Waves of Grain

Driving from Virginia to Minnesota over the last few days provided numerous reminders of the nation's de facto transportation energy strategy and the challenges entailed in shifting it. At least in the heartland, the cumulative effect of the last thirty years of policy is epitomized by long lines of big SUVs whizzing along at 75 miles per hour past endless fields of corn. Even after four years of high energy prices, the strongest consensus available is around adding more of the latter, rather than addressing the former, all to the mantra of "energy independence." We're fooling ourselves, in more ways than one.

Every time I pick on the idea of energy independence, someone points out that it isn't a bad long term goal. From a strategic planning perspective, however, long-term goals that don't credibly connect to real actions and outcomes are at best a distraction. At the same time, energy security--my preferred formulation for the concept--is still too abstract for most people, because it involves a complex brew of geopolitics, market dynamics, and trade-offs. I can't avoid the conclusion that at this stage, we'd be better off with a few simple goals, based on some verifiable statements of fact.

For example:

• Halt the growth in US oil imports, then reduce them based on a series of attainable targets. For more than 20 years, US oil production and consumption have been going in opposite directions, for reasons including government policy, geology, and consumer choice. Any strategy for stemming the growth of imports must have both a supply and demand component, along the following lines:


• Stabilize domestic oil production and expand our liquid fuels by stimulating production of biofuels, unconventional hydrocarbons, and conventional petroleum. The US may be the most explored and exploited oil province on the planet, but there are still significant reserves of oil to be produced, as part of a planned transition to the next generation of transportation energy. (I'll be writing more on this subject later in the week.) Unconventional hydrocarbons (coal-to-liquids, shale, etc.) have a role to play, though they should be required to produce no more greenhouse gas emissions than conventional oil, initially, and eventually much lower. Biofuels can contribute to our net energy balance, but not if they're used to prop up the production of large, inefficient vehicles.


• End the growth in transportation energy consumption through conservation and improved efficiency. Since the US population and vehicle fleet are still increasing, that means that per-capita consumption would have to start to fall, and vehicle efficiency to rise, as soon and by as much as practical. There are many possible carrots and sticks that could be employed. Closing the so-called SUV loophole in the Corporate Average Fuel Economy standards (CAFE) would be an excellent symbolic starting point, but we need to recognize that CAFE is the scorecard, not the means of reaching it.

Stemming the growth of oil imports may not sound very glamorous, and it probably wouldn't make a good campaign slogan, but compared to "energy independence" it has the virtue of being achievable using current technology, without assuming any miracles. It's also a logical and necessary milestone on our way to any more ambitious energy targets. And unlike some of the more xenophobic notions emanating from politicians and pundits, it would almost certainly be welcomed by both our suppliers and our fellow consuming nations, with whom we ought to be cooperating on a global concept of energy security.

The "Hail Mary" Pass

I hadn't seen any references to ocean sequestration of carbon dioxide in some time, and then within a week or so two different colleagues mentioned a company called Planktos to me. As you might guess from the name, they are pursuing a method of sequestration that involves seeding the ocean to stimulate plankton, which absorb CO2 via photosynthesis, eventually resulting in the sequestered carbon sinking to the sea bottom. Here's what I wrote about this idea in October 2004 (with some of the links updated):

A week or so ago the BBC evening news (on PBS) included a report on the possibility of sudden, rapid climate change as a result of accumulating carbon dioxide and other greenhouse gases in the atmosphere. The prospect of the climate changing dramatically within a decade or two--which has apparently happened in the geological past--reminded me of a novel strategy that might be able to counter such a development. It's called "ocean sequestration".

I've mentioned carbon sequestration before. Most of the work in this area currently focuses on recovering carbon dioxide from smokestacks, compressing it, and pumping it into disused oil or gas wells or other underground sinks. The technique looks very promising, but it is essentially industrial in nature, requiring substantial investment, infrastructure and expense, making it hard to deploy quickly or on a large scale.

Ocean sequestration differs in several important ways. First, it would tie up carbon using biological processes, by stimulating plankton growth and effectively capturing the carbon in the pelagic food chain and its solid wastes. As a result, it does not require large amounts of capital or infrastructure. Second, it removes CO2 directly from the atmosphere, rather than from a smokestack, and appears to be easily scalable, making it possible to tackle the much larger sequestration goals that sudden climate change would require. In other words, the rate of sequestration might exceed the total global rate of CO2 emissions. If the world were experiencing a runaway greenhouse effect, we would need a technique that could cut the absolute quantity of CO2 in the atmosphere--rather than just reducing the rate at which it is increasing--in order to restore equilibrium.

Although ocean sequestration is still in early stages of research, it has come in for serious criticism for its possible impact on ocean ecosystems. The jury is still out on these concerns, and it could turn out that they are negative enough to prevent this technique from becoming a standard approach for managing greenhouse gas emissions. But if faced with a choice between a rapidly changing climate--with its unpredictable effects not only on ecosystems but on human survivability--I'd like to think that we had at least one "Hail Mary" pass like this waiting in our playbook, just in case.

Catching the Flow

Of all the different technologies for producing energy, I've probably devoted the least space in this blog to those that extract energy from flowing water. Large hydroelectric dams are hardly novel; they generate about 7% of our electricity. But at least in the US, most of the attractive locations for large-scale hydropower have already been dammed or determined to be too pristine to exploit. "Mini-hydro", in the form of small dams or "run of river" installations is an interesting alternative, and it looks a lot more palatable than its larger cousin. The other day I ran across a link to a video report on a project that has fascinated me since I first heard about it in the late 1990s. It is a hybrid of hydropower and tidal power, tapping the tidal energy of the East River alongside Manhattan with turbines installed on the riverbed.

The initial size of this project is tiny; it will only power a supermarket and parking garage, when it runs, but the developers hope to scale up to 10 MW--still a lot smaller than the typical power plant or wind farm. This kind of tidal power application falls somewhere in the middle of the spectrum of renewable electricity sources: much more predictable than wind, but less reliable than geothermal or conventional hydro. Where it shines is in its unobtrusiveness, which might enable it to fly under the NIMBY radar in a way that wind turbines can't.

For that matter, the turbines used in the East River ought to work just as well in a river flowing due to gravity, like the St. Laurence, instead of one that reverses flow when the tide changes direction. It could provide a useful alternative to the standard approach to mini-hydro, which avoids large dams and reservoirs, but still entails diverting and empounding a portion of the flowing river. The reliability and environmental impact of "kinetic hydropower" remains to be determined, however. I will be watching the East River project with interest to see whether this emerges as a viable competitor or ends up as another interesting, but not very practical energy idea.

Bridges and Taxes

I'm a bit late to the party, regarding the recent proposal to increase the gas tax to help with the cost of repairing our decaying road infrastructure. Simply put, it seems like a no-brainer, and it would be an awful shame if the Congress and White House didn't deal with this, before the news cycle shifts away from the Minneapolis bridge collapse to more recent events. If we can't find a way to fund more urgent renovation of the decades-old infrastructure in this country, then we will deserve all the comparisons to spoiled rich kids burning through their inheritance from wiser parents.

I understand the arguments about the economic impact of raising taxes and the prospect that even a modest gas tax increase would be the camel's nose under the tent, setting the stage for a steeper gas tax hike to curb demand, or a carbon tax. That just doesn't wash, when you consider the current federal gasoline tax. Never mind the usual comparisons to European fuel taxes, which generally serve entirely different purposes, anyway. Look at how it stacks up against our own state gasoline taxes. They average 27 cents per gallon, after backing out the federal tax of 18.4 cents per gallon, and range from a low of 8 cents per gallon in Alaska to a high of 42.4 cents in New York. The current federal gasoline tax is less than what all but seven of our states collect on the fuel, and it has not changed materially since 1993, when President Clinton raised it by four cents and suffered serious political consequences.

Fourteen years worth of inflation have completely dissipated the value of that four cent increase, so that we are now contributing fewer real dollars to the highway trust fund than we did when Bill Clinton took office. If you consider the escalation of construction costs in just the last few years, including the cost of steel and concrete that have been affected by the enormous construction boom in Asia, the situation looks much worse. In other words, the five-cent increase proposed by members of Congress after the I-35W bridge came down would effectively only get the federal highway trust fund back to the purchasing power that it had in 1997, when it was last raised by 0.1 cents per gallon.

I don't think I'm naive about the political implications of raising the gas tax, one of this country's great sacred cows. But it's also clear that voters are willing to hold elected officials accountable for failing to address predictable disasters, or respond to them appropriately. Even if we need to call it a one-time inflation-indexing of the highway trust fund revenue, rather than a gas tax increase, we need to get on with it. This is an issue with no political agenda other than common sense. It would be a modest down-payment on reestablishing the kind of no-nonsense ethic that will be required if we are to have any hope of handling the much more complex and controversial challenges we face.

