Green Power or Green Jobs Until now I've avoided the debate over a proposed wind project in Texas involving Chinese investors, federal renewable energy stimulus grants and wind turbines from China, mainly because I didn't think I had anything salient to add to the unpleasant mix of protectionism and second-guessing that was unfolding. This morning I read a posting on the subject from the Breakthrough Institute that, while offering a coherent explanation of how we got to this point, convinced me that the real problem still hasn't been addressed. Although the inconsistency of past and present US energy policy is readily apparent, the current concerns arise from general confusion over the benefits of renewable energy, exacerbated by the recent effort to spin these projects and technologies in terms of "green jobs." When we don't really understand why we are doing something, it's easy to make any outcome look like a failure--and there is no shortage of elements from which to craft such a view in the situation at hand.

The chief complaint about the project in question is that it might be eligible to take advantage of a key energy provision of the American Reinvestment and Recovery Act of 2009--this year's stimulus bill--that allows the developers of a qualifying renewable energy project to collect an up-front cash grant from the US Treasury equal to 30% of the cost of the project. In this case much of that money, along with the funds provided by the US and Chinese partners, would go to pay for wind turbines imported from China. As a result, most of the jobs this project would create would be in China, not the US. On the face of it, this looks like a colossal loophole that some high-profile legislators--who incidentally voted for the stimulus bill including this feature--are rushing to plug. However, this only looks like a nasty unintended consequence of a hastily-crafted law if you misunderstand the mechanics and purpose of the Treasury renewable energy grant program.

You have to begin with the renewable energy tax credits that were in place prior to the passage of the stimulus bill. Qualifying wind projects normally received a federal tax credit of 2 cents per kWh generated for ten years after start-up, adjusted for inflation. Along with similar tax benefits for solar and geothermal power and other renewable energy technologies, the wind Production Tax Credit (PTC) was due to expire at the end of last year. Last fall's TARP bill extended this benefit through the end of 2012. So it's important to note that the West Texas project would have collected a similar amount of money from the government in the form of tax credits over the next decade, even without the option provided by the stimulus bill to convert those credits into an up-front cash grant. The latter merely made the cost of providing this benefit much more transparent. As noted in a report by the Investigative Reporting Workshop at American University, well over 80% of these grants to date have gone to non-US firms.

I can appreciate the outrage this has caused, particularly when this program was so heavily hyped as a way to create new jobs in the US during a recession, and in an industry that many see as holding the key to future US competitiveness in a carbon-constrained world. However, that outrage ought to be tempered by a clear understanding of the principal purpose for establishing the grants. Prior to the failure of Lehman Bros. last year and the subsequent seizing-up of the so-called "tax equity" market, it was customary for project developers to enter into agreements with banks and other parties to exchange the rights to their future PTC benefit stream for up-front cash to invest in the projects generating these credits. When that market became illiquid, new wind project development came to a virtual standstill. With financial markets in turmoil at the beginning of 2009, the Treasury grant program was conceived as a way to jump-start renewable energy project development, until the tax-equity market revived. In that regard it has been fairly successful, as evidenced not least by the sums issued under this program so far.

I can't tell whether the architects of this program failed to work through the consequences of their efforts sufficiently to see that, with domestic turbine makers such as GE Energy accounting for less than half of the US market, a large portion of the grants would end up benefiting foreign manufacturers. Perhaps they saw that potential but didn't appreciate the firestorm of controversy it would create, when someone figured out where the money was actually going. Or perhaps at that moment they were merely hyper-focused on getting legislation passed in order to arrest the apparent free-fall of the US economy. I'll leave that to others to sort out.

There's a deeper issue here, as well. The whole episode evokes memories of the endless debates over "industrial policy" in the 1980s. The US wind industry lags its European competition in market share because European countries chose to subsidize the sector through much more generous and consistent tax benefits and a hidden tax on electricity consumers (a.k.a. the "feed-in tariff".) But while that created an advantage for the European companies involved, it didn't make them self-sustaining or overcome the inherent shortcomings of wind power's intermittent output. In that light it's hard for me to regret that the US didn't invest more money in wind over the last 20 years. Another way to look at this is that European taxpayers and consumers have borne much of the pain of driving down the costs of wind power to a point at which it can begin to compete with power generated from natural gas (and to a much lesser extent from coal) with only the modest subsidies US taxpayers have been willing to provide.

