Monday, June 29, 2009

Quick Notes

Just a quick update today; currently three different investigations are being conducted including a new energy gap analysis using a more complex model. There is a reasonable probability that the overall estimation of 4.9 quadrillion Btus is too high; therefore new studies will be carried out using smaller values. However, it is difficult to conclude, despite energy efficiency measures, that energy requirements in 2020 or 2030 will be lower than energy requirements in 2007. Further study on this issue will be conducted because it seems that most efficiency studies related to the ACES make some somewhat unrealistic assumptions in order to generate more favorable results. The biggest problem is the most important element when discussing renewable growth rates is the energy requirements for the future, but every organization available seems to hypothesize a significantly different expectation.

Thursday, June 25, 2009

Plugging the Tail Pipe – Reducing Emissions from Transportation

In a previous post an analysis was conducted to investigate what steps would be required to meet the current emission cap provided by the ACES. In the analysis three scenarios were outlined with regards to emission reduction from the transportation sector. These scenarios were merely markers regarding how to view certain reduction percentages. The recent establishment of new mileage standards for cars and trucks is expected to be a critical driving (ha, ha) factor in the reduction of transportation originating emissions. However, how many tons of emissions will be saved under these new milage standards and what scenario of reduction will these new standards attain? The following analysis aims to answer those questions.

In 2007 the transportation sector accounted for 2,014,365,849 tons of carbon dioxide (CO2) emissions.1 These emissions arise largely from the combustion of gasoline. The amount of emissions that are released due to the combustion of gasoline are calculated as followed:

40 Code of Federal Regulations (CFR) 600.113-78 assigns a carbon content of 2,421 grams to every gallon of gasoline, which translates to 8,877 grams (19.6 lb) of CO2.2 This value is where most calculations stop, however, typically only 99% of the carbon is oxidized therefore, only 8,788 grams (19.4 lb) of CO2 are actually released.3 For the purpose of this analysis 19.4 lb or 0.0097 tons of CO2 are released for gallon of gas burned during travel. Divide this value by the average mpg of the vehicle to calculate the average CO2 generated per mile driven.

CO2 is not the only GHG that is emitted when burning gasoline. CH4, N2O and HFC are also released. However, calculating the exact amounts for these other gases is difficult. The EPA uses a simplified method of calculation where the CO2 estimate is multiplied by 100/95 to account for the 5% compilation of non CO2 GHG emissions.3

Most of the critical details regarding President Obama’s plan to increase fuel economy standards have yet to be determined or announced. Currently the major talking point is an average fuel economy for passenger cars of 39 miles per gallon and an average fuel economy for trucks of 30 miles per gallon.4 However, few details have been released regarding whether or not electrical and hybrid models will be factored into this average or whether or not light duty vehicles are included in the truck section along with other critical issues.

In 2006 the US Bureau of Transit Statistics reported that there are 250,851,833 registered vehicles in the United States. 135,399,945 (53.98%) of these vehicles are automobiles and another 99,124,775 (39.515%) are classified ‘other 2 axle, 4 tire vehicles’.5 For the purposes of this analysis 70% of these ‘other 2 axle, 4 tire vehicles’ will be classified as light trucks and the others will be classified as others types that do not fall under the new fuel economy standards put forth by President Obama (light duty vehicles etc.). The remaining 6.505% of registered vehicles will not be regarded as passenger fleet vehicles. Note that passenger fleet in this particular sense refer to vehicles that are affected by President Obama’s new fuel efficiency standards.

Estimating an average miles driven per year is a little tricky because all of the rating sources include all fleet vehicles even those that are over 10 years old as long as they are still officially registered. However, in most situations it is unlikely that most of these vehicles actually drive the average of younger vehicles. MOBILE6 calculated an annual average mileage of approximately 12,000 for passenger cars and 15,000 miles per year for light trucks.3

The analysis was carried out under two time periods one from 2006 to 2016 when the mileage standards are supposed to be officially met and one continuing to 2020.

The assumptions used in the analysis are as followed:

The age of a vehicle will be tracked and assigined their respective fuel economy based on the year it was purchased. Vehicles will be replaced after a lifecycle of 12 years.

This assumption basically removes a level of equality from the car fleet. Each group of cars have their own fuel economy, but a constant rate of replacement. Assuming a wide variety of car ages on the road represents reality much more accurately than assuming all of the cars are from a particular year.

A balloon increase is applied for fuel economy increases between 2009 and 2016.

Although the Obama administration has assigned target goals for the year 2016, no checkpoint goals were assigned for the years leading up to 2016. Some report indictate that there will be markers from 2012 to 2016, but these markers have apparently not be identified. Therefore, it was assumed that for both cars and light trucks initial gains in fuel economy would be slower than gains made later due to the possibility of new technology emerging and pressures to met the 2016 deadline.

An average growth of cars and light trucks on the road of a net +1% from 2006 to 2011 and a net +2.5% from 2012 to 2016 (2020).

Due to influences of the economic recession and credit crunch it makes sense to assume a low growth rate on the purchase of new automobiles over a short-time period. However, with new mileage standards developed in the mid part of the next decade it seems reasonable that individuals will be looking to invest in a new car to save money on rising gas prices suggesting a higher rate of growth.

Fuel Economy Standards do not include the use of hybrids or electric cars in their computation.

This assumption is similar to a mathematician making the assumption that x object is like a sphere. It makes the calculations a lot simplier, by removing the headache of calculating what gas mileage hybrids will receive based on pattern driving and average drive time. The goal of this analysis is to investigate more optimistic than pessemistic outcomes and gauge whether or not those optimistic results will accomplish what is needed. Not including hybrids or other electrical vehicles in the fuel economy standard implies a dramatic increase in fuel economy efficiency and the ideal situation for emission reduction.

To avoid significant complications regarding car age vs. emissions, when vehicles enter the passenger fleet they will be new, i.e. no used vehicles are ever purchased.

Fairly self-explanatory, albeit somewhat unrealistic.

Each year when new cars are purchased, the average fuel economy anticipated for the given year is translated to the average fuel economy between the new vehicles purchased.

Basically if the average fuel economy for all vehicles that can be purchased in 2015 is 30 miles per gallon, consumer purchase of new vehicles in 2015 will have an average fuel economy of 30 miles per gallon.

Biofuel blends were not included in the analysis of emission reduction due to fuel replacement questions.

Overall biofuel production from non-food derived sources is not nearly significant enough to warrant its inclusion in this analysis. In addition currently there is not a clear plan for the rapid incorporation of biofuel into the automobile infrastructure (widespread biofuel gas pumps, biofuel based car dealerships etc.) to properly generate a map of inclusion. Perhaps an updated analysis will include biofuel blends.

The analysis first assigned ages to the current registered pool of cars and trucks using information from the 2001 study on car age by the National Automobile Dealers Association and assuming an equal percentage between age ranges. Due to the average vehicle age being a little over 8 years the ratio was generally assumed constant over the last half decade. The percentage breakdown was as followed: (10-12 years = 38.3%; 7-9 years = 22.3%; 3-6 years = 25.8%; 0-2 years = 13.6%)

The results of the assignment are shown in the table below.

* = purchased within the last year;

Mileage data for other passenger cars and light trucks for use in this analysis were taken from EPA information.6 Due to the maximum vehicle age of 12 years and the initial starting year of 2006, fuel economy history starts at 1994 and proceeds linearily corresponding to vehicle age. The average fuel economy used for various past years is shown in the table below.

Two different scenarios were investigated for the progression of fuel economy standards, one under President Obama’s plan and one excluding a direct goal (this growth will be referred to as standard growth). The growth of fuel economy under standard growth consisted of a constant 0.2 miles per gallon increase per year for cars and 0.15 miles per gallon increase per year for light trucks. This increase was necessary because realistically with the advent of the electric car as well as the continuing threat of higher gas prices it would be na├»ve to assume that mileage standards on vehicles would stagnate even without a directive from the White House or Congress and that consumers would not elect to purchase more fuel-efficient vehicles. It would behoove automobile companies to increase fuel economy as a means to increase sales; however, increases would be slow to keep down costs. The table below outlines the estimated fuel economy growth for both President Obama’s plan and under the standard growth model for cars and light trucks. Any growth beyond 2016 was assumed to follow the standard growth model.

* % difference is related to the size difference between the two plans relative to the standard growth model;
Emissions were calculated by totaling all of the emissions produced by vehicles at their various ages. Individual emissions per year from age groups were calculated via the following formula:

Dave/MPGm * Vehiclen * CO2 * (100/95) (1)
where Dave = average miles driven per year; MPGm = fuel economy for the given vehicle in year m; Vehiclen = number of vehicles of n years of age; CO2 = CO2 emissions per gallon of gas consumed;
Based on the outcome of this analysis the total tons of CO2e saved for passenger cars from 2006-2016 is 323,546,844 and light trucks is 292,406,997 for a total reduction of 615,953,841 tons of CO2e. The table below documents all of the yearly reductions.

Note that there is no reduction in emissions between 2006 and 2008 because the analysis utilizes passenger vehicle registry information from 2006, so the analysis need to begin in 2006, but the fuel economy information is relevant up to 2008. Therefore, there is no difference in fuel economy between President Obama’s plan and the standard growth model between that time period as shown in a previous table.

Two issues can be immediately drawn from the results of the analysis. First, the results for the 2006-2016 time period are not encouraging with regards to the emission reductions demanded by the three transportation emission reduction scenarios outlined in the previous post discussing the energy gap. The table below outlines the difference in emissions that the White House program will develop vs. the emission reduction required for each of the three scenarios.

* the % difference is with respect to the emissions demanded by the given scenario;

These new emissions standards, although abmitious, do not even reach the poor level of expectations. Recalling the results from the energy gap analysis, only one of the possible nine investigations was successful using the poor result for emission reduction and that investigation required the optimistic outcome from all other scenarios, clearly not an outcome that is probable and still that result failed the secondary tests for success. The problem is that most of the reductions from the new emission standard is spent neutralizing what will occur, thus there is little left to work against what needs to be reduced from 2007.

Second, early sound bites report that the administration claims that 900 million tons of CO2e will be saved by this program.7 This claim falls far short of the reduction seen in this analysis (only 68.44% of that estimation). This difference highlights a critical issue with statements taken from the media, rarely do they cite any assumptions that go into the claim. The above analysis tries to be as fair and realistic as possible, yet the result is considerably smaller than anything President Obama’s administration predicts. It is difficult to respect the validity of the White House prognostication because there are no assumptions presented to how it was derived. This information gap is exactly why public statements need to be backed up by cited analysis and/or assumptions so the validity of the statement can be directly addressed.
When looking at extending the emission analysis to 2020, the relevant year pertaining to the energy gap, the total tons of CO2e saved for passenger cars from 2006-2020 is 893,036,956 and light trucks is 803,450,943 for a total reduction of 1,696,487,899 tons of CO2e. The change is much more significant than one might originally anticipate. Overall the additional four years leads to an additional saving of 1,080,534,058 tons of CO2e. The table below documents all of the yearly reductions for the 2006-2020 analysis.