Solar Trash Cans?

It now goes without saying that new energy technology will play an important role in improving energy security and addressing climate change. While I have devoted numerous postings to that proposition, I am equally intrigued by clever applications of alternative energy to devices or processes that would be impractical with conventional energy sources. The solar trash bin is a wonderful example. It's not going to save the world, and some might even see it as a distraction, but I think it has merit based on its cleverness alone, aside from offering a couple of handy benefits.

Periodically my mother sends me newspaper clippings on topics she think will interest me. One of them reported the installation of two solar garbage bins at the beach in my home town. When she described this on the phone, I was scratching my head to ferret out the rationale for such an odd use of solar power, but it turns out to be as simple and elegant as anything to do with refuse can be. The solar panels energize a compactor that reduces the volume of trash by a factor of ten. That means that a relatively small container can hold as much garbage as a very large one, and it needs to be emptied much less often. So at the same time that it minimizes something that is usually an eyesore, it also saves on noise, emissions, fuel and the labor associated with frequent trash pickup in parks, beaches and similar locations.

At $4,500 each, it's not obvious that the economic return on the above benefits are high or even positive. I'm sure the company that makes them has a view on that, as do the many communities where these things are springing up. However, they look great and should raise awareness of solar power as something prosaic and useful today. They might even reduce littering, as long as the novelty of the device lasts. Could the same thing have been done with a power cord? Probably, but not without limiting its use to locations with accessible 110 V power. This idea required an energy source with the characteristics of solar photovoltaic power to be practical. I suspect we'll be seeing many more novel applications like this in the near future.

FYI, I'll be traveling throughout the remainder of August. My postings over the next few weeks may become a bit more sporadic, and they're likely to include some "summer re-runs." Responses to comments will probably also not be as prompt as usual.

1998 or 1934?

Last week one of the pillars of the case for global warming appeared to crumble, in the wake of reports that NASA's global temperature data had previously been distorted by a glitch in the data, perhaps even an unresolved Y2K problem. And apparently NASA only noticed the problem after a well-known critic of climate change pointed it out to them. The result of correcting this bug is that the revised US temperature data from NASA no longer indicate that 1998 was the warmest year in the last century. 1934 now holds that record. Does this call into question the entire edifice of climate change? No, but it does point out some pitfalls in the way that the public has been warned about it.

Somewhere between the scientists who generated the previous ranking of the ten warmest years, topped by 1998, and the folks who cited this statistic to emphasize the urgency of addressing climate change, some vital information was lost. Using the old data, the average temperature for 1998 was only 0.01 degrees Celsius warmer than the figure for 1934, expressed as temperature differences--"anomalies"--versus the average US temperature from 1951-1980. Once the data were corrected by NASA, that difference flipped to 0.02 deg. in favor of 1934. But in reality, no one could say that either of these years was warmer than the other--before or after the correction--because the uncertainty in the data is apparently 0.1 deg., or 10 times the original edge that 1998 had over 1934. (If you want a technical explanation of all this, from the perspective of climate scientists who deal with these issues routinely, I refer you to realclimate.org.)

Take a look at the actual revised data. It includes a lot of year-to-year temperature variation, with many years as much as 0.5-1.0 degrees C warmer or cooler than the preceding year. However, there's still a discernible trend, even though it may have stalled a few times. While the 1930s do seem to have been at least as warm as the 1990s, the current decade is on track to be warmer than any going back to 1880. By itself, that wouldn't be significant, but in the seventy years from 1880 to 1950 there were only 9 years in which the mean temperature exceeded the baseline 1951-80 average by 0.5 deg. C or more, and a dozen years when it was at least 0.5 deg. C colder than the baseline. Since 1980 that same comparison is 13 years to none. Consecutive colder-than-baseline years, which prior to mid-century were quite common, have vanished entirely. If these patterns don't add up to a nice straight line, then they at least ought to look peculiar enough to prompt concern. That message might not be as sensational as the one about individual or top-10 hottest years, but it is a lot more robust.

Now, it ought to be obvious that the basis of climate change is rather more complicated than whether 1998 was the warmest year in over a century, or if it was warmer or cooler than 1934. And yet, by having made such a big deal out of 1998 in the first place, or by allowing the media to focus so tightly on that factoid, some folks who perhaps ought to have known better tied the perceived validity of their argument about this critical issue to an inherently weak assertion. As a result, the science of climate change looks a tiny bit shakier today, when nothing of significance has actually changed. There's a lesson here for anyone trying to explain such a complex technical subject to a general population, using mass media in which news coverage has acquired many of the elements of entertainment programming. You can't bore your audience or talk over their heads, but you also can't reduce complex arguments to such thin reeds that they snap at the tiniest shift.

Northern Energy Hub

Imagine that you had a wealthy neighbor with an insatiable appetite for something that he had the capability of providing for himself, but apparently not the inclination. It might look like a good business opportunity. This is essentially the situation facing the Canadian Province of New Brunswick, which is at various stages of planning and constructing a new "energy hub" consisting of three big projects, an LNG terminal, a new refinery, and a nuclear power plant, all primarily intended to serve the market in the northeastern US. Yesterday I was interviewed by the St. John, New Brunswick radio affiliate of the Canadian Broadcasting Corporation on whether the expected US demand for these projects is likely to materialize.

Between the call from the show's producer and the actual interview I looked up the electricity forecast for the Northeast from the Energy Information Agency (EIA) of the US Department of Energy. The EIA expects electricity demand to grow by 22% by 2030, compared to 2005. That's somewhat slower than the average for the US as a whole, but still about 0.8%/year, and without any demand factored in for plug-in hybrid cars or other uses not already tapping the grid.

I suggested to the host that the key uncertainties for New Brunswick to consider were energy efficiency, the growth of renewables, and the Northeast's allergy to new energy infrastructure. Efficiency is clearly going to play a role, but will it reduce absolute demand or merely provide new headroom for growth--compact fluorescent light bulbs saving the power to run plasma TVs? Renewables could also satisfy much of the incremental demand in the region, helped along by state Renewable Portfolio Standards and a potential federal RPS, but only if big projects such as Cape Wind and the smaller Long Island wind farm can overcome strong objections by local interests. Nor does it seem very likely that the Northeast will build enough LNG import capacity of its own, given the opposition to projects like Broadwater.

The toughest question I received was for an up or down call on building a nuclear power plant in New Brunswick to supply the US. I hesitated, because it's not yet clear that nuclear power will be widely accepted as "green", even though some prominent environmentalists have endorsed it as a key strategy for countering climate change. The total regional demand growth anticipated by the EIA works out to about 7500 MW of new capacity within 25 years. One new nuke plant would deliver a big chunk of that, and unless its output got that "green e" label, it might face a tough fight for market share. But compared to the likeliest alternative source for baseload power in this period, a coal power plant with carbon sequestration, I think an export-oriented nuclear plant could succeed.

In order for New Brunswick to win the bet it is preparing to make, all that really needs to happen is for the public and governments of our northeastern states to continue doing what they've been doing: using energy in steadily growing quantities, despite high prices, and reacting with hostility whenever someone wants to build new infrastructure to meet their anticipated future needs. Of course, if they heeded the various wake-up calls they've been getting--the Blackout of 2003, climate change, and air quality problems--and suddenly started conserving or investing more, New Brunswick's new facilities might end up sitting idle.

Global Energy Security

A few weeks ago, when the National Petroleum Council's report on the US energy future was released, I promised to devote several postings to its chapters on supply, demand, geopolitics and technology. Geopolitics, covered in Chapter Four, it seems like a good place to start, because many of the issues with which it deals underpin the study's discussions of supply and demand. It is also extremely relevant to pending energy legislation, and perhaps even to election-year politics. As best I can tell, there's no way to download this chapter separately from the entire document, and I'd be remiss if I didn't point out that this is a very large file. The key message of the Geopolitics section is that a multilateral, market-based approach benefits the US much more than the pursuit of isolation and energy independence. That's hardly a surprising view for a body like the NPC, but the report grounds it in a realistic view of the current global situation.

Some of the key trends that the report's authors address include the challenges to globalization and expanding trade--of which they see energy as an integral component--and the growth of energy bilateralism and resource nationalism, both of which threaten the post-World War II international system that has benefited the US so much. They also look at some very interesting shifts that are taking place in long-established energy trading patterns, with the emergence of large developing countries as markets for the energy supplies of other developing countries.

