Recent Solar Plant Construction

North Carolina. Western North Carolina is home to a new 555-kilowatt solar array that has been placed atop a landfill.[i] This small solar farm—built in response to bids for projects that would meet North Carolina’s Renewable Electricity Standard—is the fourth to begin operating in the state, with four more under contract. [ii] FLS Energy owns and operates the solar farm and will sell its power to Progress Energy Inc. The solar plant consists of 2,340 photovoltaic panels and is expected to generate about 730,000 kilowatt-hours of electricity annually, only a 15-percent capacity factor.  It is reported to have created five new jobs. Unfortunately, to provide counterweight against high winds and support on the ground, FLS Energy had to construct concrete pads on top of the landfill as a base for the solar panels, creating carbon dioxide emissions and partially negating some of the environmental benefit from the solar generated electricity.

Across 500 acres north of West Palm Beach, the FPL Group utility is grafting what will be the world’s second-largest solar plant onto the back of the largest fossil-fuel power plant in the United States. (NYT)

Florida. The N.C. plants are smaller than the solar plant that came on line last fall in southern Florida. That plant consisting of over 90,500 photovoltaic panels is a 25,000 kilowatt plant, built by Florida Power and Light.[iii] The plant costs more than $6,000 per kilowatt to construct, about 6 times what a natural gas combined cycle plant would cost, according to the Energy Information Administration (EIA), an independent agency within the U.S. Department of Energy.[iv]

Florida Power and Light is building another solar plant in Indiantown, Florida, which is an experiment of marrying a solar plant with a gas-fired plant to reduce cost.[v] Florida Power and Light expects to cut cost by about 20 percent compared with a stand-alone solar facility since it does not have to build a new steam turbine or new high-power transmission lines. Once totally completed, the solar plant will be able to generate 75,000 kilowatts of power using 190,000 mirrors, tripling the size of the Florida plant described above. But it is dwarfed by the adjacent gas plant, which can produce about 3,800 megawatts of power. As you can see by the picture below, the more efficient natural gas plant also requires far less land mass than the solar plant. At a cost of $476 million, it will cost $6, 347 per kilowatt to construct.

These solar plants and other renewable generating plants are being constructed in response to subsidies and grants from the federal and state governments and because of state mandates called Renewable Electricity Standards or Renewable Portfolio Standards.  Over half of the states and the District of Columbia have enacted Renewable Electricity Standards that require a specified percentage of future generation to be from renewable power.

What are the Costs of Competing Technologies?

Construction Costs

The EIA provides the construction costs for a slate of generating technologies and their expected annual generating costs for 2016, the first year that they can be compared owing to the different construction times for each plant type. The construction costs, without finance charges,[vi] are depicted in the following graph. The capital costs (in 2008 dollars) range from $648 per kilowatt for a gas-fired turbine to $6,171 per kilowatt for a photovoltaic solar plant, the highest cost of all of the future generating technologies that EIA considers in its forecasts.  Coal and gas-fired plants generally dominate a forecast where current laws and regulations are assumed to continue in the future. A conventional coal plant with equipment for removing sulfur dioxide and nitrogen oxide emissions runs $2,223 per kilowatt and a coal-fired integrated gasification combined cycle plant runs $2,569 per kilowatt. Gas-fired combined cycle plants are of even lower cost at $968 per kilowatt. These technologies can be used as base-load plants that operate at high capacity factors when electricity demand is at its highest.

Annualized Generating Costs of New Plants

Many advocates of renewable technologies indicate that while the capital cost of so called “green technologies” may be higher than conventional fossil-fueled technologies, the benefit is zero fuel cost for their preferred technologies–solar and wind. While that is true, wind and solar technologies cannot provide base-load power because the sun is not always visible and the wind does not always blow, meaning the electricity may not be available when you need it. Taking into account these factors as well as operation and maintenance costs and fuel costs, EIA  puts their slate of future generating technologies on a comparable basis by calculating levelized cost, that is, the annual cost of generating power including capital, fuel, operation and maintenance, and finance charges.[vii] And, in the case of coal, they include the equivalent of a $15 per ton carbon dioxide emission fee to represent the current financial and regulatory environment for coal-fired plants. Many coal-fired plants are finding difficulty in getting financing and/or are facing regulatory or legal delays in obtaining permits.

The levelized costs among the various technologies (expressed in 2008 dollars) range from $79.3 per megawatt-hour for a gas-fired combined cycle plant to $396.1 per megawatt-hour for a photovoltaic solar plant. Coal plants run from $100.4 to $110.5 per megawatt-hour for conventional coal and integrated combined cycle, respectively. Although wind has a lower cost than solar, it is still higher on an annualized basis than gas and coal-fired plants because of its lower capacity factor. Wind turbines built on-shore are estimated to cost $149.3 per megawatt-hour, and wind built off-shore has estimated annual costs of $191.1 per megawatt-hour. Again, the costs are for a plant beginning operation in 2016, the first year that can be compared for a new plant because of the difference in construction times among the various technologies.

Why Are Electric Utilities Building Wind and Solar Plants?

Subsidies and Mandates for Renewable Technologies

Electric utilities are building wind and solar plants because of incentives offered and mandates laid down by state and federal officials. These include subsidies in the form of investment tax credits, production tax credits, accelerated depreciation of the asset for tax purposes, and Renewable Electricity Standards (RES), which require electric utilities either to build a required amount of renewable power or to purchase credits from other electric utilities who more than meet the targeted requirements. Currently, twenty-eight states and the District of Columbia have renewable electricity standards.[viii] The RES specifications differ by state. North Carolina is the only state in the southeast with an RES. Many southern states are against a federal RES because they will have to purchase renewable credits from other areas of the country since they have very little “green” resources. Purchasing electricity credits will increase their electricity rates, possibly driving out industry from their states. While more than half the states have an RES, many are not monitoring its compliance, and, with the exception of Texas, are not meeting their renewable targets.[ix]

Solar power has had a 10-percent investment tax credit since 1978, which was made permanent by the Energy Policy Act of 1992. The Energy Policy Act of 2005 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 the 30-percent tax credit to 2016 and lifted the   cap. It also allowed electric utilities to qualify, paving the way for electric utilities to begin constructing solar thermal and solar photovoltaic facilities.

Wind received a federal production tax credit (PTC) as part of the Energy Policy Act of 1992, defined as a 1.5-cents-per-kilowatt-hour 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   extended the PTC to 2.1-cents-per-kilowatt-hour through 2012. The $787 billion economic stimulus that President Obama signed into law in February 2009 makes a 30 percent investment tax credit available in lieu of the production credit.

Federal Subsidies for Renewable Power Compared to Other Generating Technologies

While these are some of the more direct subsidies that wind and solar receive, there are many others at both the federal and state level, such as the accelerated depreciation mentioned above. The EIA did a study comparing the federal subsidies received for electric generation by fuel type for fiscal year 2007.[x] They found that wind and solar received almost 100 times more in subsidies than oil and natural gas plants on an electricity production basis.  Total federal subsidies for electric production from wind power were $23.37 per megawatt hour (in 2007 dollars) and for solar power were $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. These subsidies include the federal production and investment tax credits, but do not include accelerated depreciation (a five-year tax write-off) and state subsidies. Energy subsidies are paid for by consumers and tax payers; they are not free.

Despite more than 30 years of subsidies, set asides, and favorable treatment, for the first eleven months of 2009, solar power produced only 0.02 percent of our electricity and wind power produced only 1.7 percent of our electricity. [xi]

Conclusion

Government is intended to work for the people. However, governments have expanded their influence to many areas of our lives where the rationale for action is suspect, even nonexistent. Arguments such as “energy independence from OPEC oil” make no sense when evaluating options for the electricity sector because this fuel generates only 1 percent of U.S. electricity, and this small quantity could be easily replaced if it were economical to do so.

Wind and solar are supposedly the answer for reducing carbon dioxide emissions from electrical generation.  But as Texas has found,[xii] wind and solar tend to reduce natural gas-fired generation (the least carbon-intensive fossil fuel) rather than coal-fired generation (the most carbon-intensive fossil fuel), because existing coal-fired generation is less expensive than gas-fired generation. Finding the correct policy to meet one’s goals tends to be difficult in such a complex economic environment. A bad policy can be more damaging than no policy, because it costs the American public money either through taxes or through higher rates for products.

