Electric Cars Can Create More Carbon Dioxide Emissions Than Gas Cars

An auto-enthusiast blog recently summarized a British study finding that electric cars may not necessarily reduce carbon dioxide emissions:

[E]lectric cars can create higher emissions over the car’s lifetime than their gasoline-powered equivalent, partly due to the pollution created from the factories that manufacture electric car batteries…

[The study] found that while in the past, tailpipe emissions have been used as the main measure of an electric car’s carbon footprint, when the emissions from the car’s total lifespan are taken into consideration, including the car’s production and disposal, some of the CO2 savings made from driving the car are offset. The study contends that “overall electric and hybrid vehicles still have lower carbon footprints than normal cars.”

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The study found that compared with 24 metric tons for a gasoline-powered car, a mid-size electric car produces 23.1 metric tons of CO2 over its lifetime. But an electric car would have to drive about 80,000 miles before it would start saving more CO2 than a gasoline-powered car. Many electric cars will never reach 80,000 miles in their lifetime[;] electric cars get less than 90 miles on a charge, so they’re typically driven only short distances…Additionally, electric car batteries must be replaced after about four years. When the emissions connected with replacement batteries are added in, the total CO2 from producing an electric car increases to 12.6 metric tons, compared with 5.6 metric tons for a conventional car. Because recovering and recycling the metals in the battery consumes a great deal of energy, disposal produces double the emissions.

We may be witnessing the beginning of a process similar to what happened with ethanol: Initially beloved by environmentalists, ethanol soon fell into disfavor once people took into account the full consequences of turning food into fuel.

Alt-Energy Analyst Admits: “I Was Wrong About Lithium-Ion Batteries”

In addition to new doubts on the superior environmental bona fides of electric vehicles, it seems that consumers just aren’t that eager to support a transformation of the vehicle sector. An alternative energy analyst, in a refreshingly candid post, admitted recently that he had been wildly optimistic in his assessment of the demand for batteries for electric vehicles:

In February 2010 I wrote an article titled “Why I Don’t Expect A Lithium-Ion Battery Glut” that’s shaping up as one of the worst predictions in the history of my blog. This week Lux Research published a report titled “Using Partnerships to Stay Afloat in the Electric Vehicle Storm” that has me convinced that the capacity glut in lithium-ion batteries will be massive for at least a decade.

I humbly and sincerely apologize to any readers who bought shares in lithium-ion battery developers based on my starry-eyed optimism for the EV battery market.

The basic premise of my February 2010 article was that while plug-in electric vehicles would almost certainly die a slow and agonizing death from the congenital birth defects that have doomed every generation of EVs to the scrap heap of history, booming sales of electric two-wheeled vehicles, or E2Ws, and Prius-class hybrid electric vehicles, or HEVs, would be enough to absorb the slack. With eighteen months of history to look back on, it’s just not working out the way I thought it would.

As I expected, plug-in vehicles are drawing breathless reviews from the press and EVangelicals, and indifference or outright scorn from the car buying public.

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Can you believe it? Cheap is beating cool. Who could have predicted such an outcome in the depths of the worst financial crisis since the 1930s?

Here too we see a familiar pattern: Proponents of electric vehicles (as well as energy sources such as wind and solar) keep assuring everyone that they just need government support to get over the next little hump…then they will be profitable and self-sufficient. Yet they’ve been saying that for thirty years.

Why Don’t Consumers Like Electric Vehicles?

The simple fact is that electric cars right now are very inconvenient compared to gas-powered cars. Consider the journal entry of the BBC’s Brian Milligan who recently drove an electric car from London to Scotland, charging it only at public stations:

It took 4 days, some serious thermal underwear, and copious amounts of waiting.

But my electric car and I finally made it to Edinburgh.

There were plenty of nervous moments, and a rather low-key entry to the Scottish capital.

After all, I was driving at 30mph and was shivering with cold.

On the last leg I’d got suddenly over-confident, and had a serious dose of range anxiety.

It has been a slow journey but Brian and the mini finally made it to Edinburgh

At one point my range indicator showed 48 miles charge left on my battery, with 50 miles still to go.

Hence the slow speed, and the lack of heater.

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Including the time spent both charging and driving, I managed an average speed between London and Edinburgh of just 6mph.

With reports such as these, we can see why electric vehicles need a shot in the arm from a carbon tax or other government policy.

Government Can’t Pick Winners and Losers

The point here isn’t to relish in the floundering of a particular sector—people make mistaken forecasts all the time. A market economy works when investors try to pick the most profitable area to plow their money. Sometimes they hit it out of the park, and other times they strike out. Successful investors will make more money, and will have more influence over time on the allocation of scarce resources. On the other hand, investors who consistently make bad calls will eventually run out of money and will no longer pose a threat.

The one exception to this rule is government. When resources are directed through the political process, we have little reason to expect success. After all, policymakers haven’t earned their position through past profitability (the way rich investors in the private sector have). Even worse, the political authorities don’t stand to personally gain or lose, based on the success or failure of their “investments.” This is why government spending is so often seen as a corrupt boondoggle.

To take one example, consider the fate of Green Vehicles:

A Salinas car manufacturing company that was expected to build environmentally friendly electric cars and create new jobs folded before almost any vehicles could run off the assembly line.

The city of Salinas had invested more than half a million dollars in Green Vehicles, an electric car start-up company.

All of that money is now gone, according to Green Vehicles President and Co-Founder Mike Ryan.

The start-up company set up shop in Salinas in the summer of 2009, after the city gave Ryan a $300,000 community development grant.

When the company still ran into financial trouble last year, the city of Salinas handed Ryan an additional $240,000. Green Vehicles also received $187,000 from the California Energy Commission.

Salinas Mayor Dennis Donohue said he was “surprised and disappointed” by the news. City officials were equally irked that Ryan notified them through an email that his company had crashed and burned.

Conclusion

We don’t know what the efficient vehicle will be 20 years down the road. Perhaps at that point, most new cars really will be electric or hybrids. Yet we ostensibly live in a free society with a market economy. Government officials aren’t supposed to make these choices for us; let consumers spend their money without being influenced through the tax code or direct subsidies. Finally, if consumers are basing their decisions partly on feelings of saving the planet, they should do some research first to make sure their actions really are helping.

Any time the government proposes a new tax, Americans should be suspicious. But this particular proposal raises unique red flags, at least for those who favor free markets and individual liberty.

Big Brother Is Watching Your Odometer

The creepiest aspect in the new push for tracking vehicle miles is the idea being batted around in Texas to have the government install GPS tracking in cars that would then compute a driver’s bill the next time he or she refueled.