The main focus of this chapter is energy security, and it applies a very global perspective to that concept. The US is hardly the only country in which this idea is gaining favor, and if we all pursued a go-it-alone mentality in this area, the resulting clash of consuming nations' energy interests would only benefit energy exporters. The study provides a useful set of criteria for energy security:

• A competitive market
• Stable and diverse supply with minimal disruptions
• Low price volatility
• Adequate spare capacity and logistical infrastructure
• Diverse energy mixes
• Protection of the global environment, including climate consideration
• Flexibility to accommodate shifting demand pattern
• Transparency and reliability of commercial relationships.

Interestingly, none of these seems restricted either to oil or to the US. Most could apply equally well to LNG, electricity, biofuels or any other form of energy that can cross international boundaries. Unfortunately, many of these principles are not reflected in the current US approach on ethanol, as embodied in both existing policy and the recent House and Senate energy bills. I have to wonder whether a global free market in biofuels might achieve more leverage on oil exporters than our heavily protected domestic ethanol program.

Like any overview, the 26 pages of the NPC study devoted to geopolitics skate over a number of issues that could have been explored in greater depth, not the least being its underlying assumptions about the superiority of a market approach in an energy environment that is increasingly dominated by large state players. Although it cites the actions and aims of these national oil companies many times, it only mentions OPEC once, leaving it to other chapters to cover one of the most important geopolitical dynamics in a tight global energy market.

Overall, the view of the NPC on energy geopolitics is diametrically opposed to that of the "green hawks" who see it as a zero-sum game, in which suppliers must be starved into submission by our rapid conversion to alternative energy. Although the NPC's internationalist, pro-trade position surely reflects the mainstream of opinion within the energy industry, it is unfortunately increasingly out of sync with a public and political sphere that has grown suspicious of free trade. Despite being the largest single recipient of global energy trade--a ranking we may shortly lose to Asia--many in the US yearn to be self-sufficient in energy, a condition we haven't experienced in my lifetime. The authors wisely remind us that it's no longer possible for the US to have an internal conversation about this, without influencing the plans of our suppliers and competitors.

The Cost of Driving

The other day I suggested that perhaps vehicle miles per gallon might not be the best measure on which to base energy and environmental policy, particularly as new transportation fuels come into the mix, including biofuels and electricity. While the European model based on grams of CO2 emissions per kilometer traveled has much to recommend it, it omits the economic element necessary for at least the energy side of policy. The more I reflect on this, the more I conclude that consumers will need more information, rather than just different information, in order to make decisions that support the policy directions set by Congress and the White House. That means adding not just emissions data, but also a common economic denominator that will help them to sort out the competing claims of different technologies. Fuel cost per mile has much to recommend it, in this regard.

Consider the table below, comparing several different vehicle and fuel options. The prices shown are for the week of 7/23/07, to align with a comparable E-85 price. The electricity price is the most recent national average consumer price from the DOE's Electric Power Monthly.

Although this data represents only a snapshot in time, it reveals several key challenges standing in the way of broad consumer acceptance of alternative fuels. Among other things, it shows that with the typical fuel economy penalty associated with E-85 in a flexible fuel vehicle capable of running on either gasoline or ethanol, the latter may be uneconomical outside the corn belt, where E-85 prices are often 20-30 cents below the national average. Diesel looks more attractive than ethanol, at least on this metric, particularly in biodiesel blends, provided they are priced closed to petroleum diesel.

The chart also shows that the total energy cost of a plug-in hybrid car is likely to be little below that for a conventional hybrid, calling into question the return available on the significant up-front premium that plug-ins are expected to require. If that premium is low, as some advocates of plug-ins expect, then this isn't a big problem. But if it approaches or exceeds the amount of the plug-in tax credit included in the House Energy Bill, which starts at $4,000 per vehicle and goes up based on battery capacity, then this looks like a very poor investment, ignoring the climate externalities that haven't been included in current fuel prices.

That's another reason to proceed with monetizing those externalities as soon as possible, whether via cap & trade or a carbon tax. Until they can be reduced to cents per mile and factored into this kind of chart, the comparisons above are truly apples and oranges, at least in terms of the associated climate impact. As it is, the presence or absence of taxes in current fuel prices distorts consumer decisions, and as I've noted before, the mechanism for collecting road taxes must be addressed before large portions of the vehicle fleet are using untaxed electricity or tax-shielded ethanol.

As alternative fuel vehicles, broadly defined, become more prevalent, it's going to get harder for consumers to make sensible choices among them without consistent data. This applies equally at the national policy level, where we are trying to nudge vehicles in the direction of lower emissions and energy consumption with the blunt tool of a CAFE standard relying on an obsolete measure of miles per gallon. Ultimately, a useful vehicle efficiency metric ought to reflect our priorities among oil security, energy security and climate change. Choosing the right metric might provide a golden opportunity to clarify those priorities, at last.

Not Just CO2

Over the weekend a clever article in the Times of London provided a useful reminder that climate change isn't just a question of carbon dioxide emissions. After counting the greenhouse gas emissions from the agricultural and animal husbandry supply chains that deliver our food--much of which involves gases other than CO2--it suggested that driving to the store might generate fewer emissions than walking there, at least in Britain. I haven't verified the details of the walk vs. drive calculation for the UK, let alone converted it to a US basis, but the basic principle is correct: virtually everything people do on a large scale contributes to climate change, and focusing exclusively on the CO2 emissions from energy--as with a carbon tax--could lead us down an expensive and inefficient path to addressing global warming.

The reason the comparison described in the Times article isn't as silly as it might sound rests firmly on the science of climate change and the wide variation in impact (GWP) of different greenhouse gases. When you examine the net impact of the increases in atmospheric concentration of all these gases since pre-industrial times, expressed as "increased radiative forcing"--the equivalent amount of extra energy heating up each square meter of the earth's surface--you find that CO2 accounts for just over half of the problem. Methane and nitrous oxide (N2O), both of which have large agricultural components, along with ozone and halocarbons (e.g. freons) contribute most of the rest.

Now, I might question the author's choice of a calorie source on which to compare the walker's emissions to those of a motorist. 100 grams of beef probably creates the worst-case scenario, from a climate change perspective, given the rate at which rainforest is being cut down to graze cattle, which produce lots of "enteric emissions,"as they are euphemistically described. And considering the changes in the British diet since the advent of Mad Cow Disease, the marginal calories seem as likely to come from a can of Coke or a pint of beer, as from a burger or steak. That could tip the balance back to walking, especially if the car in question were a Range Rover. However, it's not obvious--or at least it shouldn't be--without running the numbers, and that's something that most people aren't equipped or motivated to do.

I suppose there's a point here about the need for better education and tools to help people wade through choices like this, but this issue really goes to the heart of the ongoing climate policy discussion in this country. Legislation that ignores the impact of greenhouse gases other than carbon dioxide, or that focuses mainly on the energy sector, won't be nearly as effective as regulations that encompass all of the sources of anthropogenic global warming. Energy accounts for roughly 80% of US CO2-equivalent emissions, but because the gases associated with farming and cattle have such high GWPs, measures to reduce them offer much more leverage--and thus generally lower costs--than brute-force attacks on CO2 such as carbon capture and sequestration. That's one reason why cap-and-trade looks better than a simple carbon tax on energy. Even if we end up having to do all of these things--as appears likely--our priorities need to recognize the timing, sequence, and cost of our various options.

Ruling the Waves

One reason that the energy industry has fascinated me for as long as I can remember is the way in which it connects to nearly everything, especially in the realm of geopolitics. The UN Convention on the Law of the Sea (LOS) provides a great example. The LOS was a hot-button issue back in the 1980s and again in the early 1990s, before disappearing from sight--at least for the American public. When the Senate again took up the subject of its ratification earlier this year, the LOS suddenly reappeared in a flurry of duelling op-eds and editorials. While most of its remaining controversies involve issues of national security and military navigation, the LOS has profound implications for the energy industry, as our extraction technology makes increasingly-remote resources accessible. With most of the rest of the world having already ratified this treaty, we only stand to lose by continuing to defer our accession to it, at least from an economic perspective.

Reading the recent op-eds jogged a lot of old memories. The Reagan Era version of the LOS, like its cousin the so-called Moon Treaty, reflected the competing ideologies of the Cold War and appeared to impose a Soviet-style approach on the exploitation of much of the world's resource endowment, which lay beyond the limits of then-current technology. For many in the oil and gas industry at the time, the idea of drilling on the Outer Continental Shelf, in more than a mile of water, might have seemed as fanciful as drilling on the moon. But the US argued successfully against these provisions, and I regard it as highly significant that former Reagan Administration and Bush-I officials such as Kenneth Adelman and Lawrence Eagleburger are satisfied by the subsequent modifications to the LOS's mechanisms on resources.