The primary reason for such a dramatic increase in emission reduction is the separation of fuel economy between President Obama’s plan and the standard growth model. Early in the analysis most of the active cars are those that have fuel economies prior to the new targets set by President Obama. However, as those cars age and are replaced with newer models the fuel economy difference between the two models expands. The additional four years between ending at 2016 and 2020 creates further separation whereby 2020 only the 12-year old cars (2008 purchase) still equate a fuel economy between the two models. When expanding the program to 2020, how well do these new targets do at meeting the proposed emission scenarios?

Expansion to 2020 does a better job of trying to attain the poor scenario, but still fails.

Although the President Obama’s fuel economy goal does significantly reduce emissions, the result is still lacking according to the energy gap analysis. However, this first part of the analysis leaves out an important element in the reduction of transportation emissions, electric vehicles. Although the previous energy gap analysis assumed that electric vehicles would not be responsible for any reductions in the transportation sector due to a lack of infrastructure, what would be the result if they were included in some respect?

For the purpose of this analysis a simplistic model of the electric car was utilized where charge only flows one way from the outlet to the car, the car was not able to return surplus to the grid. A value of 0.225 kW-h per mile was utilized to describe the emission potential of the electric car used in this analysis. The same yearly mileage expectations were utilized for electric cars.
The establishment of the grid is a little tricky. Due to the ideal of reducing energy generating emissions over time the grid providing electricity to the car will be in a state of flux. Based on the previous analysis of the energy gap, it is highly probable that the shift in energy generation will move from coal to natural gas with a small addition made by zero emission renewables (in this analysis a 2.5% increase in total energy generated is supplied by renewables). The flux of the grid is shown in the table below with 2006-2016 in the second and third column and 2006-2020 in the fourth and fifth.

With this information each portion of the emissions can be calculated for any electric car fleet via the following equation:

Vehicle # * [Dave * Euse / Emissionratio * %Power Type]n (2)

where Euse = Energy used per mile; Vehicle # = Number of Electrical Vehicles; Emissionratio = MW-h per ton of CO2; % Power Type = Mode of Energy Generation [Coal, Natural Gas or Renewable];

The final issue with regards to electric vehicles was their incorporation into the fleet. Overall it would unrealistic to expect any serious change in electric car ownship until at least late 2010 when serious models are introduced like the Volt (sorry Tesla). Add another year to create a reasonable infrastructure and expand plug-in assessories. Therefore, 2012 was assumed to be the start year for significant incorporation of electrical vehicles into the fleet. Electric car purchasing was thought to increase by 3% per year from the start year of 2012 until acquiring the requisite 10 or 20% at the end year of the analysis (2016 or 2020).
Based on the emission saving potential of an electric vehicle the previous standard of car replacement only after 12 years was dismissed and instead a new replacement procedure was designed for electric cars. It was hypothesized that the older the car the more likely the owner was to replace it with an electric car. The table below outlines the replacement probability.

The total tons of CO2e saved for passenger cars from 2006-2016 is 530,675,840 and 737,789,372 tons of CO2e when replacing 10% and 20% of the fleet with electric cars respectively.

The total tons of CO2e saved for passenger cars from 2006-2020 is 1,237,952,164 and 1,593,326,221 for 10% and 20% electric car incorporation respectively. Note that more of that reduction actually comes from the increase in fuel economy extension from 2016-2020 than conversion to electric cars.
The table below documents all of the yearly reductions from electric car incorporation for 2006-2016.

* Compared against the Obama plan, a positive number indicates a percent greater reduction from electric, a negative number indicates a percent greater reduction in Obama plan;

From the data there is no change between 2006-2011 because electric cars are not incorporated into the fleet until 2012. However, it must be noted that the emission reduction values estimated in this analysis for electric cars are probably inflated by 1-3% because when computing the emissions from electrical sources only CO2 was considered and not other GHGs, whereas all GHGs produced from the combustion of gasoline were considered. Also electric car incorporation requires an additional 43,473,510 MW-h and 86,947,021 MW-h of energy for 10% and 20% respectively.
The results on electrical car incorporation and how it compares to the three transportation emission reduction scenarios are shown in the tables below, the first being for 2006-2016 and the second 2006-2020. Note that no trucks were estimated to be electrical in the analysis, thus the truck emission reduction data is the same as the first part of the analysis.

Inclusion of electric cars generates a significant improvement in the ability to meet the poor transportation reduction scenario (for 2020). However, estimating a 20% conversion within the entire passenger car portion of the vehicle fleet in only approximately 5-10 years seems rather optimistic to the point where it is unrealistic. The problem is when electric cars are introduced in late 2010, it is probable that they will be more expensive than a combustion engine vehicle which may reduce probability of purchase. Also it may take longer to set up an appropriate electrical car infrastructure, where the electric car is the one that a commuter takes for that 10-20 mile drive to and from work instead of the combustion engine, than the year estimated here. Finally if anything ever goes wrong with an electric car that cannot be explained away as an isolated incident, say good-bye to any significant growth in purchase for 1-2 years.

Another element missing is specifics about the fuel economy targets, most notably how will the target points of 39 mpg and 30 mpg be calculated? Will automobile manufactures be allowed to average all available for purchase vehicles to determine their average fuel economy (combustion, hybrids, plug-ins and 100% electrical)? That scenario seems to be the most probable which then will further reduce the total emissions reduced from the program vs. the assumption made for this analysis in that all combustion vehciles averaged the target point. In this analysis the fleet average for passenger cars for a given manufacture that included electrical, hybrids and others was actually higher than 39 mpg. Also there is the aforementioned problem of consumer behavior. Just because a fleet averages 39 mpg it does not mean that consumers will purchase vehicles which those fuel economy standards despite the assumption to the contrary in this analysis.

For example suppose that manufacture A includes enough hybrids etc. so that their non electrical models only have to average 34.5 mpg. Using 34.5 mpg instead of 39 mpg on a 10% electrical cars purchase model reduces the emission reduction for cars from 2006-2016 from 530,675,840 tons of CO2e to 435,684,982 tons of CO2e or 17.9%. Clearly it is important to assign clear and binding guidelines to how the fleet average fuel economy for a given car manufacture will be calculated.

Finally when talking about emission reductions in the transportation sector, the media likes to flash around the equavlent number of cars that a certain policy or piece of legislation would remove from the road. In this analysis a press statement could be made that through the course of the program, President Obama’s target would take the equvalent of 121 million cars off the road. That sounds like a big number (lower than the 177 million that the White House throws around), but when crunching the real numbers and applying meaning to the ‘cars off the road’ number, it loses a lot of its power. The ‘removed’ stat can be very misleading in that in actuality it only refers to one year not permanently. So when someone states that such-and-such an action is like removing 100 million cars from the road, it actually means that such-and-such an action is like removing 100 million cars from the road for one year. Therefore, it is important not to get caught up in the sound bites and look for the real information. Overall based on this analysis President Obama’s fuel economy target will reduce CO2 emissions from the transportation sector and is a good start, but much more needs to be done if the appropriate transportation reductions are going to be met by 2020.
1. “Emissions of Greenhouse Gases Report” Table 5. U.S. Carbon Dioxide Emissions from Energy and Industry, 1990, 1995, 2000-2007. Energy Information Administration. Dec 2008.

2. 40 Code of Federal Regulations (CFR) 600.113-78 - Fuel economy calculations.

3. Emission Facts: Greenhouse Gas Emissions from a Typical Passenger Vehicle. Environmental Protection Agency. EPA420-F-05-004 February 2005.

4. Allen, Mike and Javers, Eamon. “Obama announces new fuel standards.” May 19, 2009.

5. Table 1-11: Number of U.S. Aircraft, Vehicles, Vessels, and Other Conveyances. US Bureau of Transit Statistics.

6. “Light-Duty Automotive Technology and Fuel Economy Trends: 1975 Through 2008.” Appendix C - Fuel Economy Distribution Data. Table C-5: Sales Weighted Percentile Distribution of Adjusted Composite Car Fuel Economy and Table C-6: Sales Weighted Percentile Distribution of Adjusted Composite Truck Fuel Economy. Environmental Protection Agency. September 2008.
7. “President Obama Announces National Fuel Efficiency Policy.” The White House - Office of the Press Secretary. May 19, 2009.

Friday, June 19, 2009

Emission Reduction and the Energy Gap: How Easy is 17%?

Note: A more complete, advanced and accurate model for this subject matter can be viewed at:

For more information on the relevance of this topic read the Introduction and Waxman-Markey post.

One of the most important issues in any climate legislation is establishing a workable emission cap. The nuance of establishing a proper cap can be tricky because if the cap is too soft the overall level of abatement will be insignificant to reduce the probability of detrimental and permanent climate change. However, if the cap is too stringent it may become apparent long before the target year that the goal is unattainable which may reduce the driving motivation for abatement, period. In addition a cap that is too stringent will run into the problem of the energy gap. The question of the energy gap will be specifically addressed below.

Note that after reading this post it will become apparent that individuals who talk about how easy reaching a 17% reduction in 2005 emissions by 2020 are not looking at all aspects of the issue. Those that believe in the ease of attaining 17% must neglect to consider the total power generation that coal is responsible for, overestimate the ability of efficiency increases to reduce energy requirements and/or disregard the highly probable reality that energy requirements will not flat-line from now until 2020. Out of these three factors the most important one is future energy demands that will be made on the energy production infrastructure by 2020. If the United States did not require additional energy then a 17% reduction by 2020 could be easy. Unfortunately that is not the case. It is irresponsible to simply play the Wizard of Oz with the additional energy requirement [pay no attention to the energy that will be required in the next decade].

The total amount of U.S. energy generation from various sources in 2006 and 2007 is shown in the table below.1

* includes both Thermal and Photovoltaic
# all values are in MW-h rounded to the nearest thousand;
Note: There is an error in the table [Petroleum % Change should be +1,573,000 not -1,573,000]

From the table coal, oil and natural gas make up »71.62% of all energy generation. Unfortunately these sources are those that need to be targeted when reducing CO2 emissions, most notably coal. Therefore, successful reduction of CO2 emissions will result in the loss of a significant portion of energy. The real question is not whether or not there will be an energy gap, but how large will that gap be and what needs to be done to fill it?