Some people believe that “green energy” will create jobs that will stimulate the economy. But case studies from Spain,[xiii] Germany,[xiv] and Denmark[xv] have shown just the opposite. Early on, Spain embarked on a program of “20-percent renewable by 2010,” to set an example for other countries. However, a Spanish study has found that for every green job the Spanish government created, 2.2 jobs were destroyed elsewhere in the economy, and 9 out of 10 government-created green jobs were temporary. The phrase “20 percent by 2010” turned out to be a close approximation of Spain’s unemployment rate.[xvi]

A German study found that green jobs created by government actions disappear as soon as government support is terminated. A Danish study found that the government’s wind experiment was an expensive way to create jobs or to reduce carbon dioxide emissions.

So why are our politicians continuing to subsidize and mandate inefficient and expensive sources of energy? Doing so only increases taxes (to pay for the subsidies) and increases the price of energy. It’s a lose-lose proposition.

[ii] http://www.progress-energy.com/aboutus/news/article.asp?id=23642

[iii] http://www.fpl.com/environment/solar/desoto.shtml

[iv] Energy Information Administration, Electric Generating Technologies Cost Assumptions, http://www.eia.doe.gov/oiaf/aeo/index.html

[v] The N.Y. Times, The Newest Hybrid Model, March 4, 2010, http://www.nytimes.com/2010/03/05/business/05solar.html

[vi] Energy Information Administration, Annual Energy Outlook 2010 Early Release, Electric Generating Technology Cost Assumptions, http://www.eia.doe.gov/oiaf/aeo/index.html

[vii] Energy Information Administration, Annual Energy Outlook 2010 Early Release, 2016 Levelized Cost of New Generation Resources from the Annual Energy Outlook 2010, http://www.eia.doe.gov/oiaf/aeo/electricity_generation.html

[viii] http://go.ucsusa.org/cgi-bin/RES/state_standards_search.pl?template=main

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

[x] 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

[xi] Energy Information Administration, Monthly Energy Review, February 2010, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec7_5.pdf

[xii] The Wall Street Journal, Natural Gas Tilts at Windmills in Power Feud, March 2, 2010, http://online.wsj.com/article/SB10001424052748704188104575083982637451248.html?mod=WSJ_Com modities_LeadStory

[xiii] 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 .

[xiv] Economic impacts from the promotion of renewable energies: The German experience, http://www.instituteforenergyresearch.org/germany/Germany_Study_-_FINAL.pdf

[xv] Wind Energy-The Case of Denmark, September 2009, http://www.cepos.dk/fileadmin/user_upload/Arkiv/PDF/Wind_energy_-_the_case_of_Denmark.pdf

[xvi] http://dailycaller.com/2010/03/04/what-exactly-is-a-green-job/

Washington, DC – As U.S. secretary of energy Steven Chu continues his tour through the Middle East “to strengthen and expand U.S. relationships across the region” and “discuss a range of energy issues, including energy security and the importance of investing in a broad portfolio of energy technologies as part of the global economic recovery,” the Institute for Energy Research (IER) wonders about the comparative value of this trip weighed against one to Canada.

It has been nearly a year since Secretary Chu was confirmed by the U.S. Senate, but according to his Department of Energy website, it appears he still has yet to visit Canada—our most strategic trading partner and strongest hemispheric ally—from which we import more natural gas, refined gasoline and oil than any other country.

Despite this strong and critical energy trading partnership, some out-of-the-mainstream special-interest organizations who oppose our most affordable energy resources, as well as several governors, members of Congress and top administration officials, are actively working to antagonize Canada with a Low Carbon Fuel Standard (LCFS). Many of these LCFS backers wax poetic about the dire need for the U.S. to use less Middle Eastern oil. Yet, the core objective of a LCFS is to effectively ban the nearly 17 percent of our oil we import from Canada. The result? A deeper reliance on oil derived in the Middle Eastern and in other unfriendly, unstable regions of the world. Oh, and higher prices at the pump, too.

While Secretary Chu pairs his world travels with such important missions as encouraging Americans to paint their roofs white, Canada—obviously not willing to depend on an increasingly anti-energy Washington, D.C.—recently inked a lucrative oil sands trade deal with China. Perhaps our strongest competitor in the global economy, China realizes the importance of securing affordable and stable energy resources to continue to drive economic growth.

According to the U.S. Department of Energy, nearly 2.1 trillion barrels of U.S. oil shale are currently kept off-limits by the federal government. These abundant, homegrown resources—coupled with Canada’s secure oil sands supplies—represent the largest oil reserves in the world. Still, Washington, and other elected officials throughout the country, considers policies such as an LCFS, which would effectively ban secure, job-creating Canadian energy imports to the U.S.

Perhaps, instead of provoking our partners in the world’s largest trade relationship, Secretary Chu’s time could be more wisely used to strengthen economic ties and “discuss a range of energy issues, including energy security” with top Canadian officials. If he waits much longer, we may have plenty of houses with white roofs and no energy to keep them warm. Even worse, we might not have enough oil-derived jet fuel necessary to make the secretary’s world gallivanting possible.

NOTE: According to an Energy Dept. press release, secretary Chu will travel to the energy rich nations of Saudi Arabia, Qatar, and the Emeritus Abu Dhabi. The estimated distance of this trip is roughly 15,363 miles. However, the distance from Washington, D.C. to Ottawa is roughly only 575 miles.

More from the Institute for Energy Research on Secretary Chu, Canada and U.S. energy policy:

• Press Release: 15,000 Miles or 15 City Blocks?
• Blog Posting: Low Carbon Fuel Standards: Recipes for Higher Gasoline Prices and Greater Reliance on Middle Eastern Oil
• Fact Sheet: Embrace Canadian Energy
• Analysis: China Secures Oil and Gas Resources; U.S. Prefers to Wait for Green Energy

For additional information, please contact Patrick Creighton, 202-621-2947, or Laura Henderson, 202-621-2951.

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FOR IMMEDIATE RELEASE
May 19, 2009
CONTACT:
Laura Henderson 202.621.2951

Obama Motors: Costly, Bureaucratic, and Pointless

WASHINGTON—In response to President Obama’s newly introduced mile-per-gallon fuel mandate, Institute for Energy Research President Thomas J. Pyle issued the following statement:

“It is overwhelming to consider the ways this new mandate will harm the American economy. This stealth energy tax will significantly increase the cost of every single new car on the market. Early reports suggest that consumers can expect to pay between $1,000 and $3,000 more for small cars and up to $5,000 more for large cars. And the notion that these cost increases will pay for themselves would be charming, but for the many Americans who will no longer be able to afford a new car.

“The mandate demonstrates just how seriously the feds are taking their new role as car company chief: The government isn’t just going to make decisions about how best to run their operations. They’re also going to limit your choice of automobile and force you to pay more in the process—that is, those who can still afford a new car.

“Our crippled and crumbling auto industry will now be forced to revamp every car it puts on the market to comply with the government’s latest edict. Right now, only three models even come close to meeting the President’s latest mandate. Car companies should be free to focus on building cars Americans want to drive, not carrying out government policy.

“Most alarmingly, this plan, offered in the name of reducing carbon emissions, will not work. Even if every single car and truck in the U.S. met the new fuel economy mandate—a stretch, given that this mandate will only affect new cars—the U.S. would decrease carbon emissions by five percent. Carbon dioxide increases from China and the developing world would swallow that five percent by the end of September—that means Americans’ sacrifices, which they will be forced to pay for years to come—will be moot in four short months.

“Is now, when Americans are knee-deep in the biggest recession in generations, really the time to take on a significant new economic burden that will yield negligible results? Do we really want the future of our nation to be one in which the government tells you what kind of car you can buy and then makes you pay more for it? In our experience, the American people say no.”

NOTE: Earlier this year, when the EPA requested public comments regarding the State of California’s request to set its own fuel economy mandate, IER urged Americans to express their disapproval of the costly measure. That campaign spurred over 10,000 citizens to voice their concerns regarding fuel economy standards for California alone, unlike this measure, which will affect the entire nation.

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

Last December, California released a draft low carbon fuel standard (LCFS) which calls for a 10.5 percent reduction in the carbon intensity of gasoline and a 10 percent reduction for diesel. Following California’s lead, representatives of 11 Northeastern states recently signed an agreement to pursue a region-wide low-carbon fuel standard.

The proponents of LCFS claim the plan’s goal is to reduce emissions from motor vehicles and home-heating fuels. But as this analysis shows, an LCFS is another tax on transportation. An LCFS increases the price of gasoline and home heating oil, leads to more oil imports from the Middle East, and penalizes oil imports from our largest trading partner and biggest oil supplier—Canada.

What is a Low Carbon Fuel Standard?