Although the federal proposal doesn’t explicitly mention GPS tracking, The Hill article says:

Among other things, CBO suggested that a vehicle miles traveled (VMT) tax could be tracked by installing electronic equipment on each car to determine how many miles were driven; payment could take place electronically at filling stations.

As in so many other areas, here there is a danger that the government will assume far more new power than is necessary for the ostensible goal—in this case, maintaining adequate funding for highway maintenance.

The Bait and Switch

After the leak, the Obama Administration was quick to distance itself from the proposal. However, as the government becomes increasingly starved for revenue—and assuming electric car sales at some point exceed their currently anemic pace—we can expect a growing drumbeat to get the “freeloaders” who drive on the roads without paying their fair share in gasoline taxes.

We can even expect various economists to favor the VMT tax on grounds of “efficiency.” After all, if the purpose of the current gasoline tax is to raise the revenues needed to pay for road maintenance, then surely it is inefficient to give an implicit subsidy to drivers who buy electric or even hybrid cars, that manage to impose the same wear-and-tear on the roads while consuming far fewer gallons of gasoline.

The problem here is twofold: In general, it would be naïve to expect the government to completely phase out gasoline taxes. Especially at the state level, gasoline taxes may be a significant source of revenue. Even if the introduction of a VMT tax were coupled with reductions in the gasoline tax, the next budget crisis would probably give drivers the worst of both worlds.

A second problem, more specific to this particular tax swap, is that gasoline taxes are supposedly addressing the “negative externality” of carbon dioxide emissions from gasoline-fueled vehicles. In other words, economists who are very concerned with global warming think the tax code should be encouraging motorists to switch to more fuel-efficient (in terms of gasoline consumption) vehicles.

Let’s think for a minute about the implications. If the government then comes along and slaps a tax on drivers for total miles traveled—whether or not their cars use gasoline or electricity—then the advantage of electric cars could be significantly muted, depending on the details of the new tax and motorists’ driving patterns. Rather than agreeing to a reduction or elimination of gasoline taxes, economists worried about global warming might insist that “efficiency” requires a hike in the tax on gasoline, to ensure that new car buyers are still nudged into purchasing electric.

A Genuine Market Solution

As with other thorny issues, the problem here is government involvement. Given that the government at various levels has a virtual monopoly on the highway and road system, it becomes very difficult for policymakers to design a fee structure that is both economically efficient and yet respects the privacy of citizens. In fact, it may be impossible to achieve various goals in this way, because of the nature of government ownership.

In contrast, if the roads were moved into private hands to the extent this were possible, then many of these problems would disappear. We would no longer have a public debate on the best way to finance road repairs, just as we don’t have a public debate on whether software companies should make their money charging for the software or for the service plans.

With free and open competition, different companies can try different pricing strategies, and the most efficient will win out. If a particular company insists on policies that too many people find intrusive of their privacy, that company will go out of business. Most important, in a truly free market it’s not the same organization that would control all the roads, as well as be in charge of the police, fire department, and IRS. It is ironic that so many leftists are wary of “concentrated power” when it comes to media corporations and other big businesses, but not when it comes to the agency that actually controls the army.

Conclusion

As the fiscal situation of the federal and state governments continues to deteriorate, we can expect proposals for a European-style VAT (value added tax) as well as the more recent VMT (vehicle miles traveled) tax. Economists will be able to market the plans as “revenue-neutral” and “efficiency-enhancing,” but those with a sense of history and common sense will know that they should watch their wallet.

The analysis unfortunately ignores some basic facts about fuel economy and gasoline consumption, as well as the connection between lighter vehicles and increased crash fatalities. Yet the most ironic aspect is that the report completely undercuts the entire rationale for government CAFE mandates: If the Big Three stand to make so much money from higher fuel economy, then they don’t need the government to force them to make the changes.

The Ceres/Citi Report

The following summary of the findings is drawn from Ceres’ website:

The 42 mpg standard by 2020 is consistent with a 6% annual mileage improvement, starting in 2017, that would boost fleet mileage to 62 mpg by 2025. In addition to increasing profits, these goals are eminently achievable technologically and cost-effective.

Commenting on the reports, Ceres Senior Manager of Transportation Programs Carol Lee Rawn said: “This analysis demonstrates that it’s both feasible and profitable for U.S. automakers to meet the strictest standards under consideration.  Strict fuel economy standards will not only reduce our dependence on oil and cut pollution; they’ll help a major driver of our economy – US auto companies and their suppliers – to compete successfully in the 21st century.”

Walter McManus, an economist at the University of Michigan Transportation Research Institute (UMTRI) and Director of the Automotive Analysis Group, said: “Our research indicates that increasing industry average fuel economy to 42 miles per gallon by 2020 could raise industry variable profit by $9.1 billion, or 8 percent. Most of the added profit, $5.1 billon, could go to the Detroit 3.”

Alan Baum of Baum and Associates, who has produced automotive sales and production forecasts since 1990 plus long-range industry analyses with a focus on fuel economy and electric vehicles, said: “our study shows that the automakers are well positioned to meet the fuel economy requirements necessary in 2020 with a variety of approaches already in their product plans. Consumer interest in fuel economy, and their expectation that gas prices will remain high, suggests that consumers will purchase these products.”

Dan Meszler of Meszler Engineering Services provided estimates of vehicle technology costs and fuel economy impacts for the CAFE study. Meszler, who has analyzed transportation energy and air quality issues since 1982, said: “technology exists to address a number of continuing inefficiencies associated with internal combustion engines.  Between now and 2020 much of this technology is expected to mature, so that a 2020 CAFE requirement of 42 miles per gallon should produce consumer savings starting at gas prices of $2.00 per gallon. Since current and expected future gasoline prices far exceed that price, these technology‑driven fuel savings are extremely cost effective and indicate that a 42 mile per gallon CAFE program will not only reduce petroleum imports, but save consumers money.”

Lily Donge, Manager for Environment and Climate Change at Calvert Asset Management Company, Inc., said: “Investors often view tighter environmental regulations as an impediment to growth but these reports offer a refreshing counterpoint. Stricter environmental standards actually have the potential to spark innovation and improve the competitive positioning of US automakers. So reports like these are important for investors – they shed light on the long-term growth prospects of American industries that are an important slice of our portfolios.”

It’s certainly true that other things equal, American consumers would prefer vehicles with higher fuel economy, and would be willing to pay more for such vehicles because of the implied savings on fuel cost. However, other things aren’t equal. It is well documented that lighter, more fuel-efficient cars aren’t as safe for the occupants as heavier, less fuel-efficient cars.