The figure below illustrates the major sources of greenhouse gas emissions in the United States in 2007.2

It is logical to expect that a vast majority of the emission cuts in the United States will come from the transportation sector and the energy generation/use sector. The energy sector accounted for 53.6% of the total emissions in 2007 and 64.8% of CO2 emissions (3,902.3 million tons) and the transportation sector accounted for another 27.66% total emissions and 33.45% of CO2 emissions (2,014.4 million tons).3,4 Overall it would difficult to expect significant cuts from the agricultural sector not only because it is responsible for a lower percentage of emissions, but the emissions associated with the agricultural sector are more difficult to control than those in the transportation or energy sectors.

Another element that must be considered in any analysis of the energy gap is the fact that energy requirements are not going to reach equilibrium at any point in the near future, but instead the demand for energy will increase. Therefore, not only must zero/low emission sources supplement the energy that is lost from the higher emission sources, but they must also accommodate these new demands for additional energy.

The following analysis is designed to answer the two above questions, how large will the expected energy gap be and will the anticipated growth rates of non-emission producing sources be sufficient to eliminate this gap? In addition a third question will be addressed: how will the additional energy that will be required for the future be generated while still staying in the confines of the emission cap?

General Analysis Assumptions –

The American Clean Energy and Security Act of 2009 (ACES) is passed by the House and Senate as is (17% reduction of 2005 emission levels by 2020)

The reason for this assumption is that the analysis must have an emission reduction target and the one provided by the ACES makes the most logical sense to use because it currently has the highest probability of actually being reality.

By 2020 carbon emissions have been reduced to 100% of the cap.

What is the point of even conducting the analysis if the emission cap is not successful at reducing emissions? On the other side it is probably unrealistic to expect a significant emission reduction beyond the cap.

Economic considerations are ignored.

Initially one might view this assumption as unrealistic and irresponsible, but the purpose of this analysis is to identify possible solutions for bridging the energy gap, not to investigate the most economically efficient solutions. In addition it is difficult to make cost estimates for certain energy sectors over a decade into the future due to changing technology and demands.

100% of the energy reductions come from the coal sector.

Coal is commonly regarded as the ‘dirtiest’ form of energy. For every 1 MW-h of coal »1 ton of CO2 is released into the atmosphere whereas natural gas and petroleum only release »0.4 and »0.75 tons of CO2 per every MW-h of energy produced.5 Therefore, an optimized emission reduction scheme would remove the highest polluting entities first. Also petroleum only produces »1.5% of the energy in the United States, thus any petroleum cuts would be merger anyways.

No offset considerations were included in this analysis

The goal of this analysis was to develop a strategy where one would have a level of rational confidence regarding the energy requirements for both the successful acquisition of the emission cap as well as bridging the energy gap. Offsets cannot be regarded as genuine emission reductions 100% of the time (in fact no one can really define even a genuine percentage for offsets although most would assign a range from 33 to 67%). Clearly inclusion of offsets would be counter-productive to a real analysis concerning the energy gap. Would the inclusion of offsets lessen the required growth for all other power suppliers, it is highly probable that they would; however, it is difficult to determine an accurate assessment due to the lack of a defined percentage or even an estimate to how many will be purchased from now until 2020; therefore it is not rational to include them in the analysis.

Any changes in atmospheric methane, sulfur dioxide and nitrogen oxides (NOx) concentrations are insignificant.

This assumption is probably not very accurate because realistically it is highly probable that concentrations of methane and various nitrogen oxides will increase, but estimating additional requirements is not easily identified and could skew the analysis. Basically this assumption hopes for a favorable outcome with regards to other GHGs.

All reductions in the transportation sector come from either increased fuel efficiency or use of gasoline/biofuel blends where the biofuel is derived from an algae source.

This assumption is a little stretch, but a vast majority of the early reduction in transportation emissions is going to come from increased fuel efficiency and incorporation of gas/biofuel blends. Although hybrids, plug-ins and electricity vehicles have a significant amount of attention, until an automotive infrastructure supporting them is better established, it is difficult to conclude that their impact will be significant through widespread incorporation.

Due to the importance of emission reduction in both the transportation and energy sector, the analysis looks at three different scenarios for transportation emission reduction, a poor transition, an average transition and an optimistic transition. The poor transition scenario will assume a 10% reduction in transport derived CO2 emissions from 2007 to 2020 (a 2.766% reduction in total CO2 emissions). The average transition scenario will assume a 20% reduction in transport derived CO2 emissions (a 5.532% reduction in total CO2 emissions). The optimistic transition scenario will assume a 30% reduction in transport derived CO2 emissions (a 8.3% reduction in total CO2 emissions). All other emission reductions not included from the transportation sector were taken from the energy sector.

The energy providers that were explored to fill the gap consisted of nuclear, wind, solar, biomass and geothermal. Natural gas was examined independently because it is not a zero-emission energy provider. It was assumed that there would be no significant growth in the petroleum or hydroelectric sectors. Petroleum was excluded because similar to natural gas, petroleum is not a low/zero-emission energy provider so any increases would not result in a significant enough emission reduction vs. coal. Also petroleum only makes up approximately 1.5% of the total energy generation anyways so any reduction in petroleum as a means to successfully adhere to the 2020 cap would be rather insignificant vs. the other reductions that have to be made. Hydroelectric was excluded because the overall growth rate of hydroelectric stations has pretty much peaked and energy generation has largely cycled within a range of 240,000,000 MW-h to 290,000,000 MW-h since 2000.1 Any tide based hydroelectric power was considered insignificant based on its growth potential and total energy generation potential.

The total amount of emissions between the energy and transportation sectors in 2007 was approximately 5,916,700,000 Gt of CO2 (2,014,365,849 via transportation and 3,902,334,178 via energy).3,4 The 2020 emission cap for the ACES is 17% of the total carbon dioxide equivalent of 2005 identified in Section 721, subsection e, Part 2, Section A, subsection i of the ACES as 7,206 million tons, thus the emission cap would be 5,980,980,000 tons of carbon dioxide equivalent. However, assuming no reductions from any non-CO2 gases reduces the allowable amount of CO2 that can be emitted to 4,615,180,000 tons. Therefore, if the assumption of no significant reduction of CO2 from sectors other than energy and transportation holds, the total reduction of emissions required between those sectors equals 1,301,520,000 tons.

Information from 2007 is used in the analysis because it is the most recent complete data for both carbon emissions and energy generation from various sectors. Although preliminary information has been compiled by the EIA regarding 2008,6 the information will not be officially released as a full report until sometime around mid November. Also the use of 2008 information may not be accurate due to investment and use aberrations generated by the economic slowdown that occurred in mid 2008 and carried over into early/mid 2009.

The following table describes the expected emission reductions in tons of CO2 under each of the three proposed transportation reduction scenarios.

In addition to the energy gap that is generated from removing coal, there is the additional energy that society will demand as it grows between now and 2020. The EIA estimates that the additional amount of energy that the U.S. will utilize in 2020 that is not directly transportation related in the form of petroleum is approximately 4.9 quadrillion Btu.7 However, due to possible efficiency measures in the ACES as well as increased public awareness to the importance of efficiency, it is reasonable to assume that some of this anticipated energy requirement will not be necessary. Three scenarios were analyzed pertaining to possible changes in efficiency, no efficiency change (0%), a 30% reduction in the EIA estimate and a 50% reduction in the EIA estimate.

In the report “International Energy Outlook 2009” the EIA estimates various growth trends for various forms of energy and fuels up to 2030 for a variety of countries including the United States. Using the growth estimates from this report and other available EIA information, will enough energy be generated to bridge the gap? From the information an annual energy generation and capacity growth rates from 2006 to 2020 can be estimated for wind, nuclear and geothermal.8,9,10 Unfortunately no trusted growth rate for biomass could be isolated so what was deemed to be a reasonable rate was assigned. Solar photovoltaic and solar thermal growth rates were also calculated, but because EIA information on 2007 energy use does not differentiate between the two the larger of the two calculated growth rates was used to model the growth of the solar power sector.11 Calculated annual growth rates were 8.165, 0.65, 2.94, 5 and 11.17% for wind, nuclear, geothermal, biomass and solar respectively.

However, the annual growth rates calculated above are different from the growth rates that were experienced between 2006 and 2007 as shown in the first table. Most of the growth rates between 2006 and 2007 exceed those that are calculated from the long-term EIA estimations. The energy generation potential of alternative energies was also examined using these growth rates.

The first analysis looked at the ability of the two suggested growth rates to cover only the energy gap created by removing coal to reduce emissions to meet the 2020 cap under all three transportation scenarios. The inclusion of natural gas was not utilized in this initial analysis and no future energy considerations or savings due to efficiency were included.

The growth rates calculated from the EIA projected information result in an energy generation that falls well short of filling the energy gap for any of the three scenarios providing only 190,834,782.5 MW-h of additional energy. The growth rates seen between 2006 and 2007 successfully covered all of the potential energy gaps providing 1,277,540,577 MW-h of additional energy. This success was due in large part to the huge 29.56% annual growth rate attributed to wind energy, which accounted for 75.45% of the new renewable power generation.

The results of the first analysis are shown in the table below.

* the % difference is structured that a value of 0 relates to an energy value exactly equal to the energy gap;
** GR = Growth Rate;
*** Wind Power Alone represents the percentage of the energy gap that is filled by only using energy generated by wind with the 06-07 annual growth rate;

Unfortunately there are some problems with making the assumption that the 2006-2007 growth rate for wind will persist until 2020.

The first big problem is that is it unreasonable to assume that wind will continue to grow at an enormous 29.56% annually. First, percentages can at times be misleading. For example it is much easier to generate a 100% increase in the GDP if the GDP starts at 1 million dollars instead of 1 billion dollars. Due to the initial low energy generating capacity of wind in 2006, a merger 26.589 million MW-h, generating large growth rates is rather easy when significant investment is made in wind power.

Second, due to the fact that most large wind turbines only produce between 1 and 3 MW each, wind power generation on the scale of that which is needed for 2020 just to fill the anticipated energy gap will require large swathes of land. For example the largest wind farm in the United States is Horse Hollow Wind Energy Center in Taylor and Nolan Counties in Texas, which produces 735 MW of peak power from 421 turbines, covers a land mass of 47,000 acres or approximately 64 acres/MW.12 Such a land/power ratio does not compare favorably to that of the average 500-1000 MW coal plant, which has a land/energy ratio of 10-19 acres/MW. Assuming an increase in wind turbine efficiency from now to 2020 of 20%, wind based energy would still have a land/power ratio of 53.29 acres/MW for wind farms of comparable size. The land issue aside, the problems of the unpredictability of wind power/capacity issues or the lack of sufficient batteries to store it during high times must also be solved.

