Because That's Where the Emissions Are

Yesterday the Environmental Protection Agency released its tabulation of greenhouse gases (GHGs) from large facilities in the US. In perusing the data I couldn't help thinking of the quote attributed to Willie Sutton concerning why he robbed banks. Even if he never actually said, "Because that's where the money is," the simple logic of that analysis transfers neatly to the question of why we might be interested in assessing and ultimately managing GHG emissions from such installations. While there are other important sources, notably including motor vehicles and aircraft, the more than 6,000 sites reported in the agency's online registry account for roughly half of all US GHG emissions. Furthermore, just a quarter of these sites--power plants--contribute nearly three-fourths of US emissions from large facilities. That's where the emissions are and where US climate policy should focus.

Although that doesn't dictate that we should entirely ignore all the other facilities, it certainly raises serious questions about the threshold of reporting for the hundreds of installations emitting less than 10,000 tons of CO2-equivalent gases per year, compared to the top-100 facilities, the smallest of which emitted nearly twice that much every day.

It should also challenge the belief systems of some members of Congress concerning the relative importance of different sectors. The highest-emitting oil refinery in the country is also one of the biggest in the world by throughput capacity, at 573,000 barrels per day. Yet it comes in at #45 on the list, with only one other refinery appearing in the top 100. The entire refining sector, comprising 145 plants, emitted around 5.7% of the total GHGs represented in the registry, and thus less than 3% of the US total. Why does that matter as more than an industry talking-point? Because reducing emissions from refineries by 10%--no easy task when they are already roughly 90% efficient in terms of their total energy output vs. inputs--would be lost in the rounding in our national emissions statistics. We won't get very far chasing expensive diminishing returns.

By comparison, reducing emissions from the 1,555 power plants on the list by an average of 10% would reduce US emissions by more than 3%. And because we are blessed with many more processes for generating electricity than for refining oil, this could be achieved in a variety of ways, nor does 10% represent any kind of ceiling for what might be possible. One option would be to retire the least-efficient coal-fired plants and take up the slack at existing gas-turbine power plants, plus some additional renewables. That may happen anyway, as a consequence of other EPA regulations. We could also replace the worst coal plants with near-zero-emission nuclear power plants of advanced design, such as the AP-1000 reactor that won NRC approval late last year, or the various modular nuclear reactors now under development. Capturing and sequestering the CO2 from coal-fired power plants would be another option, if it can be perfected at a reasonable cost.

I would never suggest that climate policy could be truly simple, but the numbers the EPA just reported, combined with what we know about the lifecycle emissions from the petroleum value chain, indicate that the scope of the US climate policy debate could usefully be narrowed to focus on just two main emissions sources: power plants and the end-use combustion of hydrocarbon fuels. On the scale of overall US emissions, almost everything else is noise. Of course that leaves plenty of room for discussion and disagreement on the most effective ways to address these emissions at the lowest cost and least disruption to an already-fragile economy. We can still argue endlessly about the relative merits of putting a price on emissions, providing incentives for emission-reducing technologies, and setting command-and-control regulations. Yet when we contrast the potential effectiveness of such a limited approach with the intricacy and distortions entailed in "comprehensive" efforts like the failed Waxman-Markey climate bill of 2009, it looks like a very helpful simplification to pursue.

Displacing More Oil from Power Generation

Increasing the US contribution of wind and solar power, geothermal energy, and even nuclear power would have virtually no effect on our oil imports or energy security, because we use so little oil for power. However, a pair of articles reminded me that this logic doesn't necessarily apply elsewhere. On Monday the Financial Times described the rapid growth of electricity demand in the Middle East, much of it fueled by oil that might otherwise be exported. Saudi Arabia apparently burns up to a million barrels per day of oil for power generation in the summer. And last week Fast Company highlighted the potential of large fuel cells to replace the diesel engines that generate power aboard tankers and other ships. As oil prices again approach $100 per barrel, with the possibility of even higher prices ahead when the entire global economy has returned to normal growth, these situations represent golden opportunities to save large quantities of oil for other uses for which its nearest substitutes still cannot replace it at scale.

Based on Department of Energy data the US generated just 0.9% of our electricity from petroleum and its products in the last year, with more than a third of that fueled by petroleum coke, a low-value solid byproduct of oil refining. The 43.5 million barrels of petroleum liquids used in power generation in 2009 represented only 0.6% of the 6.9 billion barrels the US consumed that year. When you break that sliver down by location, much of it is used for either backup generation or on islands or other remote locations. In other words, the remaining potential to displace oil from power generation in the US is very small and not necessarily well-suited to the intermittent renewable energy technologies now in favor. (That should change as electric vehicles enter the fleet by the millions, but that prospect remains some years off, at least.)

That situation isn't representative of the world as a whole, however, with oil accounting for almost 5% of global electricity generation in 2007. It was even higher on a regional basis, at 7% outside the countries of the OECD and 35% in the Middle East. Globally this amounted to 5 million bbl/day, or nearly 6% of total oil demand. That might not sound like much, until you consider that a drop in demand of around 3 million bbl/day from the first quarter of 2008 to the first quarter of 2009 contributed to a decline in oil prices--ignoring the mid-2008 spike to $145/bbl--of roughly $50/bbl. The price of oil is truly determined by the last few million bbl/day of supply and/or demand. You don't need to be worried about Peak Oil to see the oil used globally for power generation as potentially low-hanging fruit for redeployment, and as a significant emissions-reduction opportunity.