CAFE Mandates Kill

Writing last year in The American Thinker, J. R. Dunn summarized the grim legacy of CAFE mandates:

Fuel standards are the longest-lived of an entirely futile array of attempts to address 1970s oil shortages. They first went into effect in the 1975 Energy Policy and Conservation Act as the Corporate Average Fuel Economy program, better known as CAFE. Under the CAFE standards, domestic and foreign automobile manufacturers had to meet a certain mileage standard in their cars and light trucks. They were allowed a very short time to carry this out before fines were levied, so they met the challenge in the easiest way possible: by designing small engines that used less fuel while lowering the size and weight of new vehicles to preserve performance.

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The new regulations did accomplish one thing — they killed drivers and passengers in large numbers. By lightening cars and removing material, auto companies were inadvertently discarding the armor that protected motorists in the event of a crash. Similarly, the compressed new models lacked space for impact forces to attenuate before causing damage and injury. Drivers in lightweight cars were as much as twelve times more likely to die in a crash. It was once said about American autos that they were “built like tanks.” Many of the new models from the late ’70s onward more closely resembled go-carts — and proved to be about as sturdy.

Studies have repeatedly demonstrated the fatal results of mileage regulations, starting in 1989 with the Brookings Institution (in collaboration with the Harvard School of Public Health), followed by USA Today in 1999, the National Academy of Sciences in 2001, and at last the federal government’s own National Highway Transportation and Safety Administration in 2003. This formidable lineup of organizations all came to the same conclusion: Fuel standards kill.

According to the Brookings Institution, a 500-lb weight reduction of the average car increased annual highway fatalities by 2,200-3,900 and serious injuries by 11,000 and 19,500 per year. USA Today found that 7,700 deaths occurred for every mile per gallon gained in fuel economy standards. Smaller cars accounted for up to 12,144 deaths in 1997, 37% of all vehicle fatalities for that year. The National Academy of Sciences found that smaller, lighter vehicles “probably resulted in an additional 1,300 to 2,600 traffic fatalities in 1993.” The National Highway Transportation and Safety Administration study demonstrated that reducing a vehicle’s weight by only one hundred pounds increased the fatality rate by as much as 5.63% for light cars, 4.70% for heavier cars, and 3.06% for light trucks. These rates translated into additional traffic fatalities of 13,608 for light cars, 10,884 for heavier cars, and 14,705 for light trucks between 1996 and 1999.

How many deaths have resulted? Depending on which study you choose, the total ranges from 41,600 to 124,800. To that figure we can add between 352,000 and 624,000 people suffering serious injuries, including being crippled for life. In the past thirty years, fuel standards have become one of the major causes of death and misery in the United States — and one almost completely attributable to human stupidity and shortsightedness.

Ironically, in exchange for increased traffic fatalities, CAFE standards don’t achieve the environmental benefits that their supporters allege.

CAFE Standards An Inefficient Way to Achieve Emissions Reductions

In the first place, it’s not obvious that higher fuel economy standards should achieve any emissions benefits, because people drive more when the relative cost of driving is reduced. Of course we at IER have pointed out numerous problems with a direct carbon tax, but at least it makes the alleged problem (emitting carbon dioxide) more costly. Perversely, higher CAFE standards actually make it cheaper to drive (in terms of fuel expenses) and so unwittingly encourage more fuel consumption, more emissions, more imported oil, and so on.

The general principle here is known as Jevons’ Paradox, which states that as energy use becomes more efficient, historically people often increase their total energy usage. In practice, a particular increase in energy efficiency might increase or decrease total energy usage, but the point is that the supporters of stricter CAFE standards often assume that energy efficiency automatically translates into lower energy usage—and this is simply not the case historically. (Oil imports have dramatically risen since the introduction of CAFE standards in the 1970s, for example.)

Even if we accept the premise that the government should manipulate fuel economy standards in an effort to reduce gasoline consumption, the CAFE approach—which sets ever-higher mandates for newly produced vehicles—is nonsensical. This short YouTube video put out by two researchers at Duke University explains that the very focus on “miles per gallon” is itself misleading, and should be replaced with the concept of “gallons per mile.”

I spell out the argument more fully in this post, but we can see the gist of it with a simple numerical example: Suppose for the same amount of tax dollars, the government can either (A) replace 10 mpg vehicles with ones that get 15 mpg, or (B) the government can replace the same number of 25 mpg vehicles with ones that get 100 mpg. Assuming that people don’t alter their driving behavior in response to the new fuel efficiency, which policy would save the most gasoline?

Most people would think that option (B) would be preferable, since it achieves such a dramatic increase in fuel efficiency. But this is wrong, assuming that motorists drive the same amount in either vehicle. For an average motorist who drives 6,000 miles per year, the first policy reduces fuel consumption from 600 down to 400 gallons, saving 200 gallons per vehicle per year. In contrast, the second policy reduces gasoline consumption from 240 down to 60 gallons per year, a savings of only 180 gallons per vehicle.

This is not to suggest that it would a good idea for the government to implement policies to remove older, very fuel-inefficient vehicles from the road. The point is simply that the CAFE approach is incredibly inefficient, even on its own terms.

If the Move Is So Profitable, Why Is Coercion Necessary?

The final observation on this whole episode is that the Ceres study, if true, would completely undercut the case for mandating fuel efficiency standards in the first place. At least the standard case for imposing a tax on carbon dioxide relies on a “market failure” argument, in which emitters don’t take into account the full environmental costs of their actions.

Yet if the Ceres study is to be believed, the Big Three are foolishly waiting around for the government to force them to make gobs more money. And in this case, there isn’t even the patina of a “market failure” or “externality” argument. If indeed consumers would be willing to pay more for vehicles with greater fuel efficiency, then one farsighted manufacturer could capture all of the looming profits for itself by rushing the vehicles into production. There is no need for government mandates at all, if these higher standards really would mean greater profits for the industry because of happier consumers.

Conclusion

Increased CAFE standards fail to achieve their alleged benefits for various reasons, and they come at a high price in terms of increased traffic fatalities. Furthermore, if the promoters of the Ceres study really believed the results, they would admit that there is no need for government action to promote higher standards.

Is the Obama Administration’s goal of one million electric vehicles on the road by 2015 a way to break our dependence on oil? Is it a worthy goal? Is it doable? To get to the target, the Obama Administration wants to change the current $7,500 tax credit to an up-front rebate to entice consumers to purchase these vehicles. However, even with these huge rebates, electric vehicles are more expensive than gasoline and diesel-fueled vehicles due to expensive batteries that have yet to become cost competitive and due to vehicle characteristics that are subpar due to low vehicle mile range between charges, space limitations, and lack of infrastructure to recharge.