The enthusiasm of the energy industry for this treaty is understandable. Companies need a clear delineation of resource rights, when they negotiate agreements for access to undersea oil and gas deposits, once technology advances bring them within range. That applies not only to margins of the US continental shelf, which under the LOS would extend beyond 200 miles in places, and up to 600 miles in the Arctic, but also to the offshore regions of Africa, Asia, Australia, Europe and South America, all of which already produce large quantities of oil and gas. However, this should be seen as more than just an extension of the industry's search for profits and shareholder value. A sizable fraction of the world's future energy supply will likely come from these seabeds, and it is also conceivable that in the future, important quantities of oil and gas will be found in the regions beyond any national waters, as defined by the LOS, and will thus fall under the purview of the International Seabed Authority. Until we ratify the treaty, the US cannot take up our permanent seat on that Authority's governing Council.

I'm also struck by the irony of another international treaty for which the US remains the most significant non-ratifying nation, even though an important chunk of it was renegotiated to suit our interests. Four successive US administrations have treated the LOS as US policy, despite our not having officially signed on. At the very least, this situation dilutes some of the congressional criticisms of the current administration over Kyoto, since in the case of the LOS their roles are largely reversed.

In concluding, I have to concede that there might still be a few serious security concerns that could trump our numerous other advantages in joining this treaty. Dismissing those is beyond my expertise, although I find it persuasive that many former military and government officials with impeccable security credentials have publicly endorsed the treaty's ratification. From a national and global energy perspective, formalizing our adherence to this agreement--and thereby gaining our rightful voice in its various bodies--seems to offer only upside, with negligible downside risk. It could also buy us some international good will and legitimacy, at a time when our stocks of those commodities have become depleted.

Maximum Fuel Economy

It's looking increasingly likely that the House version of energy legislation will pass without a specific fuel economy provision comparable to the Senate's higher CAFE standard. Thinking about fuel economy triggered some random thoughts concerning the way we're approaching this problem. While it is quite reasonable and pragmatic to ask how much additional fuel economy we need, we should also be asking two other, related questions: How much more fuel economy can automobiles deliver economically on current fuels without drastic redesign, and is fuel economy even the right metric, in a world that is shifting its focus beyond questions of oil price and availability to the larger consequences of energy use, including climate change?

The first question has long vexed automotive engineers, who don't set out to build cars that deliberately waste fuel. Engineering and economic trade-offs determine how close an actual engine comes to achieving its maximum theoretical thermal efficiency, which for internal combustion is somewhere in the neighborhood of 35-40%. The engines in our cars usually achieve less than 25%, sometimes much less. There are all kinds of strategies that can boost the efficiency of a spark-ignition, Otto-cycle engine--the kind in most American cars. Today's MIT Technology Review looks at one of those, HCCI, which changes the way fuel is mixed in the cylinders. It could achieve diesel-like efficiency gains, and it's welcome news that this may be possible using ordinary gasoline, rather than "designer fuels."

If you look at the other places that energy in a car disappears on its way from the gas tank to the wheels, the engine is only the biggest of many source of losses (see slide #6 of this presentation.) Some of these are unavoidable; you can only make a passenger car so aerodynamic, before it loses functionality. However, designers of hybrids such as the Prius didn't just add electricity; they tackled some of these other losses to boost the car's non-hybrid efficiency, too.

When you add up all the possibilities, and then layer on hybridization, turbo-charging, and other proven technologies, doubling the overall efficiency of any car ought to be possible. And by giving up a bit of weight and power, too, we might be able to triple the fuel economy of the least efficient cars on the road. So when our leaders talk about raising average fuel economy of the new car fleet from 25 mpg to 35 mpg, this should be entirely feasible without requiring the more radical--though possibly desirable for other reasons--step of plug-in hybridization, which adds an external electricity source to the car's powertrain. All of these strategies add cost, however, and that's the crux of the whole argument. Saving 137 gallons of gas per year, the typical quantity associated with boosting the average car's fuel economy by 10 mpg, is only worth about $400/year at current fuel prices. That limits the maximum economic investment in efficiency to about $2000/car. Finding the right solution for each model within that constraint will be the trick.

But is miles per gallon even the right metric? Even if we didn't care about greenhouse gas emissions, the inclusion of increasing quantities of ethanol in the US gasoline pool alters the meaning of the "gallon" part of that ratio. This is compounded by the lower energy content of ethanol. A US fleet running entirely on E-10 will inherently need 3% more fuel than one using 100% petroleum gasoline, reducing average fuel economy from 25 mpg to 24.25. Throw some E-85 and plug-in hybrids into the mix, and it gets even more confusing.

Perhaps Europe has the right answer to this. Their "fuel economy" regulations are based not on the usual European metric of liters of fuel per 100 kilometers, but on grams of CO2 emitted per 100 km. While I'm not sure they yet do this on a well-to-wheels basis--which would factor in the upstream emissions associated with producing gasoline, ethanol or diesel fuel--this just looks like a better metric for the 21st century. The easiest way to drive grams/100 km down is still to increase the efficiency of the vehicle itself, but it's not the only way. This perspective helps avoid potential dead ends that appear to reduce oil consumption, but don't actually reduce energy consumption or total emissions by very much. And it takes us back to the underlying question of the real goal that fuel economy regulations are intended to serve: Is it oil security, energy security, or climate change?

The Cost of Carbon

Today's Washington Post includes two articles highlighting the legislative complexities of regulating US greenhouse gas emissions in a way that would provide the right balance of incentives and penalties on emissions, without damaging the economy. One article reports on the introduction of a new cap-and-trade bill co-authored by Senator Lieberman, while Congressman Dingell's op-ed extols the benefits of a straightforward carbon tax. Without rehashing the tax vs. cap argument, the country's businesses and consumers are looking for a much clearer and simpler signal: what will be the cost of emitting carbon to the environment in the future, and specifically, will it be something other than zero?

In the late 1990s I led a scenario planning project on climate change at Texaco. We concluded that the key uncertainty was not the science, but rather the public's perception of the urgency of the problem, combined with actual manifestations of climate change. (Coincidentally, one of our leading signposts was a major hurricane devastating Atlantic City--right idea, wrong place.) In the course of discussing our findings, the team realized that if the world focused on dealing with climate change, then emitting the major byproduct of combustion, carbon dioxide, would cease being free for the first time since the discovery of fire.

Having just renewed my TerraPass subscription to offset my car's emissions, I know my own cost of carbon: $8/ton of CO2, which roughly equates to 8 cents per gallon of gasoline--a handy coincidence between the stoichiometry of combustion and the English system of measures. I'm sure TerraPass collects a profit on that, but the cost to me is still much less than it's likely to be under either a carbon tax or a strong carbon cap-and-trade system.

The Lieberman-Warner bill will join a number of recent bills in proposing dramatic reductions in US CO2 emissions. It would limit our greenhouse gas output to 30% of the current level by 2050, which works out to about 65% lower than our 1990 baseline under the Kyoto Protocol. Exact predictions of the level of carbon cost required to achieve such big reductions aren't possible, but a recent MIT study estimated it could exceed $50/ton by 2020 and $150/ton by mid-century.

So whether it's the single digit per-ton cost associated with voluntary offset programs, which remain controversial, or the double- or triple-digit levels associated with strict CO2 targets, it looks like the days of free carbon emissions are ending. Legislative debates about the best way to achieve cuts tend to obscure this central reality. The sooner the government makes it clear that there will shortly be a real cost to these emissions, the sooner corporations and consumers will start to plan and act accordingly.

Joining the Party Up North

Marathon's announced acquisition of Western Oil Sands Inc., a Canadian firm with a significant stake in the Alberta oil sands play, extends a sequence in which most of the large integrated oil companies have expanded their portfolios to include these unconventional hydrocarbons. With the notable exception of BP, the majors have all either been there from the start, decades ago, or bought their way in, as access to other opportunities around the world dried up. Marathon's move could signal a further shift, however, in which the next tier of the industry also looks north; this might not be limited to integrated firms or independent producers, either.

A decade ago, Venezuela's Orinoco Belt looked like the place that everyone had to participate, for many of the same reasons that Canada's oil sands now look attractive: enormous potential reserves with minimal exploration risk, a friendly government, and a big technology component that fits the international firms nicely. Like the Orinoco, oil sands exploitation involves big, upfront investments that pay healthy returns as long as oil prices are high. Unlike Venezuela, however, it's hard to imagine a scenario in which Canada would unilaterally change the terms of access or nationalize these resources. Political risk was always the Achilles' heel of the Orinoco, and the only risk in Canada that comes close to the same importance is climate change policy, given the high greenhouse gas emissions of oil sands extraction.