Moving the wind generation base offshore may somewhat alleviate the problem of land use, but would also increase costs as well as possibly reduce efficiency due to long transmission lines. So unfortunately although wind power currently has the most potential to fill the gap left by coal energy, realistically one should not expect a large percentage of that gap to be filled by wind as the decades roll on, unless some new cost-effective technological discovery is made pertaining to wind power such as aerial suspension or a greater increase in efficiency than is assumed in this analysis. Overall it is difficult to predict an annual increase in wind power of greater than 20% leading up to 2020 and that may be stretching it.

Using the 20% growth rate for wind in lieu of the 29.56% seen between 2006 and 2007, the energy provided by various forms of alternative energy was 647,716,387.2 MW-h, which falls short of the energy gap generated in all scenarios. So clearly something other than wind power has to fill the remaining gap.

Nuclear power has the second largest generation potential. Unfortunately in recent years the growth of nuclear power has stalled due to persisting and for the most part unwarranted fears about meltdowns and weapon proliferation from left over waste, yielding an annual growth rate from 1996 to 2007 of only 0.646%, similar to what the EIA assumes will be the growth rate leading into 2020.13 The biggest problem with nuclear power is waste disposal, which still lacks a viable solution. The disposal site at Yucca Mountain has not been expanded like previously planned and some in the current Obama administration and current Congress even believe that it should be shutdown. An additional, but lesser discussed problem is the lack of low-radioactive waste storage sites, those used to store items with low levels of radioactivity.

Some argue that breeder reactors solve the problem of both nuclear waste and questions about stolen nuclear material for terrorism, but despite decades of research on breeder reactors by France and Japan, the leaders in the field of nuclear technology, breeder reactors still have failed to really excel in the nuclear market. Even if the main problems with breeder reactors (economics and cooling safety) are sorted out, there is still the time required for construction that needs to be taken into consideration. This construction time is also an obstacle for non-breeders (thermals) as well. Normally it takes anywhere from 4-8 years to build a nuclear plant from the planning period to the ‘ribbon’ cutting. In addition although it looks promising, pyro-metallurgical processing, which is considered to be superior to current reprocessing methods, has yet to be demonstrated beyond the pilot plant level. Some estimates put the actual operational time for a pyro-metallurgical processing breeder at least 15 years away.

Despite all of these problems nuclear still has a significant advantage over all other forms of alternative energy generation on the market, its operational capacity. The new generation of nuclear plants can run over 90% of the time and last for over 60 years with little maintenance costs, well little once the problem of nuclear waste is neutralized. So reinvestment in nuclear power may be exactly what the doctor ordered for the emission target in 2050, but not for the emission target in 2020. However, if this is the case, clearly the nuclear revival has to begin soon, if not immediately.

Overall there is little to discuss about solar power and its ability to fill the gap; it is still far behind in energy generation, much further behind then it needs to be, but that can be attributed to the high cost of the conventional silicon solar cells. New thin-film solar cells have generated significant reductions in cost, but a percentage of those reductions are diminished because these thin-film solar cells are less efficient than the conventional silicon solar cells. Hopefully lower costs from the thin-film cells and an increase in future subsidies will generate a drive in solar photovoltaic production.

The good thing about solar power is that realistically it can only go up in energy generation; the bad thing is it may be a long time before its cost effectiveness vs. other low/zero emission energy technologies like wind, nuclear and geothermal will be competitive, which will stunt its growth potential and its ability to be a significant contributor to the energy gap in the United States unless some just put their heads down and pays the higher costs.

Biomass offers a wide variety of possible methodologies for power generation ranging from co-firing in coal plants, dedicated steam cycles, integrated gasification combined cycles and combined heat and power (CHP). However, each of these methodologies has a significant concern that could curtail long-term growth. Co-firing has a concern with the loss of coal plants in general due to tightening emission standards, which will threaten its efficiency. CHP has a problem with the long-term viability of its supply chain, for feedstocks will compete with other agricultural processes. Also regardless of the electricity generation methodology, biomass has another hidden cost in the emissions that are generated as a result of transporting the feedstock to the plant itself. Biomass plants are rather inefficient unless they have access to large amounts of feedstock. Until the transportation mechanism runs on zero emissions it is difficult to regard biomass energy production as an energy medium that can produce the required quantities of energy and be generally carbon neutral. The growth potential of biomass is difficult to gauge. The overall base load is huge, up to 20 billion MW-h14 a year, but the range of how much of this capacity will actually be accessed is large and difficult to prognosticate.

Geothermal energy is in a similar boat to that of nuclear, it has the capacity to run longer and generate more energy per land mass than solar, wind or coal, has a specific methodology of production (enhanced geothermal systems) that if developed will generate even more energy and has a long construction time due to neglect. Before geothermal can produce a significant amount of energy new information pertaining to appropriate construction sites need to be identified, most likely through a new geological survey, which would take a number of years. Initial surveys have developed a reasonable estimate of geothermal activity, but those estimates need to be augmented in order to identify the most promising locations to maximize output in the shortest period of time. It needs to be noted that geothermal technology is currently not carbon neutral, but its emission ratio of 7.5 MW-h per ton of CO2 is 3 times cleaner than natural gas and 7.5 times cleaner than coal.15 Overall aside from nuclear, geothermal might represent the best opportunity for future sustainable alternative energy growth.

Therefore, with little hope of driving any low/zero emission technology to the radical growth potential required to significantly aid in filling the energy gap created by the elimination of coal from the energy generation market, natural gas needs to be tapped to fill the gap. Natural gas is already utilized in large quantities for power generation accounting for 21.56% of the energy utilized in 2007. The good thing about natural gas is that it produces anywhere from 50-60% less CO2/MW-h than coal.5 The bad thing about natural gas is that it is still a significant emitter over other cleaner technologies, so its use makes achieving the carbon emission cap more difficult.

Due to the fact that natural gas does release about a ton of carbon dioxide per about 2.5 MW-h of energy generated, it is important to compensate for those additional emissions. Therefore, as long as there is coal generating energy, that coal is removed from the energy equation by a ratio of 2.5:1 versus energy generated by natural gas.

For example suppose an additional 1000 MW-h of energy is generated from natural gas. This energy also results in an additional 400 tons of CO2, which will increase the amount of CO2 emitted over the cap by 400 tons. Thus, 400 MW-h generated by coal needs to be removed from the equation to reduce the amount of CO2 emitted to adhere to the cap. Therefore, only 600 MW-h of net energy will be generated from this sequence (1000 – 400). Then an additional 400 MW-h of energy is produced from natural gas and more coal is reduced until enough coal is reduced that the energy gap is filled and the emission standard is met.

The analysis utilizing natural gas involved both the three scenarios of transportation emission reduction and the three scenarios of efficiency. Three different elements involving natural gas were examined, natural gas without the assistance of any other energy sectors, natural gas in consort with the future calculated growth rates and natural gas in consort with the 2006-2007 growth rates projected to 2020. 27 different investigations were carried out to explore each grouping of parameters where success required both adherence to the cap and filling the required amount of energy.

The table below outlines the energy requirements for each scenario in the analysis in MW-h.

Overall 13 of the 27 (48.18%) investigations successfully fulfilled both conditions of maintaining the cap and filling the energy gap. Somewhat surprising was that 2 of the 9 investigations at 0% efficiency created a successful result. Unsurprisingly only 1 of the investigations at 10% transportation created a successful result. The reason for such a lack of success when using 10% transportation as a criterion was that the energy gap was too large because 90% of the emission reduction had to come from energy and not enough energy is derived from burning coal to offset the additional emissions produced by natural gas to bridge the gap. The reason the lack of coal as a power base is a problem is there is too little energy generation from zero emission sources causing natural gas to do a lot of heavy lifting to bridge the gap. Only at 50% Efficiency using 2006-2007 growth rates was the 10% transportation reduction successful because the above problems were lessened.

As expected the burden on efficiency was reduced with higher the transport emission reduction percentage and visa-versa. Understandably the most successful investigations took place assuming 50% efficiency and 30% transportation due to the significantly reduced energy demands.

The table below summarizes the successes in the analysis and the respective details of those successes.

Although the above table documents all of the investigation parameters that resulted in successfully attaining the emission cap of 17% and the generation of enough non-coal derived energy to eliminate any energy shortfall, not all success is equal. Most notably although all of the above scenarios met the first checkpoint for a valid situation, there are other factors that must be considered.

First, the coal energy % factor determines the amount of total energy that is still derived from coal as a function of the percentage of coal that still remains producing energy. For example a coal energy % of 30% does not mean that coal energy would be reduced from 48.5% to 30%, but that 48.5% of all energy being derived from coal is reduced by 70% changing the 48.5% number to 14.55%. Basically the coal energy % number represents the remaining percentage of energy derived from coal from the original 48.5%.

At first glance one might suggest that the lower the number the better, however, this assumption is incorrect. The higher the number the better because not only does a higher percentage indicate a greater emission reduction well to draw from for future reductions, but it also indicates a more orderly transition from coal derived power to lower emission sources. It is difficult to imagine that in a decade the United States can transfer a vast majority of energy generation from coal sources to lower emission sources without a significant level of cost and energy disruption. Therefore, the lower the coal percentage the lower the probability that such a scenario will actually occur in real life.

Looking over all of the results one is not inspired with much confidence as from 2006 to 2020 the EIA estimates an annual growth rate of coal based energy coal of 0.46%16 whereas the most promising investigation scenario suggests a required annual transition away from coal derived energy of 6.772%, an extraordinary high number. Overall it is unlikely that any scenario with a coal energy generation under 15% will be successful.

Second, the natural gas growth rate is the required annual growth rate to attain the necessary energy and emission values. This factor creates another avenue for failure for the initial successes because overall if the growth rates are too high then it is unrealistic to expect those rates to be achieved. So how high is too high? Since 1996 until 2007 the highest year to year growth in natural gas as an energy source was 10.82% from 1997 to 1998.16 2006 to 2007 produced the second highest year to year growth with the aforementioned 9.81%. In addition the future annual growth rate of natural gas from 2006 to 2020 can be calculated at 0.78% with 96.5% of that growth coming in the last 5 years (from 2015 to 2020).17 Some may argue that with continuing increases in production from shale gas reserves that the EIA estimate is far below what will actually happen. Even if this contention turns out to be turn overall it would be rational to conclude that any growth rate over 10% would be difficult to sustain from now until 2020.