The Obama Administration is asking the American public yet again to subsidize another industry that is at least decades away from making it on its own in the market place. And even if President Obama’s goal can be reached in 2015, the benefits are small– transportation oil consumption would be 0.5 percent less, and carbon dioxide emissions would be 0.03 percent less in 2015.

The Electric Vehicle Market

In his state of the union address, President Obama announced his goal of one million electric vehicles on the road by 2015. To do this, he wants the government to rebate $7,500 of the cost to the buyer, at the time of purchase instead of the current $7,500 tax rebate. While to some that may be a worthy goal because of zero tailpipe emissions from electric vehicles, to others, it is just a pipe dream because of the vehicles’ higher expense and non-zero life cycle greenhouse gas emissions. Despite over a century of technological advancement, the battery is still more costly than the market will tolerate.

It is difficult to determine where battery technology is today because automakers consider the cost of batteries to be top secret. Further, it is important to distinguish between a quote that covers just the cost of the cell versus a quote on the entire battery system.  An installed cost should include the cost of the battery pack, wiring, configuration, and the battery management system that determines battery performance.

According to the Department of Energy and others, battery costs need to come down to $350 per kilowatt-hour to make electric vehicles competitive in the market place.  John Gartner, an analyst with Pike Research, estimates battery costs to be around $900 per kilowatt hour today, and expects them to decline by 10 to 15 percent per year, reaching about $470 per kilowatt hour by 2015. Others are more pessimistic on the cost reductions seeing a battery breakthrough taking at least 10 years.  Accenture, a consulting firm who studied electric vehicle pilot projects in European and Japanese markets, suggests pricing the battery, which needs replacing at least every 10 years, separately from the car to make its pricing more attractive to consumers.

But what is even more striking is the difference in automobile characteristics. A gasoline vehicle has a range of 400 miles, while the range of an electric vehicle is 100-300 miles with recharging taking 4 to 12 hours, depending on the vehicle and the charger. That compares to a 5 minute fill-up for an internal combustion engine at a gasoline station. Plus, storage is more limited in electric vehicles due to the space needed for the battery. Further, while there are numerous stations to get a fill-up, the infrastructure for recharging stations doesn’t exist in this country. That means these vehicles will have limited use, restricting their purpose to running errands in the local area or for a round-trip work commute. However, even then, one needs to be cautious regarding traffic patterns for heavy traffic can reduce the vehicle’s range.

U.S. automobile manufacturers know that even if they manufactured the electric vehicles, they would be purchased only by a very small niche market. A recent report by the Center for Automotive Research estimates at best less than a half million electric vehicles would be on the road by 2015 based on deployment rates of hybrid vehicles. According to James Sweeny of Stanford University’s Precourt Energy Efficiency Center, it took hybrids, which do not have the range and infrastructure issues of electric vehicles, over a decade to garner 3 percent of the sales market. In contrast, President Obama wants electric vehicles to garner almost that share in less than 5 years.

Deloitte Consulting interviewed industry experts and 2,000 potential buyers and found that only “young, very high income individuals,” making more than $200,000 a year, would consider purchasing an electric car sometime during the next 10 years. While there are people who may want to own such a car, the cost of around $40,000, even with the rebate, is still double the cost of some internal combustion engines. For example, a 2011 Chevy Volt sells for $40,280; a Mercedes-Benz C350 sells for $39,990. In Denmark, Renault will be selling a five-seat electric vehicle for $38,453, with the charging station costing  an additional $1,875. Tesla Motors will start its Model S sedan, which has a 160 mile driving range in ideal conditions, at $57,400. With larger battery packs, Tesla can expand the driving range. For an extra $10,000, Tesla will provide an electric vehicle that can go 230 miles on a charge, and for an extra $20,000, it will provide a vehicle that can go 300 miles.

To date, General Motors has sold 928 Chevy Volts and Nissan has sold 173 Leafs, for a grand total of 1101 electric vehicles. At the pace of 350 vehicle sales per month, a whooping 16,800 electric vehicles will be on the road by 2015. That is pretty close to Energy Information Administration’s forecast of 20,000 electric vehicles in 2015.

At the existing tax credit of $7,500 per electric vehicle, the government has spent $8,257,500 of taxpayers’ money so far on electric vehicle deployment. If electric vehicle sales can reach half the goal by 2015, the cost to taxpayers for the subsidy, whether it is a tax credit or a rebate, will be $3.75 billion; the full goal will cost taxpayers $7.5 billion.

Oil Displacement and Carbon Emissions Mitigation

According to the Energy Information Administration, 239 million light-duty vehicles are expected to be on the road in 2015, and they are expected to emit 1,072.8 million metric tons of carbon dioxide in 2015. If one million of these vehicles were electric instead of gasoline-fueled, 4.5 million metric tons less carbon dioxide would be emitted at the tailpipe, or 0.08 percent of total carbon dioxide emissions forecast to be emitted from energy combustion in 2015.

Of course tailpipe emissions are not life cycle emissions, and hence the carbon dioxide emissions to generate the electricity must also be taken into account. Since two-thirds of our electricity in 2015 is expected to be generated from fossil fuels, the carbon dioxide emissions mitigated are 1.5 million metric tons or 0.03 percent of total carbon dioxide emissions forecast to be released by energy combustion in 2015. Those miniscule savings come at a high taxpayer cost between federal subsidies to make the high cost of electric vehicles more favorable and research and development expenditures to hopefully get technological breakthroughs in batteries, among other government investments.

Further, the amount of oil displacement in 2015 would not be very great either. Transportation oil use would be about 0.5 percent less if one million electric vehicles were on the road by 2015.

Conclusion

The president has a goal of one million electric vehicles on the road by 2015. Buyers of qualified electric vehicles already get a tax credit of $7,500, which President Obama would like to make into a rebate to entice more buyers into deploying these vehicles into the marketplace. Automobile manufacturers and others believe that this goal is a stretch since the purchasers of these vehicles will be few in number. And, even if the target is met, it will do little to mitigate carbon dioxide emissions. Rather it will cost taxpayers in subsidies and R&D investments.

The U.S. government wants to choose future automobile technology for consumers by using taxpayer money to subsidize the electric car market. According to David Littman at the Mackinac Center for Public Policy, “I have never seen an industry that receives subsidies for any period of time like this that didn’t fail and then cost taxpayers even more.”  If an industry can not attract private investment, it is unlikely to penetrate the market. If and when investors and the private sector take the plunge into the electric vehicle market without government aide will be when that market will develop. Given the cost, range and infrastructure issues associated with electric vehicles, it may never happen.