When you consider the characteristics of these projects, there is little that would prevent a company with no current upstream exposure or expertise from getting involved. Much of the capital of these facilities is tied up in the refinery-like processing hardware that turns the gooey bitumen into a synthetic crude suitable for pipeline transportation and handling in a conventional oil refinery. To the extent that upstream expertise is required, Canadian partners can provide it. So might an oil sands investment appeal to one of the big independent refiners, Valero or Tesoro?

On the face of it, the idea of a pure-play refiner integrating upstream might seem unlikely. These companies largely built their portfolios from the divestitures of majors that saw little benefit in integration. Part of their appeal to investors is their lack of exposure to the above-ground risks that bedevil the majors in places like Nigeria, Russia, and Venezuela. But in a scenario in which crude oil became not only expensive but hard to get, integration could again pay big dividends, and independent refiners could find themselves under-running their multi-billion dollar assets. One needn't even believe in imminent Peak Oil to imagine such a scenario. Unwillingness on the part of OPEC to boost oil output, the continued growth of Asian demand, and a wave of new refinery construction in the Middle East and Far East could combine to leave US refiners scrambling for feedstock. Companies with their own equity crude to run or trade would have a real edge, as we saw in the early 1980s. Having a lock on a supply of pipeline crude from Canada might be worth a lot in such an environment.

Please note that this idea is entirely speculative; I have no reason to believe that either Valero or Tesoro is pondering such an investment. But if I were in charge of strategy for either firm, this option would now be high on my list for consideration.

Our Energy Omelet

Today's Washington Post cast some serious doubts on the environmental sustainability of producing ethanol from Brazilian sugar cane, demonstrating yet again that when it comes to energy, the temporary resemblance of any option to a silver bullet usually only reflects our poor understanding of its consequences. The cost in this case is the potential deforestation of the Cerrado, Brazil's non-rainforest plateau. While Brazilian cane ethanol clearly has a role to play in the world's future energy balance, this prospect should remind us that meeting the world's daily energy demand entails breaking eggs on a vast scale. Despite the growing sophistication of the public and our leaders on energy matters, the discussion is still not being framed in terms of the hard trade-offs involved.

Since ethanol has become the cornerstone of US energy policy, let's look at the size of the problem relative to the ethanol volumes we hear bandied about in the news and on the floor of Congress. The US currently produces about 6 billion gallons of ethanol, mostly from corn. The administration and Senate want to expand this volume six-fold. It's not clear that we can do that without a large contribution from cellulosic ethanol technology that is not yet commercial, but let's assume it could all come from corn. At a yield of about 2.7 gallons per bushel, this would consume 13 billion bushels annually, roughly equal to at least one estimate for the entire 2007 corn crop, planted on 90 million acres, or about 20% of total US cropland. So if it were all planted in corn for ethanol, our current agricultural land would yield something less than 200 billion gallons per year. That's a big number, but put it in perspective. The US uses 100 quadrillion BTUs per year of energy. That equates to 1.25 trillion gallons of ethanol on volume alone. Replacing the actual net BTUs from fossil fuels would require roughly 3.5 trillion gallons of ethanol, based on its current energy yield of 1.3:1 (energy return on energy invested.)

Of course, this is an absurd comparison, because we're not going to grow corn to make ethanol to feed power plants, home furnaces, or factories. The point here is to emphasize just how large the implied equivalent agricultural footprint of our energy consumption is. If we want an appreciable fraction of those needs to be met with biofuels, even if the actual crops involved are not corn, but Brazilian cane or US switchgrass--both of which are much more efficient net energy producers than corn--it's still a big footprint. And make no mistake, as long as oil prices remain high and federal incentives are in place, the market will deliver it, even if it has to overcome an import tariff to do it.

For all of our new-found environmental concern relating to climate change, I have yet to hear any politician debate how the total environmental impact of greatly increased biofuels output--including all land, water, and air impacts--compares to the environmental footprint of getting the same quantity of energy from natural gas drilling in protected areas, from large offshore wind farms, or new nuclear power plants, among our other choices. None of those options are silver bullets, either, but they could all be part of the mix, along with biofuels. Unless we talk about it in these terms, how can we be sure that the mix of broken eggs we're implicitly choosing is really the one we want? We ought to discuss this now, rather than after the Cerrado has all been planted in cane to power our cars.

Resting Bull?

Over the weekend I was struck by the apparent paradox of a stock market correction inspired by concerns about debt somehow affecting the market values of oil companies, which have some of the cleanest balance sheets around. Today's Wall Street Journal may be close to the mark, in assessing the prospects for future earnings growth of these shares, but ultimately the fortunes of these firms are tied to the supply & demand balance for the commodity, and that still looks quite robust. Is this just a case of market jitters in one sector affecting all, or does the market see something that's not readily apparent in the energy sector?

Considering that nothing occurred last week to ease the tight oil market fundamentals noted by the International Energy Agency (IEA) two weeks ago, the dramatic drop in oil equities on Thursday and Friday--starting from levels close to the all-time highs that many of these stocks set the previous week--seemed unlikely to be connected to growing worries about the quality of the nation's home mortgage debt. Leverage doesn't factor into the value of these companies, which have been retiring debt and repurchasing shares by the billions. But there's clearly more at work here than a flight from equities and into T-bills.

In an article tellingly titled "Energy, Once Hot, Now Not", the Wall Street Journal boils down energy equity analysis to two simple drivers of future earnings: volumes and margins. Observing that the major oil companies seem incapable of generating significant year-over-year production growth at this point, the whole issue reduces to the future of margins. The article notes that production costs have been going up, though that's hardly a new story, having been equally true when these stocks were making new highs. Almost as an afterthought, the Journal mentions demand. Last week's correction makes more sense, if it's viewed in the context of changing expectations for demand, which has been a key driver of the whole energy complex for the last few years.

Perhaps this is the scenario that put investors off last week: Continued weakness in the US housing market and spiking adjustable rate mortgages put pressure on middle class consumers, who respond by economizing on fuel and consuming fewer goods with a big energy component. That undermines US refining margins and crude oil prices, which in turn puts the earnings of US oil & gas companies in jeopardy, making their recent share values unsustainable. So they drop.

Now, does that scenario ignore the strong economic growth outside the US, and especially in China? At a minimum, it may overestimate the spillover effect, considering that China's continued expansion may now be more tied to exports to a resurgent Europe than to making further inroads here. And could struggling US consumers have to keep their old cars longer, even if they are gas guzzlers? That would make oil demand more inelastic, after months of $3 gasoline have squeezed a lot of discretionary driving out of the system. Gauging future demand is a tricky proposition, particularly when you factor in the impact of new energy legislation and efforts to address climate change.

On balance then, deciding whether last week's correction in oil equities was justified requires working through a fairly complicated assessment. Are the US debt problems that spooked the market big enough to slow the growth of global oil demand and allow the production increases cited by the IEA to overwhelm OPEC's market discipline, and thus to end the bull market in oil prices that has been in place since 2003? Betting against demand hasn't worked out very well, so far, but every trend eventually turns.

Doubling Oil-use Efficiency

Few energy technologies have generated higher expectations for reducing our oil consumption and greenhouse gas emissions than the plug-in hybrid car (PHEV). This week, Toyota announced that it was delivering two modified Prius hybrids to the University of California, to enable the latter to test how plug-in hybrids work in the real world. While my own enthusiasm about PHEVs is tempered by the time lag inherent in altering the overall performance of the US fleet of 240 million vehicles, this is still a big deal. The PHEV represents the first practical bridge between electricity and transportation energy since the failure of the EV-1 all-electric car a few years ago.

The long-term significance of a switch to PHEVs would go beyond their recently-confirmed emissions reductions from making better use of off-peak electric generating capacity and backing out a bit of foreign oil, or channeling some zero-emission wind energy into transportation. The core benefit of the PHEV, from a global energy perspective, derives from shifting the energy conversion step away from inefficient onboard internal combustion engines (ICEs) to central and distributed power plants that offer end-to-end efficiency improvements over ICEs of between 1.5x and 3.5x, depending on the specific power generation technology involved. Nor does the vehicle notice whether its source of electrons comes from coal, natural gas, wind, solar or nuclear power. Electricity is wonderfully fungible.

Aside from the obvious attraction of using a fleet of PHEVs as rolling battery storage to facilitate wider exploitation of intermittent renewable energy sources such as wind, you could also imagine a more prosaic, but equally impactful scenario in which oil refineries made less gasoline and more kerosene, which would be burned in combined cycle gas turbine power plants--many of which were built with this fuel-switching capability in mind, at least as a backup. In the process, refinery yields would rise and their energy consumption and emissions fall. As counter-intuitive as this might sound, it could more than double the effectiveness of our single largest source of primary energy, based on the enormous efficiency advantage of CCGTs over ICEs, even when electric transmission losses are factored in. So not only would PHEVs reduce the quantity of oil used in transportation, they would allow us to make much better use of the energy content of each barrel we did consume.

