The SOTU and Energy

Given the central focus of this year's State of the Union Address on the economy and jobs, I wasn't surprised to hear the President highlight "clean energy jobs"--a phrase that seems to have replaced the formerly ubiquitous "green jobs"--though I was relieved that he didn't hang the whole weight of his administration's jobs focus on them. I was even more pleased at the apparent evolution and broadening of his perspective on energy, compared to his first address to a joint session of Congress last February, when oil was only brought up in the context of its imports, and nuclear power wasn't mentioned once. By contrast, last night the President spoke of the need for expanding nuclear power and "making tough decisions about opening new offshore areas for oil and gas development." If he is serious about the latter course, he must reinforce that message with the agencies involved.

It's just as well that the green jobs refrain has become more muted, since as I've noted before, the main employment impact of energy isn't from the people who are employed producing and distributing it, as I formerly was, but from its cost and availability for the other 92% or so of the economy not engaged in some aspect of the energy business. Simply put, if we want the economy to grow at a healthy pace and create lots of new jobs, then it's more important that energy be as affordable as possible, than that we employ as many Americans as possible in the energy industry. That means we must not only increase our production of new renewable energy, which while growing rapidly contributes just 5% of our total supply, but also those sources that still account for 95% of our energy use.

If President Obama is willing to make "tough decisions" on oil and gas--presumably to open up access to them--then it is unfortunate that as he was proposing this, his Department of the Interior was engaged in a hay-throwing contest with the American Petroleum Institute over the oil & gas leasing results for 2009, which brought in $6 billion less than in 2008, just for offshore. Whatever explains this anemic performance, the record of the last year strongly suggests that this administration is a much more reluctant participant in this activity than its predecessor. Although that may please some constituencies, it hardly advances the cause of delivering more domestic energy supplies from these sources. And for Interior to cite a 14% increase in oil production last year in defense of its current practices makes me wonder how well its new management really understands the processes involved, since the time required for permitting and construction makes it extremely unlikely that the increase is attributable to leases awarded since January '09.

In order to promote the affordable energy needed for growing the economy and creating jobs, the President should also rein in efforts to entangle the most important energy development of the last decade, natural gas produced from shale and other unconventional resources, in new regulations surrounding a decades-old drilling practice that in essence involves injecting water into the subsurface, along with chemicals quite similar to those that drillers are seeking to extract from there. Promoting domestic energy will also require taking a much more pragmatic approach to climate legislation than that represented by the 1400 page monstrosity of Waxman-Markey that he praised last night, and avoiding the temptation to turn the EPA loose to regulate greenhouse gas emissions from facilities consuming the equivalent of as little as 150 barrels per day of oil, or roughly one tank truck a day.

If the President has truly begun to embrace an "all of the above" energy strategy, that would be very good news for the country. We need more energy from our abundant domestic sources--including oil, natural gas, nuclear power and renewables--to get the economy growing at a pace sufficient to generate millions of new jobs. Unfortunately, I can't help recalling that only a few months ago a top official in the Treasury Department offered Congress his view that the US was overproducing oil and gas. The onus is now on the administration to demonstrate that the energy commitments President Obama made last night will be carried through.

910 Miles Per Gallon*

Yesterday provided one of those occasional treats that makes blogging about energy so enjoyable. In conjunction with the Washington Auto Show, I had the opportunity to drive a demonstration version of the eagerly-awaited Chevrolet Volt around an impromptu test track, accompanied by the Volt's Vehicle Line Director, Tony Posawatz, who answered every question that occurred to me and many that didn't. The experience was exhilarating. For a bona fide car of the future the Volt--even in "pre-production" form--looked and handled like a real car that I could imagine myself driving around town or on a long trip, aside from its impressive technology and efficiency. That's an important distinction, since to be truly successful the Volt and its eventual siblings must be able to compete beyond a niche market of green-oriented consumers.

My test-drive of the Volt was the latest in a series of advanced vehicle experiences that includes driving a Fuel Cell Equinox a couple of years ago and goes back to a spin around Phoenix behind the wheel of an EV-1, GM's first electric vehicle, in the late 1990s. I asked Tony to what extent the Volt incorporated EV-1 technology, and his answer confirmed that while no actual parts were shared, its design philosophy and engineering DNA owe much to that earlier effort.

At first, when I drove the Volt onto the big, empty parking lot where GM had set up its test track for the DC Auto Show, I was disappointed that I didn't sense that immediate high-torque response I recalled from the EV-1--the kick that my GM contacts at the time called the "EV-1 grin." Then Tony pressed the "sport" button, and the grin was back. While my Acura might be able to beat the Volt's 0-60 miles-per-hour acceleration by several seconds, most drivers should be quite satisfied with the Volt's responsiveness and handling, even when compared to the entry-level luxury cars with which the Volt's expected price puts it into contention--and which its energy efficiency beats hands down.

The technical aspects of the Volt are fascinating, starting with the battery pack, which consists of 400 lb. of Lithium-ion batteries configured as "prismatic cells" that facilitate easier heat management than some other designs. That's a critical factor for battery life, since the battery must dissipate a fair amount of heat during its charge/discharge cycles, and its performance and efficiency are affected by ambient temperature. When plugged in, some of the energy the Volt draws from the grid is used to "condition" the battery, not just recharge it. That should help GM deliver on its expectation that the car's battery pack should last for 10 years and 150,000 miles of normal driving, over which its capacity would gradually decline, while still ultimately retaining at least 70% for later use in other, non-automotive applications. The potential after-life value of the battery could be a critical element of the lifecycle economics of a plug-in hybrid or Range-Extended Electric Vehicle like the Volt.

I was particularly interested in the battery's recharging requirements, in relation to the energy density concerns I discussed in last Tuesday's posting. The Volt recharges in two modes: At 240 V and drawing between 15-30 amps, it takes up to 3 hours to restore the roughly 50% of the battery pack's 16 kWh maximum charge used in "charge-depleting" operation--that first 40 miles or so of battery-only driving that provides the car's main selling point. Recharging on 120 V household current takes more like 8 hours. I was somewhat surprised that Tony seemed to share my view that Volt drivers are unlikely to wait until the middle of the night to recharge their cars, unless their highest priority is minimizing their electricity costs (and possibly emissions.) He has apparently been using a Volt on weekends and cited the benefits of daytime recharging at home or office to keep the battery ready for use, consistent with the main purpose of owning such a car.

The switchover from battery-only operation to driving with the onboard generator running was one of the key features I was anticipating, based on my concern that the Volt would ultimately be handicapped in low-battery, "charge-sustaining" operation by its reliance on a fairly small 4-cylinder engine. After all, the performance expectations in the category the Volt aspires to are set by powerful engines similar to the V-6 in my Acura TL, which delivers 270 peak horsepower. Well, you could have fooled me. The Volt I drove yesterday was intentionally given just enough battery charge to last about 3 miles, and when I passed that point and the little engine fired up, there was no discernible change in performance. That's apparently because the car is never really driven by the engine alone, since the battery is never completely drained. The accelerator controls only the flow of current from the battery to the electric motor; meanwhile the car's software runs the engine as needed to keep the battery charged to acceptable levels, but not to recharge it fully. That's a subtle distinction, because when I pushed the car hard in this mode, I heard the engine rev up noticeably with that characteristic 4-banger tone that provided the one discordant note in an otherwise near-luxury experience. But the trade-off was evident when I pulled the car into its tent shelter and switched it off. The cumulative fuel economy display on the dash read a whopping 910 mpg.