Unfortunately, our government is considering a low-carbon fuel standard, which could hurt our ability to import Canadian oil sands or petroleum that has been produced from oil sands. A low-carbon fuel standard is a mandate that, if enacted, is supposed to reduce the carbon intensity of our transportation fuels, such as gasoline and/or diesel.[iii] Thus, its purpose is to reduce the carbon dioxide emissions from vehicles within the transportation sector. Because Canadian oil sands emit more carbon dioxide emissions in their production than conventional crude oil, they will likely be targeted if a low-carbon fuel standard is enacted. Unfortunately for the proponents of a low-carbon fuel standard, excluding Canadian oil sands from our petroleum imports will do nothing for reducing global greenhouse gas emissions because other countries, such as China, will just buy up those oil sands. Such a standard, therefore, will merely put the United States in a more precarious position, needing to import oil from less secure countries.

The Statistics

Canadian’s oil reserves are second only to those of Saudi Arabia and represent 13 percent of the world’s total oil reserves. Oil sands from Alberta represent 7 percent of Canadian reserves. [iv] In 2009, the United States imported 2.464 million barrels per day of petroleum and crude oil from Canada.[v] According to Canada’s National Energy Board, 67 percent of Canada’s crude oil exports to the United States in 2009 was heavy oil, most likely oil sands.[vi] While conventional, lighter crude oil is still a hefty percentage of Canadian exports to the United States, that share will decrease over time as oil sands start to represent a greater percentage of Canada’s oil reserves.

The mid-western region of the United States—Petroleum Administration for Defense District 2 (PADD II)—is heavily reliant on Canadian imports of petroleum, with 87 percent of its petroleum imports coming from Canada.[vii] Likewise, the majority of Canadian crude oil exports (64 percent) flow into PADD II. Of those exports into PADD II, heavy oil represents 75 percent.[viii] (See the map below for the states within each PADD.)

The other U.S. PADD regions also import petroleum from Canada, of which oil sands represent a share. The Rocky Mountain states (PADD IV) receive all their imports from Canada,[ix] but it represents a much lower share of Canadian crude oil exports—12 percent. However, 80 percent of those exports consist of heavy oil.[x]

The Gulf Coast (PADD III) is a heavy producer, importer, and refiner of crude oil, but imports only 2 percent of its petroleum imports from Canada[xi] because of its deep water ports that bring in petroleum from other countries. Approximately 6 percent of Canadian crude oil exports flow into the Gulf Coast region, of which 82 percent is heavy oil.[xii]

Both the East Coast and West Coast regions (PADDs I and V) get a smaller share of their Canadian imports from Canadian oil sands, because of their distance away from the Alberta oil fields. The East and West Coast regions import 21 and 15 percent, respectively, of their petroleum imports from Canada.[xiii] And Canada exports a smaller share of their crude oil to those regions, 10 and 8 percent, respectively, of which 23 and 33 percent, respectively, is from oil sands.[xiv]

Status of the Low Carbon Fuel Standard

To date, the U.S. Congress has not enacted a low-carbon fuel standard. However, some states have and others may. On January 18, 2007, California Governor Arnold Schwarzenegger signed an Executive Order establishing a Low Carbon Fuel Standard (LCFS) for transportation fuels sold in California. The standard requires that by 2020, the carbon intensity of California’s passenger vehicle fuels be reduced by at least 10 percent. [xv] In late 2008, following California’s lead, representatives of the states in the Regional Greenhouse Gas Initiative (RGGI), in the northeastern United States, signed an agreement to pursue a region-wide low-carbon fuel standard.[xvi] The ten states in the RGGI are Maryland, Delaware, Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont.[xvii]

Carbon Intensity of Oil Sands

According to a study by the Cambridge Energy Research Associates (CERA), on a well-to-wheel basis, total greenhouse gas emissions from oil sands are only 5 to 15 percent higher than the average crude oil consumed in the United States. That comparison is based on the total life cycle that includes oil extraction, processing, distribution, and combustion of the gasoline through the tailpipe (hence, well to wheel).[xviii] According to the Environmental Protection Agency, the amount of carbon dioxide emitted from the tailpipe per mile traveled is constant—19.4 pounds of carbon dioxide per mile regardless of the origin of the oil. But the oil sands industry is not content with those statistics. The Canadian arm of Statoil, for instance, has pledged to decrease the carbon dioxide emissions from their production of Canadian oil sands by 20 percent by 2020, and 40 percent by 2025, with the help of technologies that should be on line by 2015 or 2016.[xix]

Conclusion

A low-carbon fuel standard will increase our reliance on imports of petroleum products from foreign countries that are less stable than Canada. Moreover, such a mandate will yield no net benefit in reducing global greenhouse gas emissions because other countries will import and use the Canadian oil sands. In fact, China has already begun to invest in Canadian oil sands. 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, a Canadian business involved in the production of oil sands.[xx] And more Canadian-Chinese oil sands deals are expected. With the United States, and particularly the Midwestern states, so dependent on Canadian crude, why would our government want to jeopardize this secure form of energy for a savings in U.S. greenhouse gas emissions of only 10 to 15 percent compared to conventional crude oil, especially when other countries will purchase and consume the oil, emitting the greenhouse gases that we save?

[i] Energy Information Administration, Annual Energy Review 2009, http://www.eia.gov/emeu/aer/pdf/pages/sec5_11.pdf

[ii] Wikipedia, Oil Sands, http://en.wikipedia.org/wiki/Oil_sands

[iii] Wikipedia, Low-carbon fuel standard, http://en.wikipedia.org/wiki/Low-carbon_fuel_standard

[iv] Energy information Administration, Annual Energy Review 2009, http://www.eia.gov/emeu/aer/pdf/pages/sec11_9.pdf

[v] Energy Information Administration, Annual Energy Review 2009, http://www.eia.gov/emeu/aer/pdf/pages/sec5_11.pdf

[vi] National Energy Board, http://www.neb-one.gc.ca/clf-nsi/rnrgynfmtn/sttstc/crdlndptrlmprdct/ttlcrdlxprtdstntn-eng.html

[vii] Energy information Administration, http://tonto.eia.doe.gov/dnav/pet/pet_move_impcp_d_r20_nca_mbbl_m.htm

[viii] National Energy Board, http://www.neb-one.gc.ca/clf-nsi/rnrgynfmtn/sttstc/crdlndptrlmprdct/ttlcrdlxprtdstntn-eng.html

[ix] Energy information Administration, http://tonto.eia.doe.gov/dnav/pet/pet_move_impcp_d_r40_Z00_mbbl_a.htm

[x]National Energy Board, http://www.neb-one.gc.ca/clf-nsi/rnrgynfmtn/sttstc/crdlndptrlmprdct/ttlcrdlxprtdstntn-eng.html