That gets to the essence of the choice we need to clarify if we are to judge fairly outcomes such as the one presented in the proposed West Texas wind farm. Are we investing in these projects and these technologies mainly to create jobs in the US, or are we investing in them to generate low-emission electricity at the cheapest cost possible, in order to run the 90+% of the economy that is not devoted to producing energy?

Selling green energy as a jobs initiative has led directly to the confusion and consternation apparent in the reaction to Chinese investors and Chinese wind turbines in this West Texas wind project. The wind industry has already developed a globalized supply chain, similar to many other industries, and no one should be stunned if wind turbines from China show up in Texas, any more than China should be surprised that its nuclear power plant construction projects are creating jobs in the US. Our assessment of the value of renewable energy sources such as wind power should hinge on their efficacy at providing reliable and cost-effective energy supplies and reducing greenhouse gas emissions, not on domestic jobs creation--even in a recession.

Labels: China, feed-in tariff, nuclear power, ptc, stimulus, tax credit, wind power

  ¶ 2:01 PM

  The Way We Drive Now My posting of October 29th examined two of the ways we risk under-counting the greenhouse gas emissions (GHGs) from favored energy technologies such as biofuels and electric vehicles, with potentially serious consequences. Well, it turns out that the same joint proposal by the EPA and Department of Transportation establishing new fuel economy and vehicle emissions rules incorporates another, subtler distortion that could be even more significant over the next few years than treating electric vehicles (EVs) as if their external power sources emitted no GHGs. Consider the many ways in which personal transportation in the US has changed since the mid-1970s--longer commutes, heavier traffic, and new vehicle technologies--and then ask how it could possibly make sense to embed a vehicle-use statistic set by a 1970s' law at the heart of the new Corporate Average Fuel Economy system. Yet that is precisely what these new rules would do.

My scrutiny of the draft "Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards" rulemaking was an outgrowth of a recent conversation with Jeff Breneman, Executive Director of the US Coalition for Advanced Diesel Cars. In addition to promoting to an American audience the benefits of the improved engine technologies that have enabled diesel passenger cars to capture over half of the new-car market in Europe, this group advocates an approach to emissions reduction and improved energy security that emphasizes outcomes, rather than "flavor of the month" pathways. That resonates with themes I've been expounding since I began this blog nearly seven years ago.

According to Mr. Breneman, achieving a level playing field for advanced vehicle types such as diesels, hybrids, plug-in hybrids and pure EVs depends on establishing metrics for judging them that reflect "real-world driving." In the case of the draft EPA/NHTSA rules, that means updating their assumption that the average American drives 55% in city traffic and 45% on the highway. That ratio was set by the Energy Policy and Conservation Act of 1975, when there were 100 million fewer cars on our roads, each driving on average about 2,000 fewer miles per year, and the only alternative fuel vehicle I was aware of burned propane. According to the EPA's own data from 2006, current average driving patterns exhibit a roughly 43% city, 57% highway split, even though its 2010 vehicle sticker program is still based on the old 55/45 ratio.

This divergence between current and historical driving patterns has become more significant as the array of available vehicle choices has broadened to encompass technologies such as hybrids that perform best in city driving, but offer little highway benefit, and others such as diesels that are at their best in sustained driving above 45 miles per hour (highway driving by definition in the EPA's split.) For example, the 2010 VW Jetta Diesel is rated at 30 mpg city/42 mpg highway, compared to 41/36 for the Ford Fusion Hybrid.

The two agencies involved indicate they intend to assess carmakers' fleets using the old split until at least 2017. That means that during this crucial transition to stricter fuel economy standards these rules will motivate manufacturers to invest more in vehicle technologies that perform best under the old assumptions--despite the resulting misalignment with how consumers really drive now--in order to meet their tougher corporate targets. The difference gives hybrids an extra edge vs. diesel, over and above any disparity in purchaser tax credits. It would likely limit the choices available to consumers, given the high costs of developing additional models with drastically different powertrains.

Prolonged reliance on the outdated 55/45 split could affect actual GHG emissions, as well. A study by the Energy Information Agency earlier this year indicated that the lifecycle emissions of diesel vehicles are typically 15% less than for comparable gasoline-powered vehicles. When fueled with blends containing 20% biodiesel they emit levels of CO2 per mile similar to gasoline hybrids or plug-in hybrids recharged using grid-average power in much of the US. That's a surprising result for a technology option that generally costs somewhat less than hybridization and many thousands of dollars less per car than a plug-in with its expensive batteries.