That result prompted an interesting discussion about what fuel economy really means in a car like this, which dutifully calculated mpg based on the tiny amount of gasoline consumed in the last lap of several miles of mostly battery-powered driving. I got a sense that GM recognizes the shortcomings of mpg in measuring such a vehicle's energy usage, though they are clearly quite focused on it as the primary metric of both consumers and the existing and proposed federal fuel economy standards. But even knowing intellectually that the car's electric efficiency, which Tony confirmed is in the range of 200-250 Watt-hours per mile, or 4-5 miles per kWh, equates to roughly 58-72 miles per gasoline-gallon-equivalent of natural gas going into a gas turbine power plant somewhere, that 910 mpg still got my attention with its implication of very rare visits to the gas station.

Recently, I indicated that while plug-in hybrids and full EVs might not yet be ready for the mass market, they do look ready for "innovators and early adopters", the folks who routinely queue up for the latest iPhone and long ago swapped out their cable set-top boxes for streaming video. If the pre-production car I drove yesterday, with the further refinements Tony Posawatz hinted would be incorporated between now and then, was any indication, the production cars that reach showrooms late this year should have early adopters salivating in anticipation, particularly with help from a federal tax credit that maxes out at $7,500 per car and for which the Volt should qualify in full. Based on his comments and my own experience with the car, there's every indication that the Volt is on track to meet its late-2010 launch target. I will be eagerly awaiting the first comment reporting that one of my readers has bought one.

Energy Lessons from Brazil

I was surprised by a headline I saw this morning: "Brazilians Call for Cut to 20% Ethanol Import Tax." At first I thought this referred to the US duty and tariff on ethanol imports, the repeal of which Brazil's President Lula has suggested to his US counterpart on more than one occasion. Instead, it seems that Brazil has had an ethanol import tariff of its own all along--who knew?--and today's call from Brazilian sugar trade association Unica stems from the recent weather-related shortfall in cane production that reduced ethanol inventories in Brazil and led to the government's temporary cut in the required ethanol content of gasoline from 25% to 20%. This situation illustrates a couple of energy lessons that don't quite square with the usual, overly-simplistic interpretation of Brazil's success at displacing oil with biofuel.

Brazil deserves recognition for its consistent approach to supporting the expansion of ethanol production from its normally-abundant sugar cane crop. The country has benefited from its government's deliberate efforts to promote the use of domestically-produced ethanol in a car fleet that increasingly consists of "flexible fuel vehicles" capable of running on widely-varying proportions of ethanol and gasoline. With an ethanol surplus and climate and geography well-suited to producing more--and much more efficiently than from corn and the other principal ethanol crops in northern latitudes--it's no surprise that Brazilians now consume more ethanol than petroleum gasoline. Yet as we see in today's news, Brazil's extraordinary reliance on biofuel creates a different kind of energy-security vulnerability, one related to crop yields rather than geopolitics. While Brazil's dual-fuel capability gives it ample flexibility to prevent a 5% drop in ethanol production for a few months from causing a crisis, just imagine the economic consequences of a comparable drop in oil production from the Middle East. Anyone advocating a complete switch to biofuels ought to ponder the potential unintended consequences carefully.

Another lesson hiding behind these ethanol statistics is that contrary to popular opinion, Brazil hasn't become energy independent because of its ethanol policies, though these have certainly helped. Rather, it is chiefly the surging output of Brazil's oil fields, which nearly doubled to 2.6 million barrels per day in the last 10 years and is not done growing, that has made Brazil self-sufficient in fuels. To put that in perspective, Brazil's oil platforms produce the energy-equivalent of 72 billion gallons of ethanol per year, or ten times its cane ethanol output. Although this was only possible because of the discovery of world-class resources off the country's coast, their development depended on consistent policies providing attractive access for the international firms that partnered with the state oil company, Petrobras, in exploring them. I wish more people in Washington, DC paid attention to the crucial contribution of offshore drilling to Brazil's appealing energy story.

As for the import tariff, I confess amusement at the inconsistency inherent in Brazilian politicians and business leaders criticizing a US tariff that exists mainly to prevent a US ethanol blending subsidy from leaking abroad, when they have their own tariff protection in place. I'd be happy to see both of these tariffs reduced or dropped entirely, but only if we finally ended our three decades of generous taxpayer support for ethanol blending. It's bad enough to subsidize domestic ethanol production from corn, but subsidizing Brazilian sugar companies to produce ethanol in their country would be a travesty, yet that's exactly what we'd do if we eliminated the tariffs without eliminating the Volumetric Excise Tax Credit, too.

What Now for Cap & Trade?

In the course of a single month, from the conclusion of the Copenhagen climate conference to yesterday's special election in Massachusetts, the anticipated global response to climate change has shifted dramatically. What had once seemed a likely scenario of coordinated, mandatory cuts in global greenhouse gas emissions suddenly looks unattainable, at least any time soon, and the whole approach to addressing climate change is in urgent need of a rethink. While much of the attention in last night's election was focused on the prospect of a 41st Senate vote to block pending health care legislation, the same dynamic almost certainly applies to cap & trade, at least along the lines of the Waxman-Markey bill passed last June by the House of Representatives.

I'll leave it to others to comment on the extent of the political upheaval that the voters of Massachusetts have created by sending a Republican to fill the US Senate seat held for decades by the late Senator Kennedy, and by his brother before him. Whatever this means for the administration's health care agenda, you only need to view a short video clip from Senator-elect Brown's campaign to realize that President Obama's plans for cap & trade, on which only one chamber had acted while the Democrats held a 60-vote super-majority in the Senate, look like further collateral damage from last night's result. While supporting more energy from renewables and nuclear power, Mr. Brown opposes cap & trade, or at least the version now on the table.

I'm probably in a minority of those concerned about climate change who welcome the demise of the Waxman-Markey approach. As I've noted before, it made little sense to adopt a methodology designed to create a level playing field for energy technologies based on their emissions, if it was established on such an intentionally-uneven foundation of excessive free allowances handed out to favored sectors and constituencies. And on top of its basic flaws, Waxman-Markey exemplified the recent Congressional tendency to load up any big bill with mountains of pork and reams of tangential provisions.

Does this mean cap & trade itself is now dead? I hope not, because I believe its underlying concept remains the most efficient way to recognize the cost of the environmental externalities associated with our use of fossil fuels--which cannot be replaced overnight--and to shift our energy habits toward greater efficiency and a growing reliance on more sustainable energy sources. But the politics of that now look challenging, particularly in an election year that is shaping up so unpredictably. Democrats still hold commanding majorities in the Senate and House, but no bill without bi-partisan support could get past a cloture vote in the Senate. That gives greater leverage to the negotiations of Senators Lindsey Graham (R-SC) and John Kerry (D-MA) for a bi-partisan climate bill incorporating much broader support for domestic energy production--something that might be marketed as a genuine jobs bill without the cynicism of "green jobs" hype.

It also shifts attention to the EPA's Endangerment Finding on CO2 and that agency's proposals for regulating CO2 emissions. Last week the Washington Post was shocked by the apparent involvement of lobbyists in drafting proposed legislation to block any action by the EPA. Did their editors ever bother to scrutinize Waxman-Markey, which read like a lobbyist bonanza? Either way, extending the regulations of the Clean Air Act to CO2 would be a very expensive bad idea. CO2 is only a pollutant in the traditional sense by legal courtesy, and regulating the primary result of all carbon combustion in the same way we regulate much more easily managed fuel impurities and combustion byproducts like SOx and NOx--for which the term "Best Available Control Technology" actually has some meaning--looks orders of magnitude more expensive than a system that channels emissions reductions to the lowest-cost sources.

With a 52-47 election victory for Scott Brown, voters in Massachusetts have completed the work begun in Copenhagen of upending the best-laid plans for dealing with climate change. Instead of a binding global treaty to replace the expiring Kyoto Protocol, we have the voluntary goal-tallying of the Copenhagen Climate Accord, and instead of legislative momentum towards mandatory cap & trade in the US, we have renewed uncertainty and the necessity of a scaled-back bi-partisan approach--if any at all this year--that must focus more on what we should add than on what should be taken away--with the threat of EPA regulations and endless legal wrangling over them lurking in the background. I'll be very interested to see what emerges from this.