For all practical purposes, LCFS is a new tax on gasoline and heating oil. It is new regulation which requires the reduction of carbon dioxide emissions associated with the production (including land use changes), manufacture, transportation and combustion of transportation fuels.

According to the letter of intent signed by 11 states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New York, New Hampshire, New Jersey, Pennsylvania, Rhode Island and Vermont) participating in the Northeastern LCFS scheme, an LCFS is a “market-based, technologically neutral policy to address the carbon content of fuels by requiring reductions in the average lifecycle GHG [greenhouse gas] emissions per unit of useful energy.”

Despite the assertions of LCFS proponents, an LCFS is not market-based— it’s a classic top-down regulation. It is not entirely technology neutral—in practice it obviously penalizes certain fuel-producing technologies. More importantly, it does not address the difficultly and possibly impracticality of accurately calculating “lifecycle GHG emissions.”

Seven Reasons Why LCFS Schemes are Flawed:

1. LCFS are based on the Field of Dreams principle—if you mandate it, it will come. LCFS are expensive, harmful to consumers, and diverts resources away from more productive investments. Breakthroughs in technology occur in the marketplace, not in government committee rooms. Policymakers are free to set standards and goals—such as 10 percent less carbon intensity or a manned missions to Mars—but that does not mean the technology to economically achieve those goal will immediately follow. For example, a couple of years ago, many people thought we could economically have low carbon fuels by merely increasing the biofuel content of gasoline. The majority of the science, however, does not support this belief (see bullet point 4 below).

2. Biofuel production increases the price of food and makes life more difficult for the world’s poor. Biofuels are “a crime against humanity” in the words of Jean Ziegler, the UN special rapporteur on the right to food. Biofuel takes land that has been used for food crops and replaces the food crops with fuel crops. This unnecessarily takes food out of the mouths of the world’s poor. Increased ethanol production has helped increase food prices and has led to great hardships around the world including food riots. Next-generation biofuels are supposed to somewhat relieve this problem by using non-food crops, such as switchgrass or miscanthus, to produce biofuel, but these crops will still compete for arable land and agricultural resources.

• A nationwide LCFS would dramatically increase the price of gasoline. CRA International found that an LCFS of 8 percent by 2015 would cause motor fuel prices to increase by 140 percent in 2015.[1] An LCFS would reduce motor fuel supplies or cause fuel producers to purchase carbon dioxide offsets.
• Many biofuels emit more greenhouse gases than gasoline. According to a recent study published in Science from the Nature Conservancy and the University of Minnesota, many biofuels emit more greenhouse gases than gasoline. The study’s authors stated that many biofuels produce “17 to 420 times more carbon dioxide than the fossil fuels they replace.” Other research has come to similar conclusions. The Energy and Resources Group at the University of Berkeley found that “if indirect emissions [resulting from the production of ethanol] are applied to the ethanol that is already in California’s gasoline, the carbon intensity of California’s gasoline increases by 3% to 33%.” Corn-based ethanol production not only emits more greenhouse gases than gasoline, but it may also be worse for air quality.[2]
• An LCFS discriminates against oil production from oil sands in Canada and favors oil from the Middle East. The U.S. gets more oil from Canada than any other foreign country. Much of Canada’s oil production comes from oil sands. The production of oil from oil sands requires more energy (and carbon dioxide emissions) to produce than production of crude in the Middle East. As a result, an LCFS favors oil from the Middle East and penalizes our friends to the North.
• An LCFS discriminates against coal-to-liquids technology and oil shale technologies. The United States has vast reserves of coal and oil shale. These sources are not yet economically competitive with other sources of oil, but if prices where to return to last summer’s highs, these technologies would be cost-competitive. One possible source of fuel is coal-to-liquids technology. The U.S. has the world’s largest reserves of coal. At current usage rates, we have 200-250 years of demonstrated coal reserves. Coal-to-liquids could give the U.S. much larger reserves of petroleum fuels. The U.S. also has massive reserves of oil locked in oil shale—at least 800 billion recoverable barrels of oil. This is nearly three times as much oil as Saudi Arabia has in reserves. Because we would need more energy to recover these energy sources than it takes to produce light crude, an LCFS discriminates against these domestic resources.
• If the United States implemented and somehow complied with a nationwide LCFS of 10.5 percent today, the American reduction in emissions would be offset by emissions increases from the rest of the world in less than 80 days.[3] Global warming is a global issue. What matters are not just emissions from the United States, but emissions worldwide. Unilateral changes by the United States alone will not have much of an impact, especially when we are talking about very small reductions in one sector. Because developing countries are dramatically increasing their carbon dioxide emissions, the U.S. will emit a smaller and smaller share of the world’s total greenhouse gas emissions.[4] According to data from the Global Carbon Project, from 2000 through 2007, global total greenhouse gas emissions increased 26 percent. During that same period, China’s carbon dioxide emissions increased 98 percent, India’s increased 36 percent and Russia’s increased 10 percent, while the U.S. increase was a mere 3 percent.[5] Because of these increases from developing countries, unilateral actions by the U.S., such as implementation of a nationwide LCFS, will have little to no effect on the global climate. Actions taken by California, or 11 Northeastern states will have even less impact.

Conclusion: An LCFS is Another Tax on Transportation

An LCFS, either nationwide or at the state level, would damage economy without having an impact global temperatures. The technology to implement an LCFS does not currently exist. If an LCFS resulted in increased biofuel use, it would be very harmful to the world’s poor. Finally, for those worried about energy security, an LCFS would favor Middle Eastern oil over Canadian and domestic fuels.

[2] The study will soon be published in the Proceedings of the National Academy of Sciences.

[3] Calculated using the emissions data from the Global Carbon Project. According to EPA, the GHG emissions from the transportation sector total 28 percent of total U.S. emissions in 2006. Environmental Protection Agency, Regulating Greenhouse Gas Emissions Under the Clean Air Act; Proposed Rule, 73 Fed. Reg. 44354, 44403 (July, 30, 2008). Twenty-eight percent of the U.S.’s 2006 carbon dioxide emissions are 436,141 GgC. A nationwide LCFS for the entire transportation sector, if it followed California’s example, would reduce transportation emissions by 10.5 percent, or 45,795 GgC per year. From 2006 to 2007, the world’s carbon dioxide emissions (excluding the United States) increased by 213,436 GgC. At this rate of change, the 10.5percent LCFS-forced reduction in U.S. transportation emissions would be replaced in 78.3 days.

[4] According to the Global Carbon project in 2007, China emitted 21 percent of the world’s carbon equivalent and the U.S. emitted 19 percent.

[5] Calculated using the emission data from the Global Carbon Project. In 2000, China emitted 910,950 GgC, India 316,804 GgC, Russia 391,652 GgC, and the U.S. 1,541,013 GgC. By 2007, China emitted 1,801,932 GgC, India 429,601 GgC, Russia 432,486 GgC, and the U.S. 1,586,213 GgC.

Synopsis (104KB)

Introduction

Energy is the lifeblood of our economy. The United States, with less than 5% of the world’s population, uses about 25% of the world’s energy and creates nearly 30% of the world’s economic input. The productivity gained from U.S. energy consumption is a major contributor not only to our quality of life, but also to the tremendous economic advancements that have been made throughout the world.

The issues surrounding the supply and use of energy have tremendous impacts on our economy, our environment, our political structure, international relations, decisions about trade—the list goes on and on. More importantly, it affects each and every one of us in a very personal way—from the food we eat to the water we drink, to the types of work we do and the communities we choose to live. It connects us to our jobs and brings us closer and closer to our friends and family no matter where they are in the world.

And yet, as we go about our daily lives, we don’t often stop and think just how important energy is and what life would be like if it were no longer readily available or relatively affordable to us.

As you can see, energy is no small matter. So as you analyze the presidential candidates’ positions on this important topic, ask yourself these two questions: which of the candidates truly understands that abundant, affordable, and reliable supplies of energy—from all sources—is essential to our quality of life and do the positions that they espouse reflect this critical understanding?

Below is a short comparison of some of the major points within the energy and environmental plans of the Presidential Candidates. The items listed below are taken from the Candidates’ official websites.

Climate Change

At first glance, Obama’s and McCain’s energy and environmental plans look similar, but the differences are in the details. While both candidates favor of a “cap and trade” plan to reduce greenhouse gas emissions, they differ on the specific reduction targets. Obama calls for an 80 percent reduction below 1990 levels by 2050, while McCain advocates a 60 percent reduction in the same time frame.