I don't know whether US consumers would ever warm up to diesels to the extent that Europeans have. But given their attractive fuel economy and emissions benefits, they shouldn't be impeded from trying, merely because of an accounting ratio that was set when I was driving my first car. Nor do I buy the argument that diesels are a dead end, compared to electric vehicles. Interpolating from the EIA data cited above, diesel cars running on advanced biofuel derived from sources that don't compete with food crops or result in deforestation appear no less sustainable than a plug-in hybrid backed by California's low-emission power grid. When the time comes for me to buy my next car, I hope to see a wider array of clean diesel options, including some from GM and Ford, which make wonderful diesel cars in Europe.

Labels: CAFE, diesel, efficiency, emissions, fuel economy, hybrid, mpg, plug-in hybrid

  ¶ 11:33 AM

  Cheap Oil When the US invaded Ba'athist Iraq, many ascribed that action to a desire to seize the country's vast oil reserves and develop them on terms favorable to us, presumably to keep the days of cheap oil rolling on. After six years of oil prices far above their pre-war level, the last vestiges of that theory should be laid to rest by a careful reading of today's headlines concerning the announced production deal between the Iraqi government and ExxonMobil and Shell. The terms looks anything but lucrative for the Supermajors, which have won the opportunity to revamp output at one of Iraq's largest mature oil fields, West Qurna. However paltry the returns might look for the firms involved, this development could have a bigger impact on oil price--and sooner--than some of the splashier recent announcements concerning big oil finds off Brazil and West Africa.

The reported terms of the deal struck by Exxon and Shell in Iraq continue the trend of allowing access only on the basis of working as contractors, rather than as partners with an ownership interest in the underlying resource via a typical production-sharing contract. According to the story in today's Wall St. Journal, the companies will receive just $1.90 per barrel for their efforts to boost the flagging output of the super-giant West Qurna field, the output of which could increase by more than the current oil production of Texas (including the Gulf of Mexico.) Moreover, because the project entails virtually no exploration risk--the reserves are well-established--and minimal technical risk, and is already connected to infrastructure, the only real limitation on how fast it could begin ramping up is the local security environment and the ability of the firms to line up equipment and workers. This will still require several years, but it should happen a lot quicker than the time required to develop a new field with tricky geology in deep water.

So what does this mean? Well, for ExxonMobil and Shell it offers a relatively quick boost in production and revenue. $1.90/bbl is skimpy compared to what companies can make on their own discoveries, but over volumes this large it could translate into an extra $700 million of annual cash flow for the next 20 years. As attractive as that sounds, though, it comes without the ability to book new reserves, which are so critical to the valuations of oil companies.

The implication for oil prices will depend on many other factors, but the steady growth of Iraq's oil production from the current 2.5 million bbl/day to a level commensurate with the country's reported 115 billion bbls of reserves could at least compensate for some large declines elsewhere and help maintain a reasonable cushion of spare production capacity as the global economy gets back on track. This hardly bodes a return to $20 oil prices--an eventuality that would be much less welcome in the carbon-constrained world we're entering than just a few years ago--but it could buy us enough time for fuel efficiency and vehicle electrification to match Peak Demand to an inevitable peak in global production.

Labels: exxon, exxonmobil, Iraq, Iraq War, qur, shell

  ¶ 11:43 AM

  "Carbon Debt" A new term has entered our lexicon without much fanfare, but that is about to change. When the Conference of the Parties to the UN Framework Convention on Climate Change (UNFCCC) meets next month in Copenhagen, we will hear a lot more about "carbon debt" and the obligation that developing countries believe the developed world owes them for having used the atmosphere as a sink for CO2 and other gases since the Industrial Revolution. From my perspective, this approach looks counterproductive and risks scuttling the principal process for coordinating the actions of independent nations in addressing the most global of problems. The issues of international and inter-generational environmental equity raised by the accumulation of greenhouse gases (GHGs) are serious and complex, but framing them in this way will make it much harder to find acceptable middle ground, unless the delegations show restraint and common sense about how far to reach back into history to assess blame for a warming earth.