EVs and Energy Density

If the new vehicles on display at this year's Detroit Auto Show have you wondering whether 2010 might be the Year of the Electric Car, you're not alone. GM's Volt plug-in hybrid is due out this fall, and purely-electric options like Nissan's Leaf aren't far behind. The global auto industry is investing billions of dollars in developing this technology, and the US government is putting up additional billions in loan guarantees for EV manufacturers and consumer purchase subsidies. No one should dismiss the seriousness of these efforts or their potential to reshape the vehicle and transportation energy markets over the next couple of decades. At the same time, their ultimate success depends on whether a combination of improved technology and significant changes in consumer expectations concerning vehicle performance and characteristics can overcome the core challenge of vehicle electrification: either matching the effective energy density of liquid fuels or giving up the flexibility they provide.

Understanding the practical consequences of energy density, which refers to the amount of energy that can be stored in a given volume or mass of fuel or battery, requires putting electricity and fuels onto a common basis of comparison. Although I've generally tended to do this in terms of gallons, barrels or BTUs, for a change I'd like to consider the fuels we commonly use in terms of their equivalent electrical energy. The units may be less familiar at first, but this should make a side-by-side comparison with the battery capacities of new electric vehicles (EVs) easier.

According to the Department of Energy a typical gallon of gasoline delivers 116,000 BTUs of energy, and a gallon of diesel fuel 128,000 BTUs, based on their lower heating values. Converting to electricity units gives us 34 kilowatt-hours (kWh) per gallon and 37.5 kWh/gal., respectively. Using typical volumetric densities for these fuels, I come up with figures of 5.5 kWh/lb. for gasoline and 5.3 kWh/lb. for diesel. By comparison, the battery for the extended-range GM Volt hybrid, which is rated at 16 kWh, appears to weigh 400 lb., yielding an energy density of just 0.04 kWh/lb., or less than 1% of the energy density of hydrocarbon fuels. If this were the entire story, EVs would look like a hopeless proposition, and we could dismiss them for another generation.

The factor that helps to bridge the enormous gap in energy density between the best batteries and liquid fuels is efficiency. While neither electric motors nor internal combustion engines (ICEs) can turn 100% of that stored energy into motion, the EV motor has an efficiency advantage of roughly 4:1 over ICEs. Even after taking that into account, we're still left with a requirement for roughly 25 lb. of batteries to deliver the same range as a pound of gasoline, with the effective useful capacity of the Volt's entire battery pack storing the equivalent of no more than one gallon of unleaded regular. Plug-in hybrids like the Volt cleverly finesse this limitation by using on-board generators running on liquid fuels to extend their range. Of course this entails big trade-offs of cost and weight, but the designers of such vehicles hope to come up with a mix that will satisfy consumers who are accustomed to cars that can go 300 miles without provoking "range anxiety".

In some respects the bigger concern related to energy density might be the one that proved to be the Achilles' heel of GM's first effort to produce a consumer-friendly electric car, the EV-1. To understand why recharging EVs is such a tough problem, let's take a look at your last visit to the gas pump in terms that would never occur to most people. Gas pumps in the US are limited by EPA regulations to deliver a maximum of 10 gallons per minute. Half that is probably more typical. But even at 5 gallons per minute, the gas pump is "recharging" your car at the power equivalent of 10 megawatts (MW), effectively delivering the entire daily power consumption of the average US household every 12 seconds. Even if you discount that figure by the lower conversion efficiency of an internal combustion engine, it's still the equivalent of a couple of megawatts. Matching that for an EV would require either stupendous voltages or currents well above most designers' comfort level. For example, a car recharger drawing 100 amps would have to operate at 25,000 Volts--more than ten time the voltage of the electric chair--to deliver a comparable charge in the same interval. At the 240 V of your home's appliance circuit, you'd need about 10,000 amps--similar to what a transit train draws from the "third rail." Almost inevitably, the safe recharging of EV batteries must take longer--hours longer--than refueling your gasoline vehicle, or entail clever-but-costly workarounds such as the battery-swapping scheme of Better Place and other firms.

From the above it's hard to avoid the conclusion that EVs and plug-ins might not be quite ready for prime time. However, I was struck by a comment from a GM official cited in a New York Times article on the Detroit Auto Show, concerning the need for first-generation EVs to pave the way for an eventual mass market. There's every indication that these cars will shortly be ready for "innovators" and "early adopters." The Volt, Leaf, and cars like them will prove out not just the technology of vehicle electrification--a trend that began with the original Honda Insight and Toyota Prius and still looks like the strongest competitor to the ICE in the long run--but also the response of real drivers who aren't engineers or environmentalists. My own experience with energy density in the more modest realm of battery-powered lawnmowers suggests that this will require adapting our expectations and usage patterns to this new vehicle type, rather than treating it as plug-and-play in our current lifestyles. In the meantime, the automotive mainstream has some very attractive non-plug-in options for getting the most out of the energy density of our current fuels, based on the steadily-growing variety of conventional hybrids, advanced diesels and downsized gasoline cars with direct injection and other innovations.

2009 US Petroleum Trends

The American Petroleum Institute (API) released its annual oil statistics for 2009 to the press yesterday afternoon, and I participated in their media teleconference this morning covering the results. The numbers reveal some interesting shifts, and they provide another useful barometer on the state of the US economy, for which oil is still the largest energy input by a wide margin. Total petroleum and refined products deliveries, reflecting aggregate demand, continued their downward trend last year, averaging 4% below 2008 levels, but interestingly were only down 1.8% in the fourth quarter, compared to 4Q08, with December actually showing a slight uptick vs. December '08. Here are a few of the underlying details that caught my eye, and my reactions to them:

• Gasoline bucked the overall downward trend in product demand. Despite prices that recovered steadily throughout the year from their late-2008 lows and surpassed their year-earlier levels in the fourth quarter, gasoline demand posted a 0.3% increase vs. 2008, with 4Q09 showing a 1.1% rise compared to 4Q08 and an even stronger finish in December. This is entirely consistent with the observed reversal of the decline in vehicle miles traveled, which still dominates improvements in fuel economy, despite the Cash for Clunkers uplift.
• In contrast, diesel demand remains very weak, with the low-sulfur and ultra-low-sulfur diesel deliveries that correlate with goods shipments and overall economic activity running at 7.5% below 2008, with little or no improvement in 4Q09. (Are the results of recent gains in economic activity mainly replenishing depleted inventories?)
• US refineries operated at less than 83% of their nameplate capacity for the year and fell below 80% in December. The poor margins this creates are buffeting oil company earnings but buffering consumers from the full impact of recent increases in oil prices. If utilization stays at such low levels, a major shakeout in refining could be coming, beyond the refinery closures we've already seen. This will be exacerbated by the completion of major refinery expansions on the Gulf Coast, including Marathon's Garyville, LA refinery project starting up now and the more-than-doubling of the former Texaco Port Arthur refinery, now owned by a joint venture of Shell and Saudi Refining, due within a few years.
• US imports of crude oil and petroleum products fell by over 9%, with products taking the biggest hit, proportionally, falling by half a million barrels per day. This is good news and bad news, since much of it is the result of the weaker economy.
• Happily, roughly a third of the drop in imports was attributable to higher US production of crude oil and the liquids accompanying higher natural gas output--a byproduct of the shale gas boom. As API's Chief Economist John Felmy pointed out in the call, that was partly the result of a year without major hurricanes in the Gulf of Mexico. However, it also validates the time lags involved in bringing on new production triggered by the spike in oil prices that began in 2003-4.
• The mix of our foreign oil suppliers is also shifting, with lower imports from Mexico--production there is collapsing--and Venezuela, two of the mainstays of our supplies over the last several decades. Despite this, imports from the Persian Gulf made up just 17.5% of the total through October, compared to 22.5% from Canada. And although they didn't make the top 10 list this year, imports from Brazil are coming on strong. This is a testament to that country's policies for developing its vast new resources. Look for Brazil to enter the top 10 list this year, as Mexican output continues to drop and Brazil surges.