On the manner of how both would achieve these targets, there is a big difference. McCain’s plan calls for constructing 45 new nuclear power plants by 2030, with an ultimate goal of 100 new plants. Nuclear plants do not emit greenhouse gases. Obama will expand nuclear power only when issues of nuclear fuel and waste, waste storage, and proliferation have been addressed to his satisfaction. Countries such as France and Lithuania are generating over 75 percent of their electricity from emission free nuclear power.

Alternative Energy Sources

Both candidates are for alternative sources of energy. Obama’s plan calls for: 1.) a Renewable Portfolio Standard that would mandate 10 percent of our electricity to come from renewable sources by 2012 and 25 percent by 2025; 2.) increasing the Renewable Fuel Standard to mandate at least 60 billion gallons of advanced biofuels by 2030; and 3.) establishing a low carbon fuels standard that would require fuel suppliers in 2010 to begin to reduce the carbon in their fuel by 5 percent within 5 years and 10 percent within 10 years. Obama will also spend $150 billion of tax dollars on clean energy technologies over the next 10 years.

McCain believes that the market should decide the best technologies and options for meeting our fuel needs and plans to eliminate mandates, subsidies, tariffs, and price supports since they have not moved the U.S. toward an energy solution. He wants to provide tax incentives on a level playing field across technologies, and spend $2 billion annually to advance clean coal technology, a fuel that generates about 50 percent of our electricity.

Transportation Fuel Efficiency

Both candidates support flex fuel vehicles and want to increase their presence. Obama’s plan mandates all new vehicles to be flex fuel. Both candidates will provide a tax credit for purchasing an advanced technology vehicle—Obama’s tax credit is $7,000, and McCain’s is $5,000 for a zero emission vehicle with a graduated credit for other vehicles based on their level of carbon emissions. Both are in favor of CAFE standards to increase the efficiency of the fleet, with McCain planning to enforce the current standards by increasing the penalties auto manufacturers pay for not meeting the standards, and Obama planning to increase the standards 4 percent each year. At issue is whether the technology is available to meet the standards.

Energy Imports

Both candidates want to achieve some form of energy independence. Obama says it can be done in 10 years by saving more oil than we import from the Middle East and Venezuela combined. McCain wants “strategic independence” by 2025. Neither plan indicates precisely how this will be done.

Drilling

Both candidates believe that oil and natural gas are important to our domestic energy economy, but Obama believes that there are opportunities to increase production without opening up restricted areas. McCain believes that the moratoria on OCS drilling that expired at the end of September, which opened up an additional 18 billion barrels of oil, should remain lifted. IER has shown that the announcement of the lifting of the Presidential ban on OCS drilling and the Congressional support for it several months later helped reduced gasoline prices by about 50 percent.

Windfall Profits Tax

Another area to evaluate is the candidates’ positions on a “windfall profits tax” for oil companies. Obama wants to use “a reasonable share” of oil company profits to provide relief to American families for higher gasoline and home heating costs. McCain does not agree with reestablishing this type of tax which was used in the 1980’s and was found to have reduced domestic oil production and increased oil imports in a study by the Congressional Research Service.

For a more complete comparison and IER’s analysis of the Obama and McCain energy plans, please click here.

Synopsis (104KB)

Complete Analysis (60KB)

The following comparison of Barack Obama’s and John McCain’s energy and environmental plans comes from the statements of their plans on their official web sites. The text first indicates what the respective plans say on each topic, and then provides IER’s analysis of each topic within the program.

Table of Contents

CAFE
Advanced Vehicle R&D
Electricity Grid
Energy Efficiency
Biofuels
Energy Tech
Energy Independence
Global Warming
• Synopsis
• Nuclear Power
• Windfall Profits Tax
• Renewable Electricity
• Clean Coal Technology
• Domestic Oil Production
• Alaskan Gas Pipeline
• SPR/Tax Holiday
• Energy Speculation

Nuclear Power

Obama: Acknowledges that nuclear power is needed to meet greenhouse gas emissions reduction goals. Says it is necessary to address the security of nuclear fuel and waste, waste storage, and proliferation before expansion of nuclear power can be considered. Does not believe that Yucca Mountain is a suitable site for waste storage. Will lead Federal efforts to look for safe, long-term disposal solutions based on objective, scientific analysis. Will develop requirements to ensure that the waste stored at current reactor sites is contained using the most advanced dry cask storage technology available [1].

McCain: Wants to construct 45 new nuclear power plants by 2030 with an ultimate goal of constructing 100 new plants. Does not want to be dependent on foreign suppliers for nuclear reactors or plant components, supporting their construction in the U.S. [2] Supports Yucca Mountain and research into nuclear-waste reprocessing [3].

Analysis: Analyses of climate change proposals by EIA, EPA, NAM/ACCF and others have shown that nuclear power is needed to meet greenhouse gas emission reduction goals [4]. Nuclear power currently generates about 20% of the electricity in the U.S. [5] but over 75% of the electricity in France [6]. DOE has been working on Yucca Mountain as the waste disposal facility since 1987 but the process has been slowed because of opposition, and recently it was disclosed that it will not be opened before 2025. The Carter Administration banned reprocessing of waste, a “recycling” process. To require, as Senator Obama proposes, that waste storage and other issues be resolved before expansion of nuclear power can occur, would essentially remove the nuclear option from the generation mix in the near and mid-term period when technology options for mitigating greenhouse gas emissions are limited.
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Windfall Profits Tax

Obama: Will require oil companies to take a reasonable share of their windfall profits and use it to provide a rebate to help pay for higher energy costs to U.S. consumers. The rebate would be $500 per individual and $1000 per married couple and would be paid for through 5 years of the “tax” on oil companies [7].

McCain: Does not support a windfall profits tax, which “will hinder investment in exploration and new production.”[8]

Analysis: President Carter enacted a windfall profits tax in 1980. The Congressional Research Service indicated that the tax, which was repealed by President Reagan in 1988, lowered domestic energy production by 1.2% to 4.8%, resulting in increased foreign oil imports [9]. According to the Energy Information Administration, the major oil companies already pay a substantial amount of taxes, which in 2006, totaled $90 billion [10].
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Renewable Electricity

Obama: Ensure that 10% of our electricity comes from renewable sources by 2012, and 25% by 2025. Extend the Federal production tax credit for 5 years to encourage the production of renewable energy [11].

McCain: Encourages the market for alternative, low carbon fuels such as wind, hydro, and solar. He believes in an even-handed system of tax credits that will remain in place until the market transforms sufficiently so that renewable energy no longer merits taxpayers’ dollars [12]. Does not believe in a Federal Renewable Portfolio Standard; believes targets for renewables are best adopted at the state level [13].

Analysis: The production tax credit for wind and other renewables has been extended 6 times, and most recently by the “bailout” bill [14]. Twenty-five states and the District of Columbia currently have renewable portfolio standards, but they differ widely on what they consider a renewable to be and the dates for the targets to be met [15]. Only Texas has met its targets for renewable generation [16]. There are areas, particularly in the south, which do not have good wind resources and would have a harder time meeting Federal targets [17]. Their utilities would have to purchase credits to make up for the shortfall in renewable capacity [18]. The “Renewable Portfolio Standard” is a semantic device, as it is not a standard so much as it is a mandate. By compelling utilities to produce or purchase a certain percentage of their electricity from renewable sources, laws and/or regulations may be requiring consumers ultimately to purchase more expensive energy than they would otherwise choose to do in a free market. Making energy more expensive deliberately is a matter that deserves more public debate. Moreover, making energy more expensive in the U.S. affects American competitiveness in trade and other matters.
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Clean Coal Technology

Obama: Will provide incentives to accelerate private sector investment in commercial scale zero-carbon coal facilities, by instructing DOE to enter into public private partnerships to develop 5 “first-of-a-kind” commercial scale coal-fired plants with carbon capture and sequestration [19].

McCain: Will commit $2 billion annually to advancing clean coal technologies. When commercialized will also export them to developing world economies to promote an international green economy [20].

Analysis: Coal produces almost 50 percent of U.S. electricity [21]. Climate change studies by Government and private agencies have shown that since carbon capture and sequestration (CCS) technology is not currently commercially available, most of today’s coal generating plants would need to be replaced by non-carbon or lower-carbon emitting technologies to meet greenhouse gas targets. This will come at a major expense to the U.S. economy [22]. DOE had been funding a Future Gen clean coal project, but has withdrawn support due to the huge increases in cost. Instead, DOE plans to support only the CCS portion of future projects [23]. The U.S. has the largest supplies of coal in the world. Any comprehensive energy policy must include coal given its predominant role in our electrical supply system.
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Domestic Oil Production

Obama: Wants oil companies to drill in the 68 million acres that they have leased but from which they are not producing energy. Promotes energy production in Bakken Shale in Montana and North Dakota, and in the National Petroleum Reserve-Alaska [24]. Contends companies could produce 4.8 million barrels more per day domestic oil if oil companies were currently producing on all currently-leased areas [25]. Supported limited Outer Continental Shelf (OCS) energy production in formerly-banned areas as part of a broader energy package including concessions for renewable technologies [26]. Opposes energy production in the Alaska National Wildlife Refuge (ANWR) [27].