PHEVs still have a lot of hurdles to overcome, not the least being the basic economic challenge associated with the diminishing dollar value of fuel economy increments beyond those that conventional hybrids already deliver. However, if they survive the rigors of development and consumer acceptance, they can deliver the kind of step-change improvement in fuel-conversion efficiency that was formerly associated only with hydrogen fuel cells--which have so far failed to overcome a much more complex set of barriers. This is one area in which energy security and the need for reducing greenhouse gas emissions aligns nicely.

LNG Inkblot

Yesterday my wife returned from the gym and suggested I turn on the TV. "An LNG facility in Dallas exploded. I saw it on the news," she said. The terms "LNG" and "Dallas" struck me as mutually exclusive, but I did as she suggested and saw the burning wreckage on CNN, which mentioned natural gas and cylinders. A quick Google search turned up dozens of reports from local Texas television stations and newspapers running leads such as "Liquefied natural gas tanks explode; send debris onto highway." Of course a day later we know that the accident involved acetylene tanks at a facility that has no connection to LNG. Aside from the fact that the technology involved was in use for decades before anyone even dreamed of liquefying natural gas for commercial purposes, what does the confusion over this event tell us?

For starters, it provides a sort of Rorschach test for the public's perception of LNG. If there are explosions and fire at a facility that has something to do with gas, then it must involve LNG, because LNG is inherently so hazardous. A variety of news organizations didn't bother to check their facts or even refer to their common sense before reporting yesterday's explosions as an LNG accident, which automatically made it national news. I learned a long time ago that it's unreasonable to expect reporters to recognize the visual profile of different industrial sites, but how long would it have taken them to ascertain that LNG facilities are normally found near deepwater ports where LNG tankers--which are pretty large vessels--can dock, not 300 miles inland? Or to do as I did, and search the Dallas area phone directories for industrial gas companies, discovering that there were none that handled LNG? If they had to guess at what was going on, exploding propane tanks would have made a much better working hypothesis than LNG, aside from being more commonplace.

Without inflating a media error into a conspiracy, it does seem remarkable that the initial explanation for yesterday's incident should involve a fuel that most Americans--reporters included--have never encountered outside the press, which has given equal time to the hysterical arguments of LNG opponents who can't differentiate between a chemical fuel and an atomic bomb. To say that LNG has a serious image problem in this country is an understatement, but the consequences of that are affecting consumers' gas bills. The proposed LNG facilities with the best chances of surviving the permitting process are those planned for the Gulf Coast, which is awash with gas, rather than near markets a thousand pipeline miles away, on the wrong side of costly distribution bottlenecks. As long as LNG provokes the kind of response we saw on display yesterday, that's unlikely to change.

More Than Talk?

In his column in today's Washington Post, Robert Samuelson expresses skepticism that the current rhetoric about reducing greenhouse gas emissions will deliver much in the way of actual cuts, characterizing a broad collection of policy initiatives as "Prius Politics." While I share some of his skepticism about climate goals that lack both enabling and enforcement mechanisms, he's no more than half-right, here, and that half looks like a necessary prerequisite for tougher measures that would actually begin to deliver the proposed reductions. I also think he underestimates the impact on actual emissions, even without a gas tax or cap & trade.

Mr. Samuelson sees a divergence between the rhetoric of dramatic greenhouse gas emissions reduction targets and the inexorable forces of population and economic growth that have been driving emissions steadily upward around the world. This isn't just a question of China's enormous pool of potential consumers, who are starting to acquire the energy-intensive middle class trappings we take for granted. It's also a function of Americans choosing homes that are 60% larger than in 1970, despite declining average household size. Even with reductions in the marginal energy input per dollar of GDP, economic growth and increasing wealth will translate into higher emissions, unless we take concrete steps to reduce the latter.

However, Mr. Samuelson appears to discount the creation of a national consensus on climate change as a necessary precondition for enacting the legislation and regulations that will actually cut emissions. Attitudes toward this issue have come a long way in the last two years, but it still isn't a high priority for most Americans, who worry more about Iraq, terrorism and the economy. That's why, as he notes in his column, the Congress has focused on more indirect measures such as CAFE and cap & trade, rather than carbon or gas taxes that might be political suicide for the party in power. The scope for leaders to get far ahead of the public on this or any other issue is more limited than it was a generation ago.

That doesn't mean that emerging green attitudes lack consequences for real emissions. As the Wall Street Journal reports today, planned coal-fired power plants are being deferred or cancelled, because of environmental concerns. Every cancelled coal plant reduces future emissions in two ways: directly, from a stream of flue gas that will never exist, and indirectly, as constraints on baseload electricity generation--which wind turbines can't produce, and for which new nuclear plants are at least a decade off--will push power prices higher and deter the growth in electricity consumption. Meanwhile, concerns about emissions are becoming sufficiently mainstream for GE and other issuers to begin offering green credit cards, which will provide emissions offsets, rather than airline miles or cash back.

It's good to be reminded that high hopes and bold talk alone won't solve the climate problem, even though changing attitudes are already starting to have consequences for projects and sectors that emit greenhouse gases. But neither is this a problem that lends itself to quick solutions, imposed without broad support from the electorate. Such an approach would likely unravel the fist time the economy slowed, or energy prices spiked to new highs. In the long run, that could be a lot worse for the climate than a few years of toothless targets.

The Big Picture

Last week the National Petroleum Council released its much-anticipated report on the future of energy. I missed the opportunity to highlight the presentation and webcast press conference on the report on Wednesday, because I was on a consulting engagement. Nor was I comfortable commenting on articles that appeared before the report was officially released, since I was a member and co-author on one the of the sub-teams of the study's Supply task group, dealing with renewable power. Now that it's out, there's enough material in the report to occupy all of my postings for weeks. Instead, I'll make some general observations now, and then periodically examine key subject areas in more depth. In the meantime, I encourage my readers to peruse as much of the study as their other priorities permit. You might also wish to check out the podcast or transcript of the API's blogger teleconference on the NPC Study.

Let's start with the title, "Facing Hard Truths About Energy." Although it's accurate enough, I wonder about the wisdom of bracing the audience that way. So what are these "hard truths"? Well, one of them is that for the next couple of decades, most of our energy will continue to come from oil, gas and coal, while unconventional hydrocarbons and alternative energy ramp up. Another hard truth is that the energy situation in which the US now finds itself is at least partly self-imposed, as the cumulative result of policies that have constrained domestic energy production without constraining the growth of energy demand. The study's recommendations about adjusting such policies might seem self-serving, coming from the industry that stands to profit from expanded access to domestic oil and gas reserves, but we should consider who stands to gain more: the companies that will make a margin producing and selling these volumes, or the economy that will benefit from their value-added, tax revenues and export displacement?

For that matter, it's worth pointing out that, although this study was conducted under the aegis of an oil & gas advisory body chartered by the Secretary of Energy, it was created with input from a pretty wide range of other sectors and groups, including Congressional staffs, executive branch departments, environmental and other NGOs, non-energy companies, and universities. This is a global and national view from those who do energy for a living, but they didn't just talk amongst themselves. That doesn't mean that all the non-industry folks will agree with every word of the report, but it was interesting to hear one of the executives at the press conference reflect on how views were exchanged and consensus created, altering some pre-existing perspectives along the way.

The report has been criticized for reflecting too much of the conventional wisdom of the oil and gas industry on subjects such as Peak Oil. And anyone expecting a clarion call for a crash program on renewable energy is bound to be disappointed. (The study's treatment of renewables is a topic for another day.) But having spent my entire working life in and around this industry, I can assure you that this is a far cry from its business-as-usual view. When the folks who make billions in profits producing the energy we use tell us that it's time for us to become much more efficient, we should pay close attention, especially when they go on to say, "The world is not running out of energy resources, but there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically. These risks create significant challenges to meeting projected total energy demand." Translation: banking on the return of cheap energy is a bad bet.

Finally, don't underestimate the significance of the way the study addresses climate change. Whatever the personal views of some of the NPC's members, this is a picture of an industry that fully expects to have to treat emissions reduction and carbon sequestration as essential parts of the larger energy portfolio, from here on out. For many of the companies involved in the study, that idea would have been unimaginable only a few years ago. The key measure of success for the study will be in how it informs the debate around energy and environment in the Congress and the Administration. For that, it comes a bit late but not, let us hope, too late, as the House takes up the issue in the weeks ahead.