It was always going to be tricky reconciling the competing interests of the developed and developing worlds sufficiently to craft a new global climate agreement to replace the expiring Kyoto Protocol. In addition to large differences in per-capita wealth and income, many of the main players fall into one of two key categories: countries with large historical and current emissions of GHGs that are now moderating or even decreasing, and countries with relatively much smaller historical emissions but large and/or rapidly-growing current emissions. The nature of the cumulative climate impact of these GHGs makes that distinction a crucial one and the source of much rancorous debate. I've been thinking about the resulting issues of equity for some time, but I am extremely concerned by the turn that I see the negotiating process that started in Bali two years ago having taken.

The UNFCC doesn't make it easy to follow what's going on. Of all things it took a visit to a climate change skeptic's website to track down a reasonably current version of the negotiating draft that is being prepared for consideration in Copenhagen. That enabled me to locate the document on the UN site once I had its file name. Having scanned through it for references to carbon debt, I can see why they might have wanted to make it hard to find, since the principles embodied there are bound to strike most Americans as at least counter-intuitive. For starters, the notion of carbon debt is introduced early in the draft as a "guiding principle of the Convention", and described as, "historical responsibilities in greenhouse gas emissions and the related historical ecological debt generated by the cumulative greenhouse gas emissions since 1750 and the most recent scientific information." That word "debt" crops up many times in the document, with repeated references to the "emissions debt", "historical climate debt" and "adaptation debt" that developed countries "owe" to developing ones.

Lest you think that this is merely intended as an abstraction governing philosophical discussions of equity, the document makes it abundantly clear that this is about money and who shall pay whom. One of several examples in the text puts this in admirably concrete terms:

"Developed country Parties shall provide financial resources and transfer technology to developing country Parties to make full and effective repayment of climate debt, including adaptation debt, taking responsibility for their historical cumulative emissions and current high per capita emissions."

Unfortunately, as I noted in a lengthy posting on this topic a year-and-a-half ago, matters aren't nearly as clear-cut as this wording suggests. While the consequences of many decades' worth of emissions of CO2 and other long-lived GHGs certainly appear to be putting an unfair burden on developing countries, it would be equally unfair to the citizens of developed countries to tax them for emissions that occurred before the scientific consensus on global warming emerged in the last couple of decades. Arrhenius may have worked out that CO2 could warm the planet a century ago, but the relative importance of that effect amidst the many complex factors influencing the climate was anything but obvious then, and it is still not fully understood. It makes no more sense to burden modern Europeans and Americans for the emissions of our parents, grandparents, and great-to-the-nth grandparents going back 10 generations than it does to tax modern Chinese, Indians and Brazilians for the entire edifice of Western technology that has enabled their present and future development.

We are all in this together, and the only emissions we have control over are those that occur from here on out. Having said that, it's clear that without some recognition that developing countries didn't create this problem--no matter how much they might be contributing to it now--there will be no deal in Copenhagen. The only viable middle ground I see, if not from the standpoint of the inter-governmental delegations, then for the citizenry they represent, would be to recognize the disparities in historical emissions but impose an effective statute of limitations on them. No emissions prior to the establishment of the Framework Convention on Climate Change at the Second Earth Summit at Rio de Janeiro in 1992 should be counted for purposes of allocating emission targets or financial assistance. While such a compromise would greatly diminish the imputed carbon debt of the developed world and allocate a bigger portion of it to large developing countries like China and Indonesia--particularly when changes in forestry and land-use are factored in--it would hardly let the rich world off the hook. The countries of the OECD have collectively emitted on the order of 200 billion tons of CO2-equivalent GHGs since then--roughly half the world's total emissions in that interval.

It would be tragic if the Copenhagen climate conference could only arrive at a new global agreement on emissions by relying on a principle that American voters would ultimately find as unacceptable as the allocation of national emission-reduction targets in the Kyoto Protocol. It is challenging enough for our elected representatives to attempt to match federal tax revenues to our existing obligations, foreign and domestic. I can't imagine any President or Congress wanting to explain to the electorate--particularly with so many of them already exercised over growing deficits and the current tax burden--why they must pay higher taxes to send carbon-debt payments to some of the same countries that are competing for our jobs and industries, on the basis that previous generations of Americans put more CO2 into the atmosphere than past generations of Chinese, Indians and Brazilians. That sounds like political suicide to me.