McCain: Wants to expand domestic oil exploration and production to the previously banned areas of the OCS to lessen U.S. imports of foreign oil, increase U.S. domestic supplies, and reduce the U.S. Federal Trade deficit [28]. Does not support drilling in ANWR at this time [29].

Analysis: Until the U.S. Congress allowed the OCS moratoria to expire at the end of September, American oil leasing had been prohibited on most of the OCS in the lower 48 states since 1982. The moratoria had limited energy exploration and production to a mere 3% of America’s offshore OCS lands. This made the U.S. the only developed nation in the World to restrict access to its offshore energy resources. The Minerals Management Service (MMS) estimates that the outer continental shelf contains 86 billion barrels of oil and 420 trillion cubic feet of natural gas, both conservative estimates since bans on offshore leasing have made it illegal to explore [30]. It is now necessary to ensure that Congress does not reinstate the moratoria as they are threatening to do and that the leases are not tied up in legal disputes.

While neither candidate currently advocates exploration in ANWR, U.S. Geological Survey (USGS) estimates that the “1002 Area” contains a mean expected value of 10.4 billion barrels of technically recoverable oil [31]. The 1002 Area is not designated as wilderness; there are no trees, deepwater lakes, or mountain peaks. The 1002 area could produce about one million barrels of oil per day, which is about 20 percent of our daily domestic production and would make ANWR the single largest producing field in North America [32]. It would also extend the life of the Trans Alaskan Pipeline, which is currently operating at 1/3 of its original capacity. ANWR would generate large amounts of revenue for the federal government from royalties, as well as corporate income taxes. For example, a recent Congressional Research Service Report found that developing ANWR would produce $191 billion in new federal revenues from corporate income taxes and royalties [33].

Additionally, the United States has significant quantities of energy potential in its onshore federal lands that are not leased, as well as in its oil shale deposits, the world’s largest. Unlike other energy sources which require subsidies and/or mandates, the use of government resources to meet our energy needs not only creates jobs, but also enormous quantities of revenue.

The claim that oil companies are deliberately withholding production on 68 million acres has been debunked and is no longer taken seriously by energy analysts [34]. Oil companies do not know exactly where profitable deposits of oil and natural gas will be found until they actually drill, and so naturally at any given time, a portion of leased land will not be in production. If the oil companies were truly withholding 4.8 million barrels per day, that would imply they were ignoring $140 billion in gross revenues per year (assuming a price of $80 per barrel). It would also be curious that oil companies were lobbying for the ability to pay for additional leases on previously banned lands, if they had already paid for access to more oil and gas than they wanted to sell.
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Alaskan Gas Pipeline

Obama: Wants to work with stakeholders to facilitate construction of this natural gas pipeline [35].

McCain: Believes in promoting and expanding the use of our domestic supplies of natural gas, including building the infrastructure needed to transport it [36].

Analysis: Natural gas currently supplies 23 percent of our energy needs [37]. Besides heating many U.S. homes, it is used for electricity production and in industrial processes. It is the least carbon-intensive of the fossil fuels. The Energy Information Administration predicts that natural gas use will grow [38], and many studies have shown that natural gas is needed as a transitional fuel under scenarios to reduce greenhouse gases [39]. Alaska has 35 trillion cubic feet of known quantities of natural gas and experts expect the potential is much greater. These supplies of natural gas could be used in the lower 48 states if construction of the pipeline were undertaken.
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SPR or tax holiday

Obama: Supports releasing 70 million barrels of oil from the government’s Strategic Petroleum Reserve (SPR) to increase oil supplies and reduce gasoline prices [40]. The light oil released from the SPR would be replaced later with heavier oil [41].

McCain: Opposes the use of the SPR to reduce gasoline prices, believing it should be used in the event of an emergency cutoff of imports. Instead, he suggested reducing gasoline prices by temporarily suspending the 18-cents-per-gallon Federal gasoline tax [42].

Analysis: The SPR was developed in 1975 as a response to the 1973 oil embargo against the West. The U.S., in conjunction with other OECD nations, keeps spare stocks of oil in case oil is used as an economic weapon. The President has the authority to release crude from the SPR in time of a national emergency. President Bush has done so in the aftermath of Hurricanes Katrina and Ike, when offshore production facilities and refineries were temporarily closed for repair, replacing the crude once the facilities were operational. Both the SPR withdrawal and temporary Federal tax holiday would have, at best, short-run benefits, and they would come at the cost of reduced security against another oil embargo (for the SPR drawdown) and an increased Federal budget deficit (for the tax holiday). We believe that a better solution than either of these proposals is adding new domestic supplies from the more than 96% of government owned lands and waters currently not leased for energy. This achieves the goal of price relief for consumers, because increased supplies lead to lower oil prices, and it turns the two negatives of the Obama and McCain plans into positives: That is, increasing domestic production reduces U.S. vulnerability to foreign embargoes, and it also would provide extra revenue for the Treasury.
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Energy Speculation

Obama: Plans to enact legislation to close loopholes in Commodity Futures Trading Commission regulations and increase market transparency [43].

McCain: Wants to reform the laws and regulations governing the oil futures market and provide oversight [44].

Analysis: Studies by the Commodity Futures Trading Commission showed that there was no evidence that speculators were responsible for high oil prices [45]. Also, if the price of oil were above the levels that fundamentals of supply and demand could support, there would be growing inventories, which there were not. Successful speculators actually make oil prices less volatile, by buying when prices are low and selling when prices are high (or ”shorting” when prices are high and then covering when prices are low). Major producers and consumers of oil use futures markets to “hedge” themselves against future volatility by locking in a fixed “futures price” of oil. Large investment funds provide liquidity to the commodities futures markets, and allow producers and physical consumers (such as airlines and refiners) to concentrate on their core businesses.

Government restrictions on investment in the oil futures market would only hurt consumers by making the oil market less efficient. New regulations will do nothing to ease oil prices in the long term [46]. Additional supplies help temper any speculation, also. Since President Bush announced the lifting of the presidential moratorium on July 14, 2008, oil prices have fallen by almost 50%. Congress’ decision to allow the OCS energy moratorium to expire October 1, 2008 has further sent a message to markets about American willingness to produce its own energy.
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CAFE

Obama: Will increase fuel economy standards 4 percent per year, going beyond the 35 mpg requirement in 2020 mandated by the Energy Independence and Security Act of 2007 [47].

McCain: Will enforce existing CAFE standards by increasing the penalties for not complying with the standards, which many auto manufacturers currently pay and add to the price of their cars [48].

Analysis: Like all markets, automakers will supply the market with vehicles that consumers demand. In the past, consumers preferred increased horsepower and larger vehicles rather than more fuel efficient and smaller vehicles. In the past, consumers have preferred more sport utility vehicles and light trucks, than smaller vehicles. Higher oil and gasoline prices have moved the car purchasing market to more fuel efficient vehicles, though some consumers still prefer the safety features in the heavier vehicles. The issue related to increasing the CAFE standard beyond the current legislated level is whether technologies exist to meet a higher standard. Also of note, by restricting consumer choice CAFE standards have lead to more deaths and injuries than otherwise because CAFE forces carmakers to build smaller cars than consumers would prefer. CAFE may save gasoline, but it costs lives [49].
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R&D and Tax Credits for Advanced Transportation Vehicles

Obama: Wants to mandate that all new vehicles are flex-fuel vehicles. Spend U.S. tax dollars on advanced vehicle technology; put 1 million plug-in electric vehicles on the road by 2015. Provide a $7,000 tax credit for the purchase of advanced technology vehicles and conversion tax credits. Convert the White House fleet to plug-ins within one year of becoming President. Make half of all cars purchased by the Federal Government be plug-in hybrids or all-electric by 2012. Provide $4 billion in retooling tax credits and loan guarantees for domestic auto plants and plant manufacturers so that new fuel-efficient cars are built in the U.S. rather than overseas [50].