I'm sure I missed some other nuances, and I regret not being able to provide links to the original figures, since access to the data requires a subscription. I'm sure I'll be commenting on many of these trends at greater length and referring to public data from the Energy Information Agency of the Department of Energy, as they become available.

Big Wind

Even with my long experience in an industry dominated by big structures and gargantuan flows of liquids, gases and power, I was impressed by the scale of last week's announcement awarding the third round of the UK's offshore wind licensing program. The 32,000 MW of wind turbines planned for installation in the waters around Britain over the next ten years or so would match the entire onshore wind capacity of the US, to date, while delivering perhaps a quarter more energy annually, because of their larger size and access to more reliable wind. With the UK facing a significant shortfall in generation and energy output, this isn't just about responding to climate change. Yet big wind won't come cheap, and it's worth spending a few moments putting its scale and cost in perspective.

Round Three of the UK Crown Estate's offshore wind bids dwarfs both the country's 4,000 MW of existing onshore and offshore wind capacity and its first two rounds of offshore licensing. When completed, the turbines in the nine offshore zones awarded last week would generate roughly the same amount of power annually as a dozen nuclear power plants, based on a 40% capacity factor, and considerably more when the wind is blowing strongly. That's directly relevant, because Britain's aging fleet of nuclear power plants is being phased out, and by the time the first of the new offshore wind farms is done, UK nuclear generating capacity could be less than half its current level of around 11,000 MW. If proposed new reactors are delayed or never built, the UK would be down to a single nuke by 2023. It's an interesting coincidence that some of the same companies from continental Europe that participated in Round Three are also involved in the nuclear new build proposals.

Unfortunately, the retirement of the UK's nuclear fleet coincides with the decline of the North Sea gas fields that have powered Britain's shift away from coal in the last couple of decades. The amount of electricity that the Round Three turbines would generate annually is equivalent to around 2.5 billion cubic feet per day (BCFD) of natural gas run through gas turbines. That equates to 38% of the 6.6 BCFD of gas the UK produced last year, or roughly the amount by which UK gas output has declined since 2004. That makes offshore wind a significant contributor to the country's energy supplies, but not the whole answer by itself.

Nor will big wind come cheap. At a reported £3.1 million per MW, the estimated cost for the Round Three build-out comes to almost £100 billion ($161 billion at current exchange rates) not counting National Grid's estimate of £10.4 billion to connect these new wind farms to the onshore power grid. It also doesn't count the substantial subsidies involved. In the UK, those come mainly from utilities--and ultimately power customers--via a system of tradable Renewable Obligation Certificates (ROCs) issued under the country's Renewable Obligation, which is similar to the renewable portfolio standards mandated by many US states. At present, offshore wind projects can earn 2.0 ROCs per MWh generated, though that could fall back to 1.5/MWh before some of these wind farms come onstream, creating some financial uncertainty. At the recent ROC value of £45, the winners of Round Three could be earning as much as £10 billion per year ($16 billion) from the sale of ROCs to utilities needing to meet their renewable quotas. With this subsidy factored in, the cost of the UK's big wind aspirations will run well over £200 billion over the next decade.

I can't help admiring all this as an engineering feat and demonstration of will, despite the enormous cost. It's a tougher call whether the US should be pursuing something similar. The UK has fewer energy options than we do, particularly for solar energy. You don't need maps of solar irradiation to know that it's not a very sunny place, and Britain gets points for not pursuing the kind of misplaced solar mania that Germany has. And with North Sea oil & gas in decline and no big surge of shale gas waiting in the wings, combining large-scale wind with nuclear looks like a sound energy strategy. At a minimum, the UK's plans demonstrate greater seriousness in dealing with energy more realistically than the US is able to manage. We can't even seem to differentiate between domestic vs. imported oil, and we've allowed the influence of a few wealthy residents to block the first offshore US wind farm for years. Big wind, with all its limitations of intermittency and non-dispatchability, might not be the answer here, but we need big something--probably big everything--and we had better get on with it. Our continued status as a global superpower ultimately depends on it.

Oil Prices and the Recovery

As oil prices continue their upward trend, I'm noticing more articles and getting more comments from readers questioning whether $80-plus oil could squelch the nascent economic recovery--or for those who believe the recession isn't over, deepen it again. It's not an unreasonable question, particularly when we compare current retail fuel prices to their level of a year ago: the "gasoline stimulus" that I was tracking for much of last year. A quick glance at the chart below reveals that instead of paying a dollar or more per gallon less than twelve months earlier, as we were for much of 2009, the average US retail price for unleaded regular is now roughly a buck higher than it was the same time last year. That can't be favorable news for consumers or for businesses depending on a resurgence in consumer demand for other goods and services. But is it enough to stall economic growth?


Although I still check oil prices on a regular basis--at least every couple of days, instead of every few minutes when I was trading the stuff--sometimes I notice price trends the same way most of my readers do: by driving by neighborhood gas stations and watching the most visible price in America change day to day. The recent steady, counter-seasonal rise against the backdrop of generally slack demand and comfortably high inventories, and in the absence of any significant global supply disruptions has had me a bit perplexed. And it's really all down to oil prices, since refining margins remain fairly weak and are only as strong as they are as a result of several refineries being shut down entirely and most others running at historically low rates of throughput.

Nor does this seem to be an instance of what I've called the oil-dollar price loop. Since December 11, 2009 crude prices are up by 18%, despite the US dollar strengthening by 3% against the Euro and 5% against the Japanese Yen over the same interval, amid a general surge of commodity prices.

Most analysts seem to attribute higher oil and commodity prices to higher demand from countries like China, as the global economy responds to the impact of various stimulus packages and the stabilization of the banking system. China's growth has been particularly impressive, but even if this is boosting its demand for oil imports by 25%, as one source suggested, that hardly seems likely to swamp the substantial spare capacity that OPEC has accumulated in the last year and a half. As I noted last week, OPEC has successfully held over 3 million barrels per day off the market and maintained global oil prices at a level that wouldn't be possible based only on renewed economic growth in China and its anticipation by the market elsewhere. OPEC has attracted remarkably little flak for this policy, which a year ago probably prevented oil prices from going into free fall. That would have harmed all producers, and eventually consumers, too, by drying up future supplies.

So what's the financial impact of OPEC's self-restraint on US consumers and our economy? Even if you ignore the year-earlier comparison, current retail gas prices are around 30 cents per gallon above their average for last year. For a household driving 25,000 miles per year in typical cars, that's worth at least $25 per month. Across the entire 138 billion gallon-per-year gasoline market, that aggregates to around $40 billion/year. Applying the underlying $13/bbl oil price rise since mid-December to our net oil imports of roughly 10 million bbl/day, that figure increases to just under $50 billion/year.

As unwelcome as this additional drag on the recovery might be, at current levels it seems unlikely to further derail our $14 trillion economy, even if it contributes several billion dollars a month to our trade deficit and, along with high unemployment, depresses consumer confidence. However, near-$3 gas is one thing; widespread expectations of a return to $4 per gallon would be quite another. While higher oil prices mainly due to OPEC restraint aren't yet a cause for panic, this trend certainly bears watching.

The Dependence of Renewables on Government

As I was catching up on a large backlog of articles from December, I ran across one from the New York Times that dovetailed with my thoughts about trends to watch this year. It concerned the difficulties being experienced by US green energy companies, particularly relative to competitors operating in countries with more generous subsidies for renewable energy manufacturing and deployment. Instead of becoming progressively less dependent on help from the government, many of these firms are even more reliant on aid as a result of the financial crisis, which disrupted their access to credit and capital from the market. This is a worrying development, because it tends to shift the focus of management away from the attainment of operational excellence and profitable innovation, and toward the task of lining up a steady pipeline of government grants and tax credits. This might be necessary for the moment, but it undermines long-term competitiveness.

