in 2007 dollars) and for offshore wind, it is 22.96 cents per kilowatt hour. These values do not include the production tax credit since it is slated to expire at the end of 2012. The cost for onshore wind is higher than that of natural gas combined cycle, whose costs are 7.99 to 8.39 cents per kilowatt hour. Pulverized coal and coal-fired integrated gasification combined cycle have levelized costs at 9.46 and 10.35 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, such as these coal projects, which is equivalent to a $15 per ton carbon dioxide emission fee, and a 2 percentage point reduction in the cost-of-capital for eligible renewable technologies under the loan guarantee program of the Stimulus Act.[20]
• All estimates of the potential cost per kilowatt hour of electricity are based on assumptions. Three important assumptions are (a) projected useful life of the generating unit, (b) the unit’s capacity factor over the projected useful life, and (c) operating and maintenance and replacement costs during the useful life. These factors are particularly important in the case of wind turbines because most wind turbines now being installed have relatively little operating history – often less than 5 years. If, for example, a per kilowatt hour cost estimate assumed a 20 year useful life and the actual useful life turned out to be only 10 years, the ACTUAL cost per kilowatt hour for that unit would be nearly double the original cost estimate.
• A report by the Lawrence Berkley laboratory sampled recently built wind units in the United States. Among the sample of projects built in 2007, reported installed costs ranged from $1,240/kilowatt to $2,600/kilowatt, with an average cost of $1,710/kilowatt.[21]

Climate and Land Mass

• If ten percent of the nation’s power is produced by renewable energy through a renewable electricity standard (RES), Resources for the Future estimated that the RES would reduce electricity’s carbon emissions by approximately 6 percent in 2020. Wind is estimated to represent 28 percent, geothermal 24 percent, and biomass 43 percent of the 10 percent of qualifying renewables. Coal-burning generators that emit the most carbon will be base-loaded and operate most of the time, supplying 48 percent of total generation, while production by lower-emitting gas-fired units will be partially replaced by the increased renewable generation and vary production to make up for wind’s intermittency.[22]

• For comparison purposes, and taking into account capacity (or load factors), the land area covered by a wind power station of the same energy output as a nuclear power station would be about 2,000 times as great (or an area of land 20km by 25km would be covered by wind turbines to produce the same electrical output as one nuclear power station occupying an area of land 500m square).[23]

Texas

• In 2008, wind capacity in Texas was 7,116 megawatts.[24]

• Texas leads the nation in wind capacity having 28% of the total wind capacity in the US. [25]

• Texas law requires that 5,880 MW of new renewable generation be built in the state by 2015, which will meet about 5 percent of the state’s projected electricity demand. The legislation also sets a cumulative target of installing 10,000 MW of renewable generation capacity by 2025. The measure also includes a requirement that the state must meet 500 MW of the 2025 target with non-wind renewable generation.[26]
• Frequently, estimates for wind energy include only turbine construction and maintenance, leaving out transmission, grid connection and management, and backup generation. One study estimates that direct subsidies, tax breaks, and increased production and ancillary costs associated with wind energy could cost Texas electric customers more than $4 billion per year and at least $60 billion through 2025.[v]

• In 2007 (the most recent year available), wind represented 4.4 percent of the state’s total capacity of 101,938 megawatts, yet wind produced only 2.2 percent of the state’s electricity that year.[27]

• The average output of wind turbines during Electric Reliability Council of Texas (ERCOT) system peaks (from 4 pm to 6 pm in July and August) was 16.8 percent of capacity. However, for any hour during these months, the output of the wind turbines could range from zero to 49 percent of installed capacity.[28] Because the use of an average number would be too optimistic due to the intermittency of wind, ERCOT assigns 8.7 percent of the installed capacity of wind turbines to its calculation of the ERCOT peak capacity reserve margin, based on a study of the effective load serving capability of wind.[29]

• The estimated cost for building transmission capacity in ERCOT to support new wind farms in the Competitive Renewable Energy Zones is $2.95 billion for the lowest cost plan (for 12 gigawatts) and from $3.78 billion to $6.38 billion for expandable plans, supporting 12 gigawatts of new wind capacity at the low cost end and 25 gigawatts at the high cost end of the range. Figures are as of 4/15/08.[30]