McCain: Supports flex-fuel vehicles and wants automakers to make a more rapid switch to flex-fuel vehicles than their current commitment. Proposes a $300 million prize to improve battery technology for full commercial development. Provides a $5,000 tax credit for purchase of a zero emission car and a graduated tax credit for other vehicles based on their carbon emission levels [51].

Analysis: Studies regarding tax credits show that they have limited ability to spur change compared to their cost to the U.S. Treasury and the American taxpayer. The Energy Information Administration, for example, evaluated the impact of tax credits on the energy system on both a cost and carbon emission basis finding their cost per unit high and their benefit to lowering carbon emissions and energy consumption low [52]. IER believes that prizes for technology development should be privately funded, not taxpayer funded. Prizes should be awarded by private foundations and they would receive the patent rights for their nonprofit.
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Electricity Grid

Obama: Will spend U.S. tax dollars on smart metering, distributed storage and other advanced technologies. Will establish a Grid Modernization Commission to facilitate adoption of Smart Grid practices. Will instruct the Secretary of Energy to: 1.) establish a Smart Grid Matching Grant Program to provide a subsidy of one-fourth of qualifying investments; 2.) conduct programs to deploy advanced technologies for managing peak load reductions and energy efficiency savings; and 3.) establish demonstration projects [53].

McCain: Wants to upgrade the national grid to meet the electricity demands of the 21st century, including a capacity to charge electric vehicles. Promotes deployment of SmartMeter technologies that provide consumers with real-time energy consumption usage to encourage cost-efficient use of power [54].

Analysis: The candidates appear to be silent on the issue of grid instability related to delays, lawsuits and red tape associated with upgrading the grid and building sufficient power capacity to ensure grid stability. In a technology driven modern economy, this is a foundation of economic strength. A recent USDA study of rural community electric demands pointed out a need to double capacity in rural areas by 2020 [55]. The North American Electricity Reliability Council reports that the capacity margins (the amount of electricity necessary to maintain the reliability of the electrical grid) are low and could drop below target capacity margins as soon as 2009 in many areas of the country [56]. The Independent Service Operators throughout the nation predict looming shortfalls in production and transmission capability in urban areas, and new demands from non-dispatchable sources (intermittent sources like new wind and solar projects) only complicate that. Moreover, there is little discussion by the candidates about the inherent conflicts of siting new alternative energy sources.
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Energy Efficiency

Obama: Reduce electricity demand 15 percent from DOE’s projected levels by 2020 by setting demand reduction targets for utilities and more stringent building and appliance standards.

Establish a goal to make all new buildings carbon neutral by 2030. Establish a goal to improve new building efficiency by 50 percent and existing building efficiency by 25 percent. Overhaul the process for setting appliance efficiency standards to eliminate the missed deadlines by the Department of Energy for setting updated appliance efficiency standards. Achieve a 40 percent increase in efficiency in all new federal buildings within 5 years and ensure all new federal buildings are zero-emissions by 2025. Invest in cost-effective retrofits to achieve a 25 percent increase in efficiency of existing federal buildings within 5 years. Provide resources to achieve a 15 percent reduction in federal energy consumption by 2015. Work with states to flip the profit model for the utility sector so that shareholder profit is based on reliability and performance as opposed to total production. Commit to weatherize one million low-income homes each year for the next decade [57].

McCain: Will make greening of the Federal Government a priority by applying a higher efficiency standard to new buildings leased or purchased or retrofitting existing buildings [58].

Analysis: Both candidates support compelling the federal government to use less energy in its operations, strategies that may pay dividends for the largest consumer of energy in the nation. But these strategies will come at a cost. Already, some Federal buildings are kept uncomfortably hot in the summer, and uncomfortably cool in the winter to save energy. The imposition of demand reduction targets for the nation may result in significant additional economic burdens on consumers of energy which would affect consumer prices as well as the prices of the goods and service produced in the U.S. which must compete with other nations’ goods.
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Biofuels, Mandates, & Subsidies

Obama: Will require at least 60 billion gallons of advanced biofuels by 2030. Will spend federal tax dollars, provide tax incentives and government contracts into developing the most promising technologies and their infrastructure. Will mandate all new vehicles are flex-fuel [59].

McCain: Believes alcohol-based fuels hold great promise as both an alternative to gasoline and as a means of expanding consumers’ choices. But, believes a level playing field is needed and will eliminate mandates, subsidies, tariffs, and price supports that focus exclusively on corn-based ethanol and prevent the development of market-based solutions that would provide better solutions [60].

Analysis: The Energy Independence and Security Act of 2007 (EISA) requires 36 billion gallons of biofuels by 2022–15 billion gallons of corn-based ethanol and 21 billion gallons of advanced biofuels [61]. Currently there are no commercially-available advanced biofuels on the market. Based on the lower mandates in the Energy Policy Act of 2005, EIA’s Annual Energy Outlook 2007 [62] showed that economic levels of biofuels were projected to be 7.6 percent (or 14.6 billion gallons) of the 192 billion gallon gasoline market in 2030. Their Annual Energy Outlook 2008 [63], which incorporated the EISA mandate by requiring that the provisions of EISA be met, reached 32.5 billion gallons in 2022, slightly below the target due to the application of waivers and modification of credit volumes resulting from inadequate quantities of biofuels to meet the initial targets.

That forecast was also dependent on the commercial availability of cellulosic ethanol, which is not commercially viable today. Currently there are multiple mandates and subsidies that encourage the sale of ethanol. For example, in many areas of the country retailers are required to sell gasoline that is 10 percent ethanol to meet clean air regulations.

Also there is a 51 cents per gallon of ethanol subsidy for ethanol [64]. Without these subsidies and mandates, the ethanol industry would not have developed as much. This is especially true because there is less energy is a gallon of ethanol than in a gallon of gasoline, it is more expensive to produce ethanol than gasoline, and there are other negative factors such as its impact on water and land usage and food prices. Mandating 60 billion gallons by 2030, 67 percent higher than the current mandate in just 8 additional years is making an already difficult task harder, and could have even more dramatic impacts on food prices and water and land usage issue.

Government mandates of any kind distort markets, and ethanol is no exception. The ethanol mandate is already leading to higher food prices [65]. Higher food prices have led to food riots around the world [66]. Increasing food prices are making life more difficult for the world’s poor, leading UN Special Rapporteur for the Right to Food, Jean Ziegler, to call using food crops to produce ethanol “a crime against humanity.”[67]

Not only are there serious human costs to the current ethanol mandates, but there are large environmental costs as well. Recent studies published in Nature argue that biofuel production releases 17 to 420 times more carbon dioxide than the fossil fuels they replace.”[68] Increased carbon dioxide emissions are not the only environmental harm biofuel production promotes. Biofuel production has also led to converting millions of acres of rainforest into biofuel plantations [69].

Besides the human and environmental products ethanol mandates produce, it is difficult to comprehend how it is possible to mandate the use of a product in the future that cannot presently be produced commercially, such as cellulosic ethanol. The U.S. has the world’s largest oil shale deposits, from which DOE estimates 800 billion barrels are recoverable. Currently it is not produced commercially, and no candidate has supported a mandate for its production by a date certain. The purpose of this comparison is to demonstrate that mandates are by definition, the government picking winners and losers as opposed to freely motivated individuals operating in a free market.
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Energy Technology Development

Obama: Wants to spend $150 billion over 10 years to accelerate the commercialization of plug-in hybrids, promote development of commercial scale renewable energy, encourage energy efficiency, invest in low emission coal plants, advance the next generation of biofuels and infrastructure, and begin transition to a new digital electricity grid [70].

McCain: Will spend $2 billion annually to advancing clean coal technology. Will establish a permanent tax credit equal to 10 percent of wages spent on R&D, which will simplify the tax code, provide an incentive to innovation, make the U.S. more competitive with other countries, and remove the uncertainty facing businesses in their R&D decisions. Faces a level playing field for mandates, subsidies, tariffs, and price supports that promote the development of market-based solutions [71].

Analysis: Markets work better than government-directed programs to finding solutions to problems. This is because government programs are driven by political considerations not economic effectiveness like markets. Since 1978, the DOE has spent over $75 billion on research and development into various energy sources, and our energy problems are more acute than ever [72]. Far larger amounts have been dedicated to energy programs through the tax system, to the same end. During the same period of time, the amount of acreage made available for leasing for energy production to the private sector has plunged dramatically, with the ultimate result of less domestic production of oil and gas.