Ethanol: Oil & Energy

As an article in Slate last week made clear, the controversy over ethanol isn't likely to abate any time soon, in light of the expanding opposition to the ripple effects created by our growing use of this fuel. If you've been reading this blog for a while, you know that I'm an ethanol skeptic of long-standing, going back farther than most. However, it's important to understand that ethanol is not simply a product of agricultural interests run amok. It can deliver very substantial energy benefits, as long as we keep its limitations clearly in sight. Unfortunately, our ethanol strategy has not been developed with a clear understanding of those limitations, and that has handicapped our entire national energy policy.

The author of the Slate piece cites many of the concerns about ethanol that I've covered here since I started this blog in 2004. These issues have received increasing attention in the media in the last year. Ethanol's competition with global food markets, contribution to inflation, and indirect environmental consequences are all serious issues that should give policy makers pause on their way to quintupling the existing ethanol mandate. The most basic question, however, is whether ethanol is even good energy policy. The arguments over this point are complex and long-winded, involving the net energy balance of ethanol--how much energy goes into making it versus how much it delivers to the gas pump--and its lower energy density compared to hydrocarbons derived from petroleum. Fortunately, much of this complexity can be reduced to a simple statement that should guide policy in this area: ethanol is a poor energy source but a good oil substitute.

I've devoted a lot of space here to the energy balance of ethanol. Although that balance was solidly negative when I began looking at it in my Masters' project in the early 1980s, recent studies demonstrate that improved farming techniques and updated ethanol plant design have pushed it into the black. A 2002 paper from Argonne National Laboratory is fairly typical in showing the net balance at about 1.3 BTUs of energy out for each 1 BTU of inputs. But while ethanol advocates persist in their apples-to-oranges comparison to the 20% or so of petroleum energy lost along the gasoline value chain, the proper basis of comparison to oil is on the latter's 4:1 or 5:1 total energy return, on a BTU out-versus-in basis. That means that in order to replace the energy content--not the volume--of all the oil we import, we'd need to produce on the order of 700 billion gallons per year of ethanol, or roughly 20 times as much as the ethanol mandate included in the recent Senate energy bill. Whatever you think the upper bound of ethanol production might be, it's a lot less than 700 billion gallons.

That limitation doesn't mean that ethanol is ineffective oil policy. In fact, displacing oil is where ethanol shines. The same Argonne Labs study showed that ethanol's return on its liquid fuels inputs--the diesel fuel to run farm equipment, deliver the corn to ethanol plants and ethanol to blending terminals--is over 6:1. Thus every billion gallons per year of ethanol production backs out almost 600 million gallons of oil. At 15 billion gallons per year of ethanol, which is both the amount that can be easily absorbed into the existing petroleum products distribution system and the consensus limit on US corn ethanol production without a breakthrough, ethanol could displace almost 600,000 barrels per day of oil imports, or about 5% of the total.

The missing link between these two perspectives--and the key to an effective national ethanol strategy--lies in the non-oil energy that goes into making ethanol. Want to quintuple the amount of ethanol we produce? Then we need to quintuple the non-oil energy that goes into it, most of which comes from natural gas, in the form of ammonia-based nitrogen fertilizer (produced from gas) and the fuel to run ethanol facilities and distill the raw ethanol. Ramping up ethanol production to 36 billion gallons per year will require the equivalent of an additional 2 trillion cubic feet of natural gas, or a 50% increase in current US natural gas imports, mostly in the form of LNG. In other words, if you want to make ethanol our alternative fuel of choice, then you are implicitly signing up for LNG in a big way. US energy policy either needs to recognize that, or clear away the obstacles that stand in the way of producing that gas from US sources that have been placed off-limits.

I disagree with Mr. Gross, when he suggests that we shouldn't worry too much about the consequences of higher future ethanol use, because it probably won't all materialize. If the Congress sets an ethanol goal of 35 or 36 billion gallons per year, and puts in place the incentives and subsidies to support that, then I think there's a good chance we'll attain it. But the Congress should also recognize that because ethanol is a poor energy source, it can only fulfill its oil displacement potential, if they ensure an adequate supply of natural gas for the whole country. Otherwise, we will have to add another category to the growing list of ethanol's consequences: the offshoring of US industries that lost their natural gas supply to ethanol, along with higher natural gas prices for consumers and businesses. At the end of the day, ethanol is really a way to turn natural gas into transportation fuel, with some help from photosynthesis. US energy policy must factor in that linkage.

The SUV Advantage

Thanks to some glitches in hotel broadband access, yesterday's intended posting became this morning's, and today's is now this afternoon's.

A colleague sent me a link to a story in the New Yorker advancing an interesting explanation of the apparent contradiction between Americans' support for improved fuel economy standards and our ongoing love affair with large, inefficient vehicles. It immediately resonated with something I had recently read in The Economist, on the topic of "ultimatum games." At the core of both of these ideas is the innate competitiveness of humans. Recognizing this might be the necessary first step towards diverting this competition onto a more generally beneficial path, at least in the way our vehicle choices affect national energy consumption.

The New Yorker looks at our desire for bigger and more powerful cars and concludes that it is a manifestation of the same underlying causes that led individual hockey players to eschew helmets until they became mandatory: the pursuit of a personal competitive edge. If you go back to the beginning of the SUV trend in the 1980s, it's easy to see how this could develop. The drivers of early SUVs were afforded a privileged position above the general sightline of traffic, and the resulting impressions of greater safety and dominance would be a natural, and probably self-reinforcing reaction. But as increasing numbers of SUVs entered the fleet, this advantage quickly eroded. If the car in front of you was an SUV, you were effectively back to where you had been in a sedan. The only solution would be a bigger, more powerful SUV.

Does this explain the size, weight and horsepower "arms race" that ensued over the next 15-20 years? Perhaps. It certainly wouldn't have been possible without improvements in the basic technology of the internal combustion engine, which, as I've noted before, were diverted into the horsepower necessary to deliver higher performance in increasingly heavy cars, rather than into fuel economy that looked unimportant with US retail gasoline prices averaging $1.20/gallon from 1990-2002.

And the results of the "ultimatum game", which The Economist describes as a preference for "relative rather than absolute prosperity" might help explain why, even after realizing that big car dominance had been largely nullified by the proliferation of ever bigger cars, new car buyers didn't quickly shift back to smaller, more efficient cars, when fuel prices started going up four years ago. Lags in future gas price expectations may have reinforced this reluctance.

But does knowing we are competitive make us less so? Or is our best option to try to alter the basis on which we compete? What would it take to elevate efficiency and low environmental impact above our perception that in cars, larger is automatically safer, and brisk acceleration is more reflective of the winners we aspire to be? Can we imagine a world in which we try to "out-green" each other, instead?

Solar Power and Offsets

A friend recently mentioned that she was interested in adding solar panels to her house, as her contribution to reducing greenhouse gas emissions. An article in yesterday's San Francisco Chronicle suggests that many Californians share the same motivation for solarizing their homes. Residential solar power is growing rapidly in the US and elsewhere, and that's all to the good. But while the large investment this entails might make sense as a way to save money on residential electricity rates, it turns out to be a pretty expensive source of emission reductions.

The Chronicle cites the cost of a typical 2 kW home photovoltaic system at about $19,000--or $15,000 after state and federal tax benefits. In sunny California, such a system would generate roughly 4500 kW-hrs of electricity per year, which would be worth around $650/year, based on the minimum rate in PG&E's current schedule. The resulting simple investment payout is pretty long, but if you assume a 20 year life and factor in future inflation in electricity costs, the effect on your property value, and the benefits of financing, you might earn a long-term return of more than 10% on your investment.

From an emissions perspective, those 4500 kW-hrs of solar electricity would save about 2700 pounds of CO2 per year, based on California's average rate of 0.61 lb/kWh. So over a 20-year lifetime, a 2 kW home system will save a total of 28 tons of CO2. The value of those avoided emissions is currently around $300 in the retail offsets market in the US and under $1000 in the official EU emissions trading system. As it happens, my friend doesn't live in California, but in a somewhat less sunny state that relies heavily on coal for its power. In her case, the avoided 20-year emissions would be closer to 75 tons. At current offset costs, however, they would still only be worth about 10% of the total price of her photovoltaic system. Unless she's paying a lot more for electricity than I think, she would be better off staying on the grid, buying offsets for 100% of her consumption and spending the rather large difference in cost on something else.

Whether my friend ultimately follows my advice is entirely her choice. But because of the role of federal incentives for solar power, I feel more than a friendly interest in her decision. We're not just talking about one solar roof, after all, but potentially millions. In light of the figures above, incentives for residential solar power start to look questionable as climate policy, at least compared with the kinds of projects behind the emissions offsets being traded in the marketplace. In other words, while residential solar power offers important benefits in reducing peak electricity demand and greenhouse gas emissions, the government appears to be paying individuals a large premium for those reductions, compared with investing in wind turbines, landfill methane converters, reforestation, and other means of cutting or capturing CO2 emissions. And the more the government spends on each ton of reductions, the fewer emissions it can reduce.