Labels: Brazil, carbon debt, China, climate change, copenhagen, emissions, greenhouse gas, india, kyoto

  ¶ 1:17 PM

  A Clunkers Look-back Somehow I missed last week's minor tempest concerning this summer's Cash for Clunkers program (CFC.) It apparently started when auto industry publisher Edmunds, Inc. issued a report indicating that the effective cost to the government of the incremental sales stimulated by the program averaged roughly $24,000, rather than the $4,000 or so per car that participating buyers actually received. That's based on Edmunds' estimate of the sales they conclude would have occurred in the absence of CFC, shrinking its net contribution from 690,000 vehicles to only 125,000. This prompted a snarky response from the White House, questioning not only Edmunds' analysis but also their motives and basic competence, leading to a polite-but-firm rejoinder from Edmunds. Having expressed support for the CFC concept and its reported results in previous postings, I can't resist adding my own two cents on this affair.

Let's start with a basic fact: No matter how rigorously Edmunds or the federal government analyzes car sales data for this year, the number of cars that would have been sold during the months in question without the clunkers program is inherently unknowable, just as it is inherently unknowable how many jobs have been "saved" to date by the total stimulus program, of which CFC was only one small, belated aspect. This dispute hinges on differences of opinion and underlying assumptions, and the statistical projections of both sides must be taken with a grain of salt. However, any notion that it is somehow out of bounds to look back on the outcomes of such a program to assess its effectiveness should be rejected forcefully. Project look-backs, or post-completion reviews, are among the best tools that corporations have to learn from mistakes and improve future performance. These techniques are no less appropriate in the public sphere, particularly when the government is undertaking so many initiatives that would ordinarily be left to the private sector.

It's important to frame any look-back analysis with a clear understanding of what the project in question was intended to achieve. In this case, CFC was meant to boost car sales and consumer confidence at a time when both were at extraordinarily low levels. It was also aimed at improving the fuel economy of the US car fleet by retiring some of the least-efficient vehicles on the road. Judging it on the cost-effectiveness of the incremental sales it generated reflects a subtle but significant distinction in interpreting those goals, though as a taxpayer I'm certainly interested in knowing how CFC measured up against that criterion. Still, on the basic question of increasing sales, even the data presented by Edmunds are unambiguous.

Looking at the monthly car sales figures included in Edmunds' report, it is clear that US new-car sales jumped from a depressed annual rate of around 10 million units pre-Clunkers--a level too low to sustain the North American car manufacturing capacity now in place--to over 14 million, approaching the typical pre-recession sales for the industry. After the program ended, sales fell back to around the 10 million mark. Although CFC hardly restored the industry to good health, it provided the expected temporary boost in sales at a time when the recent bankruptcy filings of GM and Chrysler had raised new uncertainties for consumers. The fuel economy uplift on the average transaction was also significant, though as I mentioned at the time this amounted to a very small change in the overall fuel economy of a vehicle fleet numbering around 240 million cars and light trucks. So while CFC in retrospect looks to have been a very expensive way to help the industry sell more cars, its performance against the metrics most relevant to its conception stacks up pretty much as advertised.

The larger question raised by the Edmunds analysis concerns the degree to which the government can compensate for weak economic conditions in the private sector, and how expensive the incremental contribution of such efforts can prove, compared to the natural recuperative powers of the economy. Their assessment might also have implications for how we should evaluate the ongoing incentives for advanced technology vehicles. In that light, I have to wonder how much of the heat generated by this episode is instinctive bridling at perceived Monday morning quarterbacking, and how much relates to its potential to undermine the case for a second stimulus that is building in some quarters.

Labels: car sales, clunkers, fuel economy

  ¶ 2:19 PM

  Counting All the Carbon An editorial in this morning's Wall St. Journal reminded me that I had intended to update my readers on the latest installment in the ongoing saga concerning the global land-use impact of biofuels. The Journal's comments referred to a paper in the latest issue of Science entitled, "Fixing a Critical Climate Accounting Error", which concludes that the manner in which the greenhouse gas impacts of biofuels are currently assessed fails to account for significant emissions that occur outside the envelope normally drawn around an ethanol or biodiesel plant and the farms that supply it with feedstock. And if that omission weren't glaring enough, in the course of preparing for a meeting tomorrow I ran across another instance in which regulators appear to be turning a blind eye to the full impact of another popular option for addressing climate change, electric vehicles. As we prepare to re-orient our entire economy around the restrictions embodied in pending climate legislation, it is essential that we account for all of the emissions involved in a consistent way, and on a scale matching the global environmental problem we're trying to solve. This is crucial to making real progress on reducing emissions, rather than just making us all feel good about what we are doing.