Third, the total natural gas volume figure represents the additional amount of natural gas that will have to be burned in 2020 to provide the requisite energy. Approximately 2.97 trillion cubic feet (cf) of natural gas was utilized in energy production in 2007, which accounted for about 12.86% - 15.9% (depending on whose estimate is used) of the total volume of natural gas utilized. Some argue that such a low percentage of natural gas is used in energy generation because the economics favor coal derived energy production and they would be correct. According the EIA, in 2007 the average cost of natural gas at electric power plants is approximately $7.11, over four times higher than the average cost of coal ($1.69).18

The figure below demonstrates that while costs of natural gas has steadily increased over the last decade, coal costs has barely increased.

However, this analysis demonstrates that these costs will have to be addressed because to fulfill adherence to the cap and attaining the required energy for 2020 estimates an increase in natural gas utilization in energy generation of 142 to 361%. With the sheer amount of natural gas that will have to be utilized to simply maintain appropriate levels of energy in the coming decade, some fear that natural reserves of natural gas in the United States will become stressed to the point where the United States will have to rely on other nations to provide the natural gas. Others claim that by tapping into shale gas resources importation of natural gas will be unnecessary. Either way decisions will have to made regarding whether or not the United States will accept the environmental costs of expanding the domestic supplies of natural gas or greater economic costs through importation.

Fourth, recall that for the purpose of this analysis natural gas was assumed to emit 60% less CO2, but what would change if natural gas based energy generation occurred at the lower end of the emission ratio (50%) instead of the higher end of the emission ratio (60%). If the lower emission ratio is utilized 6 of the 13 successful investigations are no longer successful. Now such a change is valid within the confines of this analysis because of the assumption that the concentration of non-CO2 GHGs does not change. However, in reality it is more likely that the higher-end of the ratio is more legitimate than the low end, thus the reason the high-end was used; however, it is important to realize that natural gas plants need to be run at levels that produce at least this 60% less ratio otherwise the conversion between coal and natural gas will make it significantly harder to meet the 2020 ACES emission cap.

In total when analyzing all of the initial successes under the secondary set of examination conditions only four of the original thirteen investigations remain successful. Most of the failures stemmed from exceeding the emission cap rather than failing to bridge the energy gap. Clearly if the 17% emission cut is going to be acquired without an energy gap, the United States will at least either have to increase energy efficiency by 50% against the anticipated increase in energy that will be required by 2020 or reduce the amount of emissions from the transportation sector by at least 30%, a pair of daunting tasks.

With the results generated from analyzing the elements required to attain a 17% reduction in 2005 emissions, an additional question was asked, ‘What is the maximum reduction in 2005 emission that can be successfully attained?’ Assuming acquisition of the maximum efficiency potential (50%), the maximum transportation reduction (30%) and the maximum renewable growth rates from either set of estimates, 23.974% is the largest emission cap that can be attained under the maximum boundaries assigned in this analysis. However, logic indicates that even though this percentage can be achieved it would be difficult because it assumes that all optimistic parameters are attained.

One interesting question from this analysis regarding the progression of the future energy infrastructure in the United States is the debate between energy efficiency and renewable innovation and infrastructure. The ACES Section 782 subsection g allocates permits to go into a fund labeled the State Energy and Environmental Development (SEED) from which state and local governments can draw funds for efficiency and renewable projects. 20% of the SEED money must go to renewable energy programs and another 20% must go to energy efficiency leaving the remaining 60% to be allocated freely between the two. Both increasing energy efficiency and advancing renewable innovation are important; however, there is a push for more focus on efficiency than renewable development, which is a mistake. Some encourage a 75%/25% ratio of energy efficiency to renewable energy, which it is estimated could save up to 2.45 quadrillion Btu of energy by 202019, cutting the required energy projected by EIA in half as outlined in the optimistic efficiency scenario. Unfortunately most people become enamored with energy efficiency because it represents the quintessential ‘low-hanging fruit’ of emission reduction.20 However, as demonstrated in this analysis, the problem with this strategy is two-fold.

First, energy efficiency can only go so far and until world population trends change efficiency will be unable to do anything about all of the new individuals that will demand a greater amount of energy in the future. Second, renewable energy projects take time, one cannot just snap a finger and invest a half billion dollars and the next day have a 600 MW wind farm up and running. It takes years to construct the energy infrastructure for just one alternative energy based plant that will produce a significant amount of energy to be meaningful, but if too much focus is placed on energy efficiency when additional power required from alternative energy is needed, the time gap will be too great and there will be a high potential for the formation of an energy gap.

The question between energy efficiency and renewable energy investment can be viewed in the following analogy. Suppose you are on an island and stumble on a supply of fish. You could spend your time doing one of two things: studying cooking and fish anatomy or teaching yourself how to fish. By studying cooking and fish anatomy you will increase the amount of meat you can consume from a given fish. By learning how to fish you will increase your supply of fish. Increasing energy efficiency is similar to studying cooking it increases the amount of energy/food derived from a specific quantity of material. Learning to fish is similar to investing in alternative energy it increases the amount of energy/food you have. If there is a limited supply of material and/or the demands on the material is at a certain level, which is the current situation for the environment, it is more beneficial to increase the supply of the material over maximizing what can be acquired from the material.

Overall the energy requirements that are necessary to both fulfill the expected economic growth for the future by ensuring that enough energy is available as well as meet the emission cap provided by the ACES is doable, but daunting. Based on this analysis it appears that cheerleaders who crow about how easy it will be to meet the 17% goal need to re-evaluate their stance because it is not going to be that easy. Investment in alternative energy innovation and infrastructure in all sectors (wind, solar, nuclear, geothermal and biomass) will need to be significantly higher than most propose or predict in order to achieve the growth rates that will result in the necessary production capacities. Although energy efficiency cannot be abandoned, it appears that it needs to take a backseat to alternative energy innovation and development, otherwise either the emission cap of 17% will be much more difficult to attain or economic growth will slow significantly due to the resultant energy gap. However, it must be emphatically stated that the cap cannot be lowered any further than 17% in some desperate attempt to kowtow to the viewpoint that the cap must be attainable or there is no point in having a cap. Meeting the cap is not a black and white issue; a tougher cap will typically mean more momentum to achieve tougher standards in the future. This analysis did not even consider looking at the caps beyond 2020, but if anyone honestly believes that the United States will make a 42% cut in 2005 level emissions by 2030 without focusing largely on renewables over efficiency in the coming decades then those individuals might be interested in this remarkable bridge that is for sale.


1. “Electric Power Industry 2007: Year in Review.” Table ES1. Summary Statistics for the United States, 1996 through 2007. Energy Information Administration. May 2008.

2. Energy Information Administration. Figure 1. U.S. Greenhouse Gas Emissions by Gas. 2007.

3. “Emissions of Greenhouse Gases Report” Table 5. U.S. Carbon Dioxide Emissions from Energy and Industry, 1990, 1995, 2000-2007. Energy Information Administration. Dec 2008.

4. “Emissions of Greenhouse Gases in the United States 2007.” Table 6. U.S. Energy-Related Carbon Dioxide Emissions by End-Use Sector, 1990-2007. Energy Information Administration. Dec 2008.

5. Hong, B.D, and Slatick, E. R. “Carbon Dioxide Emission Factors for Coal.” Energy Information Administration, Quarterly Coal Report, January-April 1994 pp 1-8.

6. “U.S. Carbon Dioxide Emissions from Energy Sources 2008 Flash Estimate.” Energy Information Administration. May 2009.

7. “International Energy Outlook 2009.” Table F3. Delivered Energy Consumption in the United States by End-Use Sector and Fuel, 2006-2030. Energy Information Administration. May 2009.

8. “International Energy Outlook 2009.” Table H8. World Installed Geothermal Generating Capacity by Region and Country, 2006-2030. Energy Information Administration. May 2009.

9. “International Energy Outlook 2009.” Table H5. World Installed Nuclear Generating Capacity by Region and Country, 2006-2030. Energy Information Administration. May 2009.

10. “International Energy Outlook 2009.” Table H7. World Installed Wind-Powered Generating Capacity by Region and Country, 2006-2030. Energy Information Administration. May 2009.

11. “International Energy Outlook 2009.” Solar Photovoltaic and Solar Thermal Electric Technologies Box. Energy Information Administration. pg 68-69.

12. Mims, Christopher. “The World's 10 Largest Renewable Energy Projects.” Scientific American Magazine. June 4, 2009.

13. “Electric Power Annual 2007.” Table 1.1. Net Generation by Energy Source by Type of Producer, 1996 through 2007. Energy Information Administration. January 2009.

14. Kharecha, Pushker, Kutscher, Charles, Hansen, James. “Energy and Climate Mini-Workshop Report Options for Near-Term Phaseout of Carbon Dioxide Emissions from Coal Burning in the U.S.” February 2009.

15. Bertani, Ruggero, Thain, Ian. "Geothermal Power Generating Plant CO2 Emission Survey". IGA News (International Geothermal Association) (49): 1-3. July 2002.

16. “International Energy Outlook 2009.” Table A7. World Coal Consumption by Region, Reference Case, 1990-2030. Energy Information Administration. May 2009.

17. “International Energy Outlook 2009.” Table H12. World Net Natural-Gas-Fired Electricity Generation From Central Producers by Region and Country, 2006-2030. Energy Information Administration. May 2009.

18. “Electric Power Annual 2007.” Energy Information Administration. January 2009. pg 7.

19. “HR. 2454 Addresses Climate Change Through a Wide Variety of Energy Efficient Measures.” American Council for an Energy-Efficient Economy. June 2009.

20. Creyts, Jon, et, Al. “Reducing U.S. Greenhouse Gas Emissions: How much at What Cost? U.S. Greenhouse Gas Abatement Mapping Initiative Executive Report.” McKinsey & Company. December 2007.

Monday, June 15, 2009

The Myth of Flip Flopping

I was recently flipping channels and overheard one talking head accuse another talking head of being a flip-flopper. This is a disturbing trend that has become somewhat prevalent in our society, applying a fictional nonsensical label of flip flopper against the character of an individual. The most notable use of this label occurred during the 2004 Presidential Election against the Democratic Candidate John Kerry. What is unfortunate is that those who applied this label to Mr. Kerry were doing so without applying any sufficient level of logic.

Flip-flopping is commonly defined as having a different opinion to a single issue or question at different points in time. Such rationality makes no sense because it implies that no one should be able to change his/her opinion regarding any issue without the new opinion being chastised. Overall there really is no such thing as flip-flopping and the word itself should be removed from the lexicon of human language. Flip-flopping does not properly describe the circumstances behind a change in opinion.