As I read the article, I was struck by some of the comments from industry executives, which included a complaint from the US arm of a Spanish wind turbine manufacturer about the lack of necessary legislative support for the industry, and this astonishing remark from a director of the Pew Charitable Trusts' Environment Group, "But if we don't have the policies in place to make investment here a sure thing, then we could potentially lose to other countries." I wasn't aware that it has ever been the proper role of government to ensure that any business is a "sure thing." And then there was a comment from the head of the Solar Energy Industries Association to the effect that the US would have a bigger solar sector if our incentives were more like those in China, where "80 percent of the entire cost of a factory and worker training is paid for by the government." No doubt.

There's something deeply corrosive about such attitudes, and they put anyone investing in renewable energy in a difficult position. Now, there's a strong argument that some level of government support is necessary to help renewable energy compete with traditional energy sources that operate in a market that doesn't account for significant externalities such as environmental and energy-security effects. That's one of the main arguments for establishing a cap & trade system for greenhouse gases, or a carbon tax. Yet we now see government not only helping to level the playing field by means of renewable energy tax credits for investment or production and mandates requiring a set percentage of energy to come from renewable sources, but also playing the role of venture capitalist and banker. These are roles for which government is ill-equipped, not least because the necessary Darwinian feedback mechanisms don't exist. A VC that consistently invests in impractical ideas or start-up firms with incompetent management will eventually run out of capital and close its doors; a government agency with a similarly poor track record will continue to be funded, and its employees will enjoy their customary job security.

Of course, renewable energy firms aren't the only ones to have enjoyed generous government support as a result of the stimulus and other measures put in place to address the recession and financial crisis. The key difference is that while the government has poured billions of dollars into banks and carmakers, no one doubts that well-run banks can function without government aid and that it's possible to make and sell cars at a profit in the US--Ford and several foreign carmakers with US factories prove that every day. Unfortunately, we don't know that it's possible to produce renewable energy or the hardware it requires without government support for users, producers, developers, manufacturers, or all of the above. That acts as a deterrent to established energy companies that have, through painful experience, acquired a jaundiced view of the long-term dependability of such support. Anyone questioning that view need only ask someone in the US biodiesel industry, which just lost its $1-per-gallon subsidy and now faces oblivion.

As necessary as the continued expansion of renewable energy sources is for our long-term transition away from fossil fuels and for reducing greenhouse gas emissions, I worry that the green energy sector has become caught up in an industrial policy fad that has little to do with either emissions or energy security, and that hinges on exaggerated expectations of cleantech as the next hugely-profitable global industry and massive provider of stable, high-income employment. Yet if that profitability is merely the result of a government-mediated transfer of wealth from consumers and taxpayers to a group of fortunate firms, rather than of improvements in productivity or pervasive new consumer values, then neither those profits nor the jobs that go with them will be sustainable. And sooner or later a government less committed to these subsidies, or more focused on reducing unmanageable deficits, will take office and the gravy train will end quite suddenly.

I'm not advocating abandoning the renewable energy sector to the tender mercies of the market overnight, or ceding this important sector entirely to non-US firms, nor am I ignoring the lessons of the last two years about markets. However, I'm also recalling the lessons of the Tech Bubble. At least until we have cap & trade or a carbon tax, some level of support will be necessary. However, it should be uniform, picking no winners and treating all low-emission BTUs and kWhs equally. It should also phase out on a reasonable but firmly-established timetable, so that companies know they must become truly competitive. And instead of extending the Treasury's renewable energy grant program beyond its current October 2011 deadline, the government should focus on enabling the restoration of the flows of private capital for which the grants are filling in--and inadvertently stifling in the meantime. Nor should we seek to emulate the foolishness of Germany's extravagantly-generous feed-in tariffs for solar power, which created a market for German manufacturers that is now being lost to foreign competitors with lower costs.

Our goal ought to be a renewable energy sector that can stand on its own, rather than one that, like the US ethanol industry, has been tethered to federal life-support since the precursor of today's Volumetric Excise Tax Credit was established in 1978. The result would likely yield fewer US renewable energy companies, but also stronger ones better able to survive the turbulent energy transition that lies ahead.

2010 and Beyond

The start of my seventh year of blogging on energy and its related environmental concerns coincides with the start of a new decade, unless you're of the traditional school that believes the twenty-teens don't really begin until next January 1. Over the holidays I was struck by the number of retrospectives focused on the amply eventful, but profoundly disappointing decade that was ending. Having spent several years reassuring my readers that we weren't reliving the 1970s, in retrospect I'm not so sure. Yet as bad as the '70s were on so many levels, they gave birth to the '80s, which brought revitalization and tremendous technological developments, and culminated in the end of a Cold War that most of us had considered perpetual. There's cause for guarded optimism about the decade ahead, particularly for energy, which is still in the early stages of a massive transformation. The 'Teens will test the capacity of current energy systems to support a return to rapid economic growth and of new energy technologies to go from niche to mainstream.

I could fill the rest of this posting with grandiose predictions about the next ten years, but instead I want to focus on two stories that could provide early clues about energy in the crucial 2010-2020 period. The first almost escaped notice in the energy retrospectives I read last week. Many of them, including one in the Wall St. Journal, attributed the recovery of oil prices in 2009 mainly to the stabilization of the financial system, yet scarcely mentioned the essential role of OPEC's self-restraint. According to the figures in the latest public version of the International Energy Agency's Oil Market Report, between May 2008 and February 2009 OPEC reduced its output by more than 10%, taking well over 3 million barrels per day (MBD) off the market in response to a 3% drop in global oil demand. Despite the usual cheating on its official quotas, its members have avoided the competition for shares of a shrinking market that crashed oil prices from the $30s to $11/bbl in the mid-1980s and set up a decade of low oil prices.

In the process, OPEC's spare production capacity has expanded from less than 2 MBD to roughly 6 MBD. That's quite a buffer against a big price spike as the economy recovers, though it's also the reason oil isn't drastically cheaper than it is today. While we can't know precisely what would have happened if, for example, Saudi Arabia had tried to squeeze the output of its new, Texas-sized Khurais field into the market on top of its existing sales, it's a good bet that oil wouldn't be trading anywhere near its current $81/bbl. The reason this is relevant for the decade ahead is that OPEC could be forced to accommodate even bigger increases from the production agreements recently signed in Iraq, along with more reliable output from Nigeria, if that country's ceasefire with rebels in the Niger Delta leads to a lasting resolution of the problems there. With many of the world's best onshore oil prospects currently off-limits for anyone else to develop, OPEC's members and their continued cohesion hold one of the main keys to oil prices in this decade.

Meanwhile the growth of renewable energy faces a number of important tests as it expands beyond the scale at which it can be tucked safely out of sight and out of mind. We've already seen large solar projects in California's Mojave Desert--one of the most reliably sunny spots on the planet--canceled or relocated to accommodate concerns about wilderness preservation, and now I read that the long-suffering developers of the Cape Wind project off Cape Cod are at risk of having the project's location declared a Historic Site by the National Park Service. With all due respect to the local tribes that apparently consider Nantucket Sound to be sacred, it's worth recalling some of the other history of the region that ought to bear on such a finding. In its heyday Nantucket Island was the center of the global whaling industry, made possible by a fleet of tall-masted sailing ships that used wind power to harvest a key energy resource of the time, from the slaughter of whales for their oil. It's hard to think of a better way to recognize that history--and in a more environmentally-sound 21st century way--than by putting up offshore wind turbines to harness the wind for direct energy production.