The best candidates to displace that oil vary by country and region. For countries with a lot of natural gas, like the big producers of the Middle East, a switch to that fuel seems like an obvious choice. However, much of the world's natural gas outside North America, including most LNG on long-term contracts, is priced based on oil, so the savings probably wouldn't be as large as they would be here. Even for oil exporters like Saudi Arabia, it might still make more sense to burn the residual fuel from the country's many large refineries, instead of importing LNG (or developing more of its own gas) and investing in the refining hardware to turn that residuum into gasoline, diesel and jet fuel. That might explain why the Kingdom is pursuing nuclear power to cover much of its future generating capacity growth. Renewables have also been capturing a foothold in the region, particularly in projects like Masdar City.

Finally, the large-scale marine fuel cell opportunity described in Fast Company would target a segment where oil has a near monopoly, outside of military fleets: shipboard power. And while these molten carbonate or solid-oxide high-temperature fuel cells would still consume fossil fuels to auto-generate the hydrogen they use, their high efficiencies would reduce overall oil consumption in shipping. If it proves possible eventually to use even larger fuel cells as the basis for electrifying vessel propulsion, as the article speculated, then oil savings would be much more substantial. Global consumption of bunker fuel by ships amounts to roughly 3.7 million bbl/day, or around 4% of total oil demand. And the environmental benefits of such a switch would go beyond greenhouse gases to include significant local air pollution benefits, particularly in ports.

None of this represents new thinking, but rather an extension of some of the strategies by which the developed world of the time adapted to the high oil prices of the twin oil crises in the 1970s. Still, it's easy to forget that that the quantity of oil tied up in the sectors mentioned above exceeds the output of the entire North Sea at its peak. If oil prices hadn't buckled under the weight of the financial crisis and recession a couple of years ago and instead remained on their previous trajectory, I imagine we'd already be well down the path of freeing up more of this oil. Recent price trends suggest that the primary motivation for doing so could be about to return.

Another Energy Bill?

When the first flakes of the second major snowstorm in less than a week began to fall on Northern Virginia, it occurred to me that I might not be in a position to post for a couple of days. I had intended a longer posting covering all the topics mentioned in a renewable energy conference call that I dialed into yesterday, but then I've written previously about most of them. The call was hosted by the American Wind Energy Association and its sister trade associations covering hydropower, biomass power, geothermal energy, and solar energy, for the purpose of laying out a joint "2010 Outlook for Renewable Energy," recommending a national renewable electricity standard (RES) along the lines of the Renewable Portfolio Standards already in place in a number of states. The groups also released a report from Navigant Consulting highlighting the green job-creation potential of such a policy.

All but one of the trade associations involved in the call are members of the larger Renewable Electricity Standard Alliance, so I wasn't surprised to hear them pushing this issue strongly. With cap & trade sidelined at least for now, there's a good deal of speculation about an energy-only compromise bill, presumably built around provisions like the RES. Much of the political popularity of the RES option relies on the fact that it could be implemented at minimal taxpayer expense. However, the real costs, which can be significant, are passed along to electricity ratepayers--though few of them would be able to spot them in their bills. I commented last spring on some practical concerns about how much new generation might be called forth in this manner in the context of the Waxman-Markey bill, which included a little-noticed RES provision. Since most of these technologies generate power on less than a full-time basis, the more ambitious the RES goal, the higher its hidden costs would tend to rise.

What I didn't hear yesterday--though perhaps due to some level of multi-tasking distraction on my part--was any mention of a preferable low-emission electricity standard that would encompass not just renewables, but also nuclear power and any other technology that could generate electricity while emitting negligible quantities of greenhouse gases on a lifecycle basis--in other words much less than a fossil fuel power plant without extremely-effective carbon capture and sequestration. Given the increased emphasis on the potential contribution of additional nuclear power since the State of the Union Address, and the priority that the likeliest Republican participants in any bi-partisan energy compromise would place on nuclear, an "LEES" seems a logical policy evolution, even if many economists consider such standards to be less efficient and ultimately more expensive than setting a price on GHGs via either cap & trade or a carbon tax.

With regard to the report highlighting the potential to create 274,000 additional renewable energy jobs through enactment of a national RES, I noted the absence of any information on the impact on the broader economy from the higher electricity rates that would accompany such an effort. In addition, I continue to believe that much of the "green jobs" emphasis misses the primary role of energy in our economy, which is not to employ as many Americans as possible producing energy, but to produce as much energy as possible for the other industries and sectors that employ most Americans. When I heard the CEO of the Solar Energy Industries Association touting solar energy as creating more jobs per unit of output than any other energy source--at least that's what I thought I heard him say--I groaned (on mute, of course.)

It's anyone's guess whether the Congress will come up with a comprehensive energy & climate bill, a stripped-down energy-only bill, or any such bill at all this year. I can only hope that if it does, it emphasizes producing (or saving) as much domestic energy, as cost-effectively as possible, and that creation of "green jobs" is not the primary policy-selection criterion. The purpose of energy legislation ought to be making the US economy as competitive as possible, and not just in clean energy as the industrial-policy fad of the moment, but in a way that will promote economic growth and job growth across the board over the long haul.