California

• The California Energy Commission has estimated that its requirement of 33 percent renewables in 2020 will entail $5.7 billion in new 500 and 230 kV transmission lines alone, in addition to lower-voltage lines, substations, and reactive power supplies. The figure does not include lines associated with new or upgraded conventional generation.[32]
• In 2008, wind capacity in California was 2,517 megawatts.[33]
• In 2007 (the most recent year available), California’s wind capacity represented 3.6 percent of its total generating capacity of 63,813 megawatts. It produced 2.6 percent of the state’s electricity that year.[34]
• In 2008, California’s wind capacity was third in the nation with 10 percent of the total wind capacity in the US. [35]
• During August, 2007, the highest five percent of load hours in California almost all had wind production levels below 600 megawatts and most were even below 200 megawatts, less than 8 percent of its capacity. Regarding the most critical hours, in 75 percent of the year’s top 20 load hours, wind production was at or under 150 megawatts, and the highest figure achieved in any of those 20 hours was just over 450 megawatts. Only in one of the twenty hours of highest load during the summer of 2007 did the actual hourly wind production exceed the net qualifying capacity, which is the amount of a resource’s capacity that can be counted for resource adequacy compliance filings.[vi]

International

• According to the Global Wind Energy Council, world installed capacity for wind in 2008 was 120,798 megawatts, increasing 29 percent from 2007 levels. The U.S. leads the world in wind generating capacity, with 20.8 percent (25,170 megawatts) of the world total, Germany is second with 19.8 percent (23,903 megawatts), and Spain is third with 13.9 percent (16,754 megawatts).[vii]
• The European Union generated 3.7 percent of its electricity from wind in 2007.[viii]
• According to the International Energy Agency’s energy statistics, the world generated 130 terawatt hours in 2006 from wind capacity totaling 74 gigawatts. Assuming all the units were on-line for the entire 2006 year results in a 20 percent capacity factor.[ix] Since not all units were constructed and operating at the beginning of 2006, the capacity factor would be higher. An earlier study, with mostly data for 2005, indicated world capacity was 59,010 megawatts with a capacity factor of 19.6 percent.[36]
• France, in 2008, had 3.4 gigawatts of capacity and generated 5.6 terawatt hours of electricity at a capacity factor of 24 percent. It ranked 7^th internationally in wind capacity with 2.8 percent of the world’s total.[x]
• Denmark, a country with over 6,000 wind turbines, many offshore, finds that it needs to import electricity due to the intermittency of its wind generating units and export the wind power. In 2003, 84 percent of western Denmark’s wind-generated electricity was exported at a revenue loss. Denmark’s conventional power plants are generally run at full capacity backing-up their wind units. When the wind does blow, the wind power is usually surplus and exported to other countries at a discounted price.[37] In 2008, Denmark had 3.18 gigawatts of wind power, 2.6 percent of world capacity, ranking 9^th overall.[xi]
• Britain has a European target of meeting 15 percent of its electricity demand in 2020 with renewable sources. Some government insiders feel the task is hopeless. The government’s clean-energy advisers have warned that Britain could spend £100bn over the next decade and still not hit the target. The credit crunch slowed the already slow rate of renewable deployment to a crawl. With financing and debt harder to come by, expensive offshore wind farms such as the London Array look less attractive to the big utilities.[xii] Almost half the power generated in Britain comes from coal and a bit more than a third from natural gas. Nuclear power stations contribute 17 percent and windmills provide 0.6 percent. Although the UK has built, with enormous subsidy, enough wind turbines to generate 5 percent of its electricity, no more than 1 percent is operational when needed since it is not operational during periods of intense heat or cold.[xiii] IN 2008, the UK had 3.24 gigawatts of wind capacity, 2.7 percent of the world total, and ranked 8^th overall.[xiv]
• Spain has legislation that requires 20 percent of its electricity production to be from renewable energy by 2010. The Government’s Renewable Energy Plan expects to have 20,155 megawatts of wind capacity by 2010. Spain’s National Energy Commission estimates that 15,617 megawatts of wind capacity was installed by year-end 2008, 77 percent of the 2010 target, making Spain the third-largest country for installed wind capacity. In 2008, wind energy provided 10.2 percent of the country’s electric consumption at a price per kilowatt hour that was almost 50 percent higher than wind’s generating price 10 years prior, partly due to high premiums in the regulated rates for renewable energy and the requirement that all renewable energy be purchased by electricity retailers. To attract investors and make renewable energy profitable against other forms of energy, Spain found that renewable energy must be subsidized. Spain provides both regulated rates and direct incentives to attract investment and meet its policy goals. However, a Spanish university researcher found that the “green jobs” agenda that the Spanish Government has instituted, and to which the U.S. government now promotes, has, in fact, resulted in job loss elsewhere in the country’s economy. For each “green” megawatt installed, 5.28 jobs on average were lost in the Spanish economy, and for each megawatt of wind energy installed, 4.27 jobs were lost.[xv]