And while the permitting for America's first offshore wind farm drags on interminably, the UK government is expected to announce the results of its Third Round of offshore wind bids this week. The new installations would add 25,000 MW of new capacity to a base of offshore UK wind farms in operation or under construction that is already about four times larger than that contemplated for Nantucket Sound.

Oil prices and the expansion of renewables are only two of many factors that will determine the shape of the world's energy economy in 2020, though they rank high on my list of things to watch as the decade begins. Tight oil supplies and high prices would do a lot to promote energy efficiency and new vehicle technologies, while lower, more stable prices might result in a return to the complacency we saw in the late 1980s and '90s. And although renewable power sources are hardly the only means for reducing greenhouse gas emissions and rendering our steadily-growing energy use more sustainable, much depends on the capability of wind, solar and geothermal power to continue their recent impressive expansion. That's true whether you are banking on cleantech and "green jobs" to turn around the US economy or merely interested in the size of the potential opportunity for our suddenly-ample natural gas supplies. I look forward to sharing my observations about these and other trends in the months and years ahead.

2009: Energy Year in Review

As I was considering this year-end summary, it struck me that 2009 seemed to span more than a single year. It began with the economy plummeting with no obvious bottom in sight and energy demand falling with it. Later, as the financial system stabilized and the psychological impact of stimulus efforts in the US, China and the EU took hold, markets began to recover and the nascent depression became a nasty recession that apparently ended in the 3rd quarter. However, in a reversal of last year's dynamic, energy was mostly driven by the economy, instead of the former driving the latter. And unlike 2008, when oil grabbed the most headlines, the big energy stories of this year concerned natural gas and renewables, along with efforts to reduce emissions of the greenhouse gases that accompany most energy use.

For oil prices, 2009 was certainly two years in one: A weak first half in which the price of West Texas Intermediate Crude averaged just under $52 per barrel, and a much more stable second half averaging around $72. Nor did prices exhibit anything like their volatility of 2008, which started in the $90s, peaked near $150, and ended in the $40s after a dip to the low $30s. By comparison, 2009 looked more like a continuation of 2006 or 2007, as if 2008 never happened, but with the primary focus inverted from concerns about supply to worries about demand. It'll be a few months before the final figures are in, but it appears that global oil demand was down by 2% vs. 2007, with demand in the US off by a whopping 10% through September.

The impact of weaker demand on the refining sector was particularly severe, compressing margins and forcing the permanent closure of at least one major US refinery. The average US gasoline price for the year was nearly $0.90 per gallon lower than in '08, saving the average driver around $35 per month. The even larger savings in the first half probably constituted the most meaningful stimulus that most consumers were seeing at that point.

If the oil news centered on weak demand and OPEC's efforts to restrain supply, for natural gas it mainly highlighted the remarkable resurgence of US gas production, thanks to the shale gas revolution. If this trend can be sustained it has significant implications for the entire economy and for the emissions we produce. It also poses a serious dilemma for environmentalists, because the shale gas bubble and its benefits for climate change would evaporate if the drilling practice called hydraulic fracturing were to be banned or severely restricted. Also at stake is the potential revival of the US petrochemical industry, which relies much more heavily than its foreign competitors on natural gas as a feedstock, instead of oil. The jobs involved might not be exactly "green", but they are certainly desirable ones, in the sense of providing above-average wages. Government regulation of gas drilling and other aspects of the energy industry will be the trend to watch next year.

Speaking of government influence, it was crucial to the survival of the renewable energy industry in 2009. Aside from the strong vote of confidence and hefty financial commitment to renewables embodied in the stimulus bill, government grants to renewable energy developers stood in for the frozen "tax equity" market on which developers had previously relied to help finance wind farms and other facilities. US wind power capacity is on track to grow by around 28% this year to roughly 33,000 MW, though even at this impressive level it will still contribute just 2% of net electricity generation, for which the bigger story this year was the more than 10% drop in coal consumption, mainly at the expense of lower demand and higher gas-fired generation. Solar power is growing by leaps and bounds, though it still has a ways to go to catch up with wind and has already started to attract a similarly mixed reception as it moves beyond rooftops into utility-scale installations.

Meanwhile, another big renewable energy sector was kept on life support by the steadily-expanding US Renewable Fuel Standard and a 30-year-old subsidy that has outlived its usefulness. Despite this support and an import tariff designed to confine that subsidy to US producers, 2009 continued the previous year's trend of ethanol suppliers going bust. It also saw the largest of the previous year's ethanol bankruptcies progress to liquidation, as most of VeraSun's facilities were ultimately absorbed by independent refining giant Valero, which also became an active investor in next-generation biofuel technology. Yet in spite of its continued growth and the unwavering support of federal and state governments, corn-based ethanol is hurtling toward a collision with the 10% limit on blending it into a shrinking gasoline pool--a limit that ethanol supporters want to have raised to 15%, regardless of the consequences for consumers. An even bigger problem lurks for corn ethanol, which has lately been promoted for its contributions to reducing emissions. The evidence is mounting that on a global basis its emissions might even be worse than from the petroleum products it displaces. The greater our commitment to addressing climate change and sustainability, the larger the contradictions of corn ethanol will loom.

And that brings us to Copenhagen, which served as the year's great energy anti-climax. While the outcome is being touted as a "Big Step Forward," the session in Denmark failed spectacularly to deliver the expected culmination of the two-year timeline set at Bali and built upon in a series of interim meetings. Instead of a binding global treaty to replace the expiring Kyoto Protocol, the Copenhagen Accord looks like a joint promise to make a list of independent targets--a promise that was only purchased with commitments for future aid that may never materialize, or that may only come at the expense of existing forms of aid to the developing world. With action on climate legislation in the US Congress stalled for now--for good reasons, in my view--that was probably all that could realistically be accomplished. Yet it still falls short of any objective metrics for judging the session, and indeed the entire Conference of the Parties (COP) process. I wouldn't be surprised to see the COP marginalized by the Major Economies Forum, an initiative that adds the EU central government to the group of large emitters first convened by the previous administration. When the COP manifests the dysfunctionality of the UN General Assembly, then climate change needs its own version of the Security Council to get things done.

Neither Copenhagen nor Climategate spells the end of action on climate change, but they might just mark a turning point toward a more pragmatic and less dogmatic set of responses, perhaps along the lines of a compromise being floated in the US Senate that would consider the contributions of all forms of energy to a more secure energy future with lower emissions. That aligns with the gradual replacement of a narrative of oil scarcity by one of natural gas abundance and the deft use of renewables, with a much stronger emphasis on efficiency and conservation, which still look like the low-hanging fruit for both energy security and climate change.

Barring major events, this will be my last posting for the year. Best wishes for a happy and healthy New Year.

Changes to Energy Outlook Comment System

As I noted at the end of last Tuesday's posting, Haloscan, the comment system I've relied on for this blog since 2004, is being discontinued. After searching for alternatives that would both provide a simple interface for new comments and preserve the thousands of old comments here, I've decided to upgrade to Echo, the successor to Haloscan. The migration of old comments could take several days, though new comments should be in Echo format starting immediately.

I intend to customize the comment interface to make it as easy as possible for you to say what's on your mind. That might not be quite as simple as with Haloscan, which had flaws and quirks of its own. At a minimum, you may have to choose between inputting some information to show up as other than "Guest" or logging in with a "social media" account such as Twitter, Facebook, etc.

I'll do what I can to make this all seamless, including allowing comments to appear before they've been moderated, as before. In the meantime I'll ask for your patience while I sort out any bugs. Hopefully, the biggest change to get used to will be seeing the newest comment at the top of the thread instead of the bottom, and everything else will be an improvement. I look forward to your continued feedback on my postings, and on how the new comment system works.