Meanwhile, permitting of electrical transmission lines, energy pipelines and energy facilities has grown more difficult and time consuming, and in capital intensive industries such as energy, time equals money, which the consumer of energy eventually pays. Even today, large subsidies for alternative energy generation exist on the one hand, while on the other hand, government laws and regulations have led to delays in the deployment of new wind farms or solar energy production facilities. Neither candidate has addressed the schizophrenic nature of the government’s policies upon energy production, transmission and use in the U.S.
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Energy Independence

Obama: Wants to save more oil than we currently import from the Middle East and Venezuela combined within ten years [73].

McCain: Wants to achieve strategic energy independence by 2025. Will continue to import oil from our North American neighbors, Canada and Mexico [74].

Analysis: Imports of oil from the Middle East and Venezuela were 3.53 million barrels per day in 2007 or 26 percent of our total oil imports of 13.47 million barrels per day [75]. The U.S. has sufficient domestic energy resources to replace these imported sources, as about 97% of offshore government lands and 94% of onshore government lands have not been leased for energy production [76]. Furthermore, our oil shale resources have not been touched, with over 800 billion barrels of recoverable shale oil that can be made commercially available with the properly structured Government leasing program. To meet the goals, the candidates will need to remove the red tape from Government restricting and/or delaying the use of these resources [77]. Government actions have for several decades led to severe reductions in the quantity and quality of government lands leased for energy production [78]. By letting energy exploration occur on much less lands, the government has been effectively stockpiling energy at a time when energy prices have hurt the American economy. Allowing more energy production is proven to make a significant difference in energy supplies, as the Energy Information Administration recently reported [79]. When more wells are drilled, more supplies are found. The candidates have not directly addressed this simple fact in a fashion that the American people can understand.
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Global Warming

Obama: Implement a cap and trade program to reduce greenhouse gas emissions 80 percent below 1990 levels by 2050. Require all emission credits to be auctioned. Use $15 billion per year of the auctioned receipts to subsidize the development of clean energy and energy efficiency improvements. Use remaining receipts as rebates and other transition relief for families and communities. Engage with the U.N. Framework Convention on Climate Change and make the U.S. a leader on climate change. Establish a Low Carbon Fuel Standard that requires fuel suppliers in 2010 to begin to reduce the carbon content in their fuel by 5 percent within 5 years and 10 percent within 10 years [80].

McCain: Implement a cap and trade system to reduce greenhouse gas emissions 66 percent below 1990 levels by 2050. Emission permits will eventually be auctioned to support the development of advanced technologies and reduce impacts on low-income American families. Will reform federal government research funding and infrastructure to emphasize the commercialization of low-carbon technologies. Will provide leadership for effective international efforts through actively engaging to lead United Nations Negotiations [81].

Analysis: Under a cap-and-trade system, there is a limit set on total greenhouse gas emissions. Each regulated entity is required to hold an allowance (essentially an entitlement) for the total amount of greenhouse gases they are allowed to emit. Allowances are distributed to emitters by some criterion (e.g. historic emissions), auctioned, or by some combination of the two. Entities are allowed to buy and sell allowances, creating a market price for them. Several cap-and-trade bills have been proposed in Congress, but none has passed to date. Many studies have been done on the various proposals. The studies show that mandates limiting GHG emissions will impose very large costs on the economy in terms of lost GDP, and higher costs to consumers, particularly in the cost of electricity [82].

Because the major growth in greenhouse gases are in developing countries like China, India, and the Middle East, U.S. emission reductions are likely to have little impact on global emissions. For example, if the U.S. were to eliminate all carbon dioxide emissions by 2030, world-wide CO2 emissions would still increase by about 30 percent [83]. In addition, many economists argue that an appropriately calibrated, explicit tax on carbon could achieve the same long-run emissions reductions as a cap-and-trade program, but with less scope for corruption and with lower total compliance costs [84]. (IER does not endorse a carbon tax, [85] but it would be more straightforward than the “stealth tax” of the cap-and-trade approach endorsed by both presidential candidates).
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Citations