[2] Energy Information Administration, Monthly Energy Review, Table 7.2a, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec7_5.pdf

[3] Capacity found at http://www.awea.org/newsroom/releases/wind_energy_growth2008_27Jan09.html; generation at Energy Information Administration, Monthly Energy Review, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec7_5.pdf.

[5] Energy Information Administration, Annual Energy Outlook 2009, Reference Case Tables A8 and A16, http://www.eia.doe.gov/oiaf/aeo/index.html .

[6] DOE, EERE, “20% Wind Energy by 2030”, July 2008, http://www1.eere.energy.gov/windandhydro/pdfs/41869.pdf

[7] “U.S. DOE Report “20% Wind Energy by 2030” Presents Implausible Scenario,” http://www.windaction.org/releases/16239 .

[8] Glenn R. Schleede, “False Claims about homes served by electricity from wind”, February 4, 2009.

[9]Electricity Reliability Council of Texas, http://www.ercot.com/news/presentations/2006/RenewablesTransmissi.pdf

[10] Edison Electric Institute, Actual and Planned Transmission Investment by Shareholder-Owned Utilities, 2000-2009. http://www.eei.org/common/images/industry_issues/Energy_Data_Alert/bar_Transmission_Investment.jpg.

[11] Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/chap5.pdf, Table 35

[12] Energy Information Administration, Assumptions to the Annual Energy Outlook 2008, page 160, http://www.eia.doe.gov/oiaf/aeo/assumption/pdf/renewable.pdf

[13] General Accounting Office, Federal Electricity Subsidies, Oct. 2007, page 21, http://www.gao.gov/new.items/d08102.pdf

[14] Energy Information Administration, Annual Energy Review 2007, page 62, http://www.eia.doe.gov/emeu/aer/pdf/pages/secnote2.pdf .

[15] Annual Energy Outlook 2009, Legislation and Regulations, Table 3, http://www.eia.doe.gov/oiaf/aeo/pdf/leg_reg.pdf.

[16] “A National Renewable Portfolio Standard: Politically Correct, Economically Suspect,” Robert J. Michaels, April 2008 Electricity Journal.

[17] Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/index.html; Energy Information Administration, Annual Energy Outlook 2009, Legislation and Regulations, http://www.eia.doe.gov/oiaf/aeo/pdf/leg_reg.pdf; and E&ENews, Wind Power: Industry boosters still blustery, even in a recession, April 13, 2009, http://www.eenews.net/eenewspm/2009/04/13.

[18] Energy Information Administration, Assumptions to the Annual Energy Outlook 2009, Table 8.2, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html.

[19] American Council for Capital Formation/National Association of Manufacturers Study of the Economic Impact of the Lieberman-Warner Climate Security Act, http://www.accf.org/nam.html .

[20] Email from C. Namovicz, Energy Information Administration, to M. Hutzler, Institute for Energy Research, April 29, 2009.

[21] U.S. Department of Energy, Energy Efficiency and Renewable Energy, Annual Report on U.S. Wind Power Installation, Cost, and Performance Trends: 2007, http://www.eere.energy.gov/windandhydro/windpoweringamerica/pdfs/2007_annual_wind_market_report.pdf.

[22] Karen Palmer and Dallas Burtraw, ”Cost-effectiveness of Renewable Energy Policies,” RFF DP 05-01, January 2005, http://www.rff.org/rff/Documents/RFF-DP-05-01.pdf .