To Bury CO2 or Recycle It

While not the most powerful of the greenhouse gases produced by humanity, CO2 is certainly the most prevalent, if you don't count water vapor. To a very large extent, addressing climate change depends on three main strategies for dealing with the excess CO2 our activities emit: avoiding its creation by switching to other energy sources, such as renewables or nuclear power; capturing and storing it in trees, other vegetation or underground; and recycling it into useful fuels and products. Most of the work to date on the third option has focused on biofuels, which employ photosynthesis to convert CO2 into vegetable oils or fermentable sugars. However, another strategy now attracting interest involves non-photosynthetic pathways for turning CO2 back into hydrocarbons. If practical, this approach has much to recommend it, though the laws of Thermodynamics suggest it will always require more energy than the resulting fuels can deliver when used. A recent conversation with the CEO and CTO of Carbon Sciences, Inc., a start-up pursuing CO2-to-fuel technology, shed some interesting light on the subject.

The magnitude of global emissions of CO2 makes managing them a daunting prospect. Carbon Capture and Sequestration (CCS), which creates an artificial carbon cycle, has garnered much political and financial support in the last year, though it is still in the development stage and faces significant hurdles. CO2-to-fuel conversion offers another interesting option, because it could either work in parallel to CCS to enhance the reduction of emissions from fossil-fuel power plants and other stationary sources, or in competition with sequestration as an outlet for the captured CO2 from such facilities. If the resulting synthetic fuel displaced a like quantity of petroleum, natural gas or coal, the effect on the atmosphere would be largely equivalent to CCS and likely better than conventional biofuels, which appear to result in substantial non-combustion releases of CO2 and other GHGs. Fuels produced from recycled CO2 could finesse many of the NUMBY concerns about CCS while beating corn ethanol and some biodiesel on overall "green-ness" and compatibility with existing fuel infrastructure and transportation fleets. So why aren't we already doing this?

The answer is simple. When we burn the carbon compounds found in fossil fuels, they produce CO2 and a specific quantity of energy that is unique for each molecule. Turning CO2 back into the original fuel compound requires the input of that same amount of energy--that's from the First Law of Thermodynamics--and in practice a bit more, thanks to the Second Law. Chemists have known for a long time that CO2 could be converted into fuel and chemicals, but outside the laboratory this wasn't regarded as useful, because it inherently consumed more energy than it could return. Biofuels get caught up in this same conundrum, though in their case much of the energy required is supplied by the sun, rather than from other fuels and energy inputs we must produce. So I was quite intrigued when I received an email inviting a conversation with the CEO of Carbon Sciences, the start-up I mentioned earlier, which claims to have solved this problem using "biocatalysts", nanotechnology, and a unique multi-step process.

The company's website includes animation showing how this would work, though from my perspective it omits the key factor: where does the energy come from to drive the process? Catalysts and enzymes can reduce the threshold for the reaction to take place and improve its speed--the reaction kinetics, in engineering terms--so that what would otherwise take nature years or millennia to produce can be accomplished in a commercially-practical interval. However, catalysts can't alter the basic energy requirement of the reaction. What is the source of that energy?

My discussion with Carbon Sciences' CEO Byron Elton and Chief Technology Officer Naveed Aslam, Ph.D. assuaged my immediate concern that this was yet another perpetual motion machine dressed up with technical jargon and fancy graphics. They struck me as pragmatic and realistic about the challenges they face, though with the customary optimism required for entrepreneurial risk-taking. Dr. Aslam clarified that their process for converting CO2 to methanol for later conversion into hydrocarbons or petrochemicals involves a hydrogen-and-energy carrier molecule that must be regenerated from a "sacrificial substrate." That substrate effectively provides the energy required for uplifting the CO2, which is at a very low energy state, and acts as the fuel source for the whole sequence. The value of the entire CO2-to-fuel process in energy, economic and emissions terms thus hinges on the characteristics, cost and supply potential of this energy-donating material.

The process developed by Carbon Sciences can apparently use a variety of substances for this purpose, which is fortunate. Initial laboratory tests apparently involved glucose, a commercially-available sugar, but the company is now using another, undisclosed feedstock because of their concerns that glucose supplies couldn't keep up with a large-scale CO2-to-fuel industry without affecting food prices. Dr. Aslam indicated that in the long run they would likely use a mineral-based compound that was widely available. Without knowing the specific chemical involved, it's impossible to assess the overall energy balance, lifecycle emissions, or usefulness of the process, but I at least came away with a sense that Mr. Elton and Dr. Aslam understand the constraints involved very well.

And while the global supply of CO2 certainly looks large enough, it has to be provided in the right form: highly concentrated and free of contaminants that could degrade their catalyst or retard the reaction rate. That is a very different requirement from biofuels that extract their CO2 from the air, and it would put CO2-to-fuel in direct competition with carbon sequestration and enhanced oil recovery, which also effectively produces incremental fuel from CO2. It's not obvious to me which technology will advance the fastest, offer the largest overall CO2 reduction, or the most attractive economics. Markets are usually the best way to sort that out, if given the right signals.

Nor are Carbon Sciences the only ones working on this problem. A team at Sandia Laboratory has been developing a "Sunshine to Petrol" system using CO2 and concentrated sunlight, while the new Advanced Research Projects Agency-Energy (ARPA-e) is looking into a variety of novel ways to convert CO2 into fuel without photosynthesis.

It's important to note that Carbon Sciences' conversion technology is still at an early phase of development--lab-scale, rather than demonstration-scale. "Milliliters per day" won't solve our energy or emissions problems, but if this can be scaled up to many thousands of barrels per day with a cheap and readily-available source of chemical energy and a suitable supply of CO2, it has the potential to deliver fuels that are 100% compatible with our current infrastructure and vehicle fleets. That's a big advantage, and it would certainly explain the interest that Carbon Sciences has apparently been getting from large energy firms. I was told that Carbon Sciences hopes to develop a commercially-attractive package by the third quarter of 2010 and are exploring a "strategic partnership" to take the process--and the company--to the next phase. They have also applied for DOE technology funding under the category of "Innovative Concepts for Beneficial Uses of CO2". I will be watching their progress with great interest.

Since I don't expect to post again until next week, I'd like to wish my readers a Merry Christmas and happy Boxing Day.

I also have a housekeeping matter to bring to your attention. Haloscan, the comment system I have used since 2004, is being discontinued. I must decide by Monday whether to switch to Haloscan's successor, Echo, use Blogger's comment feature, or find another comment platform. Although I will do my best to ensure the migration of the many thousands of comments you've left here, I can't guarantee it. If there are any you'd like to refer to again, I encourage you to copy them to another medium.

Climategate: Mountain or Molehill?

While the Copenhagen delegates, which now include many heads of state, wrangle about transparency and the size and funding of the pot of money that will be required to assist the developing world in mitigating its emissions and adapting to further climate change, another debate over transparency is brewing. Its range of potential outcomes is wide. At one end it entails a collision between science and the law--two less compatible spheres would be hard to imagine--over the issues raised by the emails and data leaked from the University of East Anglia. At the other extreme concerns about "Climategate" will gradually fade from our consciousness in the manner of Tiger Woods's fall from grace, but perhaps not without raising some interesting questions along the way.

To appreciate how matters might unfold, check out an op-ed in today's Wall St. Journal from Dr. Patrick J. Michaels, a climate scientist on the receiving end of some of those barbed emails revealed by the leak. In addition to calling into question the neutrality of the peer review process that underpins the science upon which the Copenhagen talks and any agreement that comes out of them are based, he provides a hint at the form that future legal challenges to the enforcement of such an agreement, or of rules arising from the EPA's recent endangerment finding, might take. These allegations are serious, particularly when you consider that Dr. Philip D. Jones, until this month the head of the Climate Research Unit at East Anglia, was also one of two Coordinating Lead Authors of Chapter 3 of the Fourth Assessment Review of the Intergovernmental Panel on Climate Change (IPCC.) That chapter (very large file) deals with actual observations of "surface and atmospheric climate change", including the temperature data. That makes him a key gatekeeper of the consensus.