1. http://my.barackobama.com/page/content/newenergy
2. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
3. http://www.iht.com/articles/ap/2008/08/09/america/Energy-Next-President-Highlights.php
4. Energy Information Administration, Energy Market and Economic Impacts of S.2191, the Lieberman-Warner Climate Security Act of 2007, http://www.eia.doe.gov/oiaf/servicerpt/s2191/index.html, Environmental Protection Agency, EPA Analysis of the Lieberman-Warner Climate Security Act of 2008, http://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf, and 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
5. Energy Information Administration, Annual Energy Review 2007, http://www.eia.doe.gov/emeu/aer/contents.html.
6. Energy Information Administration, International Energy Annual, http://www.eia.doe.gov/iea/.
7. http://my.barackobama.com/page/content/newenergy
8. http://www.johnmccain.com/Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
9. Congressional Research Service, Energy Tax Policy: History and Current Issues, http://assets.opencrs.com/rpts/RL33578_20080917.pdf
10. EIA, Financial Reporting System, http://www.eia.doe.gov/emeu/perfpro/btab02.html
11. http://my.barackobama.com/page/content/newenergy
12. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
13. http://news.cnet.com/8301-11128_3-10031450-54.html
14. Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/index.html.
15. Energy Information Administration, Annual Energy Outlook 2008, page 27, http://www.eia.doe.gov/oiaf/aeo/index.html
16. “A National Renewable Portfolio Standard: Politically Correct, Economically Suspect,” Robert J. Michaels, April 2008 Electricity Journal.
17. For example, see this map showing the potential for wind generation http://www.windpoweringamerica.gov/wind_maps.asp and this map showing the potential for solar generation: http://www.nrel.gov/gis/images/us_csp_annual_may2004.jpg.
18. Democrats Challenge Each Other In Battle Over Energy Bill, Ian Talley, Dow Jones Newswires, September 11, 2007.
19. http://my.barackobama.com/page/content/newenergy
20. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
21. Energy Information Administration, Annual Energy Review 2007, http://www.eia.doe.gov/emeu/aer/contents.html.
22. Energy Information Administration, Energy Market and Economic Impacts of S.2191, the Lieberman-Warner Climate Security Act of 2007, http://www.eia.doe.gov/oiaf/servicerpt/s2191/index.html, Environmental Protection Agency, EPA Analysis of the Lieberman-Warner Climate Security Act of 2008, http://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf, and 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.
23. http://www.energy.gov/news/5912.htm, http://www.fossil.energy.gov/news/techlines/2008/08030-CO2_Capture_Projects_Selected.html
24. http://my.barackobama.com/page/content/newenergy
25. http://thepage.time.com/obama-response-to-mccain-ad/
26. Comparing McCain, Obama energy plans, International Herald Tribune, http://www.iht.com/articles/ap/2008/08/09/america/Energy-Next-President-Highlights.php
27. Institute for 21st Century Energy, U.S. Chamber of Commerce, Washington D.C., http://www.energyxxi.org/NR/rdonlyres/eam4biljadknpedoyypgej2y2lf2df2y5mob4f5hyhzfs7ah577l26gskcrcphj5fy2dq4jaflz4ofushfcv2fwgwgb/PresidentialEnergyPositions20080618.pdf
28. http://www.johnmccain.com/Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
29. Institute for 21st Century Energy, U.S. Chamber of Commerce, Washington D.C., http://www.energyxxi.org/NR/rdonlyres/eam4biljadknpedoyypgej2y2lf2df2y5mob4f5hyhzfs7ah577l26gskcrcphj5fy2dq4jaflz4ofushfcv2fwgwgb/PresidentialEnergyPositions20080618.pdf
30. Offshore Energy & Minerals Management (OEMM), The Minerals Management Service, http://www.mms.gov/offshore/, July 7, 2008.
31. U.S. Geological Survey, http://pubs.usgs.gov/fs/fs-0028-01/
32. http://tonto.eia.doe.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_m.htm
33. http://www.usembassy.at/en/download/pdf/anwr_revenue.pdf
34. http://www.instituteforenergyresearch.org/2008/08/15/bogus-lease-claims-in-use-it-or-lose-it-proposal-stymie-real-energy-security/
35. http://my.barackobama.com/page/content/newenergy
36. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
37. Energy Information Administration, Annual Energy Review 2007, http://www.eia.doe.gov/emeu/aer/contents.html.
38. Energy Information Administration, Annual Energy Outlook 2008, http://www.eia.doe.gov/oiaf/aeo/index.html
39. Energy Information Administration, Energy Market and Economic Impacts of S.2191, the Lieberman-Warner Climate Security Act of 2007, http://www.eia.doe.gov/oiaf/servicerpt/s2191/index.html, Environmental Protection Agency, EPA Analysis of the Lieberman-Warner Climate Security Act of 2008, http://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf, and 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.
40. Comparing McCain, Obama energy plans, International Herald Tribune, http://www.iht.com/articles/ap/2008/08/09/america/Energy-Next-President-Highlights.php
41. http://my.barackobama.com/page/content/newenergy
42. Comparing McCain, Obama energy plans, International Herald Tribune, http://www.iht.com/articles/ap/2008/08/09/america/Energy-Next-President-Highlights.php
43. http://my.barackobama.com/page/content/newenergy
44. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
45. Interim Report on Crude Oil, Interagency Task Force on Commodity Markets, July 2008, http://www.cftc.gov/stellent/groups/public/@newsroom/documents/file/itfinterimreportoncrudeoil0708.pdf, and http://www.marketwatch.com/news/story/cftc-report-undercuts-claim-investors/story.aspx?guid={06B5DBFD-CC90-41A2-A3C0-6F18A3DBC03A}&dist=hppr
46. http://www.instituteforenergyresearch.org/wp-content/uploads/2008/06/oil_speculators.pdf
47. http://my.barackobama.com/page/content/newenergy
48. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
49. See e.g., Sam Kazman, CAFE is Bad for Your Helath, Wall Street Journal (Nov. 13, 2005) http://cei.org/gencon/019,04970.cfm .
50. http://my.barackobama.com/page/content/newenergy
51. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
52. Energy Information Administration, Analysis of the Climate Change Technology Initiative, April 1999, and Analysis of the Climate Change Technology Initiative: Fiscal Year 2001, April 2000.
53. http://my.barackobama.com/page/content/newenergy
54. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
55. http://www.nreca.org/PublicPolicy/issuespotlight/20081013.htm
56. North American Electricity Reliability Council, 2007 Long-Term Reliability Assessment (Nov. 16, 2007) http://www.nerc.com/files/LTRA2007.pdf.
57. http://my.barackobama.com/page/content/newenergy
58. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
59. http://my.barackobama.com/page/content/newenergy
60. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
61. Energy Information Administration, Assumptions to the Annual Energy Outlook 2008, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html
62. Energy Information Administration, Annual Energy Outlook 2007, http://www.eia.doe.gov/oiaf/archive/aeo07/index.html
63. Energy information Administration, Annual Energy Outlook 2008, http://www.eia.doe.gov/oiaf/aeo/index.html
64. Energy Information Administration, Assumptions to the Annual Energy Outlook 2008, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html
65. http://web.worldbank.org/WBSITE/EXTERNAL/EXTSITETOOLS/0,,contentMDK:21845834~pagePK:98400~piPK:98424~theSitePK:95474,00.html
66. CNN, Riots, instability spread as food prices skyrocket, Apr. 14, 2008, http://www.cnn.com/2008/WORLD/americas/04/14/world.food.crisis/index.html?eref=rss_topstories.
67. CNN, Riots, instability spread as food prices skyrocket, Apr. 14, 2008, http://www.cnn.com/2008/WORLD/americas/04/14/world.food.crisis/index.html?eref=rss_topstories.
68. The Nature Conservancy, Climate Change and Energy: The True Cost of Biofuel, http://www.nature.org/initiatives/climatechange/features/art23819.html.
69. Mongabay.com, Why is oil palm replacing tropical rainforests?, http://news.mongabay.com/2006/0425-oil_palm.html.
70. http://my.barackobama.com/page/content/newenergy
71. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
72. Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/chap3.pdf
73. http://my.barackobama.com/page/content/newenergy
74. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
75. http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm
76. http://www.instituteforenergyresearch.org/2008/07/16/who-benefits-from-federal-lease-hoarding/
77. See, for example, http://www.eenews.net/eenewspm/2008/10/17/2
78. http://www.instituteforenergyresearch.org/wp-content/uploads/2008/10/OCSacresleased.jpg, and http://www.instituteforenergyresearch.org/wp-content/uploads/2008/10/FederalLeaseOfferingsAcreageaLeased60-2006.pdf
79. http://www.eia.doe.gov/pub/oil_gas/natural_gas/data_publications/advanced_summary/current/adsum.pdf
80. http://my.barackobama.com/page/content/newenergy
81. http://www.johnmccain.com/Informing/Issues/da151a1c-733a-4dc1-9cd3-f9ca5caba1de.htm
82. Energy Information Administration, Energy Market and Economic Impacts of S.2191, the Lieberman-Warner Climate Security Act of 2007, http://www.eia.doe.gov/oiaf/servicerpt/s2191/index.html, Environmental Protection Agency, EPA Analysis of the Lieberman-Warner Climate Security Act of 2008, http://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf, and 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.
83. Energy Information Administration, International Energy Outlook 2007, http://www.eia.doe.gov/oiaf/archive/ieo07/index.html
84. See for example Chapter 8, “The Many Advantages of Carbon Taxes,” in the prepublication proofs of Yale economist William Nordhaus’ book, A Question of Balance: Weighing the Options on Global Warming Policies (New Haven: Yale University Press, 2008), available at: http://nordhaus.econ.yale.edu/Balance_2nd_proofs.pdf.
85. See IER’s critique of Nordhaus’ case at: http://www.instituteforenergyresearch.org/2008/06/05/ier-economist-murphy-takes-on-nordhaus-case-for-a-carbon-tax/.

FOR IMMEDIATE RELEASE
August 27, 2008
CONTACT
Brian Kennedy (202) 434-8200

‘Gang of Ten’ Plan Attracts Flies
Despite fatal flaws, support for ‘New Era’ plan grows as election looms

WASHINGTON, D.C. – Thomas Pyle, president of the Institute for Energy Research (IER), issued the following statement today in response to the recent expansion of support for an energy proposal crafted by the self-described “Gang of Ten” U.S. Senators:

“If the burning of tax dollars were a viable source of energy for America, the gang’s plan would be worthy of consideration. But make no mistake – this is not an energy plan, it’s a blueprint for new federal taxes and spending sprees. For the sake of consumers and our economy, we had hoped that support for this proposal would go in the other direction. With winter around the corner and more than 100 million American households facing record-setting home-heating costs, the growth in support for this plan is disappointing.”

“A common sense energy plan would yield the taxpayer an abundance of new domestic energy supplies and billions in revenue to the federal treasury. It would lift the arbitrary restrictions that have kept billions of barrels of American oil and trillions of cubic feet of natural gas off-limits during times of dire need. Unfortunately, the gang’s plan promises to do no such thing. In exchange for a hint new production in the future, this plan spends roughly $85 billion on taxpayer-funded pork projects and handouts to the auto industry and – worst of all – puts the ban on offshore drilling into permanent law for the first time ever.”

Click here for a complete section-by-section analysis of the ‘New Era’ energy plan’s fatal flaws. Two notable shortcomings are as follows:

Auto Industry Handouts: Almost No Bang for Big Taxpayer Bucks

The “Apollo” component of the gang’s plan calls for spending $20 billion: $7.5 billion to fund research and development of alternative fuel vehicles, $7.5 billion for the auto industry to help it “re-tool” and “re-equip” to manufacture alternative fuel vehicles (if and when it’s possible), and $5 billion in the form of $7500 tax credits for purchasers of non-petroleum vehicles.

The “Gang” claims that its plan will convert 85% of the vehicles in the country to “non-petroleum fuels” in 20 years. However, the $7500 tax credit would only help with the purchase of 666,667 vehicles when and if they become available. With 250 million registered vehicles in the U.S., this plan may help replace 1/375th of the vehicles on the road today (if the technology becomes available).

Offshore Energy Bans Continued, Permanently

Potential energy production under the “Gang’s” energy plan is severely limited, especially by three provisions:

• Only four coastal states would be granted the ability “opt out” of energy bans in the future, should the governors and legislatures in those states take decisive action to do so.

• The plan imposes an arbitrary 50-mile buffer zone around the coasts that would exclude potential resource deposits, such as the Gulf of Mexico’s Destin Dome, which is some 25 miles offshore.

• The plan appears to place the offshore energy bans into permanent law for the first time ever. For the last 27 years, the offshore energy ban has been subject to annual renewal by the Congress. This is the wrong direction, especially as the Congressional ban is set to expire in less than two months, on October 1, 2008, which will open the entire 1.76 billion acre outer continental shelf (OCS) to energy production.

Click here for a complete IER analysis of the ‘New Era’ energy plan.

The Institute for Energy Research (IER) is a not-for-profit public foundation that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. Founded in 1989, IER is funded entirely by tax deductible contributions from individuals, foundations and corporations. No financial support is sought or accepted from government (taxpayers).

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