An Old Idea Made New

A friend sent me a link to a story about some companies using a twist on a very old technology to reduce their office air conditioning bills. Several facilities have installed large vats of water that they freeze every night and then use the melting ice to cool the air during the day--apparently including the former White Plains, NY headquarters of Texaco, now owned by Morgan Stanley. The article goes on to suggest that the system actually improves cooling efficiency, besides shifting the cooling load to nighttime hours when power is cheaper. If this proves attractive enough, it could have important implications for the way we use energy.

Air conditioning is a major component of electricity demand, and one of the largest segments that fluctuates with the seasons. Its use is still growing, worldwide. Higher incomes and increasing urbanization are responsible, and the result is not just higher energy consumption, but a reshaping of power generation capacity to meet the daily and annual cyclicality of demand created by people's natural desire to stay cool. If ice cooling became popular, it would help to even out at least the daily peaks and valleys, while reducing the absolute magnitude of the summer/winter difference. That would allow a country's electrical needs to be met with less--and potentially less polluting--capacity.

This idea might even dampen one of the feedback mechanisms of climate change. A warmer climate requires more air conditioning, using more power, which in turn generates more of the emissions that contribute to climate change. Even if ice cooling could cut peak electricity demand by only 10%, that could be significant.

While installing giant ice vats might not be feasible for everyone, the economics should compare favorably with battery storage, or schemes to generate hydrogen at night and run it through fuel cells to meet peak demand. Ultimately, this is about storing power, efficiently, which is one of the keys to making the best use of intermittent sources of renewable energy, such as wind power.

Rethinking Nuclear

Periodically, I've noted the growing interest in nuclear power as a source of low-greenhouse-gas energy, and the way this issue is splitting environmentalists. Designs for generating electricity safely and reliably using nuclear fission have improved steadily since the last big wave of nuclear construction peaked, at least in the US--Japan and France built dozens of plants after we stopped. But while the technology has advanced, I wonder whether our mindset about it remains stuck in the model that prevailed in the 1980s, when large, centralized power plants were the norm everywhere. Is it time to rethink the application of nuclear energy to maximize its leverage on reducing greenhouse gas emissions?

What if nuclear power hadn't been discovered before World War II, and instead had emerged from the laboratory only a few years ago? How might we consider exploiting an energy source with its properties today, without the baggage of the last sixty-plus years? Is it pre-determined that the only way to tap the energy of the atom is in 1,000 MW increments? The record of the US nuclear naval propulsion program suggests otherwise. Consider the difference between coal-fired power plants and those burning natural gas. There are important economies of scale in the transportation and handling of coal, and in the sizing of boilers, that create a strong bias towards large plants. In contrast, gas-fired power comes in a wide variety of sizes, from under 100 kW to hundreds of MW, at least in part because the fuel infrastructure is so simple. So is nuclear power more like coal or gas in this regard? It's probably somewhere in between, after you factor in the need to contain the radioactive fuel.

I can think of lots of ways to use a medium-sized source of intense heat that doesn't need to be re-fueled continuously, and making power is only a sub-set of those applications. Combined-heat-and-power (CHP) at facilities that need large quantities of process heat and currently burn huge amounts of fossil fuels might be a better, more efficient candidate. Oil sands production shares those characteristics, and there was a brief flirtation with this idea several years ago. And I recently ran across the website of a company that wants to use nuclear energy in an even more novel way, for coal-to-liquids. CTL requires both process heat and large quantities of hydrogen to upgrade solid coal to liquid hydrocarbons, and using nuclear power, rather than coal or natural gas for these purposes would shrink the net emissions of CTL fuels down to roughly the same range as petroleum products.

Realistically, we can't ignore the legacy of the Cold War or nuclear accidents, nor the prospect of further weapons proliferation or WMD terrorism. But that doesn't mean we shouldn't examine where a "clean sheet" approach to nuclear energy might take us, particularly if it involved smaller scales, quicker implementation, and fuel cycles that are less vulnerable to accidents or proliferation. That might not be sufficient to convince critics to turn in their "No Nukes" signs, but it would go a long way towards convincing the public that nuclear energy is a viable element of our low-carbon energy future.

Sunny Greenland

Sunday's Washington Post was jammed with information on climate change, starting with a front-page article summarizing the policy challenges for the US government. It also included an interesting set of charts on the sources of our emissions, the shift in global emissions from developed to developing countries, and some options for managing them. Since I see this sort of thing all the time, I was more intrigued by the special travel section of the Post. "Climate is transforming many of the world's most striking tourist destinations," it said. "If you want to see them, better go soon." Climate change may be creating new opportunities for tourism, but in the case of Greenland and other presently chilly locales, it could also open up new frontiers.

One of the conclusions you should take away from the Post's coverage is that even after the US enacts tough restrictions on future emissions--no easy task--and convinces other large emitters to follow suit, a significant amount of further warming is almost inevitable. Stabilizing emissions at twice their pre-industrial level would not return the climate to its pre-industrial conditions, or even to where it was 20 or 30 years ago. Because of the long residence times of the various greenhouse gases in the atmosphere, significant change is baked in, perhaps as much as 3 degrees Celsius by the end of the century, and that is going to transform the landscape. Some of those changes will present enormous difficulties for rich and poor populations alike, but some of them may create new opportunities, particularly in places like Greenland.

The travel section described how Greenland was settled by Vikings during a previous warming phase, the "Medieval Warm Period" (MWP) and then partly abandoned after the onset of the "Little Ice Age." There is much debate about whether the MWP was warmer or cooler than current conditions. Either way, it looks like we're going to see a much warmer Greenland in our lifetimes, opening up tremendous swaths of new territory for development. It will no longer be a matter of mere trivia that an island three times larger than Texas is a territory of tiny Denmark, and thus a big chunk of the European Union lies only a few hours flying time from New York. Whatever mineral wealth has been locked up under its permafrost may soon become accessible. And while environmentalists may bridle at that prospect, companies and investors will see the chance for profits. On a more basic level, people dislocated by political, religious and even climate events may see an opportunity for a new start in a new land.

Don't mistake this for the "cup half full" thinking of those who would like to see more global warming. But just as we can't ignore the impending negative consequences of further warming in the form of droughts, shoreline erosion, and shrinking biodiversity, we shouldn't close our eyes to the possibility that some very thinly populated areas, including Alaska, might become more attractive. Siberia has about 3 people per square kilometer; China has 136. As the former thaws, it's hard to imagine that cross-border migration pressure wouldn't increase. As demonstrated by the current US debate over immigration, it will be much easier to address the challenges caused by such shifts while they are still small. Likewise for issues of resource access and navigation rights. I'm not optimistic that these will attract much attention, as long as we are focused on bigger geopolitical problems, so we will probably end up dealing with them ad hoc, as with so many other issues.

Prius in the Sky

A lot has changed since I last commented on the competing air travel visions of Airbus and Boeing two years ago. The former has stumbled, with its flagship A380 plagued by delays and manufacturing problems. Meanwhile Boeing rolled out the avatar of its new vision this week to much fanfare. Paralleling this change in fortunes, the implications of these two technologies now look different, as well. In 2005 I was concerned about the potential of thousands of A380s to put billions of new travelers in the air, consuming enormous incremental quantities of jet fuel in the process. But with the world increasingly worried about climate change and the means of managing it economically, Boeing's Dreamliner looks like the aircraft equivalent of Toyota's Prius hybrid car: the first real demonstration of a set of technologies that could dramatically reduce both fuel consumption and greenhouse gas emissions in the aviation sector, at least compared to their status quo trends.

A recent Economist article looked at this in some detail. It cited figures from the UK's Stern Report on climate change indicating that emissions from air travel, though only around 3% of the total today, are growing at a faster rate than those from other sectors. Saving 20% of fuel and emissions with the 787's better engines and lighter construction may not sound as dramatic as the doubling of fuel economy in hybrid cars, but aircraft don't offer similar opportunities to recapture braking energy, which is where hybrids derive most of their gains.

Economic growth is intertwined with mobility, and as long as the global economy keeps growing, more and more people will be flying. While planes like the 787 represent a hardware solution for minimizing the energy and environmental impacts of that growth, a broader range of strategies will be needed. Travel booking websites like Expedia already connect green consumers with the means of offsetting the emissions from their air travel, but airlines could provide this service on all their tickets at a lower cost; in the not-too-distant future, they may be required to do so.