I only ran across that connection, because I've been following a side debate concerning how actual temperature measurements at thousands of locations around the world over the last century have been tabulated. The barely civil online point-counterpoint between an anonymous blogger at The Economist and the proprietor of a well-known climate skeptic website gives a flavor for this complex topic. Along the way I was surprised to learn how frequently the actual temperature readings are adjusted, interpolated, and in some cases discarded. This involves many assumptions that I'm not qualified to question, though I am left with the conclusion that recent temperature trends fall into much the same category as the pre-measurement historical temperatures reconstructed from proxies such as tree rings. In other words, the familiar temperature trend graphs reflect mainly analysis, not primary data. That puts us all in the position of having to trust that this analysis was done properly and neutrally, and unfortunately that is precisely the trust that the leaked emails have undermined.

In a recent New York Times op-ed, Stewart Brand, an iconic figure and an acquaintance from my former work with Global Business Network when I was at Texaco, proposed a useful taxonomy for our reactions to climate change. He suggested four categories into which those with an opinion on the subject fall: Denialists, Skeptics, Warners, and Calamatists. The views of those in the first and last categories aren't likely to alter much, no matter what science and further evidence reveal about the climate. What they see reinforces pre-existing mindsets. The Skeptics and the Warners, on the other hand, are part of a legitimate scientific debate and are both amenable to adapting their views to new evidence.

I consider myself mainly a Warner in Stewart's terms, having consistently expounded the risks of climate change both in this blog and elsewhere, but I am still willing to give both sides of the argument a fair hearing. I want to see Climategate addressed openly and objectively. If the science turns out to be flawed because of bias and improper manipulation, we need to know that and correct the flaws. If the actual science is unaffected, but the means by which it has been conducted requires reform, then we need to address that as well, because if we don't the public's confidence in its findings won't be high enough to act on them. And I'd rather see this hashed out in an open scientific forum held by a body such as the AAAS and involving many disciplines outside climate science as a true jury of peers, than to see it resolved by litigation, which is where this all could be headed if scientists respond by shrugging it off or circling their wagons.

The Other Countdown

I missed commenting on the latest round of oil deals in Iraq, which could see that country's output quickly double and eventually quadruple, causing no small amount of anxiety within OPEC. It's looking increasingly likely that the world may need that oil sooner rather than later, though. While the backdrops of photos from Copenhagen display the "tck tck tck" mantra symbolizing the conference as our last, best chance to avert catastrophic climate change, we shouldn't forget that another clock with a shorter timeline is also ticking down on our last chances to prevent Iran from developing nuclear weapons.

Business leaders are often advised not to let the urgent drive out the important. Although climate change has been billed as having both attributes, so do Iran's nuclear ambitions, and their implications in the next decade take urgency to a higher level. Yesterday's Washington Post featured a chilling analysis of the progress Iran has been making on fronts other than the Uranium enrichment that has attracted so much attention. This includes a leaked memo from the International Atomic Energy Agency assessing Iran's capabilities and another purportedly from inside Iran showing that the government is working on a "neutron initiator." If these assessments are right, then the controversial National Intelligence Estimate of 2007 placed far too much faith in indications that the regime had decided to cancel work on a warhead. Our subsequent patience with them--and with our Security Council partners--has provided Iran with crucial time in which to advance its goals.

While we were in a poor position to ratchet up the pressure sufficiently in 2007 or 2008, when Iran's oil exports made the difference between high oil prices and a crippling oil shock, that constraint disappeared last fall. The combination of OPEC's current spare capacity of at least 6 million barrels per day and the prospect of Iraqi output increases that could dwarf Iran's exports has largely neutralized the threat of an Iranian embargo, perhaps permanently.

Now, it's still possible that the visible parts of Iran's nuclear efforts are a sham mounted mainly for our benefit, similar to the double feint concocted by Saddam Hussein, in which he claimed not to be doing something while doing just enough behind partially-closed doors to make that claim look false. In retrospect that strategy made a certain amount of sense for Iraq, which after its defeat by Coalition forces in the Gulf War could not have defended against a conventional attack from the larger neighbor it had fought to a standstill a decade earlier. However, it makes little sense for Iran, which already has powerful defenses and a wide array of weapons and allies with which to retaliate in case of an attack by the US, the only power that could seriously threaten it at this point.

If the op-ed in the same issue of the Post is correct about the difficulties of mounting effective deterrence once Iran has the Bomb, then we don't have much time left to exercise the remaining diplomatic and economic options in our playbook. That means assessing the positions of Russia and China with a gimlet eye and determining for ourselves whether they would ever sacrifice their trade and security connections with the Islamic Republic, in order to forestall nuclear developments that they likely see as not aimed against them in any case. As weak as our hand looks now, it will only get worse later. In the context of this countdown, today's relatively high inventories of crude oil and refined products look like a very good thing.

Cash Is King, Even at Copenhagen

Although apparently brief, the suspension of the Copenhagen climate conference after a walkout by the Group of 77 developing countries confirms that the talks are as much about money as about healing the world's climate. It's not just that the G77 wants the Kyoto limits on the emissions of developed countries enforced, while leaving their own emissions uncapped; it also wants the developed world to kick in sizable sums--much bigger than the 2.4 billion Euros per year offered by the EU--to cover the improvements in energy efficiency and renewable energy that would enable them to tackle the growth of their own emissions. There's a solid argument there, though it is not the guilt-based logic of "carbon debt" that I explored a few weeks ago.

An op-ed in the Saturday Wall St. Journal got me thinking about this issue over the weekend, before the G77 delegates walked out of the COP-15 session in Copenhagen. This commentary by a Berkeley physics professor and author of "Physics for Future Presidents" was bursting with enough ideas to stimulate a dozen blog postings, but its key insight was that even the massive cuts in US emissions proposed for mid-century would be of little or no consequence in curbing global emissions that are increasingly concentrated in the developing world. He suggests that the emissions of developing countries will count the most, and that these countries will only adopt emission cuts that provide clear economic benefits to them. In that context and under the current Kyoto-based framework, the strongest argument for imposing deep cuts on the US and EU is not the reduction of our own emissions--which would have a minimal direct impact on the expected increase in the earth's temperature--but the role of these cuts in creating a market for offsets generated by investments in emission-reduction projects in the uncapped developing world via the Clean Development Mechanism, or CDM. Unfortunately, this logic has already led to notable distortions of the intent of the CDM.

There has to be a better way. As Dr. Muller notes, "A dollar spent in China can reduce CO2 much more than a dollar spent in the US." Yet US voters won't countenance providing that dollar out of guilt, nor will they acquiesce to a scheme that makes China and other developing countries more competitive at their expense. Paradoxically, even domestic measures such as European feed-in tariffs and the proposed federal Renewable Electricity Standard embedded in the Waxman-Markey climate bill could create such an outcome, if Chinese and Indian green technology firms come to dominate developed country green energy markets. There are already indications of this happening in the German solar market.

Instead of the technology transfer we've been talking about for more than a decade, what may be needed is a new mechanism that actually creates markets in the developing world for clean energy hardware and know-how produced in the developed world, so that these projects create jobs and wealth in the US and EU, rather than threatening them. I'm not sure precisely what form such a deal might take, but at a minimum it should incorporate both open access to developing country markets and uniform legal protection for the physical and intellectual property of the developed-country companies making these investments.

The best thing that could come out of today's disruption at Copenhagen would be the cancellation of the big heads-of-state photo-ops planned for the final days of the conference and a determination to put the delegates back to work crafting a new agreement that creates the right recipe for focusing the lion's share of climate investments on the rapidly growing emissions of the third world, rather than on the shrinking emissions of the EU and the plateaued GHG output of the US. That would be something worthy of bringing the world's leaders together to sign.