When the emailed table of contents for the October 23 issue of Science showed up in my inbox last Friday, I spotted the name of Timothy Searchinger of Princeton University as lead author of the paper cited by the Journal today. Dr. Searchinger was also the lead author of an earlier paper in Science that I highlighted last February, when the debate concerning the global land-use implications of corn ethanol was just getting underway. Dr. Searchinger's collaborators on the new paper are an impressive bunch, including Dr. Dan Kammen, the director of the Renewable and Appropriate Energy Laboratory at U.C. Berkeley.

The report provides further evidence that it's no longer appropriate to assume that just because the carbon embodied in biofuels such as ethanol originated in green plants that absorbed it from the atmosphere, they must therefore be "carbon neutral"--other than the emissions from fossil fuels used in the cultivation, harvesting and transportation of the crops from which they are produced, along with the energy used in their processing. Additional emissions apparently result from the global displacement of the crops turned into energy here, and in some cases those emissions are on a similar order of magnitude to the direct emissions from the combustion of the biofuels--combustion that has gotten a free pass until now.

This is a highly inconvenient result for those engaged in the production of biofuels from food crops, on two levels. First, it puts the climate change justification for the subsidies and mandates responsible for the rapid ramp-up of conventional biofuel production in question. Second, the source of this doubt is no less than one of the same scientific journals in which so much of the peer-reviewed science contributing to the oft-cited scientific consensus on climate change has appeared, and subject to the same level of scientific scrutiny. Casting doubt on the source of this unwelcome message thus risks casting doubt on the entire edifice upon which the current, much-expanded biofuel endeavor rests.

Let's be clear that I don't blame the biofuel industry for promoting a product that many thought would help, but may ultimately turn out to do little or nothing to reduce the greenhouse gas emissions implicated in climate change, any more than we should blame the producers and consumers of fossil fuels for their contribution to the accumulation of those gases before the current consensus on climate change emerged. (I confess that I regard attempts to portray that consensus as having existed as long as 40 years ago as the worst kind of revisionism, since the creation of the consensus depended not on a few key insights, which might have turned out to be wrong, but on mounting evidence from the steady accumulation of peer-reviewed research during that interval.)

Having said that, I have a much harder time understanding the inclusion of an equally serious--and apparently entirely conscious--omission in the new automotive fuel economy and emissions standards jointly developed by the Environmental Protection Agency and the Department of Transportation. I had occasion to browse through the agencies' proposed text (warning: large file) yesterday and was startled to see that for purposes of calculating carmakers' fleet CO2 emission averages, it assumes that electric vehicles (EVs) and the electric usage of plug-in hybrids (PHEVs) have zero lifecycle emissions. Not only that, but the proposed regulation would count each EV as if it replaced two other emitting cars: thus, zero GHG impact not once but twice. Even the authors admit that this is false, and here I must quote,

"EPA recognizes that for each EV that is sold, in reality the total emissions off-set relative to the typical gasoline or diesel powered vehicle is not zero, as there is a corresponding increase in upstream CO2 emissions due to an increase in the requirements for electric utility generation. However, for the time frame of this proposed rule, EPA is also interested in promoting very advanced technologies such as EVs which offer the future promise of significant reductions in GHG emissions, in particular when coupled with a broader context which would include reductions from the electricity generation. For the California Paley 1 program, California assigned EVs a CO2 performance value of 130 g/mile, which was intended to represent the average CO2 emissions required to charge an EV using representative CO2 values for the California electric utility grid."

But while I appreciate the agencies' rationalization that EVs and PHEVs might be counted as having zero emissions on a purely temporary basis in order to provide incentives for carmakers to accelerate their introduction, I'm also painfully aware that other such "temporary" measures have persisted long after the original justification for them had become obsolete--and here I can't help but think of the ethanol blending credit that is now in its 31st year.

Why do these loopholes in the way we tally greenhouse gas emissions matter enough for me to hammer away at them like this? Consider the proposed vehicle rules. By ignoring emissions that occur outside these vehicles, the government is discouraging carmakers from using less exotic technologies that might actually deliver comparable savings of fuel and emissions sooner, and at a lower cost to taxpayers and consumers. A conventional Toyota Prius hybrid running on gasoline emits only 10% more grams of CO2 per mile than California claims for an EV powered by its greener-than-average state electricity mix. Since the same number of batteries could equip many more Prius-type hybrids, at a much lower cost per car than for a full EV, the benefits of rushing EVs into production seem much less compelling at this point, particularly when the government is also subsidizing the purchasers of EVs and PHEVs to the tune of many thousands of dollars per car. That will amount to billions of dollars of extra subsidies for an incremental emissions benefit that might just be negative for an EV recharged using coal-fired power.