There are two primary explanations for a communicated change in an individual’s opinion. The first is the individual acquires new information regarding the matter at hand. Analysis of this new information leads the individual to draw a different conclusion. It is foolish and inappropriate to contend that a person is weak or flimsy when adopting a new opinion on an issue when that new opinion is derived from fresh analysis of new information or a more accurate analysis of old information. To highlight the irrationality of this thought-process suppose a young boy that previously concluded that 2+2 is 6 learns how to correctly add and changes his opinion to 2+2 is 4. For some this individual would be viewed as a flip-flopper. Instead of condemning this boy as wishy-washy and weak we should commend him for identifying and correcting his mistake. Often matters are made worse by individuals stubbornly refusing to accept that their original opinion was incorrect.

The second explanation is the individual may just be changing his/her opinion to suit the viewpoint of another individual or group. When no new information or analysis is utilized when changing an opinion, such action is not flip-flopping, but simple pandering, telling the audience something they want to hear in order to be viewed more favorably. These individuals should not be labeled as ‘flip-floppers’, but instead ridiculed as agents that do a significant disservice to society by misrepresenting their actual beliefs. Such misrepresentation is unfortunate because it reduces societal clarity regarding available information increasing the probability that some individuals make decisions they otherwise would not make.

This characterizing feature of decision-making is why it is important to know how individuals come to the decisions that they do. When asking questions to prominent individuals, to whom phantom flip-flopping is more frequently attributed, these questions need to demand details to the methodology the individual used to come to his/her conclusions instead of simply scratching the surface for a quick sound bite.

Wednesday, June 10, 2009

Welcome to the Bastion where logic and debate reside. Basically I have become disheartened by the demise of debate in this world. In this place my personal motto rules: “I do not care about being right, I care about getting it right.” Feel free to comment on anything relevant, but do so backed with logic and/or valid empirical evidence. One of the few absolutes in life is that no one will be right all the time, thus one must be intelligent and flexible enough to know when one is wrong and correct that thinking. If you are too stubborn, basking in the alleged superiority of your own viewpoint and are unwilling to have your beliefs challenged or unable to change them when they are unable to survive scrutiny then do not waste your time or my time commenting.

With that said, time to get the ball rolling with what will be one of the defining issues for our species, climate legislation in effort to evade significant consequences of global warming. Although it may be a little late to the party it would be prudent to begin by commenting on the Waxman-Markey Climate Bill currently making its way through the House of Representatives.

The prospective passage of the Waxman-Markey Carbon Cap and Trade Climate Bill, otherwise known as the American Clean Energy and Security Act of 2009 (ACES)1, represents a failure by our elected leaders to respond appropriately to the looming problem of climate change. When reading the bill one is disappointed that Congress actually believes that a cap and trade system with such characteristics will have a high probability of success. Of course there is the skeptic who thinks that Congress realizes such legislation has little chance at success and is only passing it to ward off any attempts at crafting legislation that would succeed because of short-term economic stresses. Such thought is akin to an individual taking an out of court settlement from a corporation that wronged them for an amount significantly less than what would be awarded in civil court under the premise that at least this way some monetary redress is guaranteed, even though it is not nearly what was required or even deserved. So what features of the ACES create the concern for failure?

1. Grandfathering available carbon permits:

Grandfathering (a.k.a. giving away for free) carbon permits routinely creates three significant problems, although it should be noted that the way the ACES orchestrates their allocation program is rather complex, thus it is difficult at this moment to ascertain the severity of these concerns. First, grandfathering permits places an initial cost of zero dollars on the permit, maximizing the value of that permit to the holder. In turn the lack of cost associated with the permit creates a significantly higher probability of sporadic permit price volatility on the trading market, a point that most cap and trade opponents point out almost incessantly. The reason for this volatility is that with no purchase price, the market must cover a greater range of values to identify an equilibrium price whereas in auction the market price is better identified through how companies bid, almost a form of quasi-trading, trading without actually trading. This price volatility will typically make cutting emissions more expensive.

Why does volatility increase the cost of cutting emissions? The lack of a general stabilized price range undermines the benefits and advantages of innovation and investments in zero/low emission technology, especially when permit price collapses, which occurred in both phase 1 and phase 2 of the European Union’s Emissions Trading Scheme (ETS).2 In addition price volatility tends to raise the cost of investment in new technology by raising the self-imposed cost/benefit ratio driving support or opposition to an investment. Clearly it is difficult to justify an investment that will result in a loss for a long period of time. Overall it is reasonable to suggest that most companies would rather have a higher permit price as long as it was stable so investment decisions could be made with a greater prognostication of economic benefit. However, here is where some significant uncertainty enters into the equation because of how the permits are allocated to regulatory entities instead of directly to power generating entities themselves, thus it is less straightforward how the market will react to the intervention of the regulatory entities.

Suppose for now the regulatory entities do not play a significant role in trading. Due to volatility decreasing the ability to predict whether or not an investment will be successful, the relative increase in expense could be transferred to consumers in the form of higher energy prices and higher prices on energy-intensive consumer goods. The interesting issue is that permits are grandfathered largely for the express purpose of avoiding increases in energy prices under the argument that if companies do not have to pay for permits, those companies have less reason to increase energy prices in effort to recover the capital invested in those permits. However, due to the high probability of price volatility instead of investing additional capital in purchasing permits at auction, companies will have to invest additional capital used for innovation and infrastructure readjustment. There is some defense to dramatic cost increase to energy consumers due to the existence of regulatory entities, which should do a good job controlling any radical price increases, but what about small price increase which is all the industry will need to retain profit in the early stages of the legislation.

One defense tool used by the ACES against potential price volatility, most notably price collapse, is the administration of a price floor, currently slated at $10 to increase by 5% annually plus adjustment for inflation. Unfortunately the way the price floor is designed in the ACES it may not do much good dealing with any price collapses until the late 2020s.

The price floor is described in the ACES in section 791 - Auction Procedures Subsection d as the ‘minimum reserve auction price’. The problem is that the price floor is only applicable to the auction. Now a price floor will prevent the price collapse of auctioned permits because if one has to pay at least 10 dollars for a permit it is highly unlikely that the permit will be sold elsewhere for less than 10 dollars. However, if a permit is not auctioned then the price floor is completely meaningless because it is not applied. As long as a limited percentage of permits are put up for auction vs. being freely distributed a price floor will have a limited effect on price collapse prevention. Therefore, it is reasonable to suggest that with very similar permit distribution conditions, it is probable that in the early years of the ACES permit prices have a significant probability of behaving in a similar fashion to the permit prices in the first couple of phases of the ETS as illustrated in the figure below from Point Carbon.

This probable behavior means that if price collapse does indeed occur after a significant price spike then measures need to be taken immediately otherwise with such a low price all financial penalties associated with emitting carbon without a permit cease to be threatening because the those penalties are linked to the current fair market value for permits. Price collapse pretty much means that no significant emission reduction will occur over the course of the collapse.

In addition to the price floor, the ACES utilizes a ‘strategic reserve’, which here on will be referred to as a ‘safety valve’, to prevent significantly high permit prices. The idea of a safety valve is to ensure that permit prices do not experience artificial price inflation.3

There is reason to be concerned about the administration of a safety valve as it does provide for an opportunity to put more emission permits into the market, which could lead to a total emission profile that exceeds the assigned cap for a given year and even threaten to increase emissions beyond those of the previous year. The safety valve for the ACES accumulates 1% of the total emissions established for a given year from 2012 to 2019, 2% from 2020 to 2029 and 3% from 2030 to 2050 generating an initial pool of »2.718 billion permits to draw from. Drawing from the fund is structured at 5% of the emission cap from 2012 to 2016 and 10% from 2017 to 2050 equating to a total drawing power of »11.985 billion permits over the lifespan of the ACES. Minimum prices for the auction of these safety valve permits are established over three time sectors. First, in 2012 the price is twice the EPA modeled price for the average allowance. Second, in 2013 and 2014 the price is 5% more than the previous year plus the rate of inflation. Third, from 2015 to 2050 the price becomes 1.6 times the average allowance price over the last three years. Basically it is reasonable to postulate that the minimum bid price in a safety valve permit auction will be 75% to 85% of the current penalty price for emissions that lack a permit. Once the initial safety valve pool is used up, additional permits are added via a theorized 1:1 trade-off with international forestry offsets. The idea is that before the government can issue more permits global carbon emissions need to be removed in equivalency to avoid simply doing an end run around the cap. Unfortunately as will be discussed later, there is reason to question whether or not this strategy generates an actual 1:1 trade-off ratio or even something close to it.

Despite the cap-breaking potential of a safety valve, the key to the safety valve is not the fact that it exists, but what event(s) triggers access to it. This element is where one should get nervous because it appears that there is no trigger. Based on the ACES as it current stands 4 safety valve auctions are held during a calendar year each having an initial capacity of 25% the total amount of permits auctioned for the year with roll-over. The problem with this execution is that with an EPA estimated permit price of 15-20 dollars over the 1st phase of the program (2012-2020) there is very little incentive for emitters to invest in zero/low emission technology when they can just purchase permits from the safety valve pool. The reason this problem exists is because a safety valve was originally designed to neutralize large price spikes due to uncertain volatility brought on by unpredictable outside elements such as abnormally warm summers or unexpectedly strong economic growth both which would drive a greater demand for energy. However, initial modeling of permit price indicates that this price spike attribute will not been experienced in the ACES for a considerable period of time, largely due to the small range of permit price thus the economic advantage to having a safety valve is significantly reduced leaving little reason to include a safety valve at this point in time.

Too much emphasis has been placed on avoiding the generation of windfall profits for the coal industry. There are a variety of safeguards (whether or not they will work is another story) that have been inserted into the legislation to ward off such an effect. Proponents of the coal companies seem to be focused on ensuring that coal companies survive the legislation rather than profit from it.

Overall it is difficult to deduce whether or not the use of regulators as middlemen in the permit distribution process will exacerbate or alleviate the potential for price collapse, which is an important point that few parties, whether for or against the ACES seem to address. I do not know a lot about the energy regulatory industry, but I do not think that price collapse will be so easily thwarted.

Second, grandfathering permits eliminates any capital that may be acquired by the government in association with the distribution of those permits. The lack of this capital is significant because the acquired capital could be used to relieve the financial stress of energy price increases due to the cap and trade system, invested in alternative energy research and development or even used to pay down the national debt. Unfortunately under the ACES there are limited funds allocated to each of these sectors, much less than could be allocated if permits were auctioned off instead of freely distributed. The limitation of funds directed towards alternative energy technology, efficiency, improved infrastructure, etc. is a significant problem because it increases the transition time between a fossil fuel power infrastructure and a power structure more reliant on non-fossil fuel power generation, thus increasing the amount of time for meaningful emission reduction and lengthening the time of any economic stresses on the average citizen.

Third, depending on the distribution strategy grandfathering permits can create significant problems with bias in that permits do not go to those companies that value them most, but instead can easily go to those companies that the government favors the most. Currently electricity generators are slated to receive the most with the rest of the permits divided between energy-intensive manufacturers, carmakers and natural-gas distributors etc. following behind. When government gets involved with trying to pick winners and losers in what should be competitive industries things can get messy very quickly.

This reality is especially true when utilizing updating allocation, which ties the quantity of allowances receives to production. This form of allocation can act as a subsidy distorting financial decisions further increasing costs. Another reason auctioning is superior as it eliminates the possibility of updating allocation.

Some may argue that some of the permits are being allocated in such a way that it is beneficial. Most of the permits that fall under this ‘beneficial’ category are designed to protect consumers from price increases or foster energy efficiency. Overall such a plan has noble intentions, but as previously mentioned both of these goals could be achieved more efficiently by auctioning off the permits instead of freely allocating them.

2. A 17% reduction of carbon emissions using 2005 as a reference point by 2020:

Probably the most controversial problem of the ACES is the total estimated emission cap. Some believe that the cap is too stringent while others believe that the cap is not stringent enough. Realistically those that suggest the cap should be much more stringent, something closer to a reduction of 30-40% of 1990 levels by 2020 are not being realistic. Whether or not they believe that number to be necessary or not to evade severe environmental consequences, overall it is probably unrealistic to expect such a significant reduction in such a short time period without significant damage to the economic infrastructure.

Some pushing for this above emission goal seem to think that all society has to do is plop down a $200 per ton of carbon tax or something similar and then everything will be perfectly fine. The additional cost almost instantly pushes out fossil fuel energy providers and then alternative energy providers, most notably solar and wind energy, instantly step in and fill the 0.5, 1 maybe even 2 million MW-hr gap left by the removal of the fossil fuel energy providers. Forget all of the bureaucracy involved with building power plants in general, forget that currently alternative energy only provides approximately 7-8% of domestic energy supply and about 70-75% of that is hydroelectric which is not expanding anytime soon,4 forget that there are still significant technological hurdles in generating large quantities of alternative energy and forget that nuclear energy is not going to come to the rescue for at least another two decades. Overall the entire thing reminds me of the old Sidney Harris cartoon where a professor is asking his student to “be more explicit here in step two” where step two is simply the phrase “then a miracle occurs” between various mathematical equations. This energy gap issue will be addressed in much more detail at a later date.

However, with that said, a 17% reduction in the next 8 years (the emission cap does not really begin until 2012) is too small largely because it is highly probable that such a low emission reduction will be insufficient to drive the advent of the needed technologies and their respective infrastructure to create the necessary emission reductions further into the future (70-90% of 2005 levels by 2050). This bill should not be about 2020 or even 2030, but about 2050 and beyond. Making attainable caps is great, but it can be argued that it is more important to set meaningful goals that may be just out of reach to generate momentum for the future. Realistically it is unlikely to expect the United States to exceed the 17% emission reduction target, especially without any international or new domestic legislation citing an emission reduction target for the future with significant punishment for not reaching that goal.

The first 15-25% reduction in emissions will probably be the easiest due to increases in efficiency, power grid evolution and small changes in alternative energy, which will not necessarily involve any new infrastructure or technology. Such thought is referred to as picking the low hanging fruit. However, without significant momentum going into the early mid-century it is unlikely to expect a 50-70% reduction in emissions over the next 30 years, a reduction that most climatologists believe will be necessary to ward off detrimental and permanent environmental changes and something that the ACES calls for.

3. The inclusion of carbon offsets:

Interestingly the first thing that should give one pause about carbon offsets is how enthusiastic corporations are about including them in environmental legislation. For fossil-fuel intensive corporations, which typically drag their feet about almost everything regarding climate change and emission reduction, why are they so vehement about the inclusion of carbon offsets. In some respects carbon offsets act as a form of alternate carbon permit. However, these ‘permits’ have a track record for costing significantly less than actual permits or cutting actual emissions thus delaying the inevitable emission conversion infrastructure.5,6,7 Recall that the entire idea of offsets is to allow a company to reduce the costs of compliance associated with an emission cap or tax by paying for abatement in areas where such action is cheaper.

Also offsets create a problem in that if the offsets do not overlap permits then allowance of sufficient offsets can lead to emissions that will exceed an emission cap. Now it could be argued that the cap is not exceeded because the offset neutralizes supposed carbon emissions somewhere else in the world thus there is no net increase in global carbon emissions. The legitimacy of this claim is entirely dependent on what carbon offset options are offered. For example offset projects that focus on investment in alternative energy technology do nothing to reduce emissions in the present and may not result in any future reduction in emissions. To simply receive offset credits for attempting to reduce emissions is unacceptable, actual emission reduction must be identified and validated to receive offset credits.

That said it is difficult to confirm the authenticity of carbon offsets and the actual amount of carbon dioxide the particular offset prevents from entering the atmosphere. Due to this confirmation difficulty, the possibility for manipulation is very real. Also there is no time-based delineation pertaining to the polluting activity. Basically a country can construct a plant for the sole purpose of polluting, prevent that polluting and collect offsets for doing so. The most telling example highlighting flaws in offset strategy occurred in China with the ‘neutralization’ of HFC-23s resulting in the acquisition of millions of dollars of profit in offsets.8 The reason the HFC scheme was so profitable was because due to its heat trapping capacity one ton of HFC-23 generated 12,000 CO2 credits, yet preventing HFCs from entering the atmosphere is rather cheap.9 Fortunately there has been a reduction in HFC mitigation projects over the last few years, but there are still many problems with the way offsets are currently handled by the international community.

A study from Stanford University regarding the efficiency of Clean Development Mechanisms (CDMs) the offset tool provided by the Kyoto Protocol noted that10:

“Well-designed offsets markets can play a role in engaging developing countries and encouraging sound investment in low-cost strategies for controlling emissions. However, in practice, much of the current CDM market does not reflect actual reductions in emissions, and that trend is poised to get worse.”

In addition the GAO concluded that 7

“Specifically, the CDM has provided a way for industrialized countries to meet their targets that may cost less than reducing emissions at home; however, available evidence suggests that some offset credits were awarded for projects that would have occurred even in the absence of the CDM, despite a rigorous screening process… (2) that the use of carbon offsets in a cap-and-trade system can undermine the system’s integrity, given that it is not possible to ensure that every credit represents a real, measurable, and long-term reduction in emissions; and (3) that while proposed reforms may significantly improve the CDM’s effectiveness, carbon offsets involve fundamental tradeoffs and may not be a reliable long-term approach to climate change mitigation.”

It is unlikely that in the last year, since the release of these reports, any significant changes have occurred in the evaluation and validation method for carbon offsets, those provided in the Kyoto Protocol or those provided in the ACES. In fact it is impossible to comment on any specifics for validation from ACES because the Offset Integrity Advisory Board does not exist yet, so references can only be made to the general structure of validating offsets. Therefore, it is difficult to make the argument that carbon offsets are a legitimate form of emission reduction, thus it is more probable carbon offsets simply add an additional ceiling to the existing cap.

Getting into the mathematics of the offset program in the ACES. The ACES allows for up to 2 billion in total offsets, broken down into 1 billion in domestic sources and 1 billion in international sources where international capacity can be increased by 50% at the expense of domestic capacity at the discretion of the EPA. Thus, if 100% of the total allowable offset capacity is utilized the cap can be up to 2 billion tons larger, which will more than likely significantly diminish the effectiveness of the legislation up to 2030. However, to paint such a dreary picture of zero to almost zero actual emission reduction one has to assume that all of those offsets represent offsets that actually do nothing to reduce global carbon emissions, an assumption that is rather irresponsible. Also one must assume that all of the offsets are utilized. Offsets may be a concern, but one must be careful not to assume the worst-case scenario when it is not very probable. One interesting little wrinkle is in Section 722 subsection E where the President can recommend to Congress increasing or decreasing the number of offsets, so the 2 billion capacity can be changed.

Originally a positive regarding the design of the offset program in the ACES was the use of a conversion ratio between offsets and carbon allowances of 1.25:1, which would have provided a small safety buffer to absorb some bad or false offsets, but the conversion rate was reduced back down to 1:1 for domestic offsets and international offsets between 2012 and 2017 [the first 5 years]. Such an action is unfortunate as it weakens the reliability of the offset program. A better strategy would have been to include the 1.25:1 ratio for the first five years to ensure accuracy in the validation methodology for accepting offsets and then reduce the ratio down to 1:1 if validation was proven worthwhile and costs dictated a reduction in the ratio.

Some, including Mr. Joe Romm11, believe that the total amount of offsets offered is irrelevant because companies will take advantage of clean energy solutions that he estimates will cost less than the offsets. Initially such a contention seems a little counterintuitive in that if offsets were such a bad deal from a cost perspective why push to include so many offset opportunities and such capacity? However, it cannot be assumed that all independent entities will act logically, even if it is in their best interests, thus an examination of available options is prudent.

According to the EIA coal with a carbon content of 78 percent and a heating value of 14,000 Btu per pound emits about 204.3 pounds of CO2 per million Btu when completely burned. Complete combustion of 1 short ton of this coal releases »5,720 lb of CO2 creating a ratio of 2.86 lb of CO2 per lb of coal burned and that coal produces »4.103 kW-hr per lb of coal burned, thus typical coal-based power generates about 1.435 kW-hr per lb of CO2 released.12 Factor in an efficiency of energy use »35% and one receives a value of 0.502 kW-hr per lb of CO2 released. Understand that because not all coal is completely uniform this number is not static for all coal plants, but does generate a reasonable number from which to work from.

Currently most estimates put the electricity costs of coal-based power generation at a cost of 5-8 cents per kW-hr whereas the electricity costs for solar, wind, geothermal and biomass are 20-30, 5-10 [although this number is artificially lowered due to not factoring in low capacity], 5-12 and 5-13 cents per kW-hr respectively.4,13,14,15,16,17,18 Nuclear and Hydroelectric were excluded because overall it difficult to view nuclear as a ‘low’ cost transition option due to the investment and capital costs as well the bureaucracy and time involved in completing a plant. Although nuclear power will provide a valuable energy resource in the future, rapid turnover is not its strong suit. Hydroelectric capacity has been significantly tapped and any significant increases in generation are unlikely (tidal power is far behind schedule).