[xi] Energy information Administration, http://tonto.eia.doe.gov/dnav/pet/pet_move_impcp_d_r20_nca_mbbl_m.htm

[xii]National Energy Board, http://www.neb-one.gc.ca/clf-nsi/rnrgynfmtn/sttstc/crdlndptrlmprdct/ttlcrdlxprtdstntn-eng.html

[xiii] Energy information Administration, http://tonto.eia.doe.gov/dnav/pet/pet_move_impcp_d_r10_Z00_mbbl_a.htm , and http://tonto.eia.doe.gov/dnav/pet/pet_move_impcp_d_r50_Z00_mbbl_a.htm

[xiv] National Energy Board, http://www.neb-one.gc.ca/clf-nsi/rnrgynfmtn/sttstc/crdlndptrlmprdct/ttlcrdlxprtdstntn-eng.html

[xv] Institute for Energy Research, Energy Regulation in the States: A Wake-up Call, http://www.instituteforenergyresearch.org/states/california/

[xvi] Institute for Energy Research, Energy Regulation in the States: A Wake-up Call, http://www.instituteforenergyresearch.org/pdf/statereport.pdf

[xvii] http://www.mde.state.md.us/air/rggi.asp

[xviii] Cambridge Energy Research Associates, Growth in the Canadian Oil Sands: Finding the New Balance, http://www.cera.com/aspx/cda/client/knowledgeArea/serviceDescription.aspx?KID=228

[xix] Reuters, Statoil sees big cut in oil sands CO2, March 22, 2010, http://www.reuters.com/article/idUSTRE62L4Y420100322

[xx] Reuters, China bags oil sands stake, not finished yet, April 13, 2010, http://www.reuters.com/article/idUSTRE63C17X20100413 and ConocoPhillips, ConocoPhillips Completes Sale of Syncrude Stake to Sinopec, June 25, 2010, http://www.conocophillips.com/EN/newsroom/news_releases/2010news/Pages/06-25-2010.aspx

China Setting Records: China Oil Demand, Coal Production and Vehicle Sales Up in 2010

During January, February, and March of this year, China was again setting 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. According to Reuters, China is the world’s second largest oil user (second to the United States) and consumed 8.65 million barrels of oil per day in February, an increase of 9.4 percent or 604,000 barrels per day over January’s consumption.[i] 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.[ii] In part, these large oil increases are fueling China’s passenger car fleet. New passenger car sales rose 55 percent in February from a year earlier, following a 116 percent increase in January, most likely aided by the extension of government incentives to boost purchases of smaller vehicles and spur rural demand for cars.  [iii]

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— and paying for exploration, production, infrastructure construction, as well as “loans for energy” deals.[iv] 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,[v] a Canadian business involved in the production of oil sands (an asphalt-like heavy oil).[vi] Approval from the Canadian and Chinese governments is expected in the third quarter of this year.

Along with China’s Canadian oil pursuits, long thought to be a safe and secure supply for U.S. oil demand, the state-owned China Development Bank has promised to lend $20 billion to Venezuela to build new power plants, highways, and other projects, which will be repaid with Venezuelan crude oil. Venezuela’s President Hugo Chavez has long complained about the United States’ standing as the largest buyer of Venezuelan oil, and so he is more than pleased to offer his country’s oil to China instead.[vii] Both the Canadian crude and the Venezuelan crude are heavy oils, and the United States owns most of the refineries that can process heavy crude oils. So, to prepare itself for future heavy oil supplies, China has approved plans for construction of such a refinery. As the United States loses neighboring oil supplies to China, one wonders how the U.S. will meet future oil demand, especially as the Obama Administration has been slow to open new offshore areas to oil development (claiming further study is needed) but speedy at advocating climate legislation and a low-carbon fuel standard, both policies aimed at reducing the demand for fossil fuels without providing comparable energy substitutes.

Oil resources are not the only target on China’s energy wish-list. It also plans to increase its consumption of natural gas; last year, its liquefied natural gas imports rose by two-thirds, to 5.53 million tons or 7.7 billion cubic meters.[viii] China also continues to consume large quantities of its primary fuel, coal, in its industrial and electric generation sectors. According to China’s National Bureau of Statistics, the country’s coal output grew more than 28 percent, to well over 751 million tons in the first quarter of 2010. A report by China’s National Coal Association estimates China’s total coal production capacity exceeds 3.6 billion tons.[ix] This is in sharp contrast to coal mining in the United States, where the Environmental Protection Agency (EPA) has issued a new policy aimed at curbing mountain top removal mining[x] and is scrutinizing surface coal mine permits.  EPA is revoking or blocking Clean Water Act permits for mountain top mining citing irreversible damage to the environment. Some of the permits were awarded years ago.[xi]

Seventy percent of China’s energy comes from coal,[xii] the most carbon-intensive fossil fuel. China already consumes more than twice the coal as  the United States, and by 2030, China is expected to consume 3.7 times as much coal.[xiii] As a result, China emits more carbon dioxide than any other country in the world including the United States, and by 2030, it is expected to release 82 percent more carbon dioxide emissions than the United States.[xiv]

China’s Race to Electrification; U.S. Stagnation

Between 2004 and 2008, China added 346 gigawatts of generating capacity, of which 272 gigawatts were conventional thermal power (mostly coal) and 66 gigawatts were hydroelectric power. This compares to a total installed US hydroelectric capacity of 77 gigawatts.  China is estimated to have added an additional 85 gigawatts in 2009, reaching a total of 874 gigawatts,[xv] about 15 percent less than the total capacity in the United States. Of the 85 gigawatts added in 2009, 51 gigawatts were conventional thermal, again mostly coal, 25 gigawatts were hydroelectric, and 9 gigawatts were wind power.[xvi] Many of China’s wind turbines were funded by the U.N.’s Clean Development Mechanism,   under which wealthy countries fund projects in developing countries and receive carbon credits so long as those projects would not have been accomplished otherwise.[xvii]

In contrast, the United States added only 47 gigawatts of generating capacity from 2004 to 2008 (14 percent of the capacity China added), of which 26 gigawatts were natural gas-fired units and 18 gigawatts were wind turbines. New coal-fired capacity additions are practically non-existent in the United States primarily owing to objections regarding emissions of carbon dioxide. Coal-fired projects in the United States have either been cancelled or delayed because of permitting problems, reviews and re-reviews by EPA and resulting financing problems. While the United States has more coal than any other country in the world, with over 200 years of reserves at current usage rates, coal’s share of new U.S. generating markets has been replaced by natural gas and renewable units that are  more politically in vogue.

China’s Economic Growth and Export Market
China’s economy, the second-largest in the world in terms of purchasing power, is currently about half the size of the U.S. gross domestic product. According to China’s central bank, the country’s economy grew at an annual rate of 10.7 percent in the fourth quarter of 2009,[xviii] a rate almost twice the U.S. rate of 5.6 percent for the same time period.[xix] And in the first quarter of 2010, China’s economy grew by 11.9 percent. Forecasters predict that China’s economy will exceed that of the United States in 10 to 15 years.[xx]

China became the world’s largest exporter last year, edging out Germany and the United States. Despite a decline in total world trade, China’s exports fell less than those of other big powers. A report by the World Trade Organization calculates that the total value of merchandise exports fell by 23 percent in 2009. Among the top ten exporters, Japan’s shipments were the worst affected, falling by 26 percent. Because China’s exports fell by only 16 percent, it is now the single largest exporter. The World Trade Organization expects trade to rebound by nearly 10 percent this year.[xxi]

Lessons to Be Learned

Many environmentalists and politicians seem to believe that China is winning the green energy race, but nothing could be further from reality.[xxii] China is in a race for energy—all forms of energy—to fuel its growing economy. The size and scope of its investments in conventional forms of energy dwarf their commitment to “green energy.” It is providing loans around the world to invest in future oil projects, and it cares not that the oil is less than the lightest and sweetest. Canadian oil sands and Venezuelan heavy crude are perfectly fine. China is building a coal-fired generating plant each and every week on average, and increasing its coal mining capacity to fuel them. This belies any stated concerns about increasing their carbon dioxide emissions, already the highest of any country in the world. China is building wind turbines too, but if wealthy countries are willing to pay—why not? It matters not at all that the transmission capacity is not yet there to operate almost a third of these wind turbines. And China’s large-scale hydroelectric projects are engineering feats par excellence, built regardless of environmental concerns.

China is ensuring energy supplies will be available to fuel its growing economy. The United States should take note.

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

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

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

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

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

[vi] Syncrude, http://www.syncrude.ca/users/folder.asp?FolderID=5753

[vii] The Wall Street Journal, China’s $20 Billion Bolsters Chavez, April 18, 2010, http://online.wsj.com/article/SB10001424052748703594404575191671972897694.html

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

[ix] China Daily, China’s coal output up 28.1% in Q1, April 15, 2010, http://www.chinadaily.com.cn/bizchina/2010-04/15/content_9736151.htm

[x] Environmental protection Agency, New Releases, EPA issues comprehensive guidance to protect Appalachian communities from harmful environmental impacts of mountaintop mining, April 1, 2010, http://yosemite.epa.gov/opa/admpress.nsf/d0cf6618525a9efb85257359003fb69d/4145c96189a17239852576f8005867bd!OpenDocument
[xi] Associated Press, Arch Coal sues EPA over veto of W.Va. mine permit, April 2, 2010, http://news.yahoo.com/s/ap/20100402/ap_on_bi_ge/wv_epa_coal_lawsuit
[xii] Energy Information Administration, China, http://www.eia.doe.gov/emeu/cabs/China/Background.html

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

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

[xv] http://en.wikipedia.org/wiki/Energy_policy_of_China

[xvi] China’s power generation goes greener with total capacity up 10%, January 7, 2010, http://news.xinhuanet.com/english/2010-01/07/content_12771880.htm

[xvii] http://www.instituteforenergyresearch.org/2010/03/24/kyotos-clean-development-mechanism-is-it-producing-results-for-whom/

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

[xix] http://bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

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

[xxi] China overtakes Germany to become the biggest exporter of all, March 31, 2010, http://www.economist.com/daily/news/displaystory.cfm?story_id=15836406&fsrc=nwl

[xxii] http://www.instituteforenergyresearch.org/2010/03/15/the-u-s-in-the-world-race-for-clean-electric-generating-capacity/

What are Oil Sands?

Oil sands consist of bitumen, a heavy black viscous oil, and clay, sand, and water. Because the bitumen in oil sands cannot be pumped directly from the ground in its natural state, oil sands must be obtained from open pits or by strip mining or by being heated underground before extraction. Once mined, the bitumen is separated from the clay, sand, and other minerals through a process that uses hot water and agitation to cause the separation. It is then refined with lighter hydrocarbons to reduce its thickness, producing synthetic crude.[i]

Since 2000, the efficiency of the extraction process has improved immensely, requiring only half the amount of steam per unit of output compared to 10 years ago,[ii] thereby decreasing energy use and life-cycle greenhouse gas (GHG) emissions. Since 1990, GHG emissions per barrel of oil sands have been reduced by 27 percent.[iii] And technology is expected to continue to improve.[iv] Further, oil sands account for only about 0.1 percent of global GHG emissions.[v]

How Do GHG Emissions from Oil Sands Compare to Conventional Crude Oil?

According to a study by the Cambridge Energy Research Associates (CERA), on a well-to-wheel basis, total GHG emissions are only 5 to 15 percent higher than the average crude oil consumed in the United States. CERA makes that comparison on the basis of the total life cycle that includes oil extraction, processing, distribution, and combustion of the gasoline through the tailpipe (i.e., well to wheel). [vi] And according to the Environmental Protection Agency, the amount of carbon emitted from the tailpipe per mile traveled is constant .—19.4 pounds of carbon dioxide emitted per mile regardless of the origin of the oil.[vii] However, the oil sands industry does not intend to stop with those statistics. The Canadian arm of Statoil, for instance, has pledged to decrease the carbon emissions from their production of Canadian oil sands by 20 percent by 2025, and 40 percent by 2025, with the help of technologies that should be on line by 2015 or 2016.[viii]

State Activity

On January 18, 2007, California Governor Arnold Schwarzenegger signed an Executive Order establishing a Low Carbon Fuel Standard (LCFS) for transportation fuels sold in California. The standard requires that by 2020, the carbon intensity of California’s passenger vehicle fuels be reduced by at least 10 percent.[ix] It also requires the reporting of all life-cycle GHG emissions in the transportation fuels supplied to California beginning in 2010.[x]

Following in California’s footsteps, other states are looking at passing a low-carbon fuel standard. The Midwestern Governors Association is advocating the study and implementation of such a standard.[xi] However, consumers in at least one of those states, Wisconsin, realize that the standard would mean higher gasoline prices, greater dependence on imported oil from unstable areas, and zero environmental gain inasmuch as Asia would pick up any slack supplies. Because Wisconsin relies heavily on oil sands imported from neighboring Alberta, it could see an increase in gasoline prices of up to $1 a gallon and an increase in fuel oil prices of $400 a season.[xii] As a result, a low-carbon fuel standard would deny consumers and manufacturers in Wisconsin the secure and affordable energy that lies just across the Canadian border. The Midwestern Governors Association expects to produce a final standard that states such as Wisconsin will be asked to endorse in full later this year.[xiii]

Another state to be adversely impacted is Delaware, which recently signed a pact for a low-carbon fuel standard with states in the Northeast. Since Delaware does not produce its own crude oil and relies on petroleum products being supplied through ports in Wilmington and along the Delaware River, a low-carbon fuel standard would result in consumers seeing increases in the cost of gasoline, diesel, and home heating oil. That would hurt jobs in manufacturing and chemical production, because higher fuel costs might lead those industries to relocate. Further, because one-fifth of Delaware homes are heated by fuel oil, a low-carbon fuel standard would make it harder for home owners to pay heating bills that already must be subsidized for low-income families.[xiv]

Who Will Be the Primary Beneficiary?

If the United States limits its imports of oil from Canada to only conventional crude oil, about 40 to 50 percent of our current Canadian imports will be sold to other countries, most likely countries in Asia. Even greater amounts would be exported elsewhere in the future because the majority of Canada’s oil reserves are oil sands.[xv] China’s state-owned oil company has spent billions early this year to acquire a majority stake in a pair of Canadian oil sands projects. Korea, Japan, and India are reported to have current or developing oil interests in Canada as well.[xvi] And because the U.S. Department of the Interior is delaying lease sales in the outer continental shelf and making production harder on public lands, few of those lost Canadian oil supplies could be expected to come from domestic sources. Corn-based ethanol is also not the answer, since on a life-cycle basis it emits more GHG gases than gasoline.[xvii] Thus, the United States will be increasing its imports from unstable areas of the world, such as the Middle East, Nigeria, and Libya. And because the Canadian oil sands will still be mined and consumed globally, there will be no net benefit in the amount of global GHG emissions released into the atmosphere.

Conclusion

Canada is currently the number one supplier of oil to the United States, and the amount of Canadian oil being consumed in the United States continues to increase. The U.S.-Canadian trading relationship is the largest in the world, contributing to the countries’ international friendship and alliance. Increasingly, however, Canadian oil will be produced from oil sands, a heavy oil that results in 5 to 15 percent higher GHG emissions from production to consumption, as compared to the conventional crude oil consumed in the United States. Therefore, the current trend of increasing Canadian oil imports to the United States will not last long if the U.S. federal government and/or state governments enact a low-carbon fuel standard. Unfortunately, the U.S. loss will be the gain of other countries, which will snap up Canadian oil sands and produce just those higher GHG emissions that the low-carbon fuel standard seeks to prevent. The United States will be forced to import oil from less stable countries, using even more fuel to transport the oil from farther away than our Canadian neighbor. So, does a low carbon fuel standard make any sense?

See Low Carbon Fuel Standards: Recipes for Higher Gasoline Prices and Greater Reliance on Middle Eastern Oil: http://www.instituteforenergyresearch.org/2009/02/18/low-carbon-fuel-standards-recipes-for-higher-gasoline-prices-and-greater-reliance-on-middle-eastern-oil/

[ii] Cambridge Energy Research Associates, Growth in the Canadian Oil Sands: Finding the New Balance, http://www.cera.com/aspx/cda/client/knowledgeArea/serviceDescription.aspx?KID=228

[iii] Canada’s Oil Sands, http://www-static.shell.com/static/can-en/downloads/aboutshell/aosp/unique_resource/co2_onepager.pdf
[iv] Cambridge Energy Research Associates, Growth in the Canadian Oil Sands: Finding the New Balance, http://www.cera.com/aspx/cda/client/knowledgeArea/serviceDescription.aspx?KID=228
[v] Canada’s Oil Sands, http://www-static.shell.com/static/can-en/downloads/aboutshell/aosp/unique_resource/co2_onepager.pdf
[vi] Cambridge Energy Research Associates, Growth in the Canadian Oil Sands: Finding the New Balance, http://www.cera.com/aspx/cda/client/knowledgeArea/serviceDescription.aspx?KID=228
[vii] Delaware Online, Now’s not the time for low-carbon fuels, March 22, 2010, http://www.delawareonline.com/article/20100322/OPINION07/3220301/1004/OPINION/Now-s-not-the-time-for-low-carbon-fuels

[viii] Statoil sees big cut in oil sands CO2, March 22, 2010, http://www.reuters.com/article/idUSTRE62L4Y420100322

[ix] Press Release, Gov. Schwarzenegger Signs Executive Order Establishing World’s First Low Carbon Standard for Transportation Fuels, http://gov.ca.gov/press-release/5174/

[x] A Primer on the California Low Carbon Fuel Standard and Midwestern Corn Ethanol, http://www.dnv.us/focus/climate_change/hot_topics/A_Primer_on_the_California_Low_Carbon_Fuel_Standard_and_Midwestern_Corn_Ethanol.asp

[xi]LaCrosse-Tribune.com, Michael Whatley: Proposed standard would hurt consumers, manufacturers, March 16, 2009, http://www.lacrossetribune.com/news/opinion/article_08e03f56-304d-11df-8576-001cc4c03286.html

[xii] LaCrosse-Tribune.com, Could low-carbon standard drive gas prices up?, March 8, 2009, http://www.lacrossetribune.com/news/local/article_d3a14f96-29a4-11df-98c3-001cc4c002e0.html

[xiii] LaCrosse-Tribune.com, Michael Whatley: Proposed standard would hurt consumers, manufacturers, March 16, 2009, http://www.lacrossetribune.com/news/opinion/article_08e03f56-304d-11df-8576-001cc4c03286.html

[xiv] Delaware Online, Now’s not the time for low-carbon fuels, March 22, 2010, http://www.delawareonline.com/article/20100322/OPINION07/3220301/1004/OPINION/Now-s-not-the-time-for-low-carbon-fuels

[xv] Energy Information Administration, Annual Energy Outlook 2008, Table 11.4, http://www.eia.doe.gov/emeu/aer/pdf/pages/sec11_9.pdf

[xvi] China Steps Up to Purchase America’s Share of Canadian Oil Sands, February 16, 2010, http://www.ecofactory.com/news/china-steps-purchase-americas-share-canadian-oil-sands-021610

[xvii] A Primer on the California Low Carbon Fuel Standard and Midwestern Corn Ethanol, http://www.dnv.us/focus/climate_change/hot_topics/A_Primer_on_the_California_Low_Carbon_Fuel_Standard_and_Midwestern_Corn_Ethanol.asp

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.