"Start as you mean to go on," goes the old saying. We know that whatever their energy security benefits and general hi-tech niftiness, EVs are not zero-emission vehicles, just as we now understand that it is likely that burning corn ethanol releases roughly the same level of greenhouse gases as the gasoline it is intended to replace. If cap & trade bills such as Waxman-Markey and Kerry-Boxer are to have any integrity as tools for achieving genuine reductions in the global greenhouse gas emissions behind global climate change, then we must count all the emissions from all sources, no matter how politically unpalatable that may be. EPA and DOT might do well to heed this advice, too, before establishing a new, impossible-to-revoke entitlement for the manufacturers of electric vehicles.

Labels: biofuel, climate change, electric car, emissions, ethanol, ev, kerry-boxer, phev, plug-in hybrid, waxman-markey

  ¶ 3:12 PM

  Missing the Point on Energy and Jobs Two emails I received yesterday delivered press releases from two organizations with very different agendas, both emphasizing the impact of energy on jobs. With US unemployment showing little response to the economic stimulus, the rebounding stock market, or the "green shoots" appearing in some sectors, it's understandable that companies, groups and even the government would want to play up the direct employment impact of key initiatives or policies. Yet when it comes to energy, I believe much of this effort misses the mark. Our employment goal for energy should not be to have as many people working in the energy sector as we can, but to have the most efficient and cost-effective energy sector possible, in order to promote job creation and retention in the rest of the economy, where the vast majority of jobs are found. Our decisions about energy policy should not depend on the creation of a few green jobs.

I'm hardly suggesting that energy jobs are insignificant or inconsequential. I've spent my entire career in energy, and I recommend it without hesitation as a field in which one's contributions can have a measurable impact on society, often with better remuneration than in many other pursuits. The Oil & Natural Gas Industry Labor-Management Committee isn't wrong to stand up for the millions of industry-related jobs at stake in the current Congressional debate on energy industry tax benefits, any more than Wind Capital Group is to highlight the 2,500 jobs associated with the supply-chain effects of their Lost Creek Wind Project. But as important as preserving or expanding energy-related jobs appears today, it is even more essential for the long-term interests of the country that we not obsess about this one aspect of energy, to the detriment of others that will affect overall US employment and international competitiveness long after the unemployment rate has returned to its normal range.

Putting this into perspective requires recalling that by its nature energy is a capital-intensive business, rather than a labor-intensive one. One way to gauge that is to look at the labor productivity of energy companies. The latest annual report of my former employer, Chevron, reveals that on average in 2008 its 61,675 employees each accounted for $4.3 million of revenue, resulting in nearly $700,000 of pre-tax net income (after covering their own salaries and all other expenses.) In the utility sector, the comparable figures for FPL Group were $1.1 million and $137,000, respectively. Even a small, rapidly-growing renewable technology firm such as First Solar enjoyed revenue and pre-tax profit per employee in 2008 of approximately $354,000 and $132,000, respectively. With its high labor productivity, the primary employment impact of energy occurs where it is consumed, not where it's produced, because energy is such a crucial input for so many sectors and the sine qua non of more than a few.

When legislation like the Kerry-Boxer climate bill, which includes many provisions that would make energy more expensive for consumers and businesses, is marketed as a jobs bill it merits a skeptical reception. Stimulating jobs in the 6-10% of the economy devoted to energy seems unlikely to compensate for the loss of jobs that would ensue throughout the broader economy, if climate legislation caused energy costs to soar. That may, however, be a necessary evil, and the question we should really be asking is not how many green jobs such legislation will create, but whether on balance its provisions are truly justified in order to address climate change--even if they resulted in a net loss of employment, as I strongly suspect they would. Unless the answer is an unequivocal yes, we could be setting our long-term energy policy on the basis of a metric that is only a minor contributor to either energy costs or total economic activity, for reasons that seem unlikely to stand the test of time.

Labels: climate change, energy policy, green jobs, kerry-boxer

  ¶ 11:19 AM