Add a $10 to $20 dollar per ton of CO2 released cost to coal power generation and that increases the price per kW-hr by 1 cent to 2 cents. Therefore, it is unlikely that an energy corporation will undergo the capital and transition costs of generating more non-fossil fuel energy in favor of current fossil-fuel energy production solely due to such a merger increase in costs. In addition the high probability of price volatility in the ACES will make it even harder for energy providers to know when it is cost effective to diversify. Energy companies can recoup such a cost rather easily and the probability that they lose any customers from this increase is quite small. Under a higher permit price infrastructure changes could be better motivated, but based on the possibility of price collapse and even the EPA’s own modeling it is unlikely that a price higher than $25 will arise before 2020 and that assumes a favorable environment for permit price increase.

If permit price itself will not motivate companies to cut emissions what about any consequences levied for emitting without permits? Unfortunately it is difficult to believe that there will be any consequences with the double-layered safety net provided by the ACES. First, the offsets provide a nice pollution blanket because even if the price is what Mr. Romm assumes ($25 per ton of CO2)11 such a cost will typically be less than the capital penalty authorized by the ACES from emitting without a permit (the penalty is twice the fair market value of a carbon permit). Depending on the price offsets will either be used in their entirety or just as a cheaper stopgap. Although only a small number of CERs were issued (80-82 million for 2008),19 according to data complied by the GAO7 there are a number of CDM programs waiting for either official registration (» 2700) or distribution of CERs (» 700 [400 were recently denied]) as shown in the below figure. Therefore, despite costs, various companies seem to be eager to take advantage of offset opportunities.

Overall it will take the pipeline of approval a while to spit out all of the CDMs that are approved and those that are not approved and their associated CERs since the scheme first started issuing credits in 2005. This delay though calls into question how effective offsets are at actually stabilizing costs because if most offset programs are not officially approved or disproved until years after they are proposed and/or initiated it is difficult to postulate on whether or not other contingency strategies need to be administered. Think of it as trying to make financial decisions in 2009 while wondering if you will get a Christmas bonus in 2011.

The second element of the safety net is the aforementioned safety valve, which was discussed earlier. A quick side note in that the overall penalty for emitting carbon dioxide without a permit is a complete joke. Simply requiring a double payment will not act as a deterrent for companies when permit prices are so low, a simple price increase of 1 or 2 cents neutralizes those penalties allowing said company to emit as much as it wants. The penalty needs to be backbreaking to motivate energy companies to diversify their power generation infrastructure, i.e. invest in innovation to reduce your carbon emissions, trade for more permits or go out of business. To that end the penalty for emitting should be at least 5 times the current market value of a carbon permit. Overall I would rather a company pay for an offset than be penalized because with the purchase of an offset at least there is a greater than 0 probability that global emissions are being reduced over no chance of a reduction if the penalty is administered.

Will all that has been said about carbon offsets, a critical question in determining their effectiveness is how useful are they at actually initiating projects that reducing carbon emissions of their own accord? Looking at the results from an unscientific poll conducted by the GAO the responses of a pool of 26 experts are given in the below graph.7

If percentage values were assigned to the responses of these experts to the additionality of CDM programs a crude efficiency value can be generated. Percentage of confidence values are assigned at 0%, 34%, 67% and 100%, which generates an average additionality of 50.4%. So according to an average of experts using a somewhat crude methodology to generate a starting estimate, offsets can be validated at approximately 50% additionality (half of the offset projects would have occurred despite the availability of offsets, i.e. only half of CDM programs represent real progress towards the emission goals of a particular piece of climate legislation). Another study5 places a 60% additionality validity on CDM programs, better than the above crude estimate, but not nearly good enough as this number needs to be at least over 90% for offsets to be viewed as a legitimate means of emission reduction.

Overall the most problematic issue with offsets is all of the uncertainty surrounding their application. Not only are there questions about additionality and actual emission equivalency reduction, but there are issues with offset price and how many are actual utilized. In addition it is unlikely that offset prices will increase at a rate that will overtake the penalty price administered for emissions not covered by a permit. Also despite proposed competition it is as unlikely that the maximum allotment of international offset capacity will be unavailable for investment, however, the time frame in which these credits will actually be awarded is unknown. Therefore, it is rational to conclude that under the ACES, a significant amount of offset capacity that proves to be necessary will be utilized instead of investing in cleaner alternative energy technologies and infrastructure or reducing emissions to avoid paying the penalty. In the end it is difficult to argue that under the current methodology for the administration of offsets, that offsets represent a valuable tool in emission reduction although it may be a useful tool economically. In some respects it almost seems like people thought to include offsets because they had to, not because it was useful to do so, using the mindset, the ETS has offsets, there are all of these voluntary offset programs in the U.S. so any federal cap and trade legislation needs to include offsets too.

A quick side note, one thing that people really should not worry about with the ACES is its length. Congress tends to write legislation like Strong Bad writes research papers about batteries. “A little double space action… a little triple space action…” with 1.5 margins it inflates something that should be 300 pages quite easily to 932 pages.

4. Congressional Attitude:

However, as most have probably already realized, the biggest problem is Congress itself. For example when Representative Rich Boucher, a Democrat, is able to tell the Bluefield Daily Telegraph “…Therefore, [electric utilities] can comply with the law while continuing to burn coal.”20 such a statement is a strong indicator that this bill will not significantly impact the fossil fuel infrastructure, a critical step in averting detrimental climate change. The scary thing is that later in the interview, Mr. Boucher states that he believes the bill should be further weakened to only a 14% reduction of 2005 levels by 2020. Clearly most Republicans and some Democrats seem to have no interest in taking the necessary steps to preserve sustainable environmental conditions for the only home currently suitable for human existence instead valuing their own personal political fate over the fate of future generations. What can be said about such an attitude other than it is utterly reprehensible and completely irresponsible. Note that no one should blame President Obama for the outcome of this bill because despite what some may have deduced from the last presidential administration the executive branch of the government does not make the law, the legislative branch does. The fact is Mr. Waxman and Mr. Markey should be praised that they got anything done in the first place, but it is unfortunate that more could not have been done.

Beyond the fact that it is something, which is of course better than nothing, a major saving grace for the ACES would be if it were necessary to guarantee that countries like China and India pass emission reduction legislation as well before or soon after the international climate conference at Copenhagen. Some argue that it is economically irresponsible for the United States to bear the burden of reducing emissions prior to countries like China and India passing emission reduction legislation because unless those countries also pass climate legislation, actions taken by the United States will be moot on a global level and the United States will lose its bargaining position. Realistically this argument is rather stupid because the United States and China have been playing a high stakes game of ‘emission reduction’ chicken for over a decade now and neither side has blinked up to this point. With China as adamant as ever about the United States cutting emissions first, utilizing the valid claim that the West is responsible for the bulk of the CO2 currently in the atmosphere, what leads individuals like Martin Feldstein and Jim Manzi to believe that China will blink first at any point in the near future? Or is he content to continue the staring match while the Earth literally and figuratively burns?

Unfortunately based on all of the criticism this bill is taking, it is highly probable that the leadership in both China and India will find a way to weasel out of doing their part in passing climate legislation of their own. It would be foolish of anyone to want this bill to fail, but unfortunately the probability that it succeeds seems small with all of the albatrosses that have been slung around its proverbial neck. Since assigning a meaningless superficial grade to this bill seems all the rage, I give it a D+.

Overall expecting a perfect bill would be amazingly unrealistic and there are some good things in this legislation; however, the most disappointing aspect of this bill is that Congress refused to learn from the mistakes made by past climate legislation, especially those made in the first phase of the ETS. The European Commission did learn, enhancing permit banking, limiting offsets, more auctioning, no more grandfathering offsets to power generators, etc. all to begin during the third phase (2013) of the ETS. Unfortunately instead of looking at the third phase of the ETS, Congress looked at the first phase to architect its climate strategy and just guess how the first phase of the ETS turned out. In this instance one is reminded of the adage regarding insanity – “Insanity is doing the same thing over and over again and expecting different results.”

1. American Clean Energy and Security Act -

2. Shapiro, Robert J. “Addressing the Risks of Climate Change: The Environmental Effectiveness and Economic Efficiency of Emissions Caps and Tradable Permits, Compared to Carbon Taxes.” February 2007.

3. Congressional Budget Office. “Policy Options for Reducing CO2 Emissions.” February 2008.

4. Kharecha, Pushker, Kutscher, Charles, Hansen, James. “Energy and Climate Mini-Workshop Report Options for Near-Term Phaseout of Carbon Dioxide Emissions from Coal Burning in the U.S.” Preliminary Draft; February 2009.

5. Schneider, Lambert. “Is the CDM fulfilling its environmental and sustainable development objectives? An evaluation of the CDM and options for improvement.” Prepared for the WWF. November 2007.

6. Robinson, Hugo and O’Brien, Neil. “Europe’s dirty secret: Why the EU Emissions Trading Scheme isn’t working.” Open Europe. August 2007.

7. Government Accountability Office. “INTERNATIONAL CLIMATE CHANGE PROGRAMS: Lessons Learned from the European Union's Emissions Trading Scheme and the Kyoto Protocol's Clean Development Mechanism.” November 2008.

8. Bradsher, Keith. “Outsize Profits, and Questions, in Effort to Cut Warming Gases.” New York Times. December 21, 2006.

9. Mukerjee, Madhusree. “Is a Popular Carbon-Offset Method Just a Lot of Hot Air?” Scientific American Magazine. June 4, 2009.

10. Wara, Michael, and Victor, David. “A Realistic Policy on International Carbon Offsets.” Program on Energy and Sustainable Development: Freeman Spogli Institute for International Studies. Working Group #74. April 2008.

11. Climate Progress. “Do the 2 billion offsets allowed in Waxman-Markey gut the emissions targets? Part 1.”

12. Hong, B.D, and Slatick, E. R. “Carbon Dioxide Emission Factors for Coal.” Energy Information Administration, Quarterly Coal Report, January-April 1994 pp 1-8.

13. IEA Energy Technology Essentials. “Biomass for Power Generation and CHP.” January 2007.

14. EIA. “Electric Power Industry 2007: Year in Review.” Table 3. Electricity Net Generation From Renewable Energy by Energy Use Sector and Energy Source, 2002-2006.

15. Solarbuzz. “Solar Electricity Price Index verses US Electricity tariff Price Index.”

16. American Wind Energy Association.

17. U.S. Department of Energy – Energy Efficiency and Renewable Energy – Geothermal Energy.

18. Williams, Laurie and Zabel, Allan. “Keeping Our Eyes on the Wrong Ball
Why Acid Rain is the Wrong Template and the 1990 CFC-Tax is Closer to the Mark - and Why Cap-and-Trade Won’t Solve the Climate Crisis But Carbon Fees with 100% Rebate Can.”

19. Point Carbon. “Companies overspend on carbon allowances.” May 15, 2009.

20. Owens, Charles. “Boucher: Cap and trade deal preserves coal jobs.” Bluefield Daily Telegraph. May 16, 2009.