[23] “Evidence to the House of Lords Economic Affairs Committee Inquiry into ‘The Economics of Renewable Energy’,” Memorandum by Dr. Phillip Bratby, May 15, 2008, http://www.parliament.uk/parliamentary_committees/lords_economic_affairs/eaffwrevid.cfm.

[24] http://www.awea.org/newsroom/releases/wind_energy_growth2008_27Jan09.html

[25] http://www.awea.org/newsroom/releases/wind_energy_growth2008_27Jan09.html

[26] http://www.pewclimate.org/node/1303

[27] Energy Information Administration, http://www.eia.doe.gov/cneaf/electricity/epa/epa_sprdshts.html.

[28] Issues Associated with Renewable Energy in Texas, Informal White Paper for the Texas Legislature, Mar. 28, 2005, page 7, at http://www.ercot.com/news/presentations/2006/RenewablesTransmissi.pdf

[29] Electric Reliability Council of Texas (ERCOT) press release (May 16, 2008), “ERCOT Expects Adequate Power Supplies for Summer,” http://www.ercot.com/news/press_releases/2008/nr-5-16-08 .

[30] Electric Reliability Council of Texas (ERCOT), http://www.ercot.com/meetings/board/keydocs/2008/B0415/Item_6_-_CREZ_Transmission_Report_to_PUC_-_Woodfin_Bojorquez.pdf

[32] California Energy Commission, Intermittency Analysis Project: Summary of Final Results, CEC 500-2007-081 (2007) at 26. http://www.energy.ca.gov/2007publications/CEC-500-2007-081/CEC-500-2007-081.PDF.

[33] http://www.awea.org/newsroom/releases/wind_energy_growth2008_27Jan09.html

[34] Energy Information Administration, http://www.eia.doe.gov/cneaf/electricity/epa/epa_sprdshts.html

[35] http://www.awea.org/newsroom/releases/wind_energy_growth2008_27Jan09.html

[36] The Lightbucket, The Capacity Factor of Wind, March 13, 2008, http://lightbucket.wordpress.com/2008/03/13/the-capacity-factor-of-wind-power/. Data are tabulated from a number of sources.

[37] http://www.aweo.org/ProblemWithWind.html

[ii] Greenwire, Electricity: “Will Americans learn to love the ‘smart grid’?”, www.eenews.net/Greenwire/2009/02/27/archive/1?terms=smart+grid+cost

[iii] ClimateWire, “Renewable Energy: Pricey ‘supergrid’ seen as key to offshore wind power in Europe”, 2/9/09, www.eenews.net/climatewire/2009/02/09/1

[iv] The Wall Street Journal, “New Grid for Renewable Energy Could Be Costly”, 2/9/09, http://online.wsj.com/article/SB123414242155761829.html

[v] Texas Public Policy Foundation, “Texas Wind Energy: Past, present, and Future”, October 2008, http://www.texaspolicy.com/pdf/2008-09-RR10-WindEnergy-dt-new.pdf

[vi] California Public Utilities Commission, “2007 Resource Adequacy Report”, April 15, 2008, http://docs.cpuc.ca.gov/word_pdf/REPORT/81717.pdf .

[vii] Global Wind Energy Council, http://www.gwec.net/index.php?id=13

[viii] Organization of Economic Cooperation and Development/ International Energy Agency, October 1, 2008, http://www.iea.org/textbase/work/2008/neet_russia/Weis_Taylor.pdf

[ix]Organization of Economic Cooperation and Development/ International Energy Agency, 2008, World Energy Outlook

[x] Global Wind Energy Council, Global Wind 2008 Report, http://www.gwec.net/fileadmin/documents/Global%20Wind%202008%20Report.pdf

[xi] Global Wind Energy Council, Global Wind 2008 Report, http://www.gwec.net/fileadmin/documents/Global%20Wind%202008%20Report.pdf

[xii] The Guardian, March 21, 2009, http://www.guardian.co.uk/environment/2009/mar/21/renewable-energy

[xiii] “Windmills flap helplessly as coal remains king”, February 18, 2009, http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article5 755210.ece

[xiv] Global Wind Energy Council, Global Wind 2008 Report, http://www.gwec.net/fileadmin/documents/Global%20Wind%202008%20Report.pdf

[xv] Study of the effects on employment of public aid to renewable energy sources, Universidad Rey Juan Carlos, March 2009, http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf .